Default means you failed to make payments on your student loan according to the terms of your promissory note – the binding legal document you signed at the time you took out your loan. In other words, you failed to make your loan payments as scheduled. Your school, the financial institution that loaned you the money or that now owns your loan, your loan guarantor, and the federal government all can take action to recover the money you owe.
Consequences of Default
National credit bureaus can be notified of your default, which will harm your credit rating, making it hard to buy a car or a house.
You will be ineligible for additional federal student aid if you decide to return to school.
Loan payments can be deducted from your paycheck.
State and federal income tax refunds can be withheld and applied toward the amount you owe.
You will have to pay late fees and collection costs on top of what you already owe, up to 25 percent of your loan amount. Portions of Federal payments such as SSA (retirement), SSI (disability not paid in income or SSDI), SSDI (disability) or federal pensions can be withheld and applied toward the amount you owe.
You can be sued by the U.S. Attorney General.
Note: Student financial aid loans must be paid, even if you file bankruptcy.