Student Loan Default: Federal Options and Legal Help

Falling behind on student loans is common, and it often happens for ordinary reasons: a job loss, a health problem, or a payment that grew faster than income. What matters most is what you do next. This guide explains in plain language how federal student loans move from late to default, what federal options exist, and when it may help to talk with a lawyer.

This guide is about federal student loans. Private student loans from banks and other lenders follow their own contracts and state law, and many of the federal options below do not apply to them.

Delinquency and default are different

The USAGov page on student loan problems explains that if your student loan payment is one day late, your account is delinquent. If it stays delinquent, it will go into default.

That gap between delinquency and default is important. While a loan is delinquent, you may still have more options and fewer consequences. Acting during this time can make a real difference.

What default can lead to

USAGov lists several serious consequences of default on federal student loans, including:

• Harm to your credit rating, which can affect your ability to buy a car or house or get a credit card
• Having your tax refunds withheld and applied toward the defaulted loan
• Having your wages garnished, which means part of your pay is withheld to repay the loan

These steps can affect your household budget for a long time. If you are behind, it helps to learn your options before any of them start.

First step: contact your loan servicer

USAGov's main advice is to contact your loan servicer right away if you are struggling to repay. The servicer is the company that handles billing and payments on your federal loan. If you are not sure who your servicer is, USAGov explains how to find out.

When you call, have your loan details, income information, and a list of questions ready. Write down the date, the person you spoke with, and what they said. Ask the servicer to confirm any agreement in writing.

Federal options that may help

USAGov describes several federal tools for borrowers who are having trouble paying. Whether you qualify depends on your loans and situation.

Deferment. Payments are postponed. USAGov notes that in most cases, interest continues to accrue.

Forbearance. Payments are suspended or reduced, but interest continues to accrue. Both deferment and forbearance give a temporary pause.

Consolidation. If you have several federal student loans, you may be able to combine them into one Direct Consolidation Loan. USAGov's student loans page explains this option and the types of federal loans that can be consolidated.

Repayment plans. USAGov's student loans page also points to information on repayment plans and what to do if you have a financial or health-related issue. Federal repayment plan rules have changed over the years, so check current details with your servicer.

Forgiveness, discharge, or cancellation. USAGov explains that in some cases, loans may be forgiven, discharged, or canceled. It lists programs such as Public Service Loan Forgiveness for certain government and qualifying employers and Teacher Loan Forgiveness for teachers in certain low-income schools. Each program has its own requirements.

Ask your servicer which of these options fit your loans, and get the answer in writing.

If you disagree with your servicer

Sometimes the problem is not the payment, but the record. You may believe the balance is wrong, a payment was not credited, or your loan status is incorrect. USAGov suggests these steps:

1. Identify the loan problem.
2. Talk to your loan servicer.
3. If you still need help, contact the Federal Student Aid Ombudsman Group.

Keep copies of statements, payment confirmations, and letters. It also helps to check your credit report. The USAGov credit reports page explains that, by law, you can get a free credit report each year from the three credit reporting agencies.

Watch out for paid "relief" offers

Some companies charge fees to help with student loans. Many of the federal options above can be requested through your servicer. Before paying anyone, ask exactly what they will do that you cannot do yourself, and check their name with your state's consumer protection office.

When a lawyer may help

Many borrowers handle student loan problems on their own or with the servicer. A lawyer may be useful when:

• You have been sued over a student loan, especially a private loan
• Your wages are being garnished and you believe there is an error
• You are dealing with a servicer dispute that is not resolving
• You have private student loans and need to understand the contract
• You are also facing other debts and are considering bankruptcy

Student loans are treated differently from many other debts in bankruptcy, and whether they can be discharged depends on the facts and the law. A bankruptcy lawyer can explain how student loans fit into your overall debt picture. Bankruptcy is handled in federal court.

Ask any lawyer how they charge, whether hourly or a flat fee, and get the terms in writing.

Free and low-cost help

If you cannot afford a lawyer, the USAGov legal aid page lists programs that offer free legal help, including the Legal Services Corporation and LawHelp.org. USAGov notes that consumer law help may include bankruptcy and debt collection issues. Our guides on legal topics cover more questions about debt and money problems.

Frequently asked questions

When does a federal student loan become delinquent?

USAGov says a payment one day late makes the account delinquent. If it stays delinquent, the loan will go into default.

Can my tax refund be taken for a defaulted student loan?

USAGov lists withholding tax refunds and applying them to a defaulted loan as one possible consequence of default.

What is the difference between deferment and forbearance?

Both pause payments for a time. With deferment, payments are postponed, and USAGov says interest continues to grow in most cases. With forbearance, payments are suspended or reduced, and interest continues to grow.

Do I need a lawyer to set up a repayment plan?

Often not. Many options can be requested through your loan servicer. A lawyer may help with lawsuits, garnishment errors, private loans, or bankruptcy questions.

Related: Browse guides on legal topics and bankruptcy lawyers.

General information, not legal advice. Laws change and every case is different — talk to a licensed attorney about your situation.