How to avoid student loan default—and what happens if you don’t

By Corey Buhay | Published on October 21, 2025

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Falling behind on your loans now could mean wage garnishment, tax refund loss, or credit damage. On May 5, 2025, the federal government resumed collections on defaulted loans for the first time in more than five years. For the thousands of Americans who were relying on the post-pandemic payment relief—and the collections pause that came with it—this return to normal has been a bit of a shock to the system. Many borrowers are scrambling to find the funds to pay their bills or fend off collectors. Many others are struggling to stay on top of their current payments, especially since these only restarted in late 2024.

If that sounds like you, don’t panic. Even if you’ve let a payment or two slip, there are still things you can do to avoid student loan default. Here’s how to stay on track with your payments—plus, what happens if you fall behind.

What is student loan default?

Default is a loan status that means you’ve failed to make payments for an extended period of time—typically 9 months for federal student loans. While student loan default isn’t terribly common—only about 8% of student loan borrowers are currently in default—it does happen. And when it does, it can have serious financial repercussions.

How to stay out of default

Early action is key. If you’re barely scraping together enough money to cover your student loan bill each month, it’s best to sit down with your finances and come up with a game plan to improve the situation going forward. The faster you act, the less you’ll fall behind with your payments. Here are a few common sources of student loan repayment help to consider.

Your loan servicer

Contact your student loan servicer as soon as you think you might miss a payment. You can typically find your servicer’s contact info either on your last student loan bill or through your online student loan portal. (If you have federal loans, that’s studentaid.gov. If you have private loans, it’ll be your private lender’s online borrower dashboard.) Call them and be candid about your financial circumstances. Some lenders, like Earnest, will let you skip a payment once per year without penalty if you’ve suffered some economic hardship. Other lenders may agree to work with you on a temporary relief program if you need a little time to get back on your feet.

Employer repayment programs

If you’re currently employed, ask the Human Resources department whether your company offers student loan repayment assistance. Some programs provide employees with discounted student loan refinancing, while others offer payment matching—similar to a 401(k) match—as an employee perk. While these programs are more common at larger companies than smaller ones, it’s always worth asking.

Income-driven repayment plans

If your federal student loan payments eat up a significant chunk of your paycheck each month, you might want to consider enrolling in an Income-Driven Repayment (IDR) Plan. IDR Plans cap your monthly payments at a percentage of your discretionary income, ensuring they remain affordable. These plans are a federal offering, which means they’re only available to federal student loan borrowers. The downside to IDR Plans is that they typically extend your repayment term, costing you more money in interest over the long run. But they’re free to apply for and, if you qualify, they can provide some serious relief in your monthly budget.

Deferment and forbearance

Deferment and forbearance are two popular strategies for avoiding student loan default. Both hit the pause button on your payments and are typically available to borrowers who can provide proof of financial hardship. However, the two programs have a few key differences:

• Deferment periods may last up to 3 years for federal loans, while forbearance periods typically last a year or less.
• Your loan principal will typically continue to accrue interest during a forbearance period, no matter what type of loan you have. However, if you have subsidized federal student loans, no interest will accrue during deferment.
• Deferment is available from both the federal government and many private lenders (including Earnest). Forbearance, however, is typically only available for federal loans.

Refinancing

If you have high interest rates, student loan refinancing is another tool that could help you stay out of default. Refinancing lets you swap your existing student loans for a brand-new loan with new terms. If you meet your lender’s eligibility requirements, you could also lower your interest rate this way. Combined with a longer loan term, a lower rate could help you dramatically lower your monthly payment. Combined with a shorter term, it could help you save money over the life of your loan. See if refinancing with Earnest could lower your monthly payment. Just keep in mind: if you refinance federal loans with a private lender, you’ll lose access to federal benefits like IDR plans, forbearance, and loan forgiveness programs.

What happens when you ignore student loan bills

If you miss a payment, you could face an escalating cascade of penalties, up to and including default. Here’s what to watch for.

• Late fees: If you don’t file your payment by its due date, you might incur a late fee if you have private student loans. While Earnest never charges for late payments, many private lenders do.
• Delinquency: As soon as your payment is late, it’s considered delinquent. If your loan remains delinquent for a significant period of time—usually anywhere from 30 to 90 days—your loan servicer will report your missed payment to the main credit bureaus. That could result in a dip in your credit score, sometimes by 100 points or more. If you have a cosigner on your student loan, their credit could suffer, too. To bring your loan out of delinquency, make a payment as soon as possible.
• Default: For most federal loans, default begins once a loan has remained delinquent for 270 days. The government now also has the right to garnish your wages, withhold tax refunds, and bar you from future financial aid. At this point, your loan servicer may feel they have few other options to recoup their money. They may send your debt to a collections agency, which could begin hounding you to demand payment. If you want to negotiate a debt settlement or new repayment plan at this point, you’ll have to go through the collections agency. If your loan is about to go into default, act quickly. Call your loan servicer before they send your debt to collections and come up with a plan to rehabilitate the loan.

Act early to protect your finances

Defaulting on a student loan can damage your credit, trigger steep fees, and prevent you from securing other sources of credit in the future. In extreme cases, it can even lead to bankruptcy. The good news is that acting fast can help you avoid student loan default well before any of these consequences kick in.

One of the swiftest ways to get back on track with your payments is to lower your monthly bill. If you have federal loans, you might want to consider student loan consolidation. But if you have private loans, a mix of private and federal loans, or loans with high interest rates, refinancing could be one of the swiftest ways to secure relief. If you qualify for a lower rate, you could also save money in interest over the long term.

Want to see if refinancing could lower your monthly payment? Check your rate with Earnest today. It’s fast, it’s free, and it won’t affect your credit score.

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About the Author

Corey Buhay

Corey Buhay is a writer and editor based in Boulder, Colorado. She’s passionate about literature, the outdoors, and doing her taxes by hand. She has been writing about student loans and personal finance for Earnest since 2019. You’ll find her work in Outside Magazine, Backpacker Magazine, Smithsonian, and The Denver Post.

Disclaimer

This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.