The real cost of student loan default: wage garnishment, lost benefits, and more

By Corey Buhay | Published on November 21, 2025

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Few things compare to the tidal wave of crushing overwhelm many young people feel when they look at their finances. If the thought of your student loan debt makes you feel panicky, you might be inclined to shut the laptop, throw the bill atop the growing pile, and put it all off for another day. While this avoidance strategy can offer blissful ignorance in the short term, the long-term results can be pretty dire.

Left unaddressed, late student loan payments can go into delinquency and even default. Most borrowers are at least familiar with the term "default," but not everyone knows exactly what it means—or just how serious the consequences can be. The good news is that in this case, knowledge really is power, and most borrowers can avoid student loan default by taking just a few quick actions. So, even if you’re the kind of person who likes to turn a blind eye to their personal finances, these tips are worth knowing.

What is student loan default?

Student loan default essentially means you have a student loan payment that’s really, really late. Once you miss a payment, your loan goes into delinquency, a less severe precursor to default. After 90 days of delinquency, your federal lender will typically report your late payments to the 3 major credit bureaus. Private lenders may also report at 30 and 60 days. At this point, your credit score may begin to drop. If you have private loans, your lender may also charge you late fees. (Earnest never charges fees of any kind, but many lenders do.)

Default is more or less the last straw. Most federal student loans go into default after 270 days of delinquency, though that timeline can vary for some loan types. Private lenders may also have different policies. Regardless, default is when the most severe penalties begin to set in.

You could lose part of your paycheck, tax refund, or benefits

One of the biggest drawbacks of a defaulted student loan is that it can cost you a lot of money. The financial penalties begin almost immediately and can continue to plague you for years afterward. These include:

• Acceleration: As soon as you default on a loan, the lender typically demands you pay the full balance of what you owe right away. This is called “acceleration” and is financially untenable for most borrowers.
• Wage garnishment: The federal government can garnish, or withhold, up to 15% of your take-home pay and use that money to pay off your debt.
• Benefits withholding: If you’re currently receiving federal benefits—like social security or welfare payments—the government could withhold these to cover your debt payments.
• Tax refund seizure: The Internal Revenue Service (IRS) can also refuse to send you your tax refund. Instead, it will funnel that money toward your unpaid principal and interest.
• Collections fees: If you and your loan servicer can’t agree on a repayment plan, your servicer may send your loan to collections. If you begin making payments to the collections agency, they’ll typically charge a percentage of each payment as a fee.
• Court fees: Once you’ve defaulted on a loan, your lender has the right to take you to court. If you go this route, you could end up on the hook for hefty legal fees.

Default disqualifies you from forgiveness and aid

A defaulted federal student loan can also cost you future opportunities for financial aid, loan forgiveness, and other federal programs. Here are a few privileges you might be denied after defaulting:

• Eligibility for forgiveness programs: Student loans in default cannot qualify for federal loan forgiveness programs. (It’s possible to put a defaulted loan back on the path toward forgiveness, but you’ll have to rehabilitate the loan first.)
• Deferment and forbearance: If you’re struggling to make your payments, you can typically request a deferment or forbearance period to put those payments on hold. As soon as a loan goes into default, though, you lose access to these relief programs.
• Options for additional student aid: Once you’ve defaulted, you’ll no longer be eligible for future financial aid through the U.S. Department of Education. That includes Pell Grants, Plus Loans, and subsidized and unsubsidized Direct Loans.
• Access to your transcripts: Among the more nefarious student loan default consequences is the fact that you may not be able to access your grades. Your school is allowed to withhold your transcripts for semesters you haven’t fully paid for. That can make it impossible to apply for graduate school, fellowships, and even some jobs.

Default can tank your credit score—for years

One of the longest-lasting impacts of student loan default is the effect it can have on your credit. While a single missed payment can drop your score by anywhere from 17 to 83 points within the first 30 days, default can trigger a drop of 175 points or more. That can be the difference between qualifying for a mortgage or auto loan when you’re ready—or having your application rejected and being forced to return to the financial penalty box for a few more years to rebuild your credit. In severe cases, a low credit score can also make it difficult to apply for a lease, sign up for utilities, or qualify for a credit card or cell phone plan. After you’ve defaulted, it can take years to restore your credit score and get your financial life back on track.

Avoid default before it starts: steps you can take

Defaulting on a student loan can put your entire life on hold. It can cost you money in wages and fees, cut you off from critical federal benefit programs, and damage your credit for years to come. Fortunately, there’s a lot you can do before you default to make sure these things never happen to you. Some of these options include:

• Income-Driven Repayment (IDR) Plans: Consider signing up for a federal IDR Plan, which can help you reduce your monthly payment to a set percentage of your discretionary income. That can make your payments more affordable so you are less likely to miss them in the future.

Don’t wait until the consequences hit. If you're struggling with payments, explore options like IDR, deferment, or refinancing now—before you risk default.