Consequences of Default

The last thing you want to do with your student loan is default. That’s what will happen if you fail to make the required payments for several months or violate the terms of your MPN. When you default:

• Interest continues to be added to your loan.
• Your credit rating is damaged.
• You still have to repay the loan, which will be more expensive because of the added interest.

Defaulting on federal student loans can be a real long-term headache. Unlike credit card or mortgage debt, the amounts you owe on student loans can’t be wiped out by bankruptcy or foreclosure. What’s more, default will make it very hard to convince lenders to trust you again. That means you may have trouble getting home loans, car loans, or any kind of credit. In the future, if you are even able to get a loan, it will be at a higher interest rate because of your lower credit score.

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