What It Means
Loan default is what happens when you don't repay a loan as your agreement requires, most often by missing payments for long enough that the lender treats the loan as broken. The point at which that happens depends on the loan: a federal student loanFederal student loanA student loan made by the U.S. Department of Education, with a fixed rate set by law and federal repayment plans and protections. See more is in default at 270 days past dueDelinquencyBeing behind on a required payment; in credit reporting, an account becomes a reported delinquency once a payment is at least 30 days past due. See more, according to studentaid.gov, while the CFPB says a missed car payment is a typical example of default under an auto loanCar loanAn installment loan used to buy a vehicle, repaid in monthly payments over a set term, with the vehicle as collateral. See more contract. Once a loan is in default, the lender can use its strongest ways to collect, such as demanding the full balance, repossessing a car, or, for federal student loans, taking tax refunds and wages.
Try It: Step Through a Federal Student Loan Default
Step through what happens to a federal Direct Loan as payments stop, based on studentaid.gov.
Step 1: A payment is missed
The loan is past due. This is the cheapest time to act: call your servicer about a different plan or a pause.
Step 2: 270 days past due
A federal Direct or FFEL loan is now in default, and involuntary collection can begin.
Step 3: Collections can begin
The government can withhold your tax refund and other federal payments, and garnish up to 15% of your pay.
Step 4: A way back
Loan rehabilitation is one way out of default. Studentaid.gov explains how to start it with the Default Resolution Group.
Step of 4
How People Say It
- "My student loans went into default and they took my tax refund."
- "If you miss the payments, the car gets repossessed."
- "I'm trying to get my loans out of default."
The Breakdown
An example family. Jordan and Sam have a car loan and a federal student loan. When Sam loses a job, they keep paying the car because they need it for work, and let the student loanStudent loanMoney borrowed to pay for college or career school, repaid with interest after you leave school; it comes from the federal government or a private lender. See more slide, expecting it to wait. Nine months later the student loan is in default, and the next spring their tax refund is withheld to pay it.
Where it goes wrong. They treated silence as safety. A federal loan in trouble has options before default, such as an income-driven plan with a payment tied to income, and those options are easiest to use while the loan is only past due. Once it defaulted, the choices narrowed to rehabilitation or other ways out.
What each loan does in default
| Loan | When it defaults | What the lender can do |
|---|---|---|
| Federal student loan | 270 days past due | Withhold tax refunds and other federal payments, garnish up to 15% of pay |
| Private student loanPrivate student loanA student loan from a bank or other private lender, priced by your credit and governed by its contract rather than federal student loan rules. See more | Set by the contract | Demand the full balance, report it, send it to collectors, sue |
| Car loan | Set by the contract; a late paymentLate paymentA payment that reaches the lender after its due date; on credit reports, one that's 30 days or more past due. See more is a typical example | Repossess the car, then collect any shortfall after the sale |
What to watch for. Call the lender or servicer at the first missed payment. Ask what options exist before default, and get any agreement in writing.
Good to Know
On May 5, 2025, the Department of Education restarted collections through the Treasury Offset Program, so federal student loan default again reaches tax refunds. The CFPB says a private student loan lender can sue within your state's statute of limitationsStatute of limitations on debtThe state-set time limit for a creditor or collector to sue you over an unpaid debt; after it passes, the debt is called time-barred. See more but can't take your tax refund. For car loans, the CFPB notes that in many states the lender can repossess as soon as you default, without warning, though it can't breach the peace to do it. If the car sells for less than you owe plus repossession fees, you may owe the difference, called a deficiency balance, and the repossession can stay on your credit reportsCredit reportA record of how you've borrowed and repaid, kept by credit bureaus and sold to lenders, landlords, insurers and others who decide whether to deal with you. See more for up to seven years.
FAQ
How long before a student loan goes into default?
A federal Direct or FFEL loan is in default once a payment is 270 days or more past due, according to studentaid.gov. A private student loan defaults on whatever terms its contract sets, which can be much sooner.
Can they take my tax refund for a defaulted loan?
For a defaulted federal student loan, yes, through the Treasury Offset Program. The CFPB says private student loan lenders can't intercept a tax refund, though they can sue.
How do I get a federal student loan out of default?
Studentaid.gov lists loan rehabilitation among the ways out and explains the steps. The Department of Education points borrowers in default to its Default Resolution Group to set up payments, enroll in an income-driven plan or start rehabilitation.
Do It in Buhata
Bills, Reminders
With Plus, put every loan payment in Bills with its due date, and add a Reminder a few days before, so a missed payment is caught long before it becomes a default.
Open BuhataRelated Terms and Categories
- Late payment
A payment that reaches the lender after its due date; on credit reports, one that's 30 days or more past due.
- Delinquency
Being behind on a required payment; in credit reporting, an account becomes a reported delinquency once a payment is at least 30 days past due.
- Charge-off
When a lender writes an unpaid account off as a loss and closes it; you still owe the money, and the mark can stay on your credit report for up to seven years.
- Debt collector
A person or company that collects debts owed to someone else, such as a collection agency, debt buyer or collection lawyer, limited by the FDCPA.
- Federal student loan
A student loan made by the U.S. Department of Education, with a fixed rate set by law and federal repayment plans and protections.
- Credit report
A record of how you've borrowed and repaid, kept by credit bureaus and sold to lenders, landlords, insurers and others who decide whether to deal with you.
Sources
studentaid.gov, "Student Loan Delinquency and Default"; studentaid.gov, "What are the consequences of default?"; studentaid.gov, "Collections on Defaulted Loans"; studentaid.gov, "Getting Out of Default"; U.S. Department of Education, "U.S. Department of Education to Begin Federal Student Loan Collections"; Consumer Financial Protection Bureau, "What happens if I default on a private student loan?"; CFPB, "What happens if my car is repossessed?"; Federal Trade Commission, "Vehicle Repossession"
- studentaid.gov/manage-loans/default
- studentaid.gov/help-center/answers/article/what-are-consequences-of-default
- studentaid.gov/manage-loans/default/collections
- studentaid.gov/manage-loans/default/get-out
- www.ed.gov/about/news/press-release/us-department-of-education-begin-federal-student-loan-collections-other-actions-help-borrowers-get-back-repayment
- www.consumerfinance.gov/ask-cfpb/what-happens-if-i-default-on-a-private-student-loan-en-673
- www.consumerfinance.gov/ask-cfpb/what-happens-if-my-car-is-repossessed-en-865
- consumer.ftc.gov/articles/vehicle-repossession
Last updated .