4 Consequences to Defaulting on Your Student Loans


Default on Student Loan Debt in ArizonaThe amount of student loans incurred by Arizona residents continues to climb.  In fact that total amount of student loan debt is now over $1 trillion dollars nationally.  Many people find themselves in a situation where they can’t pay both their student loans and their basic living expenses, so when it comes down to paying for medical expenses or putting food on the table the student loan payments get ignored.

If you stop paying your student loan payment eventually the loan will be considered in default.  On a federal student loan it will be considered in default once you are 270 days behind.  If you have a private student loan it can be considered in default as soon as you are even one (1) day late.

For purposes of this article I am going to go over four (4) consequences of defaulting on your federal student loan (we will save a discussion on private loans for a later day):

Administrative Wage Garnishment

If you are in default on your federal student loan the government can garnish up to 15% of each of your paychecks (after health insurance, taxes, and other required deductions).  The kicker with an Administrative Wage Garnishment is that they don’t have to sue you first.  With other debts, like credit card debt, the creditor must sue, obtain a judgment against you, and then (and only then) can they garnish your wages.

When it comes to federal student loans they don’t have to sue you – they can just take your money.  If you are in default on your federal student loans you run the risk of having your wages garnished.  However, prior to garnishment you should receive a letter that will give you 30 days from the date of the letter by which to bring your loans out of default.

Tax Refund Intercept

If your federal student loans are in default you are at risk of having your tax refund intercepted and applied against the amount that is still owed.  Even if later on your are able to bring the loan out of default, you will not get those funds back.

Social Security Offset

Likewise, defaulted federal student loans can result in up to 15% of your social security being offset – this means that up to 15% is taken before you even get it.  Supplemental Security Income (SSI) is exempt from offset for student loans.  If you are on Social Security and run into an offset you can request a hearing and demonstrate that this is causing a hardship as a way to avoid the offset.


When the government can’t garnish your wages they can look to file a lawsuit to collect on the balance owed. Lawsuits over student loans are becoming more frequent and usually are filed against people who are self employed and can’t have their wages garnished.

There are other consequences of allowing your student loans to go into default – however the good news is even if you are in default their are options that will not only bring the loans out of default but in many cases help you to reduce the monthly payment or even eliminate the balance owed completely.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© John Skiba, Arizona Consumer Law Group, PLC | Attorney Advertising

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