Federal student loans in default: what can happen and the ways out

For most federal student loans, you are in default once you have gone more than 270 days without a payment and without a deferment, forbearance or other agreement to postpone payments. Private student loans follow their own contracts; this page is about federal loans, with a section on private ones at the end.

What the government can do without a lawsuit

Most creditors need a court judgment before they can take your money. For a defaulted federal student loan, the government does not.

• Wage garnishment. The Higher Education Act lets the government order your employer to withhold up to 15 percent of your disposable pay. It must mail you notice at least 30 days before starting, and give you the chance to see the records, agree to a repayment schedule, and ask for a hearing. If you ask for the hearing within 15 days after the notice was mailed, the hearing comes before any garnishment order. Your employer may not fire you because of it. If you were laid off and went back to work within the last 12 months, the garnishment generally cannot start until you have been back at work for 12 months in a row.
• Tax refund offset. The Treasury can apply your federal tax refund to the debt. First the agency must notify you and give you at least 60 days to show the debt is not past due or not legally enforceable.
• Social Security. The CFPB lists Social Security payments among the money that can be applied to a defaulted federal student loan.
• Credit reports and new aid. The default is reported to the credit bureaus, and you cannot get more federal student aid until it is resolved.
• No deadline to sue. The CFPB notes that federal student loans have no statute of limitations, so state limits on old debt do not apply to them.

Federal student loan garnishment follows its own limit, not the general federal cap on wage garnishment.

Ways out of default

• Rehabilitation. You make 9 voluntary, reasonable and affordable monthly payments, each within 20 days of its due date, during 10 consecutive months. The amount is based on your finances, starting from what an income-driven plan would charge, and before July 1, 2027 it is never less than $5 a month. When rehabilitation is complete, the government tells the credit bureaus to remove the default from your credit history. The missed payments reported before the default stay. Under the current rules a loan rehabilitated before July 1, 2027 cannot be rehabilitated again if it defaults again, and a loan with a court judgment against it cannot be rehabilitated at all.
• Consolidation. A new consolidation loan pays off the defaulted loans. The CFPB calls it the fastest way out of default if you cannot pay in full. It does not undo the default on your credit report.
• Paying in full. The collector may be able to waive some collection costs. Your report will then show a defaulted loan that was repaid.

Dealing with the collector

Collection agencies handle many defaulted federal loans. Ask for written documentation of what you owe, and check your federal loans on the Department of Education's Federal Student Aid website; if a loan is missing there, tell the collector. If a collector refuses an option you believe you qualify for, the CFPB suggests asking for its special assistance unit, then the Federal Student Aid Ombudsman Group.

Private student loans

A collector on a private student loan does not work for the government. It generally cannot garnish your wages without a court order, take your tax refund, or garnish Social Security. The lender can sue, and a lawsuit has a response deadline you must meet (see what to do if you are sued). There are no standard federal options for a private loan, but you may be able to negotiate a payment plan.

Check the current terms

The rehabilitation rules above come from the regulation as published (34 CFR 685.211), which already sets changes for July 1, 2027. Confirm the current terms with your servicer or the Federal Student Aid website before you choose a path.