At What Cost? The Impact of Student Loan Default on Borrowers
February 16, 2023
Pew survey highlights the need to re-examine current collection practices amid government reforms.
Overview
Among borrowers who have faced student loan default over the past two decades, a majority have experienced multiple consequences—and for many, these penalties have had a major financial impact, according to a new survey from The Pew Charitable Trusts. Although borrowers are largely cognizant that default carries consequences, awareness of specific consequences varies widely, which can cause borrowers to experience penalties they didn’t anticipate.
Student loans generally fall into default after 270 days of missed payments, though penalties typically aren’t imposed until after 425 days.1 The consequences of default can range from ineligibility to receive more federal financial aid or having the default reported to credit bureaus, to forced collections practices like tax refund and Social Security benefit confiscation, and paycheck garnishment, as well as associated fees. (See box below for additional detail.)
