Default is a term used to classify your loans if you fail to repay your loan according to the terms agreed to when you signed your promissory note. For the FFEL and Direct Loan programs, default occurs if you fail to make a payment for 270 days if you repay monthly (or 330 days if your payments are due less frequently). In many cases, default can be avoided by submitting a request for a deferment, forbearance, discharge or cancellation and by providing the required documentation.

It is important to make sure your loans do not become defaulted. If they do default, national credit bureaus may be notified, which may affect your credit rating for as long as seven years. This will make it difficult for you to borrow money from a bank to buy a car or a house. The Internal Revenue Service can withhold your U.S. individual income tax refund and apply it to the amount you owe, or the agency holding your loan might ask your employer to deduct payments from your paycheck. Also, you may be liable for loan collection expenses. If you return to college, and you are in default, you’re not entitled to receive additional federal student aid. Legal action also might be taken against you.