Consequences of Default

Default occurs once a borrower's Federal Family Education Loan Program loan has become more than 270 days delinquent with his/her lender. The lender files a claim with an assigned federally designated guarantor, and once the loan is assigned to a guaranty agency, the following steps may be taken to recover the outstanding balance due:

  • A borrower may be subjected to Administrative Wage Garnishment whereby the borrower's employer will forward 15% of his or her disposable pay toward repayment of the defaulted loan.
  • The guarantor or the U.S. Department of Education may take legal action to force the borrower to repay the loan.
  • Credit bureaus will be notified and the borrower's credit rating will suffer.
  • The borrower will have to pay additional collection costs.
  • The U.S. Treasury may withhold refunds or other payments toward repayment of the loan.
  • The borrower will no longer be eligible for deferment or forbearance.
  • Borrowers with defaulted loans are ineligible for any other forms of Title IV aid (Pell grants, Stafford loans, Perkins loans, etc).

While borrowers with defaulted loans have limited choices, there are still some opportunities to rehabilitate or bring the defaulted loan back into good standing.

Borrowers with defaulted Federal Family Education Loan Program loans guaranteed by the Michigan Guaranty Agency should immediately contact MGA’s Collections Unit at 1-800-642-5626 to make satisfactory payment arrangements.