Defaulting on Your Student Loans: What Happens Next?

Higher education has taken a heavy toll on students around the country, leading many people to question whether a degree is still worth the price. To date, our collective student debt has reached an astounding amount of $1.16 trillion, $31 billion higher than last year. Many students simply cannot afford the cost of higher education, so their option is to borrow thousands of dollars in loans – and are forced into default by a growing number of their schools and lenders.

Nevertheless, defaulting on loans is serious and many students go bankrupt without even realizing it.

What Defaulting Means and Why It’s Never Recommended

Default occurs if you do not make the payments due according to the terms of the loan. If you default on your loan, your school, lender, or even the federal government can take legal action to get you to repay the amount owed. Student loans are in default if payments are due within 270 days of maturity. Your credit rating may also be affected and a third-party collection agency comes in, which will result in lots of collection calls, late notice bills, and more stress. 

The Aftermath of Defaulting on Loans

In 2012 and 2013, the proportion of students who could not repay their loans was just over 14% – the highest in a decade, that figure has recently fallen to 12.9%, but it is not something to celebrate yet.

For-Profit Vs Nonprofit Colleges

Colleges across the nation can be categorized into two sections: nonprofit and for-profit. Most colleges and universities are “non-profit” institutions where tuition fees and fees are used to fund your education. For-profit colleges are usually run like businesses. They are designed for profit by generating more revenues and narrowly focused on the students. Most nonprofit institutions include traditional private and public colleges that offer four-year courses. Nonprofits, on the other hand, typically offer two-year programs that offer trade certificates.

According to the Student Debt Project, more than 650,000 students defaulted on student loans in 2013, and nearly half of that was in for-profit colleges. That’s a lot of money for a shockingly small percentage of students, but it’s important to note that they make up only 12 percent of all students in the country. For-profit colleges have come under fire in recent years for their lack of transparency and reliance on government subsidies.

Although there are many different factors that contribute to more students defaulting their loans, one of the biggest and most overlooked is the astronomical prices that some schools charge for degrees that are essentially worthless but are also more expensive than nonprofit colleges.

  • Enrollment at for-profit institutions has risen by a staggering 236% over the past decade, according to the US Department of Education.
  • For-profit colleges have very low graduation rates, with only 22 percent of students finishing their studies. The graduation rate at public universities is 55 percent, and the average cost of tuition and fees at private colleges is 65%.
  • By comparison, student debt for a bachelor’s degree at for-profit institutions costs around $31,190, and that’s near twice the average cost of tuition and fees at a four-year private college which is over a little $17,000, and almost four times that of public colleges $17,000.

One of the biggest problems facing universities is that they are poorly regulated, and at least 21% of for-profit schools are at risk of losing eligibility this year because they do not meet state standards. What happens to students? They can either: 1. Apply to another school and combine their new loans with their old ones, or 2. Wait until your current loan has been fully paid, which typically takes 5, 10, or even 20 years. 

What This Means For You

The cost of university education has risen by almost 1,000 percent in the past 30 years. When looking for a school, it is important to pay attention to the admission costs and default rates. Another important factor to consider is the proportion of graduates who are actively employed. Unfortunately, these are often overlooked. 

If you have difficulty making payments or are worried about defaults, see our Student Loans Information page for more information. In the last budget plan in 2016, the government wants to tighten restrictions on student loans and interests they charge. Until then, you should pay back your student loans as quickly as possible no matter how large your debt may be. 

For student loan counseling, while we cannot help specifically with your student loans, we can help with other debts and budget counseling if you call one of our credit counselors. We will comb through your various debts to help you create a payment plan that fits your financial status. Contact 800-282-8497 to book a nonprofit financial consultation or you may visit CreditGUARD of America’s page at to learn more information.