Defaulting on a loan can adversely affect credit for many years. Default typically occurs when a loan receives no payment for 270 days. The loan leaves repayment status and is due in full when the lender requests. New collection costs are added to the loan's balance and the loan becomes drastically more expensive or eliminated through negotiation or legal action.
There are other negative consequences resulting from a defaulted loan. A student who wishes to return to school cannot qualify for federal aid in the United States until satisfactory payment arrangements are made on the defaulted loan or the loan is rehabilitated, a process that can take as long as a full year of on-time payments.
Individuals who are worried that they are unable to service their student loan debt should receive advice and counseling. There are few options available for American students other than payment in full. The Bankruptcy Abuse Prevention and Consumer Protection Act makes discharging student loans through bankruptcy virtually impossible. Critics have noted that this lack of bankruptcy protection for consumers results in a "risk-free" loan for creditors, removing pressure on creditors to negotiate lower payments.