Student loans are the first real debt many people incur. Late payments or defaults can seriously harm your credit record for many years, but if you pay on time you can build a positive credit history that will help you qualify for a home mortgage, new car loan, or other type of credit. The federal government has made it increasingly difficult to escape your student loan debt, and there is no statute of limitations, so you can be sure it will dog you forever if you don't pay.

What Constitutes a Default?

If you're late with a payment for 270 days, you'll be considered in default of your student loan. Once you're in default, your lender will file a default claim with the guaranty agency, which buys your account from the lender and assigns the loan to a collection agency. The government also notifies all the credit bureaus.

Consequences of Default

If you don't pay your defaulted loan right away, you could have your federal income tax refunds withheld and applied to the loan balance, have your wages garnished, have collection costs of up to 40 percent of the loan levied against you, and face possible legal action. If you have a professional license or certificate of any kind (medical, law, accounting, and so on), it could be revoked. You may no longer be eligible for federal financial aid programs.

You also lose your eligibility for federal loans such as FHA and VA loans, which enable many people to buy a house that they wouldn't qualify for otherwise, and you may be denied credit cards or other forms of credit.

The default will show up on your credit report for seven years and could affect your ability to rent a house or apartment, buy a car, qualify for a mortgage, or even find a job. In the long run, it will cost you much less if you make your payments on time.

Collection costs that are charged to you could total nearly half your balance, plus there's a 28 percent commission charged by the collection agency and that gets passed on to you. The government may even sue you and take your car, bank accounts, and other valuable property that you own and place a lien on your house, if you own one.

Preventing Default

If you're having trouble making your loan payments, you have several alternatives. You could change your repayment plan, apply for deferment or forbearance, or apply for a loan consolidation, which could reduce your monthly payments by nearly half.

If you've tried everything and are still having problems with your loan, contact your borrower advocate, who can act as a liaison between you and your lender and may be able to help find solutions to your problem. Lenders really don't want you to default on your loan, and they'll usually offer you a few alternatives — you just have to ask before it's too late.