A student loan is in default when the borrower fails to make several regular scheduled payments on time (i.e., payments overdue by 270 days) and/or fails to meet the terms and conditions of the loan. If a borrower defaults on a student loan, the university, the student loan lender, the state, and the federal government may take legal action to recover the money, including garnishing your wages and withholding income tax refunds. A borrower may only be eligible for future government financial aid if satisfactory arrangements have been made to repay the loan. Defaulting on a student loan will adversely affect your credit rating. As well, all student loans can not be included in a bankruptcy.