Increasing retirement contributions will not change the fact that you defaulted on the loan. Upon default, an early withdrawal was taken from your tax deferred retirement account to pay the balance due on the loan. Now assuming you are not of retirement age, you will pay a 10% penalty on that early withdrawal (no way out of that) and you will also pay taxes on it. How much tax you pay will depend on what tax bracket you fall in. The early withdrawal will add to your taxable income for the year, and depending on the amount could very well put you in a higher tax bracket. Keep in mind also that contributions are limited to a percentage of your *earned* income too. Not sure, but I think it's still 15%.
