Information on Student Loan Delinquency and Default

Here's how to tell the difference between delinquent and defaulted federal student loans:

Delinquent Loan:

  • A loan becomes delinquent the day after you miss a payment.
  • If you fail to make a payment by the due date, your loan is considered delinquent.
  • This status will be reported to credit bureaus and could negatively affect your credit score.
  • Delinquency can be resolved by catching up on missed payments or setting up a repayment plan.

Defaulted Loan

  • A loan is considered in default after 270 days (about 9 months) of non-payment on a federal student loan.
  • Defaulting has more severe consequences, including wage garnishment, withholding of tax refunds, and potential legal action.
  • Default can harm your credit score even more significantly and make it difficult to qualify for future financial aid or loans.
  • Federal loan borrowers in default may have their loans sent to collections, and repayment terms become more rigid.

Having loans in default has many consequences. This will make it harder to get credit cards, loans, utilities, or even rent an apartment. Prolonged delinquency increases the risk of default, leading to more severe consequences, including wage garnishment, tax refund withholding, and even legal action.

Additionally, you may face higher interest rates for future loans.

If you are struggling and your loans are delinquent or in default your Loan Servicer may be able to help.

If you're struggling with your federal student loan payments, contact your loan servicer for help. They can guide you through affordable repayment options, helping you get back on track even during difficult times.

Take Steps to Avoid Default

Avoiding loan default is crucial for maintaining your financial health. To prevent default, it's important to understand your loan agreement and only borrow what you need for college expenses. Develop a realistic financial plan, and make sure you fully comprehend the type of aid you're receiving. Remember that loans must be repaid, unlike grants or scholarships. Review the terms, interest rates, and repayment schedules carefully before borrowing, and always read your promissory note, as it’s a legal document you sign agreeing to repay the loan.

Stay on Top of Payments and Communicate with Your Loan Servicer:

Never miss a payment. To simplify your payments, consider signing up for auto pay, which can also reduce your interest rate by 0.25%. If you're struggling to make payments, contact your loan servicer immediately. They can help you explore options like switching repayment plans, considering an income-driven repayment plan, or requesting deferment or forbearance. Always notify your servicer of changes such as graduation, a change in address, or other life events that might impact your payments. Keeping open communication with your servicer is key to avoiding default. The Debt Resolution Federal Student Aid website offers accurate information and assistance to help resolve defaulted loans or grants assigned to the Department of Education’s Default Resolution Group.

What to do if Your Loans go into Default:

If your federal student loan is in default, don’t be discouraged, there are options available to help you get back on track. While repaying the loan in full is an option, it may not be feasible for most borrowers. The two primary ways to resolve a defaulted loan are loan rehabilitation and loan consolidation, each with its own benefits and processes. Understanding the differences can help you choose the right path for your situation

Loan Rehabilitation vs. Loan Consolidation:

Loan Rehabilitation involves making nine voluntary, affordable payments over a period of 10 months. This process removes the default status from your loan and stops collection actions, such as wage garnishment. It also restores eligibility for federal student aid, deferment, forbearance, and loan forgiveness. However, loan rehabilitation is a one-time opportunity and may take several months to complete. It's a good option if you want the default record removed from your credit history, but keep in mind that late payments reported before the default will still appear on your credit report. To begin the loan rehabilitation process, you need to reach out to your loan holder. If you're unsure who your loan holder is, you can log in and check your loan servicer details to find their contact information

Loan Consolidation, on the other hand, involves combining your defaulted loans into a new Direct Consolidation Loan. This option allows for quicker action but doesn't remove the default from your credit history. You can consolidate your loan by either agreeing to repay under an income-driven repayment (IDR) plan or making three consecutive, voluntary, full monthly payments before consolidating. While consolidation gives you access to benefits like deferment and forbearance, it also adds accrued interest to your new loan balance, potentially increasing your total repayment amount.

Steps to Rehabilitate or Consolidate Your Loans

To rehabilitate a loan, you must contact your loan holder and agree to make the required monthly payments. For Direct Loans or FFEL Program loans, you need to make nine affordable payments over 10 months. Perkins Loans have similar requirements but differ in the payment process. On the other hand, to consolidate your loans, you must either commit to an IDR plan or make three voluntary payments before proceeding with consolidation.

Requirements for Perkins Loans

To rehabilitate a defaulted Federal Perkins Loan, you must make a full monthly payment each month, within 20 days of the due date, for nine consecutive months.

Your required monthly payment amount is determined by your loan holder. Find out where to go for information about your Perkins Loan.

Collections on Defaulted Loans

All defaulted Direct Loans are held by the Department of Education (ED). Defaulted FFEL Program loans may be held by either ED or a guaranty agency, while defaulted Federal Perkins Loans may be held by a school or ED. ED’s Default Resolution Group, part of the Office of Federal Student Aid, oversees the collections process for all loans held by ED. To determine if your loans are held by ED, follow these steps:

  1. Visit your account Dashboard.
  2. Locate the “My Loan Servicers” section
  3. If you see a servicer name starting with “DEPT OF ED,” your loan is held by ED

You can also contact ED’s Default Resolution Group for assistance in identifying your loan holder.

Additional information on Student loan default can be found at these links: