Our goal here at Credible is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders, all opinions are our own.
Editor’s note: In response to the coronavirus national emergency, interest rates on federally-held student loans have been reduced to 0% through Sept. 30, 2020, and borrowers have the option of suspending their payments for six months without accruing interest. During the temporary relief period, servicers who collect payments on federal student loans have been ordered to grant forbearance when requested, and the Department of Education has suspended “involuntary collection” on defaulted loans including garnishment of wages, tax returns or social security checks through Sept. 30.
If you miss a student loan payment, your loan is considered delinquent and you’ll likely have to pay fees or penalties, plus any outstanding interest, to bring your loan back into on-time status. If you miss enough payments in a row, however, you go into student loan default — and it might not be an easy fix.
When in default, lenders can take more aggressive action to collect your loan balances and your credit will be negatively impacted. In 2018, 17.4% of federal student loans were in default.
If you’re at risk or in default already, here are some important facts to know:
- When does a student loan go into default?
- What happens when you default on a student loan?
- How to get out of student loan default
When does a student loan go into default?
Student loan default can happen at different times, depending on the type of loans you have:
- Most federal loans: Under most federal student loan programs, your loans will go into default when they’re 270 days past due. That’s about nine months from your first missed payment until default.
- Federal Perkins loans: Under the Federal Perkins Loan program, loans default after missing just a single payment.
- Private loans: With private student loans, the default terms can vary depending on the loan. Many private lenders use a 120 day period, or four months of missed payments, before declaring a loan to be in default.
You should be able to find your loan’s default status on a recent statement, but you can always log into your account at your student loan servicer’s website (for federal loans) or private lender’s website (for private student loans) to view your default status.
If you’re not sure about your status, you can always call the loan servicer or lender directly to ask for an update on your account.
Check Out: 11 Ways to Lower Your Student Loan Payments
What happens when you default on a student loan?
Though federal and private student loans may have slightly different rules for what happens in default, student loan default has many consequences:
- Damaged credit: Before student loan default begins, you will already see damage to your credit report and credit score from missed payments. Having your loan marked as in default will further harm your credit.
- Loan acceleration: At the same time, you could find your entire balance due immediately.
- Loss of hardship benefits: Loans in default lose the ability to use deferment or forbearance, popular methods to alleviate the pressure of pending loan payments. When in default on federal student loans, you lose the ability to get additional federal student aid in the future.
- Garnishment: In some cases, your tax refunds, federal benefit payments, and wages can be withheld and used for payments. These Treasury offsets and wage garnishments can put you into further financial hardship, as you won’t have that money coming in to pay for other bills.
- Lawsuits and collections: For private student loans, you could find yourself on the wrong end of a lawsuit and forced to pay for court costs, collection fees, attorney’s fees, and other costs your lender had to pay to collect your defaulting student loan.
How to get out of student loan default
For federal student loans, you have three main ways to get out of student loan default:
- Loan rehabilitation: Rehabilitation requires a written agreement with your loan servicer. Direct loans and FFEL loans require nine “voluntary, reasonable, affordable monthly payments” within a period of 10 consecutive months.
- Loan consolidation: Consolidating the defaulted loan into a new Direct Consolidation Loan ends default. To do so, you must agree to put your new loan into an income-driven repayment plan or make three consecutive, on-time payments on the default loan before consolidation is allowed.
- Full repayment: Fully repaying the loan ends default, but this isn’t a realistic option for most people.
For private loans, check your loan documents to find out your options. Many lenders offer a rehabilitation program to get your loans back on track. It usually takes seven years for defaulted student loans to drop from your credit report, so work to get things resolved as quickly as possible to minimize the negative impact on your credit.