What is student loan default? Student loan default happens when a borrower fails to make payments as agreed in their loan terms. The timeline for default varies depending on whether the loan is federal or private.

Defaulting on a student loan can have significant repercussions. You may be required to pay the entire loan balance immediately and will lose eligibility for forbearance and deferment. However, the U.S. Department of Education offers a temporary program called Fresh Start, which can help you avoid these consequences for federal student loans.

How do you go into default on a student loan?

When you miss a payment, your student loan first becomes delinquent. It remains delinquent until you either pay the overdue amount, qualify for deferment or forbearance, adjust your repayment plan, or enter default.

Once your payment is 90 days overdue, your loan servicer will report the delinquency to the three major credit bureaus—Experian, Equifax, and TransUnion.

The transition from delinquency to default varies depending on the type of student loan:

  • Federal Student Loans: Typically, a federal loan is considered in default if payments are missed for 270 days. Perkins Loans are an exception and can be deemed in default after just one missed payment.
  • Private Student Loans: Generally, a private loan is considered in default after missing three monthly payments or being overdue for 90 days.

How do I know if my student loans are in default?

If your student loans become delinquent or overdue, your loan company or servicer will typically notify you. You might receive a notice by mail, a call from your servicer, or an email detailing the late payment.

Once your loans enter default, they will appear on your credit reports. You can access free weekly credit reports from the three major credit bureaus through AnnualCreditReport.com.

Additionally, you can check the status of your federal student loans, including any past-due, delinquent, or defaulted amounts, by logging into the Federal Student Aid website.

What happens if I default on my student loans?

Defaulting on your student loans can lead to a range of serious consequences:

  • Difficulty with Credit Approval: Defaulting damages your credit score, making it challenging to get approved for credit cards, car loans, mortgages, cell phone contracts, utilities, and affordable homeowners insurance. You may face higher interest rates or need a co-signer.
  • Immediate Repayment: For federal student loans, defaulting triggers “acceleration,” requiring you to pay the entire unpaid balance and accrued interest immediately.
  • Loss of Borrower Protections: Defaulting means losing access to deferment or forbearance options and the ability to change your repayment plan. Additionally, you will not be eligible for further federal student aid.
  • Legal Action: Your loan servicer can take legal action, potentially leading to wage garnishment. You could also incur court costs, collection fees, attorney fees, and other expenses related to the collection process.
  • Academic Implications: Your school may withhold your academic transcript until your loans are resolved.

During this time, late fees and interest will continue to accumulate, exacerbating the issue. Defaulting can have long-lasting effects on your financial and personal life. If you’re worried about default or facing financial difficulties, contact your loan servicer as soon as possible to explore options for avoiding default.

How do I get my student loans out of default?

Understanding student loan default is crucial, but it’s equally important to know how to address the situation if you’ve already defaulted. Fortunately, there are steps you can take to regain good standing with your student loans.

Getting federal student loans out of default

If you’ve defaulted on your federal student loans, you generally have three main options for getting back on track: paying off your entire loan balance, pursuing loan rehabilitation, or applying for loan consolidation. Since most people can’t pay off their loans in full upfront, rehabilitation and consolidation are the more feasible options for most.

Additionally, the Fresh Start program offers temporary relief.

Fresh Start
Fresh Start is a U.S. Department of Education program designed to help borrowers with defaulted federal student loans. It’s available until September 30, 2024. To enroll, you need to contact your loan holder, whether that’s the Department of Education or a guaranty agency.

Benefits of the Fresh Start program include:

  • Restoration of your eligibility for federal student aid.
  • Transfer of your loan back to a loan servicer.
  • Removal of the default status from your credit report.

You may also qualify for an income-driven repayment plan, where your monthly payments could be as low as $0 if your income is limited. This program can help you stay current with payments even if you previously struggled due to low income.

Federal Loan Rehabilitation
Although loan rehabilitation is currently on hold in favor of the Fresh Start program, it typically involves:

  • Contacting your servicer to begin the process.
  • Making nine affordable monthly payments (determined by your loan holder) within 20 days of the due date and agreeing to these terms in writing.
  • Making all nine payments within 10 consecutive months.

Rehabilitation payments usually amount to 15% of your discretionary income, which is the difference between your annual income and 150% of the poverty guideline for your family size and state. During rehabilitation, your payments could be as low as $5 per month.

Consolidation
Federal student loan consolidation combines your existing federal loans into a single new loan. To qualify for consolidation of defaulted loans, you must:

  • Agree to enroll your new Direct Consolidation Loan in an income-driven repayment plan, or
  • Make three consecutive, voluntary, on-time, full monthly payments on the defaulted loan before consolidating.

Note that consolidation will not remove the default status from your credit record.

Getting private student loans out of default

The approach to handling defaulted private student loans differs from that of federal loans. If your private student loans are in default, you might be able to negotiate a settlement for the debt that’s in collections. Alternatively, you can contact your loan servicer to discuss your situation and explore options for getting back on track.

Additionally, many people facing difficulties with private student loan debt seek assistance from a student loan lawyer for professional guidance and support.