What Is Student Loan Default? Everything You Should Know

Student loan default occurs when a borrower fails to pay their loans according to the terms of their loan agreement. The exact timeline varies depending on whether you have federal or private student loans.

Defaulting on a student loan has serious consequences. Your entire loan balance may come due immediately, and you could have your wages or social security payments garnished. You will also become ineligible for forbearance, deferment and student loan forgiveness.

How do you go into default on a student loan?

When you miss your due date, your loan first becomes delinquent. Your student loan will remain delinquent until you pay the amount you owe, qualify for deferment or forbearance, change your repayment plan or enter default.

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

From there, your loan will transition from delinquency to default on a timeline that depends on the type of student loans you have.

• With federal student loans, your loan is usually considered in default when you don’t make your scheduled payments for 270 days. One exception is Perkins Loans, which can be considered default if you miss a single payment.
• With private student loans, you are usually considered in default after you miss three monthly payments or 90 days total.

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

If your student loans become delinquent or past due, your loan company or servicer will likely notify you. You may receive a notice in the mail, a call from your servicer or an email with details on your late payment.

Once your student loans enter default, you should see them listed on your credit reports. You can get free weekly credit reports from the three credit bureaus using AnnualCreditReport.com.

You can also log in to the Federal Student Aid website to see the status of your federal student loans, including any information on past-due, delinquent or defaulted amounts.

What happens if I default on my student loans?

You could face multiple consequences if your loan enters default.

• Your credit score drops: Missed student loan payments can cause your credit score to drop by more than 100 points. A low credit score and a history of missed payments on your credit report can make it difficult to qualify for a car loan, mortgage or other loan in the future. And if you do qualify, you’ll have less favorable interest rates and terms.
• You owe the entire balance immediately : With federal student loans, your entire unpaid balance and owed interest become immediately due through a process called “acceleration.”
• You can have a portion of your income taken: If you default on federal student loans, the government can garnish a portion of your income, tax refund or social security benefits, leaving you with less money to live on.
• You lose borrower protections and access to federal student aid: Your federal loans will no longer be eligible for deferment or forbearance. You also won’t be able to change your repayment plan. Additional federal student aid, like grants, will not be available either.
• You may be taken to court: Your private loan servicer can take you to court to collect. In addition, you will likely be on the hook for court costs, collection fees, attorney fees and extra costs associated with the collection process.
• You won’t qualify for student loan forgiveness: While you’re in default, you will not qualify for student loan forgiveness and any payment made while in default will not count toward forgiveness. However, you can become eligible again once you’re out of default.
• Your academic transcript may be withheld: Your school may withhold your academic transcript until you get your student loans out of default. However, schools aren’t allowed to withhold your transcript over defaulted-on federal loans.

While all of this takes place, late fees and interest will continue to accrue on your debts, meaning the problem only gets worse — and more expensive.

Defaulting on your student loans can impact your life and finances for years to come. If you are concerned that you may default or are having financial challenges, do not ignore the issue. Reach out to your loan servicer proactively and find out about your options for avoiding default.

How do I get my student loans out of default?

In addition to understanding student loan default, it’s important to know how to turn the situation around. If you’re already in default, there are ways to get back in good standing.

Getting federal student loans out of default

There are three main ways to get your federal student loans out of default: paying your entire loan balance in full, pursuing loan rehabilitation or applying for loan consolidation. Since most people cannot afford to pay their loans off in one lump sum, rehabilitation and consolidation are the only options most can consider.

Federal loan rehabilitation

Federal loan rehabilitation starts with contacting your servicer. When you rehabilitate a federal Direct Loan or FFEL loan, you must:

• Make nine monthly payments as determined by your loan holder, each within 20 days of the due date, and agree to these terms in writing.
• Make all nine of the agreed-upon payments over 10 consecutive months.

The monthly payment you make under loan rehabilitation typically equals 10 or 15 percent of your monthly discretionary income. According to the U.S. Department of Education, discretionary income is “the difference between your annual income and 150 percent of the poverty guideline for your family size and state of residence.”

Your monthly payment during the rehabilitation process could be as low as $5. After you complete rehabilitation, the record of default will be removed from your credit history, though late payments will remain.

Consolidation

With federal student loan consolidation, you combine your existing federal student loans into one new one. To qualify for this plan for defaulted loans, you must do one of the following:

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

This option does not remove your default from your credit record.

Getting private student loans out of default

The rules are different for private student loans. If you have private student loans in default, you may be able to negotiate a settlement on your debt in collections. You could also try to work with your loan servicer to get up to date. Start by reaching out and explaining your situation. Some lenders might allow you to adjust your repayment plan to better fit your budget.

Many with unmanageable private student loan debt reach out to a student loan lawyer for help. Another option is working with a certified credit counselor who can help you create a plan to repay your defaulted loans.

Avoiding student loan default

Once you have taken steps to get your student loans out of default, it’s important to avoid making the same mistakes again. Your best move is to make sure you have a monthly payment that you can afford without financial hardship.

You can do this by:

• Looking into income-driven repayment plans that let you pay a percentage of your discretionary income on your loans for 20 to 25 years.
• Refinancing your student loans with a private lender to secure a lower interest rate and a more affordable payment. Though you should think twice before refinancing federal student loans since it means you’ll lose access to federal benefits like income-driven repayment plans and student loan forgiveness programs.
• Using a student loan calculator to figure out the best rate, term or repayment plan that creates a monthly payment that comfortably fits into your budget.

Also, set yourself up for success when it comes to planning for your student loan payments. This can mean starting a monthly budget that helps you plan for each of your bills and your average expenses, but it can also mean cutting discretionary spending so you have more wiggle room in your budget each month. Finally, you can also consider setting up your student loan payments to be sent in automatically so you never forget to pay.

Bottom line

Student loan default carries serious consequences, like harm to your credit and possible wage garnishment. If you have federal student loans, you can get out of default through loan rehabilitation or consolidation. Your options with private student loans vary by lender.

Contact your lender or loan servicer immediately to discuss your options if you’ve defaulted or are in danger of defaulting. If you need help negotiating with your lender or creating a plan to pay off your loans, consider working with a student loan lawyer or credit counselor.

Frequently asked questions

• Can I remove unpaid student loans from my credit report?
  

  Unless you have rehabilitated federal student loans, negative marks caused by unpaid student loans will remain on your reports for at least seven years. Student loans are notoriously difficult to discharge in bankruptcy, and disputing them on your credit reports will not help, either.

• What happens if I cannot repay student loans?
  

  If you cannot repay your student loans now, you may want to look into federal deferment and forbearance. Both let you pause your student loan payments while you get back on your feet. Interest may still accrue during this time, but either type of relief can buy you time.

  Some private loans may offer deferment or help. It’s important to research hardship assistance options when comparing private student loan lenders. Borrowers with these loans can reach out to their lender for relief options and alternative repayment plans.

• Can you go to jail for student loan default?
  

  Generally speaking, you cannot go to jail for defaulting on your student loans. However, your lender can, and likely will, sue you. On top of this, your credit score could take a significant hit, your wages could be garnished and you could end up owing a lot more in fees and interest over the long run. If there is a lawsuit, not complying with the court could result in an arrest warrant.