In this guide, we’ll break down everything you need to know about student loan default, including how to avoid it and what steps to take if you’re already in default.

What Is Student Loan Default?

Student loan default occurs when you fail to make payments on your student loans according to the terms of your loan agreement. The timeline for default depends on whether you have federal or private student loans:

• Federal Student Loans: Typically, federal loans enter default after 270 days (about nine months) of missed payments. However, Perkins Loans can default after just one missed payment.
• Private Student Loans: Private lenders usually consider loans in default after 90 days (three months) of missed payments.

Once your loans are in default, the entire balance may become due immediately, and you’ll lose access to important borrower protections like deferment, forbearance, and income-driven repayment plans.

How Do Student Loans Go Into Default?

The path to default starts with delinquency. When you miss a payment, your loan becomes delinquent. If you don’t resolve the delinquency by making payments, applying for deferment or forbearance, or changing your repayment plan, your loan will eventually default.

Here’s how the process typically works:

• Delinquency: Your loan becomes delinquent the day after you miss a payment. After 90 days of delinquency, your loan servicer will report the missed payments to the three major credit bureaus (Experian, Equifax, and TransUnion), which can hurt your credit score.
• Default: If you continue to miss payments, your loan will enter default. For federal loans, this usually happens after 270 days of non-payment. For private loans, it’s often after 90 days.

How Do I Know If My Student Loans Are in Default?

If you’re unsure whether your loans are in default, here are some ways to check:

• Notifications: Your loan servicer will likely notify you via mail, email, or phone if your loans are delinquent or in default.
• Credit Reports: Defaulted loans will appear on your credit report. You can access free weekly credit reports from the three major bureaus at AnnualCreditReport.com.
• Federal Student Aid Website: For federal loans, you can log in to the Federal Student Aid website to check the status of your loans, including any past-due or defaulted amounts.

Consequences of Student Loan Default

Defaulting on your student loans can have serious financial and legal consequences. Here’s what you need to know:

• Damage to Your Credit Score: Defaulting on your loans will significantly lower your credit score, making it harder to qualify for credit cards, car loans, mortgages, or even utilities and cell phone plans.
• Loss of Borrower Protections: Federal loans in default are no longer eligible for deferment, forbearance, or income-driven repayment plans. You also lose access to additional federal student aid.
• Acceleration of Your Loan Balance: Your entire loan balance, including interest, may become due immediately.
• Wage Garnishment: The government or your private lender can garnish your wages to recover the debt. This means a portion of your paycheck will be automatically deducted to pay off your loans.
• Collection Fees and Legal Costs: You may be responsible for paying collection fees, court costs, and attorney fees if your loans are sent to collections or taken to court.
• Withheld Transcripts: Some schools may withhold your academic transcript until your loans are out of default, though this practice is prohibited for federal loans.

How to Get Out of Student Loan Default

If you’ve defaulted on your student loans, don’t panic—there are ways to recover. The options available to you depend on whether you have federal or private loans.

For Federal Student Loans

There are three main ways to get federal loans out of default:

• Loan Rehabilitation:
  • Loan rehabilitation is a process where you make nine affordable monthly payments (as determined by your loan holder) within 10 consecutive months. These payments are typically based on your income and can be as low as $5 per month.
  • Once you complete the program, your loan is no longer in default, and the default status is removed from your credit report.
• Loan Consolidation:
  • Consolidation allows you to combine your defaulted loans into a new Direct Consolidation Loan. To qualify, you must either agree to enroll in an income-driven repayment plan or make three consecutive, on-time, full monthly payments before consolidating.
  • While consolidation removes your loans from default, the default status will remain on your credit report.
• Paying in Full:
  • If you can afford it, paying off your entire loan balance in one lump sum will remove your loans from default. However, this option is not feasible for most borrowers.

For Private Student Loans

Private lenders have their own policies for handling defaulted loans. Here are some steps you can take:

• Negotiate a Settlement: Some lenders may allow you to settle your debt for less than the full amount owed. This can be a good option if you can afford a lump-sum payment.
• Work with Your Lender: Contact your lender to discuss your situation. They may offer a revised repayment plan or other options to help you get back on track.
• Seek Professional Help: Consider working with a student loan lawyer or a certified credit counselor. They can help you negotiate with your lender or create a repayment plan.

Bottom Line

Defaulting on your student loans can feel overwhelming, but it’s not the end of the road. Whether you have federal or private loans, there are steps you can take to get out of default and regain control of your finances. For federal loans, options like loan rehabilitation and consolidation can help you recover, while private loan borrowers may need to negotiate with their lender or seek professional assistance.

The key is to act quickly. If you’re struggling to make payments, reach out to your loan servicer or a financial professional to explore your options. By taking proactive steps, you can avoid the long-term consequences of default and work toward a brighter financial future.