According to The Office of Federal Student Aid, a student loan becomes delinquent (past due) the day after you miss a monthly payment.
Regardless of the type of loan, you’ll usually have a grace period for student loan payments before your servicer imposes any serious consequences.
With federal student loans, your payment is recorded as on time if it’s made within 15 days of the due date. For private student loans, contact your loan servicer to find out your grace period.
As part of the pandemic-related federal student loan relief, the federal government has paused most student loan payments until September 1, 2022. For the vast majority of borrowers, federal loans are now in good standing even if they were delinquent before March 2020. This does not apply to loan holders with FFEL or federal Perkins loans.
What is the difference between a delinquent student loan and a defaulted student loan?
A delinquent student loan has one or more missed payments fewer than 270 days late (federal loans) or 120 days late (most private loans).
A defaulted student loan is over 270 days past due (federal loans) or 120 days past due (most private loans) and will be pursued for debt collection and other significant consequences.
What happens if your student loan is delinquent?
Federal student loan delinquency
When your federal student loans become past due, here’s what may happen:
30 days late: Servicers may attach a late fee of up to 6% of the value of your missed payment after your payment is 30 days late. This equates to a $30 fee for a late $500 loan payment.
90 days late. At the 90-day mark, federal loan servicers report late payments to the 3 major credit bureaus. These late payments stay on your credit report for 7 years. Derogatory credit can make it hard to purchase a vehicle, rent a home, or qualify for a new cell phone plan until the bad marks drop off your report.
270 days late. If you fail to pay or make payment arrangements for your delinquent student loans within 270 days, your loan enters default. It will be moved to the Default Resolution Group (DRG), the federal government’s collection agency for student loans. Default has many serious consequences, from a massive drop in your credit score, to a loss of eligibility for certain mortgages, to losing your tax refund.
During student loan delinquency (before the 270-day mark), you don’t have to worry about wage garnishment or tax refund and Social Security offset. You’re still eligible for loan forgiveness and getting new federal student aid (loans, grants, etc.).
The worst consequence of delinquency on federal student loans is the damage to your credit report after 90 days.
Private student loan delinquency
Unlike federal loans, delinquent private student loans have no standardized penalty.
Late fees may be a percentage of the missed payment or a flat rate. Some lenders may report your delinquent status to credit bureaus as soon as 30 days past due. Default on private loans is usually 120 days rather than 270 days.
Check with your private loan servicer or original loan promissory note for more information.
The reason you missed a payment determines the best way to avoid missing another:
Forgot your payment due date? Enroll in automatic payments, or “autopay.” Some private lenders even offer small discounts on your loan payments when enrolled in autopay.
Didn’t get your bill? Log into your account and verify your contact information and preferences for receiving bills. Sometimes, paperless billing statements get stuck in a spam folder. You may need to update your mailing address or switch to paper bills if you prefer low-tech statements.
Having (very) short-term financial issues? You can request a forbearance to skip a few months of loan payments or a deferment if you can prove financial struggles are likely to last up to a year or more. It’s easier to request these options for federal loans. Still, some private student loan lenders offer their own versions of these programs.
What is the repayment plan for delinquent student loans? There is no official repayment plan for delinquent student loans. However, you may be able to change your payment terms by enrolling in income-driven repayment.
How to fix delinquent student loans
There are 2 options to fix student loan delinquency for both federal loans and private loans:
make the monthly payments you missed, or
request a deferment/forbearance.
There’s a big problem with the forbearance, though: interest capitalization. When a forbearance is applied to your account, your loan servicer will add the student loan payments you missed to your loan balance.
If your goal is to get rid of your student loan debt quickly, avoid forbearances that lead to capitalization and request a deferment instead.
Can delinquent student loans be forgiven? Delinquent student loans can be forgiven before they enter default if you are enrolled in an eligible loan forgiveness program.
Do delinquent student loans affect credit?
Delinquent student loans cause your credit score to drop once they are reported. Your student loan servicer will ding your credit history by reporting each month of student loan payments you missed for each loan you missed a payment on.
If you have 10 loans and missed 3 months of payments on those loans, 30 late payments will show on your credit history.
Federal student loans (Direct Loans, Federal Family Education Loans, Perkins Loans, etc.) won’t report late payments until they are 90 days past due. Until then, you can fix the delinquency without worrying about your credit.
With private loans, your servicer may report your late payments after the first missed payment or after a couple of missed payments. The speed depends on the servicer.
Some experts suggest filing a dispute with the credit bureaus to request the derogatory marks regarding your loan repayment be removed from your report. However, this rarely happens unless the information is factually incorrect.
My advice is to address delinquent student loans as soon as possible to avoid damaging your credit score.
78% of borrowers pay late on student loans during the first few years.
15.6% of student loan borrowers whose loans become delinquent once will go into delinquency 5 or more times over the loan term.
Graduates with law degrees are most likely to become delinquent on student loans compared to all other graduates. They are also the most likely to go into delinquency 5+ times.
At any given time, 3% of student loan payments are over 90 days delinquent but have not yet transitioned into default. That 90-day plus loan delinquency rate is much higher than mortgages (0.5%) but lower than the delinquency rate on auto loans in the US (3.98%).
Avoid your loans going into default
Missing a payment or two is something most people experience when repaying student debt. While the occasional missed payment isn’t enough to ruin your credit, extended delinquency will lead to default — which you should avoid as soon as you can.
Federal student loan default
Your federal loans default after you miss more than 9 student loan payments (270 days). When that happens, your servicer will send your loans to the US Department of Education’s Default Resolution Group for collections.
(Before 2022, the Department of Education would send defaulted loans to the loan holder, who would send most of its defaulted loans to a private collection agency.)
If you move quickly to get out of default, you may be able to stop the federal government from taking your money. Your two repayment options for getting out of default are applying for a Direct Consolidation Loan (a new loan to combine all existing federal loans) or entering into the loan rehabilitation program.
Defaulting on private student loans isn’t as bad as federal loans. Private lenders can’t automatically garnish your wages or garnish your bank account. They have to sue you and get a court order first.
In my experience, your student loan lender will wait until the statute of limitations is close before they’ll sue.
While I don’t recommend it for federal loans in most cases, you may need to refinance your defaulted private loans to begin repairing your credit. If you have defaulted private student loans, consider contacting Yrefy about refinancing.
Struggling with student loans? Let me help.
I have over a decade of experience helping student loan borrowers get beyond delinquent and defaulted loans to regain financial stability. Schedule a call to get advice for your specific situation.