Student loan default is the failure to make scheduled payments according to the promissory note. Most federal student loans default if a payment isn't made within 270 days. Private student loans may default after one missed payment.
Defaulted student loans can disrupt your life by exposing you to unintended consequences like destroying your credit score, stopping you from buying a home, and garnishing your wages. Thankfully, the U.S. Department of Education offers borrowers options to halt these penalties by exiting default.
Ahead, you'll learn what student loan default means, how to find out if your loans are in default, the consequences, and defaulted student loan repayment options.
- Find defaulted student loans: check studentaid.gov and credit report.
- Consequences of default: wage garnishment, tax refund offset, and Social Security benefits offset.
- Federal student loans defaulted: Consider settlement, consolidation, or loan rehabilitation.
- Private student loans defaulted: Look to settle or file student loan bankruptcy.
Student loan default definition
Student loan default means you failed to make scheduled payments as required by the loan terms in the promissory note.
Federal student loan default is the failure to make scheduled monthly payments on FFEL and Direct Loans for more than 270 days without being in deferment or forbearance. Federal Perkins Loans can be placed in default if a single payment is missed.
Private student loan default is when you miss at least one scheduled payment, file bankruptcy, default on another debt, or die. However, your loan repayment terms may define default differently. Check your contract to learn how many student loan payments you can miss before your loans default. If you don't have a copy of your promissory note, contact the loan holder or student loan servicer to request a copy so you know how many payments you can miss before you default.
Coronavirus Pandemic Freeze
At the onset of Covid-19, the government paused collection activities on federal student loans in default. Those protections end May 2022. Starting May 1, collections can start again. You can avoid penalties like wage garnishment and tax refund offset by getting out of default before the break ends. Contact the Default Resolution Group to get your options to bring your loans back into good standing and avoid Treasury Offset.
How can I find out if I have a student loan in default?
The easiest way to find out if your student loans are in default is to contact your student loan servicer. If you're not sure which company that is, or you're not ready to get on the phone, you can visit studentaid.gov to find your federal student loans. You'll need an FSA ID to log in.
You can also pull your credit report. If it's been less than seven years since you defaulted, your report should list your federal and private student loan debt. It may say "student loan permanently assigned to government", which means your loans are with the Default Resolution Group.
But if it's been years since you've made a payment, it can be nearly impossible to find your private loans. You may have to wait until a student loan collection agency contacts you.
What happens if you default on student loans?
When you default on a student loan, the entire unpaid balance, including interest and fees, becomes immediately due through a process called acceleration. In addition, defaulting on a student loan causes you to lose eligibility for deferment, forbearance, and loan forgiveness. Finally, student loan default puts your money, career, education, credit score, and home buying at risk.
The consequences you'll have to overcome change depending on the type of loan you default on. However, you'll never go to jail for student loans.
Default on private student loans consequences
Credit damage. Late payments and the default status stay on credit reports for seven years and won't be removed if you bring your account current or negotiate a settlement. These negative marks can raise your credit card interest rates, make buying a home more expensive, or increase security deposits for utility bills, cell phones, apartments, etc.
Strained relationships. Student loan delinquency and default harm your cosigner's credit score, which not only hurts their ability to finance purchases but can also put their career in jeopardy if they work in financial services or have a security clearance. Your cosigner may even have the right to sue you.
Transcript withheld. Your school can hold your transcript hostage if you default on a loan you borrowed from it to pay for your education. Colleges will often release your records only after you pay the loan in full.
Lawsuit. Private student loan holders have to sue you and get a court order before they can take your paycheck, bank account, or home. Until then, you're safe from wage garnishment, levies, and liens. Your 401k and inheritance are typically safe from garnishment. Private lenders usually wait until the statute of limitations is close to running out before filing a lawsuit. Check your promissory note to identify what state's statute of limitations applies to your loan.
Learn More: Steps to Take When Sued For a Student Loan
Default on federal student loan consequences
Credit damage. The credit score hit you take for defaulting on federal student loans is often greater than with private student loans because many borrowers have more than one federal loan. The multiple student loan defaults and late payment histories make it more challenging to fix your credit report.
More money owed. Interest will keep accruing, and more than 20% in collection costs will be added to your balance, increasing the loan amount. You may be able to get the collection fees waived if you can dig out of default. But the only way to eliminate some of the interest is to negotiate a federal student loan settlement.
Homebuying difficulty. Even if your defaulted student loans are no longer on your credit report, they'll be reported to the federal government's database of delinquent debts, CAIVRS. Until your name is removed from that system, you're ineligible for a VA, USDA, or an FHA Loan.
Career jeopardy. Depending on where you live, defaulting on student loans can put your professional license at risk of being revoked. Some states have laws that require certain professions, such as attorneys, teachers, health care professionals, financial professionals, and state officers, to keep their financial accounts current.
Educational delays. You lose eligibility for new financial aid until you get out of default. You can click here to read more about going back to school with defaulted student loans.
Loss of loan forgiveness. You're ineligible for loan forgiveness programs like Public Service Loan Forgiveness and the PSLF Waiver until you get out of default. However, there are few defaulted student loan forgiveness options depending on your health, type of loan, or school you attended.
How to get student loans out of default
Step 1: Find your loans. Depending on the type of loans you have in default, you'll need to contact the Default Resolution Group, guaranty agency, or a private debt collector. Log in to your studentaid.gov account if you're unsure whom to contact.
Step 2: Contact the collection agency. Ask for your options to resolve your account. You have three pathways to get out of default: settlement, loan rehabilitation, and consolidation. The right choice for you depends on your goals — more on that below.
Step 3: Take action. Once you've chosen how you want to dig out of default, take the steps needed to complete that process.
- Settlement: Pay the settlement amount in full. You'll have up to 90 days from the date of the letter to do so.
- Loan rehabilitation: Sign and return the rehabilitation agreement letter and schedule the nine monthly payments. The Education Department has suspended the need to make payments until May 2022.
- Consolidation: Apply online at studentaid.gov or submit a paper copy to a loan servicer of your choice. You can click here to read more about how to consolidate defaulted student loans.
Save on interest and collection fees
Settlement can remove the collection fees, some outstanding interest, and a bit of the principal from your loan balance. The payoffs for federal student loan settlements are expensive, and you have to pay it in a lump sum within 90 days.
Get student loans out of default fast
Besides paying in full or negotiating a settlement, student loan consolidation is the fastest way out of default. You have two options to qualify:
- Make three consecutive monthly payments to the collection agency and then consolidate.
- Submit a consolidation application and agree to repay your loans under an income-driven repayment plan.
You can consolidate for free on the Federal Student Aid website, studentaid.gov.
Consolidating isn't an option if you have an active student loan wage garnishment. Look to loan rehabilitation or negotiate a payoff if you can afford it.
Finally, if you have a consolidation loan from the Federal Family Education Loan Program, you may be able to consolidate more than once — even if it's your only loan.
Get default status removed from a credit report
While none of the options remove the late payment history from your report, loan rehabilitation is the only option that removes the default status from your credit report. However, getting that negative mark removed may not have a big impact on your credit score. The fastest way to raise your score is to exit default quickly.
Keep in mind that you have to make nine on-time payments to complete the rehab program. If you're trying to buy a home or qualify for additional federal student aid, look first to settlement or consolidation.
Stop defaulted loans from reappearing on a credit report
As you know, just because your student loans are no longer on your credit report doesn't mean they went away. But if you're going to get out of default, ideally, the late history and default status wouldn't be reported to the credit bureaus. Settlement is the only option to stop the student loan debt from being reported again. Consolidation will add a new loan, but none of the late payments to be added to your report. Meanwhile, loan rehabilitation will add the original loan back to your report, but the late payment history should not return.
Learn More: Student Loan Rehabilitation CARES Act
Need help with your defaulted student loans? Let's talk.
If the process for getting out of default sounds overwhelming, I'm here to help. For years, I've worked with people just like you with their federal and private student loans.
Schedule a free 10-minute call with me today. We'll work together to develop a plan that fits your current financial situation and sets you up to meet your future goals.
Whether you have defaulted on federal or private student loans, we'll get you back on track.