Student Loan Default Rate

#1 Student loan lawyer

Updated on March 16, 2024

The student loan default rate is at an all-time high in the United States which isn’t a huge surprise as it is following all-time highs in student loan debt. One out of every ten Americans have defaulted on their student loans, according to the Education Data Initiative, and 5% of all student debt is currently in borrower default.

If you can’t make your student loan payments or if you are already in borrower default, read on to learn more about what your options are to manage this difficult situation.


Student Loan Default Statistics

Student Loan Default is a broad-reaching issue that the United States is facing as a whole right now. The default rate is at an all-time high. If you are at risk of student loan borrower default, sadly, you are not alone:

  • Around 43 million Americans have student loan debt, accounting for 1.71 trillion dollars of total student loans as of 2021.

  • The average student loan debt for the class of 2019 was $28,950, marking a 2% increase from the previous year.

  • Approximately 10.8% of the total student loan borrowers default on their loans within the first two years.

  • Over the life of their loans, an estimated quarter of all student loan borrowers will default. This suggests that the issue of the default rate, rather than delinquency, is the more pressing concern.

  • Individuals who attended for-profit institutions have the highest default rate.

  • Almost 30% of defaulters have loans of less than $5,000, underscoring that default is not solely a problem for large borrowers.

These statistics underline the serious concern of student loan defaults and their potential impact on both individual borrowers and the broader economy.

Default vs Delinquency

The terms “student loan default” and “student loan delinquency” might seem interchangeable but they refer to separate stages of a borrower’s failure to make loan payments. Here’s what you need to know to monitor your student loan status and avoid the serious consequences of either situation.

Student Loan Delinquency

Delinquency on a student loan begins the first day after you miss a payment. As long as you remain delinquent as a loan borrower, (aka you do not pay), your loan provider or servicer will report the missed payments to the major credit bureaus, which will likely damage your credit score. This can make it more difficult for you to secure further loans, credit cards, or rental agreements in the future.

There are two types of delinquency:

  • Short-term delinquency: If you miss a payment, your loan is delinquent until you make up that payment. If you are less than 90 days late, it’s considered short-term delinquency.

  • Long-term delinquency: If you fail to make a payment for more than 90 days, it’s considered long-term delinquency. This could lead to a default if not addressed promptly.

Student Loan Default

Student loan default is the severe stage of non-payment that occurs after a long period of delinquency. The time it takes a loan to go into borrower default can vary: for most federal student loans, default doesn’t occur until the borrower has been delinquent for 270 days.

  • Direct Loans and Federal Family Education Loan (FFEL) Program loans go into default after 270 days of non-payment.

  • Perkins’ loan goes into default immediately after missing a payment. However, schools typically provide a grace period to catch up. If skipping payments persist, your school may declare the loan in default and turn it over to the Department’s collections team.

A default on a student loan can have severe repercussions including wage garnishment, withholding of tax refunds, and a sundering hit to your credit score. It is crucial to contact your loan servicer if you are having trouble making payments before reaching the stage of default.

What Happens When Your Student Loans Default

Defaulting on a student loan is a serious situation that triggers a series of consequences. From damaging your credit to wage garnishment, these consequences can affect your financial life for years to come:

  • Damaging Your Credit Score: A default will be reported to the credit bureaus, resulting in a significant drop in your credit score. This damage to your credit can prevent you from qualifying for loans, credit cards, or lower interest rates and can even impact your ability to rent apartments or secure certain jobs.

  • Collections and Legal Actions: Once your loan defaults, the entire balance of the loan becomes due immediately. If you can’t pay, your loan will be turned over to a collections agency. This can include legal action and lawsuits.

  • Wage and Tax Refund Garnishment: The federal government has the power to garnish your wages, seize your tax refund, or divert a portion of your Social Security payments to repay defaulted student loans. This can put a strain on your finances and make it harder to meet your other financial obligations.

  • Loss of Eligibility for Financial Aid: If you default on a student loan, you could lose your eligibility for additional federal student aid, limiting your options for further education or training. This can potentially hinder your earning potential in the long term.

  • Increased Debt Due to Collection Cost: In addition to the outstanding balance of the loan, you may also be liable for the costs associated with collecting your defaulted loan. These collection costs can be substantial, increasing your total debt.

If you’re struggling to keep up with student loan payments, it’s crucial to reach out to your loan servicer as soon as possible. You may have multiple options ahead of you to avoid default. Read on to see which option might be right for you.

Thumbnail video cover for Stanley Tate.

Cant' Pay Off Your Student Loans? Here's What to Do

Before You Go Into Default - You May Have Other Options

If you are in the incredibly stressful situation of not being able to pay your student loans at the moment you do not have to go into default. There are several options you may be able to explore to prevent the drastic impact of default on your financial health. The key is to take action as soon as you realize you’re having difficulty making payments.

Federal Student Loan Repayment Plans

If you could manage a lower monthly payment amount, multiple programs are designed specifically to help, including:

  • Income-driven repayment plans: Monthly payments are based on your income and family size; these plans can potentially lower your payments to a more manageable amount. In some cases, payments could be reduced to $0. One specific program that is worth considering is SAVE. We walk you through your options for all IDR Plans here.

  • Graduated Repayment Plan: Your payments start lower, with the amount increasing every two years.

  • Extended Repayment Plan: This lets you extend the repayment period up to 25 years, effectively lowering your monthly payment.

Related: How Income-Based Repayment is Calculated

Deferment or Forbearance

If you’re experiencing temporary hardship — such as unemployment, a severe health issue, or other financial difficulties — you might be eligible for deferment or forbearance, temporary periods during which your loan payments are paused. While interest typically still accrues, these programs can provide short-term relief.

Related: Can’t Repay Your Loans? Consider Deferment or Forbearance

Loan Consolidation

Consolidating your federal student loans can streamline your payments and extend your repayment term. Remember, extending the repayment period may lower your monthly payment but increase the amount of interest you pay over the life of the loan.

Related: Best Student Loan Consolidation Companies

Public Service Loan Forgiveness (PSLF)

If you work for a government or not-for-profit organization, you might be eligible for loan forgiveness under the PSLF Program. To qualify, you need to have made 120 qualifying payments under a qualifying repayment plan.

In short, before allowing your loans to enter default, contact your loan servicer. They can provide advice and assistance tailored to your specific situation to help prevent you from defaulting on your student loans.

Related: Public Service Loan Forgiveness: What It Is, How It Works

How to Get Student Loans Out of Default

What if your loans are already in default? Don’t worry, thankfully, while defaulting on a student loan can have severe consequences, there are steps you can take to get your loans out of default and start repairing your credit:

  1. Loan Rehabilitation – Loan rehabilitation involves agreeing in writing to make nine voluntary, reasonable, and affordable monthly payments within a 10-month period. Once completed, the default status is removed from your loan, and your loan returns to good standing. Rehabilitation also restores your eligibility for benefits such as deferment, forbearance, and loan forgiveness.

  2. Loan Consolidation – Another option is to consolidate your defaulted student loan into a new Direct Consolidation Loan. You can do this if you make satisfactory repayment arrangements with your current loan servicer or agree to repay the new consolidation loan under an income-driven repayment plan.

  3. Repayment in Full – You can immediately get your loan out of default by repaying the full amount of the loan. However, this option is generally not feasible for many borrowers due to the size of the debt.

  4. Settle The Debt – Under certain circumstances, you may be able to settle your debt for less than you owe.

Whichever route you choose, it’s important to begin the process of getting out of default as quickly as possible to minimize the potential damage to your financial situation. Reach out to your loan servicer as soon as you can to discuss your options and the best next steps.

Bottom Line

If you are struggling to make your student loan payments, start exploring your options lower your payment, defer or enter forbearance as soon as possible. There are many routes that have been created to help you avoid default.

If you are in default already, there are yet more paths that have been paved to help you get out of student loan default. If you want to discuss your options given your specific circumstances and come up with an educated plan of attack, book a call with me and my team and we’ll work to get you back on the road to financial health.

Share On Social

Stop Stressing


Why is the Default Rate on Student Loans so High?

The default rate on student loans is so high due to a combination of factors including high tuition rates, stagnant wage growth, insufficient student loan literacy, and difficulties navigating the repayment process. Bottom line - there are many ways to avoid borrower default, check out or resources on what to do if you can't pay your loans.

Confusion Between the On-Ramp Period and Payment Pause

The onramp period is a proposed transition after a payment pause where borrowers would receive notifications and counseling about resuming payments, whereas the payment pause itself is a temporary relief period during which borrowers are not required to make student loan payments.

Newsletter side module illustration

Overwhelmed by your Loans?

Get my guide to clearing student loan debt

4.8/5 from 120+ downloads