Delinquency
Student loan delinquency occurs when a borrower misses a scheduled loan payment. It begins the day after a payment is due and remains until the overdue amount is paid or other arrangements are made, such as changing repayment plans or obtaining deferment or forbearance.
After 90 days of missed payments, the loan servicer typically reports the delinquency to the three major credit bureaus, negatively impacting the borrower's credit score, potentially making it harder to obtain other loans (like car or home loans), credit cards, or even rent an apartment in the future. If delinquency continues, the loan is at risk of entering default, which carries more severe consequences like wage garnishment and loss of eligibility for future student financial aid.
Default
Student loan default occurs when a borrower fails to repay their student loans as agreed upon in the loan's terms. Generally, a federal student loan officially enters default after 270 days of non-payment. The consequences of default are severe and can include:
- Loss of eligibility for benefits: You lose access to deferment, forbearance, certain repayment plans and options.
- Loss of eligibility for future federal student aid: You cannot receive additional federal student aid, such as Pell Grants or other federal student loans.
- Negative impact on credit score: The default is reported to national consumer reporting agencies, severely damaging your credit rating. This can hinder your ability to get other loans (such as car and home loans), credit cards, or even rent an apartment.
- Involuntary collection: The government can take steps to collect the debt:
- Wage garnishment – A portion of your wages can be withheld and set to your loan holder.
- Tax offset – Your federal and state income tax refunds, and potentially other federal benefit payments, may be withheld and applied towards the defaulted loan.
- Legal action: Your loan holder can take you to court, potentially leading to court costs, collection fees, and attorney’s fees.
- Professional license denial/loss: You may not be eligible for certain types of employment or be denied a professional license.
To avoid default, it's crucial for borrowers facing financial difficulties to contact their loan servicer immediately to explore options like changing repayment plans, deferment, or forbearance, as these options become unavailable once a loan defaults. If you make repayment arrangements soon enough after your loan has gone into default, you may be able to resolve the default quickly.
The Default Resolution Group is the loan servicer for defaulted federal student loans over 360 days delinquent. Learn more about the Default Resolution Group by visiting myeddebt.ed.gov.
Learn more about delinquency and default at StudentAid.gov.
