Managing Student Loans: Delinquency and Default

How To Handle Student Loans in Default or Delinquency

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A student loan delinquency or default can cause serious damage to your credit and endanger your financial health. If you’re struggling with student loan payments or have fallen behind, learning more about delinquency and default can help you resolve these issues and avoid the worst consequences. 

Here’s what you need to know—and how to get back on track.

Key Takeaways

  • Student loan delinquency is when a borrower fails to make a payment by the due date.
  • If a delinquent student debt isn’t brought back into good standing, it will enter student loan default.
  • Both delinquency and default can have negative effects on your credit score and ability to apply for other loans like mortgages.
  • It’s important to address delinquency and default as soon as possible to help bring your account current and avoid additional consequences. Work with your lender to help find a solution to your situation.

What Is Student Loan Delinquency?

Student loan delinquency is the status of a student loan when the borrower fails to make a payment by the due date. Paying even one day late can mean your loan becomes delinquent. The student loan is delinquent until you catch up on payments or make other arrangements with your lender.

If you don’t bring the account current by catching up on your payments, the student loan delinquency will be reported to the three major credit bureaus. The length of time before the lender reports your delinquency depends on the type of student loan:

  • Federal student loans: The federal student loan servicer reports an account as delinquent after 90 days of nonpayment.
  • Private student loans: Private lenders aren’t required to follow the same guidelines as federal loan servicers. Each lender has its own delinquency policies, but private lenders may report delinquencies after as little as 30 days of nonpayment.

What Is Student Loan Default?

Student loan default is the failure to repay student loans. A student loan default is serious, and can be much more damaging to your credit and financial health than delinquency. 

If a delinquent student debt is not brought current, it will enter student loan default. 

  • Federal student loans enter default after 270 days of delinquency (nine months). 
  • Private student loan default is triggered by specific events as outlined in your loan contract, such as being delinquent for a certain amount of time or even missing just one payment.

Be sure to carefully review your private student loan agreement to understand your loan’s default triggers and how your lender handles overdue or defaulted accounts.

Upon default, your current balance owed comes due immediately—you can no longer repay this debt through the original installment plan, and you can’t access forbearance, deferment, or repayment plan options. The default will also typically be reported to credit reporting agencies, which can damage your credit score and can incur additional new costs and fees. 

If you don’t immediately repay the student loan in full, the lender or servicer will take action to collect on the unpaid debt, such as contracting a collection agency or pursuing wage garnishment.

Student Loans in Default vs. Delinquency

Federal Student Loan Delinquency Federal Student Loan Default Private Student Loan Delinquency Private Student Loan Default
When is this loan status triggered? After first missed payment After 270 days of nonpayment After first missed payment Depends on lender; as early as first missed payment
When is this status reported to credit bureaus? After 90 days of nonpayment After 270 days of nonpayment  After as little as 30 days of nonpayment Upon onset of default
What actions can the lender take against you? Report late payment to credit bureaus, charge a late fee Report default to credit bureaus, wage garnishment, federal benefit and tax refund offsets, send debt to collections Report late payment to credit bureaus, charge a late fee Report default to credit bureaus, send or sell debt to collections, sue the borrower, seek a judgment to grant a lien or garnishment
What are the potential costs or fees? Late payment fees Court fees, attorney’s fees, collection fees Late payment fees Court fees, attorney’s fees, collection fees
Can you get your account back in good standing? Yes, by paying the full overdue amount  Yes, through full repayment, loan rehabilitation, or loan consolidation Yes, by paying the full overdue amount  Maybe, through repayment plan or debt settlement

A delinquency is a much simpler situation to fix—you need to repay the outstanding balance or agree on a new payment plan with your lender. 

However, once a student loan is in default, you can’t resolve it by just catching up on payments. Federal student loan defaults can be resolved through full repayment, student loan rehabilitation, or student loan consolidation. A few private lenders may offer loan rehabilitation, but borrowers may need to use other tools such as negotiating a debt settlement or payment plan. Read your loan contract or call your loan servicer to review your options.

Another important difference is that the effects of student loan default are more serious and harder to fix than those of student loan delinquency. 

Why You Need To Manage Student Loans in Default

If you put off dealing with a default, the consequences can snowball and damage your credit and financial health.

When a federal student loan defaults, the servicer can place this debt with a collection agency, where it will incur a collection fee of 17.92% of the total loan amount. Private lenders may also hire a collection agency to handle the account, or charge off the loan and sell the debt to a collection agency. You can face collection, court, and attorney’s fees here as well.

In most cases, lenders or collection agencies will attempt to work with you after default to agree to a new repayment plan. But if nonpayment continues, they can take you to court over defaulted student loans. If the lawsuit is successful, the court might grant a judgment allowing the creditor to use tools such as wage garnishment or a lien on assets to collect on the debt. 

Collection agencies can collect on federal student loan debt by garnishing wages, tax refunds, or federal benefits, such as Social Security benefits. For example, approximately $171 million in defaulted student loan debt was collected through Social Security offsets in 2015. Half of older borrowers had 15% of their monthly benefits withheld, the maximum amount allowed. A person receiving the $1,514 monthly average benefit from December 2020 would have $227 deducted each month to repay their defaulted student loans, bringing their Social Security income down to $1,287 a month.

Lastly, student loan defaults and accounts sent to collections are reported to credit bureaus, and this information can lower your credit scores and make it difficult to secure new loans or credit.

Missed payments, student loan delinquencies, and defaults remain on your credit report for up to seven years.

How To Tackle Student Loans in Default or Delinquency

 Resource  How They Can Help
Your federal student loan servicer For delinquency, apply for deferment or forbearance, or switch repayment plans. For default, explore student loan rehabilitation and consolidation, and make a plan to get out of default.
Your private student lender Discuss options for delinquency such as temporarily pausing or lowering payments. Get details about how the lender handles defaults and what options and next steps are available.
 Student Loan Borrower Assistance (National Consumer Law Center) Access resources about the legal side of student loan delinquency and default, and find legal assistance or a student loan attorney.
 Ombudsman Programs Get help dealing with complicated student loan issues or disputes with a lender. The U.S. Department of Education has a student loan ombudsman. Some states, lenders, and guaranty agencies may also have their own ombudsman.
Consumer Financial Protection Bureau (CFPB) Learn about your rights and protections as a borrower, get sample letters for actions such as disputing a debt or credit reporting, and file a complaint if you feel a lender or servicer is mishandling your student debt.
National Foundation for Credit Counseling (NFCC) Connect with a certified financial counselor for low-cost, personalized advice and possibly a debt management plan.

Frequently Asked Questions (FAQs)

What percentage of student loans are in default?

Currently, there are almost no federal student loans in default. This is a result of the CARES Act student loan relief, which placed federally owned student loans in automatic forbearance and rehabilitated defaulted student loans.

At the beginning of 2020, before this change took effect, $10.7 billion student loans owed by about 420,000 borrowers were more than 270 days overdue. Of the borrowers whose federal student loans entered repayment in 2017, 9.7% had a defaulted loan within three years.

How do I find out if my student loans are in default?

If you’re concerned your federal student loans may be in default, log into the National Student Loan Database System (NSLDS). This government resource gives you access to a complete record of your federal financial aid, including student loan balances and current statuses. 

For private student loans, reach out to your lender. You can also request a free copy of your credit report, which should list any loan delinquency or default.

Which tax form should I use if I am in default on government student loans?

There is no tax form specifically for student loan default. However, you may need to file a Form 1099-C if at least $600 of your student debt was discharged, forgiven, or settled as part of resolving a student loan default.

Can I buy a house if I have student loans in default?

Having a past student loan default can make it more difficult to secure a home loan. If you have a current or recent default on your credit report, many lenders will deny your application. Additionally, you’re ineligible for an FHA loan if you’re delinquent or have defaulted on any government loan, including federal student loans.