To better manage your debt, it helps to understand
- how missing a loan payment can be a problem,
- what default means,
- the consequences of default, and
- what you need to do if your loan is in default or if you think the default on your loan is an error.
What is delinquency?
What is default?
What are the consequences of default?
If I’ve missed payments, how do I avoid going into default?
What should I do if my loan is in default?
What if I believe my loans were placed in default in error?
Your loan becomes delinquent the first day after you miss a payment. Even if you miss just one monthly payment and then start making payments again, your loan account will remain delinquent until you repay the past due amount or make other arrangements, such as deferment or forbearance, or changing repayment plans.
If you are more than 90 days delinquent on your student loan payment, your loan servicer will report the delinquency to the three major national credit bureaus. This will lower your credit score and negatively affect your finances.
Note: Credit bureaus may be called "consumer reporting agencies" on the promissory note you signed before receiving your loan.
If you have a poor credit rating, it can be difficult for you to obtain
- credit cards,
- home or car loans, or
- other forms of consumer credit.
Note: You may also be charged a higher interest rate than someone with a good credit rating.
You also may have trouble
- signing up for utilities,
- getting homeowner's insurance,
- getting a cell phone plan, or
- getting approval to rent an apartment (credit checks usually are required for renters).
It's important to pay the amount shown on your bill—and to pay by the due date.
If your loan continues to be delinquent, the loan may go into default. The point when a loan is considered to be in default varies depending on the type of loan you received.
For a loan made under the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program, you’re considered to be in default if you don’t make your scheduled student loan payments for a period of at least 270 days (about nine months).
For a loan made under the Federal Perkins Loan Program, the holder of the loan may declare the loan to be in default if you don’t make any scheduled payment by the due date. Find out where to go for information about your Perkins Loan.
The consequences, which can be severe, include the following:
- The entire unpaid balance of your loan and any interest you owe becomes immediately due (this is called "acceleration").
- You can no longer receive deferment or forbearance, and you lose eligibility for other benefits, such as the ability to choose a repayment plan.
- You will lose eligibility for additional federal student aid.
- The default will be reported to credit bureaus, damaging your credit rating and affecting your ability to buy a car or house or to get a credit card.
- Your tax refunds and federal benefit payments may be withheld and applied toward repayment of your defaulted loan (this is called “Treasury offset”).
- Your wages will be garnished. This means your employer may be required to withhold a portion of your pay and send it to your loan holder to repay your defaulted loan.
- Your loan holder can take you to court.
- You may not be able to purchase or sell assets such as real estate.
- You may be charged court costs, collection fees, attorney’s fees, and other costs associated with the collection process.
- It may take years to reestablish a good credit record.
- Your school may withhold your academic transcript until your defaulted student loan is satisfied. The academic transcript is the property of the school, and it is the school's decision—not the U.S. Department of Education’s or your loan holder’s—whether to release the transcript to you.
If you’re having trouble making payments on a federal student loan from the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program, immediately contact your loan servicer, the agency that handles the billing and other services for your loan. If you don’t know who your loan servicer is, visit “My Federal Student Aid.”
If you’re having trouble making payments on your Federal Perkins Loan, immediately contact the organization that handles the billing and other services for your loan. This may be the school where you received the loan, or a loan servicer working on behalf of the school or other holder of the loan. Find out where to go for information about your Perkins Loan.
If you’ve defaulted on any of your federal student loans, contact the organization that notified you of the default as soon as possible so you can explain your situation fully and discuss your options. If you make repayment arrangements soon enough after your loan has gone into default, you may be able to resolve the default quickly.
If you believe your loan has been placed in default by mistake, here’s what you can do to correct the error.
If you’ve been attending school at least half-time and should have received an in-school deferment on your loan, contact your school’s registrar to get a record of all your dates of at least half-time attendance. Contact each school you have attended since you received your loan so your documentation is complete. Then, ask your loan servicer for the last date of attendance they have on file for you. If they have the incorrect date for your last date of attendance, provide your loan servicer with a copy of your documentation showing the correct date.
If you were not making payments on your loan because you believed that you had been approved for a deferment or forbearance, ask your loan servicer to confirm the start and end dates of any deferments and forbearances that were applied to your loan account. If the loan servicer has incorrect information, provide documentation with the correct information.
If you believe that you didn't receive credits for payments that you made, ask your loan servicer for a statement that shows all the payments made on your student loan account. If payments you made are not listed, provide proof of payment to your loan servicer and request that the information in your account be corrected.