Student loan default can feel overwhelming. But if you’ve defaulted, you’re not alone: More than 10% of federal student loan borrowers default within three years of entering repayment, according to the Education Department.
The worst thing to do when student loans default is ignore them. You can get loans back in good standing with options like loan rehabilitation and consolidation. Take action as soon as possible to avoid or stop penalties like garnished wages and seized tax refunds.
What is student loan default?
Student loan default means you did not make payments as outlined in your loan’s contract, also known as its promissory note. Default timelines vary for different types of student loans.
- Federal student loans. Most federal student loans enter default when payments are roughly nine months, or 270 days, past due. Federal Perkins loans can default immediately if you don’t make any scheduled payment by its due date.
- Private student loans. The Consumer Financial Protection Bureau states that private student loans often default after three missed payments, or 120 days total, but check your loan’s promissory note to know the specific timing. Some private loans default after one missed payment.
Delinquent federal student loans are eligible for postponements and repayment plans that could make payments more affordable, such as income-driven repayment, deferment and forbearance. You cannot use these options once loans default, so contact your servicer immediately if you fall behind on your payments.
Many private lenders will help you catch up on payments by temporarily lowering your monthly payment or allowing you to pause repayment with a deferment or forbearance.
Are your student loans in default?
If you aren’t sure if your student loans are in default, the easiest way to find out is to check with your servicer. If you aren’t sure who that is — or aren’t ready to have a conversation with them about your loans — you have a couple of other options.
- Log in to StudentAid.gov. All federal student loan borrowers have a My Federal Student Aid account they can access with their FSA ID. Sign in to your account, select a loan and look at its repayment status to see if it’s listed as in default. Your account also includes information about your servicer, if you need it.
- Pull your credit report. Your credit report will list federal and private student loan defaults under the negative information section. You can get a copy of your report for free once a year at annualcreditreport.com.
These resources may not be updated in real-time, so your loan could be in default and not show up as such. Confirming your loan’s status with your servicer is your best bet.
Federal student loan holders can place defaulted student loans with a collection agency if you do not make payment arrangements with them. Private student loans are typically considered “charged off,” or uncollectible, after 120 days of missed payments and can be sold to a collection agency
Debt collectors are required to follow the Fair Debt Collection Practices Act (FDCPA) when contacting you. If collectors are harassing you over your federal or private loans, you can submit a complaint to the Consumer Financial Protection Bureau. The CFPB also has sample letters you can use when responding to bill collectors.
What happens if you default on student loans?
A student loan default can affect you in many ways. Penalties of default include the following.
Private student loan holders can’t take your tax refunds or Social Security payments, but they can take you to court. If they receive a judgment in their favor, they can garnish money from your paychecks or even your bank accounts to pay your defaulted loan.
For example, let’s say you owe $30,000 at the time of default. You could have to pay as much as $7,500 in collection costs on top of that $30,000 balance to pay off your loan.
If you’ve already graduated, your school can choose to withhold your academic transcript until your debt is repaid.
One penalty you don’t have to worry about is being arrested or imprisoned for not paying a student loan. However, your lender can sue you to repay your loans. In many states if your lender wins a court judgment against you, you can be arrested for not complying with the court’s order. Don’t ignore a court summons.
How to get student loans out of default
The Education Department offers three clear ways to recover from federal student loan default: repayment, consolidation and rehabilitation. Each can prevent or halt the consequences of default if you act fast enough; the best one for you will likely depend on your priorities.
If you want to get out of debt entirely
When student loans default, the full amount owed becomes due immediately. If you can afford that, you can pay off your loans and be done with your debt. Of course, that won’t be possible for most borrowers. You may be able to negotiate a student loan settlement for less than you owe, but don’t expect big savings.
Don’t take on a personal loan to pay your student loans — even if they’re in default. Personal loans typically carry higher interest rates than student loans. Explore other remedies that won’t put you in more debt.
If you want to help your credit
Student loan rehabilitation is the best option in most cases because it’s the only one that removes the default from your credit report, though previously reported late payments will remain.
To rehabilitate your loans, you must make nine monthly loan payments within 10 consecutive months. Your monthly payments will be 15% of your discretionary income, or you may request a lower amount.
You can only rehabilitate a student loan once. If you choose this option, make sure you can afford your payments once you complete the process, likely by enrolling in an income-driven repayment plan.
If you want to resolve the default quickly or already rehabilitated the loan
Besides paying in full, student loan consolidation is the fastest route to exit default. You can do either of the following to qualify:
- Make three full, on-time, consecutive monthly payments on the defaulted loan.
- Agree to repay your new loan under an income-driven repayment plan.
Consolidation may make sense if you have to resolve the default quickly, for instance if you’re returning to school and need access to financial aid. Consolidation will not remove the default line from your credit report.
Ask your lender about possibilities for getting out of default. It may have options similar to federal loan default programs, or you may be able to negotiate another resolution to repay or agree to a student loan settlement for less than you owe.
If you can’t work something out with your lender, consider contacting a lawyer who specializes in student loans. The private student loan market is especially complicated, so having someone who understands the system, your rights and your options is crucial.