Note that the government has paused all repayment on federally held student loans through the end of 2022, with no interest to be charged during that period and no loans to be held delinquent or in default.
* * *
If you’ve missed payments on your student loans, you might be wondering when your student loan goes into default. Federal student loans are considered to be in default after 270 days of non-payment. Private student loan rules vary, but missed payments could trigger default even sooner.
Student loan default has a host of negative consequences, so hopefully you can avoid it altogether. Here’s what happens when you default on a student loan, what to do about it and how to prevent it if you’re on the brink. Specifically, we’ll look at …
- Signs you’re at risk of defaulting on student loans
- How to prevent student loan default
- What happens when you default on a student loan
- What to do if you’re in student loan default
The risk of defaulting on student loans increases if one or more of the following applies to you:
- Your monthly budget is so tight that one unexpected expense means not being able to afford necessities.
- Your interest rate or monthly payment has increased, and you were already struggling to make your payments.
- You’re finding that it’s becoming harder and harder to make your monthly payments in full and on time.
- You’ve already missed one payment or more.
If you think you’re moving toward student loan default, you can still take some of the steps below to avoid it. Your options will vary based on whether your loans are federal or private.
- Make a payment, even if it’s late
- Apply for deferment or forbearance
- Apply for an income-driven repayment plan
- For private loans, talk to your lender
- Consolidate your federal loans
- Refinance your private loans
If you’re already late on a payment, it’s not too late to salvage the situation. When does your student loan go into default exactly? Well, federal student loans are considered to be delinquent as soon as you miss a payment, but they don’t officially go into default until they’re unpaid for 270 days. That means you might have time to fix the situation before your loans have defaulted.
Private student loans, on the other hand, don’t have quite this much of a buffer. Since private lenders treat them similarly to other loans, private student loans can go into default as soon as they go unpaid.
Either way, if you have the money to make a payment, make it right now. Federal lenders report student loan delinquency at 90 days or more. Private lenders will report it to the credit bureaus, too, but call your lender and explain that you want to make a payment to get back on track as soon as possible.
If you don’t have the money for a payment, you might be able to suspend your payments through deferment or forbearance.
Both of these options halt your payments for a limited time, but interest will accrue during that period, unless you have federal subsidized or Perkins loans and qualify for deferment. Use a student loan deferment calculator to see an estimate of the accrued interest will have on your loans.
Private lenders are likely to offer short-term forbearance. If you qualify for economic hardship deferment or unemployment deferment on your federal loans, you can utilize them for up to three years. For subsidized federal student loans, choosing deferment is ideal if you’re eligible, since you can avoid accruing interest during that time.
Forbearance is also available on federal loans, and you can be eligible for mandatory forbearance if your monthly payment is at least 20% of your monthly gross income. This is also available for up to three years. You can also request general forbearance for financial difficulties, but in this case, approval is at the discretion of your lender.
Deferment and forbearance are effective short-term solutions if you’re on the verge of student loan default. But if student loan affordability is a long-term concern, consider income-driven repayment plans.
Income-driven repayment plans are available for federal student loans, and they reduce your monthly payment to a percentage of your discretionary income. These plans also qualify you for student loan forgiveness after a specified amount of payments, which vary by plan.
If you decide to apply for an income-driven repayment plan, keep these factors in mind:
- You’ll likely have to recertify each year. Give yourself enough time to gather paperwork and submit it before the application is due.
- Any amount of student loan debt forgiven may be considered taxable income.
The best plan for you depends on the type of loans you have and when they were disbursed. The income-driven repayment plan options are:
- Income-Based Repayment Plan (IBR)
- Income-Contingent Repayment Plan (ICR)
- Pay as You Earn Repayment Plan (PAYE)
- Revised Pay As You Earn Repayment Plan (REPAYE)
- Income-Sensitive Repayment Plan
See what each of these could save you with these calculators:
- Income-Based Repayment Plan calculator
- Income-Contingent Repayment Plan calculator
- Pay As You Earn Repayment Plan calculator
- Revised Pay As You Earn Repayment Plan calculator
Private student loans generally don’t come with income-driven repayment plans, but you’re not without options. Talk to your lender to see what financial hardship programs it offers. It’s likely that forbearance will be one of them, but the lender might also offer other plans that lower payments for a longer period of time.
Let’s say things aren’t that serious yet, but you feel that now is the time to make a change. If you have federal student loans with various servicers, consolidation could help.
Federal student loans can be consolidated via a direct consolidation loan. Not only does this loan group all your monthly payments in one, but it can make you eligible for repayment plans which you might not have qualified for before.
This loan may also extend your time to repay, which could lower your monthly student loan payment. While that’s helpful when you’re struggling to make payments, it’s worth noting that staying in debt longer can cost you more in the end.
Consolidation isn’t without its downsides. If you’ve already made headway on payments made under income-driven repayment plans so you can achieve student loan forgiveness (including Public Service Loan Forgiveness), this loan will essentially remove the progress you’ve made so far.
If you think consolidation is the right move for you, apply online by filling out a federal direct consolidation loan application.
Finally, an option for both federal and private loans is student loan refinancing, depending if you qualify based on your income, credit score and payment history. If you have weak credit, you could potentially make up for it by applying with a cosigner.
Refinancing your student loans is similar to consolidating them. It combines all your loans (or those you choose to include) into a new loan at a new interest rate and repayment term.
You can refinance federal and private student loans together, and ideally, the new loan may come with a lower interest rate than what you’re paying now. This can both simplify your monthly payments and potentially save you money on interest.
However, refinancing federal student loans means turning them into private student loans. And that means you’ll lose access to federal forbearance and deferment, income-driven repayment plans and federal student loan forgiveness. If you’re at risk of student loan default, programs that make your payments more affordable are crucial in maintaining access.
But if you have high-interest private loans and qualify for refinancing, it might be worth collecting offers to see if it makes sense for you. Use a refinancing calculator to compare your current payoff trajectory with that of the new potential loans.
There are a variety of student loan default consequences, and their impact depends on how long you’ve been behind on payments. When you default:
- You’ll lose eligibility for certain federal repayment plans.
- Your credit score will suffer.
- You could be charged large fees, making your debt harder to repay.
- You could be sued by the lender to collect on the debt.
- On federal loans, your wages could be garnished, your tax refunds can be withheld (for multiple years if necessary) and even your retirement benefits could be at risk.
- You could lose your professional license.
- Any private loan cosigners will have their credit scores impacted.
Student loans are difficult to discharge through bankruptcy. If you’re in student loan default, regain your control of the situation before it escalates.
Federal Student Aid lists three options for getting out of federal student loan default:
- Enter student loan rehabilitation.
- Consolidate your loans.
- Repay your loans in full.
Under student loan rehabilitation, you agree in writing to make nine monthly payments to your student loan servicer within a 10-month period. If you choose to rehabilitate your loan, then your credit history will no longer show the default, but it will show the late payments reported by your servicer.
Applying for a direct consolidation loan is another choice for exiting default. You must first either agree to sign up for an income-driven repayment plan or make three consecutive and on-time payments on your loan. The payments will be 15% of your annual discretionary income divided by 12. The payment can be as low as $5 per month.
Unfortunately, there are no such options for most private student loans in default. If your loans are private, the best thing to do is contact your lender and discuss your alternatives.
If you don’t have many, consider refinancing your private student loans or settling them with your lender if you have a lump sum of money you can afford to pay at once.
Many borrowers are affected by student loan default, particularly for-profit college attendees: 43% of for-profit college students defaulted within 12 years of starting college in 2004, according to 2018 data from the Brookings Institution.
But even if you didn’t attend a for-profit college, you could be facing similar struggles. Consider which of the options for avoiding or managing student loan default work best for you, and then contact your lender or servicer to get started.
Rebecca Safier and Jacqueline DeMarco contributed to this report.