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Student Loans Student Loan Repayment

Student Loan Default Guide

Updated Sep 01, 2023   |   13-min read

As student debt continues to grow—with student loan debt in the U.S. nearing $1.6 trillion—a report from the Brookings Institution estimates almost 40% of borrowers will default on their loans by 2023. 

Student loan default is when you fail to pay your loans as you agreed, but federal and private lenders vary on when borrowers cross the threshold from delinquent to default.

In this guide:

What is student loan default?

Your loan is in good standing as long as you make the payments as promised. But if you fail to maintain this monthly obligation, lenders will label your loans as delinquent. Your loan is considered delinquent as soon as you’ve missed a payment, even if it’s just been one day.

Note: Your student loans aren’t in automatic default if you miss a payment or two. It’s a specific term lenders use for loans that are seriously past due and they think are unlikely to be repaid. 

When that happens, they start to take more aggressive action. Negative consequences of default include:

>>Read more: What to do if student loans are in collections

How many days after missing a student loan payment do your loans go into default?

No universal period dictates when a loan defaults, and different lenders abide by different standards. For example, the federal government considers loans to be in default after 270 days, or about nine months, of nonpayments.

However, private student loan default is different. Each lender determines its rules and requirements Many private student loan lenders’ default policies trigger in three or four months, but they can be as little as one month. 

You can contact your lender if you’re unsure whether your loan is federal or private. Check your credit report if you don’t know who your lender is. 

Check your promissory note to determine the default policy on your private loans. Your lender would have given this to you when you signed the loan. You can contact your lender for another copy if you don’t have one. 

What happens if you default on a student loan?

Once your student loan defaults, the consequences sometimes depend on whether they’re federal or private loans. 

You might expect the following:

ConsequenceApplies to federal loans?Applies to private loans?
Loan becomes due in full
Damaged credit score, which can last for 7 years
Frequent bothersome contacts via phone, email, mail, or social media from lender or collections agency
Being sued in court
Wage garnishment✔ 
(with a judge’s order)
Tax refund garnishment
Cosigner forced to pay
Lose eligibility for federal benefits, including the ability to withdraw more federal financial aid, deferment or forbearance options, and access to government-backed mortgages

Federal student loan default

If you default on your federal loans, will lose access to protections and benefits such as deferment, forbearance, flexible repayment plans, and loan forgiveness.

And if you remain in default, the government can withhold federal benefits such as Social Security and tax refunds as repayment. It can also garnish up to 15% of your wages, meaning a portion of your paycheck is sent to the lender.

When you default, you may also find you’re on the hook for the entire sum of your loan plus interest, and you may also face additional debt collection fees. 

Private student loan default

You and your cosigner are vulnerable to a host of negative consequences if you default on your private student loans.

If you default and have a cosigner (and 91% of undergraduate private loans taken out during 2020 and 2021 did), most lenders will start seeking payment from them. Their credit will also suffer the same adverse effects of loan default.

The federal government reserves the right to garnish your checks or keep your tax return, but private lenders must go through legal channels to do so. That means your lender could sue you and your cosigner. 

That can result in legal fees and up to 25% of your paycheck being garnished. The lender can also get a court order to seize your assets or place liens on the property you own.

>>Read more: What to do if you can’t pay your student loans

How to avoid student loan default

If you’ve already missed a monthly payment, loan default could be underway if you have private student loans. 

If you have federal student loans, they don’t default until you’re 270 days past due.

If you think you may default on your loans, you can take several steps to prevent it. These include student loan financial hardship options you should consider before defaulting.

Contact your lender

If you can’t afford to pay, contact your lender about options. It can be scary to admit you might not be able to make the payments. But lenders prefer working with you to set up a solution in advance to pursuing you for nonpayment later.

If you have federal student loans, you may be able to enter into deferment or forbearance, depending on your situation. Deferment is better for borrowers because interest won’t accrue on your Subsidized loans, whereas with forbearance, it will.

If you have private student loans, you may only have access to forbearance.

Who is the servicer on my defaulted student loans?

In some cases, like with federal student loans, your lender will transfer you to a different loan servicer—i.e., the organization that handles the customer service side of your loan—when you default on the loan.

Suppose you default on a federal student loan. In that case, the Department of Education will transfer your loan servicer to its in-house collections agency, the Default Resolution Group, to help you get back on track. 

If you default on private student loans, you’ll need to contact your lender to find out who your loan servicer is and whether it’s changed.   

Revisit your payment plan

If you have a federal student loan and haven’t yet defaulted on your loans, you may be able to enter into an income-driven repayment plan, which might result in a more affordable monthly payment that accommodates your income and family size.

Important: Under the Biden administration’s Fresh Start plan, you’ll remain eligible to sign up for a new payment plan even if you default on your loans. This feature will end one year after the current pause on federal student loan payments ends. 

While private student loans don’t offer the same level of protection available to federal student loan borrowers, certain private loan programs offer their version of flexible repayment options. For example, Ascent Student Loans offers a Progressive Repayment Plan with its newer loans. This adjusts the payments, so you pay less as you start repayment. As you go on, payments become larger, so you’ll finish paying it off in the same time frame.

However, these programs are quite rare with private student lenders. Often, the options are to request forbearance or see if your lender offers nonadvertised assistance.

Consolidate or refinance

When you consolidate or refinance your student loans, you replace one or more loans with a single loan. If you were making multiple payments before, it simplifies the process by combining them into one payment.

However, that’s where the similarities end. 

What is consolidation?

Consolidation is only for federal student loans. Your interest rate will be the combined average of your current loans, so you won’t save money. 

But you can stretch your loan term to 30 years, offering lower payments. Note you’ll likely pay more interest in the long run.

What is refinancing?

Private student loan refinancing, on the other hand, is an option for both private and federal student loans. You may get a lower student loan interest rate if you refinance your loans before you miss a payment and take a hit to your credit. Otherwise, you may need a cosigner.

You likely won’t be able to refinance defaulted student loans or loans on which you’ve missed multiple payments.

Before you refinance any federal student loans, consider the potential ramifications of moving federal loans to the private space. 

When you refinance federal student loans instead of consolidating them through a Direct Consolidation Loan, you’ll lose benefits including income-driven repayment plans, loan forgiveness, and the current COVID-19 pause on federal student loan payments.

Can you get out of student loan default?

Getting out of student loan default is possible, though your options depend on your loan type.

ProgramFederal or private loans?ProsConsHow it works
Federal loan rehabilitationFederal Removes record of default from your credit report.

Regain access to loan benefits and protections.
Takes 9 months to complete.Make 9 on-time monthly payments of 15% of your income, as determined by your loan servicer.
Private loan rehabilitationPrivateGet your student loans out of default.Not all lenders offer it, and terms may vary.Varies by lender.
Direct Consolidation LoanFederalRegain access to loan benefits and protections.

Can be done quickly.

Stretch your loan term up to 30 years.
Default stays on your credit report.Combine all your federal loans into a single loan with a term length ranging from 10 to 30 years.
RefinanceBothMay get a lower interest rate if you have a good credit score.

May be able to get a longer term for smaller payments.
Federal student loans lose benefits and protections.

Often requires good credit or a cosigner.
Replace one or more current student loans with a new loan featuring better rates or longer terms.
Settle your debtBothMay be released from loan without having to pay back full amount.May need to come up with a large lump sum upfront.
Might need to pay extra taxes.

May be best to hire an attorney and tax accountant.

Can run into issues with debt statute of limitations on collection.
Negotiate an amount to pay your lender in one large lump sum to be released from your loan obligation.

Loan rehabilitation

If you have a Direct Loan, a Perkins Loan, or a Federal Family Education Loan, you may be able to enter a loan rehabilitation program. 

To take advantage of this program, you must voluntarily (e.g., not via wage garnishment) make nine consecutive, reasonable payments (determined by your lender) within 20 days of your due date.

A typical reasonable payment is 15% of your discretionary annual income divided by 12 months.

Direct Consolidation Loan

If you have federal loans, you can also take advantage of a Direct Consolidation Loan, which will consolidate your loans and enter them into a new student loan repayment agreement. 

You must make three on-time payments in a row on your current defaulted loans to be eligible for consolidation. You can also consolidate right away if you agree to enter an income-driven repayment plan. 

Refinance

In addition to preventing a default, refinancing can help you get out of default. If you refinance your loan, you will take out another loan to repay the one that’s in default. 

This is trickier than a standard refinance, however. Many lenders won’t allow you to refinance if your loans are in default. And if they do, they may require you to have a cosigner.

Settle your debt

In some cases, borrowers who have defaulted on private loans may be able to work with their loan collectors to negotiate a settlement payment

If this is the case, the collector may agree to reduce the amount you owe in exchange for payment in full.

Settling isn’t always ideal, but it might be right for you if you’ve exhausted all other options and can pay in full. 

Remember: You may owe taxes on any loan balances your lender forgives in the settlement.

FAQ

How does the federal pause on student loan repayment affect default?

Congress passed changes to the federal student loan program as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 27, 2020, to help those affected by the coronavirus.

Your federal student loan payments are suspended without penalty and without any interest accruing until September 1, 2023. Payments will be due starting in October.

Under the Biden administration’s Fresh Start program, you can enter an income-driven repayment plan immediately if your federal loans are in default, rather than going through the hassle of a Direct Consolidation loan first. This program lasts until a year after the pandemic-related student loan payment pause ends. 

If you are pursuing Public Service Loan Forgiveness or forgiveness through an income-driven repayment plan, skipped payments count toward the monthly payments required to be eligible. The same is true for borrowers working to meet student loan rehabilitation requirements.

During this time, the government will not garnish tax refunds or money from other federal benefits for borrowers behind on student loan payments.

What if my loan is in default by mistake?

First, reach out to your lender to find out why it put your loan in default. If you believe it was an error, gather proof that it’s a mistake. 

For example, if a customer service representative agreed to place your loan in forbearance, show a copy of the email or note the date of the call and the representative you spoke with.

You may need to consider hiring an attorney who specializes in helping student loan borrowers if you can’t resolve the dispute and believe you are correct.