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Delinquency paves the way to default when it comes to repaying student loans<\/a>, and millions of Americans who borrowed to fund their postsecondary education find themselves on that problematic path each year.<\/p>\n<\/div>\n About 15% of all individual student loans are in default at any given time, with more than a million student loans entering default annually, according to the Education Data Initiative<\/a>. As of December 2021, the independent research team reports, nearly 8% of all student loan debt was in default to the tune of $124.4 billion. <\/p>\n<\/div>\n The default numbers are higher when it comes to federal student loans, which accounted for nearly 93% of all student loans in the first quarter of 2022 and typically have more generous repayment terms than private student loans. According to a 2021 survey<\/a> for The Pew Charitable Trusts that focused on undergraduate borrowers who took out their first federal student loans between 1998 and 2018, 35% have defaulted and two-thirds of that group have defaulted more than once. <\/p>\n<\/div>\n Failing to properly repay federal student loans, which are funded by taxpayers and administered by the U.S. Department of Education, invites severe consequences ranging from wage garnishment \u2013 in which the government withholds a percentage of your paycheck \u2013 to seizure of income tax refunds. But it doesn\u2019t have to get to that point, experts say.<\/p>\n<\/div>\n \u201cI\u2019ve been working in the student loan industry for decades, with thousands of borrowers on both the compliance and advocacy sides. I can count on one hand the number of people who couldn\u2019t be helped,\u201d says Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit that provides free advice and resources to student loan borrowers. \u201cThere\u2019s almost always a solution to help keep people from defaulting on their federal student loans.\u201d<\/p>\n<\/div>\n Here\u2019s what you need to know about federal student loan delinquency and default, how to avoid both scenarios and what you can do if they occur.<\/p>\n<\/div>\n Delinquency occurs when a payment on a student loan is past due, whether it\u2019s missed completely or even just one day late. It means that the borrower has broken a contract \u2013 called a promissory note<\/a> \u2013 to repay the loan according to terms.<\/p>\n<\/div>\n After 90 days of nonpayment, the student loan servicer typically reports the borrower\u2019s delinquency to the three major U.S. consumer credit bureaus: TransUnion, Equifax and Experian. This can result in a dip in the borrower\u2019s credit score<\/a>, which can reduce future chances of getting credit and cause higher interest rates on future loans.<\/p>\n<\/div>\n The credit agencies get updates every 30 days, so the negative effect on a delinquent borrower\u2019s credit score could become worse the longer a loan is delinquent. Also, late fees may be assessed, adding to the debt.<\/p>\n<\/div>\n If you are delinquent for 240 days, expect a letter from your student loan servicer<\/a> giving you 30 days to pay the loan and related costs in full. For most student loans, once you\u2019re delinquent 270 days, you enter default.<\/p>\n<\/div>\n \u201cIf you think you can\u2019t afford payments now,\u201d Mayotte says, \u201cyou really can\u2019t afford a default.\u201d<\/p>\n<\/div>\n Ignoring your delinquency status and communication from the servicer usually leads to default, experts say. Compared to private student loans, which usually have a shorter window before default, federal student loans provide significant time and more options to take preventive steps.<\/p>\n<\/div>\n By the time you default, it\u2019s too late for other options such as deferment, forbearance<\/a> or an income-driven repayment plan that could have significantly lowered your monthly payments.<\/p>\n<\/div>\n When you default, a cascade of consequences can occur:<\/p>\n<\/div>\n <\/react-trigger><\/p>\n In addition, a professional license can be revoked, suspended or denied in some states if you default on a student loan. And a default may stay on your credit report for seven years, affecting your ability to borrow for major purchases such as a car or home<\/a>.<\/p>\n<\/div>\n Avoiding student loan delinquency and default begins before you even start college, experts say. They recommend being cost-conscious when selecting a field of study and a school, and seriously weighing the return on investment<\/a> for the credential you hope to earn.<\/p>\n<\/div>\n \u201cFamilies often make college choice an emotional choice,” Mayotte says, noting that many students change their college or major at some point “no matter how passionate a student is about a school.”<\/p>\n<\/div>\n \u201cLook at ROI,” she advises. “It\u2019s not all or nothing. Some (students) attend a lower school the first two years and then transfer to their dream school for the final two years. That can save money. And there\u2019s nothing wrong with going part-time. If money becomes an issue, can you still take one class rather than withdrawing? It might take longer to get the degree, but you will get it.\u201d<\/p>\n<\/div>\n Considering life goals when seeking the best educational match has financial implications, says Dana Kelly, vice president of professional development and institutional compliance at the National Association of Student Financial Aid Administrators. Desire to finish a degree is another factor in school fit, she adds, noting that students who drop out<\/a> are more likely to default.<\/p>\n<\/div>\n \u201cYou go to college with a plan for your future, right? And a four-year degree may not be the right plan, so don\u2019t allow yourself to be sort of forced into that if maybe there is a community college<\/a> program that better suits your needs and is less expensive,\u201d Kelly says. \u201cCertainly, the right educational fit is important because if you\u2019re not happy in the pursuit of your degree, you\u2019re probably not going to finish.\u201d<\/p>\n<\/div>\n Sound financial practices such as budgeting and paying bills on time can also set borrowers up for success when they begin repaying student loans, experts say, as well as staying in touch with the loan servicer, understanding repayment options and automating monthly payments.<\/p>\n<\/div>\n \u201cA habit is important,\u201d Mayotte says. \u201cThere\u2019s a lot of data out there that shows that people who tend to be the most successful at paying their loans are those who are in the habit of making a payment each month.\u201d<\/p>\n<\/div>\n If you begin to struggle financially or anticipate trouble making a loan payment on time, contact the servicer immediately and see if you qualify for a reduced payment plan, deferment or forbearance, experts recommend.<\/p>\n<\/div>\n A deferment or forbearance allows you to temporarily stop making payments.<\/p>\n<\/div>\n \u201cThe pro of forbearance, I tell my clients, is to bide your time a little bit,\u201d says Trent Graham, program performance and quality assurance specialist at GreenPath Financial Wellness, a national nonprofit organization that provides financial counseling and education. \u201cSometimes you can get 12 months in forbearance. And more than once. It kind of pushes (repayment) down the road a little bit, helps you in the short term in the hopes you will be in a better situation later. It also protects your credit better so you can focus on some other bills and maybe pay off some other things in the interim.\u201d<\/p>\n<\/div>\n Graham notes, however, that loan interest still accrues during forbearance \u2013 it doesn’t for deferment, except on unsubsidized federal student loans \u2013 so your balance will be higher at the end of the nonpayment period unless you were paying the interest during it.<\/p>\n<\/div>\n Forbearance should be used “more judiciously\u201d than deferment, Kelly says, but \u201cit\u2019s better than going into default or becoming delinquent.\u201d<\/p>\n<\/div>\n Getting familiar with helpful information on loan servicers\u2019 websites and on StudentAid.gov<\/a>, a federal Education Department website, can help borrowers avoid delinquency and default, experts say.<\/p>\n<\/div>\n \u201cYou don\u2019t have to navigate all of that by yourself,\u201d Kelly says. \u201cYou can call the servicer and ask for the help you\u2019ll need and you\u2019ll get it. Ignorance and denial are probably the two worst things to associate with your student loans, because those are the two things that are going to get you into trouble.\u201d<\/p>\n<\/div>\nWhat Is Federal Student Loan Delinquency?<\/b><\/h2>\n<\/p>\n
What Is Federal Student Loan Default?<\/b><\/h2>\n<\/p>\n
Consequences of Federal Student Loan Default<\/b><\/h2>\n<\/p>\n
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How to Avoid Federal Student Loan Delinquency and Default<\/b><\/h2>\n<\/p>\n
How to Get Out of Federal Student Loan Default<\/b><\/h2>\n<\/p>\n