How Many Days Until a Student Loan Goes Into Default?

Navigating student loan repayment requires understanding payment statuses and their implications. Student loans are a significant financial commitment, and managing them effectively involves more than just making monthly payments. Knowing the progression from on-time to missed payments helps borrowers understand their standing.

Understanding Delinquency

A student loan becomes delinquent the day after a scheduled payment is missed. While delinquency begins immediately, its impact on a borrower’s credit report typically takes longer to manifest. For federal student loans, servicers generally report delinquency to national credit bureaus once the payment is 90 days past due. This reporting can negatively affect a borrower’s credit rating.

During delinquency, borrowers receive communication from their loan servicer, including reminder notices and warnings. The servicer may also offer options to resolve the delinquency, such as changing repayment plans or requesting a deferment or forbearance. Addressing delinquency promptly is important, as it is a precursor to default.

The timeline for a loan to transition from delinquency to default varies by loan type. Most federal Direct Loans and Federal Family Education Loan (FFEL) Program loans default if payments are not made for at least 270 days. Federal Perkins Loans can be declared in default by the loan holder if a payment is missed by its due date.

Private student loans often follow a shorter delinquency timeline. While specific periods vary by lender, private loans may default after 120 to 180 days of missed payments. Some private lenders may consider a loan in default after three missed monthly payments, which could be as short as 90 days. Borrowers should review their specific loan agreements to understand their lender’s delinquency and default policies.

Defining Student Loan Default

Student loan default represents a breach of the loan agreement, indicating a failure to repay the debt. This status is more severe than delinquency, which is a temporary state of missed payments. Default is triggered by criteria that differ between federal and private student loans.

For most federal student loans, including Direct Loans and Federal Family Education Loan Program loans, default occurs when a borrower fails to make scheduled payments for at least 270 days. This period of non-payment signifies the borrower has not fulfilled their obligation under the promissory note. Default can also be triggered by a failure to comply with other terms of the promissory note, though continuous missed payments are the most common cause.

Private student loan default is defined by the individual loan agreement between the borrower and the private lender. The triggers for default can vary considerably. Private loans often define default after a shorter period of missed payments compared to federal loans, typically ranging from 120 to 180 days. Some private loan agreements may stipulate that a single missed payment or a shorter period of delinquency can lead to default.

The distinction between delinquency and default is important. Delinquency means payments are late, but the loan has not yet entered default. Default signifies a long-term failure to adhere to the loan’s repayment terms. Once a loan is in default, the entire outstanding balance, along with accrued interest, may become immediately due, a process known as acceleration.

Loan Holder Actions Following Default

Once a student loan enters default, loan holders, whether federal or private, initiate actions to recover the outstanding debt. For federal student loans, the entire unpaid balance, including all accrued interest, becomes immediately due, a process referred to as acceleration. The defaulted loan may then be transferred to a collection agency, and the borrower becomes liable for additional collection costs.

Federal loan holders report default to major credit bureaus, which can damage the borrower’s credit rating for up to seven years. The federal government can also initiate administrative wage garnishment, withholding up to 15% of a borrower’s disposable pay directly from their employer without a court order.

Federal loan holders can use the Treasury Offset Program (TOP), withholding federal payments like income tax refunds or Social Security benefits, to apply toward the defaulted loan balance. Borrowers in default also lose eligibility for future federal student aid, including grants and additional loans. They forfeit access to various repayment plans, deferment, and forbearance options. Schools may also withhold academic transcripts.

For private student loans, lender actions after default are serious but differ from federal actions. Similar to federal loans, the entire outstanding balance of the private loan typically becomes immediately due upon default. Private lenders report default to credit bureaus, negatively impacting the borrower’s credit score and making it difficult to obtain other forms of credit.

Private lenders may sell defaulted loans to a collection agency, which will pursue repayment and potentially add collection fees. Unlike federal loans, private lenders generally cannot garnish wages or seize tax refunds without first obtaining a court judgment. However, with a court judgment, private lenders can pursue legal actions such as wage garnishment or freezing bank accounts.