Student loan default occurs when a borrower fails to pay their loans according to the terms of their loan agreement. Loans go into default after months of missed payments, but the exact timeline varies depending on if you have federal or private student loans.

Defaulting on a student loan has serious consequences, including having to pay the entire loan balance immediately and becoming ineligible for forbearance and deferment.

If you have experienced loan default on a student loan, you can take a few steps to get back on track and start repairing your financial situation.

What is student loan default?

So, what does it mean to default on a loan? When your student loan goes unpaid for several months it is typically considered in default. When you fail to pay your student loan by the due date, your loan becomes delinquent. At that point, your student loan will remain delinquent until you pay the amount you owe, qualify for deferment or forbearance or change your repayment plan.

Once your student loan payment is 90 days late, your loan servicer will report your delinquency to the three credit bureaus — Experian, Equifax and TransUnion.

At that point, your loan will transition from delinquency to default on a different timeline depending on the type of student loans you have.

  • With federal student loans, your loan is usually considered in default when you don’t make your scheduled payments for 270 days. One exception is Perkins Loans, which can be considered default if you miss a single payment.
  • With private student loans, you are usually considered in default after you miss three monthly payments or 90 days total.

How do I know that my student loans are in default?

If your student loans become delinquent or past due, you will likely be notified by your loan company or servicer. You may receive a notice in the mail, a call from your servicer or an email with details on your late payment, but it could depend on the process you normally use to pay your student loan bill.

If you let your student loan payments become several months past due, you should anticipate them being in default in the near future. Once your student loans default, you should see them listed on your credit reports, which you can see for free from all three credit bureaus using AnnualCreditReport.com.

You can also log into the Federal Student Aid website to see the status of your federal student loans, including any information on past-due, delinquent or defaulted amounts.

What happens if I default on my student loans?

It’s not unusual to find yourself wondering ‘What happens if I default on my student loan payment?’ The answer is you could face a variety of consequences. For instance,  the results of this financial misstep can impact your ability to get approved for anything involving a soft or hard credit check.

If you have poor credit due to defaulting on your student loans, for example, you may not be able to qualify for a credit card, borrow money to purchase a car or take out a mortgage to buy a home, regardless of your income.

If you can get approved for consumer credit, you’ll likely also pay a higher interest rate and more fees than someone whose credit score is in good standing.

Additional consequences of defaulting

Student loan default could also cause difficulty signing up for utilities or qualifying for reasonable homeowners insurance rates. You might even have trouble getting a cellphone plan or qualifying to rent without a co-signer.

With federal student loans specifically, defaulting can lead to the entire unpaid balance of your loan and any interest you owe becoming immediately due through a process called “acceleration.”

Yet another consequence of default is that you are no longer eligible for deferment or forbearance, nor can you change your repayment plan at that point. You won’t be able to access federal student aid either.

Even more seriously, the loan holder can take you to court, whether you have a private or a federal loan and your wages could be garnished. In addition, you will likely be on the hook for court costs, collection fees, attorney fees and additional costs associated with the collection process.

While all of this takes place, late fees and interest will continue to accrue on your debts, meaning the problem only gets worse. Your school could also withhold your academic transcript until you get your student loans out of default.

The key point to remember is that defaulting can have a variety of serious and costly financial ramifications that may impact your life and finances for years to come. If you are concerned that you may go into default or are having financial challenges, it’s important to reach out to your loan servicer proactively and find out more about the options available and make arrangements to try and avoid default.

How do I get my student loans out of default?

In addition to knowing what student loan default is,it’s important to know how to turn the situation around. If you’ve already defaulted on your student loans, there are ways to get back in good standing.

Federal student loans

In March 2020, collection activity was put on hold for defaulted federally-owned student loans or grant overpayments. This temporary relief is set to expire in October. The Education Department has said it will allow all borrowers with defaulted federal loans or delinquent payments to re-enter repayment in good standing in January.

There are three main ways to get your federal student loans out of default: paying your entire loan balance in full, pursuing loan rehabilitation or applying for loan consolidation. Since most people cannot afford to pay their loans off in one big chunk, rehabilitation and consolidation are the only options most can consider.

With federal loan rehabilitation, you start by contacting your loan servicer. When you rehabilitate a federal Direct Loan or FFEL loan, you must:

  • Make nine affordable monthly payments (as determined by your loan holder) within 20 days of the due date and agree to these terms in writing.
  • Make all nine of the agreed-upon payments during a period of 10 consecutive months.

The monthly payment you make under loan rehabilitation typically equals 15 percent of your monthly discretionary income. According to the U.S. Department of Education, discretionary income is “the amount of your adjusted gross income (from your most recent federal income tax return) that exceeds 150 percent of the poverty guideline amount for your state and family size.”

Because of the way loan rehabilitation payments are determined, your loan amount during the rehabilitation process could be as low as $5 per month.

With federal loan consolidation, you get the chance to combine your existing federal student loans into one new one. To qualify for this plan for defaulted loans, you must do one of the following:

  • Repay your new Direct Consolidation Loan under an income-driven repayment plan.
  • Make three consecutive, voluntary, on-time, full monthly payments on the loan in default before the consolidation takes place.

Private student loans

The rules are different for private student loans. If you have private student loans in default, you may be able to negotiate a settlement on your debt in collections. You could also try to work with your loan servicer to get back up to date, which you can facilitate by reaching out and explaining your situation.

Many individuals with private student loan debt they cannot manage also reach out to a student loan lawyer for help.

Next steps

Once you have taken steps to get your student loans out of default, it’s important to avoid making the same mistakes again. Your best move is making sure that you have a monthly payment that you can afford without financial hardship.

You can do this by:

  • Looking into income-driven repayment plans that let you pay a percentage of your discretionary income on your loans for 20 to 25 years.
  • Refinancing your student loans with a private lender in order to secure a lower interest rate and a more affordable payment.
  • Choosing among federal student loan repayment plans (for existing federal loans), which may let you repay your loans for up to 30 years.

Also make sure that you set yourself up for success when it comes to planning for your student loan payments. This can mean starting a monthly budget that helps you plan for each of your bills and your average expenses, but it can also mean cutting discretionary spending so you have more wiggle room in your budget each month. Finally, you can also consider setting up your student loan payments to be sent in automatically so you never forget to pay.

Frequently asked questions

  • While it’s possible to dispute incorrect details on your credit reports and have the information removed, negative marks based on unpaid student loans will remain on your reports for at least seven years. Student loans are notoriously difficult to discharge in bankruptcy, and disputing them on your credit reports will not help, either.

    Your best bet is to make sure your payment is affordable and pay what you owe, no matter how long it takes. However, some student loan forgiveness programs can help you wipe away your debt sooner rather than later.
  • If you cannot repay your student loans now, you may want to look into federal deferment and forbearance. Both let you pause your student loan payments while you get back on your feet. Interest may still accrue during this time, but either type of relief can buy you time.

    While there aren’t as many options for private student loans, borrowers with these loans can reach out to their lender for hardship relief options and alternative repayment plans.
  • Generally speaking, you cannot go to jail for defaulting on your student loans. However, your lender can and likely will sue you, your credit score could take a significant hit, your wages could be garnished and you could end up owing a lot more in fees and interest over the long run.
  • No, unfortunately not. Federal student loans are not eligible for any forgiveness programs if they are in default.