Delinquency vs. Default: What’s the Difference?
While often used interchangeably, these terms represent two different stages of a missed payment. Understanding the distinction is key.
- Delinquency: A loan becomes delinquent the first day after a missed payment. This serves as an initial warning. While it may result in late fees and a minor impact on your credit, it can be quickly cured by making the overdue payment.
- Default: A loan enters default after being delinquent for a long period—typically 270 days for federal loans. At this point, the lender considers the loan agreement broken, and the consequences become much more severe.
Consequences of Student Loan Default
Because the U.S. government backs most student loans, it has significant power to collect the debt owed. The consequences of default are severe and can have a lasting financial impact.
- Acceleration: The entire unpaid balance of your loan, including accrued interest, becomes immediately due and payable.
- Credit Score Damage: A default remains on your credit report for seven years, which can severely damage your credit score and hinder your ability to get a mortgage, auto loan, or new credit card.
- Wage Garnishment: The government can order your employer to withhold up to 15% of your disposable pay and send it to them without a court order. This is a form of wage garnishment.
- Treasury Offset: Your federal and state tax refunds, and potentially other federal benefits, can be seized and applied to your student loan debt.
- Loss of Eligibility for Aid: You will be ineligible for further federal student aid, including loans and grants, and will lose access to flexible repayment options like deferment and forbearance.
- Collection Costs: Significant collection fees can be added to your loan balance, increasing the total amount you owe.
How to Get Out of Student Loan Default
If your loan is in default, you have several options to resolve it and get back in good standing. The three primary methods for federal loans are rehabilitation, consolidation, and repayment in full.
Option | How It Works | Pros | Cons |
---|---|---|---|
Loan Rehabilitation | Make nine voluntary, on-time payments over ten consecutive months. The payment amount is calculated based on your discretionary income. | Removes the record of default from your credit report (though the history of late payments remains). You regain eligibility for federal student aid. | This is a one-time opportunity. It takes longer to complete than other options. |
Loan Consolidation | Combine your defaulted loan(s) into a new Direct Consolidation Loan. You must either make three on-time voluntary payments first or agree to repay the new loan on an Income-Driven Repayment (IDR) plan. | This is often the fastest way out of default. It simplifies your debt into a single monthly payment. | The default is not removed from your credit report; it is simply marked as “paid in full” by the new loan consolidation. |
Repayment in Full | Pay the entire outstanding balance, including interest and collection fees, in one payment. | Immediately resolves the default and stops all collection activities. | Most borrowers in default do not have the financial means to pay the entire balance at once. |
The government may also offer temporary relief programs, such as the “Fresh Start” initiative that followed the COVID-19 payment pause. For the most current options, always consult the official Federal Student Aid website.
Common Misconceptions About Default
- “It will eventually go away if I ignore it.” Federal student loans generally have no statute of limitations, meaning the government can attempt to collect for your entire life.
- “I can easily discharge it in bankruptcy.” While not impossible, discharging student loans through bankruptcy requires proving “undue hardship” in court, a very difficult legal standard to meet.
- “Private and federal loan defaults are the same.” Private lenders have different default timelines and collection methods. While they cannot garnish wages without a court order, they can and often will sue to collect the debt.
If you are struggling with payments, contact your loan servicer before you default. They can help you explore options like income-driven repayment plans, deferment, or forbearance to keep your account in good standing.