Federal Loan Delinquency
The first day after you miss a student loan payment, your loan becomes past due, or delinquent.
If you are delinquent on your student loan payment for 90 days or more, your loan servicer will report the delinquency to the three major national credit bureaus
What are the consequences of being delinquent?
It can cause a poor credit rating, making it difficult to obtain the following:
- Credit cards
- Home or car loans
- Other forms of consumer credit
- Homeowner's insurance
- Cell phone plans
- Approval for rent
Federal Loan Default
If your loan continues to be delinquent, the loan may go into default.
- William D. Ford Federal Direct Loan Program or Federal Family Education Loan Program
270-day delinquent = Default
- Federal Perkins Loan
Anytime past the scheduled payment date = Default
What are the consequences of Default?
The consequences of defaulting can not only impact your ability to borrow but can impact your finances. The following issues may occur:
- The entire unpaid balance of your loan and any interest you owe becomes immediately due (this is called "acceleration")
- You can no longer receive deferment or forbearance, and you lose eligibility for other benefits, such as the ability to choose a repayment plan
- You lose eligibility for additional federal student aid
- The default is reported to credit bureaus, damaging your credit rating and affecting your ability to buy a car or house or to get a credit card
- It may take years to reestablish a good credit record
- You may not be able to purchase or sell assets such as real estate
- Your tax refunds and federal benefit payments may be withheld and applied toward repayment of your defaulted loan (this is called “Treasury offset”)
- Your wages may be garnished
- Your loan holder can take you to court
- You may be charged court costs, collection fees, attorney’s fees, and other costs associated with the collection process
- Your school may withhold your academic transcript until your defaulted student loan is satisfied. The academic transcript is the property of the school, and it is the school's decision—not the U.S. Department of Education’s or your loan holder’s—whether to release the transcript to you
3 Ways to Get Out of Default of Stafford Loans
- Pay the Defaulted Loan(s) in Full
- Loan Consolidation
- Loan Rehabilitation
Payment in Full
Repay the full amount of your defaulted student loan
To consolidate a defaulted federal student loan into a NEW Direct Consolidation Loan, you must either:
- Agree to repay the new Direct Consolidation Loan under an income-driven repayment plan
- Make three consecutive, voluntary, on-time, full monthly payments on the defaulted loan before you consolidate it
Special Considerations to reconsolidate an EXISTING Direct Consolidation Loan or Federal (FFEL) Consolidation Loan that is in default
- To Reconsolidate a defaulted Direct Consolidation Loan, you must also include at least one other eligible loan in the consolidation.
- You may Reconsolidate a defaulted FFEL Consolidation Loan without including any additional loans in the consolidation, but ONLY if you agree to repay the new Direct Consolidation Loan under an income-driven repayment plan.
- If you want to consolidate a defaulted loan that is being collected through garnishment of your wages, or that is being collected in accordance with a court order after a judgment was obtained against you, you CANNOT consolidate the loan unless the wage garnishment order has been lifted or the judgment has been vacated.
The loan rehabilitation process starts by contacting your loan holder.
William D. Ford Federal Direct Loan (Direct Loan) Program and Federal Family Education Loan (FFEL) Program
To rehabilitate a defaulted Direct Loan or FFEL Program loan, you must:
- Agree in writing to make nine voluntary, reasonable, and affordable monthly payments (as determined by your loan holder) within 20 days of the due date, and
- Make all nine payments during a period of 10 consecutive months
Under a loan rehabilitation agreement, your loan holder will determine a reasonable monthly payment amount that is equal to 15 percent of your annual discretionary income, divided by 12.
3 Steps to follow to apply for loan rehabilitation:
- Mail or fax us a copy of your latest tax return or tax transcript
- Sign and return the LoanRehabilitationIncomeandExpense (3).pdf as soon as possible
- Complete rehabilitation by making 9 on-time payments after the payment suspension ends
You can rehabilitate a defaulted loan only ONCE
After your ninth rehabilitation payment, ED will send a request to credit reporting agencies to remove the record of default from your account. This may increase your credit score
Federal Perkins Loan Program
Federal Perkins Loan Program Rehabilitation
- You must make a full monthly payment each month, within 20 days of the due date, for nine consecutive months
- Your required monthly payment amount is determined by your loan holder
If you have Federal Perkins Loans that are not owned by U.S Department of Education (ED)Contact the school where you received your Federal Perkins Loan for details about repaying your loan. Your school may be the servicer for your loan.
What documentation is acceptable to clear Default?
If your loan(s) are in default with the Department of Education a DEFAULT CLEARING LETTER is needed to clear the C Code. This can be obtained by calling 1-800-621-3115.
- The date the Default Letter was obtained must be on the Letter (it should be there anyway). That date on the letter must be AFTER the date of the last CPS Default Notification
- If you are in default, then cleared of default, then in go back into default, a NEW clearing letter will need to be provided to disburse any non-disbursed or future aid
If the lender is NOT the Department of Education (eg: Navient, Nelnet, SallieMae, etc.) you will need to contact the lender(s) and obtain a letter stating you are in good standing with your loan(s). To find out who your lender is login to the Federal Student Aid website and select "View loan servicer details" for loan holder's contact information