What Is Student Loan Default and How to Get Out of Student Loan Default

By Mentor Staff | Edited By Mentor Staff

Updated On November 15, 2021

Editorial Note: This content is based solely on the author's opinions and is not provided, approved, endorsed or reviewed by any financial institution or partner.

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If you have experienced student loan default, you’re not alone. According to the U.S. Department of Education, approximately 11% of student loan borrowers have defaulted on their federal student loans. With private student loans, that student loan debt statistic may be even higher. The advent of Covid-19 has impacted student loans and the economy, which has caused many borrowers to struggle to make student loan payments. While federal student loan payments and student loan debt collection currently are paused due to Coronavirus, the good news is that there are several ways to get out of student loan default.

What is student loan default?

If your student loans are in student loan default, this means that you did not make student loan payments for a certain period of time. For example:

Federal student loans: You default on your federal student loans when you don’t make student loan payments for at least 270 days, which is approximately nine months.

Private student loans:Private student loan default can vary based on your promissory note. Typically, private student loan default occurs after three missed payments, or approximately 120 days. Check with your lender or student loan servicer to determine how your promissory note for your private student loans defines student loan default.

Remember this: student loan default is different than student loan delinquency. Student loan delinquency means that your student loans are at least 90 days past due.

How to know if your student loans are in default

How do you know if your student loans are in default? There are three main ways to determine if your student loans are in default:

  1. Student Loan Servicer: Check with your student loan servicer, which is the company or entity to whom you send your student loan payments.
  2. Federal Student Aid: Login to your Federal Student Aid (FSA) account to check your federal student loan repayment status. Through FSA, you can check the repayment status of each student loan you have.
  3. Credit Report: You can check your credit report to access both your private student loans and federal student loans. Visit annualcreditreport.com for a free copy of your credit report.

What happens if I default on my student loans?

One popular question that many borrowers ask is this: “What happens if I default on my student loans?” There are several potential consequences, including:

  • You may be sued in court by your lender.
  • Your lender could garnish your wages.
  • Your lender could garnish your Social Security payments.
  • Your lender could garnish your income tax refund.
  • Your credit score may be adversely impacted.
  • You may not be able to borrow additional student loans.
  • You may be subject to late fees and penalties.

Importantly, student loan default is treated differently depending if you have federal student loans or private student loans. The federal government may garnish your wages, seize your Social Security checks or take your tax refund to satisfy your student loan payments in default. In comparison, private lenders can’t seize your Social Security payments or income tax refund. However, a private lender could, with a court judgment, garnish your wages.

How to get out of student loan default

If you want to know how to get out of student loan default, there are three main ways with federal student loans. If you are in student loan default for private student loans, contact your lender to discuss options. For federal student loans, here are the three major options:

  1. Student loan debt rehabilitation
  2. Student loan consolidation
  3. Student loan repayment

Student Loan Debt Rehabilitation

Yes, it’s possible to rehabilitate your student loans through a process called student loan rehabilitation. Student loan rehabilitation enables you to make nine monthly student loan payments within 10 months. While you may request a lower amount, the standard monthly payment under student loan rehabilitation is 15% of your discretionary income. You also have the option to enroll in an income-driven repayment. An income-driven repayment plan can help you get a lower student loan payment. If you successfully rehabilitate your student loans, your student loan default will be removed from your credit report.

Student Loan Consolidation

Student loan consolidation is another strategy to get out of student loan default. To consolidate student loans, you can:

  • Make three on-time, full and consecutive student loan payments on the defaulted student loans; and
  • Pay the remainder of your student loans under an income-driven repayment plan.

Unlike student loan rehabilitation, student loan consolidation doesn’t remove the student loan default from your credit report. However, student loan consolidation is a fast way to get out of student loan default quickly since it only takes three monthly payments.

Student Loan Repayment

When your student loans are in student loan default, a third option is to pay off your student loans. If you’re in student loan default, however, it’s unlikely that you may have enough money to pay off your student loans. So, this option may be expensive, but it’s also possible to negotiate a student loan settlement.

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