Preventing Default – What is Default?
Default occurs when you have failed to make payments on your student loan according to the terms of your master promissory note; the binding legal document you signed at the time you received a student loan. In other words, you failed to make your loan payments as scheduled. You are considered delinquent if your monthly payment is not received by the due date. If you fail to make a payment, Direct Loan Servicing will send you a reminder that your payment is late. If your account remains delinquent you will receive a warning notice reminding you of your obligation to repay your loans and the consequences of the default. Late fees may be added and your delinquency will be reported to one or more national credit agencies.
What will happen if my loans go into default?
If your loans goes into default, your school, the financial institution that made or owns your loan, your loan guarantor, and the federal government all can take action to recover the money you owe:
- National credit bureaus can be notified of your default, which will harm your credit rating, making it difficult to buy a car or a house.
- You would be ineligible for additional federal student aid if you decided to return to school.
- Loan payments can be deducted from your paycheck.
- State and federal income tax refunds can be withheld and applied toward the amount you owe.
- You will have to pay late fees and collection costs on top of what you already owe.
- You can be sued.
How can I prevent my loans from going into default?
If you think you might have a problem making the scheduled payments on your loans, contact the Direct Loan Servicing Center immediately to discuss other options such as deferment and forbearance.
A deferment is a temporary suspension of loan payments for specific reasons such as economic hardship or re-enrollment in school.
- During deferment of subsidized loans, principal payments are postponed and interest is not accrued.
- During deferment of unsubsidized loans, principal payments are postponed but interest continues to accrue. Accrued unpaid interest will be added to the principal balance (capitalized) of the loan(s) at the end of the deferment period. This will increase the amount borrowers owe.
In a forbearance, your loan holder gives you permission to stop making payments for a set period of time, however, interest continues to accrue during this time. You may qualify for forbearance if you are unable to make loan payments due to certain types of financial hardships, poor health, unforeseen personal problems and other circumstances.
Getting the help you need
Student loan borrowers in default now have more options than ever before to repay their student loans. The U.S. Department of Education’s Default Resolution Group is committed to assisting individuals in default by making debt repayment a simple process. Please visit StudentLoans.gov for more information and for Loan Servicer Information.
Last updated: 1/4/2017