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Preventing Default – What is Default?

What is delinquency?

Your loan becomes delinquent the first day after you miss a payment. Even if you miss just one monthly payment and then start making payments again, your loan account will remain delinquent until you repay the past due amount or make other arrangements, such as deferment or forbearance, or changing repayment plans. If you are more than 90 days delinquent on your student loan payment, your loan servicer will report the delinquency to the three major national credit bureaus. This will lower your credit score and negatively affect your finances.

Note: Credit bureaus may be called “consumer reporting agencies” on the promissory note you signed before receiving your loan.

What is default?

If your loan continues to be delinquent, the loan may go into default. The point when a loan is considered to be in default varies depending on the type of loan you received. For a loan made under the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program, you’re considered to be in default if you don’t make your scheduled student loan payments for a period of at least 270 days (about nine months). For a loan made under the Federal Perkins Loan Program, the holder of the loan may declare the loan to be in default if you don’t make any scheduled payment by the due date.

What are the consequences of default?

The consequences, which can be severe, include the following:

  • 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 will lose eligibility for additional federal student aid.
  • The default will be reported to credit bureaus, damaging your credit rating and affecting your ability to buy a car or house or to get a credit card.
  • 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 will be garnished. This means your employer may be required to withhold a portion of your pay and send it to your loan holder to repay your defaulted loan.
  • Your loan holder can take you to court.
  • You may not be able to purchase or sell assets such as real estate.
  • You may be charged court costs, collection fees, attorney’s fees, and other costs associated with the collection process.
  • It may take years to reestablish a good credit record.
  • 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.

Learn more about Treasury offset and wage garnishment.

If I’ve missed payments, how do I avoid going into default?

If you’re having trouble making payments on a federal student loan from the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program, immediately contact your loan servicer, the agency that handles the billing and other services for your loan. If you don’t know who your loan servicer is, visit “My Federal Student Aid.”

If you’re having trouble making payments on your Federal Perkins Loan, immediately contact the organization that handles the billing and other services for your loan. This may be the school where you received the loan, or a loan servicer working on behalf of the school or other holder of the loan.

Learn more about avoiding delinquency and default.

What should I do if my loan is in default?

If you’ve defaulted on any of your federal student loans, contact the organization that notified you of the default as soon as possible so you can explain your situation fully and discuss your options. If you make repayment arrangements soon enough after your loan has gone into default, you may be able to resolve the default quickly.

Find out more about getting out of default.

Who is MAXIMUS Federal Services, Inc.?

MAXIMUS Federal Services, Inc., is the loan servicer for defaulted federal student loans. Schools are authorized to provide information about student and parent borrowers to MAXIMUS Federal Services, Inc., in response to emails from DMCSResearch@maximus.com.

What if I believe my loans were placed in default in error?

If you believe your loan has been placed in default by mistake, here’s what you can do to correct the error.

If you’ve been attending school at least half-time and should have received an in-school deferment on your loan, contact the Registrar from each school you attended and get records of all your dates of at least half-time attendance. Then, ask your loan servicer for the last date of attendance they have on file for you. If they have the incorrect date for your last date of attendance, provide your loan servicer with a copy of your documentation showing the correct date.

If you were not making payments on your loan because you believed that you had been approved for a deferment or forbearance, ask your loan servicer to confirm the start and end dates of any deferments and forbearances that were applied to your loan account. If the loan servicer has incorrect information, provide documentation with the correct information.

If you believe that you didn’t receive credits for payments that you made, ask your loan servicer for a statement that shows all the payments made on your student loan account. If payments you made are not listed, provide proof of payment to your loan servicer and request that the information in your account be corrected.

Deferment

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.

Forbearance

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.

Source: Federal Student Aid

Last updated: 11/10/2020