Defaulting on student loans is something that happens after you miss a series of payments on your loan. The number of loan payments missed before the loan enters default varies between federal and private student loans, but the consequences of defaulting on either type can be severe — including having the loans go to a collections agency and potential negative impacts on your credit score.
For a year following the resumption of federal student loan payments in October 2023, a temporary “on-ramp” transition period means that missing required monthly payments generally won’t lead to defaulted loan status. Below we discuss how this on-ramp works, as well as what typically happens if you miss your required federal student loan payments.
What Is Student Loan Default?
Student loan default is a term for when you completely stop paying student loans. This can occur if you fail to make required monthly payments on federal or private student loans. Millions of federal student loan borrowers, however, did not have to make any required payments during the Covid-19 forbearance.
Most federal student loan borrowers had a 0% federal student loan interest rate from March 13, 2020, until Sept. 1, 2023, under the pandemic-era payment pause. These borrowers, including those with defaulted and nondefaulted loans held by the U.S. Department of Education, did not have to make federal student loan payments over that three-year period.
The 2023 debt ceiling bill officially ended the Covid-19 forbearance, requiring federal student loan interest accrual to resume on Sept. 1 and payments to resume in October 2023. Any federal student loan borrower who received the Covid-19 forbearance relief will be eligible for the 12-month on-ramp protection automatically.
If you’re covered by the on-ramp, you’re protected from having your federal student loans reported as delinquent or placed in default from October 2023 through September 2024. But federal student loan interest will still accrue during the on-ramp, so failing to pay may increase your student debt burden.
💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.
Student Loan Default vs. Delinquency
Student loan delinquency is the early stage of missing a required loan payment when due. If you fail to pay over an extended period, you could face greater consequences for reaching late-stage delinquency and carrying defaulted student loans.
Federal student loans are typically considered delinquent when you’re past due on a required payment by at least one day but less than nine months. Federal student loans are typically reported to the credit bureaus as delinquent if you are 90 or more days past due.
A delinquent federal student loan typically becomes defaulted if you fall at least 270 days past due on a required payment. The typical metrics of delinquency vs. default don’t apply during the on-ramp of October 2023 through September 2024 for eligible borrowers who miss payments during that 12-month period.
Lenders of private student loans can set their own parameters for delinquency vs. default. Banks, credit unions, fintech companies, and state-related nonprofits offer private student loans. Some may consider you in default if you are 60 or more days delinquent on a private student loan. Others may define default as falling 180 days past due after receiving a final demand letter.
Can You Default on Student Loans?
Yes, it’s possible for borrowers to default on student loans. If a borrower is struggling to make monthly payments on their student loans, default can be an option if they do not take any other action. If you are having issues making monthly payments on your federal student loans and just stop making payments, after a certain number of missed payments, the loan will enter default.
Private student loans can also go into default, though they may enter default more quickly than a federal student loan.
Recommended: What is the Student Loan Default Rate?
How to Default on Student Loans
To get more technical, defaulting on federal student loans is a process that takes place over a period of nonpayment. Typically when you first miss a payment, the loans are delinquent but not yet in default. At 90 days past due, your lender can report your missed payments to credit bureaus. And when you reach 270 days past due, your student loans are typically considered in default.
Keep in mind that most federal student loans are protected from entering default during the on-ramp period. (If you entered the Covid-19 pandemic with a defaulted federal student loan held by the U.S. Department of Education, the Education Department in December 2022 started reporting those loans as “current” rather than “in collections” to credit reporting agencies.)
Here’s what you can expect if you’re eligible for the on-ramp from Oct. 1, 2023, through Sept. 30, 2024:
• You won’t be considered delinquent if you miss a required payment
• Late payments or missed payments won’t be reported to the credit bureaus
• Your loans won’t be placed in default
• Debt collection agencies won’t contact you about your on-ramp eligible loans
For private student loans, the terms for defaulting can vary. Private student loan lenders may report an account as delinquent when it’s 30 days past due and consider you in default if you’re 60 days or more past due on a required payment.
Private lenders may also place student loans in default if the borrower declares bankruptcy, passes away, or defaults on another loan. Terms may vary by lender, so if you have private student loans, double-check how they define default.
Defaulting on your federal or private student loans can have serious consequences, but there are ways to avoid defaulting on your student loans or recover if your loans are currently in default. If you’re worried about student loan default, the most important thing you can do is educate yourself on what it is, and how to avoid it.
Below we highlight four potential consequences of what happens when your student loans default.
What Happens When Your Student Loans Default?
Here are four potential consequences of what can happen if you default on your federal or private student loans:
1. Collection Agencies Might Come Knocking
When a borrower defaults on student loans, the lender may eventually turn the debt over to a collection agency. The collection agency will then attempt to recover the payment, typically bombarding you with frequent letters and phone calls.
Collection agencies may also attempt to determine what other assets, including bank accounts or property, would allow you to pay your debt. On top of dealing with regular calls from debt collectors, you may also be responsible for paying any additional fees the collection agency charges on top of your student loan balance.
2. Loan Forgiveness and Forbearance Options Are No Longer on the Table
Student loan default on federal loans means that the federal government can revoke your access to programs that might make it easier for you to pay your loans, including loan forgiveness or forbearance. This means that even if you qualify for something like the Public Service Loan Forgiveness program, you could be rendered ineligible if you let your loans go into default.
Additionally, borrowers in default may lose eligibility for all future types of federal financial aid.
3. Your Credit Score Might Be Impacted
Once your student loans are in default, the lender or the collection agency will report your default to the three major credit bureaus. This means that your credit score could take a hit. A low credit score can make it harder for you to get a competitive interest rate when borrowing for other needs, like a car or home loan. In fact, having federal student loans in default can make it difficult to buy or sell real estate and other assets.
4. You Might Have to Give up Your Tax Refund, or a Portion of Your Wages
If your loan holder or a collection agency can’t recover the amount owed, they can request that the federal government garnish your tax refund and even some of your income. For example, if you filed your taxes and were eligible for a refund, the government would instead take that refund money and apply it toward your defaulted student loan balance. On top of that, the government can garnish your wages, which means that they can take up to 15% of each paycheck to pay back your loans.
How Can You Get Student Loans Out of Default?
Defaulting on student loan debt is a serious matter, but the good news is that there are ways of getting out of default.
First, stop avoiding those collection calls. If your student loan provider or a collection agency is calling, your best bet is to meet your lender or the agency head-on and take charge of the situation. The lender or the collection agency will be able to talk through the repayment options available to you based on your personal financial situation. They want you to pay, which means that they might be able to help find a payment plan that works for you.
The lender may be able to offer a variety of options tailored to your individual circumstances. Some of these options might include satisfying the debt by paying a discounted lump sum, setting up a monthly payment plan based on your income, consolidating your debts, or even student loan rehabilitation for federal loans (more to come on this). Don’t let your fear stop you from reaching out to your lender or the collection agency.
How to Avoid Defaulting on Student Loans
Of course, even if you can get yourself out of student loan default, the default can still impact your credit score and loan forgiveness options. That’s why it’s generally best to take action before falling into default. If the student loan payments are difficult for you to make each month, there are things you can do to change your situation before your loans go into default.
First, consider talking to your lender directly. The lender will be able to explain any alternate student loan repayment plans available to you.
For federal loans, borrowers may be able to enroll in an income-driven repayment (IDR) plan. These repayment plans aim to make student loan payments more manageable by tying them to the borrower’s income. This can make the loans more costly over the life of the loan, but the ability to make payments on time each month and avoid going into default are valuable.
The Saving on a Valuable Education (SAVE) Plan is one of the IDR options to consider if you’re a federal student loan borrower. The SAVE Plan is the most affordable repayment plan for federal student loans, according to the U.S. Department of Education. Borrowers who are single and make less than $32,800 a year won’t have to make any payments under the SAVE Plan. (If you are a family of four and make less than $67,500 annually, you also won’t have to make payments.)
Is Refinancing an Option?
Refinancing student loans could potentially help you avoid defaulting on your student loans by combining all your student loans into one, simplified new loan. When you refinance student loans, you might be able to secure a lower interest rate or loan terms that work better for your situation.
If a borrower is already in default, refinancing could be difficult. When a student loan is refinanced, a new loan is taken out with a private lender. As a part of the application and approval process, lenders will review factors including the borrower’s credit score and financial history among other factors.
Borrowers who are already in default may have already felt an impact on their credit score, which can influence their ability to get approved for a new loan. In some cases, adding a cosigner to the refinancing application could help improve a borrower’s chances of getting approved for a refinancing loan. Know that if federal student loans are refinanced they are no longer eligible for federal repayment plans or protections.
💡 Quick Tip: When refinancing a student loan, you may shorten or extend the loan term. Shortening your loan term may result in higher monthly payments but significantly less total interest paid. A longer loan term typically results in lower monthly payments but more total interest paid.
Help on Defaulted Student Loans
If you default on a federal student loan, here are some programs that can help you get them out of default:
To apply for student loan rehabilitation, contact your loan servicer. In order to rehabilitate your federal student loan you must agree to make nine voluntary, reasonable, and affordable monthly payments within 20 days of the payment due date. This agreement must be completed in writing. All nine payments must be made within 10 consecutive months.
Private student loans do not qualify for federal student loan rehabilitation. Federal Direct Loans or loans made through the Federal Family Education Loan (FFEL) program qualify for student loan rehabilitation.
Consolidating your federal student loans into a Direct Consolidation Loan is another option to get your defaulted federal student loans out of default. To consolidate defaulted federal student loans into a new Direct Consolidation Loan you have two options, which are:
• Repaying the consolidated loan on an income-driven repayment plan.
• Making three monthly payments on the defaulted loan before consolidating. These payments must be consecutive, voluntary, on-time, and account for the full monthly payment amount.
Again, private student loans are not eligible for consolidation through a Direct Consolidation Loan.
Recommended: Understanding How Student Loan Consolidation Works
Credit Consumer Counseling Services (CCCS) are usually non-profit organizations that offer free or low-cost counseling, education, and debt repayment services to help people facing financial difficulties.
If you’ve defaulted on a student loan, a credit counselor can help by looking at your entire financial situation along with your student debt, laying out your options, then working with you to come up with the best option for student loan debt relief.
If you’re struggling with multiple debts, a credit counselor may be able to set up a debt management plan in which you make one monthly payment to the credit counseling organization, and they then make all of the individual monthly payments to your creditors.
While counselors usually don’t negotiate down your debts, they may be able to lower your monthly payments by working with your creditors to increase your loan terms or lower interest rates.
Just keep in mind: Credit counseling agencies are not the same thing as debt settlement companies. Debt settlement companies are profit-driven businesses that often charge steep fees for results that are rarely guaranteed. Debt settlement can also do long-term damage to your credit.
To avoid debt settlement scams and ensure you find a reputable credit counselor, you might start your search using the U.S. Department of Justice’s list of approved credit counseling agencies.
Student loan default can have serious negative effects on your credit score and financial stability. If you’re worried about defaulting on your student loans, or you have already defaulted, consider taking immediate steps to remedy the situation before it gets worse. Contact your lender or loan servicer to learn about options available, and consider refinancing your loans to secure a lower interest rate or monthly payment. (You may pay more interest over the life of the loan if you refinance with an extended term.)
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
Does a defaulted student loan ever go away?
It is possible to rehabilitate or consolidate a defaulted federal student loan to get it out of default. Some private lenders may offer programs or assistance to borrowers facing default, but they are not required to do so.
Will my student loans come out of default if I go back to school?
No, if you have student loans already in default, going back to school will not remove them from default. Students who have student loans in default will need to get the loans out of default before they will qualify to borrow any additional federal student loans.
Are defaulted student loans forgiven after 20 years?
Defaulted loans are not forgiven after 20 years. Students in default may consolidate or rehabilitate their loan and then enroll in an income-driven repayment plan, which could potentially qualify them for loan forgiveness at the end of their loan term, up to 25 years.
SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
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