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The average student loan borrower takes out $29,300 to pay for college, according to the College Board. At any given time, more than 6% of these student loans are in default, and within the first three years of repayment, 10.3% of borrowers will enter default.
Federal student loan default occurs when a borrower fails to make payments on their student loans for 270 days. This can lead to serious consequences, including wage garnishment, loss of eligibility for federal financial aid, and damage to credit scores.
Keep reading to learn more on student loan default, including the history and importance of the default rate, the average student loan default period, how to make your loans more affordable so you can avoid default, and more.
Key Points
• The student loan default rate measures the percentage of borrowers who fail to make payments for 270 days or more.
• As of recent data, the overall federal student loan default rate is around 6%, but it varies significantly by school type and borrower demographics.
• Community colleges and for-profit institutions have higher default rates compared to public and private nonprofit colleges.
• Defaulting can have severe financial consequences, including damaged credit, wage garnishment, and loss of eligibility for federal aid.
• Ways to prevent student loan default include deferment, forbearance, income-driven repayment plans, and refinancing your student loans.
The History and Importance of the Default Rate
What’s known as the three-year default rate is a highly watched number because it’s the figure the U.S. Department of Education uses to determine if colleges and universities qualify to receive federal student aid. If a school’s default rate exceeds a certain benchmark three years in a row, it could lose eligibility for Title IV funding.
The student loan default rates have generally trended down over the last two decades. In March 2020, the Department of Education paused collections on most student loans in default. It also offered a Fresh Start program that allowed borrowers to easily get their loans out of default and back into good standing. As of October 2, 2024, the Fresh Start program has ended.
Recommended: 7 Tips to Lower Your Student Loan Payments
What Is the Average Student Loan Default Period?
The average student loan default period refers to the typical length of time it takes for a delinquent federal student loan to be classified as “in default.” For most federal loans, this period is 270 consecutive days — about nine months — of missed payments.
The federal government focuses on the three-year student loan default rate. Education Data Initiative finds that 10.3% of borrowers default within the first three years of when their repayment starts.
Students who were enrolled in private, for-profit colleges are the most likely to have student loans in default, data shows. In fact, within the first 12 years of repayment, more than 50% of those loans end up in default.
Don’t let your loans go into default.
See how student loan refinancing can help.
The Difference Between Defaulting on a Loan and Being Delinquent
Borrowers participating in the Federal Direct Loan program or the Federal Family Education Loan (FFEL) program are considered in default if they miss nine months or 270 days of payments. Borrowers can face a number of serious consequences if they default on a loan, including losing the opportunity to defer payments or choose a repayment plan.
It may also damage your credit, and your tax refunds may be withheld and applied to what you owe on your loans. The government could even garnish a portion of your wages to apply to your loan. Finally, your loan holder can sue you, and if that’s the case, you may be responsible for the court fees.
With a delinquency, you still have time to start making payments again and restore your relationship with your lender. You’re considered delinquent on federal student loans the day after you miss your first payment, and you’ll remain delinquent until you resume payments and make up the past due amount.
If it’s been 90 days since your last payment, the lender can report you to credit agencies, and those missed loan payments can go on your credit report, which can affect your ability to borrow in the future. With a bad credit report, you may have trouble getting credit cards, home loans, and even arranging for utilities or homeowner’s insurance.
What Options are Available to Make My Loans More Affordable?
To avoid becoming part of the student loan default rates, it’s important to take action. If you are delinquent on your student loans or think you may be heading that way, you can seek deferment or forbearance, which is a federal benefit to stop making payments for a period of time. However, interest may still accrue. You could also choose a federal income-based repayment program that bases your monthly payment on your income and family size.
Refinance Your Student Loans
Another option is to refinance your student loans with a private lender. With student loan refinancing, you may be able to get a lower interest rate or more favorable terms to help reduce your monthly payments. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.)
Want to see how much you might save? You can use a student loan refinance calculator to see if refinancing makes sense to you.
Keep in mind that if you need access to federal protections and programs, such as income-driven repayment programs, refinancing federal student loans likely wouldn’t make sense for you. That’s because when you refinance federal loans, they become ineligible for these special benefits.
The Takeaway
The student loan default rate is a critical indicator of financial distress among borrowers, with significant variations based on school type and demographic factors. Understanding the risks and exploring preventive measures like deferment, forbearance, income-driven repayment plans, and student loan refinancing can help borrowers avoid the severe consequences of default.
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.
FAQ
What is the overall federal student loan default rate?
As of recent data, the overall federal student loan default rate is around 10%, though it can vary significantly depending on the type of school and borrower demographics.
How can you prevent student loan default?
To prevent student loan default, explore options like deferment, forbearance, and income-driven repayment plans. You can also look into refinancing your student loans for a better rate or terms, which may help reduce your monthly payment and prevent default.
What are the consequences of defaulting on student loans?
Defaulting on student loans can lead to damaged credit, wage garnishment, and loss of eligibility for federal financial aid.
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