|What is a default?
The definition of a federal Direct Loan default is: The failure of a borrower and endorser, if any, to make an installment payment when due, or to meet other terms of the promissory note, if the Secretary finds it reasonable to conclude that the borrower and endorser, if any, no longer intend to honor the obligation to repay, provided that this failure persists for 270 days. 34 Code of Federal Regulations 685.102.
Student loans default and delinquency policies and practices vary depending on the type of loan. You also need to know the important difference between being delinquent and being in default. The government’s collection powers and your options to deal with student loan problems depend on whether you are delinquent with your payments or whether you are in default. The government’s extraordinary collection powers kick in only after you default.
You are in default on most federal student loans if you fail to make payments for nine months. The entire loan balance becomes due once you default. A delinquency period begins on the first day after you miss a payment. Your loan holder has certain responsibilities once you are delinquent. During the first 15 days, they must send at least one written notice or collection letter. At some point, they must also let you know about the availability of the Department of Education Student Loan Ombudsman.
The notices and other tactics intensify the longer you are delinquent. If the delinquency goes on for nine months, your loan holder will declare you in default. If you are having trouble making payments, contact your lender sooner rather then later. If you are starting to have problems, you should work with your loan holder to postpone payments or figure out another way to get temporary relief. It is your responsibility to notify your loan holder if you move to a new address.
Repayment Status of Federal Education Loan Portfolio, Third Quarter 2015-16
In the third quarter of 2016, 16% of borrowers — but only 10% of outstanding dollars — were in default. In other words, defaulters have lower average balances than other borrowers.