Consequences of 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 get worse 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.

The government’s extraordinary collection powers kick in only after you default. You will not be eligible for new federal student loans or grants if you are in default on a federal student loan.

There may be other consequences of student loan default depending on the type of loan and where you live.  For example, a number of states allow professional and vocational boards to refuse to certify, certify with restrictions, suspend or revoke a member’s professional or vocational license and, in some cases, impose a fine, when a member defaults on student loans. Some of these states’ provisions apply to particular professions or vocations such as attorneys, health care professionals, teachers, insurance professionals, state officers, and commercial fishermen. Others apply more generally to anyone whose profession or vocation requires licensing.  You should check the laws in your state for more information.

Repayment Status of Federal Education Loan Portfolio, Second Quarter FY 2017

In March 2017, 16% of borrowers—but only 10% of outstanding dollars—were in default. In other words, defaulters have lower average balances than other borrowers.