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What’s The Difference Between Student Loan Delinquency and Default?
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When you miss payments on your student loans, your debt is considered to be delinquent. After a certain period of non-payment, your student loans will go into default. While you can usually revive delinquent student loans simply by making a payment, the process of getting student loans out of default isn’t so straightforward.
If you’re dangerously close to missing a student loan payment or have missed multiple payments, here are some questions (and answers) to understand the difference between student loan delinquency and default, and how to deal with each:
Delinquent student loans vs. defaulted student loans: What’s the difference?
When you signed the paperwork to borrow money for your college education, you agreed to repay that money under a certain set of terms. If you fail to adhere to those terms, your loans could go into delinquency or default.
Your loans will be considered delinquent the first day you miss a payment. It’s important to make up this payment as soon as possible so your delinquent student loans don’t end up in default.
If you miss payments for more than 270 days, your federal loans are considered to be in default. Perkins loans go into default even earlier; in fact, they may go into default the day after missing a payment.
The rules around private student loan delinquency and default vary, but they may go into default even sooner. Check with your loan servicer to find out the rules for your specific private student loans.
What’s the impact of student loan delinquency and default?
Although your federal student loans are considered to be delinquent the day after you make a payment, you can get them back into good standing by making a payment. However, if you miss payments for more than 90 days, your loan servicer will report the delinquency to the credit bureaus. As a result, your credit score could take a serious hit.
Damaging your credit score makes you less creditworthy to financial institutions and prevents you from receiving the lowest possible interest rates on other loans (or from even being approved in the first place).
If your loans enter default, you could face even worse consequences. Defaulting could allow the loan servicer to garnish your wages or tax refunds, for example.
Additional collection tactics can include taking Social Security benefits, refusing to issue new federal student loans or grants or even charging additional fees to cover collections and court costs.
Note that private lenders can’t garnish your wages, tax refund or benefits for defaulting on private student loans, but they can charge hefty collections fees and potentially bring you to court. Defaulting on your student loans can lead to severe consequences, regardless of whether those loans are federal or private.
Getting your delinquent student loans back into good standing requires a fairly simple action: Make your payment as soon as possible. But it’s not necessarily easy if you’re struggling to make at least the minimum payment.
If you can afford it, make up your late payment, then speak with your loan servicer about an alternative repayment arrangement, such as an income-driven repayment plan, forbearance or deferment.
If you find yourself in default on your student loans, you’ll need to take additional steps to resolve the situation. Here are your options if you’ve defaulted on federal loans:
- The first option is to repay your loan in full. This might be realistic if the loan amount is a few thousand dollars and you’re able to come up with the cash.
- For larger balances, you might need to consider student loan rehabilitation to get out of default.
- A final option is loan consolidation. This won’t magically make all the money you owe disappear, but it can simplify your repayment strategy and may lower your monthly payments depending on the repayment plan you choose. Note that federal consolidation is different from private student loan refinancing.
If you have private loans, you will need to contact your loan servicer to find out what options may be available to you.
How can you avoid falling behind on your student loan payments?
The best course of action is to avoid both delinquency, and ultimately default, altogether.
Set up a sound budgeting system so you’re efficiently managing your money each month. Then work to save more and increase the gap between your income and your expenses, so you have enough cash flow to cover your student loan payments.
If you don’t have many expenses to cut and don’t know how to save any more money, it’s time to look at increasing your income. You can start with your current job and try to earn more and negotiate a raise, or you can increase your workload and pick up a side hustle to earn extra cash.
You should also reach out to your loan servicer to discuss your options. For instance, you might change your student loan payment due date or switch to a different repayment plan with lower monthly payments.
If you need total relief, you could also consider pausing payments temporarily through deferment or forbearance. This step should only be taken as a last resort, as it could lead to higher interest charges.
If you’re feeling overwhelmed with your student loans, take action. Your worst option is to do nothing, as a lack of action could lead to serious consequences for your financial situation.