Student loan Default and Delinquency - Rate, consequences, and settlement

Wondering how to get out of student loan default and delinquency? If yes, then read all about the meaning, impact, payment time period, and more on federal loans.

Updated by Sharan Kumar on 9th June 2019

Delinquency and default are two sides of the same coin except for the value which changes for both.

When you become late on a student loan payment be it by 1 day or a week then you are delinquent on the loan payments.

But the idea is different when it involves a continuous process of being delinquent or long-standing delinquency even though you have been making payments but if they are late even by a day for a regular number of months, it turns your delinquent loan into a defaulted loan.

It usually leads to serious matter such as a change in the relationship with your lender and possibly your future lenders as well. 

Table of contents

Federal student loan delinquency and default definition

When you signed the paperwork to borrow money to pay for your college education, you agreed to be legally responsible to repay that money under a certain set of terms or criteria.

Delinquency and default are both words used to describe some sort of inability in keeping to those terms.

Student Loan Delinquency and Defaultsource -

Student loan delinquency meaning

A Federal student loan can be considered delinquent when a borrower has not made a successful payment or paid an installment before the due date has passed. Most lenders don't report this to the credit bureaus until after 30 days have passed since the payment wasn't made and its been 30 days since the due date.

It can happen if you miss even a single payment on the student loan. So technically being even a couple of days late on your loan means you are delinquent on your loans.

Serious delinquency is usually considered when the borrower is late by at least 90 days on his/her payments since the last due date when the payment was supposed to be made. It has a high indication of whether a loan from delinquency to default or not.

Student loan default meaning

A Federal student loan is certainly considered to be in default most often when the borrower successfully does not make the required loan payments for an extended period of time and most often this time period is more or less equal and greater than 270 days from the last due date when the payment was missed.

Usually, we can consider a federal loan to not be in default until it turns out to be delinquent for a period of about 360 days since the lender usually has a timeline of 90 days for them to file for a default claim. Most often lenders tend to proceed for the entirety of those 90 days to proceed with reporting and claiming the defaulted loan status.

Whereas most private student loans usually after a period of about 120 days of delinquency are considered to be the default.

Also, not every delinquent loan borrower will turn his/her loan into a defaulted loan as explained below.

For example, only about 2/3rd of borrowers who are between 31-90 days of delinquency on their loans will end up progressing to a period of between 91-180 day delinquency.

From this, only about 2/3rd of those will eventually progress to a period of 181 to 270 days delinquency and from that about 2/3rd of them will ultimately go into default.

The outcome - Student loan default number

Ultimately, about a quarter of student loan borrowers with a period of 31-90 day delinquency will eventually end up in default. 

The student loans report defaults as part of a cohort studies federal student loan default rate. The cohort studies student loan default rate is a relatively short-term student loan default rate measure, which is reporting the percentage of borrowers that are entering repayment in one federal fiscal year who end up in default on their loans by the end of the second following federal fiscal year.

In Cohort studies, default rates are around half of the long-term of loans. 

Private student loans usually report a charge-off rate which is the percentage of loan dollars that was outstanding which was written off during the previous year. Most of this occurs within the first 4-5 years of loan repayment.

Private student loans tend to have lower student loan delinquency and default rates than Federal loans, partly because of the fact that private student loans are credit-underwritten.

When other financial aids and federal student loans aren't sufficient enough to cover all costs, one should consider financing the gap with private student loans.

Look around to find the loans that will best fit your needs.

[Learn more about Private student loan lenders, interest rates and more ]

Differences between delinquency and default

As if dealing with your student loan debt alone wasn’t bad enough, all the confusing rules and terms around repayment just add salt to the wounds.

Going through the requirements can make it feel like you're trying to translate a foreign language. All this added difficulty isn’t exactly what you’re hoping for when you’re already struggling to make your payments.

So if you’re precariously close to missing a payment, or have already missed payments, begin here to understand the difference between student loan on default and delinquency – and what you may do if you find yourself in either one of these situations.

Impact of student loan delinquency

In most cases, delinquency can be fixed by simply making payments of the overdue amount, plus any fees or charges that were resulting from the same.

Normal payments may begin immediately afterward. The student loan default consequences are mentioned below.

The time period of delinquency 

In contrast, default status usually triggers the remainder of your loan balance to be due in full as in requiring the rest of the loan that is due to be paid in whole to complete the loan and unable to resume payments by clearing that which is already due since the time period of delinquency, ending the typical installment payments that was outlined in the original loan agreement.

  • Rescuing and resuming the loan agreement is most often difficult but not impossible which we will discuss further ahead.

  • When you’re in delinquency, your student loan servicer will be obliged to send you a notice if you’re more than 15 days late on your payment.

  • Being late on a payment once or twice won’t make such a dramatic impact on your financial situation right away, but it can and most probably will impact your student loan credit score.

Student loan delinquency and default help source -

Loss of benefits 

The more immediate consequence might be the loss of benefits on your loans, such as interest rate discounts. 

Being delinquent on your loans for a period of time long enough such that you eventually enter loan default will most definitely cause your student loan credit score to drop dramatically.

It makes you seem to be less creditworthy to financial institutions and will prevent you from the possibility of receiving the lowest possible interest rates on any other loans you might apply for or even have trouble with having them being approved too.

This can be a pretty serious issue in the future. It’s not such an easy task to repair a credit score once it’s tanked, and if you end up defaulting on your loans this can do serious damage to your student loan credit score.

Being in default can also attract a more severe action on the part of your loan servicer.

Student loan delinquency credit score

It adversely affects the borrower's credit score, but default reflects extremely negatively on it and also on his consumer credit report, which eventually makes it difficult or even prevents you from borrowing money in the future.

He/she may have trouble obtaining any or all of the following such as a mortgage, purchasing homeowners insurance, and getting approval to rent an apartment.

For these reasons, it is always best to take action as soon as possible to remedy a delinquent account before reaching the default status.

Again, signing the loan at the time when you borrowed the money put you in a legally binding agreement with the loan servicer or the lender in which you promised to repay your balance according to the terms and conditions as mentioned in the agreement made at that time.

Effect on wage - Student loan wage garnishment

Defaulting could possibly allow the loan servicer/lender to garnish your wages or withhold any potential tax refunds that you were supposed to receive until you completely repay the balance of the loan (And that balance becomes due in full when you default!)

Additional collection methods can and not necessarily stop at including taking Social Security benefits, refusing to issue new loans or grants, and even charging additional fees for clearing any collections in default.

[Learn more about student loan wage garnishment ]

How to get out of student loan delinquency?

Getting out of delinquency requires a relatively simple action - to make your payment as soon as possible.

This is easy and simple – but not necessarily so if you have to struggle in making at least the minimum payment necessary.

Student loan default help

If you somehow do find yourself in default on your student loans, you do have a few options for getting yourself out of the situation pronto. The first is to completely repay your loan in. This might only be realistic if the loan is only a few thousand dollars and you’re able to manage and come up with the cash.

A final option is loan consolidation. This wouldn’t magically make all the money you owed disappear. in fact, consolidation means you are taking out another loan, repaying the original loans with the money from the new borrowed loan, and starting a new payment plan using the new loan.

[ Also Read: What is student loan consolidation? ]

For any larger balances, it might be necessary to consider student loan rehabilitation. The federal government does offer a few programs for rehabilitation, but this might not always be the best route depending on the type of student loan debt you have.

How to avoid falling behind on payments?

These are the ways through which you can solve the situation once you unluckily find yourself in it. But the best course of action is to avoid as much as possible both delinquency and ultimately default altogether.

  • Set up a good and sound budgeting system so you’re effectively able to manage your money each month.

  • Work hard to save more and create a bigger gap between your income and your expenditure, so you have enough and more cash flow to cover your student loan payments and then some.

  • If you’re maxed out on how many costs you are able to cut and don’t know how to save anymore, it’s time to look at ways of increasing your income.

  • You can begin with your current job and pursue to earn and negotiate a raise, or you may choose to increase your workload and pick up a side hustle to make some extra cash.

What to do in the worst-case scenario?

Sometimes, you simply are unable to make enough money to make your payments. Thankfully, that doesn’t mean that your immediate result is delinquency.

Step one is to reach out to your loan servicer and have a talk so as to understand your options.

You can avoid delinquency by changing your due date to a point in the month when you are able to make the payments with enough cash in hand or even your payment plan as a whole.

There is always some step, however tiny or temporary, that you may be able to take to avoid finding yourself in such a situation. Don’t lose hope and don’t avoid the part that involves doing anything at all.

Your worst option is to sit there and do nothing, as a lack of a form of action can lead to serious and dire consequences for your financial situation at that moment and in the future.


  How can I settle my student loans for less?

To be able to settle your defaulted debt, you must first be able to make a lump sum payment to pay off most or all of the loan balance. Such a compromise offer will typically require you to then pay the rest of the settlement amount in full within the following 90 days.

  How can I fix my credit after student loans default?

Ways to Rebuild Credit After a Student Loan Default

  • Rehabilitate Your Loans.

  • Consolidate some of Your Loans.

  • Try to Use Income-Based Repayment Programs.

  • Use a Secured Credit Card.

  • Keep Your Debt Ratio Below 30%

  • Be consistent with Paying All Your Bills on Time.

  What happens when your student loans go to collections?

If your account eventually ends up going to collections, you'll be assessed for collection fees in addition to the student loans you already owe. For as long as your loans remain in default, FinAid mentions that the following can also happen - Wages can be garnished and income tax refunds can be taken to repay debt.

  Is not paying debt a crime?

Debt evasion is common because many people are afraid of creditors when they owe them money and feel uncomfortable confronting those trying to collect a debt. But evasion doesn’t make the debt disappear and does not make the debtor any less liable toward the creditor. In most cases, debt evasion is not considered to be an act of crime.

  How long can you legally be chased for a debt?

The time period between your last contact with the creditor – whether it was a regarding a payment made, a letter or a telephone conversation – has been over six years, this means that the debt has been shifted to “statute barred” status and the creditor is no longer entitled to pursue you for payment or take any further legal action against you.

  Can a default be removed?

A default will linger on your credit file for six years from the date of default, regardless of whether you pay off the debt. But the good news is that once your default is dismissed, the lender won't be able to re-register it, even if you still owe them money.

  How long does the default stay on credit report?

A default will stay on your credit file for six years from the date of default, regardless of whether you pay off the debt. But the good news is that once your default is removed, the lender won't be able to re-register it, even if you still owe them money.

  Will my credit score improve after default removed?

Defaults are a serious form of the negative stamp, and if you only happen to have one on your Credit Report, you are likely to see an improvement in your score once it has been removed, granted there are not more serious negative tags such as a CCJ present.

  How long does a defaulted student loan stay on your credit report?

So a negative impression on your private student loan (and most federal student loans) will cease to hurt your credit after that time span. But there is one specific federal student loan — a Perkins loan — that will stay on your credit report until the loan has been paid in full, even if it happens to be longer than seven years.

  What happens if you default on federal student loans?

Student loan default is what happens when you don't make any full payments on time or not on loans for 270 days or more. Your Federal payments (including your tax refund and benefits payments) can be denied. You can no longer obtain deferments or forbearances. You can no longer any Federal student aid.