A delinquency and a default on your student loan both occur from not making payments when you’re required to – but one status is more severe than the other. It’s important to address your responsibility to repay your loans promptly. There are several programs and options to help keep your account in good status, even when you’re unable to make your loan payments. If you have trouble making payments and don’t request assistance, you could place a greater financial burden on yourself and suffer adverse consequences.
A delinquency on your loan occurs when you make late payments or miss a regular loan payment. When your loan is delinquent, your credit report may show late payments and result in a negative impact on your credit score. You don’t have to make any payments toward your education loans while you’re in school and for the first six months after you stop attending classes. The six-month period applies whether you received a degree or not.
Remedies for Delinquency
If you have trouble making your scheduled loan payments, you have a few options. If you can make some amount of payment, you might qualify for a change in your repayment plan. Standard repayment plans require that your loan is paid in full within 10 years. However, you can request payment terms of up to 25 years, graduated repayment plans that start with lower payments and graduate to higher payments, or an income-based repayment plan that allows you to make more budget-friendly payments. You can also request a deferment, which is a temporary suspension of payments due to unemployment, economic hardship or school re-enrollment. If you don’t qualify for a deferment, but are still unable to make payments, you can request a forbearance to temporarily suspend your payments. Forms to request these changes are available on the student.ed.gov website.
You default on your loan after you’ve been delinquent for an extended period of time – usually beyond 270 days. A defaulted student loan has more severe consequences because a history of noncompliance with your legal responsibility to repay the debt has been established. While there may be some options to bring your account back into good standing, it is best to address your account before it is in default status.
Consequences of Default
It’s possible that you could experience significant financial hardship when you let your student loan default. While in default status, you won’t be able to obtain any new student loans and your credit score will show your late payment history. Your federal and state income tax refunds can be intercepted and applied to your loan balance, and your account could be placed with a collection agency that may garnish your wages or sue you. If you’re in default status, visit the Department of Education’s Default resolution site at myeddebt.com for help.
With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.