Defaulting on a student loan can bring a lot of anxiety about the unknown. What happens if you default on a student loan depends on a variety of factors. The first thing to know is that public and private loans are very different. Your payment options and how you can deal with falling behind will be different depending on who is backing your student loan.
In response to the COVID-19 coronavirus pandemic, the US Department of Education has announced that all federally held student loans will automatically set their interest rates to 0% for at least 60 days, as of March 20, 2020. The department has also authorized an automatic suspension of payments for any borrower more than 31 days delinquent as of March 13, 2020. Private student loans are not covered by this announcement.
What is Defaulting on a Student Loan?
If you’ve defaulted on your student loan, it simply means you’ve failed to repay your loans as agreed. This may involve any of the following:
- You’ve gone too long without making a payment
- You’ve violated terms and conditions of the loan
- You fraudulently obtained a student loan
What Happens if You Default on a Student Loan?
In most cases, federal student loans come with larger grace periods and more flexible options for repayments than private student loans. The government offers a number of programs to help keep people from going into default, as well as options to correct a default. It also takes longer to default on a federal loan.
What is the Difference Between a Delinquent and Default Loan?
A delinquency occurs whenever you fall behind on payments. As soon as you are a day or more behind on a payment, you are considered delinquent. You remain delinquent until you pay. If the loan provider reports to the credit bureaus, they could report your late payment, which could have a negative impact on your credit score.
Default occurs after a period of delinquency that has not been addressed with payment. According to the Consumer Financial Protection Bureau, private student loans are considered in default if you miss three monthly payments. The Federal Student Aid office notes that federally backed loans are considered in default if you’ve missed your scheduled payments for 270 days or more, or around nine months.
Consequences of Defaulting on Student Loans
Private student loans are usually governed by the same laws that other private loans are governed by. That means the lender must follow the Fair Debt Collection Practices Act in attempting to recover funds. They typically cannot collect from you in ways that include garnishing wages or levying a bank account without first filing a lawsuit and going through the courts.
Still, however, defaulting on your private student loans and failing to remedy the situation can have some serious consequences, including:
- A significantly lower credit score
- Legal actions against you
Defaulting on federal student loans can come with even harsher penalties. Because the government provides so many options for paying back student loans, it sees default as a serious offense. Once you’re in default, you lose all the benefits that came with your federal loans. Deferment, forbearance, repayment plans, and loan forgiveness programs are all off the table.
Consequences for defaulting on a federal student loan can include:
- Lower credit score
- Levies on assets, including home
- Federal tax refund confiscation
- Wage garnishment
- Legal action
Need Help Avoiding a Student Loan Default?
Credit Experts can help you navigate tough times and help you avoid default. We can work on your behalf and contact your creditors and negotiate a plan that will help you maintain your credit score and keep you out of default. If you’ve gone into default, we can help you recover and repair your credit.
1 (877) 772-7312