Delinquency vs. Default: Is There a Difference? 

delinquency vs default

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What’s the difference between delinquency and default? Well, both refer to falling behind on your student loan payments. But default is more severe than delinquency, since it means you’ve missed payments for 270 days on your federal loans and could face wage garnishment. In this guide, we’re going to take a closer look at delinquency vs. default for student loans, along with tips on how to get out of delinquency or default if you’ve fallen behind on your debt.

What’s the difference between delinquency and default?

As a student loan borrower, you make monthly payments on your student debt. But if you miss a payment, your student loans will be delinquent right away. If you miss payments for 270 days (nine months) on your federal student loans, they’ll be considered to be in default.

Default is more severe than delinquency, as it could have serious consequences and you’ll have to take certain steps to get your loans back into good standing.

What about private student loans? 

While these rules apply to federal student loans, private loans work a bit differently. Some lenders consider a student loan to be in default the day you miss a payment, whereas others give you a window of a few months.

You should be able to find the rules around delinquency and default in your student loan promissory note (the contract you signed when you borrowed the money). If you’re not sure, you can also reach out to your lender or loan servicer directly to find out.

What are the consequences of missing payments on student loans?

If you stop paying your student loans, your lender isn’t going to let you go quietly. Here’s what happens after a delinquency or a default.

For federal student loans

Once you’ve missed a payment on your federal student loans, your servicer might give you a grace period of about 15 days to make it up. If you still haven’t paid, they’ll likely add late fees to your account at this time.

Plus, they’ll probably send you a delinquency letter and start calling you asking for payment. After 90 days, your loan servicer could also report your late payments to the credit bureaus, meaning your credit score could take a serious hit.

If your loan goes unpaid for 270 days, it will be considered to be in default. At this point, the entire balance will become due in full immediately (this is called acceleration). The government can take pretty extreme measures to collect on this debt. You could experience,

  • Garnishment of wages (up to 15% of your disposable pay), tax refunds, or Social Security benefits
  • Loss of federal loan protections, such as deferment, forbearance, or income-driven repayment plans
  • Losing eligibility for any additional financial aid
  • Reporting of the default on your credit report
  • Inability to purchase or sell assets, like real estate

What’s more, your debt could get sold to a collections agency, which could charge you collection fees and get pretty aggressive about trying to contact you. In the worst case scenario, your loan holder might even take you to court.

Since federal student loans have no statute of limitations, the consequences of defaulting could follow you throughout your life. That’s why it’s so important to get out of default (or avoid it in the first place) with the options available to you.

For private student loans

While the consequences of defaulting on private student loans can also be bad, they’re not usually as extreme as those associated with federal student loans. Unlike the government, private lenders do not have the power to seize your tax refund or Social Security benefits.

However, they can potentially garnish your wages if they get a court judgment against you and obtain a wage garnishment order. In extreme cases, they might also be able to place a lien against any property you own.

Along with suing you, private lenders will report the default to credit bureaus, so your score will get damaged. And along with calling you frequently to collect on the debt, they could also contact your cosigner, if you have one.

Private student loans have a statute of limitations 

While the consequences of defaulting on private student loans can be severe, there is one potential silver lining: Private student loans have a statute of limitations, typically from three to 10 years. Once this period has passed, collectors have no legal right to collect the debt from you.

This statute of limitations varies by state, and certain actions, such as making a payment or claiming the debt is yours in writing, can reset the clock. Although some student loan protestors have intentionally defaulted on their private student debt, it’s a risky move, as a lender could take you to court before the statute ends.

How to get out of delinquency

So, if you’ve fallen behind on student loan payments, how can you get back on track? If your loans are delinquent, you can get them back into good standing simply by making a payment.

If you can’t afford payments, speak with your loan servicer about your options. Federal student loans are eligible for a bunch of alternative repayment plans, such as income-driven repayment or graduated repayment.

You might also be able to pause payments through deferment or forbearance. By pursuing one of these arrangements, you can get the financial relief you need without going into default.

Private lenders, however, aren’t usually so flexible. Some might let you skip a payment, and some let you temporarily postpone payments through forbearance or deferment.

If you’re unclear about your options, definitely reach out to your loan servicer for help. By taking these proactive steps, you can avoid default and all the bad consequences that come with it.

How to get out of default

If your loans are already in default, you have to take some additional steps to resurrect them. To revive defaulted federal student loans, you can apply for rehabilitation or consolidation.

  • Rehabilitation: You agree to make nine reasonable payments within a period of 10 months (these are usually set at 15% of your discretionary income). Once your loan is rehabilitated, your default should be removed from your credit history (but any late payments that were reported before the default will remain).
  • Consolidation: You apply for a Direct consolidation loan and put it on income-driven repayment OR make three consecutive, on-time, full monthly payments before consolidating. Your default will still show up on your credit report.

Consolidating your loans will get them back into good standing faster, but rehabilitation could help your credit by removing the default. However, you can only use rehabilitation once.

For private student loans…

As for private student loans, you’ll have to work out an arrangement with your lender or, if your debt has been sold, with the debt collector. Some debt collectors are willing to negotiate, allowing you to pay a smaller sum as a way to close the account.

But make sure you’re comfortable with this arrangement, because as mentioned above, making any payment will likely reset the statute of limitations on your debt.

By the way, if you’re wondering if discharging student loans in bankruptcy is possible, yes, it is. But it’s rare and difficult to do, and you need to prove your debt causes “undue hardship.” For many borrowers, this isn’t a realistic option.

Tips to avoid missing payments in the first place

As you can see, falling behind on student loans can be a stressful and challenging situation. So if you haven’t missed payments yet but are worried you might, do everything you can to avoid delinquency and default.

Check out alternative repayment arrangements for your federal student loans, such as income-driven repayment, extended repayment, or graduated repayment. On an income-driven plan, your payment could be reduced to $0 per month, depending on your income. You might also look into postponing payments temporarily through deferment or forbearance.

If you have private loans, speak with your lender about your options. They might be willing to work out a new repayment plan, especially if it means you won’t start missing payments completely. You could also consider refinancing student loans for new terms and a better interest rate.

Although paying off student debt can be extremely stressful, there are ways to manage even large debt burdens without going into default. And if you’ve already fallen behind, do what you can to take control of your debt so that the consequences of defaulting on your student loans don’t follow you for a lifetime.

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