Many borrowers are unable to keep up with payments on all of their debt obligations. When you miss a payment on most debts, your account will be in default at that time or shortly thereafter. When you fall behind on a credit card payment or mortgage, for example, the lender is usually very quick to let you know that your loan is in default. This practice causes people to assume that their federal student loans are in default if they miss a payment. But that’s usually not true; federal student loans are different. You default on most federal student loans only after a series of missed payments.
When a borrower of a FFEL or Direct loan misses a payment, the loan becomes delinquent and the account is sent to a new servicer. The servicer may contact you and tell you about different repayment options.
While the new servicer might sound a lot like a debt collector, it usually isn’t one. A debt collector will come into the picture later if you don’t get caught up on your payments (see “Consequences of Default” below).
If your FFEL or Direct loan payments are due monthly, default will occur after 270 days or about nine months of missed payments. If your payments are due less frequently than monthly, default occurs after 330 days of missed payments or about 11 months.
During the time that your loan is delinquent but not in default, you have many options to become current, like requesting an economic hardship deferment or consolidating your loans.
A Perkins loan is in default as soon as you miss a payment or violate any other term of the payment agreement. Therefore, it's especially important to know if your federal student loans are Perkins loans so that you're sure not to default.
While federal student loans are generally more lenient than most other loans regarding when default happens, the consequences of default are much more severe than for most other debts.
A debt collector might get involved with your account. If you default on a federal student loan, the creditor (the Department of Education) may transfer your account to a debt collector. Debt collectors are paid fees and commissions that come out of the payments you send to the collector. If your payment doesn't cover the full interest accruing on the loan, as well as the collection fee, your loan balance can rise quickly.
The Department of Education might sue you. The Department of Education can accelerate the entire loan balance on a defaulted loan and sue you for the full amount, or collect the amount of the debt through one of its many special collection remedies for defaulted federal student loans. These remedies include:
Your credit score will drop. Most lenders will report your default to the credit reporting bureaus and your credit score will fall, which will make it harder to get a loan in the future. A default normally remains on your credit report for seven years, but if you rehabilitate your loans, the credit reporting agencies will remove any mention of the default from your report. (Your history of late payments before you entered default status, however, will stay on the report.)
You’ll lose eligibility for income-driven repayment plans, deferment, or forbearance options. A borrower of a loan that is merely delinquent is eligible for deferment, but you lose eligibility for deferment once the loan goes into default. A borrower on a current or delinquent loan is also eligible for forbearance, and a servicer has discretionary power to allow a forbearance on a defaulted loan. Servicers sometimes insist that forbearances are not available on defaulted loans, but this isn’t true. It’s important to be able to inform the servicer of an FFEL or Direct loan that, under federal law, they may grant a forbearance in order to permit the borrower to resume honoring the obligation after default. (34 CFR § 682.211(a)(1), 34 CFR § 685.205(a)(8)).
Your state might revoke your professional license. If you default on your federal student loans, you could lose your professional or another type of license. Approximately 20 states allow the government to suspend a state-issued professional license, like a nursing, teaching, or law license, or another kind of license, like a driver’s or even a fishing license, after a borrower goes into default.
(For more information about what to expect if you default on your loans, see What Happens If You Default on Your Student Loans.)
If you’ve missed a payment on a federal student loan, it’s important not to panic. You probably have time to avoid defaulting on the loan. You can request a number of deferments, you might have forbearance options, or you might be able to rehabilitate or consolidate your loans. Most of these options are also available to defaulted loans.
Contact your loan servicer—or a student loan attorney—to find out more about what options are available in your situation.