What’s The Difference Between Student Loan Delinquency and Default?

Updated on March 16, 2024

At a Glance

  • Student loan delinquency starts after 30 days of missed payments, while default typically occurs after 270 days.
  • Both delinquency and default can have significant financial repercussions, including damage to your credit score, accrual of interest, and potential legal actions.
  • There are several strategies to avoid or overcome delinquency and default, such as loan deferment, income-driven repayment plans, and loan consolidation.
  • Being proactive and understanding the terms and consequences of your student loans are crucial to manage them effectively and secure your financial future.

If you’ve ever taken out a student loan, you know how daunting it can be to navigate the world of loan jargon. With terms like “delinquency” and “default” being thrown around, it’s important to understand what they mean and how they can impact your financial future.

In this article, we’ll break down the difference between student loan delinquency and default and provide some tips on how to prevent and overcome these challenges.

Delinquent Student Loans Vs. Defaulted Student Loans: What’s The Difference?

Understanding the difference between delinquent student loans and defaulted student loans is crucial for anyone who has taken out educational loans. While both situations involve missed payments, there are distinct variations in the consequences and severity of each.

Let’s start by defining the terms.

Delinquent Student Loans

When your student loan payments are past due, but you haven’t reached the point where the loan servicer considers it a full-blown default, your loans are considered delinquent. Delinquency typically starts after 30 days of missed payments. It is important to note that during this delinquency period, you are still able to rectify the situation and bring your payments up to date without facing the severe consequences of default.

Defaulted Student Loans

On the other hand, a defaulted loan is one that has remained delinquent for an extended period, usually 270 days or more. At this point, the loan servicer can demand immediate repayment of the entire loan balance. Defaulting on your student loans can have serious consequences that extend far beyond the financial realm.

The Issue with Defaulting on Your Student Loans

One of the most significant impacts of defaulting on your student loans is the damage it inflicts on your credit score. Your credit score will take a major hit, making it harder to get approved for loans, credit cards, or even housing in the future. This can have a long-lasting effect on your financial well-being and limit your options for years to come.

Moreover, defaulting on your student loans can lead to legal actions and collection efforts by the loan servicer. The government can garnish your wages, seize your tax refunds, and place liens on your property. These measures are taken to ensure that the outstanding debt is repaid, but they can have severe consequences for your financial stability and overall quality of life.

READ MORE: Should I Rehabilitate My Defaulted Federal Loans?

It is essential to take action before you reach the stage of defaulting on your student loans. If you find yourself struggling to make payments, there are several options available to help you manage your debt. Loan deferment or forbearance may be possible, allowing you to temporarily pause or reduce your payments. Additionally, income-driven repayment plans can adjust your monthly payments based on your income level, making them more manageable.

Reaching out to your loan servicer or a reputable student loan counselor can provide you with valuable guidance and assistance in navigating the complexities of student loan repayment. By taking proactive steps to address your delinquent loans, you can avoid the detrimental consequences of default and work towards a more secure financial future.

The Impact of Student Loan Delinquency and Default

Both delinquency and default will take a toll on your finances and credit history. When your loans become delinquent, late fees and penalties start piling up, adding to your overall loan balance. Your credit score will suffer, making it difficult to borrow money at favorable interest rates.

But what exactly happens when your loans become delinquent? Let’s delve deeper into the consequences.

Accruing Interest

As the days pass and your payments remain unpaid, interest continues to accrue on your outstanding balance. This means that the longer you remain delinquent, the more you will owe. Late fees and penalties are also added to your loan balance, compounding the financial burden.

Damaging Your Credit Score

Moreover, your credit score takes a hit when you become delinquent on your student loans. This can have far-reaching implications beyond just borrowing money. A poor credit score can make it difficult to secure housing, obtain insurance, or even land a job. Potential landlords, insurers, and employers often check credit reports as part of their evaluation process, and a delinquent student loan can raise red flags.

Defaulting on your student loans is even more severe. In addition to the aforementioned consequences, default can lead to legal action and collection efforts. Once your loans are in default, the entire balance becomes due immediately, and the lender can take aggressive measures to collect the money owed.

Dealing with Wage Garnishment

One of the most distressing consequences of default is the possibility of facing wage garnishment. This means that a portion of your wages can be withheld to repay the defaulted loan. Imagine working hard and diligently, only to see a significant portion of your paycheck disappear before it even reaches your bank account.

Having Your Assets Repossessed

Defaulting on your student loans can result in a collection agency repossessing your assets. This means that valuable possessions, such as your car or even your home, could be seized to satisfy the debt. Losing your assets can have a devastating impact on your financial stability and future prospects.

Needless to say, defaulting on your loans is something you want to avoid at all costs. It is crucial to stay proactive and explore options such as loan deferment, income-driven repayment plans, or loan consolidation. By taking control of your student loan situation and seeking assistance when needed, you can prevent the negative consequences of delinquency and default.

How Do You Get Out of Student Loan Delinquency and Default?

Now that we understand the difference between these two stages, let’s discuss how to get out of them and regain control of your student loans. If you’re currently delinquent, don’t panic. Take immediate action by contacting your loan servicer to discuss your options. They may be able to offer a temporary forbearance or an alternative repayment plan that better suits your financial situation.

If you’ve already defaulted on your student loans, things can appear more challenging, but there are still steps you can take to rectify the situation. One option is loan rehabilitation, which involves making several consecutive on-time payments to bring your loan back into good standing. Another option is loan consolidation, where you combine your defaulted loans into a new direct consolidation loan with a new repayment plan.

How Can You Avoid Falling Behind on Your Student Loan Payments?

Prevention is always better than a cure, so let’s explore some tips to help you stay on top of your student loan payments and avoid delinquency or default altogether:

  1. Create a budget: Take a good look at your income and expenses and create a realistic budget that includes your loan payments.
  2. Set up automatic payments: By automating your payments, you reduce the risk of forgetting to pay and falling behind.
  3. Explore repayment options: If you’re struggling to make your current payment, investigate alternative repayment plans that may lower your monthly obligation.
  4. Seek assistance: If you’re experiencing financial hardship, reach out to your loan servicer for guidance and explore options like deferment or forbearance.

The Bottom Line

Remember, education is the key to financial success, and understanding the difference between student loan delinquency and default empowers you to make smarter decisions for your financial future. Stay proactive, explore your repayment options, and never hesitate to ask for help when you need it. With the right mindset and a solid plan, you can successfully manage your student loans and set yourself up for a bright future.

Frequently Asked Questions (FAQ)

What is student loan delinquency?

Student loan delinquency is a status that begins after you miss a student loan payment. It typically starts after 30 days of missed payments and can lead to loan default if not addressed.

What is student loan default?

Student loan default is a more serious status that typically occurs after approximately 270 days of missed payments. In default, the entire balance of your loan becomes due, and the lender can take legal actions to recover the money.

How does student loan delinquency affect my credit score?

Student loan delinquency can negatively impact your credit score, making it harder for you to get approved for loans, credit cards, or even housing in the future.

What happens if my student loans go into default?

If your student loans go into default, the lender can demand immediate repayment of the entire loan balance. The government can garnish your wages, seize your tax refunds, and place liens on your property.

How can I avoid student loan delinquency and default?

You can avoid student loan delinquency and default by making regular payments, setting up automatic payments, exploring alternative repayment plans, and reaching out to your loan servicer if you’re experiencing financial hardship.

What is loan deferment?

Loan deferment is a temporary pause on your loan payments, granted under certain circumstances such as financial hardship or enrollment in school.

What are income-driven repayment plans?

Income-driven repayment plans adjust your monthly student loan payments based on your income level, potentially making the payments more manageable.

What is loan rehabilitation?

Loan rehabilitation is a program that allows you to bring your defaulted loan back into good standing by making several consecutive on-time payments.

What is loan consolidation?

Loan consolidation involves combining multiple student loans into a single loan, often with a new repayment plan and interest rate. This can simplify your payments and potentially lower your monthly payment amount.

How can I prevent falling behind on my student loan payments?

To prevent falling behind on your student loan payments, you can create a budget, set up automatic payments, explore different repayment options, and reach out to your loan servicer if you’re experiencing financial hardship.

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Rohit Mittal

Rohit Mittal is the co-founder and CEO of Stilt. Rohit has extensive experience in credit risk analytics and data science. He spent years building credit risk and fraud models for top U.S. banks. In his current role, he defines the overall business strategy, leads debt and capital fundraising efforts, leads product development, and leads other customer-related aspects for the company. Stilt is backed by Y Combinator and has raised a total of $275M in debt and equity funding to date.

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