If you fail to make your payments as scheduled, or do not promptly request deferment, late charges and fines may be assessed and the delinquency will be reported to the credit bureaus.
If your loan continues to be delinquent for an extended period of time the loan may go into default (the point when a monthly payment has not been made to your loan servicer for an extended period of time). Your school, the lender that owns your loan, your loan guarantor, and the federal government can take action to recover the money you owe. Here are some consequences of default:
- National credit bureaus will be notified, harming your credit rating.
- You lose eligibility for additional federal (Title IV) student aid.*
- Funds may be withheld from your paycheck for repayment of your loan.
- State and federal income tax refunds may be withheld and applied toward the amount you owe.
- You may have to pay late fees and, if your loan is placed with an agency for collection, collection fees of at least 30 percent and up to 40 percent may be added to the entire loan balance. You will also be responsible to pay any court or legal fees caused by the default.
- You may be sued.
Here's information about federal loan default: Avoiding Default, Understanding Default, and Getting Out of Default.
*Eligibility for federal student aid may be restored by establishing satisfactory repayment arrangements and making six monthly payments over a six-month period.
Collections
When a delinquent loan has been sent to an agency for collection, the borrower must make repayment arrangements with the agency. The borrower is responsible for the additional collection charges and legal fees associated with collection of the debt, as indicated in the promissory note.
Rehabilitation
Defaulted Direct Subsidized/Unsubsidized, FFEL Stafford, Perkins, PLUS, and SPU Institutional loans are eligible for rehabilitation. To rehabilitate a defaulted loan, you must enter into an agreement with the loan holder and make nine on-time, monthly payments. A loan may be rehabilitated only one time. Advantages of rehabilitation include:
- Your loan(s) will no longer be considered to be in a default status.
- The default status reported by your loan holder to the national credit bureaus will be deleted.
- You will be eligible for the same benefits that were available on the loans before the loans defaulted. This may include deferment, forbearance, and Title IV eligibility.