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What Is a Defaulted Student Loan?

Student Loans
Written by Fiza Usman
Updated: February 2, 2023
6 min read
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After graduation, all student loans used towards your education are required to be paid back with interest. Every loan holder will determine their timeline of when these payments are expected to be paid.

All private and federal student loan borrowers are legally obliged to repay all monthly payments concerning their student loan within the terms written in the agreement. Failure to comply with these conditions over an extended period of time results in a defaulted loan. Defaulted loans can result in serious consequences that can be difficult to reverse. Hence, it is incredibly important to take precautionary steps to ensure that your loans are being paid off appropriately.

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In most cases, the first 90 days past the student loan payment’s due date will cause your loan to be delinquent, where it will remain until arrangements are communicated with the lender. If no arrangements are made after the 90-day mark, the status of your loan will be communicated with the three major national credit bureaus.

If not paid within this 90-day window, you risk the loan appearing on your credit report and damaging your credit score. A low score can make it harder to be approved for future investments like renting an apartment or buying a house. It can also take a long time to restore your score to where it was before or an acceptable number.

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For federal student loans, if this delinquency persists for over 270 days (nine months), the loan will become default. Although similar, all private student loans have different terms and conditions, so that timeline may differ depending on your loan servicer. Private student loans usually default after 1-3 missed payments or 120 days. Once in student loan default, the loan servicer may take further actions to receive the missed monthly payment. This will have a negative effect on both future borrowing and current finances.

Defaulted borrowers can expect any of the following penalties:

Withholding payments

Federal student loan holders can withhold all government payments, such as tax refunds or social security payments as well as wage garnishment. These forms of income can be legally collected to pay off your unpaid balance.

While private student loans have no authority over your government payments, they can take your case to court, where they can take money from your income or directly from your bank account.

Lose eligibility on benefits

In federal loans struggling borrowers may apply for a deferment or a forbearance period and income-driven repayment plans to help them with their monthly payments. Borrowers are unable to utilize these advantages after a defaulted federal student loan.

Furthermore, you may get denied additional federal student aid or private loans to help fund the rest of your higher education expenses.


Impact your credit report

All defaulted loans are communicated with credit reporting agencies, where they can remain on your account for seven years. It can severely dent your score, making it impossible to be trusted with future purchases.

Additional Costs

In addition to your student loan, you might be charged extra, including collection costs or attorney fees, to name a few. This can make your bill even higher and keep you in debt for a longer period of time.

Make sure to reach out to your lender if you are ever experiencing difficulty making monthly payments before the loan enters delinquency, especially default. These consequences can make navigating student loans even tougher.


Can you discharge student loans?

A loan discharge is expunging responsibility from the remaining or entire loan balance. This can only be approved in certain circumstances where the fault is not yours but either the school’s or in rare extreme financial situations.

The discharging procedure and conditions will largely depend on your loan, but here are a few examples where discharge can be acceptable:

  • Closed School during your enrollment or shortly after withdrawal
  • Permanent Disability
  • Death of the borrower or the student the loan was taken out for
  • School failed to appropriately handle your loan
  • Bankruptcy (must fulfill all obliging processes)
  • School gives incorrect certification for a loan
  • If you are a victim to forgery

If you feel as though you are eligible for a discharge, reach out to your servicer immediately.


How much do I need to Borrow?

Student loans largely differ on the person and will not be uniform across college students. It will largely depend on the cost of the particular school, such as whether it is a private or public university offering in-state or out-of-state tuition.

Eager to attend college, students will often consider taking the maximum amount possible to fund their education. While getting more than you need can be tempting, it prompts more difficulties in the long run.

Before taking out any student loans, take some time to calculate all the expenses you need. This includes tuition, books, housing, food, and transportation. Try not to account for purchases that are not necessities.

Consider reaching out to your school's financial aid office to get a better outlook on how much you need to budget for.

Rather than blindly getting student loans, think about potential ways to minimize college costs. You can minimize loans on room and board by living at home or becoming a residential assistant, undergraduate, or graduate student staff member who works for the University's dormitory.

Also, look into the Federal work-study program to find a part-time job to help pay off some extra expenses and decrease the demand for student loans. These extra earnings throughout the school year can save you a ton of money in student loan interest in the long run.

Lastly, apply for scholarships through today to cover the remaining balance. The website updates with new scholarships daily, providing hundreds of financial opportunities to students from different backgrounds. One big scholarship or accumulating many smaller ones can save you thousands towards your education.

In fact, grants are available specifically to help pay off student loans.


List of Frequently Asked Questions

How Do I Apply For Student Loans?

There are currently two types of loans available to students: Federal and Private student loans. Each loan holder has their own respective applications and timelines, so prior to applying, differentiate which one is better for your educational journey.

Federal student loans are financial aid from the government, usually offering better exclusive benefits, interest rates, and timelines for monthly payments. Private student loans are received through an abundance of organizations such as credit unions, banks, and state-based affiliated organizations. Unlike federal loans, every lender will offer their own terms and conditions.

To apply for federal student loans, you must complete the Free Application for Student Financial Aid (FAFSA) from October 30 to June 30. By providing information regarding your financial situation, including household income, your school's financial aid office is able to come up with an estimate. Note that this application is due every year.

Since private loans come from many different sources, there is no singular protocol or restricted due date. Start contacting your bank or other organizations that offer student loans.

Before settling on one, make sure to compare every student loan to make sure that you are getting the best possible rate.

When do I begin my student loan payments?

This is completely contingent on the loan servicer and whether it is a private or federal loan.

Most federal student loans offer a grace period in which interest may or may not accrue, and students are exempt from paying. This is typically six months after graduation. Once this period is over, borrowers are to begin their monthly payments. Some private student loans offer a grace period, while others do not. Make sure to carefully read the agreement to avoid any difficulties because payments could be expected during the school year.

Fiza Usman
Content Writer

About Fiza

Fiza is a dedicated writer and researcher with expertise in internships, scholarships, career opportunities, and financial aid. Her skills enable her to craft engaging and insightful content that guides students through the complex processes of applying for financial aid and pursuing career opportunities.

She graduated from Boston College, majoring in Applied Psychology and Human Development and Computer Science.


Fiza has experience in writing blog posts, SEO content, and creative storytelling. On her personal blog, she shares engaging narratives through personal anecdotes. Her international experiences have given her a global perspective, enabling her to connect with a diverse audience. Fiza is committed to making a meaningful impact through her writing, always considering the perspectives and experiences of others.

Since joining the team in 2022, Fiza has channeled her passion for guiding students through pivotal stages of their academic journeys. She understands the challenges associated with college life and is dedicated to helping students adjust to their degree programs and manage their finances. Motivated by her own experiences, Fiza is passionate about empowering students by providing guidance and support that she wished she had during her undergraduate years.

Quote from Fiza

“To educate is to empower.”

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