Student loan default is more common than you may think. More than 11 percent of the 44 million Americans with student loans are more than 90 days delinquent or have defaulted on their debt.
Going into default can have serious consequences on your financial future, affecting everything from your ability to get a new car to getting approved for an apartment. Learning how to manage your loans and prevent defaulting on your debt is essential for your financial security.
Here’s what you need to know about default on student loans and what you can do to protect yourself.
What it means to default on student loans
The first day you miss a payment, you become delinquent on your loans. If you continue to miss payments, your loans could enter into default. For federal loans, you are in default when you fail to make a payment for 270 days, or about nine months.
Private loans have much stricter limits. Most lenders consider you to be in default if you miss just three months of payments.
Consequences of falling behind
Whether you have federal or private loans, defaulting on your debt can have lasting consequences. Here’s what you can expect if you fall behind.
For private student loans, you will owe the full balance of your debt as soon as you enter default. If you recently graduated and fell behind in the first few months, that means you could owe thousands right away.
If you can’t pay up, your lender could send your loan to collections. If that happens, you can expect daily phone calls and letters about your debt. Your lender can also add collection charges to your loan, which could cause your debt to grow by up to 40 percent.
If you default, your lender can also report that to the three credit bureaus, damaging your credit score.
If you are still unable to make payments, your lender can get a court judgment against you and garnish your wages. Depending on where you live, the lender may be able to take as much as 25 percent of your paycheck.
Many borrowers have a cosigner for their private loans, and that can make defaulting even more difficult. Since your cosigner’s name is on the loan, they’re responsible for the debt if you don’t make payments. Your loved one could be on the hook for your full balance, which could strain or even destroy your relationship.
The consequences of defaulting on federal student loans can be even more severe. Like private loans, you will immediately owe the full balance of your loans, along with any interest that accrued.
You will lose eligibility for valuable federal loan benefits like access to income-driven repayment (IDR) plans, deferment, or forbearance. You also will no longer qualify for further financial aid.
The government may send your loans to collections, but unlike private lenders, they can also go after your taxes. If you default on your loans, the IRS can take your entire tax refund.
The federal loan servicer can also pursue wage garnishment against you or take legal action, which can prevent you from purchasing or selling assets like a home.
How to prevent default
If you’re struggling to make your payments, it’s important to take action right away to prevent default. Here are three things you can do:
- Sign up for an IDR plan: If you have federal loans, you may be eligible for an IDR plan. Under these plans, your monthly payment is capped at a percentage of your discretionary income, making your payments more manageable.
- Apply for forbearance or deferment: Both federal and private loans may be eligible for forbearance or deferment, where you can postpone making payments without entering into default. Many lenders offer temporary holds on your account if you can demonstrate financial hardship.
- Ask about alternative repayment plans: If you have private loans and are not eligible for deferment, contact your lender and ask about alternative repayment plans. Some lenders will work with borrowers, allowing you to make interest-only payments or reduced payments on your debt until you’re back on your feet.
How to get out of default
If you’ve already defaulted on your loans, it’s important to get out of default as quickly as possible to reduce the negative impact on your credit history and finances.
If you defaulted on your loans, you might be able to get out by using one of the following options.
1. Consolidate your debt
If you have federal loans, you can get out of default by consolidating your debt with a Direct Consolidation Loan. Once you consolidate, you must sign up for an IDR plan to manage your loans.
While this approach will get you out of default, consolidating does not remove the default from your credit report.
2. Rehabilitate your loans
Another option for defaulted federal loans is to rehabilitate your debt. Through this process, you agree to make nine monthly payments. The U.S. Department of Education will work with you to set up a new payment plan.
Under a loan rehabilitation agreement, they will offer you a payment that is equal to 15 percent of your discretionary income. Depending on your situation, your payment could be as little as $5.
After making the required payments, your loan is considered rehabilitated and the default is removed from your credit history.
3. Pay off the loans in full
While it may sound counterintuitive, paying off your loan balance in full will get you out of default quickly.
It may sound impossible, but being in default on student loans is a crisis situation. Weigh your options and consider asking friends or family for help to pay off the debt to get you out as quickly as possible.
4. Take out a personal loan
If you have private loans in default and don’t have the money to pay them off in full, consider applying for a personal loan. If you can’t get approved because the defaulted loans tanked your credit, you may be able to qualify for a personal loan with a cosigner. You can use the new loan to pay off your loans in default.
However, this approach only works if you have a plan in place for making your payments going forward. Otherwise, you risk compounding the issue by defaulting on the personal loan, too.
5. Set up a plan
When it comes to private loans in default, your options are limited. One of the best things you can do is contact your loan servicer, explain your situation, and communicate your determination to move forward. They may be willing to work with you to come up with a solution, such as temporarily reduced payments to help you get out of default.
Handling a default on student loans
If you’re struggling with your payments, take action now to talk to your lender and come up with a plan. Signing up for an alternative repayment plan or entering a temporary forbearance can prevent more serious issues from occurring later on.
Need more help? Learn about your options and rights when you default on private student loans.
Interested in refinancing student loans?Here are the top 5 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.99% – 6.65%1||Undergrad & Graduate|
|3.21% – 6.67%2||Undergrad & Graduate|
|1.99% – 7.10%3||Undergrad & Graduate|
|2.39% – 6.43%4||Undergrad & Graduate|
|3.21% – 6.69%5||Undergrad & Graduate|
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1 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. Mortgage lending is not offered in Puerto Rico. All loans are provided by KeyBank National Association.
ANNUAL PERCENTAGE RATE (“APR”)
There are no origination fees or prepayment penalties associated with the loan. Lender may assess a late fee if any part of a payment is not received within 15 days of the payment due date. Any late fee assessed shall not exceed 5% of the late payment or $28, whichever is less. A borrower may be charged $20 for any payment (including a check or an electronic payment) that is returned unpaid due to non-sufficient funds (NSF) or a closed account.
For bachelor’s degrees and higher, up to 100% of outstanding private and federal student loans (minimum $5,000) are eligible for refinancing. If you are refinancing greater than $300,000 in student loan debt, Lender may refinance the loans into 2 or more new loans.
ELIGIBILITY & ELIGIBLE LOANS
Borrower, and Co-signer if applicable, must be a U.S. Citizen or Permanent Resident with a valid I-551 card (which must show a minimum of 10 years between “Resident Since” date and “Card Expires” date or has no expiration date); state that they are of at least borrowing age in the state of residence at the time of application; and meet Lender underwriting criteria (including, for example, employment, debt-to-income, disposable income, and credit history requirements).
Graduates may refinance any unsubsidized or subsidized Federal or private student loan that was used exclusively for qualified higher education expenses (as defined in 26 USC Section 221) at an accredited U.S. undergraduate or graduate school. Any federal loans refinanced with Lender are private loans and do not have the same repayment options that federal loan program offers such as Income Based Repayment or Income Contingent Repayment.
All loans must be in grace or repayment status and cannot be in default. Borrower must have graduated or be enrolled in good standing in the final term preceding graduation from an accredited Title IV U.S. school and must be employed, or have an eligible offer of employment. Parents looking to refinance loans taken out on behalf of a child should refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for applicable terms and conditions.
For Associates Degrees: Only associates degrees earned in one of the following are eligible for refinancing: Cardiovascular Technologist (CVT); Dental Hygiene; Diagnostic Medical Sonography; EMT/Paramedics; Nuclear Technician; Nursing; Occupational Therapy Assistant; Pharmacy Technician; Physical Therapy Assistant; Radiation Therapy; Radiologic/MRI Technologist; Respiratory Therapy; or Surgical Technologist. To refinance an Associates degree, a borrower must also either be currently enrolled and in the final term of an associate degree program at a Title IV eligible school with an offer of employment in the same field in which they will receive an eligible associate degree OR have graduated from a school that is Title IV eligible with an eligible associate and have been employed, for a minimum of 12 months, in the same field of study of the associate degree earned.
The interest rate you are offered will depend on your credit profile, income, and total debt payments as well as your choice of fixed or variable and choice of term. For applicants who are currently medical or dental residents, your rate offer may also vary depending on whether you have secured employment for after residency.
The repayment of any refinanced student loan will commence (1) immediately after disbursement by us, or (2) after any grace or in-school deferment period, existing prior to refinancing and/or consolidation with us, has expired.
POSTPONING OR REDUCING PAYMENTS
After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship.
We may agree under certain circumstances to allow a borrower to make $100/month payments for a period of time immediately after loan disbursement if the borrower is employed full-time as an intern, resident, or similar postgraduate trainee at the time of loan disbursement. These payments may not be enough to cover all of the interest that accrues on the loan. Unpaid accrued interest will be added to your loan and monthly payments of principal and interest will begin when the post-graduate training program ends.
We may agree under certain circumstances to allow postponement (deferral) of monthly payments of principal and interest for a period of time immediately following loan disbursement (not to exceed 6 months after the borrower’s graduation with an eligible degree), if the borrower is an eligible student in the borrower’s final term at the time of loan disbursement or graduated less than 6 months before loan disbursement, and has accepted an offer of (or has already begun) full-time employment.
If Lender agrees (in its sole discretion) to postpone or reduce any monthly payment(s) for a period of time, interest on the loan will continue to accrue for each day principal is owed. Although the borrower might not be required to make payments during such a period, the borrower may continue to make payments during such a period. Making payments, or paying some of the interest, will reduce the total amount that will be required to be paid over the life of the loan. Interest not paid during any period when Lender has agreed to postpone or reduce any monthly payment will be added to the principal balance through capitalization (compounding) at the end of such a period, one month before the borrower is required to resume making regular monthly payments.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of March 4, 2020 and is subject to change.
2 Important Disclosures for SoFi.
3 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Splash Financial loans are available through arrangements with lending partners. Your loan application will be submitted to the lending partner and be evaluated at their sole discretion. For loans where a credit union is the lender, or a purchaser of the loan, in order to refinance your loans, you will need to become a credit union member.
The Splash Student Loan Refinance Program is not offered or endorsed by any college or university. Neither Splash Financial nor the lending partner are affiliated with or endorse any college or university listed on this website.
You should review the benefits of your federal student loan; it may offer specific benefits that a private refinance/consolidation loan may not offer. If you work in the public sector, are in the military or taking advantage of a federal department of relief program, such as income based repayment or public service forgiveness, you may not want to refinance, as these benefits do not transfer to private refinance/consolidation loans.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of May 1, 2020.
Fixed APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rate options range from 2.88% (without autopay) to 7.27% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Rates are subject to change without notice. Fixed rate options without an autopay discount consist of a range from 2.88% per year to 6.21% per year for a 5-year term, 3.40% per year to 6.25% per year for a 7-year term, 3.45% to 5.08% for a 8-year term, 3.89% per year to 6.65% per year for a 10-year term, 4.18% per year to 5.11% per year for a 12-year term, 4.20% per year to 7.05% per year for a 15-year term, or 4.51% per year to 7.27% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan).
Variable APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Variable rate options range from 1.99% (with autopay) to 7.10% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Our lowest rate option is shown with a 0.25% autopay discount. Our highest rate option does not include an autopay discount. The variable rates are based on the Variable rate index, is based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 27, 2020, the one-month LIBOR rate is 0.43763%. The interest rate on a variable rate loan is comprised of an index and margin added together. The margin is a fixed amount (disclosed at the time of your loan application) added each month to the index to determine the next month’s variable rate. Variable rate options without an autopay discount consist of a range from 2.01% per year to 6.30% per year for a 5-year term, 4.00% per year to 6.35% per year for a 7-year term, 2.09% per year to 3.92% per year for a 8-year term, 4.25% per year to 6.40% per year for a 10-year term, 2.67% per year to 4.56% per year for a 12-year term, 3.44% per year to 6.65% per year for a 15-year term, 4.75% per year to 6.93% per year for a 20-year term, or 5.14% per year to 7.10% for a 25-year term, with no origination fees. APR is subject to increase after consummation. Variable interest rates will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. The maximum variable rate may be between 9.00% and 16.00%, depending on loan term. The floor rate may be between 0.54% and 4.21%, depending on loan term. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
4 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.20% APR (with Auto Pay) to 6.43% APR (with Auto Pay). Variable rate loan rates range from 2.39% APR (with Auto Pay) to 6.43% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of June 3, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 6/03/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.8100000000000002% effective April 10, 2020.