What Is the Difference Between a Defaulted Student Loan & a Delinquent Student Loan?
- A defaulted loan is one in which you have not made any payments for 270 to 360 days (roughly nine to 12 months). Failing to make payments for this long typically means that your financial difficulties are extensive and that you may have other debts that also are causing trouble.
A delinquent loan is one on which you have not made payments for 30 to 60 days (one or two months). Usually, this is only one to four payments, depending on whether your payments are biweekly or monthly. Most of the time, a delinquency is temporary and doesn't necessarily indicate severe financial problems. However, it can be a sign that problems are looming -- if delinquent, reassess your budget and make financial changes. - Delinquent loans usually don't suffer accelerations -- that is, lenders usually don't demand payment in full plus interest because people often remedy delinquent loan accounts quickly. Of course, this depends on the contract terms.
Lenders are much more likely to accelerate defaulted loans. They recognize that the chance of you remedying what you owe is lower. Acceleration is the lender's way of saying that you've lost their financial trust and that they want to take action to prevent revenue and profit loss. - Often, if a student loan is delinquent, the issuing lender sends the loan into collections. This means they send the account to a guaranty agency or the U.S. Department of Education to try more aggressively to get you to pay. If your loan is sent to collections, your wages may be garnished, your tax refunds may be offset and you may be sued for the balance of the loan plus court costs incurred by the collections agency. Often lenders wait for your loan to default before sending it to collections, because of the administrative time and costs associated with the collections process -- they want to be absolutely certain that you're not about to pay the amount you're behind.
- Depending on your lender, delinquencies on student loans sometimes show up on your credit. Lenders almost always notify credit bureaus of defaults. Even a single defaulted loan may warn other lenders away. Lenders are more willing to work with delinquencies, because the amount of time you didn't pay is less, meaning you're behind a lesser amount.
- The information here applies primarily to federal student loans. Private student loans do not have to be nine months late to be considered in default. You also can be in default if you apply for bankruptcy, become insolvent, violate the loan contract in some method aside from missed payments or if you pass away. With a government loan, default means you are disqualified from forbearance, deferments or, in some cases, additional future aid.