A Timeline of Federal Student Loan Delinquency, Default Consequences

​In June, The New York Times published an opinion piece that encouraged students burdened with debt to consider letting their loans default. As you might imagine, this argument created a lot of chatter – at least around Student Loan Ranger headquarters.

Everyone is entitled to an opinion, and we can debate the merits of that author’s belief. However, you cannot debate the facts. And the fact is when borrowers fall behind on their payments, they face consequences. The author of that opinion piece is still hearing from the Department of Education about his loans, 40 years after borrowing them.

So, if you’re considering defaulting on your loans, you should know exactly what you’re getting into, as well as when. Here’s a timeline of the consequences of federal student loan delinquency and default:

[Recognize four warning signs of student loan default.]

15 to 30 Days Past Due

Within weeks of missing a payment, your loan servicer can start assessing you late fees. They can charge you up to 6 percent for every dollar. So, if you missed a $100 payment, your fees could be up to $6.

31 to 90 Days Past Due

At this point, you can face additional late fees. This is also when non-monetary consequences begin. Late payments usually get reported to the consumer reporting agencies after about 90 days. So, your credit may begin to suffer.

Now is also when emails, letters and phone calls about your past-due loan may kick in. If your lender doesn’t have your current phone number or address, they may contact people you know to get that information.

91 to 240 Days Past Due

You can now expect more potential fees and more potential damage to your credit score. Reports on your past-due loan are sent to consumer reporting agencies every 30 days.

These reports could begin to make it difficult for you to get additional lines of credit like a car loan or a mortgage, or even an apartment lease. They could also cause interest rates on your credit cards to begin to increase.

Once you reach 120 days or so, you need to act very quickly to avoid default.

[Understand how late student loan payments affect your credit score.]

241 to 269 Days Past Due

Once you hit 240 days past due, your lender will send you a final demand letter requesting payment of the full loan balance​ within 30 days. In the meantime, those reports on your loan will continue to be sent every 30 days, and additional fees can continue to be applied as well.

270 or More Days Past Due

Federal student loans enter default at 270 days past due. Once that happens, you’ll face a number of new consequences.

Your entire loan balance becomes due in full, and its outstanding interest is added – capitalized – to the principal balance. This means you’ll be charged interest on the interest you haven’t paid. Plus, collection costs of 16 percent to 25 percent – and up to 40 percent on Perkins loans – may be added to your loan balance if you do not resolve the default in a timely manner.

In addition, the loan default will be reported to the consumer reporting agencies. This will severely damage your credit, and the entry will stay on your credit history for up to seven years, depending on how you deal with your defaulted loan.

To cover what you owe, the federal government can seize your state and federal tax refunds, other government payments like Social Security and up to 15 percent of your wages. You also will lose your eligibility to receive federal or state financial aid, including money you don’t have to repay like Pell grants.

[Read up on 11 terms to know before repaying student loans.]

Take Advantage of Your Options

Clearly, missing student loan payments can have a big effect on a borrower’s life. But if you find yourself falling behind, try to avoid getting discouraged. Instead, look into the options you may be able to take advantage of, depending on where you are in the process.

If you’ve just missed a payment or two, set up a reminder with your servicer, or on your phone or computer, so you remember in the future. You could also sign up for automatic payments so you’ll be sure to pay on time. As an added bonus, your servicer may reduce your interest rate for enrolling in auto-debit payments.

If you can’t afford your payments, don’t ignore the calls and emails you receive about your loans. The people contacting you may be able to walk you through alternate payment options.

For instance, you may be able to decrease your monthly payments with a different payment option that bases your payments on your income and not just your remaining balance. You also could temporarily postpone your payments with a deferment or forbearance.

These options disappear once a loan enters default. So if the timeline above already didn’t make it clear, you’ll want to act fast if you fall behind.