Debt Management: Understanding and Avoiding Default and Delinquency

What is default?
Default is when a borrower neglects or fails to repay his or her Federal Stafford loan. A default will be declared when a borrower has missed nine payments.

What is the difference between default and delinquency?
If you miss one payment, this is considered a delinquency. The lender will report the delinquency to the guarantor. Then the guarantor will initiate a series of attempts to contact you in an effort to help you manage your debt burden and get back on track with your payments.

If the situation is not corrected and you miss 9 payments, then your loan will be declared in default.

What are the consequences of defaulting on my student loan?
Failure to repay your loan(s) may result in any or all of the following:

• Adverse credit when the default is reported to all national credit bureaus. This may affect your ability to obtain financing for cars, houses, etc.
• Default reported to the Internal Revenue Service, causing Federal and/or state tax refunds to be withheld and applied to the loan balance
• Garnishment of your wages
• Collection of necessary costs involved with collecting your debt
• Assignment of your loan to a collection agency
• Loss of other Federal or state payments
• Loss of eligibility for further assistance from any Title IV Program, including the Federal Pell Grant, the Federal Supplemental Educational Opportunity Grant, Federal work-study, Academic Competitiveness Grant (ACG), National Science and Mathematics Access to Retain Talent Grant (SMART), Federal Family Education loans, and Perkins loans
• Loss of eligibility for repayment options, deferments, and interest benefits as described on the Master Promissory Note (MPN)
• Denial of professional licenses (in some states)
• Lawsuit and the liability of court-legal expenses

So how can I avoid these consequences?
Proper management of personal finances is the best method to avoid default. Use the Loan Repayment Calculator to get an idea of your payment amounts and check out the tips SLGFA offers on its Financial Literacy page.

However, lenders understand that misfortune can occur.

If you are having difficulty making payments, you should immediately contact your lender or guarantor. Don't wait for those agencies to contact you. SLGFA has a dedicated Default Prevention Department to assist you in managing your debt. If you're having trouble making payments, contact Dana at 800-622-3446, ext. 655 right away.

Other things to keep in mind:

• Open all mail. You will be notified by mail of changes in lender or servicer of any difficulty or discrepancy in your payments.
• Act promptly on all communications received from the lender or guarantor and retain a record of these contacts in your student aid file.
• Keep copies of all documents, including copies of the Loan Application and Master Promissory Note (MPN), correspondence, deferment forms, disclosure statements, paid-in-full notifications, records of loan checks received, repayment schedule, and payments made to your lender.