The difference between loan delinquency and loan default is important. Of course, whether you are delinquent in your payments or have defaulted, your credit will be affected. But defaulting on your student loans may subject you to more negative consequences.
If you fail to make your student loan payments when due, the loan is considered delinquent. The delinquency window is from the first day you miss a payment through the 269th day of non-payment. If you are delinquent – not yet in default – it is important to take steps to avoid default, which may include getting set up on an income-based repayment plan. With such plans you may be able to get a lower, more-affordable payment that you can manage.
If a federal student loans is delinquent for 270 days, the loan is considered to be in default. If your loan goes into default, the entire unpaid balance becomes immediately due, including any accrued collection fees. And, although your credit is still being negatively affected, you may be subjected to other negative consequences. Your wages can be garnished without even a lawsuit being filed. Your tax refunds or your social security benefits can be offset. You will also not be eligible for other federal or state financial aid while your loan is in default status.
Private Student Loan Delinquency and Default
If you have private student loans, you are considered delinquent AND in default when you miss your first payment. Although it is not the norm, a private lender may immediately take action to collect your loans. But unlike federal loans, however, private loans must be collected by filing a lawsuit. Once a judgment is entered, it can be collected by using remedies available under state law.