Resolving Delinquency for Federal Student Loans

Loan is Less Than 270 Days Past Due

If you are less than 270 days past due there are several ways to bring the loan current. Ideally, you pay the past due amount and continue on your current repayment plan. If you are unable to do this, and many borrowers are not, it’s time to think about why you are past due and what your future financial picture looks like. Below we’ve outlined options for resolving delinquency in the general order of preference based on what usually leads to long term success. Our goals here are to not only bring the loan current, but help you determine a strategy that will keep the loan current.

Deferments
Deferments are temporary postponement of payments for a specific reason outlined in federal law. If you have subsidized Stafford loans, the interest, in most cases, is paid by the government while you are in deferment. Unsubsidized Stafford loans, Parent and Graduate Plus loans accrue interest at all times. While you are not required to pay this interest while in deferment, any unpaid interest will capitalize at the end of the deferment period. Deferments have hard limits based on the borrower, not the loan. These limits are set in federal law and cannot be appealed or extended. You can see these limits on our deferment eligibility page.

If you are past due because of unemployment, severe economic hardship, were in the military, enrolled in a rehabilitation training program for the disabled or you or the student for whom you borrowed a Parent Plus loan were in school at least half time you should contact your loan holder and request a deferment form or download it from the deferment section linked above. These deferments can be applied retroactively on your account by up to one year, if the loan is not already in default. If you have loans that were made prior to July 1st, 1993, you may be eligible for other deferments.

Forbearance
Forbearance is a temporary postponement of payment for reasons of general financial hardship. They are given at the loan holder’s discretion but most will allow between 24-36 months for federal loans, in increments up to 12 months. This can be a good way to resolve a delinquency if you do not qualify for deferment and cannot pay the past due amount. Most forbearances can be applied for and approved right over the phone so if you are close to default or the point where they start reporting the delinquency to the credit bureaus, this can be a good quick emergency fix.

Why we generally advise forbearance as a last resort is because it often exacerbates the problem. Interest accrues and if not paid, is capitalized for all loans during forbearance. This capitalization often increases the monthly payment due to the increased balance (unless you are on an income driven repayment plan). So if you are past due because you couldn’t afford your monthly payment amount, this option may only make the problem worse unless you can find a payment option you can afford.

Lower Payment Option
Whether or not you can obtain a deferment or forbearance to resolve the past due amount, you will want to make sure you can afford the payments going forward. At this point, it’s a good idea to check out all the different options that may be available to you.

While not an ideal solution, many of these repayment options allow for what’s called an administrative forbearance to be placed on your account to cover the past due amounts before you start on your new plan. This is not a strategy you should count on however, as it can take up to several months for the servicer to process your repayment plan application. During that time you are still responsible for the past due amounts and further delinquency can cause you to default or further hurt your credit.

Loan is Between 270-330 Days Past Due

If your federal student loan is between 270 days and 330 days past due time is of the essence. While technically in default at day 270, it can take the loan holder up to three months to transfer the loan to a guarantor or collection agency. Until that happens, it may be possible to save the loan from the consequences of default. We need to emphasize that at this point there are NO GUARANTEES. The loan can be transferred at any time after day 270.

At this point you need to call your loan holder – TODAY. You can ask for a 120 day forbearance over the phone. This will not get you out of the danger zone or completely resolve the delinquency, but will instead give you some wiggle room to resolve the past due amounts in other ways with less of a risk of the loan transferring and feeling the full effects of default. Once the loan transfers, even if you miss it by a single day, there is usually no pulling it back without going through either loan rehabilitation or consolidation.

Once the 120 day forbearance is processed, you can pay the past due amount, apply for a deferment if you are eligible, apply for a different repayment options, or request another forbearance. If you request another forbearance, and the loan holder allows it, you will not be able to do this one over the phone but will instead be sent a form to fill out and return. Again, time is of the essence as your loan is still very close to being transferred to a collections agency or guarantor. Ideally you should download the forms from the loan holder’s website and email them back the same day.