A federal student loan becomes delinquent after a borrower fails to make a payment for 30 days. If the individual continues to ignore her student loan repayment obligations, however, the loan will fall into default after 270-360 days. During the delinquency period, the U.S. Department of Education will repeatedly send payment reminders to the borrower to help her avoid a defaulted student loan. Once the loan defaults, however, the government will attempt to collect the loan by force.
Each student loan payment that the borrower misses has an adverse effect on his credit rating. Fair Isaac, the corporation responsible for calculating FICO credit scores, places more importance on timely payments than any other factor when tabulating credit scores. After the student loan reaches default status, the U.S. Department of Education will update each of the borrower's credit reports with a notation that the loan is in default.
Federal student loans do not require borrowers to provide collateral before being approved. Because of this, they are classified as "unsecured." All 50 states have laws limiting the amount of time a creditor can attempt to collect unsecured debt through legal force. The federal government, however, does not have to adhere to the statute of limitations for debt collection in any state. Thus, a defaulted student loan can continue to be a problem for the borrower indefinitely.
The U.S. Department of Education has the right to force a borrower to repay her defaulted student loan by garnishing her wages and bank accounts, placing a lien against any property that she owns, withholding her federal tax refunds and garnishing any federal benefits she receives such as Social Security or unemployment. In addition, as long as the student loan is in default, the individual will be ineligible for further federal student loans or a government-backed mortgage.
A borrower can contact the U.S. Department of Education as soon as he realizes that he is unable to keep up with his federal student loan payments and request either a deferment or forbearance. With a deferment, student loan payments are postponed interest-free for a limited period of time. Forbearance reduces or eliminates payments temporarily, but interest continues to accrue. These options are not available for borrowers after their loans fall into default. An individual with a defaulted student loan can, however, request to be enrolled in the federal government's loan rehabilitation program. After making nine timely payments on his defaulted loan, the U.S. Department of Education will consider the loan rehabilitated and no longer in default.