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Debt Management & Default Prevention

Whether you’re an adult returning to school or a recent high school graduate, choosing to pursue higher education involves many important decisions. One crucial aspect to consider is how you’ll finance your studies. For many students, taking out student loans is necessary to cover educational expenses.

Federal student loans, provided by the government, offer a viable option to help finance your education. To navigate the complexities of debt management, understand student loan fundamentals, and avoid default, utilize the following resources.

Debt Management

Debt Management – Student Loan Basics

Before taking out a loan, it’s crucial to assess your borrowing capacity and devise a plan for managing your debt once repayment begins. Exploring alternative financial aid avenues, such as scholarships, is recommended before resorting to borrowing. Determining a manageable debt level hinges on two key factors: the amount you borrow and your anticipated post-graduation earnings.

A general guideline suggests that your maximum student loan payment should not surpass 10% of your gross first-year salary. Planning ahead safeguards against the severe repercussions of defaulting on loan payments, including adverse effects on your credit score, loss of repayment options, and potential wage garnishment. Careful budgeting and borrowing only what’s necessary are essential practices, as increasing loan payments will also inflate your loan balance.

Information on graduated and income-sensitive repayment options can be obtained from your lender, though it’s important to note that these figures are estimates. Specific inquiries regarding loan repayment should be directed to your lender. To identify your lender, you can visit StudentAid.gov. For questions related to Federal Direct Loans, students should visit StudentAid.gov. Federal law mandates the government to report loan information to credit bureaus, and borrowers have the right to restrict this information’s use in certain credit or insurance transactions by calling 1-888-567-8688, Option 2.

Understanding Repayment

Navigating the repayment of your federal student loan requires careful consideration and understanding. Familiarizing yourself with repayment details can help you save both time and money. Learn about key aspects such as when repayment begins, payment methods, available repayment plans, steps to take if you encounter difficulties with payments, and additional pertinent information.

When do I begin repaying my federal student loan?

You typically don’t need to start repaying most federal student loans until after you graduate or drop below half-time enrollment. However, PLUS loans require repayment once the loan is fully disbursed.

Your loan servicer or lender is required to furnish you with a loan repayment schedule outlining when your initial payment is due, the frequency of payments, and the amount of each payment. Remember that your loan might come with a grace period.

What’s a grace period?

The grace period is a specific duration following your graduation, departure from school, or reduction to less than half-time enrollment before you’re required to start repaying your loan. It allows you to adjust financially and choose your repayment plan. It’s important to note that not all federal student loans offer a grace period interest will accrue during your grace period.

  • Direct Subsidized Loans, Direct Unsubsidized Loans, Subsidized Federal Stafford Loans, and Unsubsidized Federal Stafford Loans offer a six-month grace period before payments commence.
  • However, PLUS loans do not have a grace period. They enter repayment immediately upon full disbursement but may qualify for a deferment. For further details, reach out to your loan servicer.

Can my grace period change?

Circumstances that may change your grace period include the following:

  • Active duty military personnel called to active duty for more than 30 days before their grace period ends will receive the full six-month grace period upon their return.
  • If you resume school at least half-time before your grace period concludes, you’ll receive the complete six-month grace period upon ceasing enrollment or dropping below half-time status (additional conditions may apply).
  • Opting for loan consolidation during your grace period forfeits the remainder of your grace period, and repayment starts after your Direct Consolidation Loan is disbursed. The initial bill is typically due around two months following disbursement.

How much will I need to pay?

Your bill will tell you how much to pay. Your payment (usually made monthly) depends on

  • the type of loan you received,
  • how much money you borrowed,
  • the interest rate on your loan, and
  • the repayment plan you choose.

How do I make my payments?

There are several ways you can make your payments.

If you want to make electronic payments, you can do the following:

  • Receive your student loan statement electronically.
  • Make your student loan payment through electronic debiting.
  • Schedule a recurring electronic debit to pay your bill (you may get a 0.25% interest rate deduction if you have Direct Loans). You can enroll in electronic debit in several ways, depending on which type of loan you are repaying. Contact the organization that services your loan for information.
  • If you want to make payments by postal mail, you should mail your payments directly to your loan servicer.

Can I pay more than my required monthly payment?

You have the option to make payments ahead of schedule or pay more than the required amount each month. By adding a bit extra to your monthly payments, you can lower the overall interest you’ll pay and decrease the total cost of your loan over its lifetime. If you’re aiming to pay off your loan sooner, inform your loan servicer that any additional payments you make should not be applied to future payments.

What should I do if I’m having trouble making my loan payment?

Contact your loan servicer as soon as possible. You may be able to change your repayment plan to one that will allow you to have a longer repayment period or to one that is based on your income. Also, ask your loan servicer about your options for a deferment or forbearance, or loan consolidation.

What happens if I don’t make my student loan payment?


Failing to make your student loan payment on time or not making it at all can lead to default. Defaulting on your student loan will be reported to credit bureaus, negatively impacting your credit score and ability to borrow in the future. Moreover, you may face legal consequences, such as wage garnishment and withholding of tax refunds, to compel payment.

Can I cancel my loan?

You can opt to cancel all or part of a loan disbursement within 120 days from when your school disbursed the funds (either by crediting them to your school account or paying them directly to you). If you decide to cancel, you’ll need to return the received funds, but you won’t incur any interest or fees. For more details, visit the financial aid office.

You are generally required to repay your student loan. In certain situations, your loan may be forgiven, canceled, or discharged.

Repayment Plans

You can pick from repayment plans that base your monthly payment on your income or that give you a fixed monthly payment over a set repayment period.

  • You can pick from repayment plans that base your monthly payment on your income or plans that give you a fixed monthly payment.
  • Repayment plans based on your income are a smart choice to lower your payment. For example, payments on the Saving on a Valuable Education (SAVE) Plan are no more than 10% of your discretionary income. The lower your income—or the larger your family size—the less you’ll pay each month.
  • If you don’t pick a repayment plan, your loan servicer will place you on the Standard Repayment Plan (a 10-year fixed payment repayment plan). This plan might result in a higher monthly payment for you.

Loan Simulator is the best way to compare our different repayment plans. You can use Loan Simulator to find out which plans you’re eligible for and to see estimates for how much you would pay monthly and overall. Compare Repayment Plans.

Seeking forgiveness under Public Service Loan Forgiveness (PSLF)? The PSLF Program forgives the remaining balance on your Direct Loans after you’ve satisfied the equivalent of 120 qualifying monthly payments (10 years) under an IDR plan while working full-time for an eligible employer.

The fixed payment repayment plans include the Standard Repayment Plan, the Graduated Repayment Plan, and the Extended Repayment Plan. These plans base your monthly payment amount on how much you owe, your interest rate, and a fixed repayment time period. If you want to be placed on one of these plans, contact your loan servicer.

When you leave school, you will be automatically enrolled in the Standard Repayment Plan unless you pick a different repayment plan.

Fixed PlansEligibilityMonthly Payment Amount
StandardThese loan types are eligible: Direct Subsidized and Unsubsidized Loans Subsidized and Unsubsidized Federal Stafford Loans All PLUS loans (Direct or FFEL) All Consolidation Loans (Direct or FFEL)Payments are a fixed amount that ensures your loans are paid off within 10 years (within 10 to 30 years for Consolidation Loans).
GraduatedThese loan types are eligible: Direct Subsidized and Unsubsidized Loans Subsidized and Unsubsidized Federal Stafford Loans All PLUS loans (Direct or FFEL) All Consolidation Loans (Direct or FFEL)Payments are lower at first and then increase, usually every two years. Payment amounts are designed to ensure your loans are paid off within 10 years (within 10 to 30 years for Consolidation Loans).
ExtendedTo qualify for this plan, you must have more than $30,000 in outstanding Direct Loans (if you’re a Direct Loan borrower) or more than $30,000 in outstanding FFEL Program loans (if you’re a FFEL borrower). These loan types are eligible: Direct Subsidized and Unsubsidized Loans Subsidized and Unsubsidized Federal Stafford Loans All PLUS loans (Direct or FFEL) All Consolidation Loans (Direct or FFEL)Payments can be fixed or graduated and will ensure that your loans are paid off within 25 years.

IDR plans base your monthly payment amount on how much money you make and your family size. We offer four IDR plans:

  • Saving on a Valuable Education (SAVE) Plan—formerly the REPAYE Plan
  • Pay As You Earn (PAYE) Repayment Plan
  • Income-Based Repayment (IBR) Plan
  • Income-Contingent Repayment (ICR) Plan

After satisfying a certain number of months of qualifying payments on an IDR plan, you can get the remaining balance of your loan(s) forgiven.

Because payments are based on your income and family size, you must provide your loan servicer with updated income and family size information each year so that your servicer can recalculate your payment amount. This process is called recertification. You must recertify your plan even if there has been no change in your income or family size.

If you agree to the secure disclosure of your tax information, we and your loan servicer will automatically recertify your enrollment in IDR and adjust your monthly payment amount once a year. You’ll be notified when your payment is changing, and you’ll always be able to recertify your plan manually.

Learn More About IDR Plans

IDR PlansEligibilityMonthly Payment Amount
SAVE PlanThese loan types are eligible: Direct Subsidized and Unsubsidized Loans Direct PLUS Loans made to students Direct Consolidation Loans that do not include PLUS loans (Direct or FFEL) made to parents10% of discretionary income
PAYE PlanTo be eligible, you must be a new borrower on or after Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011. These loan types are eligible: Direct Subsidized and Unsubsidized Loans Direct PLUS Loans made to students Direct Consolidation Loans that do not include PLUS loans (Direct or FFEL) made to parents10% of discretionary income but never more than what you would pay under the 10-year Standard Repayment Plan
IBR PlanThese loan types are eligible: Direct Subsidized and Unsubsidized Loans Subsidized and Unsubsidized Federal Stafford Loans Direct and FFEL PLUS Loans made to students Direct or FFEL Consolidation Loans that do not include PLUS loans (Direct or FFEL) made to parentsEither 10% or 15% of your discretionary income (depending on when you received your first loans) but never more than what you would pay under the 10-year Standard Repayment Plan
ICR PlanThese loan types are eligible: Direct Subsidized and Unsubsidized Loans Direct PLUS Loans made to students Direct Consolidation Loans (including those that repaid parent PLUS loans)The lesser of 20% of your discretionary income, or the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income

Perkins Loan repayment plan options are not the same as those for Direct Loan Program or FFEL Program loans. Check with your school for more information on Perkins Loan repayment plans.

If you have multiple federal student loans, you can consolidate them into a single Direct Consolidation Loan. This might simplify repayment if you are currently making separate loan payments to different loan holders or servicers since you’ll only have one monthly payment to make. Additionally, a Direct Consolidation Loan could be eligible for more beneficial repayment plans than your current loans are eligible for.

There might be tradeoffs, however, so you’ll want to learn about the advantages and possible disadvantages of loan consolidation before you consolidate. Learn more about Consolidation.

Preventing Default

What is Default?

Your loan becomes delinquent the first day after you miss a payment. Even if you miss just one monthly payment and then start making payments again, your loan account will remain delinquent until you repay the past due amount or make other arrangements, such as deferment or forbearance, or changing repayment plans. If you are more than 90 days delinquent on your student loan payment, your loan servicer will report the delinquency to the three major national credit bureaus. This will lower your credit score and negatively affect your finances.

Note: Credit bureaus may be called “consumer reporting agencies” on the promissory note you signed before receiving your loan.

If your loan continues to be delinquent, the loan may go into default. The point when a loan is considered to be in default varies depending on the type of loan you received. For a loan made under the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program, you’re considered to be in default if you don’t make your scheduled student loan payments for a period of at least 270 days (about nine months). For a loan made under the Federal Perkins Loan Program, the holder of the loan may declare the loan to be in default if you don’t make any scheduled payment by the due date.

What are the consequences of default?

The consequences, which can be severe, include the following:

  • The entire unpaid balance of your loan and any interest you owe becomes immediately due (this is called “acceleration”).
  • You can no longer receive deferment or forbearance, and you lose eligibility for other benefits, such as the ability to choose a repayment plan.
  • You will lose eligibility for additional federal student aid.
  • The default will be reported to credit bureaus, damaging your credit rating and affecting your ability to buy a car or house or to get a credit card.
  • Your tax refunds and federal benefit payments may be withheld and applied toward repayment of your defaulted loan (this is called “Treasury offset”).
  • Your wages will be garnished. This means your employer may be required to withhold a portion of your pay and send it to your loan holder to repay your defaulted loan.
  • Your loan holder can take you to court.
  • You may not be able to purchase or sell assets such as real estate.
  • You may be charged court costs, collection fees, attorney’s fees, and other costs associated with the collection process.
  • It may take years to reestablish a good credit record.
  • Your school may withhold your academic transcript until your defaulted student loan is satisfied. The academic transcript is the property of the school, and it is the school’s decision—not the U.S. Department of Education’s or your loan holder’s—whether to release the transcript to you.

Learn more about Treasury offset and wage garnishment.

If I’ve missed payments, how do I avoid going into default?

If you’re having trouble making payments on a federal student loan from the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program, immediately contact your loan servicer, the agency that handles the billing and other services for your loan. If you don’t know who your loan servicer is, visit “My Federal Student Aid.”

If you’re having trouble making payments on your Federal Perkins Loan, immediately contact the organization that handles the billing and other services for your loan. This may be the school where you received the loan, or a loan servicer working on behalf of the school or other holder of the loan.

Learn more about avoiding delinquency and default.

What should I do if my loan is in default?

If you’ve defaulted on any of your federal student loans, contact the organization that notified you of the default as soon as possible so you can explain your situation fully and discuss your options. If you make repayment arrangements soon enough after your loan has gone into default, you may be able to resolve the default quickly.

Find out more about getting out of default.

MAXIMUS Federal Services, Inc., is the loan servicer for defaulted federal student loans. Schools are authorized to provide information about student and parent borrowers to MAXIMUS Federal Services, Inc., in response to emails from DMCSResearch@maximus.com.

If you believe your loan has been placed in default by mistake, here’s what you can do to correct the error.

If you’ve been attending school at least half-time and should have received an in-school deferment on your loan, contact the Registrar from each school you attended and get records of all your dates of at least half-time attendance. Then, ask your loan servicer for the last date of attendance they have on file for you. If they have the incorrect date for your last date of attendance, provide your loan servicer with a copy of your documentation showing the correct date.

If you were not making payments on your loan because you believed that you had been approved for a deferment or forbearance, ask your loan servicer to confirm the start and end dates of any deferments and forbearances that were applied to your loan account. If the loan servicer has incorrect information, provide documentation with the correct information.

If you believe that you didn’t receive credits for payments that you made, ask your loan servicer for a statement that shows all the payments made on your student loan account. If payments you made are not listed, provide proof of payment to your loan servicer and request that the information in your account be corrected.

A deferment is a temporary suspension of loan payments for specific reasons such as economic hardship or re-enrollment in school.

  • During deferment of subsidized loans, principal payments are postponed and interest is not accrued.
  • During deferment of unsubsidized loans, principal payments are postponed but interest continues to accrue. Accrued unpaid interest will be added to the principal balance (capitalized) of the loan(s) at the end of the deferment period. This will increase the amount borrowers owe.

In a forbearance, your loan holder gives you permission to stop making payments for a set period of time, however, interest continues to accrue during this time. You may qualify for forbearance if you are unable to make loan payments due to certain types of financial hardships, poor health, unforeseen personal problems and other circumstances.

Student loan borrowers in default now have more options than ever before to repay their student loans. The U.S. Department of Education’s Default Resolution Group is committed to assisting individuals in default by making debt repayment a simple process. Please visit StudentAid.gov for more information and for Loan Servicer Information.

Top 10 Ways to Avoid Default

The best way to avoid default is to stay in contact with your lender or servicer, especially when you cannot make your payments. Your lender or service will assist you with any problems you may experience during the repayment of your student loan(s). Stay on top of the situation by following these ten guidelines:

  1. Understand your rights and responsibilities regarding your repayment obligation, as well as your repayment options.
  2. Borrow for college expenses only. Borrow only the amount you need and only what you can reasonably expect to repay.
  3. Keep all records regarding your loan. Make copies of all letters, canceled checks, and any forms you sign.
  4. Notify your lender or servicer when you have a change of address, phone number, or name, or if you change schools or your enrollment status.
  5. Seek help as early as possible if you have any difficulty maintaining your student loan repayment arrangement.
  6. If you have any questions, talk to your lender or student loan guarantor about the particular terms of your loan.
  7. Keep credit card debt to a minimum or avoid credit card debt completely.
  8. Create and maintain a budget that is within your monthly income.
  9. Consider making nominal student loan payments while in school. This will reduce the amount you owe after graduation.
  10. Make loan payments on time.
Consequences of Default

If your loan payment is more than 270 days past due, your loan is considered in default. Failure to repay your loan may result in any or all of the following:

  • Report of the default to all national credit bureaus, resulting in adverse credit reports which may affect your ability to obtain financing for cars, houses, etc.
  • Report of the default to the Internal Revenue Service, causing federal tax refunds to be withheld and applied to the loan balance (this is also true for state tax refunds)
  • Garnishment of your wages
  • You will be charged collection costs and other costs necessary to collect debt. Your loan will be assigned to a collection agency
  • Loss of other federal or state payments
  • Loss of eligibility for further assistance from any Title IV Program
  • Loss of eligibility for repayment options, deferments and interest benefits as described on the Promissory Note
  • Denial of access to academic transcripts
  • Denial of professional licenses (in some states)
  • Lawsuit
  • Liability for court/legal expenses

What federal student loan borrowers need to know:

  • You need to keep accurate records of your federal student loans.
  • Keep your copy of the signed Master Promissory Note.
  • Open, read and maintain any loan information you receive from your school or loan holder.
  • Don’t ignore your loan payments.
  • When having difficulty making your scheduled payments, contact your loan holder to discuss repayment options.

Your rights and responsibilities as a borrower:

  • You must use your federal student loan for educational expenses only.
  • Your loan holder must give you details about your federal student loan before it’s disbursed and again when it’s time to start paying your federal student loan.
  • You must tell your loan holder any time you drop below half-time enrollment or change schools.
  • You must tell your loan holder if you change your name, address, phone number, social security number, references, or driver’s license number.
  • Before you leave school, you need to tell your loan holder your permanent address, the name and address of your expected employer (if known), and the address of your nearest relative.
  • You must repay your federal student loan, plus interest, even if you did not finish your program, did not finish your program in the regular time allotted for program completion, you are unable to get a job after you finish, or if you are unhappy with or do not get the education or other services you purchased from the school.
  • Your loan holder may sell your federal student loan or use a servicer to manage your account. If the federal student loan is sold and the address where you send payments changes, you’ll be notified of the name, address, and phone number of the new loan holder.
  • You are entitled to a deferment or forbearance of your federal student loan payments in certain situations. Contact your loan holder for the details.
  • You may prepay your federal student loan at any time without penalty.

Helpful Links

Last updated: 5/20/2024