What Student Loan Default Means for Your Return to College

A return to school could open doors to new opportunities — but if you have defaulted student loans on your record, these could create major obstacles. Whether you're interested in finishing a degree or pursuing a new degree altogether, knowing how student loan default could affect your return to college is a must. From there, you can better understand your financial aid status and explore potential solutions.

What Does Student Loan Default Mean for Finishing Your Degree?

What does student loan default mean, anyway? Specifically, student loan default occurs after 270 days or nine months of nonpayment on federal student loans. For private student loans, you could enter default as soon as 90 days after a missed payment, though this can vary from one lender to the next.

A Reassuring Starting Point for Returning Students

If you're in student loan default, rest assured that you're not alone. In fact, according to the Education Data Initiative, more than 10% of student loan borrowers have at least one loan in default within three years of entering repayment — and 42% of student borrowers have had to choose between covering basic living expenses and making student loan payments.

There are many reasons why you may have gone into student loan default. Perhaps you started a family, lost your job, or had to cover other unexpected costs. During this time, keeping up with your student loan payments may have become difficult or even impossible.

Why Default Isn’t a Reason to Give Up

The good news is that having student loans in default alone doesn't prevent you from returning to school and pursuing a degree. Even though student loan default can affect your ability to take out additional loans, there are plenty of student loan default help options that you can explore to resolve student loan default and move forward with your academic plans.

What Is Student Loan Default, Exactly?

We already covered the formal student loan default meaning in the section above, but one of the most important things to understand about default is that it's not the same as delinquency.

How Default Differs From Falling Behind

When it comes to missing payments on a student loan, understanding default vs. delinquency is key to moving forward.

• Student loan delinquency - This occurs when you miss a required student loan payment. When your student loans are delinquent, you might have to pay interest and late fees. After 90 days of missed payments on a federal student loan, delinquency may be reported to the credit bureaus and impact your credit score.
• Student loan default - This occurs after you've failed to make payments on your loan for a certain period of time (typically 270 days for federal loans, but potentially less for private loans). When a loan is in default, you could eventually face collection activity and will be unable to qualify for any additional student aid. Your credit score will also be impacted.

You can learn more about the differences between federal student loan default and delinquency on the Federal Student Aid website.

How a Loan Reaches Default Over Time

As you can see, it takes many months of missed payments for a student loan to go into default. For many borrowers, factors that can contribute to nonpayment on student loans include:

• Not realizing that the loan has entered a repayment period.
• Missing nonpayment notices after moving and failing to update one's mailing address with a loan servicer. 
• Facing unemployment or other financial hardship.

How Can Default Affect Your Path Back to School?

Unfortunately, having defaulted student loans on your record can make it more difficult to return to school — especially if you were hoping to qualify for federal student aid to help pay for college.

Why Default Can Impact Your Financial Aid

Typically, borrowers with defaulted federal student loans are automatically disqualified from receiving additional federal aid until they resolve their defaulted loans under applicable rules. As a result, students in loan default may be unable to qualify for additional loans, grants, or even work-study opportunities.

This could make returning to school more difficult for those who cannot afford to pay for tuition and other expenses out-of-pocket.

Why Admission and Aid Eligibility Are Different Things

On the other hand, it's important to understand that having student loans in default alone does not directly impact admission to a college program. Whereas admission determines whether you meet the school's requirements for enrollment, financial aid eligibility determines whether you qualify for funding.

In other words, you can absolutely be accepted into a college degree program while still having loans in default — but you may not be able to qualify for additional federal aid.

Why Is Default a Solvable Obstacle, Not a Dead End?

Being in student loan default doesn't have to prevent you from returning to school. While it can create major obstacles to receiving aid, there are practical steps you can take to resolve student loan default and restore your financial assistance options.

The Paths That Can Resolve Default

When it comes to getting out of student loan default and regaining financial aid eligibility, there are three legitimate student loan default options to consider:

• Student loan rehabilitation - This option allows eligible borrowers to make a certain number of agreed-upon payments in exchange for removing the default status from the loan.
• Student loan consolidation - This allows eligible borrowers to transfer existing federal student loan debt to a Direct Consolidation Loan, which may have more favorable repayment terms.
• Repayment in full - While not always an option, borrowers with the financial means might consider repaying their student loan balances in full (plus any applicable interest and fees) to remove default status.

How Resolving Default Restores Your Options

By resolving your student loan default status, you can also restore your access to federal student aid. However, it's important to understand that the timing for resolving a default can vary based on the option you selected.

The fastest way to resolve a defaulted student loan is to pay the balance in full. Rehabilitation can take nine or more months to resolve, whereas consolidation may actually not remove a default notice from your credit for up to seven years. With this in mind, it's important to understand what kind of timeline you should expect based on the option you pursue.

Why Finding Out Now Works in Your Favor

Not sure whether you have student loans in default? The best way to find out is to check student loan status by logging into your StudentAid.gov account. From there, you can view each of your individual loans, check their status, and review the balance of each loan.

If any of your loans are in default, the good news is that finding out now gives you more opportunity to act quickly and resolve the issue sooner rather than later.

How Early Awareness Keeps Your Degree on Track

Taking the time to check your loan status before enrolling in a degree program gives you time to address potential obstacles, including delinquency and default. If you are in default, for example, this may give you time to plan for rehabilitation or consolidation options that could restore your eligibility for student aid and help you pursue your degree.

With early awareness of your defaulted loans, you can also take the time you need to plan your budget, compare degree programs, and determine next steps.

What Can You Do to Keep Moving Toward Your Degree?

If you have plans to return to school but are unsure of your student loan status, there are a couple of things you can do now to get the ball rolling and keep yourself on track.

Checking Your Loan Status as a First Step

If you haven't done so already, begin by logging into your StudentAid.gov account to check your student loan balances and status. You should be able to see whether each loan on your account is in ‘current,’ ‘delinquent’ or ‘default’ status. Be sure to act quickly if a loan is delinquent by making any necessary payments or exploring alternate repayment plans for which you may be eligible.

If you have any loans in default, consider reaching out to the Department of Education's Default Resolution Group to explore your options.

Where to Find the Full How-To and Get Help

If you're looking for more details on how to resolve defaulted student loans, check out Indiana Wesleyan University's blog on How to Get Federal Student Loans Out of Default.

At IWU, our friendly and knowledgeable Financial Aid team is also available to answer questions you may have about applying for aid and navigating the admissions process with confidence.

The Department of Education's Debt Resolution page also offers some helpful articles and other free resources to help you explore options for managing and resolving student loan debt.

Your Degree Is Still Within Reach With Indiana Wesleyan University

As you can see, having student loans in default doesn't have to end your pursuit of  higher education. The key is to know where your accounts stand and the resolution options that may be available to you. 

At Indiana Wesleyan University, we're committed to helping students from all walks of life pursue higher education and overcome common obstacles to success. Our Financial Aid team is here to help you review your options and explore opportunities for institutional aid. Whether you're interested in an online or on-campus degree, we can also help you find your ideal program.

Get in touch to request more information about any of our programs or take the next step by applying now.