Defaulting on a loan happens when repayments are not made for a certain period of time as defined in the loan's terms of agreement, typically a
promissory note
A promissory note, sometimes referred to as a note payable, is a legal instrument (more particularly, a financing instrument and a debt instrument), in which one party (the ''maker'' or ''issuer'') promises in writing to pay a determinate sum of ...
. For federal student loans, default requires non-payment for a period of 270 days. For private student loans, default generally occurs after 120 days of non-payment.
In 2021, outstanding student loan debt has reached a record more than $1.8 trillion.
Defaulter demographics
According to analysis of borrowers from the 2003-2004 academic year over a twelve-year period, defaulters generally tend to be older, lower income, and more financially independent than those who did not default. Borrowers typically owe $9,625, which is $8,500 less than the median loan balance of a non-defaulter. The majority of defaulters did not complete their bachelor's degree, but the median completed at least one year of study while maintaining grades in the C+/B- range. This shows that defaulters are able to complete college level work. Furthermore, most borrowers do not immediately enter default - the median borrower takes 33 months to enter default on their federal loans. Generally, a little more than half of all defaulters are able to rehabilitate their debt.
Debt rehabilitation
There are a number of paths to resolving student debt default, including:
* Completing 10 months of agreed upon payments
* Repayment via debt consolidation or other types of loans
* Discharge via total and permanent disability
* Discharge via bankruptcy
See also
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Bankruptcy Abuse Prevention and Consumer Protection Act
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Cohort Default Rate
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Default (finance)
In finance, default is failure to meet the legal obligations (or conditions) of a loan, for example when a home buyer fails to make a mortgage payment, or when a corporation or government fails to pay a bond which has reached maturity. A natio ...
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Garnishment
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Higher Education Act of 1965
The Higher Education Act of 1965 (HEA) () was legislation signed into Law of the United States, United States law on November 8, 1965, as part of President Lyndon Johnson's Great Society domestic agenda. Johnson chose Texas State University (t ...
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Loan
In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money.
The document evidencing the deb ...
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Student loans in the United States
In the United States, student loans are a form of Student financial aid (United States), financial aid intended to help students access higher education. In 2018, 70 percent of higher education graduates had used loans to cover some or all of ...
References
{{DEFAULTSORT:Student Loan Default
Student loans in the United States