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What is loan default?

Loan default is failure to repay a loan according to the terms of the Master Promissory Note (MPN). There can be serious legal consequences for student loan defaulters.

There are different options to prevent falling into default status, including the following:

  • Deferment: A postponement of payment on a loan that is allowed under certain conditions and during which interest does not accrue for subsidized loans. This request can be made if you are returning to school and are enrolled in at least half-time status, are unemployed or meet the rules for economic hardship. Deferments are also available for qualifying active duty U.S. Armed Forces or National Guard service members. Please contact your loan servicer for more information.
  • Forbearance: A period during which your monthly loan payments are temporarily suspended, reduced or granted extended time for making payments. You may qualify for forbearance if you are willing, but not able to make loan payments due to certain types of financial hardships such as unemployment, illness or incarceration. A complete list of Direct Loan forbearances and their eligibility criteria may be reviewed at http://www.direct.ed.gov/postpone.html.
  • Repayment Plan: Changing repayment plans is a good way to manage your loan debt when your financial circumstances change. For example, you can usually lower your monthly payment by changing to another repayment plan with a longer term to repay the loan. There are no penalties for changing repayment plans.

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