Report Highlights. One out of every ten Americans has defaulted on a student loan, and 5% of all student loan debt is in default.
- An average of 7% of student loans are in default at any given time.
- An average of 430,000 students defaulted between 2015-2018 after the second year of repayment.
- Roughly 4 million student loans enter default each year.
Related reports include Student Loan Debt Statistics | How Do People Pay for College? | Average Time to Repay Student Loans | Average Cost of College | Economic Effects of Student Loan Debt | Student Loan Refinancing
Student Loan Default Statistics
The student loan default rate is on the decline overall, but it affects demographics to varying degrees. Student borrowers who attended private for-profit colleges are the most likely to default on their loans, whereas private non-profit college attendees are the least likely to default.
- 91.8% of all student loans come from the federal government.
- 10.8% of student borrowers default on their educational loans within their first year of repayment.
- 25% of borrowers default within their first five years of repayment.
- 15.6% of student borrowers who attended a private, for-profit college defaulted within the three years of repayment.
- 7.1% of private non-profit college attendees default on their student loans.
- At age 30, roughly 10% of bachelor’s degree holders have defaulted on student loans, whereas over 20% of associate degree holders have defaulted on student loans.
- Student borrowers who attended private 2-year and less-than-2-year institutions are the most likely to default on their educational loans.
- Arts and Humanities majors who attended non-selective schools are the most likely to default on their student loans.
- 17.7% is the default rate among Black/African American student borrowers.
- 13% and 9% are the default rates for Hispanic/Latino and White/Caucasian student borrowers, respectively.
What Happens When Your Student Loans Default
Defaulting on student loans can have long-term or even irreparable consequences.
- The loan is immediately due in its entirety. Upon default, the entire outstanding balance of a borrower’s student loan comes due. This lump sum continues to collect interest and late fees.
- You lose benefit eligibility. A borrower who has defaulted on a federal student loan loses eligibility for future benefits. This may include further student aid, deferment or forbearance of payment, and even tax benefits.
- Your credit score declines. Defaulted student loans are reported to credit bureaus. As a result, you may not be eligible to receive other types of loans, such as home and auto loans. It can take years to undo the damage.
- You lose income. Wage garnishing and withholding tax refunds are other ways government and private lenders may collect on defaulted loan payments. A lender can arrange to have your employer withhold a portion of each paycheck to be paid directly to the lender.
- You may be subject to legal action. In order to collect garnished wages, lenders may sue you in court. You may then also be charged for any court costs or other fees related to the lawsuit.
- Schools may withhold your proof of attendance.
Depending on the type of institution you attended, a school may withhold academic transcripts. It is legal for colleges to do this but not required.
How to Get Student Loans Out of Default
It is possible to restore good standing, but it may take several months or years. Some default solutions may restore benefits lost due to student loan default.
- Repay loans immediately and in full – this is unreasonable for most student borrowers.
- Student loan forgiveness or loan discharge may be possible with defaulted loans, such as discharges due to death or fraud.
- Loan consolidation is the most common method indebted borrowers use to pay off loans in default.
- Consolidating loans joins multiple loan debts, effectively giving the borrower one large loan to pay off instead of many smaller ones.
- If you make three voluntary, consecutive defaulted loan payments on time, you may choose from one of the repayment plans available for Direct Loan Consolidation borrowers.
- Consolidation offers new opportunities for income-based and extended payment plans.
- Loan rehabilitation may take several months while loan consolidation works faster.
- Loan rehabilitation may remove the record of default from the borrower’s history but loan consolidation does not.
- In order to qualify for loan rehabilitation, borrowers must apply within 20 days of default.
- A loan may only undergo rehabilitation once; if the borrower defaults again on the same loan, rehabilitation will not be possible.
Student Loan Delinquency Statistics
Federal student loan payments don’t go into default for 270 days, or almost nine (9) months. Before that, student loan payments are considered delinquent. After 90 days of delinquency, the late payment is listed on the indebted borrower’s credit report. Most people are late making a student loan payment at least once. Among those that do, few do so habitually. Due to the financial impact of COVID-19, tax refunds will not be withheld, collection calls and billing statements will not be sent out, and interest will not accrue, for eligible defaulted student loans.
- 25% of students defaulted within 5 years of repayment.
- 5% of student loan payments are 90+ days delinquent but not yet in default.
- Around 89% of students defaulted in the second year of loan repayment, without ever suspending their payments.
- 21% of students increased their loan balance after 5 years, and 98% of them had paused their payments at least twice.
- 45% of student borrowers were able to decrease their loan balance after 5 years of their repayment plan and did not default on their loans.
Top 5 states with the lowest 3-year student loan default rate
|State||3-Year Student Loan Default Rate|
- National Center for Education Statistics (NCES), Baccalaureate and Beyond Longitudinal Survey
- NCES, Digest of Education Statistic Table 332.5
- U.S. Department of Education (ED) Office of Federal Student Aid (OFSA), Student Loan Delinquency and Default
- PEW Research Center, Student Loan System Presents Repayment Challenges
- New York Federal Reserve (NYFR), Center for Microeconomic Data
- NYFR, Quarterly Report on Household Debt and Credit
- CNBC, Surging College Loan Debt is Having an Especially Big Impact on African Americans
- What Is the Average Student Loan Default Rate? | Credible
- Who Is More Likely to Default on Student Loans? – Liberty Street Economics
- NYFed Student Loan Update 2022
- Getting Out of Default | Federal Student Aid
- Federal Student Loan Delinquency and Default: What to Know | Education | U.S. News.