Marie Blanc cried at the sight of her staggering balance. She hadn’t looked at her student loan bill in the several months since she’d lost her job at a local distribution center. In fact, she hadn’t looked at it at all since she’d set up auto-payment.

Now she owed more than $52,000 for a degree that she wasn’t using.

Blanc had graduated high school with honors and thought the job market would be ripe with opportunity. She opted to pursue a college degree in communications to open doors to a burgeoning industry. She signed off on federal student loans and was, by all accounts, doing everything right.

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Seven years later, Blanc lost her job when her company declared bankruptcy — she was another casualty of recent market unpredictability. And so, she defaulted on her $684 in monthly student loan payments.

What Does It Mean to Default on Public Student Loans?

Failing to make a payment does not automatically lead to default. The first stage of defaulting — missing a single payment — is referred to as “delinquency,” though the delinquency is not reported to the three national major credit bureaus for 90 days, so it’s essential to take immediate action.

What are my options if I can’t pay my public student loans?

Remember there are options if you find yourself in a situation where you can’t meet your monthly payments.

While it’s scary to owe money you can’t immediately repay for whatever reason — doing nothing is the worst choice. The first step is to read your loan agreement. Seek help from a trusted family or friend if you have difficulty understanding some of the terms. Create a realistic budget, so you know exactly where you can cut costs and put money toward debt repayment.

Next, decide if one of these options make sense for you.

The first is forbearance which refers to a temporary pause or reduction of your student loan repayment, which you would negotiate with your loan servicer, according to the Department of Education (DOE). Remember, your loan servicer will more than likely want to work with you to ensure they receive their money back. It’s essential to contact your loan servicer immediately to negotiate payments you can realistically afford.

Student loan deferment and forbearance both allow you to reduce or stop making loan payments for a period of time. As an alternative, consider income-based repayment — where you negotiate what you can pay with your loan servicer — based on your current financial situation.

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Keep in mind, a key difference between forbearance and deferment: In deferment, your students loans stop accruing interest on the owed balance whereas in forbearance interest will continue to accrue.

However, some people find themselves facing a loan default despite having these options available. This generally means that a person has not submitted a payment in more than 270 days, according to the DOE.

The Federal Perkins Loan Program is an exception to this, as it unfortunately allows the loan holder to declare the loan to be in default if the payer fails to make even one scheduled payment, according to the DOE.

However, the Federal Perkins Loan Program ended in 2017, so new borrowers do not need to worry about default if a single scheduled payment is missed.

Student loan default can be resolved quickly, but you will need to make repayment arrangements by contacting the group that declared you default status. If unresolved, there are many financial consequences.

Defaulting on Private Student Loans

Defaulting on private student loans is very different to defaulting on federal student loans, and the consequences can be, as well, according to the Consumer Financial Protection Bureau. Here are some of the differences between federal and private student loan default:

  • A co-signer’s death or bankruptcy can cause default for holders of private student loans, even if payments are promptly made. This can be avoided by obtaining a co-signer release, using sample letters from the Consumer Financial Protection Bureau (CFPB).
  • Private student loans can go into default after only 120 days, according to the CFPB.
  • Defaulting on one loan can cause all loans with that lender to be in default.
  • Bankruptcy or death of the primary holder can also cause default.
  • Private loans are not subsidized by the federal government and are not as closely regulated as federal loans.
  • Private student loans do not have the same protection that federal student loans offer.
  • Private loaners also are not required to offer flexible repayment plans.
  • Private loaners may hire a private collection agency in order to receive payment, according to the CFPB.
  • Private loaners may also use lawsuits in order to collect payments.
  • Consumer protections vary depending on the state you live in, according to the CFPB.

The Consequences of Ignoring Loan Notices

Blanc couldn’t declare bankruptcy — that wouldn’t get rid of the loans. Worse, because she had ignored her bill for 11 months (well past the 270-day limit), she didn’t qualify for payment plans, forbearance, or deferment after defaulting on her student loans.

Instead, she watched her 700 credit score quickly dip. “You could pinpoint the day I became delinquent by the large dip in my score’s chart,” Blanc later noted.

Because of her credit score taking a nosedive, she became stuck, trapped under the weight of her now 600 credit. No one would give her a loan for a much-needed used car or rent her a new apartment. Moving back home and relying on her retired parents’ kindness was her only option.

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Then, the phone calls started.

She blocked the “unknown” numbers one-by-one until she grew frustrated and simply hung up before they could even say hello. After defaulting, the single student loan bill turned into two, three, four, five bills a month as her original student loan was sold off in piecemeal to the highest bidders.

To make matters worse for defaulters, deferment and forbearance are no longer options, and many other benefits are lost, according to the DOE. Defaulters can no longer take out additional student loans, wages may be garnished, loan holders can declare a lawsuit, and the remainder of the loan becomes due immediately. Schools can even choose to withhold transcripts if debts are not repaid.

Defaulting on a Private Loan vs. a Federal Loan

However, defaulting can have different consequences depending on whether the borrower has federal or private student loans. While federal loans allow borrowers to repay their debts and eliminate a record of their default, private loans are not so forgiving.

“Unlike federal loans, private student loans don’t have programs to ‘undo’ a loan default,” says debt resolution attorney and founder of Tayne Law Group, Leslie H. Tayne. “It’s important to act quickly and contact your lender because many private loan companies will send loans to collections and charge off the loan after four months of missed payments.”

“They could also send the defaulted loan to an attorney for a suit,” Tayne adds. “If you find yourself in this situation, you can seek out a reliable firm to assist you with resolving the debt with your servicer.”

Getting Honest About Defaulting

For Blanc, a friend sharing his story led her to a solution. He, too, had defaulted on a $35,000 loan a few years earlier. He had benefited from actually facing his problem head on through a Federal Loan Rehabilitation program. These programs work with the loan department to set up a payment plan.

After six months of on-time payments, the loans are reinstated and the default is cleared.

Blanc finally had the courage to call and got her monthly payment reduced significantly. She began waiting tables and working other odd jobs to earn extra income. Soon she had enough to make six monthly payments on her loan, effectively reinstating them.

Once her loans were back in order, Blanc tackled her credit by slowly improving her score. However, a year later, she still has bumped up her number only to 650. The consequences of defaulting on a student loan are still following her.

Blanc and the 20 percent of student loan borrowers who are currently delinquent, according to the Federal Reserve Bank, haven’t found life after default to be a walk in the park. They haven’t avoided the consequences or planned ahead to cheat the system. Instead, they must deal with the real cost of defaulting on a student loan head on.

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Recovering After Defaulting on Student Debt

Though there are consequences to defaulting on your student loans, there are also solutions.

“Contact your loan servicer immediately to work out a payment plan and explain why you haven’t been able to pay your loan,” says Tayne. “If you have a federal student loan, loan rehabilitation and loan consolidation are options to consider.”

“The loan rehabilitation program is initiated by contacting your loan servicer and agreeing to make nine consecutive monthly payments (calculated by the servicer),” Tayne adds. “Once the payments have been made, the loan will no longer be in default, and federal benefits including loan forgiveness, deferment, changing the repayment plan, and forbearance become available again.”

“While the late payments made will still appear on your credit reports for seven years,” Tayne continues, “the default will be removed from reports.”

Rehabilitation isn’t the only possible solution. Another method is loan consolidation.

With this option, Tayne explains, “You must agree with your lender to repay the consolidation loan through an income-based repayment plan or make three on-time, full payments in a row before consolidating.” However, there are drawbacks to pursuing this option. “Keep in mind that consolidation does not remove the “default” record from credit reports, unlike rehabilitation.”

The Bottom Line

Finding yourself defaulting on your student loans is not the end of the world. As long as you take the right steps and act quickly, you can recover from default and save your credit.

Additional reporting by Lauren Shayo.

Additional background information for this article was provided by debt resolution attorney and founder of Tayne Law Group, Leslie H. Tayne, Esq.