By law, the U.S. Department of Education considers a borrower in default when he fails to make on-time repayment of his loans for nine consecutive months.

Default Avoidance Assistance for Borrowers

Federal student loans offer borrowers a number of benefits to help them avoid default. These include deferment and forbearance benefits that allow borrowers to forgo required repayments without triggering penalty fees or default. A deferment allows borrowers to postpone loan payments. During this time, the loan will continue to accrue interest unless it is a Subsidized Stafford loan. Students currently enrolled as full- or part-time students automatically enter deferment and the benefit is also available to students who are unemployed or experiencing economic hardship. For students ineligible for a deferment, the Department may approve forbearance on the basis of the borrower’s circumstances to allow him to temporarily stop making payments, make smaller payments, or lengthen the life of the loan without triggering a default.

According to the most recent data from the U.S. Department of Education, 5.8 million borrowers of more than 52 million total outstanding borrowers in the federal loan program are in deferment and 4.3 million are in forbearance, as compared to 6.9 million already in default. Though only 23.8 million borrowers are in repayment, more than 9 million are still in school and have not yet begun repayment. (Data include borrowers in the FFEL program.)

Borrowers may also choose one of several repayment plans that allow them to make lower monthly payments than they would under a standard repayment plan to avoid entering default. Under the Income Contingent and Income-Based Repayment plans, a borrower’s required payments are calculated based on his adjusted gross income and other factors, instead of the amount owed. Under these plans, the federal government forgives unpaid loan balances after a certain period of time. Data from the U.S. Department of Education show, however, that fewer than 2.3 million Direct Loan borrowers are enrolled in one of the income-based repayment plans, including Income-Contingent Repayment, Income-Based Repayment, and Pay As You Earn. Most borrowers are instead enrolled in the standard 10-year repayment plan (10.8 million), which likely carries the highest monthly costs.

See also: Default Rates