By Ryan Laspina
Senior Specialist, Red Flags and External Reviews
One of the more confusing concepts for Federal Student Aid (FSA) loan borrowers (or any loan borrower) to understand is the difference between default and delinquency. Life can get into the way on occasion, and you may not be in a position to pay back all or part of your student loans at a given time. Therefore, it is important that you understand the difference between the two terms.
Delinquency is a term used when an FSA loan borrower does not pay his or her monthly loan payment on time. In most situations, your FSA loan payment will be due on the same day of every month. If payment has not been received by that due date, your loan status automatically becomes delinquent. Delinquency is pretty common. Most of us have probably been late on some type of bill, either through insufficient funds or just forgettfulness. You can quickly pull yourself out of delinquency by paying the monthly payment (plus any fees that might have accrued). They are not going to throw you in jail or take your house because of one delinquent payment, but delinquent payments can have a snowball effect if you do not get them under control.
The biggest problem facing the Department of Education (ED), when it comes to FSA loans, is default because the loans are funded by tax payer dollars. Your loan(s) will fall under the default status once you have payments that are at least 270 days past due. Default is a serious offense with very damaging consequences for the borrower, the school they attended, the ED, as well as the U.S. government. Defaulting on your loans is never acceptable. There are many viable options out there to help you if you feel that you cannot pay back your loans. For example, there is forbearance and income-driven repayment plans. Just allowing them to go into default will cripple your financial situation.
Default and delinquency are two scary terms that are tossed around in regard to any type of loan. That is for good reason, because they can carry very significant consequences. If you find yourself struggling to pay your monthly loan payment on time, then you need to take action. Call your loan servicer (or ECMC if you are an APUS student) and see if there is a more manageable payment plan. Look at your personal expenses and see what you can cut out. Delinquency is the gateway to default, so do not brush off one late payment as insignificant.