The term default is often misunderstood. Actually you are in default on a loan when you miss a payment. Most businesses, however, do not officially brand your account as a DEFAULT until you have missed four or five payments. Your account rating then jumps from an R5 or I5 rating to an R9 or I9 rating. That R9 or I9 rating on your credit report means that business has pursued all due diligence measures in trying to collect the loan and they have given you every opportunity to correct the delinquent status of the account.
Student Loan Default
Default in the world of student loans has additional meaning. If you have a Stafford loan that is 180 days delinquent, it is considered in DEFAULT. With a Perkins loan, it is considered in DEFAULT, when your account is 120 days delinquent. Your account can be "Accelerated" and you are not eligible for additional Title IV aid as long as you are in default on a Stafford or Perkins Loan.
You can "cure" a default by qualifying for a deferment that begins prior to that 240 day threshold. You can also "cure" a default by paying the loan in full. The third way to "cure" a default is to make six consecutive monthly payments. However, since the account is not taken out of default status until those six payments are made, it will be six months before you can qualify again for Title IV aid.
Consequences of Default
- A very bad credit rating.
- A hold being placed on your student records.
- A claim on your Utah income tax refund.
- If you are a State Employee, your state employment is subject to termination unless you bring your account current or agree to wage garnishment.
- Your account may be turned over to a collection agency and all collection costs added to your account.
- Your account will be turned over to the Utah Attorney General’s Office for suit and filing and execution of judgment.