A borrower's failure to repay according to the terms agreed upon when the promissory note was signed. Default can also occur when a borrower fails to submit requests for deferment or cancellation. When a borrower defaults on a federal student loan, the school, the organization holding the loan, the guaranty agency, and the federal government can all take action to recover the money. A borrower is considered to be "in default" when payments are 180 or more days overdue and no satisfactory arrangements for payment, deferment or forbearance have been made. Assets, including Internal Revenue Service (IRS) refunds, may be seized and the borrower's credit record or history can be affected. Student loan borrowers in default will remain so until they pay back their loan in full, sign new loan agreements or reschedule their debt. While in default, they are also ineligible for additional federal financial aid, including grants and loans.
An authorized period of time during which a student loan borrower may postpone making payments on the principal or the principal plus interest. Borrowers must file deferment forms with their lenders and be approved for deferments. Deferments are available if borrowers are:
enrolled in a degree-granting institution at least half-time;
- enrolled in a graduate fellowship program or rehabilitation training program;
- serving in the military or the Peace Corps;
- volunteering full-time for a non-profit organization;
- teaching full-time in a teacher-shortage area; unemployed;
- or experiencing demonstrated economic hardship.
The federal government makes interest payments on Subsidized Federal Stafford Loans during deferment periods.
For federal student aid, a student's dependency status is determined by guidelines established by the federal government. To be considered independent for federal funds, a student must be:
- at least 24 years old as of January 1st of the award year
- a graduate or professional student
- a veteran of the U.S. Armed Forces
- serving active duty in the U.S. Armed Forces
- at any time since you turned age 13, were both parents deceased, were you in foster care or were you a dependent or ward of the court
- or have a legal dependent other than a spouse
All other students are considered dependent.