Default happens when a borrower fails to repay his or her student loans according to the promissory note. For federal student loans, default occurs after 270 days without a payment. That’s 9 consecutive months of skipping payments.

Federal Student Loan Default Rates Are ~10%

The U.S. Department of Education tracks cohort default rates (CDR) for over 6,000 public and private postsecondary institutions across the country.

The Department of Ed tracks all student loan borrowers over 3 years. From 2014 to 2017, approximately 5 million borrowers entered repayment and 500,000 (10%) defaulted on their loan payments.

Out of all borrowers beyond the 3-year cohort, about 250,000 federal direct loans default each quarter (about 1 million per year). In addition, 20-30,000 borrowers redefault on rehabilitated loans.

Default occurs across age groups and income levels. According to a 2017 CFPB report, nearly 40 percent of federal loan borrowers age 65 and older are in default.

The student loan balance does predict default rates, but it’s not borrowers with large amounts of debt. According to the Urban Institute Analysis of Credit Bureau Data, borrowers who owe less than $5,000 are the most likely to default on their loans within four years and 32 percent of those borrowers have defaulted at least once.

The Urban Institute also determined that student loan defaulters are likely to carry other types of household debt (mortgage, medical, auto, retail/credit card).

There is No Reason Anyone Should Default

The Federal Direct Loan Program and the Federal Family Education Loan Program have a variety of protections to prevent borrowers from defaulting on their student loans, including forbearance, deferment, and four income-driven repayment plans.

After 90 days of missed payments, loan servicers will report borrowers delinquent on their student loans to the three national credit bureaus. This will have a negative impact on the borrower’s credit score.

Loan servicers and/or other consumer reporting agencies may or may not reach out to delinquent borrowers about their options to help them avoid defaulting.

Your employees likely have student loan debt, which means its just as possible your employees are at risk of defaulting on their student loans.

Student Loan Benefits Prevent Default

Offering a financial wellness program that includes student loan counseling and loan monitoring is the best way to prevent student loan default among your employees.

IonTuition is the industry leader in helping employees into income-driven repayment plans,  managing over $6 billion dollars in student loans for over a quarter million users.  We’ve helped users move over $2.8 billion into income-driven repayment plans.

Help your employees put their minds at ease by giving them IonTuition student loan benefits.