The Difference between Delinquency and Default

Quick terminology lesson.  Both default and delinquency have to do with not paying your bill, but they are far from the same thing.

If your account is delinquent that means there are loans that are late.  However these loans may not have been negatively credit reported, you are probably not eligible for garnishments, and you will not have your loan transferred to a debt manager section of the Department of Education.

On the other hand once your loan hits 270 days delinquent, it is considered defaulted.  This is where the loan is eligible for all the bad stuff people associate with loans such as the garnishments of wages, tax return seizures, transferral out of your traditional loan servicer, etc.

If they both mean late does it matter if you mix up the terms.  In some ways no but here is where it is an overall good thing to know the different.  You hear about all the bad things of default and if you think you are in it, you assume that at five days late all these things are going to happen to you.  This will cause you to get scared over something you shouldn’t.  The key thing to remember is default is a long delinquency and while both can cause negative things one has far more harsh consequences than the other.

Quick aside, the second you know you cannot make payments, do not let your loan get to this point.  Give your servicer a call immediately to see if you are eligible for lower payments or a deferment or forbearance option.