Default

The servicer reports increasing delinquency. After approximately 270 days the loan is transferred to a collection agency or the Department’s Default Resolution Group and officially enters default. The borrower receives notices of collection. To regain eligibility the borrower must resolve the default through one of the approved methods and, in most cases, make a series of on-time payments.

Example: a borrower misses payments for nine months. The loan defaults. Tax refunds are offset and the borrower is unable to receive a new Pell Grant. After completing loan rehabilitation (nine on-time payments) the default is removed from the credit report and aid eligibility is restored.

Delinquency is the period of missed payments before default. Forbearance or deferment, when approved, prevents delinquency. Cohort default rate measures the percentage of an institution’s borrowers who default, not an individual borrower’s status.

Assuming a loan in forbearance can still default. Believing that default automatically disappears after a set number of years without resolution. Expecting immediate restoration of aid eligibility upon making a single payment.