What is the 7 year rule for student loans?
If the loan is paid in full, the default will remain on your credit report for seven years following the final payment date, but your report will reflect a zero balance. If you rehabilitate your loan, the default will be removed from your credit report.
Do student loans go away after 7 years? While negative information about your student loans may disappear from your credit reports after seven years, the student loans will remain on your credit reports — and in your life — until you pay them off.
If you default on your student loan, that status will be reported to national credit reporting agencies. This reporting may damage your credit rating and future borrowing ability. Also, the government can collect on your loans by taking funds from your wages, tax refunds, and other government payments.
Borrowers who have reached 20 or 25 years (240 or 300 months) worth of eligible payments for IDR forgiveness will see their loans forgiven as they reach these milestones. ED will continue to discharge loans as borrowers reach the required number of months for forgiveness.
If you have accurate positive or negative information on your credit reports, you typically can't get it removed. However, if you notice inaccurate details about student loans or other credit accounts, you have the right to file a dispute with the credit reporting agencies.
Defaulted federal student loans either fall off seven years after the date of default, or seven years after the date the loan was transferred from the Federal Family Education Loan Program (FFEL) to the Department of Education.
All borrowers on SAVE receive forgiveness after 20 or 25 years, depending on whether they have loans for graduate school. The benefit is based upon the original principal balance of all Federal loans borrowed to attend school, not what a borrower currently owes or the amount of an individual loan.
Eventually, your student loans will be put into default and you may lose federal loan benefits, have your wages garnished, get barred from federal student aid among other consequences. Your loan holder may sue you, as well. If you ignore the court date or the court's orders — that could land you in jail.
300,000 or 0.69% of federal student loan borrowers have loans currently in repayment. 6.91% of the student loan debt balance belongs to students who are still in school. 1.12% of the total federal student loan debt is in a grace period. 6.17% of federal debt is in defaulted loans.
No, you can't go to jail for not paying your student loans. So if that was a fear you had, take a deep breath—no one is coming to arrest you if you miss a payment. But like we mentioned, you can be sued over defaulted student loans. This would be a civil case—not a criminal one.
What if my student loan is 20 years old?
The remaining unpaid balance of loans is forgiven after 20 or 25 years. Pay As You Earn (PAYE)—Payments are generally 10% of your discretionary income, but never more than the 10 year Standard repayment plan amount. The remaining unpaid balance of loans is forgiven after 20 years.
As a result, student loans can't take your house if you make your payments on time. However, if you miss enough student loan payments, your accounts will first move into delinquency status and then into default status. Once you default on student loans, you're at risk of having your house taken to pay them back.
Your loans will be written off after 25 years if you borrowed Parent PLUS Loans, federal loans in graduate school, or pay your loans back under the ICR or IBR plan. Learn More: Which Student Loan Repayment Plan is Best?
In contrast, if you defaulted on a private student loan, it will remain on your credit report for 7.5 years. This means if you took out, and subsequently defaulted on a Perkins loan, the tradeline will continue to show until the student loan is paid off, even after 7.5 years have elapsed.
Income-Driven Repayment (IDR) Forgiveness
If you repay your loans under an IDR plan, any remaining balance on your student loans will be forgiven after you make a certain number of payments over 20 or 25 years—or as few as 10 years under our newest IDR plan, the Saving on a Valuable Education (SAVE) Plan.
Take a deep breath and understand that accounts in collection won't plague your credit reports forever. They'll generally fall off your reports after seven years, and you may even have options for getting them removed before then.
A paid-off loan shows lenders you were able to manage the debt responsibly. If you always made your student loan payments on time, the accounts will remain on your credit report for up to 10 years from the date they were paid off and closed. This helps you get credit for your positive payment history.
| State | Statute of Limitations |
|---|---|
| California | 4 years |
| Colorado | 6 years |
| Connecticut | 6 years |
| Deleware | 6 years |
People who work in public service in federal, state, tribal or local governments, as well as nonprofit organizations, can apply for the Public Service Forgiveness loan. The program requires borrowers to make 120 monthly payments under an income-driven or standard payment plan and work for a qualified employer.
To qualify for forgiveness of any remaining loan balance at the end of the 20-year repayment period, you must have made the equivalent of 20 years of qualifying monthly payments (240 qualifying monthly payments) and 20 years must have elapsed. In 2019, you receive forbearance for 12 months.
What is a defaulted student loan?
Default is the failure to repay a loan according to the terms agreed to in the promissory note. For most federal student loans, you default if you have not made a payment in more than 270 days.
Starting in July 2024, payments for borrowers with only undergraduate student loans will be cut in half. Those monthly payment amounts are currently calculated to be 10% of your discretionary income, but in July 2024 that number will drop to only 5% of your discretionary income.
However, the government has paused this program and other collection activities. The Fresh Start program for borrowers with previously defaulted student loans will prevent withheld tax refunds through at least September 2024. And borrowers won't newly fall into default as payments resume.
Despite what you may think, paying off your loans as soon as possible isn't always the best thing to do. Getting ahead of your debt is, in general, a smart move; however, if it comes at the cost of avoiding other debt, or overshadowing other benefits you may be receiving, it could set you back in the long run.
Having a student loan will affect your credit score. Your student loan amount and payment history are a part of your credit report. Your credit reports—which impact your credit score—will contain information about your student loans, including: Amount that you owe on your loans.
