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You are here: Home / Types of Aid / Loans / Federal Direct Graduate PLUS Loan / If you are in Default on a Federal Student Loan

If you are in Default on a Federal Student Loan

Default is a legal term used when a borrower fails to repay a loan according to the terms of the signed promissory note.

Default

When The National Student Loan Data System (NSLDS) indicates that you are in DEFAULT on a federal student loan, a student cannot receive federal financial aid until he or she resolves the default.

The defaulted loan may not show on your credit history when the credit check is performed for the Graduate PLUS loan, so in some cases, you may be preliminarily approved for the PLUS.  However, once the school is notified that you have a FSA loan that is in default, your PLUS loan will be cancelled. Once you can show that the default has been resolved, you can re-apply for the PLUS loan.

Below is a list of acceptable documentation which you may submit to Penn State to document that your defaulted loan has been resolved:

1. Paid In Full Letter

A letter from lender stating your loan has been paid in full and you are no longer in default.

2. Satisfactory Repayment Arrangement Letter

A student in default on a federal student loan can be eligible for federal financial aid if he/she has made repayment arrangements that are satisfactory to the loan holder. After the student makes six consecutive, full, voluntary payments on time, he regains eligibility for federal financial aid. The student must provide documentation by submitting a written statement from the loan holder indicating that the student has made satisfactory repayment arrangements as documentation of the arrangement.

3. Loans have been consolidated or are in deferment

A letter from the lender stating loans are in deferment or have been consolidated.

NOTE:

All default resolution letters must be from the holder of the loan or from the Department of Education call 1-800-621-3115 for assistance.

Although a student can regain eligibility for all federal financial aid funds by making satisfactory repayment arrangements, the loan is still in default. After the student makes more payments, the loan may be rehabilitated, that is, it will not be in default anymore.

For additional information about how to resolve a FSA loan in default visit:

Federal Loans and Default

Understanding Delinquency and Default

Penn State Federal School Code

003329

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