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FAQ: When is a student loan in default?

June 16, 2011

 As a direct loan servicer, Nelnet’s Partner Solutions team receives questions from the school financial aid and borrower community on a regular basis.  In an effort to share the information and educate our school partners, Partner Solutions will begin posting to its blog some of the more relevant and well-timed questions that we receive.

The move to a 100% Direct Loan program has brought about many changes to our industry.  At the same time, cohort default rates are becoming an ever increasing topic with the move to a 3-year rate model.  As schools begin taking a closer look at how this may impact them,  the following question is commonly asked:

Q:   At what point is the loan considered to be in default?

A:    For the purpose of calculating the cohort default rate, FFELP loans are considered to be in default when a claim for insurance on the loan has been paid by the guarantee agency or by the Department of Education.  FFELP loans are submitted for default clam no earlier than 271 days delinquent, and should be submitted by 300 days delinquent.  For the purpose of calculating cohort default rate, Direct Loans are in default if the borrower is delinquent for 360 days.

Let us know what other questions you have and we will work on getting the answers.

Alan Ishida - Regional Director, Nelnet Partner Solutions (CO, HI, Guam, IA, WI, WV)

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