Default is defined as the failure of a borrower, endorser or co-maker to make installment payments when due, or to meet other terms of the promissory note or other written agreement(s) with the lender under circumstances where the U.S. Department of Education or the guarantor of the loan reasonably concludes that the borrower no longer intends to honor the borrower’s obligation to repay a loan, provided this failure persists for the most recent consecutive 270-day period (for a loan repayable in monthly installments) or the most recent 330-day period (for a loan repayable in less frequent installments).
ISAC will reimburse a lender for all or part of the loan balance for a loan on which a borrower defaults. In order to collect insurance on a defaulted loan, the lender must file a timely and accurate default claim with ISAC. See General Documentation Requirements for information on claim filing requirements.
Payments after Default
If the lender receives a payment after a default claim has been filed but before the claim has been purchased by ISAC, the lender must determine whether the claim should be recalled. A lender is required to recall a default claim if:
- The loan is brought 210 or fewer days delinquent by the lender’s receipt of a payment or by the lender’s approval of a forbearance agreement. A forbearance agreement must include the borrower’s agreement to repay and, in the case of a discretionary forbearance, should bring the account current.
- The borrower requests a deferment and submits all necessary documentation, and the documentation indicates that the borrower’s eligibility began before the date of default. An administrative forbearance may be granted to cover any period of delinquency occurring before the deferment start date.
- The borrower requests a mandatory forbearance and submits all necessary documentation, and the documentation indicates that the borrower’s eligibility began before the date of default.
- The lender becomes aware of the borrower’s eligibility for a mandatory administrative forbearance (disaster relief, military mobilization, etc) and the borrower’s eligibility began before the date of default.
- The lender receives information or documentation (such as continuous in-school enrollment verification) that eliminates the default status.
Regardless of whether the lender is required to recall the claim or the lender chooses to recall the claim, if a claim is later filed, the lender must provide a complete history from the out-of-school date reported on the Claim Form. See the Common Manual for more information on claim recalls.
If the claim is not recalled, the payment received by the lender should be held until the claim payment is received and then the payment must be forwarded to ISAC within 30 days of the lender receipt of the claim payment.
A payment received after a default claim has been purchased must be forwarded to ISAC for processing within 30 days of receipt. The payment should be clearly marked as a borrower payment received before claim payment.
Filing Time Frames
A lender is strongly encouraged to file a default claim after the 300th day of delinquency and may not file a default claim before the 270th day of delinquency for loans with monthly installments. For loans with installments due less frequently than monthly (e.g., quarterly), a lender is strongly encouraged to file a default claim after the 360th day of delinquency and may not file a default claim before the 330th day of delinquency.
The last day a lender may file a default claim and remain within timely filing guidelines for a loan with monthly installments is the 360th day of delinquency. For loans due less frequently than monthly, the last day is the 420th day of delinquency.
Failure to submit a default claim by the 360th or 420th day of delinquency (as applicable) will result in a timely filing violation and loss of guarantee.