If you are unable to make your loan payment, you will receive a late notice once it is 30 days past due and marked as delinquent. Once it is 60 days past due, you will receive another late notice. If a loan payment is not made by the end of the calendar quarter following the quarter in which the payment was due, then you will be considered defaulted. For example, say your loan is due July 1. The quarter of the quarter date would be December 31. If you don’t make your loan payment prior to December 31, your loan would be considered in default.
As a result of a default, your loan will be deemed to receive a distribution from your account. The distribution made on your account is considered a taxable distribution based on IRS rules. A 1099-R will be issued for the defaulted amount. The entire outstanding loan balance will be reported to the IRS as a taxable distribution.