So, you have defaulted on your student loans…That means that you are 270 or more days delinquent or behind on making payments on your federal student loan; your loan is now in collections. Hopefully this blog will help you navigate your student loans out of default.

An image of a person looking at their cellphone and typing on their laptop computer.Defaulting on your student loan can have serious consequences, including:

  • Collection costs may be added to your loan
  • The entire balance of your loan becomes due
  • Your income tax refund may be withheld and applied to your loan balance
  • Your wages may be garnished**
  • You cannot receive a deferment, forbearance, or be eligible for loan forgiveness
  • You will lose eligibility for any additional federal aid
  • The default will be reported to major credit bureaus
  • Your state professional license may not be eligible for renewal

If you are receiving collection calls regarding your loan, do not ignore them. Contact the collection agency so you can discuss your account with them. If you are in default, you will need to set up payment arrangements. If you have been enrolled in school at least half-time and your loan has defaulted, let the agency know. You will need to get copies of your proof of enrollment from your school and provide them to the agency. If you have been continuously enrolled at least half-time, then the servicer can request that your loan be taken out of default and placed in an in-school status for those periods of time. If you are not sure of the status of your federal student loans or know which company your loans are with, log in to the National Student Loan Data System, NSLDS.

But there’s no getting around it; sooner or later you’re going to have to pay back the loan. Here are some ways to get out of default and put this headache behind you:

  • Pay your loan in full (most of us cannot do this)
  • Consolidate your loans: Consolidation is when you combine your federal loan(s) in to a new federal consolidation loan. Your consolidated loan interest rate will be a weighted average of the interest rates of the loans you consolidate, rounded up to the nearest 1/8%. You must make three voluntary consecutive payments on your defaulted loan before you can include it in a consolidation loan.
    • Benefits of consolidation:
      • Your loan is no longer in default
      • You only have one federal loan payment per month (if all your loans are included in the consolidation loan)
      • The default status will be updated on your credit report
      • You will regain eligibility for federal financial aid
      • Your income tax refund will not be taken
      • Your earnings will not be garnished**
      • You will regain eligibility for deferments and forbearances
      • Your state issued professional license will be eligible for renewal
      • You may be eligible for consolidation even with just one loan
  • Rehabilitate: Rehabilitation is a program that you must request. This is a one-time opportunity. You must agree in writing to make nine voluntary, reasonable, and affordable payments (within 20 days of the payment due date). These nine payments must be made within 10 months. Your payment amount will be determined by your loan holder. Your loan holder will determine what they consider a reasonable payment amount (usually 15% of your discretionary income). If the established payment is still too much, you will need to request a lower payment. You will be required to provide documentation of your monthly income and expenses.
    • Benefits of rehabilitation:
      • Your loan will no longer be in default
      • The default status will be removed from your credit history
      • You will regain eligibility for financial aid
      • Your income tax refund will not be taken
      • Your earnings will not be garnished**
      • You will regain eligibility for deferment and forbearances
      • Your state professional license will be eligible for renewal

Now that you have been introduced to a couple of ways to help you get out of default, hopefully one of them will work best for you. Remember to keep in contact with your servicer/collection agency, and they will be able to help you through this process.

**If your loan is in garnishment, please contact your servicer for additional assistance.

Photo of Financial Coach Beth.About Beth

For over 25 years, I have worked to help students go to college. The last 15 of those years have been focused on providing one on one counseling to students, parents and family members throughout the financial aid and college-going process.

I am a financial coach because I enjoy talking with people, and helping them with building their future by exploring their educational, personal and financial goals, and celebrating their successes. I hope to provide the tools and support you need to help you achieve your goals.

This service is not intended to constitute any tax, investment or legal advice. If you need investment, legal, tax advice, and/or credit counseling, please consult with a professional within those areas.

Links to third-party financial resources are provided as a convenience for informational purposes only. Trellis Company does not endorse or approve any of the products, services or opinions of the entities or individuals associated with these links.  Trellis Company bears no responsibility for the accuracy, legality or content of any external site associated with the links provided or any subsequent links.

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