How To Get Student Loans Out Of Default

If you have a federal loan, you can get your finances back in order through rehabilitation, consolidation and a repayment plan. Federal student loans generally enter into default if you've missed around 270 days of payments — or about nine months. Rehabilitation can a way to regain some footing — it may take around 10 months of making on-time payments.

For private loans, getting back on track means having a conversation with your lender to see what options are available. The private lender may offer a repayment plan, hardship options or other ways to get back on track.

Whether you have a federal or private student loan, to get out of default means having a frank conversation with your lender and finding out what move is best for your financial situation.

Key Takeaways

• Federal default starts at about 270 days past due. After roughly nine months of missed payments, the full balance comes due and the government can garnish wages and offset your tax refund.

• How to get student loans out of default comes down to three federal paths. Rehabilitation, a Direct Consolidation Loan or paying in full — plus a repayment agreement — are the main routes for federal borrowers.

• Rehabilitation takes nine on-time payments over 10 months. It's the only option that removes the default from your credit report, though the earlier late payments can stay for about seven years.

• Consolidation is faster but leaves the default on your report. You'll first agree to an income-driven repayment plan or make three consecutive on-time payments, and the process often finishes in a few weeks.

• Private loans follow the lender's own rules. Federal rehabilitation and consolidation don't apply — a lender may offer a repayment plan, hardship program or settlement, but nothing is guaranteed.

• Start with the Default Resolution Group at 1-800-621-3115. For federal loans in collections, this is where you confirm your status and set up a resolution.

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How To Get Student Loans Out of Default Fast

In order to get your student loan out of default, you’ve got to be armed with the right information. The route you take will depend on whether you have a federal or private loan and who owns your loan. Here’s an actionable list of questions for your next steps:

• Do you have a federal loan or private loan?

• Who services the loan?

• What default resolutions are available for me?

• What plan works best for me: rehabilitation, consolidation, repayment in full or private-loan options?

• Do you have the new terms in writing?

• Have you set up an affordable repayment plan after your default is resolved?

Confirm Your Loan Type and Who Owns It

Federal vs. Private Loan

You need to find out if you have a federal or private loan.

• Federal loan: You have options available to get your loan back on track including rehabilitation, consolidation or a repayment plan.

• Private loan: The options may vary based on the lender. Your choices may include a repayment agreement, hardship assistance or other options.

Finding Out Who Services Your Loan

To find out who services your federal loan, login to StudentAid.gov with your FSA ID information. The dashboard will show you every federal loan and who currently holds the account. If you're in default, the loan will be moved to The Default Resolution Group. That information will be located on the dashboard.

If it's a private loan, it won't be on this dashboard. Instead, you'll have to look at your loan documents and any communications from the servicer, or you can pull your credit report.

Who To Contact For Your Federal Loans

Who To Contact For Your Private Loans

What Are the Best Options for Getting Student Loans Out of Default?

How should you approach your student loan default? Each option below has its pros and cons. You'll need to go with the choice that fits your overall financial picture.

What You Need To Know About These Options

Fastest option. A Direct Consolidation Loan offers a quick way to resolve your default for eligible federal borrowers. However, the main disadvantage is the default notation stays on your credit report. You must agree to make three consecutive, voluntary and on-time payments under an income-driven plan.

Best for your long-term credit. Although it takes longer — approximately nine to 10 months — rehabilitation may be a better fit for your future credit. The default status will be removed from your credit report, which will help when you need to get a loan for a car or house in the future. Though, keep in mind late payments on your credit report previously can still remain for around seven years.

Options vary with private lenders. What a private lender may offer for your default can vary. Some may offer hardship programs, repayment plans or settlement plans. However, none of these options are a guarantee. For private loans, federal rehabilitation or consolidation does not apply.

Contact an attorney if you've been sued. If the lender has sued you to collect the defaulted amount, it may be time to contact an attorney to weigh your options.

What Happens If Your Student Loans Stay In Default?

If your student loan stays in default, it could be detrimental not only to your credit, but you also risk other severe consequences. Here’s what could happen depending on whether you have a federal or private student loan:

The Main Differences Between Federal and Private Loan Lenders

If you default on a federal loan, lenders have more tools at their disposal to collect the amount. They can reduce your tax and certain Social Security benefits and also garnish wages without a court order. If you default on a private loan, the lender will likely sue to collect the default amount. While your default is ongoing, balances will continue to rise because of interest, fees and collection costs.

Keep in Mind

Once your loan is in default, communication with your lender is important. Waiting means adding costs, receiving collection pressure and risking severe credit damage.

What To Do After Your Loan Is Out Of Default

You're back on track with your loan payments and finally out of default. What should you do next to keep the payment momentum going?

• Pick a payment plan you can afford. If you're paying back a federal loan, you can opt for an income-driven repayment plan. Your payment will increase or decrease based on your earnings. After 20 to 25 — or in some cases, even 30 — years of consistent payments, you may qualify to have the remaining balance forgiven.

• Use autopay. To stay on track with your payments, use autopay for your loan payments so you don’t accidentally default.

• Always keep your income information current. If your repayment is based on income, make sure to inform the lender of any changes in family size and salary.

• Pull your credit report. You can pull your credit report from TransUnion, Equifax and Experian for free weekly. Make sure your loan status updates are made, and if you opted for a rehabilitation, the default note is removed.

• Keep an eye out for scams. Don’t fall for third-party vendors that look suspicious. Always look for assistance through official government resources on your federal loans.

Final Take

Defaulting on your student loan isn't the end of your financial world. You just need to take the necessary steps to get your loan back on track. If you have a federal loan, compare whether rehabilitation or consolidation works better for you. If you have a private loan, you’ll communicate with the lender or servicer on what options are available.

If you're unclear which loan you have, communicate with your lender. It's the first important step to get your loan back into good standing.

FAQ

How long does it take to get student loans out of default?

Rehabilitation can take nine consecutive payments within a 10-month period for the default notation to be removed. Consolidation requires less time, but the default notation remains on your credit report.

Do student loans go away after seven years?

Your student loans don't go away after seven years. They remain the borrower’s obligation until the loan is paid, discharged or forgiven.

Can private student loans be rehabilitated?

Private loans don't have the same federal rehabilitation rules. However, private entities will have their own resolution methods.

Key Terms

• Default: A federal loan's status after roughly 270 days, or about nine months, without a payment. The full balance becomes due and collections can begin.

• Loan rehabilitation: A one-time program to exit default by making nine voluntary, on-time payments within 10 consecutive months, which removes the default notation from your credit report.

• Direct Consolidation Loan: A new federal loan that pays off existing loans. It's used to exit default by agreeing to an income-driven repayment plan or making three on-time payments first.

• Default Resolution Group (DRG): The U.S. Department of Education unit that manages defaulted federal loans and handles rehabilitation, consolidation and repayment agreements.

• Wage garnishment: Withholding part of your paycheck to repay debt. The federal government can garnish disposable pay without a court order, while a private lender must sue first.

• Treasury offset: The government's withholding of tax refunds and some federal benefits, such as Social Security, to collect defaulted federal loans.

• Income-driven repayment (IDR): A plan that sets your federal payment based on income and family size, which can help you avoid re-defaulting once you're back in good standing.

• Loan servicer: The company that manages billing and payments on your loan. Find your federal servicer by logging in to StudentAid.gov.

Sources

• Federal Student Aid — Student Loan Default and Collections: FAQs

• Federal Student Aid — Student Loan Rehabilitation for Borrowers in Default: FAQs

• Federal Student Aid — Get Out of Default (StudentAid.gov)

• Federal Student Aid — Federal Versus Private Loans

• Consumer Financial Protection Bureau — Student loans

• Consumer Financial Protection Bureau — Choosing a Student Loan That's Right for You

• AnnualCreditReport.com — Free credit reports

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