How to Get Student Loans Out of Default — Fast

Federal student loans go into default after 270 days of missing a student loan payment. Private student loans typically default after three missed payments.

Related: What Happens if You Default on Private Student Loans?

The consequences of defaulting on a student loan are severe, including:

• The loan balance increases because of added interest, late fees, and collection costs.

• Loss of eligibility for income-driven repayment plans, deferments, forbearances, and loan forgiveness programs.

• Harm to your credit score from late payments and a default status stamped on your credit report with the three major credit bureaus.

• Wage garnishment, tax refund offset, and Social Security benefit withholding.

• Liens placed on your home and bank account.

In a bold move, the government put a freeze on collecting defaulted loans during the coronavirus pandemic. And now, the U.S. Department of Education is taking it one step further – offering millions of federal student loan borrowers the chance for a “fresh start” by lifting their loans out of default, waiving collection fees, and allowing them to restore access to financial aid and other federal benefits.

Learn More: Fresh Start Program Student Loans

The switch into good standing isn’t automatic, however. Borrowers must contact the Default Resolution Group and opt-in to the initiative by agreeing to a long-term payment plan.

The payment pause ends this summer. Use this time to bring your loans current and avoid collection activity, resetting your eligibility for benefits like Public Service Loan Forgiveness and the IDR Waiver.

Related: Will Student Loans in Collections Be Forgiven?

To find out if your student loans are in default, you can take these steps:

• Check Federal Student Aid: The FSA website has a database called the National Student Loan Data System (NSLDS) that has information on all the federal student aid you received, including loans and Pell Grants.

• Contact your loan servicer: Your servicer is the company that manages your student loan payments. Call them or check your online account to learn your repayment status.

• Check your credit report: Your credit report will show if any of your loans are in default. You can request a free credit report once a year from each of the three major credit reporting bureaus.

Related: How Do I Know If Student Loans Will Take My Tax Refund?

You can use one of these options to fix a student loan default:

• Loan Rehabilitation – Brings your account current after you make nine on-time payments within 10 consecutive months. Under the rehabilitation agreement, your monthly payment amount will be based on your discretionary income or as low as $5, depending on your income and family size. Read more about the student loan rehabilitation program.

• Consolidation – Allows you to combine one or more defaulted student loans into a new loan with a new repayment plan. The interest rate for the Direct Consolidation Loan will be based on the weighted average of the loans included in the application. Read more about default student loan consolidation.

• Loan repayment – Wipes out your student loan debt after you’ve paid the full amount you owe or a settlement amount you negotiated.

• Loan forgiveness, cancellation, or discharge – Clears your federal student loans if a disability keeps you from working, went to a school that lied about your future earnings, or qualify for President Biden’s debt cancellation plan. Read more about defaulted student loan forgiveness.

Filing for bankruptcy doesn’t automatically get your student loans out of default. Student loans are generally not dischargeable in bankruptcy unless you can prove that repaying them would cause undue hardship — a high bar to meet. This process requires an “adversary proceeding” in the bankruptcy case, which is a separate court proceeding.

Keep in mind that if you clear that bar, the debt is discharged, but the default status will remain a part of your credit history for seven years. Speak with a student loan bankruptcy attorney before you make any moves.

Related: How to Remove Student Loans From Your Credit Report

The fastest way to get student loans out of default is to repay the defaulted loan in full. If you can’t afford that, the next fastest option is to consolidate the defaulted federal student loan with the Direct Consolidation Loan program. Additionally, you can rehabilitate the loan, which typically involves making 9-10 on-time, full payments within 20-25 days of the due date.

The loan holder usually transfers defaulted loans from the servicer to a debt collection agency. You’ll need to work with that company to resolve the default. Here’s who to contact depending on the type of loan you have.

• Federal student loans owned by the Education Department – contact the Default Resolution Group at 1-800-621-3115 or visit MyStudentDebt.ed.gov.

• Privately-held Federal Family Education Loans (FFEL) – visit StudentAid.gov to find out which guaranty agency owns your loans, or call the Federal Student Aid Information Center at 1-800-433-3243.

• Federal Perkins Loans owned by a college or university – contact the school you attended when you borrowed the Perkins Loan.

• Private student loans – contact your student loan servicer or lender to learn where they shipped the defaulted loans.

Related: Student Loans Removed From Credit Report

The time it takes to get student loans out of default varies depending on the method chosen.

For example, loan rehabilitation takes at least nine months to complete. The consolidation process could take up to three months. Repaying the defaulted loan depends on the amount and your ability to make payments. And loan forgiveness, cancellation, or discharge, can take several weeks or even months to eliminate the debt.

Private lenders like Sallie Mae and SoFi will let borrowers use a deferment or forbearance to recover from delinquency. But unlike the federal government, they rarely offer wiggle room to recover from default.

If you can’t pay the balance in full, the other options are to settle for less than what’s owed, usually in one lump-sum payment, or try to refinance with the one lender that specializes in refinancing defaulted private student loan debt: Yrefy.

To avoid defaulting on student loans, there are several steps you can take:

1. Understand your loan terms and repayment options. Speak with your servicer and review your promissory note to understand the terms of your loan and repayment schedule. Familiarize yourself with different repayment options, such as income-driven repayment plans that may be available to you.

2. Stay on top of your payments. Enroll in auto-pay or set a reminder to make your payment by the due date. Late payments can add fees, damage your score, and raise the interest rates on your credit cards, home loan, and so on.

3. Communicate with your loan servicer. If you’re having difficulty making payments, contact the company with your loans as soon as possible. They may be able to offer to change your repayment plan or let your pause payments temporarily.

4. Consider student loan refinancing. If you have multiple private student loans, consider refinancing them into one loan to get a lower interest rate and longer repayment term. This can make it easier to manage your payments.

5. Speak with a student loan expert. If conversations with your servicer aren’t going anywhere, speak with a student loan lawyer or another expert with a deep understanding of how student loans work. They can help you create a plan to manage your debt and avoid defaulting on your loans.

If the process of getting out of default or working with a debt collector sounds overwhelming, I’m here to help. For years, I’ve worked with people just like you with their federal and private student loans.

Book a call with me today. We’ll work together to develop a plan that fits your current financial situation and sets you up to meet your future goals.

We’ll help you escape the consequences of default and get back on track no matter what type of education loan you borrowed.

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