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How To Get Out of Student Loan Default

You have options to get out of student loan default, including loan rehabilitation or consolidation. The right option depends on your goals.

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By Christy Bieber

Written by

Christy Bieber

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Christy Bieber has been working full-time as a freelance writer since 2008. She has written blogs, news articles, textbooks, and online courses on the topics of law, finance, and history. She lives with her husband, two children, and beagle.

Edited by Alicia Hahn

Written by

Alicia Hahn

Senior Editor

Alicia Hahn is a student loans editor with more than a decade of editorial experience. She has worked with major finance and lifestyle brands including Mastercard, Forbes, Care.com, The Balance, and others. When she’s not working, Alicia enjoys cooking, traveling, watching true crime documentaries, and doing crosswords.

Updated October 11, 2023

Editorial disclosure: Our goal is to give you the tools and confidence you need to improve your finances.

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When you don’t pay your student loans, your debt will eventually enter default status. Student loan default can lead to severe consequences that damage your finances, including wage garnishment and loss of government benefits.

You don’t have to stay in default forever, though. Here’s what can happen if you default on your student loans, and how to get out of it.  

What is student loan default?

As part of any student loan agreement, you’re required to make your monthly payments on time. If you stop making payments for long enough, your loan will enter into default status — a move that carries significant and long-lasting consequences. 

If you have federal student loans, your debt will enter delinquency a day after your first missed payment. If you don’t take steps to address the situation, your delinquent debt will be reported to credit agencies after 90 days. If you continue to be behind on payments for 270 days (about nine months), you are put into default status. The exception is Perkins Loans, which can default right away if you miss a payment. 

If you have private student loans, you will usually go into default status more quickly. The exact timeline before you default varies by lender, but is often around 90 days of missed payments. 

Related: Here’s How Many People Default on Their Student Loans in the U.S.

What happens if I default on my student loans?

There are major repercussions If you enter student loan default, regardless of whether you have private or federal loans. You could face the following outcomes: 

  • Your credit will be affected: Late payments and debt default will show up on your credit report. Late payments and a record of default will hurt your credit, and can stay on your credit report for up to seven years.
  • Loan acceleration could occur: Your lender can accelerate your loan when you are in default status. The full unpaid balance will become due immediately, including any unpaid interest.
  • You lose eligibility for federal benefits: You’ll no longer be eligible to put federal student loans into deferment or forbearance or to change your payment plan after you've gone into default. 
  • You lose eligibility for further federal aid: You cannot borrow any more money from the Department of Education once you're in default. The record of default on your record will also typically prevent you from getting any private student loans. This can make it hard to return to school or finish your degree. 
  • Lenders can initiate legal action: You could be sued once you’re in default. Collection efforts could persist for years, until the statute of limitations for private student loans runs out. With federal loans, there’s no statute of limitations so collection activities could continue indefinitely. 
  • Your money could be seized: Your debtors may have the right to intercept payments to you in order to recoup their costs. This can include wage garnishment, property liens, or seizure of federal payments such as your tax returns or Social Security benefits. 
  • Fees may accrue: In addition to repaying your original debts, you may also be on the hook for added collection fees or legal costs.
  • Limits future financial opportunities: Because of the damage to your credit due to the late payments and default status, you may not be able to do other things, like borrow for a car or a home. You may even have trouble renting an apartment or signing up for local utility providers. 

 

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How to get out of default

Your options to recover from student loan default depend on whether you have federal or private loans.  

Federal student loans

Generally, federal student loans have more lenient options to recover from default. These include:

Fresh Start program
This is a temporary, one-time program that makes it easier and faster to restore your loans to good standing. After you contact your loan servicer to enroll, your loans will be transferred to a new servicer and returned to "in repayment" status. 

You can pick any payment plan, including an income-driven plan, and begin making payments again on your debt. The record of the default will also be removed from your credit. 

Loan rehabilitation
This program is available for certain federal student loans, but it takes several months to complete. If you’ve defaulted on Direct Loans or Federal Family Education Loans, you'll need to enter into a written agreement to rehabilitate the loans

This agreement will require you to make nine “reasonable” payments within 20 days of the due date. The amount of a reasonable payment is at the discretion of your loan servicer and based on your income. All nine payments must be paid within 10 consecutive months. 

Loan consolidation
If you apply for a Direct Consolidation Loan for your defaulted federal debt, you can also get out of default status. You must either:

  • Agree to repay your consolidated debt under an income-driven repayment plan, or 
  • make three consecutive, on-time payments on your loans while they are in default before you are able to consolidate. After you consolidate, you are required to choose an income-driven repayment plan. 

You should be sure to carefully research options for student loan rehabilitation and make sure you understand the differences between rehabilitation vs. consolidation.  

Other ways to restore your loans

You have the option to simply repay your full loan balance, but this isn't a viable solution for most people because it often requires a large sum of money. However, if you can afford to do so (or can get help from family or friends), this may be the simplest path.  

As a last resort, you can try to discharge the debt in bankruptcy, but this is often extremely difficult to do for student loans. You must prove undue hardship, which would mean you can't maintain a minimal living standard for an extended time period if you're expected to repay your debt. 

Private student loans

Private student loans don't offer the same options to get out of student loan default as federal loans. There are no consolidation or rehabilitation options, but you may be able to negotiate a settlement with your lender or pursue discharge of your loans in bankruptcy.

If you negotiate a settlement, your lender may allow you to pay less than you owe if you make a payment plan or pay a lump sum. An attorney can help you with negotiations and ensure you have a valid agreement to get out of default. A debt settlement company can also help, but not all are reputable. Review the warning signs for student loan scams and research the company’s reputation before committing. 

Take action before you default on your loans

Defaulted student loans can be severely damaging to your finances, so take action before you miss a payment. If you can't pay student loans, consider:

  • Switching repayment plans: If you have federal student loans, you have a choice of payment plans, including graduated plans and income-driven plans, both of which can lower your payments. In some cases, you may owe as little as $0 a month.
  • Talking to your lender. Your lender may be able to offer you a lower monthly payment if you let them know you’re in danger of defaulting. This is a good option for private loans, where you can't just switch payment plans whenever you want. 
  • Pausing your payments: Both federal and private lenders offer options to pause payments. Ask about deferment or forbearance to see what programs you are eligible for. Note that interest typically continues to accrue, so this is best saved as a short-term solution to help you through a tight spot. 
  • Refinancing student loans: When you refinance student loans, you get a new loan from a private lender to repay your existing debt. If you can reduce your rate and/or extend your payoff time, the new loan may be more affordable. This is a good option for private loans, but federal borrowers will lose access to all federal loan benefits, including income-driven repayment plans, forgiveness options, and other perks such as the Fresh Start program. 

By exploring these options, you can hopefully ensure you never go into student loan default. If you’re already in default, make sure to take swift action to correct it and minimize further damage to your finances.

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Meet the expert:
Christy Bieber

Christy Bieber has been working full-time as a freelance writer since 2008. She has written blogs, news articles, textbooks, and online courses on the topics of law, finance, and history. She lives with her husband, two children, and beagle.