Back to School With Defaulted Student Loans: What Are Your Options?

Approximately 5.3 million student loan borrowers were in default as of June 2025, according to the Department of Education. 

If you're one of them and thinking about going back to school, the good news is that you can do that even with defaulted student loan debt. However, you won't qualify for any new financial aid until you get your loans out of default. 

This guide explains how to get your loans back in good standing.

Current private student loan rates

Can you go back to school with defaulted student loans?

Your federal Direct Loans will go into default if you haven't made a payment for 270 days (nine months).

You can go back to school with defaulted student loans, but you won’t be eligible for new federal student aid. This includes Pell Grants, work-study, and low-interest federal student loans. 

Default status can also affect other types of aid. 

“Some state grants and school‑based programs also require students to be in good standing, so it’s important to review all funding sources early to avoid surprises,” says Janna McKay, a certified student loan planner (CSLP) with Student Loan Planner, a company that offers guidance on student loan repayment.

How student loan default affects FAFSA and financial aid

When you submit your FAFSA, schools check your student loan status in the National Student Loan Data System (NSLDS). They use the NSLDS to confirm your eligibility for federal grants, loans, and work-study. Unfortunately, you won't be eligible if the system shows your loans are in default.

Getting your loans out of default takes between a few weeks and nine months, so you may want to complete the process before applying to school. If you apply for aid while working on coming out of default, your schools will put your FAFSA on hold until your loans are confirmed to be in good standing. 

Once you are out of default, you can notify your financial aid office. They’ll verify your status with the NSLDS and create your financial aid package.

How to regain eligibility for federal student aid

You must get your federal student loans out of default status to regain eligibility for federal student aid. You can do this through rehabilitation or consolidation, or by paying off your loans in full. However, paying off your loans isn't realistic for most borrowers. 

You should consider both rehabilitation and consolidation to get out of default. 

“Choose the right path that fits your goals, not just your timeline,” McKay recommends. “Keep thorough records. Save agreements, emails, and payment confirmations because they’re useful for your own tracking and may be needed by the school.”

Loan rehabilitation vs. consolidation for students returning to school

It’s important to understand the differences between rehabilitation and consolidation to decide which option is best for you.

Rehabilitation

Rehabilitation requires you to make nine voluntary consecutive payments during a 10-month period, so it takes longer than consolidation. You also only have one opportunity to do it. However, it removes the default status from your credit report, which is a key benefit that consolidation doesn't offer.

To start the process, you'll need to contact your loan servicer and enter into a rehabilitation agreement. You can find out who your servicer is by logging in to your StudentAid.gov account. You can also contact the Department of Education’s Default Resolution Group with questions.  

Your loan servicer will determine your payment amount, which is usually 15% of your discretionary income. If your loans have already gone to collections and payments are being collected through wage garnishment, those payments continue until your loans are out of default or until you’ve made five voluntary rehabilitation payments.

Consolidation 

You can also get your loans out of default by consolidating them into a Direct Consolidation Loan. However, before you can consolidate, you must agree to make three full, consecutive payments on time or agree to pay your new consolidation loan on an income-driven repayment plan. 

Unfortunately, when you consolidate, unpaid interest will be added to your principal balance, making your loan balance bigger. 

If you were making payments on an income-driven repayment plan and working toward forgiveness before you defaulted, consolidating will also restart the clock and erase your previous payment history, while rehabilitation preserves your IDR payment history. 

“Rehabilitation keeps your original loan balance and terms intact, which means you won’t lose past qualifying time,” says Steve Witter, a certified student loan professional and founder of Student Loan Steve in Buffalo, New York. “You may be better off going the rehabilitation route to keep your federal loan payment history.”

Since the consolidation process takes anywhere from a few weeks to three months, it takes less time than rehabilitation. However, it doesn’t erase the default status from your credit report, which affects your credit score and credit history. 

Private student loans when federal loans are in default

It's difficult to qualify for a private student loan while you have loans in default because lenders review your credit score and history to determine your creditworthiness. Your default status on your credit report signals that you are a high-risk borrower. However, if you have a solid cosigner, a lender may be more willing to work with you.

Even if you can get a private student loan, taking on more debt may not be a good idea if you're already in default. 

“Rushing into additional borrowing can create long‑term financial strain, while starting rehabilitation or consolidation early puts borrowers back on track with far fewer risks,” McKay says. However, Witter says taking out a small private loan could make sense in certain circumstances, such as when you’ll be in school for a short period of time. 

“If you are only a semester or year away from finishing your degree and the loan is small, it could be worth staying away from the federal system,” he says. 

That’s because after July 1, 2026, any new federal loans — including Direct Consolidation Loans that consolidate default loans — will be subject to new student loan rules. The new income-driven repayment plan available after July 1 requires 30 years of payments for forgiveness, instead of the current 20 or 25 years. 

Of course, resolving your defaulted loans will still be important. However, a small private loan could help you preserve any federal payment history while you tackle the default resolution process, according to Witter.

Tips for returning to school after default

Experts recommend the following strategies for a successful return to college if you have defaulted student loans.

• Make a plan for your defaulted loans: “Start the default-resolution process right away,” McKay says. “The sooner you begin, the sooner you can regain federal aid eligibility.” Resolving your loans also helps repair your credit. 
• Choose the resolution that best fits your goals: Rehabilitation and consolidation offer different pros and cons, so consider which serves you best. Rehabilitation removes the default from your credit report and preserves IDR payments. Consolidation allows you to return to school more quickly, but restarts the clock on IDR payments and won't fix your credit.
• Stay engaged with your schools and loan servicers: If you applied to colleges before your loans were out of default, keep your schools in the loop. Track your loan status with your loan servicer as well. Once you regain eligibility for federal student aid, your schools can process your FAFSA and issue financial aid packages.  
• Avoid enrolling without a realistic plan to cover costs: Witter recommends exploring what you can pay out of pocket from income and savings, and looking for ways to live on less. It's important not to fall back into the situation that led to your original default. 
• Choose your program carefully: Applying to affordable programs helps you minimize new debt. “Students should consider program cost, job outcomes, and how much they truly need to borrow,” McKay says.
• Evaluate how you file taxes if married: Filing separately can reduce your payment on an income-driven repayment plan because only your income is considered. “It’s going to be important to consider after July 1 when borrowers will be on an income-driven repayment plan for 30 years,” says Witter.