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How to get student loans out of default
Every year, thousands of students find themselves in default on their student loans. It’s not a real happy place to be. However, there are a number of options available to help. This article covers what student loans default is, what happens if you do default on your student loans, steps you can take to get out of default, and of course, some frequently asked questions about student loans default. So, if you’re ready to take back control of your student loans, read on!
What is a student loan default?
A student loan default occurs when you fail to make payments on your federal student loan for 270 days or more (aka nine months).
If you haven’t made a payment or contacted your lender to make an alternative arrangement (like deferment or forbearance), you’re probably in default. Being in default can have significant financial consequences and can inhibit your ability to get government loans or grants in the future.
What happens when you default on student loans
Defaulting on student loans can have serious consequences. If your loan goes into default, you can be charged late fees and the full balance of the loan immediately becomes due.
This can also result wage garnishment and a collection agency knocking on your door.
In addition, defaulting on student loans may cause significant damage to your credit score. Your credit report will likely show the delinquent loans outstanding until they are paid off or otherwise resolved.
This could make it difficult to qualify for future loans or other forms of financing, such as a mortgage or car loan.
Defaulted student loans are also subject to higher interest rates and collection costs, both of which add up quickly over time and can significantly increase your debt load.
Not only that, but any tax refunds you might have been expecting could be taken by the government if your loans are in default status.
Finally, if you’re considering attending graduate school or applying for certain professional licenses, defaulted student loans can stand in your way as some states require borrowers with defaulted student loans to pay off their debt before they can receive professional licensure or enroll in graduate programs.
How to find out if your student loans are in default
If you’re concerned that you may have defaulted on your student loans, you should investigate.
You can easily check the status of your loans by visiting the National Student Loan Data System (NSLDS) and logging in with your FSA ID.
This website is maintained by the U.S. Department of Education and provides information about all of your federal student loans and grants, including loan balance, repayment history, and loan status for each individual loan as well as overall Federal Family Education Loan Program (FFELP) and William D Ford Federal Direct Loan Program (Direct Loans).
The NSLDS will show one of three statuses: current, delinquent, or in default.
If your loan shows a status of “in default” then you have officially defaulted on that loan and should contact your loan servicer as soon as possible to discuss options for getting out of default.
Your loan servicer is the company that manages your account; they will be able to answer any questions you may have regarding the process of getting out of default or discuss payment plans that may be available to you depending on your individual circumstances.
If you have several loans from different lenders, you need to bring them all up to date in order to qualify for various repayment programs such as income-driven repayment plans or public service loan forgiveness programs.
So, if you’re considering entering into a new repayment plan, make sure that you understand the requirements of each program prior to enrolling so you can make sure all necessary steps are taken in order to fully benefit from the program.
Steps you can take to get out of default
If you are in default on your student loans, there are several steps you can take to get out of default and back on track with repayment. The most common options include loan rehabilitation, consolidation, and the Fresh Start Program.
Student Loan Rehabilitation
Loan Rehabilitation is an agreement between you and your loan servicer that allows for a new payment plan that works with your budget. After nine monthly payments are made on time within 10 consecutive months, the loan is removed from default status. (Woo hoo!)
During this process, collection costs may be waived and your credit report will show the loan as being “current” instead of “defaulted”. Another nice benefit: wage garnishment or tax refund offsets stop when you’re making payments towards the rehabilitation plan.
Student Loan Consolidation
The Consolidation option combines several loans into one new loan with a single payment due each month. This can make repayment more manageable if you have difficulty keeping up with multiple payments.
However, consolidation does not remove a loan from default status or waive any late fees or collection costs that may have accrued previously. (Check out our article on how to refinance student loans to learn more.)
Student Loan Fresh Start Program
The Fresh Start Program gives you the opportunity to enter into a repayment program without having to make any payments first—you basically avoid having to pay off old debts before entering into a new plan.
To qualify for the program, you must demonstrate your ability to repay your loans by proving steady income over time and providing documentation of their expenses (such as rent/mortgage payments). After enrolling in the program, all loans are brought up-to-date giving borrowers a fresh start with their finances without incurring additional debt or fees.
These solutions offer options for borrowers in default on student loans to get back on track with repayment plans tailored specifically to their individual financial situation.
It is important for anyone struggling with student debt to understand all of these steps so they can make informed decisions about how best to manage their debt obligations and put them back on solid financial ground moving forward.
Student loan default FAQs
What is student loan default?
Student loan default occurs when a borrower fails to make payments on their federal loans for 270 days or more. At this point, the loan is considered to be in “default” and the borrower may be subject to additional fees, including late fees, collection costs, wage garnishment, damage to credit score, seizure of tax refunds and difficulty enrolling in graduate programs.
What are the consequences of student loan default?
The consequences of student loan default can be serious. They include late fees, full balance due, collection agency assignment, wage garnishment, damage to credit score, higher interest rates and collection costs, seizure of tax refunds and difficulty enrolling in graduate programs.
How can I get my loans out of default?
You can get out of student loan default by using one or more strategies offered by the federal government such as Loan Rehabilitation, Consolidation and Fresh Start Program. Each option provides different benefits depending on your individual financial situation.
For example Loan Rehabilitation requires borrowers to set up a new payment plan with their loan servicer and make nine timely payments over 10 months after which the loan is removed from default status. Consolidation combines several loans into one new loan with a single payment due each month but does not remove a loan from default status.
The Fresh Start Program allows borrowers to enter into a repayment program without having to make any payments first and after enrolling all loans are brought up-to-date.
What resources are available if I’m in student loan default?
The National Student Loan Data System (NSLDS) at www.nslds.ed.gov is an excellent resource for those in student loan default as it allows users to log in with their FSA ID and check the status of their loans. Additionally borrowers should contact their lender or servicer directly for information about repayment options tailored to fit their individual circumstances.
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