Coach Q&A: How to get your student loans out of default

August 6, 2019

My student loans are currently in default and I’d like to get them back into good standing. I’m really not sure what to do. Can you help me figure out how to get my student loans out of default?

 

Default is stressful. Don’t be discouraged, there are options. Most borrowers don’t intend to get into default but through financial hardship they can’t keep up with the minimum monthly payments on student loans and slide into default. Read this when you’re ready to get out of default. With federal student loans there are two realistic ways to get your student loans out of default and a third option that’s out of reach for most borrowers.

 

Read on for the top two strategies for getting your federal student loans back into good standing.

 

Top Strategy: Rehabilitate your federal student loans to get them out of default.

 

What it is: Student loan rehabilitation lets you get your loans back into good standing by making nine months of on time payments under an income-driven repayment plan. After nine months your student loans will be in good standing and potentially eligible for different repayment plans and loan forgiveness again. Keep making your minimum monthly payments until you pay off your student loan.

 

Benefits of Rehabilitation: The biggest advantage of student loan rehabilitation is that it removes the record of default from your credit history. Other advantages are that once your student loans are rehabilitated wage garnishment will stop, you will be eligible for federal aid again, and your loans will potentially be eligible for all federal repayment & loan forgiveness programs.

 

Drawbacks of Rehabilitation:

  • Rehabilitation takes a full nine months of on time payments. It might not be fast enough if you need access to federal aid soon.
  • Rehabilitation is a one time only opportunity. If you’ve rehabilitated your student loans in the past you can’t do it again.

 

Fastest Strategy: Consolidate your federal student loans to get them out of default.

 

What it is: You apply for a Direct Consolidation Loan for all of your currently defaulted student loans to combine them into a new loan. Once consolidated you’ll make three months of income-driven payments. Keep making your minimum monthly payments until you pay off your student loan.

 

Benefits of Consolidation: Consolidation is typically the fastest way to get your student loans out of default, it takes about three months. That means you will be able to access federal student aid faster if you’re considering returning to school.

 

Drawbacks of Consolidation:

  • Consolidation doesn’t remove the record of default from your credit history.
  • You’re not eligible to consolidate your loans while your wages are being garnished.
  • If a borrower only has one Direct Consolidation loan they won’t be able to use this strategy.

 

Another Option: Pay off the entire loan balance.

 

Most people aren’t able to pay off their entire student loan balance at once. If you are able to pay them off at once it’s definitely the fastest way to get your loans back in good standing. However, a lump sum payment still doesn’t remove the record of default from your credit history.

 

How To Rehabilitate or Consolidate your defaulted student loans.

Coach Q&A: How to Rehabilitate or Consolidate Your Defaulted Student Loans

 

 

Additional Resources:

Department of Education Getting Out of Default Page

Department of Education Default Resolution Group

Phone: 1-800-621-3115 (TTY: 1-877-825-9923

Email: https://myeddebt.ed.gov/borrower/loadEmailInquiryPage