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Defaulted loan

Overview

If you become 270 days past due on your Federal student loan payment, your loan is considered to be in default. Prior to your student loan being declared in default, your loan servicer will make numerous attempts to contact you to resolve the situation. Once your loan is declared in default, the remaining balance of the loan and all interest will become immediately due and payable.

If you have defaulted on a Federal student loan, it is very important that you contact the agency that is billing you. Ask them about the options available to get out of default. If you do not know who your loan servicer or collection agency is, please sign on to NSLDS. Once you have signed into your NSLDS account, click on each loan to find your loan servicer contact information.

Consequences of default

Defaulting on your Federal student loan can cause serious consequences and may result in one or more of the following:

  • The entire unpaid balance of your loans and any interest you owe becomes immediately due.
  • The default will be reported to all national credit bureaus, which may affect your ability to obtain financing for cars, houses, etc. 
  • Federal and/or state tax refunds may be withheld and applied to the loan balance until the debt is paid in full
  • Your wages may be garnished and applied to your debt 
  • Debt will increase due to late fees, additional interest, court costs, collection fees, and any other costs associated with the collection process 
  • Assignment of your loan to a collection agency 
  • Loss of other Federal or state payments 
  • Loss of eligibility for additional Federal student aid 
  • Loss of eligibility for repayment options, deferments, forbearances, and interest benefits as described on the Master Promissory Note (MPN) 
  • Denial of professional licenses (in some states) 
  • Lawsuit and the liability of court and legal expenses 
  • It may take years to reestablish a good credit record.

How to get out of default

If you have defaulted on a Federal student loan, it is very important that you contact the agency that is billing you. Ask them about the options available to get out of default. If you do not know who your loan servicer or collection agency is, please sign on to NSLDS. Once you have signed into your NSLDS account, click on each loan to find your loan servicer contact information. 

The following three options are available for getting your Federal student loan out of default:

Loan repayment

One option for getting out of default is to pay your defaulted student loan in full. Contact your loan servicer or collection agency for payment information and to find out where to send the payment.

Loan rehabilitation

Another option for getting your student loan out of default is loan rehabilitation. To rehabilitate your loan, you must:

agree in writing to make nine voluntary, reasonable, and affordable monthly payments within 20 days of the due date, and make all nine payments during a period of 10 consecutive months. Once you have made the required payments, your loan(s) will be returned to loan servicing.

Benefits of loan rehabilitation include:

  • The default status on your defaulted Federal student loan will be removed,
  • The default status reported to the national credit bureaus will be deleted,
  • You will be eligible for the same benefits that were available on the loan before the loans defaulted. This may include deferment, forbearance, and eligibility for additional federal student aid,
  • Wage garnishment ends and the Internal Revenue Service (IRS) no longer withholds your income tax refund,

If you rehabilitate a defaulted loan and then default on that loan again, you can’t rehabilitate it a second time. Rehabilitation is a one-time opportunity.

For more information on how to rehabilitate your student loan, go to myeddebt.ed.gov. 

Loan Consolidation 

You also have an option for getting your student loan out of default through a Direct Consolidation Loan. Loan consolidation allows you to pay off the outstanding combined balances for one or more of your student loans to create a new single loan with a fixed interest rate.

A defaulted student loan may be included in a consolidation loan after you have made arrangements with the U.S. Department of Education (ED) and make several voluntary payments. Usually, you will be required to make at least three consecutive, voluntary, and on-time payments prior to consolidation.

For more information concerning loan consolidation, click here

Once you choose which option is best for getting your student loan out of default and begin the required process, be sure to stay in touch with your loan servicer or collection agency until the process is complete. It is important that you keep copies of all payments, forms, documents, and correspondence concerning your loan repayment, rehabilitation or consolidation.