Borrowers can get assistance with student loans in default by contacting the company handling the debt or hiring a professional.
If you miss enough monthly payments, your student loans will fall out of good standing and into default. Once that happens, not only will negative information be added to your credit report with the three major credit bureaus, but you’ll also be in danger of experiencing a wage garnishment, losing your tax refund, and being blocked from borrowing new federal student aid.
Your student loan servicer can help if you fall behind on payments and become delinquent. But after you default, you'll need to work with a collection agency to find your repayment options. This process can be challenging and leave you wondering if you're getting the best advice to make things right. After all, the debt collector works for the federal government or a private lender and, as a result, has an inherent conflict of interest.
Ahead, learn where to find assistance with student loans in default to help get you back on track.
Latest on student loans
- Forgiveness update: $10,000 student loan forgiveness may happen later this year.
- Covid-19 forbearance extended: The newest student loan pause extension moved the repayment start date to Sept. 2022.
- In default? Federal student loan garnishments are on hold until this fall.
- New deadline: The latest coronavirus forbearances moved the student loan recertification deadline to Nov. 2022.
- Protect your paycheck: Collection activities resume in September; here's how to stop student loan garnishment.
How can I get assistance with a student loan in default?
The first step to find help for student loans in default is to contact the company handling the loans. Most federal student loans are sent to the Default Resolution Group for collections, but some older Federal Family Education Loans — sometimes called "commercial loans" — or Perkins Loans are moved to a private collection agency or a guaranty agency.
Another option for assistance with defaulted loans is to speak with an independent third party, like a student loan advisor or a student loan lawyer. These professionals have experience fixing problems with federal and private loans, including digging borrowers out of student loan default.
Here's a list of people and organizations that offer help for defaulted student loans:
- Stanley Tate - I list myself first because few people have helped as many borrowers move from default to good standing.
- The Institute of Student Loan Advisors - TISLA is a nonprofit organization that provides advice on default, repayment strategies, and loan forgiveness programs.
- Student Loan Borrower Assistance Center - The Center is a website run by the National Consumer Law Center that offers information and legal resources for student loan borrowers. The organization does not provide legal advice.
- Josh Cohen - Josh is a student loan lawyer located in Connecticut and Vermont. He also trains other lawyers to help borrowers with student loan debt. Contact him at studentloanlawyer.com.
- Student Borrower Protection Center - The SBPC is a nonprofit organization that engages in advocacy, policymaking, and litigation strategy to help bring student loan relief. You can find helpful guides on its website, protectborrowers.org.
- Yrefy - Lenders are typically unwilling to refinance private student loans with a default status. It's too big of a credit risk. But Yrefy, which is a lender specializing in refinancing delinquent student loan debt, looks at the problem differently. Where other banks see borrowers with a spotty credit history, Yrefy sees an opportunity to help them make things right by offering a longer repayment term with a lower interest rate than they had previously. Visit yrefy.com to apply.
Learn More: Defaulting on private student loans
How do I get my student loans out of default?
Federal student loan borrowers can recover from default by either negotiating a settlement, applying for loan consolidation, or agreeing to make nine monthly payments as part of the loan rehabilitation program.
The U.S. Department of Education doesn't offer steep discounts when it agrees to settle — no matter how long it's been since you've made a payment or when you originally borrowed the loans. In a settlement, it will usually knock off the collection costs, half of the outstanding interest, and 10% of the principal loan balance if you pay the settlement amount in 90 days. For most borrowers, a payoff is too expensive, which means they end up choosing between consolidation and rehabilitation.
Both of these choices restore eligibility for income-driven repayment plans, deferment, forbearance, and new financial aid. They can also improve your credit score. Which option is best for you depends on the type of federal loans you have and your eligibility for certain loan forgiveness programs. Read more about student loan rehabilitation vs consolidation.
Not sure who to contact about your defaulted student loans? Contact the Default Resolution Group at 1-800-621-3115. The representative will find any federal loans in default that the Education Department owns. You should also ask them to check the National Student Loan Data System to see if you have any FFEL or Perkins Loans in default.
Learn More: How to get student loans out of collections?
Options to get student loans out of default
The fastest way to get your federal student loans out of default is to negotiate a student loan payoff. But unless you have access to a lump sum, a settlement is too expensive for most borrowers. You’ll likely need to explore the next fastest option, which, at least for federal loans, is loan consolidation.
The process to consolidate defaulted student loans takes about three months to complete but can be done faster if you agree to repay the new loan under an income-driven repayment plan. Visit studentaid.gov to submit a Direct Consolidation Loan application for free.
Rehabilitation is the slowest of the options to get out of default. You have to make nine on-time payments within 10 consecutive months before the default status is removed from your credit report. The monthly payment amount will either be 15% of your discretionary income or your monthly income with accepted living expenses deducted.
Private loans don't offer the same recovery options as what comes with federal loans. Once a private loan defaults, many loan holders will demand the full amount due. The companies aren't typically obligated to work with you to establish an affordable monthly payment amount to bring your account current. Instead, your only options to resolve the default are to pay the balance in full or offer a settlement. Read these tips for negotiating a student loan payoff.
Learn More: Can you pay off student loans in one lump sum?
Want to explore defaulted student loan options? Let's talk
If dealing with the consequences of default are overwhelming, I'm here to help. For years, I've helped people just like you no matter the type of loan, federal or private.
Schedule a free 10-minute call with me today. We'll work together to develop a plan that fits your current financial situation and sets you up to meet your future goals.
Whether you have defaulted on federal or private student loans, we'll get you back on track.
UP NEXT: Student Loan Default Rehabilitation