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?