Can Student Loans in Default Be Forgiven? Yes — Here's How

#1 Student loan lawyer

Updated on January 24, 2023

Can defaulted student loans be forgiven? Most programs require that you first get out of default, then apply for forgiveness.

As the pandemic relief period comes to an end, millions of federal student loan borrowers remain in default. The end of the relief period doesn’t mean these borrowers will immediately face wage garnishment, withholding income tax refunds, or offsetting Social Security benefits. Collection activity on these loans is expected to resume a few months later.

If you’re looking to escape the defaulted student loan trap, you must return your loans to good standing to maximize your opportunities for relief.

Ahead learn your options for student loan default forgiveness and take control of your debt.

Related: How to Get Student Loans Out of Default Fast

Will defaulted student loans be forgiven?

Yes, under President Joe Biden’s debt cancellation plan, defaulted student loans may be forgiven for eligible borrowers. But it is uncertain if the 26 million Americans who applied after the plan was announced will actually receive the promised debt relief.

The plan, which promised to wipe out up to $20 thousand in federal student loan debt for borrowers who received a Pell Grant in undergrad and $10 thousand for everyone else, has been met with resistance from Republican-led states and conservative groups, who argue that the President lacks the authority to forgive student loan debt on such a large scale.

As a result, the U.S. Department of Education has requested that the lawsuits be heard by the Supreme Court, with a ruling expected to be issued this summer. Because of these legal challenges, the Biden administration has closed the application process for the forgiveness plan until the court decides the program’s fate.

Meanwhile, the government extended the pandemic-era federal student loan repayment pause and freeze on interest rates as they await the court’s decision. This means that federally held student loan borrowers will continue to have a temporary reprieve on payments and interest accrual.

Related: Can I Still Apply for Student Loan Forgiveness?

The Department of Education will apply forgiveness in the following order to address the most urgent cases first:

Related: How to Go Back to School With Defaulted Student Loans

Does student loan forgiveness apply to defaulted loans?

Whether or not student loan forgiveness applies to defaulted loans depends on the program the Education Department offers. For example, defaulted Direct Loans aren’t eligible for the Public Service Loan Forgiveness Program or income-driven repayment plan forgiveness.

But other programs such as Borrower Defense to Repayment and Total and Permanent Disability Discharge may wipe out borrowers’ remaining loan balances, even if the loans are in default status.

Check the eligibility requirements for the loan forgiveness program you’re considering before applying.

Related: How to Apply for Student Loan Forgiveness

Also, you can take advantage of the Fresh Start program to quickly return your defaulted loans to repayment with no past-due balance or collection fees. This can be a more streamlined and efficient option compared to the loan rehabilitation program, which can come with significant paperwork and administrative tasks.

This initiative lets you take the first steps toward loan forgiveness and regain control of your student loan debt. Contact the Default Resolution Group at 1-800-621-3115 to start moving your loans from collections to a new student loan servicer.

Related: Can Student Loans in Collections Be Forgiven?

Are defaulted student loans forgiven after 20 years?

Defaulted student loans will not be forgiven after 20 years. The loans will remain with the borrower until they can qualify for a loan forgiveness program offered by the Education Department or they die.

This is significant as it contrasts with the 7-year period in which defaulted student loans fall off credit reports. The loans may no longer affect your credit score, but that doesn’t mean they’re gone. It’s like trying to hide a tattoo with makeup — it’s still there; it’s just hidden.

Related: Why Your Student Loans Disappeared From Credit Karma

And here’s the kicker: Federal student loans have no statute of limitations. So, the government can continue to take collection actions against you until you pay the loan balance in full or qualify for forgiveness.

In short, defaulted student loans are like a debt zombie. They never die.

Related: What Age Does Student Loan Debt Get Wiped?

Are defaulted student loans ever forgiven?

Defaulted student loans can be forgiven by the Education Department if you qualify for Biden’s forgiveness plan, become disabled, or went to a fraudulent school. But, if you have private student loans, it’s not that simple.

Unlike their federal counterparts, private student loans aren’t covered by the forgiveness plan. They’re like the black sheep of the student loan family. Lenders like Sallie Mae and SoFi won’t wipe out your loan because you’ve made payments for years or work in public service. And they might not even wipe out your loans if you’re unable to work due to a disability.

Typically, the only options are to pay the balance in full, negotiate a settlement, discharge them in bankruptcy, or wait for the statute of limitations to run out.

Related: What Happens When You Default on Private Student Loans?

Student loan forgiveness programs

Since Joe Biden took office, the Department of Education has prioritized targeted forgiveness. Over $40 billion in student loan debt has been wiped away for over hundreds of thousands of borrowers in the past year. The beneficiaries include those defrauded by failed for-profit schools, soldiers deployed to war zones, permanently disabled people, and public servants.

If you have not benefited from this parade of relief, there are still student loan forgiveness programs you can benefit from.

Public Service Loan Forgiveness

PSLF eliminates the balance owed on Direct Loans if you work full-time for the government or nonprofit. If you have FFEL Loans, you’ll need to consolidate them into a new loan made through the Direct Loan Program to meet the program’s eligibility requirements. You can apply for a Direct Consolidation Loan on the Federal Student Aid website, Learn how to consolidate student loans for PSLF.

Income-Driven Repayment Plan Forgiveness

Repayment plan forgiveness wipes out your loan balance after making at least 240 payments under an income-driven repayment plan. Depending on your plan, your monthly payment amount will be capped at 10-20% discretionary income, which is based on your family size and adjusted gross income.

While 20 years seems like a long-time to wait until you’re free of your student loans — especially if you’ve already been in repayment for years — you might not have to wait that long for relief.

The Education Department is in the process of reviewing borrowers’ accounts to give them credit toward IDR forgiveness for all the student loan payments they made under any repayment plan, regardless if they ever enrolled in income-based repayment.

It’s also counting time spent in long-term forbearances and some deferments.

Other forgiveness programs

  • Borrower Defense to Repayment discharges debt you borrowed to go to a sham school that lied to you about job prospects, career earnings, and the quality of education you’ll receive.

  • Teacher Loan Forgiveness provides nearly $20 thousand in loan cancellation for educators who work in schools in low-income communities.

  • Total and Permanent Disability Discharge cancels your debt if the SSA, VA, or doctor certifies that a physical or mental impairment prevents you from working. This type of debt forgiveness is tax-free.

Should you get out of default?

There are a lot of benefits to getting student loans out of default. You can protect your paycheck from wage garnishment; regain eligibility for FHA Loans, financial aid, IDR plans, and other repayment options; and start qualifying for loan forgiveness. But there are three drawbacks:

  • Settlement is no longer an option. If you agree to a settlement on your federal student loan while you are in default, you will have 90 days to pay the full amount. Part of the settlement may include removing some of the collection fees and interest from your balance.

  • The loans will appear on your credit report. Many borrowers have been in default for so long that their student loans have been removed from their credit reports. Getting out of default through rehabilitation or consolidation will cause the loans to reappear on your report, which may cause your credit score to drop temporarily. However, the delinquency and default status should not return.

  • The payment amount may increase. While you’re in default, your whole financial situation (medical bills, cost of living, child support, etc.) is factored into your monthly payment. But when you return to good standing, your bills no longer matter.

Learn More: Student Loan Default Help: Where to Find It

Bottom Line

There’s a chance that the Supreme Court will approve President Biden’s student loan relief plan. If it does, your defaulted loans may qualify for loan forgiveness so long as you meet the income requirements.

If you want help choosing the right strategy before the student loan payment pause ends, book a call with me today. We’ll review your loans to find the best path to get you back in repayment and on the track toward loan forgiveness.

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