Can You Get Student Loan Forgiveness If You Are in Default?

• You can potentially get student loan forgiveness even if your loans are in default, but you typically need to get out of default first for most forgiveness programs.

• The Fresh Start program, available until September 30, 2024, is currently the fastest and easiest way to get federal loans out of default and become eligible for forgiveness options.

• After getting out of default, you regain eligibility for various benefits, including federal financial aid, income-driven repayment plans, and forgiveness programs like Public Service Loan Forgiveness.

Yes, you can get student loan forgiveness even if you default, but it usually won’t happen automatically. For federal student loans, most programs require you to remove the student loan default status to become eligible for forgiveness or other debt relief opportunities. This typically involves rehabilitating or consolidating your loans into a new Direct Consolidation Loan. Once you’re out of default, you can pursue forgiveness options like income-driven repayment plans or Public Service Loan Forgiveness.

For private student loans, forgiveness options are very limited from the start. Being in default further complicates the situation. Private lenders like Sallie Mae generally don’t offer forgiveness programs. Your best options with delinquent or defaulted private loans usually involve negotiating with the loan holder to pay less than the loan balance or filing student loan bankruptcy to try and discharge the debt.

Related: Defaulted Student Loans 20 Years Ago

Here’s a quick overview of major federal student loan forgiveness programs and their eligibility for loans in default:

Most federal student loan forgiveness programs require you to get your loans out of default and in good standing before they can be forgiven. For example, PSLF and IDR Forgiveness require you to enroll in an IDR Plan and make on-time payments. Currently, the fastest and easiest way to get federal loans out of default is through the Education Department’s Fresh Start program.

Fresh Start is a temporary program available until September 30, 2024, that helps borrowers with defaulted federal student loans quickly return to good standing. After using Fresh Start, you can enroll in income-driven repayment plans and become eligible for various forgiveness options.

After the Fresh Start deadline passes, you have two other options to get out of default:

1. Loan Consolidation: Consolidate your defaulted federal loans into a Direct Consolidation Loan. This immediately brings your loans out of default and makes you eligible for income-driven repayment plans and associated forgiveness options.

2. Loan Rehabilitation: Make nine voluntary, reasonable, and affordable monthly payments within 10 consecutive months. After completing rehabilitation, your loans exit default status and you regain eligibility for forgiveness programs.

Related: Student Loan Rehabilitation vs Consolidation

No, defaulted student loans will not be automatically forgiven under current initiatives. The Biden administration has introduced several programs to forgive student loan debt, but these primarily benefit borrowers whose loans are in good standing. Here’s what you need to know:

• The Public Service Loan Forgiveness Program changes only apply to loans not in default.

• The one-time account adjustment for IDR plans excludes defaulted loans.

• Early forgiveness under the Saving on a Valuable Education (SAVE) Plan is not available for defaulted loans.

But there’s still hope for borrowers with defaulted loans:

• President Biden plans to introduce a new initiative in the fall of 2024, before leaving office, which may address defaulted loans.

• Details of this plan are limited, but it could potentially offer relief to borrowers in default.

• The administration has consistently worked to expand forgiveness options, so this new plan may provide solutions for those with defaulted loans.

Related: Biden Student Loan Forgiveness

To qualify for most loan forgiveness programs and avoid the severe consequences of default, you need to get your loans back into good standing. The Fresh Start program is how all student loan borrowers should do this today.

The program has already helped many borrowers. According to the Education Department, more than 300,000 borrowers had opted into Fresh Start as of November 2023. But this represents only a small fraction of the estimated 7.5 million eligible borrowers, meaning there’s still a significant opportunity to take advantage of this program before its September 30, 2024 deadline.

The best part about Fresh Start? Most people end up with an affordable monthly payment.

About 80% of Fresh Start borrowers opt for an income-driven repayment plan, with half paying $0 a month and 60% paying less than $50 a month. These plans calculate your payment based on your income and family size. You will never pay more than 5–20% of your discretionary income. This makes staying out of default more manageable than many people expect.

Here are the main benefits of this program:

1. Regain eligibility for federal student aid, including new loans and Pell Grants.

2. Stop collection activities like wage garnishment, tax refund and Social Security benefit offset.

3. Remove negative marks of default from your credit reports, potentially improving your credit score.

4. Regain access to income-based repayment options like SAVE, IBR, and PAYE.

5. Become eligible for student loan forgiveness programs.

6. Regain eligibility for deferments and forbearances.

7. Become eligible for government-backed mortgages (FHA, VA, and USDA) by being removed from the CAIVRS system.

To start the Fresh Start process, contact the Default Resolution Group. They can access the National Student Loan Data System to find all your defaulted federal loans, including Federal Family Education Loans (FFEL), Perkins Loans, and Direct Loans.

You can also visit myeddebt.ed.gov to create an online account or mail a letter to DRG and include your name, social security number, date of birth, current mailing address, and a short statement: “I would like to use Fresh Start to bring my loans back into good standing.”

Note: Other types of loans, like defaulted HEAL and HHS loans, may not be eligible for this program.

Most forgiveness programs require your loans to be in good standing to qualify for relief. Thankfully, the U.S. Department of Education offers many options to get out of default and pursue forgiveness. The Fresh Start program offers an excellent opportunity until September 30, 2024.

Additionally, President Biden’s upcoming initiative may provide relief for defaulted loans, although details remain unclear.

Want help figuring out whether getting out of default makes sense for your situation? Book a consultation with one of our student loan experts. They can help you decide whether to get out of default and guide you toward potential forgiveness options.

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