Looking for help with student loan default? Let me guess, you thought your loans were in a repayment plan or a deferment and it wasn’t until your tax refund was taken or you got a notice of wage garnishment that you learned you were in default.
In this post, I'll cover:
- The 4 options for getting federal loans out of default
- How to find your student loans after defaulting
- Consolidation vs Rehabilitation
- Help for getting private student debt out of default
Options for Federal Student Loans
You have four options for getting out of default:
- Loan rehabilitation
- Loan Consolidation
- Payment in full
In some cases, there’s also a fifth option: chapter 13 bankruptcy.
Filing bankruptcy to get your education loan out of default should be an option only if you’ve defaulted for a second time and can’t get out of default any other way. Speak with a bankruptcy attorney where you live for help.
Before you get too excited about the fourth option, settlement, hold your horses.
Yes, you can settle federal student loans, but the settlements aren’t great.
For those of you with high student loan debt, settlement likely isn’t an option; you’ll need a significant lump sum (90% of the balance less collection costs) in a short period of time (30 to days.)
- How to Get Student Loan Collections Fees Waived
- How to Use the National Student Loan Data System [NSLDS] to View Your Student Loans
- How to Know if Student Loans Will Offset Your Tax Refund
- How to Get Your Refund Back After It’s Been Offset for Student Loans
How to Find Your Student Loan After Defaulting
Once you default, the U.S. Department of Education or loan guaranty agency sends your loan to a collection agency.
For most loan borrowers, the easiest way to find who has your loan to start the rehabilitation process is to contact the Default Resolution Group at 800-621-3115. They’ll give you the contact information for the debt collector your account has been sent to for processing.
A word about FFEL and Perkins Loans
If you check NSLDS and see you have FFEL or Perkins Loans, finding out which debt collection agency has your loans is a little more complicated. You’ll need to call the loan servicer, guaranty agency, or your school to get that information.
Comparing Consolidation vs Rehabilitation
Let’s start with how the two are different.
Consolidation will have your loans back in good standing 3x faster than rehabilitation. So for those of you pursuing Public Service Loan Forgiveness, consolidation may be the right choice.
The downside of Direct Loan Consolidation is that your loan balance may end up a lot higher. When you consolidate, the principal balance of your new loan amount will include interest and collection fees.
Loan rehabilitation, on the other hand, may lead to your collection fees being waived after you make the ninth monthly payment.
To see if that will be the case for you, check your rehabilitation agreement letter.
It should say something like the Department of Education agrees to waive collection fees as a result of you rehabilitating your loans.
Okay, now that we know how they’re different, let’s talk about how they’re the same.
Both options will:
- make you eligible for loan forgiveness programs
- restore eligibility for federal student aid
- impact your credit score/credit report
Credit scores & the rehabilitation program
It’s been suggested that making rehabilitation payments will have a more positive impact on your credit score than getting out of default quickly through student loan consolidation. I call b.s. on that. The data isn’t clear.
I’ve had clients report increases with both.
The only fundamental difference is that rehab removes the default status from your credit history. Consolidation leaves that status and opens a new tradeline with the credit bureaus for your Direct Consolidation Loan.
Neither option removes late payments.
Options for Private Student Loans
Private student loan rehabilitation isn’t a thing. Almost no private student loan holder/loan servicer offers it.
Because of that, you have 3 options for getting a private loan out of default:
- Make catch up payments
- Payment in full
My favorite of those is a settlement. In fact, last year, I settled over $1 million dollars in student loans.
The reason why I love it is that, of the three, it’s the one that’s going to give you finality while saving you money.