Can You Refinance a Defaulted Student Loan? Yes

• You can’t refinance a defaulted federal student loan until it’s out of default. You’ll need to consolidate or rehabilitate first.

• Refinancing defaulted private student loans is rare, but it may be possible with improved credit or a strong cosigner.

• If refinancing is not an option, you may negotiate a settlement or check if it’s past the statute of limitations to avoid legal collection. Bankruptcy is a last resort.

Yes, it’s possible to refinance defaulted student loans, but it’s difficult.

Most lenders require a good credit score, steady repayment history (with few late payments or breaks like deferments and forbearances), and sufficient income to comfortably afford the refinanced loan payments. Having loans in default often means you’ll struggle to meet these criteria.

Previously, borrowers with defaulted federal student loans could bypass these challenges through the government’s Fresh Start program, which provided a path to exit default quickly. But that program ended in October 2024.

Ahead, you’ll learn exactly how to refinance defaulted private student loans, explore your limited options for refinancing defaulted federal loans, and discover alternative solutions if refinancing isn’t immediately available to you.

Related: How to Get Student Loans Out of Default Fast

Refinancing defaulted private student loans while in default is challenging, but it can be done if you carefully approach the process and meet certain conditions.

Most lenders view defaulted loans as high-risk because you’ve missed monthly payments, owe money in collections, or have had your account marked as delinquent. Typically, this makes lenders hesitant to offer you a new loan with a lower interest rate and more affordable monthly payments.

Still, you might improve your chances of approval if you take these strategic steps:

• Significantly improve your credit score: Demonstrate financial stability by addressing negative marks and establishing a recent history of making monthly payments on time.

• Bring in a cosigner with strong credit: A creditworthy cosigner reassures lenders by lowering their risk and increasing your likelihood of securing more affordable monthly payments.

• Resolve collections and judgments first: Clearing or settling outstanding collections helps lenders see you’ve actively managed debts and reduced overall financial risk.

Some specialty lenders, like Yrefy, specifically cater to borrowers with defaulted private student loans, but their standards remain high, and approvals aren’t guaranteed.

Ultimately, if you’re considering refinancing private student loans while in default, prioritize rebuilding your credit, address outstanding debts head-on, and leverage a cosigner if possible. With patience and careful planning, refinancing at a lower interest rate can eventually become a realistic option again.

Related: Here’s the Credit Score You Need to Refinance Student Loans

Technically, you could refinance a defaulted federal student loan through a private lender, but realistically, it rarely happens. Many borrowers find that private lenders generally won’t refinance federal loans in default due to the risk from prior missed payments and potential collections.

Instead, federal student loans in default are resolved through two primary federal programs: loan consolidation and rehabilitation.

These federal recovery tools aren’t refinancing. They’re designed to help you regain good standing and maintain access to essential federal protections, manage your student loan balance, and avoid additional collection fees from your loan servicer.

Loan Consolidation

Applying for loan consolidation is the quickest way to get your entire loan out of default. Unlike refinancing, student loan consolidation doesn’t lower your interest rate or rely on credit approval.

Instead, it combines your defaulted federal loans into a single, new Direct Consolidation Loan under the Direct Consolidation Loan Program. Your interest rate becomes the weighted average of your current federal loans.

To qualify, you’ll either need to make three payments (specifically, three consecutive payments) or agree to immediately enroll in an income-driven repayment plan. Consolidation typically removes your loans from default within 1 to 2 months.

Loan Rehabilitation

Enrolling in the rehabilitation program is slower but can be more beneficial, especially if you work for the government or a nonprofit organization and are pursuing loan forgiveness through Public Service Loan Forgiveness (PSLF).

With rehabilitation, you’ll make nine consecutive payments (one monthly student loan payment per month) based on your discretionary income.

Completing rehabilitation removes the default status from your credit reports (though records of missed payments typically remain) and ensures you don’t lose eligibility for federal protections and forgiveness options.

Even if you find a lender willing to refinance your defaulted student loans, refinancing isn’t always the smartest choice. Before pursuing a refinance, take a step back and consider the underlying reasons why you defaulted:

• Was it simply an oversight or miscommunication with your loan servicer? If your finances are stable and you can comfortably handle payments, refinancing could make sense, assuming you secure favorable terms.

• Was it because your monthly payments were unaffordable? If so, refinancing may not resolve the underlying issue unless the new loan offers significantly lower monthly payments through a longer repayment term and a much lower interest rate. Unfortunately, lenders willing to refinance defaulted loans typically label these as “subprime” loans, resulting in less attractive rates and terms.

Another thing to consider is your credit score. Applying for refinancing often triggers multiple hard credit pulls, which can further lower your credit score, potentially harming your financial stability and limiting future credit opportunities.

If refinancing isn’t realistic, or if you’ve already explored consolidation, rehabilitation, or specialty lenders like Yrefy without success, you still have options.

Although none are quick fixes, these approaches can help you manage or even eliminate the debt:

• Negotiate a Settlement or Long-term Payment Plan: For private loans, many lenders are open to settling for significantly less than the total balance, especially if the loan has been defaulted on for a long time. While a settlement won’t erase your credit history, it can substantially lower your debt burden and provide financial relief.

• Explore Student Loan Bankruptcy: If your financial situation is severe and sustainable repayment isn’t possible, bankruptcy might offer relief. Private student loans can sometimes be discharged entirely if you demonstrate that repayment would cause undue hardship. This option requires careful preparation and legal assistance, but it may offer a definitive solution.

• Check the Statute of Limitations (Private Loans Only): Each state sets a deadline for creditors to file lawsuits over defaulted private loans. Once this time limit expires, your lender can no longer legally enforce collection. Be careful. Statute of limitations laws vary widely by state and can reset under certain conditions. Consulting with a student loan attorney is crucial before relying on this strategy.

Refinancing a defaulted student loan isn’t off the table, but it’s not a quick fix either.

If you have federal loans, you’ll need to get out of default through consolidation or rehabilitation before anything else. If you have private loans, refinancing might be possible, but only if your credit has recovered or you’ve got a cosigner.

We help people in tough spots figure out the best path forward, whether that’s rebuilding after default, negotiating settlements, or avoiding missteps that could cost them forgiveness or long-term relief.

Book a call with our student loan expert now.

We’ll help you sort through the noise and take the best step for your situation.

Related reading:

• How to Refinance a Student Loan With Bad Credit

• Can You Refinance After Student Loan Consolidation?

• When Do Student Loans Go Away?

• How Do I Find My Defaulted Student Loans?

• Understanding Delinquency vs. Default in Student Loans