You have three options to get your student loans out of default:
Settlement (1-2 weeks). When you contact the debt collector, the representative will first ask if you want to pay the full amount. If you say no, they will then offer you a settlement to resolve the loan balance in full. The settlement amount, or compromise, will typically waive the collection costs, half of the outstanding interest, and a tiny portion of the principal balance. You’ll have up to 90 days from the date you reach an agreement to pay the settlement. Learn how to settle federal student loans.
Consolidation (5-6 weeks). If you can’t afford to settle, student loan consolidation is the fastest way to dig out of default. The process takes your federal loans and combines them into a new Direct Consolidation Loan. While consolidation won’t lower the interest rate or shave off some of the accrued interest and collection fees, it will clear you from the CAIVRS report and restore your eligibility for student loan forgiveness programs, like the PSLF Program. Read more about how to consolidate defaulted student loans.
Loan rehabilitation (9 months). The student loan rehabilitation program is the slowest way to get federal loans out of default. But it’s the only option that removes the default status from your credit history, which can increase your credit score. To qualify, you’ll need to sign a rehabilitation agreement letter and make nine monthly payments based on either 15% of your discretionary income or your income and expenses.
Each repayment option has its pros and cons. The right choice for you depends on your goals.
Learn More: Can Defaulted Student Loans Be Forgiven?