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As student loan debt increases, it’s likely that so will the number of borrowers defaulting on their student loans. Student debt in the U.S. has reached crisis levels at $1.814 trillion, with the average borrower owing $39,075 in federal student loan debt.
About one in 10 borrowers have defaulted at some point, and 6.24% of student loan debt is in default at any given time.
Failure to make payments on your student loans can result in serious consequences. If you’re struggling with your student loans and are in danger of defaulting, there are options. The sooner you take action to remedy your student loan troubles, the better.
If your loans are already in default, there are steps you can take to recover. Read on to learn how to get student loans out of default.
Key Points
• Federal loans enter default after 270 days of nonpayment, leading to serious consequences like wage garnishment and credit damage.
• Loan rehabilitation lets you restore good standing by making nine on-time payments and can remove the default from your credit report.
• Loan consolidation combines multiple loans into one and may offer access to income-driven repayment plans to lower monthly payments.
• Refinancing with a private lender may reduce interest or payments, but it removes access to federal benefits and requires good credit.
• Act early to avoid default — use deferment, forbearance, or income-driven plans to stay current and protect your financial health.
What is Considered Student Loan Default?
At its most basic, student loan default happens when you have failed to make payments on your student loans.
If you have a federal student loan, the U.S. Department of Education considers your loan delinquent the day after you miss your first payment. After 90 days, your failure to pay will be reported to all three credit bureaus, which may negatively impact your credit score.
If your loan is delinquent, there are steps you can take to prevent the loan from going into default. If you’ve failed to make a payment or two, consider applying for student loan deferment or forbearance, especially if you’re facing a temporary financial hardship.
Keep in mind, for loans made after July 1, 2027, borrowers will no longer be eligible for deferments based on unemployment or economic hardship.
If you’re having long-term difficulty paying your monthly student loan payments, an option is to see if you can change your payment terms to reduce your monthly bill. This process will extend the life of the loan (lowering your monthly loan payments usually involves lengthening your loan term) and you’ll most likely pay more in interest over the life of the loan. However, making payments on time can help you avoid defaulting and the consequences that come with it.
After 270 days of nonpayment, the loan is considered in default, triggering a series of consequences for the borrower.
Consequences of Student Loan Default
The default and history of missed payments can stay on your credit report for years to come. You also become ineligible for federal payment assistance such as forbearance, deferment, and student loan forgiveness. Any costs associated with collecting the loan are added to your balance due, and the government has the ability to garnish your wages or seize your tax refund.
Tips for How to Get Student Loans Out of Default
If you’re wondering how to get student loans out of default, there are options. These include: loan rehabilitation, consolidation, refinancing, or paying off the loan in full—including any additional interest accrued on student loans. Oftentimes, borrowers in default are unable to repay their loans in full, so the following alternatives may be more practical.
1. Loan Rehabilitation
You may be able to remove a default from your credit report through student loan rehabilitation. Here’s roughly what the process looks like if you have federal loans in default:
First, you contact your lender’s customer service office to request a rehabilitation plan for your loan. Second, you want to be sure you can commit to the program since you can’t rehabilitate a loan a second time. However, starting on July 1, 2027, borrowers will be able to rehabilitate student loans twice (instead of once).
Third, you follow your lender’s plan. That means making nine payments on time, usually at a lower payment rate (your lender determines the monthly payment amount, usually equal to 15% of your annual discretionary income, divided by 12).
Once you’ve successfully made all payments on rehabilitated student loans, the default can be removed from your credit report, but sometimes it takes about 90 days. Note that missed payments prior to the default on your loan will remain on your credit report, and your loan holder may still take involuntary payments (like wage garnishment) until your loan is no longer in default and/or you begin making rehabilitation payments.
Once you have rehabilitated student loans and you’ve again become a borrower in good standing with your lender, you now have the opportunity to get further relief through forbearance or deferment, especially if you’re still struggling.
2. Loan Consolidation
If you have federal student loans, you may be able to consolidate your student loans into one Direct Consolidation Loan. By consolidating, you pay off your existing loans and replace them with one new loan. The new rate is a weighted average of the interest rates on your old loans, rounded up to the nearest one-eighth of a percent.
If you qualify to consolidate your student loans, you have the ability to choose a different payment plan, including income-driven repayment plans. These plans lower your monthly payment to a percentage of your discretionary income. Most plans also extend the term out to 20 or 25 years, and cancel any remaining balance once the term is up. Keep in mind that extending your repayment term could mean paying more in interest over the life of the loan.
3. Refinancing Your Loans
If you have a solid personal financial picture (which includes things like your income and credit score), you may be able to refinance your loans with a private lender instead of consolidating them with the government. You may get a lower interest rate, which can allow you to trim the amount of interest you’ll pay over time. You could also extend your loan term to get a lower monthly payment. Keep in mind, though, that extending your term will make it so you pay more in interest over the life of the loan.
If you have a less-than-great credit score, you may need to find a cosigner for the loan. A reliable cosigner can help you qualify for refinancing. However, your cosigner would be equally responsible for the loan.
When you refinance a federal student loan with a private lender, you’ll no longer be eligible for federal protections, such as income-driven repayment plans or Public Service Loan Forgiveness.
Recommended: Student Loan Refinancing Guide
The Takeaway
Getting student loans out of default is a crucial step toward financial stability and can open doors to better loan management options, such as refinancing. By exploring methods like loan rehabilitation, consolidation, and maintaining consistent payments, you can regain control of your debt and improve your credit standing.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
FAQ
What is the first step to getting student loans out of default?
The first step is to contact your loan servicer to understand your options and the specific requirements for getting out of default. They can provide detailed information on the processes available, such as loan rehabilitation or consolidation.
How does loan rehabilitation work?
Loan rehabilitation involves making a series of on-time payments, typically nine out of 10 consecutive months, to bring your defaulted loans back into good standing. Once completed, the default status is removed, and you regain eligibility for federal benefits like deferment and forbearance.
What are the benefits of refinancing student loans after getting them out of default?
Refinancing student loans after getting them out of default can lead to lower interest rates and more manageable monthly payments. It can also simplify your finances by combining multiple loans into one, making it easier to manage and pay off your debt.
SoFi Student Loan Refinance SoFi Loan Products
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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