How to Get Student Loans Out of Default

February 19, 2019 · 8 minute read

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How to Get Student Loans Out of Default

As student loan debt increases, so does the number of borrowers defaulting on their student loans. Student debt in the U.S. has reached crisis levels—in 2018, outstanding student loans totaled $1.5 trillion .

It’s no wonder that people are having difficulty repaying their student loan debt. The latest estimates indicate as many as 40% of student loans will be in default by 2023.

Approximately one million borrowers default on their student loans every year, for a variety of reasons—including dealing with an overwhelming amount of debt or even facing sudden unemployment.

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. (And before we dive in, a quick note: This information was primarily obtained by the Department of Education’s website for Federal Student Aid . Shout out to that website.)

What is Considered Student Loan Default?

At its most basic, default happens when you have failed to make payments on your student loans. If you have a federal student loan, there are a few steps that occur before your loan is considered to be in default.

With a federal 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 big 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 deferment or forbearance, especially if you are facing a temporary financial hardship.

If you’re having long-term difficulty paying your monthly student loan payments, consider seeing 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, but 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 potential problems for the borrower. The consequences of defaulting can be quite severe. The default and history of missed payments can stay on your credit report for years to come.

If you default on your student loan, you are no longer eligible for 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 my student loans out of default,” you may have options. These include: loan rehabilitation, consolidation, refinancing, or paying off the loan in full—including any additional interest accrued. Often times borrowers in default are unable to repay their loans in full, so other options may be more practical.

1. Loan Rehabilitation

You may be able to remove a default from your credit report through student loan default rehabilitation . The specifics on how to remove your default via student loan default rehabilitation depend on the type of loan you have . However, here’s roughly what the process looks like if you have federal loans in default:

First, you’d contact your lender’s customer service office to request a rehabilitation plan for your loan. Second, you’ll want to be sure you can commit to the program since you can’t rehabilitate a loan a second time.

Third, you’d just 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, 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’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’re paying off the other loans and replacing them with one new loan, usually at a weighted average of the interest rates on your old loans (rounded up to the nearest one-eighth of 1%).

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 let you choose a lower monthly payment based on your income and household situation. However, one caveat to accepting a lower payment is that the loan term is extended up to 20 or 30 years, and that means that you’ll pay more in interest over the life of the loan.

You can also consolidate and refinance your federal and private student loans with a private lender, reaping some of the same benefits as consolidating your federal student loans: paying off several loans with one new loan and potentially lowering your payments.

But unlike federal student loan consolidation, a private loan consolidation doesn’t limit you to a weighted average of your previous loan rates, so you may be able to get a better rate depending on your personal financial history and current financial situation. When you consolidate student loans with a private lender, you are essentially refinancing them.

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, unless you extend the loan to lower your monthly payments instead.

However, if you’re wondering ‘how to get my student loans out of default,’ your credit has likely already suffered. An option for those who want to refinance, but have a less-than-great credit score, is finding a cosigner for the loan. With a cosigner, you may be better able to qualify for refinancing . However, your cosigner would be equally responsible for the loan.

If you qualify to refinance your student loans you may be able to also adjust the loan term, extending it to get a more manageable monthly payment or shortening the term to pay off your loan sooner. If you lengthen the loan term you may pay more in interest over the life of the loan, and a shorter-term usually means higher monthly payments.

But 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.

How Refinancing Can Help Keep You From Defaulting

If you are at risk of defaulting on your student loans, there’s no better time than now to take action. It’s scary to not be able to pay your student loans. But there are ways to lower your monthly payments before you go into default.

First, if you have federal loans, you may want to look into income-based repayment plans (that we touched on above), which can lower your payments in accordance with your discretionary income.

If you’d like to consider refinancing your student loans, this could also potentially lower your payments. If you qualify for refinancing, you can opt to extend your loan term, and potentially secure a more manageable monthly payment.

While an income-based repayment plan or a refinanced loan with a longer term could both mean paying more in interest over the life of your loan, it could also help you get your payments under control.

Again, keep in mind that if you refinance with a private lender, you will lose access to federal loan benefits like income-based repayment plans, forbearance, and deferment.

SoFi has several options available for student loan refinancing—if you qualify, you can choose between a fixed or variable rate loan and customize your term length. Plus, there are no prepayment penalties or origination fees.

And SoFi offers Unemployment Protection, meaning if you unexpectedly lose your job, you could qualify to temporarily pause your payments. SoFi can even help you find a new job.

If you’re interested in refinancing your student loans with SoFi, you can get a rate quote in less than two minutes.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the
FTC’s website on credit.

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