Student Loan Default: What It Is and How to Recover

Student loan default can feel overwhelming. But if you’ve defaulted, you’re not alone: Within three years of entering repayment, 9.7% of student loan borrowers default, according to the Education Department.

As part of the first coronavirus relief bill, the government stopped federal student loans from entering default and paused collection activities on those that already had. These protections are in place through Sept. 30, 2021.

During this break, you can get loans back in good standing with options like loan rehabilitation and consolidation. Take action as soon as possible to avoid penalties like garnished wages and seized tax refunds when collection activities resume.

What is student loan default?

Student loan default means you did not make payments as outlined in your loan’s contract, also known as its promissory note. Default timelines vary for different types of student loans.

• Federal student loans. Most federal student loans enter default when payments are roughly nine months, or 270 days, past due. Federal Perkins loans can default immediately if you don’t make any scheduled payment by its due date.

• Private student loans. The Consumer Financial Protection Bureau states that private student loans often default after three missed payments, or 120 days total, but check your loan’s promissory note to know the specific timing. Some private loans default after one missed payment.

Are your student loans in default?

If you aren’t sure if your student loans are in default, the easiest way to find out is to check with your servicer. If you aren’t sure who that is — or aren’t ready to have a conversation with them about your loans — you have a couple of other options.

• Log in to studentaid.gov. All federal student loan borrowers have a My Federal Student Aid account they can access with their FSA ID. Sign in to your account, select a loan and look at its repayment status to see if it’s listed as in default. Your account also includes information about your servicer, if you need it.

• Pull your credit report. Your credit report will list federal and private student loan defaults under the negative information section. You can get a copy of your report for free once a year at annualcreditreport.com.

These resources may not be updated in real-time, so your loan could be in default and not show up as such. Confirming your loan’s status with your servicer is your best bet.

What happens if you default on student loans?

A student loan default can affect you in many ways. Penalties of default include the following.

One penalty you don’t have to worry about is being arrested or imprisoned for not paying a student loan. However, your lender can sue you to repay your loans. In many states if your lender wins a court judgment against you, you can be arrested for not complying with the court’s order. Don’t ignore a court summons.

» MORE: Can’t pay parent PLUS loans? 4 ways to get back on track

How to get student loans out of default

The Education Department offers three clear ways to recover from federal student loan default: repayment, consolidation and rehabilitation. Each can prevent or halt the consequences of default if you act fast enough; the best one for you will likely depend on your priorities.

If you want to get out of debt entirely

Repayment

When student loans default, the full amount owed becomes due immediately. If you can afford that, you can pay off your loans and be done with your debt. Of course, that won’t be possible for most borrowers. You may be able to negotiate a student loan settlement for less than you owe, but don’t expect big savings.

Don’t take on a personal loan to pay your student loans — even if they’re in default. Personal loans typically carry higher interest rates than student loans. Explore other remedies that won’t put you in more debt.

If you want to help your credit

Rehabilitation

Student loan rehabilitation is the best option in most cases because it’s the only one that removes the default from your credit report, though previously reported late payments will remain.

To rehabilitate your loans, you must make nine monthly loan payments within 10 consecutive months. Your monthly payments will be 15% of your discretionary income, or you may request a lower amount.

You can only rehabilitate a student loan once. If you choose this option, make sure you can afford your payments once you complete the process, likely by enrolling in an income-driven repayment plan.

If you want to resolve the default quickly or already rehabilitated the loan

Consolidation

Besides paying in full, student loan consolidation is the fastest route to exit default. You can do either of the following to qualify:

• Make three full, on-time, consecutive monthly payments on the defaulted loan.

• Agree to repay your new loan under an income-driven repayment plan.

Consolidation may make sense if you have to resolve the default quickly, for instance if you’re returning to school and need access to financial aid. Consolidation will not remove the default line from your credit report.