How to Fix Defaulted Student Loans and Go Back to College

How to Fix Defaulted Student Loans - Graduation

A lot of people have managed to get themselves into a situation where they have defaulted on their Federal student loans. It can happen. I was in that position myself at one time. But it does not have to be the end of the story. There are several ways that a person can Fix Defaulted Student Loans and go back to school.

What Does it Mean to Be in Default?

If you miss a payment or make one late, your status on your Federal student loan is called DELINQUENT. That is not good because it can hurt your credit rating. It can also lead to late fees and increased interest charges, which add to the total amount of money you need to repay over the lifetime of the loan. But all of that is DIFFERENT than being in DEFAULT.

The federal government has a lot of programs like temporarily stopping or reducing your payments during a period of hardship to help AVOID GOING INTO DEFAULT.  You may also be able to select a different payment plan which reduces your payments permanently. So, it is very important that you keep in touch with your student loan servicer if you are afraid you are going to have to miss a payment. But all of those rights end when you miss payments and go into DEFAULT.

For most loan Federal loan repayment plans, you automatically go into default if you don’t make any payments for 270 days. You have ignored all of the MANY efforts by your loan servicer to work something out for three quarters of a year to go into default.

What are the Consequences of Being in Default?

Your credit is already messed up before you go fully into default by all of the missed payments on your credit report, but once you are in default your entire loan (principal and interest) also becomes immediately due and can go to a collection agency.

But the biggest consequence from being declared in default is that you are no longer able to get any Federal Student Aid.
This is a biggie. It usually means you can’t go back to school at all.

It doesn’t matter if you left school with only one class left to get your degree. If you default on your loans, you can’t get Federal Financial aid to go back and take that last class. All of your loans have become due and payable. You would have to pay for the class yourself or find a private loan, which would be next to impossible with your messed up credit.

So, What Can You Do to Fix It?

Fortunately, the Federal Government gives you a choice of three roads out of default.

I have taken one of them myself. It is an enormous relief to get out of default. Not only is it How To Fix Defaulted Student Loans - Detaila big step toward repairing your credit, but once you are out of default status you are once again able to apply for Federal Financial Aid and potentially go back to school.

If you are in default I would really like to encourage you to repair your situation. It is one of the biggest things you can do for your future. I defaulted part way through my bachelor’s degree but I was able to repair it and later I went on to complete that degree and get two master’s degrees as well, all on Federal Financial Aid.

The three methods of fixing a default are Loan Consolidation, Loan Rehabilitation, and Payment in Full. Since paying the loan in full is probably not an option, I will explain the other two.

Loan Consolidation

Loan Consolidation is a quick solution. If you have at least one other loan besides the one that is in default, you have the option of Loan Consolidation. Loan consolidation is when you put more than one loan together into a new loan with a single payment. To become able to consolidate a defaulted loan you have to either [1] make three full VOLUNTARY (not garnished) consecutive payments on the defaulted loan or [2] agree to an income-driven repayment plan on the new loan. An income-driven payment plan has lower payments while your income is low but the payments go up as you begin to make more money.

Consolidating a loan makes you once again eligible for delaying or temporarily stopping your payments due to hardships and you become eligible for new Federal Financial Aid so you can go back to school, but it does not remove the record of your default from your credit history.

Loan Rehabilitation

Loan rehabilitation takes longer but it has all of the same benefits plus it removes the record of your default from your credit history. You need to

  1. You must contact your loan holder. You can learn who that is on the government website www.studentaid.gov
  2. You must work out with them what a reasonable payment is based on your income and expenses. The reasonable payment is 15% of your leftover income after your expenses are subtracted. Depending on your circumstances, IT CAN BE AS LOW AS $5 PER MONTH.
  3. You must make nine voluntary monthly payments in a ten-month period. no payment can be more than 20 days late. If you are being garnished you have to make these payments in addition to the garnished amount.

After you do this, you are no longer in default and it is removed from your credit report. You also become eligible for delay or temporarily stopping your payments due to hardship and you are once again able to apply for Federal Financial Aid! If you return to a degree-seeking program at an accredited school you do not have to make payments while you are in school or for six months after you leave. This is the way I personally chose to repair my default and it was really worth it!

degree-to-earn-money-onlineDon’t Be Afraid to Take Action

I know what it feels like to be in default. The collection agencies are hounding you. You want to avoid them because they have to tell you “any information obtained will be used to collect a debt” and you don’t want to end up in court. It is embarrassing to owe the money in the first place. You can feel numb and just not want to deal with it. But the road back from default is actually not very difficult if you just take action. The benefits are huge. Besides the option of cleaning up your credit, you make yourself able to re-apply for Federal Financial Aid. If your income is low enough, you will automatically qualify once again and you can continue your education. Please go to the federal website for more information and resolve to take action today! The first step is to contact your loan holder. If you don’t know who that is, just look them up HERE.

Lisa Bates


  1. You have provided terrific information to those who are potentially in default of their student loans.  I think it’s great that you were able to do it based on personal experience and  I think that will be most appreciated.  Young people don’t understand how a bad credit rating can hurt your chances for a car, a house, a credit card, etc.  I like how you kept it positive by pointing out that even if they have defaulted, there are ways to fix it, as you did yourself.  I think this will help many people, well done!

    • Thanks, Yvette! I am really glad that I was able to get across that even though it is always best to avoid going into default, it does not have to be the end of the world. I am glad my personal experience was able to help reassure that getting out of default is a real possibility for anyone.

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