Current trends indicate that the number of defaulted student loans is steadily increasing. Defaults occur after an extended period of not making payments on your student loans. If you don’t pay for more than 90 days, your loan servicer will report the delinquency to the three nationwide credit bureaus and your credit scores may drop. If the loan remains delinquent, that’s when you risk going into default.
Defaulting on your student loan will impact your credit scores negatively and the default can remain on your credit reports for seven years. If you have a loan in default, it can be much harder to secure additional lines of credit (credit cards, car & personal loans, or a mortgage).
These steps can help you get the student loans out of default and protect you from future defaults:
- Loan rehabilitation is a common way to get your federal student loans out of default. To rehabilitate a loan, you must agree in writing with your loan holder to make nine affordable and reasonable monthly payments. Once you make all nine payments (over a period of ten months), the default will be removed from your credit history, however any reported late payments before the default will remain. It should be noted that you can only rehabilitate student loans once.
- Loan consolidation lets you roll one or more federal loans into a new consolidation loan. Once combined, the individual loans are considered paid off and the borrower is then responsible only for the new consolidation loan. Outstanding interest becomes part of the new loan’s principal. Consolidation is faster than rehabilitation and can be a good route if you need to resolve the default quickly, however it will not remove the original default from your credit history.
- Loan repayment in full is another option, unfortunately this method is not possible for most borrowers.
- There are no standard methods for getting out of default on private loans. You can talk to your lender about potential recovery options or you may be able to negotiate a plan for repaying the loan and getting it out of default. Additionally, there are attorneys who specialize in student loan debt and can help you arrange a plan with your lender.
Once you are out of default, consider enrolling in an income-driven repayment plan. Watch your account closely to make sure you are not missing any payments. If you think you might not be able to pay, deferment or forbearance may be options for you to explore.