What is Student Loan Default and How to RecoverEmail This Article
Note: If you consolidate federal loans together with private loans using a private lender, you may forfeit benefits you had with your federal loans.
Refinance Your Student Loans
Refinancing your student loans with a private lender is the only way to potentially get a lower interest rate. Student loan refinance rates are based on market trends. The rate you qualify for will depend on the creditworthiness of you or your cosigner.
With a student loan refinance you may also choose your repayment term. A longer repayment term may help to reduce the amount of your monthly payment. Just remember the longer your repayment term, the more you will be paying in interest over the life of your loan.
You may include both federal and private student loans, any combination of the two, or even just one single loan in a student loan refinance. Refinancing works similarly to consolidation; whichever loans you choose to refinance will be rolled into one new loan. If you include federal student loans in a private student loan refinance, you will forfeit your federal student loan benefits.
Best Student Loan Refinance Lenders
How to Get Student Loans Out of Default
Once you are in student loan default, you need to come up with a plan to get out. Defaulting on a student loan can have serious consequences that affect you for years to come.
Repay Your Student Loans in Full
If your student loan has entered default, the full amount you owe is due immediately. Repaying a defaulted loan, immediately and in full, is not a possibility for most defaulted borrowers. Strive to continue to pay on your loan, even if it is in default. This will help to prevent the accumulation of additional late fees. You may also explore the option of a student loan settlement. This is where you settle the debt for less than you owe (don’t expect significant savings).
Student Loan Rehabilitation
Student loan rehabilitation applies to federal student loans only. In order to rehabilitate your loan, you must first contact your loan servicer. If you do not know who your loan servicer is, you can find that information by logging in to your MyFederalStudentAid account. To rehabilitate your loan, you must agree in writing to make nine monthly payments within 20 days of the due date during a period of ten consecutive months.
The amount of the monthly payments will be determined by your loan servicer using the following formula: 15 percent of your annual discretionary income divided by 12. If you cannot afford these payments, you may request that your loan servicer calculate an alternative monthly payment. Be prepared to provide documentation of your monthly income and expenses.
Student Loan Consolidation
Student loan consolidation is another option for getting federal student loans out of default. To consolidate defaulted student loans you must either agree to repay the new Direct Consolidation Loan under an income-driven repayment plan, or make three consecutive, on-time payments in full on the defaulted loan.
Loan Rehabilitation vs Consolidation
The following table applies to federal student loans only.
|Benefit Regained||Loan Rehabilitation||Loan Consolidation|
|Eligibility for Deferment||Yes||Yes|
|Eligibility for Forbearance||Yes||Yes|
|Choice of Payment Plans||Yes||Yes - with limitations|
|Eligibility for Loan Forgiveness Programs||Yes||Yes|
|Eligibility to Receive Federal Student Aid||Yes||Yes|
|Removal of the Record of Default from Your Credit History||Yes – The default will be removed but the record of late payments will stay.||No|
- Interest Rates
- Loan Min/Max
- Minimum: $5,000
- Maximum: Consolidate up to the aggregate amount of your education loan debt. Maximum limits may apply.
- Repayment Terms: 10-yr/20-yr repayment term based on creditworthiness
- Degree Requirements: Students with loans from eligible schools may apply.