Student Loan Default: What It Is and How to Get Out

Student loan default is an official loan status that occurs when you miss a certain amount of payments. According to Federal Student Aid, your federal loans are in default once you miss your scheduled loan payments for 270 days or more.¹ With private student loans, you’re in default when you miss three months’ worth of payments.

Here’s what could happen if you enter into default:

• Lenders can garnish your wages, making it difficult to make ends meet.
• The default can stay on your credit report for up to seven years. And, with a damaged credit report, you may have trouble getting approved for a car loan or a mortgage.
• Late fees and interest will accrue, causing your loan balance to grow steadily.
• Your professional license could be suspended, hurting your chances of finding work.²

Before your student loan goes into default, it’ll enter a status known as delinquency. As soon as you miss a payment on your student loan, your account is considered delinquent. If your federal student loan is delinquent for more than 270 days, it’ll enter into default — or after 90 days for private student loans.

The good news: most lenders are willing to help you catch up on late payments by either temporarily lowering your monthly payment amount or pausing repayment with a deferment or forbearance. These options may not be available once your debt is in default, so contact your student loan servicer as soon as possible if you’re struggling with debt repayment.

If you’ve missed several payments and suspect your student loans may be in default, you can check the status of your debt through these two ways:

1. Log into studentaid.gov: If you borrowed money for college by taking out a federal student loan, you’ll have a My Federal Student Aid account you can access with your FSA ID. Log into the account to see your loan’s repayment status and whether it’s in default.
2. Get a copy of your credit report: Student loan defaults are listed under the negative information section of your credit reports. Head to annualcreditreport.com to get a free copy of your credit report from each of the three major credit bureaus: Experian, Equifax, and TransUnion, or use another way to get a credit report.

If your student loans are in default, you may receive calls from debt collection agencies. While it may be tempting to ignore the call, don’t. Instead, remain calm and ask questions to find out if the debt and the debt collector are legit. Remember to keep a record of all communication with the debt collector and know your rights under the Fair Debt Collection Practices Act.

The Consumer Financial Protection Bureau’s resource page can prepare you for phone calls from collection agencies if you’ve never dealt with them before.

If your federal or private student loans are in default, you have four options:

1. Student loan rehabilitation

If you have federal student loans, one option to consider is student loan rehabilitation. With this approach, you work with your loan servicer to come up with a written agreement where you pledge to make nine voluntary and affordable monthly payments over 10 consecutive months.

Loan rehabilitation has several benefits. After completing the nine payments:

• Your loans will no longer be in default.
• The loan servicer will remove the record of default from your credit report.
• Your loan holder will no longer garnish your wages or seize your tax refund.
• You’ll regain eligibility for benefits like loan deferment or forbearance and access to income-driven repayment plans.
• You’ll be able to qualify for additional federal student aid.

According to Federal Student Aid, your payment is determined by your loan servicer, but it will be equal to 15% of your discretionary annual income, divided by 12.³ Your discretionary income is the amount of your adjusted gross income that exceeds 150 percent of the poverty guideline for your state and family size. Under a loan rehabilitation agreement, your payment could be substantially lower than it was under a standard repayment plan.

For example, let’s say you’re single, live in one of the 48 contiguous states, and make $30,000 per year. According to the U.S. Department of Health and Human Services, the federal poverty guideline would be $14,580.⁴

Your discretionary income is calculated by subtracting 150 percent of the poverty guideline — $21,870 — from your income. You’d deduct $21,870 from your income of $30,000 to get $8,130.

Your payment under a loan rehabilitation agreement would be 15 percent of your annual discretionary income divided by 12. To calculate your payment, you’d take 15 percent of $8,130, which is $1,219.50. Divide that number by 12 to get your monthly payment: $101.63.

If you can’t afford the payment because of other circumstances — like higher-than-usual medical bills or housing expenses — you may be able to negotiate a lower payment. You’ll have to provide the loan servicer with documentation about your income and expenses. They’ll use that information to calculate a new payment after subtracting your necessary expenses from your income.

If you decide loan rehabilitation is right for you, contact your loan servicer directly to start the process.

2. Federal loan consolidation

Another option to get out of loan default is federal loan consolidation. With this strategy, you consolidate your defaulted federal loans with a Direct Consolidation Loan.

To qualify for loan consolidation for defaulted loans, you must agree to repay the new loan under an income-driven repayment plan and make three consecutive, voluntary, on-time monthly payments before you can consolidate.

Once you consolidate, your loan is no longer considered to be in default. You’ll regain eligibility for federal benefits like forbearance, deferment, and additional student aid. However, consolidating your debt doesn’t remove the record of the default from your credit report.

While consolidation can be an effective strategy, it’s not the best option for everyone. For example, if your defaulted loan is being collected through wage garnishment or in accordance with a court order, you can’t consolidate your loans until the wage garnishment order or the judgment is lifted.

3. Pay the remaining balance off in full

While not everyone has the financial means to pay off their student loan in full, it’s perhaps the most straightforward way to get out of default and prevent further damage to your credit.

But don’t worry if paying off your student loan in full is not feasible for your financial situation. You can start chipping away at your debt by using the money from your tax refund to pay down the balance, earning extra income by taking on a part-time job, or setting aside a portion of your paycheck. If you haven’t already, create a budget to speed up your student loan repayment. Tools like budgeting apps can help you track your monthly expenses and set savings goals.

4. Student loan refinancing

If you have private student loans, you can’t qualify for loan rehabilitation or loan consolidation. Your options are limited.

In most cases, the only way to get out of default is to pay off your loan in full. But if you’re in default, you likely don’t have enough money in the bank to do that. This doesn’t mean you’re out of luck. It just means you may have to consider student loan refinancing.

With student loan refinancing, you work with a private lender to take out a loan for the amount of your current debt, including the loans in default. You use the new loan to pay off the old ones, instantly ending the default. If your loans were in collections, all collections activity will end, and the lender will no longer be able to garnish your wages.

There are some downsides to consider, though. Since your loans were in default, your credit score likely went down. This means you may not qualify for a refinancing loan on your own.

However, you may still get approved for a loan if you have a co-signer — a friend or relative with excellent credit and a steady income who signs the loan application with you. Because having a co-signer lessens the risk to the lender, you’re more likely to be approved. Keep in mind that if you fall behind on your payments, the co-signer is responsible for making them.