How to Fix Defaulted Student Loans

During the COVID-19 emergency student loan relief period, collections on defaulted student loans have been stopped. Payments are set to resume after January 31st, 2022. That means if you have defaulted student loans, now is the time to make a plan to fix student loan default.

What is student loan default?

Student loan default happens when your student loan payment is overdue by >270 days. Your student loans are ‘delinquent’ the first day your minimum payment is missed and overtime delinquency becomes default.

What’s the impact of the COVID-19 relief on defaulted student loans?

From March 13, 2020, through January 31, 2022 defaulted federal student loans weren’t being collected and weren’t accruing interest. That means no tax refunds or social security payments were withheld. No wages were garnished. No collections calls or billing statements were sent. There is also no interest accruing.

What will happen to my defaulted student loans when the relief ends?

When the COVID-19 emergency relief ends January 31, 2022 all temporary relief will stop. That means collections, wage garnishment, and credit reporting will resume and negatively impact your credit score and financial health.

How can I fix my student loan default?

You have two options for fixing federal student loans that are in default. Rehabilitation is your first option and Consolidation is your second option.

How to rehabilitate defaulted student loans.

1. Contact your student loan holder or the Default Resolution Group. You will need to agree in writing to make nine monthly payments within 20 days of the due date, and make all nine payments during a period of 10 consecutive months. You can contact the Default Resolution Group at 1-800-621-3115 (TTY:1-877-825-9923) or email them via form submission https://myeddebt.ed.gov/borrower/#/sendemail 
2. Complete the paperwork required to rehabilitate your loan. You will need to provide proof of income and expenses in order for your loan holder to set your minimum monthly payment.  You can find more details about the documentation you will need to provide on this page https://studentaid.gov/manage-loans/default/get-out/rehabilitation-income-expense-instructions 
3.  Once you’ve made nine on-time monthly payments your loan is rehabilitated. Your record of default will be removed from your credit history and you will also be able to access the federal repayment plan and loan forgiveness options available for your loan type and situation.
4. Rehabilitation is a one time option. If you’ve rehabilitated defaulted student loans in the past, you’re not able to use rehabilitation again to get your loans out of default. You will need to explore consolidation. This is also why it’s important to choose a monthly repayment strategy that works for your finances, so your student loans don’t end up in default again.

How to consolidate defaulted student loans.

1. Apply for a Direct Consolidation Loan. You can apply for a Direct Consolidation Loan by following the instructions on the Department of Education site https://studentaid.gov/app/launchConsolidation.action. Keep in mind you will need to select one of the income-driven repayment plans for your monthly payment in order to consolidate a defaulted student loan. You can alternatively choose to make three on time full payments prior to consolidation.
2. You can’t consolidate loans that have active wage garnishment. Before January 31, 2022 can be a good time to apply for a Direct Consolidation Loan since all garnishment is paused.
3. Consolidation doesn’t remove the record of default from your credit history. The only way to have the record of default removed from your credit history is through rehabilitation.

Payments will resume in February 2022 and there is no better time than now to fix defaulted student loans. Whether you choose to rehabilitate or consolidate your defaulted federal student loans, there are options to put your loans back in good standing.

Additional Resources

Department of Education Default Resolution Group

Direct Consolidation Loan Application

How to find your student loan servicer