Don’t get discouraged if you're in default on your federal student loan.

You have multiple options to get out of default.

If you by chance neglected to make your installments on your government understudy advance and now are in default, don't let the outcomes of default influence your monetary future. Discover how to escape default.

One approach to escape default is to reimburse the defaulted advance in full, however that is not a commonsense alternative for generally borrowers. The two principle approaches to escape default are loan rehabilitation and loan consolidation. While loan rehabilitation takes a while to finish, you can rapidly apply for loan consolidation. In any case, advance rehabilitation gives certain advantages that are not accessible through credit combination. Investigate the outline beneath to think about the advantages of loan rehabilitation versus the advantages of loan consolidation.


Loan Rehabilitation and Consolidation Comparison Chart

Benefit Regained Loan Rehabilitation Loan Consolidation
Eligibility for Deferment Yes Yes
Eligibility for Forbearance Yes Yes
Choice of Repayment Plans Yes Yes (but there may be limitations—see below)
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 (but see below) No* (see below for details)

*NOTE: We already demonstrated that loan consolidation would result in expulsion of the record of default from a borrower's financial record. That cell of the table has now been revised to show that loan consolidation won't result in removal of the record of default from the borrower's financial record.

If you rehabilitate a defaulted loan, the record of the default will be removed from your credit. Your credit as a consumer will in any case demonstrate late installments that were accounted for by your loan holder before the credit went into default. If you combine a defaulted loan, the record of the default (and also late installments revealed before the loan went into default) will stay on your credit history. Late installments will stay on your credit report for a long time from when they were first reported. It's vital that you completely comprehend loan rehabilitation and loan consolidation before settling on your choice. Here is more information about loan rehabilitation and loan consolidation.

Except if you make three voluntary, on-time, full regularly scheduled installments on a defaulted loan before you consolidate it, your decision of repayment plans for the new Direct Consolidation Loan will be constrained to one of the income-driven repayment plans. If you make three voluntary, on-time, full regularly scheduled installments before consolidating, you can look over any of the repayment plans available to Direct Consolidation Loan borrowers.

Loan Rehabilitation

One option for getting your loan out of default is loan rehabilitation. To start the loan rehabilitation process, you must contact your loan holder. If you’re not sure who your loan holder is, you can log in to "My Federal Student Aid" to get your loan holder’s contact information.

William D. Ford Federal Direct Loan (Direct Loan) Program and Federal Family Education Loan (FFEL) Program

To rehabilitate a defaulted Direct Loan or FFEL Program loan, you must:

  • agree in writing to make nine voluntary, reasonable, and affordable monthly payments (as determined by your loan holder) within 20 days of the due date, and
  • make all nine payments during a period of 10 consecutive months.

Under a loan rehabilitation agreement, you loan holder will decide a sensible regularly scheduled installment amount that is equivalent to 15% of your yearly annual discretionary income, divided by 12. Discretionary income is the amount of your adjusted gross income from your last federal tax return that surpasses 150% of the poverty guideline amount for your state and family size. You must provide the correct documentation to your loan holder.

If you can’t manage the cost of the regularly scheduled installment, you can request that your credit holder to calculate an alternative monthly payment based on the amount of your monthly income that remains reasonable after reasonable amounts for you monthly expenses have been subtracted. You’ll need to provide documentation of your monthly expenses and income along with a Loan Rehabilitation Income and Expense information form.

Depending on your income, your monthly payment under a loan rehabilitation agreement could be as low as $5.

Your loan holder may be collecting payments on your defaulted loan through wage garnishment or Treasury offset (taking all or part of your tax refunds or other government payments). These involuntary payments may continue even after you begin making payments under a loan rehabilitation agreement, but they can’t be counted toward the required nine voluntary loan rehabilitation payments. Involuntary payments may continue to be taken until your loan is no longer in default or until you have made some of your rehabilitation payments.

Once you have made the required nine payments, your loans will no longer be in default.

Federal Perkins Loan Program

To rehabilitate a defaulted Federal Perkins Loan, you must make a full monthly payment each month, within 20 days of the due date, for nine consecutive months. Your required monthly payment amount is determined by your loan holder. Find out where to go for information about your Perkins Loan or call 1-866-313-3797.

Benefits of Loan Rehabilitation

When your loan is rehabilitated, the default status will be removed from your loan, and collection of payments through wage garnishment or Treasury offset will stop. You’ll regain eligibility for benefits that were available on the loan before you defaulted, such as deferment, forbearance, a choice of repayment plans, and loan forgiveness, and you’ll be eligible to receive federal student aid. Also, the record of default on the rehabilitated loan will be removed from your credit history. However, your credit history will still show late payments that were reported by your loan holder before the loan went into default. If you rehabilitate a defaulted loan and then default on that loan again, you can’t rehabilitate it a second time. Rehabilitation is a one-time opportunity.

Loan Consolidation

Another choice for escaping default is to merge your defaulted government understudy credit into a Direct Consolidation Loan. Loan Consolidation allows you to satisfy at least one federal student loan with a new consolidation loan.

To combine a defaulted federal student loan into another Direct Consolidation Loan, you should either:

  • consent to reimburse the new Direct Consolidation Loan under a income- driven reimbursement plan, or
  • make three successive, voluntary, on-time, full regularly scheduled installments on the defaulted loan before you consolidate it.

*Note: If you make three installments on the defaulted credit before you consolidate it, the required installment amount will be dictated by your loan holder ,but can't be more than what is sensible and reasonable in light of your total financial circumstances.

There are unique considerations if you need to reconsolidate a existing Direct Consolidation Loan or Federal (FFEL) Consolidation Loan that is in default:

  • To reconsolidate a defaulted Direct Consolidation Loan, you should incorporate no less than one other eligible loan in the consolidation in addition to meeting one of the two prerequisites depicted previously. If you have no other qualified advances that can be incorporated into the consolidation, you can't escape default by consolidating a defaulted Direct Consolidation Loan. Your choices are reimbursement in full or loan rehabilitation.
  • You may reconsolidate a defaulted FFEL Consolidation Loan without incorporating any extra loans in the consolidation, if you consent to reimburse the new Direct Consolidation Loan under a income-driven repayment plan. If you include one other qualified loan in the consolidation, you're qualified to reconsolidate a defaulted FFEL Consolidation Loan in the event that you meet both of the two necessities described above.

If you need to merge a defaulted loan that is being gathered through garnishment of your wages, or that is being gathered as per a court arrange after a judgment was obtained against you, you can't consolidate the loan unless the wage garnishment order has been lifted or the judgment has been vacated.

If you repay the new Direct Consolidation Loan under a income-driven arrangement, you should choose one of the income-driven repayment plans at the time you apply for the consolidation loan and give documentation of your wages.

*Note: If you need to consolidate a defaulted PLUS loan that you acquired as a parent to pay for your child's education, the only income-driven plan you can pick is the Income-Contingent Repayment Plan (ICR Plan).

If you chose to make three consecutive, voluntary, on-time, full regularly scheduled installments on your defaulted loan before you consolidate it, you may reimburse the new Direct Consolidation Loan under any reimbursement plan you are qualified for.

After your defaulted loan has been consolidated, your Direct Consolidation Loan will be qualified for benefits such as deferment, forbearance, and loan forgiveness. You'll likewise be qualified to get extra financial aid, however not at all like loan rehabilitation, consolidation of a defaulted loan does not remove the record of the default from your credit history.

Information about consolidation and how to apply for a Direct Consolidation Loan.

Repayment in Full

A third alternative for escaping default is to reimburse everything of your defaulted student loan.

If you require your loan holder’s contact data to make an installment, sign in to "My Federal Student Aid."

Getting Help With Your Default Loan

If you need help with you defaulted loan, you’ll need to contact the holder of your defaulted loan. Find out who hold your loan by logging in to “My Federal Student Aid.”

*Note: "My Federal Student Aid" wo exclude data about any private understudy credits you may have gotten. Contact the advance holder of your private student loans for loan information.

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