5 Steps to Getting Your Student Loans Out of Default
by Analisha Santini
October 2, 2019 .4 min read
If you are reading this, it's probably because your student loans have defaulted, or are at risk of defaulting. Well, you are not alone. It’s estimated that 40% of graduates will have defaulted student loans by 2023.
When your student loans go into default, it’s no joke. I should know, I was one of the 10% of Americans who’s student loans defaulted after graduating. But, after some hard work, I was able to get my loans back in good standing, and so can you.
What Does "Defaulting" Mean?
Your student loans will go into default when you fail to make timely payments on your student loans. Traditionally, 270 days or 9 months of failing to make payments every month. Not being able to make your monthly payments can happen for many reasons. I know for me, it was due to my financial situation and lack of education on the default process. And while no one wants to pay their student loans, going rogue is not an option… unfortunately.
What Happens When Your Student Loans Have Defaulted?
Nothing good comes from defaulted student loans. Once your loans have defaulted the Department of Education transfers them to Satan a debt collector. The entire balance will be due in full and will compile extremely high interest the longer it goes unpaid. Your debt collection agency will also add fees on top of the interest they are charging you, increasing your balance. The option to make payments on your loans is also no longer on the table, as the full balance will be due once transferred. And getting loans out of your personal hell default is not easy.
Here's what will happen as a result of your defaulted student loans:
• Your balance will increase from high interest and fees.
• You can kiss your healthy credit score goodbye and you will get denied for credit cards and other loans.
• You will become ineligible for federal financial aid such as deferment, forbearance, student loans, and repayment options.
• The government could garnish your tax return and paychecks.
Yea, it’s pretty bad. But, here's how to get your loans out of default!
5 Steps to Getting Your Student Loans Out of Default
1. Login to StudentAid.gov and check your status. Once you login you will be able to see if your loans are in default or not. If your loans are in default, you should have received a letter or an email from the Department of Education clearly stating this. If your student loans are not in default then you still have time to make payments before they do. In this case, call the Department of Education immediately and communicate your situation. They can work with you to set-up a do-able repayment option.
2. Contact your debt collector. To reach the collection agency servicing your loans, call the Department of Education and they will transfer you. But more than likely, your collection agency has already contacted you numerous times via phone or direct mail. Regardless, contact them immediately.
3. See what your options are. Once you call your collection agency, be honest about your situation. Most of the representatives are actually really helpful and understanding. They will give you a few options of how you can start paying back your student loans. You can either pay the loans in full (which is probably out of the question), starting a rehabilitation plan or consolidate your loans. Talk to your representative about what plans would be the best fit for you.
4. Set-up a rehabilitation plan. Most debt collectors will offer a rehabilitation program, which may be your best option. A rehabilitation program normally consists of a 10-month period of consecutive payments. Now a rehabilitation program is a one-time opportunity, so you have to be on time with your payments. You should have the option to base your monthly payments on your current income. This should allow you to make realistic payments each month. Once you have completed the program your student loans will come out of default. This will restore your credit and eligibility for federal financial aid privileges. Some agencies will even wave their fees and interest after completion!
5. Make regular payments. Once you have set-up a plan, it’s imperative that you make your payments on-time. If you don’t, you could lose the opportunity to rehabilitate your loans and resulting in severe action, like tax return or income garnishment. If you worry about making your payments, then communicate that with your provider. Also, consider picking up a side hustle like driving for Lyft, babysitting or dog walking to help you bring in some extra money.
What will happen after your loans are out of default?
Once your loans come out of default your collection agency will transfer them to a new debt collector (what a joy). You should receive a letter or email once this transfer has become complete. Then call them immediately to set-up your new payment plan.
The most important thing to remember when it comes to your student loans, defaulted or not, is to always be honest about if you need help. There are options like income-based payment plans, rehabilitation, and consolidation that will help you to make regular payments and get your loans out of default.
Having defaulted loans can feel scary and humiliating, but you are not alone. If you feel overwhelmed breathe and take one step at a time. If you ask for help and make regular payments you will be able to get your loans back in good standing before you know it.
Analisha Sanitni is a copywriter, bargain fashionista, and student-debt owing millennial. After overcoming many of her own financial obstacles, she hopes to share some helpful tips to avoid money-sucking pitfalls.