What Happens When You Default on Student Loans

Nicolas Cesare  | 

If you’ve defaulted on your student loans, then you’re already in a world of hurt. Student loan default happens when you’re delinquent on your loan payments for an extended period of time — usually about 270 days. When you start missing payments, your credit is already in bad shape, but when default happens, it gets even worse.

Why It’s Important to Get Out of Student Loan Default

Although the delinquent payments count against your credit score by themselves, defaulting on your student loans is even worse. Having a default on your credit report will tank your credit score, making it nearly impossible to get a credit card, get a personal loan for a new car, or buy your first home. Having an abysmal credit score will also make you a target for predatory lending schemes like payday loans or car title loans.

The fact of the matter is that having your credit score destroyed by defaulting on your student loans will probably send you to the lowest point of your financial life. It may be tempting to assume that the game is over for you at this point, that you’ll have to survive paycheck-to-paycheck or become a hermit and live outside of society. However, you shouldn’t give up just yet.

Although the default on your credit report is crushing your credit score, it’s still possible to fix your credit at this point. Some methods for getting out of default will actually remove the default from your credit report completely. You’ll still have to clean up your credit a bit after those delinquent payments, but that sort of credit repair is feasible. Now the only question is: how do I get out of student loan default?

How to Get Out of Student Loan Default

At the end of the day, student loan providers just want to get their money back. If you’re in default on your student loans, then you’re hurting the providers as well. For this reason, loan providers have steps laid out to help anyone whose student loans are in default resume a normal financial life. Here are some options to help you get your student loans out of default.

Student Loan Rehabilitation

Student loan rehabilitation (or student loan rehab) is likely the most accessible way of getting out of default. If you go into student loan rehab, you’ll have to communicate with your loan provider to find a reasonable monthly payment that you’ll be able to make. Once you make these payments nine times in a row without going more than 20 days past your due date, you’ll be out of default and your student loan default will be removed from your credit history.

Consolidate Your Student Loans

If rehab isn’t for you, there are other options. One of them is to consolidate the defaulted student loan with any other student loans that you may have. Consolidation is generally a good idea if some of your student loans are at a very high interest rate compared to the others. However, in order to consolidate a defaulted loan you will either have to agree to an income-driven repayment plan or make three full on-time payments in a row. In addition, consolidating a defaulted loan does not cause that default to be removed from your credit report. You won’t be in default anymore, but your credit history will still reflect that fact that you did default on a loan.

Pay Your Student Loan Debt in Full

The moment your student loan goes into default, you will be expected to pay the full amount of the defaulted loan immediately. However, this isn’t done because loan providers actually expect you to go ahead and make that complete payment. Instead, it’s done to establish that you are legally responsible for the full amount without any delay in payment.

Typically this paves the way towards recoupment strategies like wage garnishment (where the loan provider will take some income off the top of each paycheck you collect). However, it’s not impossible to turn this around on the insurance provider and just go ahead in pay the debt in full. This might be possible if you’ve hit an unexpected windfall or you’re able to get a loan from family or friends.

Ultimately, though, if you do have access to the kind of resources that will enable you to pay off the debt in full, then you should probably elect to take more fiscally responsible options like student loan rehab while saving the rest of the money.

Staying Out of Student Loan Default

Once your student loans are out of default, you should make sure that you never get back to that point. Work towards cultivating a healthy money mindset and start to practice good financial habits. Make sure that you budget responsibly so that you have enough money leftover at the end of each month to make your required loan payments.

If you find that you’re unable to meet your payments as they are now, then you can talk to your loan provider about getting a payment schedule that works better for you. Schedules like the pay-as-you-go plan or income-based repayment plan are designed to help people without much income find ways of paying off their student debt.

Student loan default doesn’t have to the end of your financial life. By getting out of default you can get back to a reasonable repayment schedule for your student loans and find a way back to financial stability.

Looking for more information on credit scores? Look no further than our credit score resource center. For more student financial resources, visit the student finance learning center.


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Nick Cesare is a writer from Boise, ID. In his free time he enjoys rock climbing and making avocado toast.

This post was updated January 10, 2018. It was originally published December 13, 2017.