How to Repair Your Credit After Defaulting On Your Student Loans

Nicolas Cesare  | 

If you’ve defaulted on your student loans, then getting out of default and fixing your credit has got to be one of your first priorities. Student loan default severely damages your credit, making it difficult to obtain personal loans, credit card deals, and even a mortgage when you decide to buy a home. Read on to learn how to repair your credit after student loan default.

When You Shouldn’t Do Student Loan Rehabilitation

In the past we’ve talked a lot about student loan rehab. If you’re still getting into the basics of student loan default, rehab is a process wherein you stick to reasonable monthly payments and, over the course of nine months, your loans will be taken out of default. Student loan rehab is a great process for getting out of default and, if you haven’t looked into yet, you definitely should.

However, student loan rehab isn’t for everyone. There are times when you shouldn’t do student loan rehab to get out of default. In particular, one of the cons of student loan rehab is that it can only be used once on a given loan. If you’ve already been through student loan rehab or you’re worried that you could default again in the future, it might be a good idea to check out your other recovery options.

Get Out of Default By Consolidating Your Student Loans

One option recovering from default is to consolidate your student loans. In many cases, you don’t have just one student loan. Instead, you have a few different loans in different amounts and terms that you’re working to pay off. However, when you consolidate your student loans, you pack them all together into a single loan with a single interest rate and set of repayment terms.

Student loan consolidation is often used to bring loans with high interest rates together under one lower-interest umbrella. However, it can also be used to get some of your loans out of default.

In order to use student loan consolidation to get out of default, you’ll need a few things.

  • Most importantly, you’ll need other non-defaulted student loans that you can consolidate your defaulted loan with.
  • You will need to either apply for an income-based repayment schedule on your new consolidated loan OR make three consecutive monthly payments on the defaulted loan before you can consolidate it.

If you can’t meet either of the requirements, then you should look into other solutions for recovering from student loan default.

Payment in Full

When your student loan enters default, the entire balance becomes due immediately. So naturally one way to get it out of default is to simply pay the balance as one lump sum. However, as you can probably imagine, most people who end up in default do so because they didn’t have that kind of cash lying around.

This doesn’t mean that getting out of default buy paying your loans off is impossible. If you collect your inheritance suddenly, win the lottery, or get a loan from friends or family, you may find that you have the funds to pay off your defaulted student loan in full.

Repairing Your Credit After Defaulting On Your Student Loans

When you complete student loan rehab, any record of your default is completely wiped from your credit history. Although you will still have to answer for the late payments that led to default in the first place, your credit will be in a much better place without that default appearing on your credit report.

However, if you get out of student loan default with an alternative method, that default will remain on your credit history. This mean that you’ll have to get to work fixing your credit in order to totally stabilize your financial life. Here are some practices that you can get into to start fixing your credit after student loan default.

  • Use your credit card regularly. By using your credit card to make modest purchases and then paying off your balance each month, you show credit companies that you can handle debt responsibly. Try putting something like your Netflix bill on your credit each month and then paying it off when the bill comes due.
  • Start budgeting. Creating a personal budget for yourself is a great financial habit to get into. By budgeting responsibly, you ensure that you don’t end up in debt and hurt your credit score even more.
  • Call in the pros. Depending on how severe your credit situation is, it might be a good idea to get in touch with some credit repair professionals. A professional credit repair company can speed up the process, helping you get back on your feet with good credit much more quickly.

Student loan default is a big deal that can severely impact your credit history. However, it doesn’t have to mark your financial life forever. By getting out of default and repairing your credit, you can go on as if default never happened.

For more information on how to start rebuilding your credit, visit our credit score resource and learning center. For help with disputing inaccuracies about your student loan on your credit report, visit our dispute letter template resource 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 May 4, 2018. It was originally published December 20, 2017.