If you’ve gone into default on your loan before, you know it’s not a fun experience.
This section covers important information to help you understand that defaulting doesn’t have to be the end of the world.
If any of these situations apply, you should know a few things about the default process, your rights, and how to rehabilitate your loan if it goes into default. Whether you are in default or at risk of defaulting on your student loan, you have options. You should know what they are, so you can get yourself back on track—and stay there.
If you haven’t made a payment on your student loan in nearly a year, you may be in default. A typical student loan falls into collection if a payment isn’t received for over 270 days.
The goal is to keep your loan out of collections and on the road to repayment. We’ll examine repayment options in later sections; however, if your loan is already in default or at risk, understanding the process of resolving this problem should take priority.
First, when you default on your student loan, your loan may be placed into collections, just like any other form of debt.
What exactly does that mean? A few things. Most notably, the collection agency will begin trying contact you to collect the debt. As a result, you should understand your rights to avoid being taken advantage of. When your student loan is in collections, a debt collector cannot:
In addition, the debt collector is required to:
You’ll likely never have to worry about debt collectors violating your rights, but if you believe that the company attempting to collect your student loan debt has committed any acts that constitute illegal collection practices, consider contacting a lawyer that specializes in student loan debt. A legal expert will help determine whether the company violated your rights and help you take the necessary legal action.
Regardless, if your loan has fallen into default and is with a collection agency, focus on taking care of the debt, not just managing it—remember that a student loan in collections can lead to wage garnishments and tax refund deductions if you ignore it long enough.
Fortunately, there are several options for rehabilitating your student loan and getting it out of collections.
If you know you’ve defaulted, contact your loan servicer as soon as you can. Depending on your loan servicer and loan type, they can either help you directly or provide you with the contact information of the collection agency where the loan has been assigned.
Tip: For those with federal student loans, use MyEdDebt.ed.gov (managed by the Department of Education) to locate your loan servicer.
Once you’ve found and contacted your loan servicer, they will typically provide you with a few options:
Student loan rehabilitation: Rehabilitation involves negotiating a new payment plan with the Department of Education. Rehabilitation isn’t available for every type of student loan, but if this option is available, you should probably take advantage of it. Student loan consolidation: If you have more than one student loan, consolidation allows you to combine all your loans into one lower monthly payment. Pay in full: We know—who on Earth can immediately pay their loan in full after defaulting? As unreasonable as it sounds, full repayment is still an option, and you can be sure your loan servicer will offer it.
Keep in mind that these options are typically only available with federal student loans. If your student loan is from a private or alternative lender, please read on.
Alternative lenders have fewer regulations restricting their ability to offer you repayment options; however, the absence of federal funding also means there are fewer official options in place to help you rehabilitate your debt.
If you have a private student loan in default, contact the lender to discuss options for negotiating either a lower monthly payment or a settlement on the entire debt.
If you’re confident in your negotiation skills, you can do this yourself and avoid the expense of paying for assistance. On the other hand, if you’d prefer expert assistance, you can hire a student loan attorney to negotiate on your behalf.
Be careful about making emotional decisions when your debt is in default. t’s easy to get tricked into something you wouldn’t typically agree to when you just want to get out of default. Always remember that there are several options for rehabilitating your loan.
More importantly, remember that in the current environment there has been an increase in efforts by sketchy student loan law firms who claim they can negotiate your debt down—and then just take your money and run.
The single biggest red flag to watch for:
Fraudulent loan servicers who ask you to cease paying the lender and instead start paying their firm directly. These firms are pretending to act as legitimate loan consolidators—don’t be fooled.
What if you’re not yet in default, but you’re worried you may default soon and want to know what you can do?
If you’re having a hard time paying your monthly loan payment, contact your loan servicer to talk about options. Ultimately, they don’t want the loan to go to collections. Defaulted loans involve risk and potential loss, so they will be more interested in helping you find a way to get back on track. Often, by taking the initiative to contact your loan servicer before going into default, you will be in a better position to take advantage of a loan rehabilitation equivalent or consolidation and avoid the loan dropping into collections and affecting your credit.
If you default on your student loan, it will be placed into collections after 270 days without payment.
If you default on your loan, you still have options both before and after defaulting, such as loan rehabilitation and consolidation.
If you have a private student loan, contact your lender to negotiate a new lower monthly payment.