Getting Out of Default

Getting out of default on federal student loans is hard, but not impossible. There are fewer, but still some, ways to set up a new repayment plan after you have defaulted on your loan. If you are able to get out of default through rehabilitating or consolidating your loans, you will once again be eligible for the more flexible pre-default repayment options as well as deferments.

The Damage:

• the default status on your defaulted loan,
• the default status reported to the national credit bureaus,
• wage garnishment, and 
• any withholding of your income tax refund made by the Internal Revenue Service (IRS).

The two main post-default repayment programs for government loan borrowers are consolidation and rehabilitation. Before considering these options, you should evaluate whether you are eligible to cancel your loan. You may also want to think about whether you have enough money to settle your student loan debt.

As you think about rehabilitation and consolidation, try to be realistic about whether you can afford to make even very small payments each month. You want to avoid rehabilitating or consolidating your defaulted loans and then defaulting again because you are unable to meet your new obligations.

Be advised that you are entitled to getting out of default through rehabilitation only once per loan. There are also limits on how many times you can consolidate. This information sheet summarizes the pros and cons of rehabilitation and consolidation.

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