Lori Meadows
Defaulting on a student loan can have serious consequences, including wage garnishment, monetary penalties, and a negative impact on your credit score. If you're facing student loan default, it's important to understand your options for getting out of default without making the full payment. One option is to contact your loan servicer and discuss repayment options, such as an income-driven repayment plan or the Saving on a Valuable Education (SAVE) plan. Additionally, the Department of Education offers a Fresh Start Program to help borrowers get their loans out of default. You may also consider loan rehabilitation, which involves agreeing to a series of affordable monthly payments over 10 months to remove the default status from your credit history. If you're facing short-term cash flow issues, applying for deferment or forbearance can temporarily suspend your payments without defaulting.
| Characteristics | Values |
|---|---|
| Delinquency | Missing a single payment on your student loan |
| Default | Missing a determined number of days of payment (more than 90 days without payment per the Department of Education) |
| Wage garnishment | Up to 15% of disposable pay for federal loans |
| Loan rehabilitation | Signing an agreement to make nine monthly payments over 10 consecutive months, with payments based on income |
| Deferment | No interest accrual while not making payments |
| Forbearance | Suspending payments for a short time, but with accruing interest |
| Income-driven repayment plans | SAVE plan with benefits lowering payments, including an interest benefit that went into effect in summer 2023 |
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What You'll Learn
Apply for deferment or forbearance to suspend payments
If you're struggling to make payments on your student loans, you may be able to temporarily suspend or reduce your payments through deferment or forbearance. This can be a helpful option if you're facing financial hardship, unemployment, or other circumstances that make it difficult to keep up with your loan payments. Here's what you need to know about deferment and forbearance, and how to apply for them:
Deferment is a period during which you are allowed to postpone or reduce your student loan payments. During deferment, your loans may not accrue interest (or the interest may be subsidized by the government), which can save you money in the long run. To qualify for deferment, you must meet certain eligibility requirements, which typically include enrollment in college or career school at least half-time, graduate fellowship programs, disability rehabilitation, or active military service. Deferment for economic hardship is also available for those who qualify through specific income tests.
Forbearance is similar to deferment in that it allows you to temporarily stop or reduce your student loan payments. However, during forbearance, you are typically responsible for paying the interest that accrues on your loans, even if you don't have to make full payments. Forbearance may be granted for a variety of reasons, including financial difficulty, medical expenses, or other personal problems. There are two types of forbearance: discretionary and mandatory. Discretionary forbearance is granted at the lender's or servicer's discretion, while mandatory forbearance is granted if you meet certain eligibility requirements.
To apply for deferment or forbearance, you'll need to contact your loan servicer and discuss your options. They will provide you with the appropriate forms and instructions on how to apply. Be sure to provide any necessary documentation to support your request. It's important to note that deferment and forbearance are temporary solutions, and you will eventually need to resume making regular payments on your loans.
Keep in mind that while deferment and forbearance can provide temporary relief, they are not long-term solutions for student loan debt. If you're consistently struggling to make payments, consider exploring other options such as income-driven repayment plans or loan consolidation. These options can help make your payments more manageable over the long term, reducing the likelihood that you'll need to rely on deferment or forbearance in the future.
By understanding your options and taking proactive steps to manage your student loan debt, you can find a path forward that works for your financial situation. Remember that your loan servicer is a valuable resource and can provide personalized guidance based on your specific circumstances.
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Rehabilitation: agree to an affordable repayment plan
If you have missed more than 90 days of payment on your student loan, you are in default. The first step to getting out of student loan default is to understand the terms of your loan and who your loan servicer is. Once you know this, you can contact your loan servicer to discuss your options for getting out of default. One option for getting out of student loan default is rehabilitation.
Rehabilitation is a process where you agree to make a series of nine monthly payments over ten consecutive months. The payments are decided based on your income and are designed to be affordable for the borrower. If you make all nine payments on time, the default status will be removed from your credit history. This can be a benefit to your credit score, although your credit history will still show that you made late payments on your loans.
To start the rehabilitation process, contact your loan servicer and let them know that you are interested in this option. They will help you understand the terms and conditions of the rehabilitation program and work with you to set up a payment plan that is affordable for you. It is important to make all the agreed-upon payments on time to successfully complete the rehabilitation program and get your loan out of default.
During the rehabilitation process, your wages may be garnished by the government, but this will stop once you have finished the rehabilitation program and made all the required payments. Additionally, if you have a short-term cash flow issue during the rehabilitation period, you may be eligible for deferment or forbearance, which can suspend your payments for a short time. It is important to understand the terms and conditions of deferment or forbearance, as your loan may continue to accrue interest during this time, increasing your overall debt.
It is important to note that the rehabilitation option may not be available for all types of student loans, and the specific requirements and programs may change over time. Therefore, it is essential to review the current information provided by the Federal Student Loan website or consult with a financial advisor to understand your options and make an informed decision regarding your student loan default.
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Income-driven repayment plans
The US Department of Education's Office of Federal Student Aid (FSA) offers an Income-Driven Repayment (IDR) process to help borrowers get back into repayment and out of default. The IDR plan simplifies the process for borrowers to enroll and eliminates the need for annual income recertification.
The FSA is working with partners at the state level, institutions of higher education, financial aid administrators, college access and success organizations, third-party servicers, and other stakeholders to assist in this campaign to ensure fairness with the message that student and parent borrowers are responsible for repaying their student loans.
The Department of Education had paused collections on defaulted loans since March 2020, but resumed collections on May 5th. While the previous administration had not processed applications for income-driven repayment plans, the FSA now intends to assist borrowers in understanding how to return to repayment and get out of default.
Borrowers can find detailed information on how to get out of default at StudentAid.gov/end-default.
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The US Department of Education's Fresh Start Program
The following loans are eligible for the Fresh Start Program:
- Federal direct loans
- FFELP loans
- Government-held Perkins loans
Loans that are not eligible for the program include:
- Private student loans
- Commercially held Perkins Loans
- Health Education Assistance Loan (HEAL) Program loans
- Loans under the purview of the U.S. Department of Justice
- Direct or FFELP loans that defaulted after student loan payments resumed in October 2023
The deadline to enroll in the Fresh Start Program was September 30, 2024. Borrowers who did not enroll by this date may lose all benefits and can expect collections activities to resume. After enrolling in the program, borrowers must make payment arrangements with the Education Department's Default Resolution Group.
The Fresh Start Program offers access to income-driven repayment (IDR) plans, with many borrowers paying $0 a month or less than $50 a month. The program also provides access to student loan forgiveness programs, such as Public Service Loan Forgiveness, and short-term relief options like forbearance or deferment. Additionally, all collections activities and fees on federal student loans in default are suspended, including wage garnishment, seized tax refunds, and withheld Social Security payments.
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Contact your loan servicer
If you are facing issues with repaying your student loan, the first step is to contact your loan servicer. This is the entity that you have been making your payments to. If you are unsure who your loan servicer is, the Department of Education can help you figure out which servicer you work with. Once you know your loan servicer, get in touch with them to discuss your options. They may be able to offer you a deferment or forbearance, which can suspend your payments for a short time. If you are eligible for both, it is generally better to choose deferment, as your loan will continue to accrue interest during forbearance, resulting in a larger bill in the long run.
If you are facing short-term cash flow problems, your loan servicer might be able to help you explore alternative repayment plans. For example, the Saving on a Valuable Education (SAVE) plan is an income-driven repayment plan that offers unique benefits, including lower payments for many borrowers. This plan includes an interest benefit that went into effect in the summer of 2023, and additional benefits that will be implemented in July 2024.
If you have missed several payments and your loan is already in default, your loan servicer might still be able to help. The U.S. Department of Education's Fresh Start Program is a one-time initiative to help student loan borrowers get their loans out of default. Additionally, loan rehabilitation is an option where you agree to make a series of nine monthly payments over ten consecutive months. The payment amount will be based on your income and designed to be affordable. Successfully completing this process will remove the default status from your credit history, and your wages will no longer be garnished by the government.
Remember that taking prompt action is crucial when dealing with student loan repayment issues. Contact your loan servicer as soon as you anticipate or experience difficulties in making your payments. They are there to assist you in finding a solution that works for your financial situation.
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Frequently asked questions
Default is when you have missed a determined number of days of payment. For most federal student loans in the US, you default if you haven't made a payment in more than 270 days (9 months).
If you default on a federal student loan, your wages can be garnished by up to 15% of disposable pay. The government can also deduct money from your Social Security benefits, disability checks, or tax return to make payments toward your loan. You may not receive additional federal student aid until you bring your loan out of default.
If you are being contacted by a debt collector, you may be able to arrange repayment options to get out of default. You can also apply for deferment or forbearance with your loan provider to suspend payments for a short time. In forbearance, your loan will continue to accrue interest, whereas in deferment, it may not.
The Fresh Start Program is a one-time temporary initiative by the US Department of Education to help student loan borrowers get their loans out of default.
