Janice Lozano
Defaulting on a federal student loan can be stressful, but there are ways to get your loans out of default and back into good standing. The U.S. Department of Education offers options for borrowers to recover from federal student loan defaults, including repayment plans, loan consolidation, and loan rehabilitation. Each of these options can help prevent or halt the consequences of default if you act quickly. In this discussion, we will explore the steps you can take to address defaulted federal student loans, your rights in dealing with debt collectors, and the resources available to help you navigate the process effectively.
How to pay off defaulted federal student loans
| Characteristics | Values |
|---|---|
| Default status | Failure to repay a loan according to the terms agreed to in the promissory note |
| Default timeline | If there is no payment for more than 270 days (9 months) |
| Defaulted loan status | The loan holder will attempt to collect on the loan |
| Federal student loan status | The U.S. Department of Education's Fresh Start Program helps student loan borrowers get their loans out of default |
| Federal student loan repayment | The U.S. Department of Education offers repayment, consolidation, and rehabilitation |
| Federal student loan repayment options | Income-driven repayment plans, loan rehabilitation, and consolidation |
| Federal student loan repayment assistance | The Consumer Financial Protection Bureau provides sample letters to use when responding to bill collectors |
| Federal student loan repayment status | The U.S. Department of Education resumed collections of defaulted federal student loans on May 5, 2025 |
| Federal student loan repayment assistance | The Default Resolution Group can provide assistance with monthly payments and enrolling in income-driven repayment plans |
| Federal student loan repayment consequences | Wage garnishment is paused for most federal student loans |
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What You'll Learn
Loan rehabilitation
To start the loan rehabilitation process, borrowers must contact their loan holder or servicer, such as the Default Resolution Group, to agree on a payment amount. Rehabilitation payments should be reasonable and affordable, typically calculated as 15% of an individual's discretionary income. However, if this amount is not manageable, borrowers can request an alternative payment plan based on their overall financial situation, with payments as low as $5 per month.
After agreeing on the payment amount, borrowers must sign a written rehabilitation agreement. This agreement outlines the terms of the loan rehabilitation, including the requirement to make nine on-time payments within 20 days of the due date over a 10-month period. These payments are typically based on the borrower's income, although Perkins Loans require full standard payments. It is important to note that borrowers should not start making payments until the official process begins, as prior payments may not count toward rehabilitation.
Once borrowers complete the nine payments as outlined in the rehabilitation agreement, their loan will be removed from default. All collection activities will stop, including wage garnishment and tax refund offset, and borrowers will be placed back into the repayment plan. Additionally, the loan may be transferred to a new loan servicer, and borrowers will regain access to federal student aid and repayment options, such as deferment, forbearance, and income-driven repayment plans.
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Consolidation
Consolidating defaulted student loans can stop the default from negatively impacting your credit score. Federal student loans are considered defaulted if you haven't made a payment in 270 days. If you’re one of the borrowers who have defaulted on their federal student loans, the Direct Consolidation Loan program can help you get back on track.
To qualify for the Direct Consolidation Loan program, you must make three consecutive, voluntary, on-time, and full monthly payments on the defaulted loan before you consolidate it, or sign up for an income-driven repayment plan. Once approved, your defaulted federal student loans are rolled into one. A major benefit of consolidating is that you get a low, affordable monthly loan payment. Additionally, all collections will stop, and you will be able to access affordable loan repayment options through the income-driven repayment (IDR) program.
However, there are downsides to consolidating your loans. For instance, while consolidating your federal loans gets you out of default, you’re still responsible for collection fees. If you choose the income-driven repayment plan option, you may have to pay $150 or up to 18.5% of the principal and interest that’s still outstanding. Outstanding interest and fees will be capitalized and added to your student loan balance, and certain loan benefits may no longer be available.
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Repayment plans
The US Department of Education's Office of Federal Student Aid (FSA) offers an Income-Driven Repayment (IDR) plan, which simplifies the time it takes for borrowers to enroll in IDR plans and eliminates the need for borrowers to recertify their income every year. The FSA also offers an enhanced IDR process, which is expected to be launched soon.
Borrowers can also enroll in an income-based repayment plan, such as Income-Based Repayment, Income-Contingent Repayment, or PAYE. These plans are based on the borrower's income and can help make the loan more affordable.
Additionally, defaulted federal student loans can be rehabilitated, which means getting them back into good standing. This can only be done once, and it involves making payment arrangements with the loan holder.
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Debt collectors' rights and your rights
Debt collectors are required to follow the Fair Debt Collection Practices Act (FDCPA) when contacting you about your federal student loans. The FDCPA makes it illegal for debt collectors to use abusive, unfair, or deceptive practices when collecting debts. Under the FDCPA, you have the right to request that a debt collector stop contacting you. To do this, you must send a written request, such as a letter, asking them to stop. Keep in mind that this may not prevent the loan holder from transferring your account to another collection agency or taking legal action.
Additionally, debt collectors must provide you with \"validation information\" about your debt. This includes details such as the original creditor and the amount owed. If you believe that a debt collector has violated your rights or engaged in illegal practices, you can report them to the Consumer Financial Protection Bureau. You also have the option to sue a collector in a state or federal court.
It's important to understand your rights and options when dealing with defaulted federal student loans. You can get your federal student loans out of default through loan rehabilitation, consolidation, or repayment. Loan rehabilitation involves working with the loan holder to agree on affordable payments and getting your loans back into good standing. Consolidation allows you to combine multiple federal student loans into one new loan with a fixed interest rate. Repayment involves making arrangements with the loan holder to repay the debt in full.
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Getting loans out of default
If you have defaulted on your federal student loan, your loan holder will attempt to collect the loan from you. If you have not made a payment in more than 270 days, you are likely in default. To get your loan out of default, you can:
Repayment
You can arrange repayment options to get out of default. You can enrol in an income-driven repayment plan to lower your payments. 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.
Consolidation
You can consolidate your loans, which can help you get out of default and prevent further consequences.
Rehabilitation
You can rehabilitate defaulted student loans to get them back to good standing. This can be done through the Default Resolution Group.
It is important to act fast to prevent further consequences of default. You can also seek advice from a credit counselling agency or an attorney, although this may require a fee.
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Frequently asked questions
Default is the failure to repay a loan according to the agreed-upon terms. For most federal student loans, you are considered to have defaulted if you have not made a payment in more than 270 days (9 months).
Federal student loan holders can place defaulted loans with a collection agency if you do not make payment arrangements with them. You may also not receive additional federal student aid until you take steps to bring your loan out of default.
The U.S. Department of Education offers three ways to recover from federal student loan default: repayment, consolidation, and rehabilitation. Additionally, the department's Fresh Start Program is a one-time initiative to help borrowers get their loans out of default.
Debt collectors are required to follow the Fair Debt Collection Practices Act (FDCPA) when contacting you. If collectors are harassing you, you can submit a complaint to the Consumer Financial Protection Bureau (CFPB). The CFPB also provides sample letters that you can use when responding to bill collectors.
