4 Tips to Get Out of Default Status on Your Student Loans

When your student loan account falls into default status after 270 days (9 months) of missed payments, it’s easy to feel overwhelmed by the whole process. You may be getting constant calls from debt collectors, struggling to get by on bad credit, and facing a range of related legal issues. If you have defaulted on your student loan, don’t assume that it’s the end. You still have the potential to get out of default by pursuing one of the following options.

1) Cancellation

It’s possible to have your student loan discharged, or cancelled, to get you out of default. It’s very difficult to do, but if you qualify, you’ll no longer be responsible for paying your loan. Loan cancellation is only possible in very specific situations, like:

  • If the school you attended closed down
  • You didn’t get a refund that you were supposed to receive
  • Your school made false claims about the benefits of your education, and you don’t have a GED or high school diploma
  • You started in a certain occupation, like teaching or a public service job, after graduation
  • You become disabled or die

2) Consolidation

You may be able to consolidate your student loan and immediately get it out of default status. Consolidation involves combining one or more of your federal student loans into a single loan. That means you’ll only have one loan, with one monthly payment, with a repayment that has been reworked to match your income. As long as you keep making payments, you can stay out of default.

3) Negotiation

When you’re in default, you have a statutory right to set up a “reasonable and affordable” payment plan to pay back the student loan amount you owe. The plan will be based on your financial circumstances. Take care when negotiating with debt collectors and only agree to pay what you can feasibly afford. The payment plan option doesn’t get you out of default automatically, however. You’ll need to make a minimum of nine loan payments, all paid in a timely manner (within 20 days of the due date) within ten consecutive months, before your account goes out of default.

4) Rehabilitation

The option of loan rehabilitation will give you one chance to wipe the default from your credit reports and potentially improve your credit score, although the missed payments will still show up. Before you make a loan rehabilitation agreement with the Department of Education, you’ll need to have made the minimum number of payments to qualify. Rehabilitation will involve a repayment plan. The standard plan lasts ten years, but you can request alternatives. You only get one chance for loan rehabilitation, so make sure you can handle the payments before you accept the offer.

Whether you need help negotiating with debt collectors or deciding on the best path to suit your needs, strong legal counsel can make all the difference. The law office of B. David Sisson can help you navigate the complex territory of student loan defaults. Contact us to speak with a knowledgeable attorney who will take the time to guide you towards the best plan of action.

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