Defaulting on a federal student loan typically occurs after 270 days (about nine months) without making a payment, and this timeframe is often shorter for private loans. If you have defaulted on a student loan, addressing the default and your options immediately is crucial to ensure that you can rebuild your credit and eventually get back on top of your finances.
One option after a default is debt rehabilitation, which requires at least nine consecutive payments equal to at least 15% of your disposable income. Another option, debt consolidation, may be available after making three consecutive payments, at which time your remaining debt may be transferred to a Direct Loan program via the Department of Education. If you have been in default for many years and lack the necessary resources to repay, you may have a good chance of negotiating a settlement with the collection agency, which may reduce what you owe but will not remove the default status.
You may be able to regain your eligibility for federal financial aid (though this will not affect your default status) by making repayment arrangements with your lender and making at least six timely payments in six consecutive months. You may also be able to remove the default from your credit report by “rehabilitating” your loan, which requires making arrangements with your lender and nine timely payments in ten consecutive months.
If you are struggling with a default or the possibility of defaulting, contact the Department of Education or your private lender to learn about your repayment/rehabilitation options.