3 Ways to Deal with Student Loans in Default

tim gouw 1K9T5YiZ2WU unsplash 1If you want to gauge the impact of the student loan crisis, there are several figures you can look at. You could consider the 69 percent of 2019 college graduates who have one or more student loans, the 43 million Americans over the age of 18 who are burdened with this type of debt, or the $1.5 trillion currently owed to the government. Individually, borrowers often have trouble paying back student loans the way their repayment plans are currently structured, resulting in many defaulted loans. If you are in this situation, you are likely wondering how to get out of this hole. Fortunately, there are options, which this blog will explore.

  1. Loan rehabilitation. One popular option you might consider for getting your student loans out of default is by rehabilitating them with your loan servicer. With this method, you will submit payments that are based on your income level; you must first submit information about your income to your servicer. Your servicer will determine your discretionary income and calculate “acceptable and reasonable” payments—generally, 15 percent of that discretionary income.

The process isn’t done, though. Over the course of the next 10 months, you must make a series of nine monthly payments submitted within 20 days of the due date. If you successfully rehabilitate your student loans, then the record of default will be removed from your credit report. Rehabilitation is the most attractive option for many student loan borrowers, but it can only be used once.

  1. Loan consolidation. As with loan rehabilitation, you are only allowed to consolidate your student loans once. If you choose to go this route, you will take advantage of what’s called a “Direct Consolidation Loan.” This combines multiple loans into one repayment plan.

Loan consolidation is completed in a shorter amount of time than rehabilitation and is also usually the cheaper option. To consolidate your student loans, you must either make three consecutive on-time payments for your defaulted loan or submit an application for an income-based repayment plan. With loan consolidation, you are able to choose your servicer. However, one drawback of this method is that the notice of default will continue to show up on your credit report for seven years.

  1. Pay off your balance in full. A third option for getting your student loans out of default is by simply paying off the amount due in full. The Department of Education accepts payment in the form of money orders, checks, credit cards, or debit cards. For the vast majority of borrowers, though, this is not a viable option, making rehabilitation and consolidation the method of choice for most student loan debtors.


If you fail to rectify your delinquent student loans, they will eventually go into default. This can devastate your credit score and have numerous other consequences. Being financially distressed is not an enviable position to be in, which is why Ciment Law Firm works to help you get back on your feet and realize a brighter financial future. Call us at (833) 779-9993 to get relief from your debt today.


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