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What if my loans are in default?

What does it mean to be in default

Federal Loans:

  • Default means that you have broken the terms of your student loan agreement.

  • What will happen during default is different depending on the kind of loan you have.

  • Most federal loans won't go into default until you haven't made a payment for several months.


Private Loans:

  • Default is different for private loans.

  • Default can happens much sooner than with federal loans.

  • You should read your private loan contract to learn what terms apply to your private loan and what your rights are.

  • Private student lenders are more likely to sue as the main way to collect. They may also use collection agencies.

What can I do to get out of default?

For federal student loans, there are a few things that can help you get your loans out of default. Once you are out of default, you will be eligible for repayment options that require loans in good standing.


Loan cancellation is only possible in some limited situations. It will probably effect your income taxes. If you are eligible for cancellation, you should talk with a tax professional before you make any decisions.

There are a few different kinds of discharge/cancellation:

  • School related discharge: This type of discharge is available when your school has done something wrong. This is called "school misconduct." To apply for this kind of discharge you need to complete an application form for school-related cancellation. These are the situations where you can apply:

  • Borrower defenses: Specific problems with the school, like fraud, or other violations of state law. Learn more about borrower defenses. You will need to submit this form to the Department of Education.

  • Public service discharge: Some kinds of work, including military service, allow your loans to be forgiven after a certain number of payments. Learn more about public service discharge.

  • Serious disability or death: This may allow your loans to be discharged, or not passed on to your family. You can read more about this in the "Disability Discharge: A Closer Look" section of this classroom.  You can also visit to learn more about this kind of loan discharge.


Consolidation means you can combine all of your loans into one new loan. Consolidation is an option up until the time that you get a garnishment order.

Note: If you consolidate your federal loans into a private loan, you will lose your rights under the federal loan programs. If you have a choice, you should probably avoid private loan consolidation.

More About Federal Consolidated Loans:

  • You must have at least one Direct loan or FFEL program loan to be eligible for a federal consolidation loan.

  • Once you get a consolidation loan you won't be listed as in default on your credit.

  • You also won't be at risk of having your taxes offset or your wages garnished.

  • Your credit report will still show that you were in default. This will be on your report for 7 years.

  • You can only use federal loan consolidation once.

  • A fee of up to 18.5% may be added to the total balance.

To consolidate a defaulted loan into a federal consolidation loan, you must either:

  • Make a repayment agreement with the current servicer, or

  • Agree to repay your new direct consolidation loan under an Income-Based Repayment Plan, Pay As You Earn Plan, or Income-Contingent Repayment Plan.


You can also get your loan out of default through rehabilitating. The terms of the rehabilitation depend on the type of federal loan you have. You must request rehabilitation from the holder of the loan. You can find their contact information here.

Payments Under Rehabilitation:

  • Your payments under the rehabilitation plan are 15% of your "discretionary income."

  • The loan holder will ask for your Adjusted Gross Income (AGI) to figure out what your "discretionary income" is.

  • You can request a lower monthly payment based on your income and expenses.

Benefits of Rehab:

  • Rehabilitation can help lift a garnishment order. A garnishment order will be lifted after you make five payments under the rehab plan.

  • To get out of default, you need to make nine payments in a row during a ten month period under the rehab plan.

  • If you are a qualifying military member, you are allowed an interruption of the consecutive period and may resume rehabilitation once service is completed.

Costs and Credit:

  • Fees of up to 16% may be added to the balance of the loan.

  • The notation indicating that you were in default will be lifted from your credit report after rehab.

  • You can use rehabilitation to get out of default only once per loan.

Defenses to Repayment

If your school misled you or engaged in misconduct, you may have a “borrower defense to repayment.” This means you could get forgiveness of some or all of your federal student loan debt. This could include refunding amounts you have paid. You will need to submit this form to the Department of Education.