Defaulting on your student loans could be a barrier to returning to school, but not one that’s impossible to clear. To access financial aid again, you’ll first need to get out of default.
Federal direct student loans go into default if you let 270 days pass without making a payment — and federal Perkins loans can go into default as soon as a payment is missed. Being in default disqualifies you from receiving federal financial aid, including Pell Grants and federal student loans, which may make returning to school affordable.
How to get out of student loan default
To get your federal student loan out of default, you have four main options:
1. Repay your loans in full: This option is the least likely since most people don't have large sums of money to pay off loans all at once.
2. Rehabilitate your loans: Through student loan rehabilitation, you can return your loans to good standing and remove the default from your credit report (though a late payment history may still show up on your report). For federal Direct or FFEL loans, you must agree to make nine monthly payments over 10 months in an amount that equals 15% of your annual discretionary income, or a smaller amount based on your overall finances. Holders of Perkins loans need to make nine consecutive payments to rehabilitate their loans.
You can rehabilitate your loans only once, so consider enrolling in an income-driven repayment plan after your rehabilitation period ends to make payments more manageable. Income-driven repayment ties payments to a portion of your income and extends the repayment period. At the end of that period, the remainder of your loan may be forgiven. After July 1 of 2027, you’ll be allowed to rehabilitate each student loan you hold twice.
3. Consolidate your loans: Consolidate your loans into one new loan and make three full, on-time consecutive payments or agree to make payments on an income-driven plan to get your loans out of default. Consolidation is a quicker option than loan rehabilitation, but has one downside: The default will remain on your credit report for up to seven years.
4. Settle your student loans in default: If you can get a student loan settlement, your lender could waive some or all of your debt, but it’s an option to consider only after you’ve exhausted consolidation or rehabilitation. You’ll have to prove that you can’t afford to repay the loan (and provide documentation).
Once your loans are no longer in default, you'll be eligible to receive financial aid again. Moving forward, submit a new Free Application for Federal Student Aid, or FAFSA, in order to access federal aid, including loans.
What if I want to go back to school with a defaulted private loan?
Defaulting on a private student loan won’t disqualify you from receiving federal student aid. But taking on more debt with a loan in active default can put your financial future at risk.
Private lenders are also unlikely to approve you for a new student loan or refinanced student loan if you have a loan in default.
Not all private lenders offer options to get out of default. To get a private loan out of default, your options beyond making a full payment are going to be expensive:
Pursue student loan settlement: Settling your debt is the last resort for federal student loans, but for private loans, it’s neck and neck with pursuing bankruptcy. You’ll have to pay to hire an attorney or a debt settlement company to settle the loans for you, and it would be up to your lender to accept. You’ll need a strong legal defense to prove why you can't make payments on the loan now or in the future.
Attempt student loan bankruptcy: Discharging your student loan debt in bankruptcy can be challenging for federal student loans due to a requirement to prove the debt causes an undue hardship. Since federal student loans have safety nets in place, like income-driven repayment plans, it's difficult to make a case for undue hardship. But it's possible to discharge your private student loans. You’ll probably still need to prove undue hardship, and you’ll likely need to pay a lawyer to represent you.
