Defaulting on student loans doesn’t mean your credit is ruined for life. While missed payments and a default will show up on your credit report and certainly do decrease your credit score, there are steps you can take to get the default removed.
Along the way, you’ll be repairing your credit.
If you're in default, though, you need to take steps to get back on track. Student loan default is not pretty - it can mean wage garnishments, student loan tax refund offsets, and more. Your student loan debt can even get you fired from your job.
In this article, we’ll cover five easy steps to help you get out of student loan default.
1. Decide on Loan Rehabilitation, Loan Consolidation, or Paying in Full
These are the three paths for getting out of student loan default. Deciding which one to use is the first step to getting out of default.
Those steps are:
- Paying off the student loan balance in full
- Student loan consolidation
- Student loan rehabilitation
The fastest way is to pay off your student loans in full. For many, this is usually not practical. The next two options are loan rehabilitation and loan consolidation.
Loan consolidation doesn’t remove the default from your credit report and there can be limitations on repayment plans. One advantage of loan consolidation is that it’s much quicker than loan rehabilitation. The chart below, from studentaid.ed.gov, summarizes these differences.
Given the disadvantages of loan consolidation, this article will focus on loan rehabilitation.
Be aware that student loan rehabilitation can only be used once. It’s important to make sure you are financially ready, which is what we’ll cover next.
2. Prepare Your Finances
You’ll need to make consistent, on-time student loan payments for a set period of time. It’s important that your finances be in order so you don’t miss any payments. Preparation is the key.
In preparing for your student loan payments, you may need to make a few changes in your lifestyle. For example, eating out less, not going to the movies as much, and maybe even moving in with your parents temporarily, all in an effort to allocate more money to student loan payments.
If you aren’t already using some type of financial software, now may be a good time. It will help you better create a plan for the next 10 months while you are making rehabilitation payments. You’ll also be able to track expenses and income more easily and compare them against your payment budget. Such detailed tracking will remove any guesswork and give you exact numbers to work with.
3. Contact Your Loan Servicing Company
Even though you have a government student loan, your payments will often go to a servicer who is managing the loan on behalf of the government. You’ll want to let your loan servicer or holder know that you’re wanting to enter into loan rehabilitation.
Your loan servicer will also determine your monthly payment amounts. Depending on your financial situation, you can work with your loan holder to try and get the payment amount decreased.
You student loan may also be with a debt collector if you've been in default a long time. Here's the student loan debt collectors and how to find your loans.
4. Make Nine Voluntary, Reasonable, Affordable Monthly Payments
You can find the necessary forms for loan rehabilitation here. After you’ve completed your application and have been notified that it’s been approved, you’ll begin making payments.
The required payment will be based on your financial situation. You must make 9 consecutive payments in 10 months and each payment must be within 20 days of the due date. Once you have completed the nine payments, the default will be removed.
Your wages are probably already being garnished in order to meet student loan payments. Garnishment will still occur even while you are making the nine required payments. This is why the second step is critical to the success of meeting all nine payments.
Your budget will have to take in your regular nine payments plus any wage garnishment payments.
5. Take Action After the Final Payment
Now that you’re in loan rehabilitation and making payments, ensure you never miss a payment by signing up for automatic payments. Auto payments will draft your payment from your bank account by the due date every month. No more forgetting to make a payment. Just be sure that your bank account always has enough in it to cover your monthly loan payment.
If you’d like to see how much you owe and confirm your payments are being processed, you can log in here.
On a final note, be vigilant and stay on top of your loan holder as your application is being processed. Simply meaning, confirm and verify everything you are able to. The Consumer Financial Protection Bureau (CFPB) found problems with intermediaries or loan holders in processing applications. Complaints from students included delayed applications and higher monthly payments than those that were negotiated.
“This matches what I have been seeing on the ground,” Adam Minsky, a lawyer specializing in student debt, told The Washington Post of the CFPB’s findings. “During rehabilitation, I see an array of issues and problems that could derail borrowers — irregularities in calculating a borrower’s monthly payment, failure to deduct payments properly . . . failures to lift wage garnishment orders.”
Final Thoughts
Getting out of default is the best thing you can do if you haven't been making your student loan payments. Student loan rehabilitation is a great way to make it happen, but the other options are good as well.
What's important is, after you're back on track, you make every effort to pay off your student loans faster and make positive progress. Make sure you never fall back into student loan default again.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.
Traci says
I was told by the collection agency that there was nothing I could do and my Che k would garnished. I requested a hearing to stop it based on financial hardship.Can I go to civil court and stop the wage garnishment? I live in NYC
Thanks Traci
Robert Farrington says
Not for Federal loans. The government doesn’t need to go to court to garnish your wages or tax refund. You need to start rehabilitating your loans or consolidate (follow the steps in the article), and get out of default.
robert young says
I have started the loan rehabilitation program and I am wondering if my taxes has to wait until I make 9 payments or if they remove from taxes now so I get my taxes back.
Robert Farrington says
You need to complete the entire process, or you still run the risk of your tax refund being garnished.
Rhonda says
Did u get your taxes cause I’m in the same situation and they told me I was in the clear to file but I’m only on my 5th payment
Malia says
I have been told the same thing, “after 5 payments my tax refund won’t be taken” I called Dept of Ed today and I was told after 9 payments my tax refund won’t be taken. I’m not getting a good feeling about this. And instead of my student loans going down, it has been increasing by almost $3000. I’ll never get out of debt
Smith says
If u call the irs to see if they are gonna take ur income tax check and it say you have one debt with a personal loan and your tax refund could be offset does it mean they are gonna take it??? Or they might take it???
Robert Farrington says
IF you have an offset listed they are likely going to take it.
Laura Lee says
My son is being told by his loan provider that he cannot rehabilitate his Unsubsidized William D. Ford Loan because his wages are being garnished. He has talked to DOE which told him to talk to the loan provider and when he talks to the loan provider they say he can’t do it. This contradicts everything that I am reading. What is your advice?
Robert Farrington says
At this point, his debt sounds like it’s in the hands of a debt collector. He needs to find his loans (using the methods above) and work with the debt collector to setup the rehabilitation agreement.
Once he completes it, his loan will be transferred back to a loan servicer.
Also, it could be blocked because rehabilitation is a one time thing. If he did it before and fell back into default he can’t do it again.
Christina Marie Bermudez says
Hello,
Thank you for your articles, they are helping with piece of mind. I have a couple of questions. I have about 2-4 unsubsidized loans that have come into default, not sure how many, as these are 15 years old. I did the consolation program, but, after a layoff or two, I stopped paying and get so anxious that i throw Bill’s away. Just being honest. I had a a repayment schedule, for the 9 months, but, I messed that up too. Plus, I just received a potential wage garnishment letter, saying they will start garnishment, but, there was another letter from the creditor they sold it to asking me to call per repayment. Though I get paid 75k as a secretary, SF bay area, my rent, Bills, etc, leave me w no extra to pay off garnishment, even on a non shopping lifestyle. 2 things, how can I best negotiate the smallest wage garnishment or stop it from happening. And secondly, how may I negotiate with the 2 to 4 creditors whom have been sold my loans, for the lowest rates. Thirdly, How can I find all these creditor names, they always seem to be a different creditor. Thank you Robert!
Robert Farrington says
You’re not going to be able to negotiate a settlement on Federal loans. You owe the debt to the U.S. taxpayer, so while there are some options to eliminate collection fees and accrued interest to the debt collector, you’re not going to see significant progress. And this is if you can make a lump sum payment today.
Here’s how to find your loans: https://thecollegeinvestor.com/19370/how-to-find-out-who-owns-your-student-loans/
Shauna says
So what are some of the ways to eliminate collection fees and accrued interest?? In negotiations for a full pay off?
Robert Farrington says
If you’re in default on your Federal loans, the government lays out three options that loan servicers an offer to settle:
1. Waiver of outstanding debt collection fees
2. 50% waiver of accrued interest and fees
3. 90% of principal and interest combined
Yamira Monterosa says
I am in a rehabilitation program for my student loan . last year my taxes were taken .Now that I’m in a payment program since Feb 2019 can they take my taxes again ? I’m in a hardship so the taxes are for my husband’s immigration lawyer. That’s the only way to pay them with my taxes. Do you think I might have them offset even if when I call the TOPS for offset it says I am clear no offsets ?
Robert Farrington says
Yes, until you complete the program you’re still in default.
Stephanie says
I live in Indiana, can they take your tax check and garnish your wages if your a single mother of 3?
Robert Farrington says
Yes, if you’re in default, the government can do that. If you had private loans and were sued (and lost), they can do that as well with a court order.
Summer says
I called TOPS and my name is clear I also spoke with someone and they said I am inactive I talked to the DOE and they said I was inactive. I was clear. I talked to central research and they said I was clear (Inactive) after making promised 6 payments in the Rehabilitation Program. I keep calling and they keep saying I am inactive. I’m tired of calling and asking the same question hoping someone will tell me different. And I am fine to file taxes, what should I do????
Robert Farrington says
Our personal opinion is that you should wait until you make your first payment under your new repayment program after completing rehabilitation. But if you want to do anything different, that’s your prerogative.
Rhonda says
Did u file and did they take your taxes I’m in the same situation and I don’t know what to do
Shalanda says
Did they take your money I’m in the same situation.
Rachel says
I defaulted on some student loans many years ago and finally paid them off a year ago. I am in the pre-approval process for buying my first home and the loan shows as defaulted-paid in full. I got a letter from the loan company showing that they have been paid off but @ this point I have no idea who to send the letter to?? I am not applying for another student loan, so I didn’t think the school was the place to send it but that’s the only place I can think of other than maybe the credit companies?? Who would I forward this to to remove the defaulted status off my credit?
Robert Farrington says
If there was something inaccurate reported, you can get that removed. But if you did default, and then paid it off, it sounds like it’s being reported correctly.
Cantrell Quanciene WilsonBarney says
How many payments do u have to make to go into loan consolidation. My current situation I defaulted on my loans didnt get a letter about a offset but called the 800 number. My student loans were with a collection agency made my payments then I found out their no longer in collections with the Collections their with department of Education made payment arrangements and I’m paying monthly will that get me out of default since I don’t qualify for rehab program.
Jen Torres says
Hello,
I’m starting the loan rehabilitation process. As I have read wages can be garnished and tax returns can be taken. I have not received a letter stating that my wages will be garnished, will I get anything like that if they decide to garnish them? Also if I have any personal savings can they debit money from my personal savings account?
Robert Farrington says
If you started the rehab process you should be fine. Just don’t mess it up. And yes, you will get a letter or secure message if they will do that.
Anna M. Wedesky says
I have a student loan from 11 years ago for an online course I did not finish. With fees and interest it’s over $40,000.00. They started garnishment on my paycheck last week and I did not know that this was going to happen. I did not receive anything in writing stating that there were going to garnish my wages. The collection company is Coast Professional Inc. I am only working part time but the past two weeks I had some extra hours. I usually only work 13 hours a week. Are they legally allowed to do this? If not, what can I do to stop the garnishment?
Robert Farrington says
The only way to stop the garnishments is to get out of default. Follow the directions in the blog post above!
GERALDINE RORIE says
I graduated from college in 1979. In 1978 I was given a grant of 1,400 which I was told was no repayment, was not given no repayment plan nor notified for collections and not on my credit report for a defaulted loan. However 41 years later my retirement is being garnished for 15% and the loan is now $3000. What options do I have to settle this?
Robert Farrington says
You can contest the validity of the debt if you don’t think it’s valid (and it may not be). It could be worth your time. Beyond that, you contact them and see what you can do to settle.
Love says
I received a letter saying that my check could be garnished due to missing one payment on student loan. But that I had 30 days to respond to the notice. I did and followed everything to the letter, set up a rehab program, and filed all neccesary paperwork. I had made two payments a month since March. The end of last month I received a letter saying that I was being removed from offset list, and the info was sent t ok IRS. However to give it some time before filing my taxes since it takes a min for irs to handle it on the our end. They gave me a number to call to check to see if my offset is listed, it shows none. So how much longer should I wait
Robert Farrington says
We recommend waiting until you finish your rehabilitation program. Read this and the comments to see why: https://thecollegeinvestor.com/20755/stopping-tax-offsets-due-student-loan-debt/
Laura Vaughn says
They are garnishing my wages for fed student loan but they are taking 15 per cent of my overtime as well, is that legal shouldnt it just be from my regular hours?
Robert Farrington says
It’s of your total paycheck. And realize that very little of that actually goes to your loans – it goes to fees and interest.
You need to get out of default and stop the madness.
Diana says
Hi, If I have a defaulted loan and want to pay in full should i contact the original loan service or directly to the collection agency? Also how do I verify that the loan is paid off in full afterwards? Thanks in advance.
Robert Farrington says
The collection agency. You’ll receive paperwork and an agreement for the loan.
Nikki says
My taxes were offset last year, I consolidated my loans and set up a repayment plan. Am I okay to file taxes since I’m making payments?
Robert Farrington says
If you’re out of default due to the consolidation, yes, you are safe to file.
Kiyoundia says
I just received a letter from ISAC stating my student loans has been reported as being in default to all national credit bureaus and to call them to get options. Will this now result in my taxes being taken if I was to file.
Robert Farrington says
Yes it would.
Jessica says
My loan just got sent into default on the 6th of this month. I was behind 9 months. I do not work and rely on my husband. I just had a baby this 6th of the month as well. My mind went blank on remembering to pay the loan. If I get into rehabilitation as soon as possible will we be in danger of our taxes being kept. What if my husband files alone?
Robert Farrington says
Yes, get into rehabilitation ASAP. Get your loans back on track on an income-driven plan (which would have a $0 monthly payment potentially if you have no income). If you’re getting a refund, you can always wait to file your taxes until you’re out of default.
You can also file form 8379 for Injured Spouse to at least get your husband’s portion of your joint tax refund.
Jessica says
What if my husband files separately since I don’t work and don’t bring in any income. Will they still try to keep his tax return? I want to quickly get out of default but I believe the rehabilitation is the beat option
Jessica says
If I consolidate my loans to quickly get out of default will they try and garnish my husbands check if I got the loan before marriage and I don’t work?
Robert Farrington says
If you’re in default and married, they won’t garnish his wages, but they can garnish your tax refund, disability payments, and more.
tracey says
I received my notice of intent to garnish, and requested a hearing. i submitted what i thought was the necessary paperwork but it wasn’t specific enough to demonstrate my financial hardship (single solo parent to a elementary school age child in the SF Bay Area and child care is a MUST !!) and their final decision was to garnish 15% of my wages. I submitted further documentation to them in the form of my 2018 1040 and all of information regarding my child’s afterschool care (type of program, cost, payment history) and asked for a re-evalutation. i don’t know if i can rehab the loan and if i’m able to consolidate to something more reasonable than the $660/month !! they want, will this remove the garnishment.
Robert Farrington says
If you consolidate and get back on an income-driven repayment plan, yes, it will remove the garnishment. But by consolidating versus rehabilitating, you will take the hit on your credit.
Mike says
My wages have been garnish for a year now and I have defaulted already. Im thinking of filing bankruptcy Will this temporarily stop the garnishment so i can renegotiate a payment plan
Robert Farrington says
Depends, if Federal, no; if private, maybe. Unless you can prove undue hardship (which is rare – less than 0.001%), bankruptcy won’t help you. What you need to do is get out of default by rehabilitating your loans. That will stop it! Follow the steps above.
Allen Round says
My daughter has a huge Student loan debt of about $124,000. While in college she got married. Her loan and her husband’s loans were consolidated and ended up in her name. The original loans were about 66% his(he ended up with a pHd) and 33% hers (she ended up with a bachelors degree). Right after he completed his college education he took off and no one has been able to find him since. A couple of years after he disappeared she filed for and was granted a divorce. My daughter is stuck with this huge debt which she will never be able to repay. Interest has increased the debt from approximately $90,000 to $124,000.The loan is not in default. She has continued to make payments through these many years. She was in a program where if she made all the payments on time for 10 years the rest would be forgiven. 2020 will be ten years. However the loan company says she still has into 2023 to continue those payments. They also say they show she made payments starting back into 2009 but when she asks for copies of those records they do not provide them. She is a librarian at the University Of Nebraska in Lincoln. She makes payments of $400 a month. The debt is increasing faster than she can ever pay it off. Any suggestions?
Robert Farrington says
Sounds like she is going for Public Service Loan Forgiveness. Great program – but does take 10 years/120 payments.
Read this guide, I have a whole section on how to get missing payments credited, if she has been making payments that count since 2009, she could get forgiveness soon. She just needs to make sure. PSLF Missing Credit Guide.
Rachal Ford says
My student loans are now in default as of December 26, 2019. I had heard that a debt had to be reported or certified by October, or the offset would apply to the following year. Would an offset of my tax refund occur when I file for 2019 or next year?
Robert Farrington says
Yes, they will take your tax refund. You need to get out of default ASAP.
Kristin says
My tax refund was taken last year due to default. I entered the rehabilitation program with coast professionals in October 2019 and my first payment came out Oct 21st. The woman I spoke with told me that after 9 payments I would come out of default and I asked her about my tax refund and she said after making 5 consecutive payments that I could file and they wouldn’t take my refund. Have you ever heard that? Can I call the DOE to check with them to see if they are going to take it. I was upset last year all though it does help reduce my debt but the problem is not knowing. I just need to know so I can be prepared either way.
Robert Farrington says
Yes, we’ve heard of it. However, we still recommend you wait until you complete rehabilitation before filing your taxes.
Misty says
Am I able to work a part time job along with my full time job and the part time job check not get garnished?
Robert Farrington says
It can definitely be garnished, but it takes time to process. If you’re already in rehabilitation, they likely won’t catch up before you’re done.
Anabel Rivas says
Hi, I have been making payments for loan for a year through garnished wages. What are my best options to get out of default and to get it off my credit report? how do i make sure i am not going through a private loaner so i dont lose any benefits of having a federal loan?
Robert Farrington says
You rehabilitate your loan: Student Loan Rehabilitation.
Stephanie says
I was told by my ed loan debt that after paying on time for 6 month I need to give them a call to get removed from their certification list and I would be good. I could keep my tax return. Would anyone know if this is true
Robert Farrington says
It’s technically correct – but after you make the payment, it still takes 30-60 days to process (so 1-2 more payments). To be safe and avoid an offset, we recommend you wait until you’ve completed the rehabilitation of your loan. See this: tax offsets for your student loans.
Karin Graves says
Hi,
My son-in-law has $97,000 in student loan debt. He defaulted on his loan. He completed the paperwork to restart the process 2 months ago. It is taking ICR forever to process. Many disconnected calls, claims they did not receive a certain uploaded document etc… Here is my question, when ICR finally completes the process and its time to start the the 9 consecutive monthly payments, CAN THE TOTAL owed (9 months) be paid at once to expedite getting out of default or do you have to wait the full 9 months.
Robert Farrington says
No, 9 monthly payments. The whole point is to prove yourself that you can make monthly payments again.
Claudett Gordon says
Hi,
I received an Wage Garnishment letter from Coast Professional. My student loan is in default. I filed an financial hardship hearing request, but every time I call to speak to someone at Coast Professional it is something missing. I send it what is missing call back again what I sent they cannot read. This being going on since January 24, 2020. I am paying IRS back so the proof I sent in on my taxes they said is not acceptable because it old. I am at the end of my rope I do not want to get garnish but Coast Professional is misleading me every time I call to speak with them. Any suggestions on how I can start paying on my two student loans and get out of default?
Robert Farrington says
You need to get out of default. See the above article and start rehabilitating your student loans.
CC says
I have been getting a portion of my wages garnished that’s beyond 5 payments. My 2019 federal refund has been convescated as well. I don’t know if my state refund has been taken as of yet. We’re now in this Coronavirus pandemic and there’s no forgiveness consideration. My question is. Does everything I am working for and have worked for have to be taken considering what the nation has found itself in? Again my wages is ALREADY being garnished? What can be done or it’s a lost cause and I am just out of money moving forward?
Robert Farrington says
You’re out of the past money, nothing is changing with that. But you can get out of default and into an income-driven repayment plan right now. You should immediately follow the directions in this article, get out of default, and you have more options now than ever to get back on track and move forward.
Sheila says
I am 54 yrs old my loan is over years old and I am current not working and also have health issues. I went to a school that closed down and I left early due to being sexually harassed by and instructor. I only went to that rip off computer school for about 4 months now owe 18000 why is that fair? I have tried to file for a dispute. I am in default can I be sued? Should I get loan out of default?
Robert Farrington says
You need to get out of default. You can look into this program, but if you don’t have success, get on an income-driven plan and work towards paying this off.
See this: Borrower Defense To Repayment.
Brooke says
I am in default. I have the option of consolidating or rehabilitation. The fees and charges related to rehabilitation worry me. I’d love to have the negative marks removed from my credit. but the additional expense accumulated is daunting. I had to rehabilitate loans 10 years ago due to unemployment and they added 20k on a 30k loan. I was successful, but they tacked on a 50% charge for the program. I’d love to have my credit score increase, but don’t want to pay more “fees” for the rehab process. Advice?
Robert Farrington says
The Department of Education doesn’t charge fees to your loan, but the collection agency does – upwards of 16%. But the collection agency is charging that fee monthly every month you’re in default – so at least rehabilitation gets you out of this mess. Realize that all of your tax returns that are garnished, all collections – most of that never goes to your student loan due to fees and then accrued interest on your original loan plus the fees! So don’t sweat fees.
Right now is the time to do it. Get out of default once and for all.
Ed says
My wife has a federal student loan that has been defaulted on multiple times thus making it ineligible for rehabilitation (according to the debt collection agency). COVID interest accrual pause aside, does this loan continue to accrue interest? Can this loan be refinanced? She has great credit and the debt collection agency sent over a payoff for about 80% of the total amount due (fees back charges). Thanks for the help!
Robert Farrington says
You can always re-consolidate the loan, or refinance. If you can afford the payoff, do that as well – ask for the latest default to be removed.