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We recommend starting with the U.S. Department of Education’s comprehensive guide on managing your student loans. Click here to view their Understanding Student Loan Repayment page.

Frequently Asked Questions

What can I do about a defaulted student loan? What does it mean to default on a student loan?

For federally guaranteed student loans under Title IV of the Higher Education, a default occurs when you fail to make payments on your loan for (a) 180 days if you repay in monthly installments or (b) 240 days if the payments are due less frequently. During the time that you are behind in your payments, your lender must exercise "due diligence" (make repeated efforts to find you and contact you about repayment) in attempting to collect the loan from you. If the lender is unsuccessful, it will usually place the loan in "default" and turn it over to the "guaranty agency" in your state. Lenders may "accelerate" a defaulted loan, which means that the entire balance becomes due in a single payment.

Once your loan is assigned to a guaranty agency or the U.S. Department of Education for collection, several steps, including the following, may be taken to recover what you owe:

  • credit bureaus may be notified [under 20 U.S.C.1080 or 20 U.S.C. 1087cc (c)] and your credit rating may suffer,
  • the IRS (under 34 CFR 30.20-30.33) may withhold your tax returns,
  • you may be subject to an Administrative Wage Garnishment where the Department of Education (under 20 U.S.C. 1095a), will require your employer to forward 10-15% of your disposable pay for repayment, or
  • the Department of Education may take legal action to force you to repay.

Once a loan is declared in default, you are no longer entitled to any "deferments" or "forbearance" (explained below). In addition, you may not receive any additional Title IV federal student aid if you are in default on any Title IV student loan.

How can I escape default?

There are generally three things to do to avoid or escape defaulting on a student loan when you are unable to pay. They are:

  1. cancel or discharge (end your obligation to repay) the loan,
  2. renew or consolidate the loan into a new loan, or
  3. temporarily stop making payments.

When can I cancel or discharge a student loan?

Generally, you may qualify for loan forgiveness, cancellation, or discharge for a number of reasons: 

  • You’re a teacher, government employee, or nonprofit worker, for example;
  • Your school has closed or misled you;
  • You’re a Perkins Loan borrower;
  • You’re a parent borrower;
  • You’re a victim of forgery;
  • You’ve filed for bankruptcy; or
  • The borrower has passed away.

Student loan forgiveness, cancellation, and discharge are described in detail on the Federal Student Aid website. Click here to view the Student Loan Forgiveness page.

All student loans authorized by Title IV of the Higher Education Act can be canceled if you die or become permanently and totally disabled [but you cannot be considered disabled on the basis of a condition that existed when you applied for the loan unless it has substantially deteriorated, 34 CFR 682.402 (e)]. Stafford, PLUS, and WLS loans disbursed (given to you) after January 1, 1986, can be canceled under two additional circumstances:

  1. the school you attended improperly certified your ability to benefit from the training given, or
  2. the school you attended closed while you were in attendance or within 90 days after you withdrew from the school.

In addition to the above reasons, a National Defense Student Loan can be canceled if you enter into full-time teaching or military service. A National Direct Student Loan and a Perkins Loan can be at least partially canceled under two more additional circumstances—becoming a Head Start Program Staff Member or a Peace Corps Volunteer.

A Perkins Loan can be at least partially canceled under five different additional circumstances:

  1. as a Peace Corps or VISTA Volunteer,
  2. as a full-time law enforcement or corrections officer for loans received after November 29, 1990
  3. entering a full-time teaching position,
  4. becoming a full-time nurse or medical technician for loans disbursed after July 23, 1992, or
  5. as a full-time employee of a public or private nonprofit child or family services agency if your loan was disbursed after July 23, 1992.

Can I discharge a student loan in bankruptcy?

Information about discharging a student loan in bankruptcy can be found on the Federal Student Aid website under Discharge in Bankruptcy.

Under certain circumstances, you can discharge your obligation to repay a student loan in bankruptcy. The criteria is set out at 11 U.S.C. 523 (a) (8). Currently, your loan may be discharged only if the first payment became due on the debt at least seven years before the bankruptcy was filed.

Any grace periods, forbearance, or deferments must be subtracted from the time elapsed between when the first payment became due and the filing date. Loans outstanding for less than the required seven-year period can be discharged only if the bankruptcy court makes an express finding that repayment would place an "undue hardship" on you.

If your obligation to repay a student loan is discharged in bankruptcy, any co-signers or endorsers of your debt are not discharged. For example, if your parents co-signed your student loan, they are still liable for repayment.

How do I apply to cancel or discharge my loan?

Loan forgiveness applications and options for cancellation/discharge for qualifying borrowers are available on the Federal Student Aid website. To view the Student Loan Forgiveness page, click here

Who qualifies for discharge due to a school closure?

You may qualify for discharge [34 CFR 682.402 (d)] if your school or the branch that you attended:

  1. closed while you are still either enrolled or on an approved leave of absence, or
  2. you withdrew from the school within 90 days of its closure.

After the school closed, you must not have completed the program of studies through a "teach out" at another school or by transferring academic credits or hours earned at this closed school to another school.

A school's closure date is the date when it ceased offering all programs, not when it stops offering the particular program in which you were enrolled. The Department of Education determines the closure date, which you can find out from the Department's Cumulative List of Closed Schools. The list is not always accurate so you may have to prove an earlier closing date by newspaper accounts, correspondence with the school, and so on.

If your loan is discharged, you will owe no more payments. You will get a refund of past payments. Moreover, the servicing agency will tell credit reporting agencies that the loan was discharged. Any bad credit history should be deleted. You can now apply for more federal student financial aid. The full criteria for a closed school discharge may be found at 34 CFR 682.402 (d).

Who qualifies for discharge due to false certification?

If you were admitted to a school without a high school degree after July 1, 1987, you are generally able to get a false certification discharge. The Department of Education will find the school falsified your ability to benefit in the program unless you did one of the following:

  1. passed an "ability to benefit" test approved by the Department of Education (or prior to 1991 by an accrediting agency) that was administered properly,
  2. successfully completed a program of developmental or remedial education provided by the school, or
  3. enrolled before July 1, 1991, and received a GED before completing your program of instruction.

If your loan is discharged, you will owe no more payments. You will get a refund of past payments. Moreover, the servicing agency will tell credit reporting agencies that the loan was discharged. Any negative credit history should be deleted. You can now apply for more federal student financial aid. The full criteria by which borrowers may qualify for a false certification discharge may be found at 34 CFR 682.402 (e).

Once I have defaulted, is there any way to reinstate the loan?

Yes. The Department of Education offers a "Loan Rehabilitation" program. If you make 12 consecutive monthly payments, which are both reasonable and affordable, they will agree to reinstate the loan. You would then be eligible to have the loan purchased by a bank or other lending institution. Once a loan is rehabilitated, it will be taken out of default and the credit bureau reports made by the servicing agency will be deleted. You will be able to repay the loan over a nine-year period. You will again be eligible for additional Title IV student financial aid funds.

If I cannot discharge my loan but cannot afford the payments, what can I do?

The federal government offers two types of consolidation loans for students to combine different types of federal loans to reduce and simplify payment. The two programs are the Federal Family Education Loan (FFEL) and the Federal Direct Consolidation Loan (hereafter, "Direct Loan"). Generally, the Direct Loan offers more generous terms for the borrower.

The Direct Loan is designed for those who can afford to repay their existing student loans. Borrowers make monthly payments based on yearly family incomes. Borrowers with family annual incomes of less than $900 above the poverty level need not make any payment on the loan.

Once you get the loan, the old loans disappear. You are eligible for new loans, grants, and deferments. You will no longer be listed as in default on credit records, and will not be subjected to tax intercepts, garnishments, or other collection efforts. The Direct Loan has several advantages over the FFEL, including:

  • it's easier to qualify because it's unnecessary to make three regular payments before qualifying, as is required to obtain an FFEL,
  • the Direct Loan offers lower payments than an FFEL,
  • borrowers with Direct Loans may be in a better position than those with FFELs in seeking deferments, and
  • Direct Loans offer somewhat lower interest rates over the life of the loan that those offered by an FFEL

Some Direct Loan borrowers, due to their low incomes, may be making no or very low payments. These low payments may not cover accrued interest. The amount of the loan is increased to include the unpaid interest. After interest is charged on the accrued interest, the loan balance can increase significantly. There are some positive features of the Direct Loan program, however, than offset some of these negative facts. They are:

  • borrowers may seek loan deferments during which period, the government pays the accrued interest,
  • a cap is placed on interest to keep it under control,
  • after 25 years of payments (even if payments were zero over the entire time period) the loan is forgiven. However, periods of deferment or forbearance (during which the borrower is excused from making payments) are not counted. Note: When the loan is forgiven, the amount of the loan has to be counted as income on your tax return.

What is an FFEL and what should I know about it?

Like the Direct Consolidation loan, the FFEL helps borrowers consolidate several loans with various repayment schedules in one loan. You make only one monthly payment. Under the program, the new loan will be made by a commercial lender. Credit bureaus will be notified that your account has a zero balance. You will sign a new promissory note with a new interest rate and repayment schedule.

To qualify you must first be in "repayment" status on your defaulted loan (that is, you must make three voluntary, on-time, regular monthly payments). You become eligible for other federal loans. As with the Direct Consolidation Loan, you must give your consent to the IRS to disclose to the Department of Education certain income tax information. This information is necessary in order to calculate a monthly repayment plan based on your income that you must agree to accept.

The monthly payments on an FFEL must, at a minimum, equal all interest as it accrues, while Direct Loan monthly payments may go as low as zero. In order to receive a Direct Loan, you must certify that you could not obtain an FFEL or get one with a repayment plan satisfactory to you.

Are there disadvantages to getting a consolidation loan?

There are some disadvantages to getting either type of federal consolidation loan. As noted above, you may be able to bankrupt your student loan seven years after the first payment became due. A loan consolidation may start the seven-year time period running again. Moreover, if you are considering challenging the loan, a consolidation loan may waive some defenses if you later contest the loan in court. If you believe you may be going to court to fight against a loan or are considering bankruptcy, you should consult a lawyer before applying for consolidation.

Another disadvantage of consolidation is that while you cure the default by consolidating a loan, your credit continues to show that at one point you were in default. If you "rehabilitate" a loan instead (see above), any reference to the default is removed. Also after consolidation collection fees become part of the loan principle.

Finally, borrowers may have more opportunities to compromise the amount owed on old loans than on consolidation loans. To compromise the amount owed means you negotiate repayment of a lower amount than the total owed. However, this usually requires a lump sum payment of a major portion of the loan. Most lower-income people cannot afford the lump sum payment.

Is there any way to temporarily stop making loan payments?

There are two ways to temporarily stop making payments and/or to avoid a default. You may request the Department of Education to grant you a "deferment," which allows you to stop payments (and stop interest from accruing as well). You must meet specific criteria in order to qualify for a deferment. You may request the guaranty agency for a forbearance of payments for a short period when poor health or personal problems affect your ability to pay. Interest continues to accrue during forbearance.

What are the criteria for obtaining a deferment?

There are two sets of standards for obtaining deferments. The old standards applied to loans disbursed before July 1, 1993. The new standards, which are somewhat more generous, applied to loans disbursed after that date.

Some of the more important grounds for deferral of loans disbursed prior to July 1, 1993, are:

  • unemployment (maximum of two-year deferment),
  • full-time student at participating school,
  • active duty status in the U.S. Armed Forces,
  • receiving, or being scheduled to receive service, under a program designed to rehabilitate disabled individuals,
  • temporary total disability,
  • providing nursing or similar services to a spouse who is temporarily totally disabled,
  • parental leave, and
  • being a mother of preschool children starting work at no more than $1.00 above the minimum wage.

The standards for loans disbursed after July 1, 1993, are somewhat more generous. The maximum unemployment deferment period is increased from two to three years. The old three-year deferments for specified types of financial hardship (temporary total disability, taking care of a disabled dependent, parental leave, and mother with preschool children making slightly more than wage, and so on) are placed by a new three-year deferment category called "economic hardship." If you receive public assistance, you automatically qualify. If you don't, the Department of Education will apply a complicated formula to decide if you qualify.

How can I obtain a forbearance on my loan?

Student loan forbearance allows you to temporarily stop making payments. With forbearance, you won’t have to make a payment, or you can temporarily make a smaller payment. However, you probably won’t be making any progress toward forgiveness or paying back your loan. As an alternative, consider Income-Driven Repayment

Congress passed a law preventing further extensions of the payment pause for borrowers during the COVID-19 pandemic. Student loan interest resumed starting on September 1, 2023, and payments were due starting in October 2023. 

You can learn more about forbearance on the Federal Student Aid website on the Student Loan Forbearance page and Prepare for Student Loan Payments To Restart page.