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Options after Default

Learn how to avoid some of the negative consequences and possibly restore certain benefits.

So, you defaulted on your student loan. Maybe you didn't have the money. Maybe you weren't very well organized. Whatever your reasons for defaulting, now what? Believe it or not, it's still possible to avoid some of the negative consequences and maybe even restore some of the benefits you lost when you went into default.

If default occurs, you should:

• Contact your guaranty agency, or the holder of your defaulted loan. The guaranty agency can counsel you about the best options for resolving your default.
Establish a new repayment agreement by:
• Reinstating your eligibility for federal financial aid by making six consecutive, on-time, full, voluntary monthly payments to the holder of each defaulted loan.
• Rehabilitating your defaulted loan(s) by making 12 on-time, full, voluntary monthly payments to the holder of each defaulted loan.
• Consolidating your loans. A defaulted borrower is eligible to consolidate if he or she makes three consecutive, on-time, full, voluntary monthly payments to the holder of each defaulted loan.
• Stick to your repayment agreement. You can always get back on track by establishing a good repayment habit.
• Apply for aid as early as possible if you need additional federal aid so that your school has your financial aid application data on file and is ready to award you once your eligibility for federal financial aid is reinstated.

Satisfactory Repayment Arrangements and the Rehabilitation Program

In addition, defaulted borrowers also have the options of Satisfactory Repayment Arrangements and the Rehabilitation Program. Not all default borrowers are eligible for these programs. Check with your lender or guarantor to find out if you can benefit from either of the following options.

• Satisfactory Repayment Arrangements — If you are in default, the Satisfactory Repayment Arrangements program can restore eligibility consideration for Title IV benefits (i.e., federal grants, federal student loans) to you so that you may obtain additional financial aid. However, complying with the requirements outlined for Satisfactory Repayment Arrangements will not remove the default status from your account or credit history.

  To participate in this program:

  • You must make the request for Satisfactory Repayment Arrangements with the guaranty agency that holds your student loan.
  • You must make six consecutive monthly loan payments of a reasonable and an affordable amount on the scheduled due dates. The monthly payment amount will be determined after considering the balance on your account and your ability to pay.
  • A monthly budget detailing your expenses may be required.
  • You must continue to make payments after the initial six-month period.
• Rehabilitation Program — This program is also designed to restore financial aid eligibility to defaulted borrowers. If you meet the requirements outlined in the Rehabilitation Program, several things may result:
  • An eligible lender could purchase your defaulted student loan.
  • Your defaulted student loan would then be removed from default status.
  • The default entry on your credit report would be removed. Your student loan benefits (deferments, repayment options, forbearance eligibility, etc.) might also be re-established.

To find out if you're eligible to participate in this program, contact the agency that guaranteed your student loan.

To participate in the program, you must make twelve voluntary consecutive monthly payments of a reasonable and an affordable amount on the scheduled due dates. The monthly payment amount will be determined after considering the balance on your account and your ability to pay. You might have to supply a monthly budget detailing your expenses.

After the initial twelve-month period, payments must be continued if a deferment or forbearance has not been granted.