How I recovered from student loan default

My tips for student loan default

When I returned to school in 2004, I wasn’t able to get new federal student loans. One of the 16 student loans I had borrowed as an undergrad wasn’t included in my student loan consolidation and went into default because I didn’t know it existed.

I was able to get an affordable repayment plan to get out of default. I returned to school with new student loans six months later and got the default removed from my credit report in a year’s time.

Here are three things I learned from my student loan default.

1. Keep track of all your loans

I could have avoided my situation if I’d logged in and checked on the status of my federal student loans. You’ll be able to see the status of all your federal loans—and whether any of them are in default—at

Make sure federal student loan payment breaks, such as deferment and forbearance, are properly recorded. If there are any errors, contact the loan servicer in charge of that particular loan. (If you don’t’ know who your servicer is, you can find out here.) If you are in default, contact the guaranty agency that administers your loan and collects from borrowers.

To check on the status of your private student loans, log in to your account on the lender’s website.

2. Consider getting on a Default Rehabilitation Plan ASAP

There is an income-driven plan for paying off federal student loans in default. This plan allows you to make payments based on income. After a number of monthly, on-time payments, your loan can be out of default. Then you can get on a regular income-driven repayment plan, or any other plan you choose. At this point, the default can be removed from your credit report. However, it will still show late payments that were reported by your servicer before the loan went into default.

The Department of Education has created a one-time, temporary program called “Fresh Start” to help borrowers with certain defaulted federal loans. It’s free to sign up; you’ll need to contact your loan holder to start the process. The program works by moving your loan into an income-driven repayment plan, which can lower your monthly payment. The program can help by moving your defaulted loan(s) to “in repayment” and removing the record of the default from your credit record.

3. Review your credit reports

You’re allowed three free credit reports annually—one from Equifax, one from Experian, and one from TransUnion. These reports list all of your loans and debt, whether you have federal student loansprivate student loans, or both. This is a good time to not only check on the status of your loans, but to make sure everything on your report is accurate. If you are cleared from a federal student loan default, you’ll need to check your report to make sure the default did drop off your credit report about 60 days later.

Bottom line: Avoid default whenever you can

Remember the old childhood phrase, “Are we there yet?” This is one time you don’t want to be. Avoid penalties like an impacted credit report by taking proactive action before a default occurs.

If you’re having trouble making loan payments

The most important thing is to contact your loan servicer immediately and discuss any options with them so you can avoid going into default.

If any loans should go into default, don’t hide from them. Ask about repayment plan possibilities and keep checking to make sure that any defaults come off your credit reports as soon as possible.

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