Getting out of Default | Federal Student Aid

Don’t get discouraged if you are in default on your federal student loan.

Options for getting out of default include loan repayment, loan rehabilitation, and loan consolidation. 

Getting out of Default

When placed in default, any William D. Ford Federal Direct Loan (Direct Loan) Program loan or Federal Family Education Loan (FFEL) Program loan that is owned by the U.S. Department of Education (ED) is assigned to ED’s Default Resolution Group for collection. Defaulted FFEL Program loans that are not owned by ED will be assigned to a guaranty agency for collection. For defaulted Federal Perkins Loans, you’ll need to check with the school from which you borrowed to find out about loan repayment.

If you are unsure which type(s) of loan(s) you have, check your original loan documents or log in to My Federal Student Aid. Note that information about any private student loan you may have received will not be included in NSLDS. 

You have several options for getting your loan out of default. These include

Loan Repayment

One option for getting out of default is repaying your defaulted student loan in full. Get repayment information for your loan(s) to learn about how to repay and where to send payments:


Loan Rehabilitation

Another option for getting your loan out of default is loan rehabilitation. To rehabilitate your Direct Loan or FFEL Program loan, you and ED must agree on a reasonable and affordable payment plan. (Remember, contact your school for your Perkins Loan.)

Your loan is rehabilitated only after you have voluntarily made the agreed-upon payments on time and the loan has been purchased by a lender. Outstanding collection costs may be added to the principal balance. 

Note: Payments that have already been collected from you—for example, through the Administrative Wage Garnishment (AWG) process or through legal action taken against you to collect your defaulted loan—do not count toward your rehabilitation payments. (Through AWG, payments will be deducted from your wages until your defaulted loan is removed from default status.) 

Once your loan is rehabilitated, you may regain eligibility for benefits that were available on your loan before you defaulted. Those benefits may include deferment, forbearance, a choice of repayment plans, loan forgiveness, and eligibility for additional federal student aid.

Other benefits of loan rehabilitation include the removal of

  • the default status on your defaulted loan,
  • the default status reported to the national credit bureaus,
  • wage garnishment, and 
  • any withholding of your income tax refund made by the Internal Revenue Service (IRS).

After rehabilitation, your monthly payment may be more than the amount you paid while you were rehabilitating your loan. Collection costs may be added to your principal balance, increasing the total amount you owe. Delinquencies (late payments) reported before the loan defaulted will not be removed from your credit report.

A defaulted student loan may impact your credit rating. Find out how to get a free credit report and what to do if you find errors in your credit report.


Loan Consolidation

You also have an option for getting out of default through loan consolidation. Loan consolidation allows you to pay off the outstanding combined balance(s) for one or more federal student loans to create a new single loan with a fixed interest rate.

A defaulted federal student loan may be included in a consolidation loan after you’ve made arrangements with ED and made several voluntary payments (contact your school for information about making payments on a Perkins Loan). Usually, you would be required to make at least three consecutive, voluntary, and on-time payments prior to consolidation.

Note: A guaranty agency may charge collection or late fees up to 18.5 percent of the outstanding loan (including the principal and interest). The fees become part of the principal for the consolidation loan. For example, a defaulted loan of $8,500 plus $1,500 of accrued interest = $10,000. Fees of $1,850 can be added to the $10,000, which means the consolidation loan will be made for $11,850.

Consolidate your loan(s) through a Direct Consolidation Loan.