Getting Out of Default

Dear American Student Assistance:

I would like to ask you some questions regarding defaulted student loans. I was reading your article in the Metro today and you said that NOBODY should default on a student loan. When I was reading that, I just swallowed really hard and thought to myself, “Well I did, and I kick myself in the butt everyday for it.” 

I have 2 loans: one is through my college directly for about $6,000 and another through Direct Loans for about $1,000. They are both in default and I have already started to pay back both of them. I know that you have heard every excuse in the book about why people default, but let me not bore you; I have none other than I was stupid. I am trying so, so, so hard right now to clear up my credit, which is not an easy battle. 

I was wondering if you know of any steps that I can take to get these loans out of default and to have the negative remarks on my credit report removed. On my Direct Loan they said that if I make 10 consecutive payments that they would take the loan out of default, is this true? Have you heard of them doing this before? And how about my loan directly through my school, is there anything that I can do for that loan to be taken out of default? 

I don’t make too much money, and I am making every effort to pay these loans off. Since I have set up payment arrangements I have not missed a payment, but I want to know if there are any further steps that I can take to remove the deadly word “default.” I would really appreciate your help.

Thanks,
Sandra,

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Dear American Student Assistance:

Do you have any information on any programs for people who have defaulted on their student loans and are having a hard time repaying?

Thanks,
Dalton

Sandra and Dalton:

Unlike most other consumer loans, federal student loans do actually give you some opportunities to try and clean up your credit. The program that Sandra’s been told about is called rehabilitation and is something that direct lending, Perkins, and Federal Family Education Loan Program (FFELP) defaulted borrowers can all take advantage of. The requirements are as follows:

  • You must make 9 voluntary, consecutive, on-time, monthly payments of an amount agreed to by your loan holder.
  • Doubling up on payments or sending post-dated checks is not acceptable.
  • Rehabilitation is limited to once per loan.
  • Once complete, you will be taken out of default, regain all your borrower benefits such as deferments, repayment options, and eligibility for federal student aid, and probably most importantly, the default will be removed from your credit report.

You should also note that there are other ways of getting out of a default status on your loan such as paying the loan in full or consolidating it. While these options are faster than the rehabilitation process, they do not remove the default line from your credit report.

It sounds like both of you are on the right track. Keep it up—it will be worth it in the end!

Regards,
American Student Assistance

Loan Repayment

Graduating from college comes with new responsibilities. Repaying your student loan is one of them. Avoid any pitfalls along the way by learning how to successfully repay your loans.