May 14, 2021

Ways to Get Student Loans Out of Default


Getting in a student loan default is a scary financial prospect. Wage garnishment and treasury offset can hurt your current earnings. The default will also affect your credit status, limiting your financial options. If you find yourself in this unfortunate situation, don’t fret.

There are three ways to get a loan out of default. The first way is to pay the loan outright, which not many people can do. The other options are ones you’ll likely pursue.

Loan Consolidation

Loan consolidation is a way to combine multiple loans into one direct payment. It is also an effective way to get your student loan out of default. There are two options to qualify for consolidation on a defaulted loan.

  1. Make three consecutive voluntary payments on the defaulted loan. The amount of the payments will depend on what your loan holder calculates. The calculation will never exceed your means. It will be reasonable, taking into account your current financial situation. If you don’t know who your loan holder is, you can check the Federal Student Aid website.
  2. Agree to repay the new consolidation loan using an income-driven repayment plan.

You’ll also need to ensure there are no orders of a wage garnishment. Wage garnishment means you cannot consolidate the loan. You’ll need to have the order lifted or vacated before you can enter into the new loan. If you’re using an income-driven repayment plan, you’ll need to supply income documents with the application.

After you consolidate the loan, you’ll regain the benefits taken away from the default. These include loan forgiveness, deferment, and forbearance.

Consolidation does not remove the record of default from your credit history. Your credit score will still take a hit due to the default, but at least you’ll get out of mandated wage garnishment.

Loan Rehabilitation

To start the loan rehabilitation process, you need to contact your loan holder. For a Federal Perkins Loan Program, rehabilitation is simple. You need to make monthly payments for nine consecutive months. These payments must be within 20 days of the due date. The amount you pay will depend on the calculation of the loan holder and your present financial circumstances. You’ll submit documentation. You can even ask for an alternative monthly payment calculation if you find that the first offer isn’t too difficult to achieve.

FFEL Program and Direct Loan Program Rehabilitation

To rehabilitate these loans, the nine affordable monthly payments will apply. However, you have to make all nine payments within ten consecutive months. If you’re handling direct loans, you need to mail the FSA a copy of your latest transcript. You’ll also need to send your spouse’s tax returns if they file separately.

They’ll send you a loan rehabilitation agreement in the mail, which you’ll sign. The agreement will include the payment options, the monthly amount, and the terms. After signing and returning, you’ll then fulfill the payments. You can also apply for a recalculation if needed.

Following your ninth payment, your loan holder will send a request to remove the default. The good thing about rehabilitation is that it will remove the default status from your records. It will still, however, record a late payment coinciding with the time you defaulted the loan.

Putting It All Together

While loan consolidation works, rehabilitation is the better option. It removes the default status from your records. It helps you recover your credit status and only adds a late payment to your records.

During the COVID-19 pandemic, there is temporarily 0% interest, and collection has also halted. The pause will apply until September 2021, and then the normal system will resume. The government placed these measures as a way to help those significantly affected by the lockdowns.

While a default may at times be unavoidable, there are solutions to avoid it. Apply either of these two options to free yourself from the effects of being in default.

Use Chipper for Lower Payments

Chipper can help you find a student loan repayment plan that actually fits into your budget. You simply fill out your information and link your student loan account for us to generate your options in seconds. We help the average student loan borrower save over $300 a month off their student loan monthly payment. Lowering your monthly payment plan can game changing for your personal finance and can be done in minutes! Sign up for Chipper today to get on track with your student loans.

Use Chipper for The Best Path to Forgiveness

Finding your path to student loan forgiveness is easier than ever before. Chipper helps members find better Income-Driven Repayment (IDR) plans every day. Once enrolled in an eligible repayment plan, we can help you explore your forgiveness options and understand your path towards forgiveness. Sign up with Chipper today and get on track with your student loans.

Use Chipper for Round-Ups

Paying off your student loans doesn’t have to be a long and painful journey. Round-Ups are a way to directly pay off your loans with your everyday spending! By tracking your linked spending account(s), we will calculate the rounded up amount from each transaction in a week (IE spending $4.28 would add $0.72 to the weekly amount). We then initiate a payment towards your student loan for the weekly amount. Get chipping away on your student loans with Chipper today.

Use Chipper for Public Service Loan Forgiveness (PSLF)

The Public Service Loan Forgiveness (PSLF) program was created to provide relief to borrowers aiding the public sector. Unfortunately, 30% of applicants are denied due to incorrect paperwork. We can help! Chipper was created to solve this issue by assisting borrowers in understanding their options as well as allowing forgiveness eligible users enroll into the best forgiveness program available. Sign up for Chipper today to see your student loan forgiveness options and get the forgiveness you deserve.

Use Chipper for Teacher Loan Forgiveness (TLF)

The Teacher Loan Forgiveness (TLF) program was created to enable teachers working in Title 1 schools to receive student loan forgiveness of up to $17,500 (depending on their teaching subject). Chipper has helped teachers from all over the country qualify for TLF program and can help you get the forgiveness you deserve today. Find out if you qualify for forgiveness in minutes with our employer search tool.

Don't worry.
Be Chipper.
Get Started