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How to Go Back to School With Defaulted Student Loans

Defaulting on student loans can present an obstacle if you want to go back to school. Student loan default, which occurs after 270 days of missed payments on federal student loans, typically makes you ineligible for federal student aid. That means borrowers in default can’t access the grants, work-study programs and student loans that help make college affordable.

However, the Department of Education is lifting this restriction for one year to give borrowers an opportunity to get their loans out of default through its new Fresh Start program. Through October 2024, one year after the payment pause ends, you can access Title IV funding even if your loans were in default prior to the payment pause that started in March 2020.

This temporary relief gives the 7.5 million borrowers in default time to sign up for Fresh Start and get their loans back in good standing. If you’re wondering how to go back to school with defaulted student loans, here’s a closer look at your options.

  1. Enroll in the fresh start program
  2. Rehabilitate your loans
  3. Apply for loan consolidation
  4. Negotiate a student loan settlement

1. Enroll in the Fresh Start Program

In April 2022, the U.S. Department of Education announced a new program called Fresh Start that would enable borrowers to get their student loans out of default and back into active repayment. Along with changing your student loan status from defaulted to current, this program will restore your access to financial aid and remove the default from your credit report.

As mentioned, borrowers in default will automatically have access to financial aid for one year after the payment pause ends to give them time to take advantage of Fresh Start. The payment pause is set to end in October 2023, and interest will start accruing one month earlier in September.

The Department of Education recommends acting quickly to take advantage of this one-time opportunity. You can enroll in Fresh Start by logging into your account at or calling 1-800-621-3115. Mailing in your request is also an option.

When you use the Fresh Start program, you’ll choose a new repayment plan for your student loans. About 4 in 5 borrowers enroll in an income-driven repayment plan, which adjusts your monthly payment to a percentage of your income. If you still owe a balance at the end of your term, the remaining amount will be forgiven.

2. Rehabilitate Your Loans

While the Fresh Start program is a relatively new opportunity, the Education Department has long offered two other solutions to student loan default: loan rehabilitation and loan consolidation. Loan rehabilitation takes longer than consolidation, but it has the added benefit of removing the default from your credit history (late payments prior to default will still show up).

To rehabilitate a defaulted student loan, you must agree to make nine reasonable payments within 20 days of your due date over a period of 10 months. Once you’ve fulfilled your obligations, your loan will go back into active status and you’ll regain eligibility for federal repayment plans, forgiveness programs and financial aid.

Rehabilitation is typically a one-time deal, but borrowers who rehabilitated their loans during the payment pause are allowed to use it again. Using the Fresh Start program also won’t count toward your one-time eligibility. If you use Fresh Start now and default on your student loans in the future, you’ll still have the option to rehabilitate your loan.

3. Apply for Loan Consolidation

Consolidating your loans with a direct consolidation loan is a quicker path to getting out of default, but it won’t remove the record of default from your credit report. To consolidate your defaulted student loans, you must agree to repay the consolidated loan under an income-driven repayment plan. Alternatively, you’ll have to make three consecutive, on-time, full monthly payments before you can consolidate.

Note that you’re only eligible for this option if you can include at least one other eligible federal loan in the consolidation, such as a direct subsidized or unsubsidized loan. If you don’t have another loan to include in the consolidation, you’ll have to pursue an alternative approach, such as rehabilitation or debt settlement.

4. Negotiate a Student Loan Settlement 

It may be possible to close out your student loan through debt settlement. For federal student loans, debt settlement is usually only an option after you’ve exhausted other avenues for getting out of default, such as rehabilitation and consolidation.

If you successfully negotiate a debt settlement, your loan servicer may agree to accept a lower amount than what you owe, although the amount may vary by loan type.

“Settlements of defaulted federal student loans are limited by strict guidelines, so most borrowers will not get a substantial reduction,” says student loan lawyer Adam Minsky. “Settlements of defaulted private student loans are more variable.”

If you and your loan holder agree to an amount, you may have to pay this amount as a lump sum or use a payment plan. After you’ve made payments, the servicer should mark your loan as paid in full.

Debt settlement can be a complicated process, and there’s no guarantee of success. You may wish to hire a student loan lawyer or debt settlement company to navigate the process on your behalf. Be careful if you go this route, since debt settlement services can charge high fees or, in the worst case scenario, turn out to be scams.

Note that paying off your student loan balance in full is another option for getting student loans out of default and restoring your access to federal financial aid. However, this option isn’t realistic for most borrowers in default.

How to Handle Private Student Loans in Default 

Defaulting on private student loans from a bank, credit union or other lender doesn’t make you ineligible for federal financial aid. You’ll still be able to submit the FAFSA and access federal grants, work-study and student loans for college or graduate school.

However, it may not be a good idea to take on more debt when you’re already behind on your student loan payments, and private loan default is still a difficult situation.

“Defaulting on private loans should be taken seriously, as they have more grave and immediate consequences,” says Karen McCarthy, vice president of public policy and federal relations with the National Association of Student Financial Aid Administrators. “For borrowers dealing with private student loans in default, they should reach out to their private student loan servicer about repayment options.”

While there’s no standard program for getting private student loans out of default, some lenders may be willing to set up a payment plan or hardship assistance option. Other approaches you can take include:

  • Negotiate a student debt settlement. As with federal student loans, you may be able to pay off your student loans by offering a lower amount than what you owe. You’ll likely have to prove that your payments are unaffordable and your financial situation is unlikely to change in the foreseeable future. 
  • Try to discharge your student loans through bankruptcy. Filing for Chapter 7 or Chapter 13 bankruptcy is another option, but you may have to prove that your loans are causing undue hardship in your life that makes it impossible for you to maintain a minimal standard of living. While hiring a lawyer isn’t required, you may work with one to boost your chances of success. Organizations like Legal Services Corporation and Student Loan Borrower Assistance may be able to connect you with free or low-cost legal help. 

Unlike federal student loans, private student loans have a statute of limitations, after which creditors can no longer take you to court over repayment. Certain actions, however, can restart the statute of limitations, such as making a payment or even acknowledging that you owe the debt.
Being aware of the statute of limitations in your state can help inform your decision of how best to proceed with your defaulted private student loans.

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