The Brookings Institute estimates that 40 percent of student loan borrowers will be in default for 2023. If you are among the percentage of borrowers in default, then you will need information that can help you deal with the collections process. Student loan collectors are every bit as relentless as collectors for other types of debt.
How to Get Out of Student Loan Default
Collection agencies may call you several times a week in an attempt to get you to pay. While you don’t have to pick up the phone, a good rule of thumb for becoming financially stable is to never run away from your debts. The longer you wait to resolve a serious debt problem, the worse your situation will become.
There are always solutions if you have the right kind of help and information. You may have solutions for getting out of student loan default, which is the easiest way to resolve issues with the collection process.
- The Department of Education’s loan rehabilitation program. You may be eligible for the Education Department’s rehabilitation program if you have federal student loans. If this is your first default and you have FFEL, Perkins or Direct Loans, then you could consider this option. You would need to meet the requirements listed on the Education Department’s website. Keep in mind, you only get one shot at this program. If you default a second time, you will not be able to take advantage of this option again.
- Direct Loan consolidation. You may be able to repackage your federal student loans into a Direct Consolidation Loan. The requirements for receiving a Direct Consolidation Loan or consolidating a defaulted FFEL Consolidation Loan are on the Education Department’s website as well. For a Direct Consolidation Loan, you would need to meet the requirements, and have at least one other eligible loan added to the new consolidated loan. If you have a defaulted FFEL Consolidation Loan and agree to use an income-driven plan, then you can re-consolidate into a Direct Consolidation Loan.
- Repayment in full. This is most likely going to be a tricky prospect if you have already defaulted. Once you default, you could face fees and interest that make repaying the loan even more difficult. Even if you have the funds to repay your loans in full, the options listed above may ensure you are better off in the long-term. You could divert your extra money to other financial assets, such as a retirement fund, while making monthly payments.
- Bankruptcy. Despite the common belief that it is impossible to file for bankruptcy on student loans, you might be eligible. If you can demonstrate that repaying the loans would impose an undue hardship on you and your dependents (if you have any), then you may be able to receive an undue hardship discharge.
- Negotiate new terms. If you have private student loans, then you can inquire about a new payment plan with your lender. Private student loan lenders would rather receive payments than no payments. If you can work out a deal where both sides stand to benefit, then you may be able to get out of default. There are additional factors to consider if you choose this option, so it may help to speak to a student loan attorney before beginning the negotiation process or before making good faith payments.
Our Kansas City Student Loan Attorneys Are Here to Help
The Sader Law Firm can help borrowers who are struggling to make payments or who are facing creditor collection actions. Contact our Kansas City student loan attorneys to learn more about options that might be available for your situation. You can reach us by dialing (816)281-6349 or by using our online contact form.