As student loan debt increases, it’s likely that so will the number of borrowers defaulting on their student loans. Student debt in the U.S. has reached crisis levels at $1.76 trillion. The average borrower owes $37,338 in federal student loan debt.
Approximately 4 million student loans go into default every year, according to EducationData.org. About one in 10 borrowers have defaulted at some point, and about 5% of all student loan debt is currently in default.
Failure to make payments on your student loans can result in serious consequences. If you’re struggling with your student loans and are in danger of defaulting, there are options. The sooner you take action to remedy your student loan troubles, the better.
If your loans are already in default, there are steps you can take to recover. Read on to learn how to get student loans out of default.
What is Considered Student Loan Default?
At its most basic, student loan default happens when you have failed to make payments on your student loans.
If you have a federal student loan, the U.S. Department of Education considers your loan delinquent the day after you miss your first payment. After 90 days, your failure to pay will be reported to all three big credit bureaus, which may negatively impact your credit score.
If your loan is delinquent, there are steps you can take to prevent the loan from going into default. If you’ve failed to make a payment or two, consider applying for student loan deferment or forbearance, especially if you’re facing a temporary financial hardship.
If you’re having long-term difficulty paying your monthly student loan payments, an option is to see if you can change your payment terms to reduce your monthly bill. This process will extend the life of the loan (lowering your monthly loan payments usually involves lengthening your loan term) and you’ll most likely pay more in interest over the life of the loan. However, making payments on time can help you avoid defaulting and the consequences that come with it.
After 270 days of nonpayment, the loan is considered in default, triggering a series of consequences for the borrower.
For example, the default and history of missed payments can stay on your credit report for years to come. You also become ineligible for federal payment assistance such as forbearance, deferment, and student loan forgiveness. Any costs associated with collecting the loan are added to your balance due, and the government has the ability to garnish your wages or seize your tax refund.
There is a temporary on-ramp period in place to help struggling borrowers transition back to making their payments after the end of the pandemic-era federal forbearance period. From Oct. 1, 2023 to Sept. 30, 2024, borrowers who miss payments will not have their loans considered delinquent or in default, have those missed payments reported to the credit bureaus, or be referred to collections agencies. At the end of the on-ramp period, however, any missed payments during that time become due.
Tips for How to Get Student Loans Out of Default
If you’re wondering how to get student loans out of default, there are options. These include: loan rehabilitation, consolidation, refinancing, or paying off the loan in full—including any additional interest accrued on student loans. Oftentimes, borrowers in default are unable to repay their loans in full, so the following alternatives may be more practical.
1. Loan Rehabilitation
You may be able to remove a default from your credit report through student loan rehabilitation. The specifics on how to remove your default via student loan rehabilitation depend on the type of loan you have. Here’s roughly what the process looks like if you have federal loans in default:
First, you contact your lender’s customer service office to request a rehabilitation plan for your loan. Second, you want to be sure you can commit to the program since you can’t rehabilitate a loan a second time.
Third, you follow your lender’s plan. That means making nine payments on time, usually at a lower payment rate (your lender determines the monthly payment amount, usually equal to 15% of your annual discretionary income, divided by 12).
Once you’ve successfully made all payments on rehabilitated student loans, the default can be removed from your credit report, but sometimes it takes about 90 days. Note that missed payments prior to the default on your loan will remain on your credit report, and your loan holder may still take involuntary payments (like wage garnishment) until your loan is no longer in default and/or you begin making rehabilitation payments.
Once you have rehabilitated student loans and you’ve again become a borrower in good standing with your lender, you now have the opportunity to get further relief through forbearance or deferment, especially if you’re still struggling.
2. Loan Consolidation
If you have federal student loans, you may be able to consolidate your student loans into one Direct Consolidation Loan. By consolidating, you pay off your existing loans and replace them with one new loan. The new rate is a weighted average of the interest rates on your old loans, rounded up to the nearest one-eighth of a percent.
If you qualify to consolidate your student loans, you have the ability to choose a different payment plan, including income-driven repayment plans. These plans lower your monthly payment to a percentage of your discretionary income. Most plans also extend the term out to 20 or 25 years, and cancel any remaining balance once the term is up (the SAVE plan, however, awards forgiveness as soon as 10 years for certain borrowers). Keep in mind that extending your repayment term could mean paying more in interest over the life of the loan.
You can also consolidate and refinance your federal and private student loans with a private lender, reaping some of the same benefits as consolidating your federal student loans: paying off several loans with one new loan and potentially lowering your payments.
But unlike federal student loan consolidation, a private loan consolidation doesn’t limit you to a weighted average of your previous loan rates, so you may be able to get a better rate depending on your personal financial history and current financial situation. When you consolidate student loans with a private lender, you are essentially refinancing them.
3. Refinancing Your Loans
If you have a solid personal financial picture (which includes things like your income and credit score), you may be able to refinance your loans with a private lender instead of consolidating them with the government. You may get a lower interest rate, which can allow you to trim the amount of interest you’ll pay over time, unless you extend the loan to lower your monthly payments instead. (You may pay more interest over the life of the loan if you refinance with an extended term.)
However, if you’re wondering how to get student loans out of default, your credit has likely already suffered. An option for those who want to refinance, but have a less-than-great credit score, is finding a cosigner for the loan. With a cosigner, you may be better able to qualify for refinancing. However, your cosigner would be equally responsible for the loan.
If you qualify for student loan refinancing, you may be able to also adjust the loan term, extending it to get a more manageable monthly payment or shortening the term to pay off your loan sooner. If you lengthen the loan term you may pay more in interest over the life of the loan, and a shorter-term usually means higher monthly payments.
But when you refinance a federal student loan with a private lender, you’ll no longer be eligible for federal protections, such as income-driven repayment plans or Public Service Loan Forgiveness.
How Refinancing Can Help Keep You From Defaulting
If you are at risk of defaulting on your student loans, there’s no better time than now to take action. It’s scary to not be able to pay your student loans. But there are ways to lower your monthly payments before you go into default.
First, if you have federal loans, you may want to look into income-based repayment plans, as mentioned above, which can lower your payments in accordance with your discretionary income.
If you’d like to consider refinancing your student loans, this could also potentially lower your payments. If you qualify for refinancing, you can opt to extend your loan term, and potentially secure a more manageable monthly payment. (You may pay more interest over the life of the loan if you refinance with an extended term.) Using a student loan refinance calculator can help you see how your payments might change.
While a refinanced loan with a longer term could mean paying more in interest over the life of your loan, it could also help you get your payments under control.
Should you refinance your student loans? You’ll need to weigh the pros and cons. Again, keep in mind that if you refinance with a private lender, you will lose access to federal loan benefits like income-based repayment plans, forbearance, and deferment.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 Opens A New Window.(Member FDIC). For additional product-specific legal and licensing information, see SoFi. Equal Housing Lender.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
More from MediaFeed:
9 ways stores trick you into spending during the holidays
For years the holiday shopping season kicked off on the day after Thanksgiving, aka Black Friday. Now retailers have started to offer deals as early as Nov. 1.
The National Retail Federation reports that these “Black November” specials, both online and in stores, focus heavily on typical gift categories like electronics, clothing and toys.
Super-early shopping is a new way for retailers to part consumers from their dollars. The stakes are huge: The NRF predicts spending to reach as high as $730.7 billion during November and December 2019.
Here are nine other ways stores can trick us into spending.
DepositPhotos.com
As noted above, deals launched as early as Nov. 1. But the period from Thanksgiving Day through Cyber Monday encompasses some of the busiest shopping days of the year. In 2018, an estimated 165 million consumers spent an average of just over $313 each during that five-day span.
Journalists, shopping websites (some devoted solely to Black Friday) and social media influencers report on the lowest prices and hottest trends. Getting the best deal is “a sport” for some consumers, according to shopping expert Trae Bodge.
“But not everything that’s on sale over Black Friday/Cyber Monday is the deepest discount you’re going to see,” says Bodge.
Electronics and beauty items are deeply discounted during that five-day period. However, Bodge says that children’s items like toys and bicycles generally cost less in December.
PeopleImages
Seasonal decorations. Nonstop holiday music. Red or green vests and maybe even reindeer antlers on store associates. Shopping bags with holiday designs or slogans. Special holiday foods, with free samples. Toys everywhere you look, even in the automotive section.
“We try and create an ambience that’s completely immersive,” says Georganne Bender, a retail expert and industry consultant.
Shopping even smells different in November and December. Customers get whiffs of scents like pine needles, oranges and cinnamon via in-store fragrance machines – and not just to get us in the holiday spirit.
“The sense that is most tied to our memories is our sense of smell,” Bender says. When we remember childhood celebrations, we’re often spurred to create picture-perfect holiday memories for our own loved ones.
Depositphotos
You go to Store X for the $199.99 big-screen television. But while you’re there, you can’t help noticing a display of $89 tablets, or the bin full of $7.99 Blu-ray movies. Suddenly your cart gets a lot fuller.
Another tactic is called “cross-merchandising.” Retailers place items in unexpected places – for example, scented candles and inexpensive jewelry near the cash registers – to encourage you to grab an extra gift for someone on your list.
Or you’ll see displays that make absolute sense, such as cranberry sauce, jarred gravy, stuffing mix, cans of pumpkin, gingerbread house kits and disposable foil pans displayed right next to the freezer with all the turkeys. Normally you’d have to walk through multiple aisles to get all these things.
These “merchandise outposts” encourage extra purchases, Bender says. You might have come in to buy just the loss-leader turkey, but decide to get everything else while you’re at it, regardless of whether or not those items are also on sale.
Other merchandise outposts will be set up right in the middle of a store’s widest aisles, “where you can’t miss them,” she says. Maybe you came in to buy flashlight batteries and pet food, but when you see a display of gift baskets you remember you need something for the office gift exchange.
Again, it might not be the best price, but it’s convenient, so you buy it.
DepositPhotos.com
Getting one thing absolutely free sounds a lot better than “get 50% off each of two items,” doesn’t it?
Sometimes this can work in your favor. For example, if you planned to buy a teddy bear for your youngest kid, getting an additional one means a second gift – for that child or someone else – that you don’t have to pay for.
However, if the quality of the toy isn’t as good as you hoped, you now have two substandard bears. Another possibility: This isn’t the best price on stuffed toys (or whatever you’re buying), so you spend more than you’d planned.
And sometimes all you need is one toy or one perfume set.
“I don’t appreciate being pushed into buying a higher quantity than I want,” Bodge says.
Depositphotos
Free shipping is generally available year-round if you spend a certain amount. Come the holidays, “we’ll see that shipping threshold disappear,” Bodge says.
While it’s nice to get something sent for free, that’s not necessarily a good reason to buy. You might find a better deal elsewhere. And if you don’t, here are a couple of possible workarounds:
-
Free Shipping Day, when some retailers offer delivery by Christmas Eve; this year, it’s on Dec. 14
-
If your Amazon order comes in just under the $25 minimum for free shipping, sites like Filler Item Finder and CheapFiller.com will help you make up the difference. For example, if you’re at $24.45 you could add a 55-cent light switch plate cover. Even if you don’t need one, it’s still cheaper than adding an unnecessary item, or paying for shipping.
Jorge Villalba
Fear of missing out, or FOMO, sometimes leads people to buy without thinking things through. For example, a retailer might offer gift cards to its first 200 customers on a given day. Suppose you receive a $10 card and use it on a planned $25 purchase.
You saved $10, but, that discount could also lead to overbuying: I was only going to spend $25, but there’s this really cool thing that’s only $45 and with my gift card it’s only $35.
Except now you’re $10 over your gift budget. You didn’t save $10 – you overspent by $10.
Another example is short-term “lightning deals” on Amazon. These can be more stressful than empowering because they create “the feeling you have to be online all the time,” according to Bodge.
Check out our list of 40 freebies, discounts and deals for Amazon Prime members.
“Getting a good deal should not be a full-time job,” she says.
And speaking of jobs: Yours could be in jeopardy if the boss catches you obsessively checking for deals.
nicoletaionescu / istockphoto
Some retailers have reinstituted the old tradition of “layaway,” in which you put down a deposit and make payments until the purchase is paid in full. Buy-now-pay-later companies like Afterpay and Klarna are also making it possible to stretch out the cost over time.
Sounds great, right? Especially if you’re on a tight budget, or don’t have a credit card.
But since relatively few retailers offer layaway, your shopping options are limited. If you miss a payment you could be charged a fee. And if you don’t pay it off in time, you’ll likely have to pay a cancellation fee (possibly as high as 20% of the purchase, depending on where you shop), and you might get a store gift card rather than a cash refund.
artiemedvedev / istockphoto
This is particularly effective on Black Friday, when stores serve coffee and doughnuts to early-bird shoppers, according to Bender: “When you feed people at a promotional event, they generally stay longer and spend more money.”
zoff-photo / istockphoto
Some people are tempted to buy lingerie or beauty supplies because of the promise of a freebie. But is the extra gift needed? Is it worth the amount you spent on the first gift? While it might be a good deal for someone else, is it a good deal for you?
This is especially true if the free item is a gift card. The retailer might specify that the card can’t be used until after the holidays, which means you can’t use it to boost your gift budget. And it’s not likely that the free card will have a high enough value to buy something you actually need, so you’ll have to fork over some cash to redeem it.
Note, too, that this “gift” can’t be used anywhere else.
“You may walk away with something free,” says Bodge, “but it brings you back into the store.”
This article originally appeared in Policygenius and was syndicated by MediaFeed.org.
Bobex-73 / istockphoto
Featured Image Credit: damircudic/istockphoto.
