welcome debtors and borrowers to my blog because debt ruins lives, not bankruptcy. My name is matt burkus, i'm a colorado bankruptcy and student loan relief attorney and today we're going to answer the question: how do you get your federal student loans out of default status, so we're going to address what is default and when does it happen?
What are the consequences of your loans going into default and then, lastly, how to get your student loans out of default status? So you can resolve your issues with your student loans, one of the most frequent things i do.
I counsel clients on is getting their student loans out of default status.
I do offer consultations to people nationwide to talk about their student loans and try to get them on the right track with what to do about their student loans. So let's talk about student or federal student loan default, so federal student loans can either be delinquent or in default.
Now default is the bad thing. Delinquent just means that you're behind on a few payments default is triggered when you've gone nine months or 270 days without making a payment, and once your student loans are in default status, you can't just call your servicer back up and just get back on track. There'S a process to it.
In addition, once your student loans go into default, they're generally going to be transferred to a different service or a collector or default servicer, when that happens all right, so so what happens? So what are the consequences? If you let your student loans go and default well, they're, not good! All right! The federal government, the department of education can authorize wage garnishment of up to 25 percent of your wages.
The most common thing that they do is intercept any tax refund that you might do so. Wage garnishment and tax refund intercept are the most common. They can also offset any federal benefit, and this is particularly crucial when it comes to social security. They can garnish social security for defaulted student loans. You can't get any new federal student loans or federal grants for education.
While your student loans are in default, collection fees are going to be added and those can range anywhere from you know, 15 to 25 percent of your outstanding balance. Depending on what type of profession you're in you might have your license suspended to practice that profession, you will probably lose a security clearance. If you have one and then the last resort that the federal government has is they can't actually sue you for defaulted student loans?
However, that's exceedingly rare, i think i've only come across it once where someone had a judgment against them for defaulted student loans, because they can do all this other stuff to you without getting a judgment. So it's really not common for them to do it, but it is a potential consequence of having your student loans in default for an extended period of time.
So you really do want to avoid allowing your student loans to go into fall. So, okay, you know, life happens, your student loans, your federal student loans, are in default. Well, what can you actually do about it? Well, there's two well technically three ways to get your student loans out of default status. Of course, the easiest way would be just to pay your student loans, but you probably wouldn't be reading this article.
If you have the ability to just pay off your student loans, but obviously paying off your student loans would get them out of default status. So the plan a option or the first option is consolidation, so if you can still consolidate your loans, that will get your your federal student loans out of default status now the catch, of course is you have to be eligible to consolidate your federal student loans.
So if you like, a lot of people when you graduate from whatever program you're in most people, will reflexively consolidate their student loans at that time, and you can only consolidate your loans once generally speaking. So if you've already consolidated your loans - and so your existing loan is a direct consolidated loan, then you can't use consolidation to get your loans out of default.
However, there are, there is an exception to that, and the main exception is, if you have other loans, that weren't part of that initial consolidation that you did and that those loans would be eligible for consolidation.
Then you can reconsolidate all your loans and get your loans out of default status. We don't really see that that often, i suppose it would come up where someone who got a bachelor's degree consolidated their loans after they graduated.
Then years later went on to graduate school and then defaulted on their student loans after graduates, after graduate school, they might be able to reconsolidate all their student loans and get themselves out of default.
The benefit of using consolidation is that it's instantaneous, i mean, as far as how you actually do it you just either log in to your servicer or call whoever's, servicing your loan and just ask to consolidate your loans, and they will run the program to see if You are eligible to do it and the other catch here is: if you have older loans, you might have a few options if you have the older loans, which are the ffelp or the federal family education program loans, so these are loans that pre-date 2010, primarily.
So if you have loans that go way back, you might be eligible to take those old ffel loans and consolidate them into a direct loan, and then that will be the consolidation to allow you to get out of default status.
So there's two ways you can do: an ffel consolidation, loan or ffel consolidation into direct loans. One is if you're trying to go for public service loan forgiveness, the others, if you're trying to get on an income driven repayment plan, but there's specific requirements for that and the servicer will have to walk you through whether you're eligible to do that.
On your older loans, however, just understand that there will be a collection fee added to your um student loans of up to eighteen point: five percent of the outstanding balance. So if you have a hundred thousand dollars in student loans, you're gon na have a collection fee of 18. 500 are up to that amount when you rehab, when you consolidate your loans, but it's not like you have any other option.
Okay, but so if you can consolidate your loans, that's really what you want to do to get your loans out of default status. But, as we said, most people have either already consolidated their student loans. They'Re not going to be or are not going to be eligible to consolidate their student loans.
The second way to get your loans out of default status and the most common way is what's called federal loan rehabilitation. So rehabilitation requires you to make nine voluntary and timely payments on your student loans as far as how you actually get rehabilitation again, you just call your servicer and specifically ask for loan rehabilitation, and the first thing they're going to do is: do an analysis of your Income because you have to make nine payments now, that's not nine payments of whatever your um original student loan payment is.
The only guidelines are that the the rehab payment must be reasonable, so the default formula is basically 15 of your adjusted gross income. Over 150 percent of the poverty level, okay, so that's the default formula, so they'll ask you to see for your tax return or what that number was that adjusted gross income number and then run a formula to come up with that 15 over over over 150 of The poverty level um - that's not the only way to do it. The other way is to actually do a specific income and expense worksheet as well, so the payment can be quite flexible for rehab and i've seen payments as low as five dollars a month.
So it's really just a quick negotiation with them to figure out what the monthly payment is. Then the servicer needs to send you a written agreement outlining rehabilitation and, like consolidation, there's going to be a collection fee that gets added, but that gets added at the end of the nine months once you complete the program.
So once you get the written agreement, you make the nine monthly payments and then your loans are out of default status. Now, there's going to be a delay, however um, because what happens is that once you complete the rehab program, the loan is then packaged and given to uh another servicer or non-default servicer to take over and we've seen, delays in that happening. That can take quite a few months, so i tell people to expect about a year for loan rehabilitation for the entire process.
A couple things to note about loan rehabilitation: you can you don't get charged a collection fee if you can rehab within 60 days of going into default. So if you're proactive about it, if you realize your loans have gone and default, you can get out of paying the collection fee or having the collection, be added to your balance by rehabbing within 60 days of collection and then, in addition, your credit report will also Be updated to reflect um that your loans are out of default status, but that doesn't sound as good as it is it that doesn't sound as good as it actually is.
It'S like yeah. Your loans are going to be put back in good status, but all the negative information that was there before from the default, such as the missed payments, the prior collection services, going to be on there. Those are still going to be on your credit report until until they fall off the credit report, naturally, which for missed payments, is three years for default status. That'S uh, seven years, but again you don't really have much of an option here. The benefit about getting your student loans out of default is, and that opens up all the payment options for you um.
As far as getting your loans back on track, so you can do any of the income driven repayment plans uh, you can pursue any of the various forgiveness options depending on what your profession is and what your your employment situation is, and i would certainly recommend that. So, there's really no good reason to stay in default status.
You really want to get your loans out of default status because there's just a lot of bad things that can happen to you and, let's be honest, they're not going to go away. I mean you know. Whatever the political climate is, there isn't the quite the motivation to see broad-based student loan cancellation, so i think, instead of wishing for sort of the white knight to rescue you from your student loans, you should be proactive about getting your student loans on a pathway to Resolution and the only way to do that is to get them out of default status and once they're out of default status, then you can go on and do one of the income driven repayment programs or seek one of the specific forgiveness options.
All right. My name is matt burkus, colorado, bankruptcy and student loan relief attorney. I do offer initial consultations to discuss student loans with individuals. Those consultations do cost 169 dollars. However, we can usually either get you pointed in the right direction or we'll be able to offer something to you, uh services, to you in order to assist you with dealing with your student loans.
Best of luck to you,
student loan forgiveness, student loans, federal student loans, public service loan forgiveness, student loan default
