How To Go Back To School With Defaulted Student Loans?

How defaulting on your student loan can affect your schooling.

Getting a student loan and making monthly payments for one is not easy. This is why many students end up defaulting on their student loan payments.

But can you go back to college with defaulted student loans?

The answer could be yes if you understand the situation and find solutions to rectify it. But rest be assured, defaulting on your student loans is a serious thing and can have serious consequences. It poses a grave challenge to going back to school if the student cannot use out-of-pocket funding for their education. However, even though it is important to make sure you have your student loans in good standing, you can quickly recover from a student loan default and still be qualified for a student loan.

How to go Back to School With Defaulted Student Loans?

If your loans are in default because you have not made any payments in recent times when they were due, you would have to rehabilitate your defaulted loans in order to go back to school. If you do not, you would have no other choice but to pay for tuition and other expenses out of your own pocket since you would not be able to receive any more financial aid from the school.

How to Get Student Loans Out of Default?

There are two ways to get out of default in order to go back to school:

1.Loan rehabilitation.

It allows the student to have access to student aid after 9 monthly payments have been made under a loan rehabilitation agreement within 10 months. Although, Perkins Loans require you to make 9 monthly payments within the span of 9 months.

After you are done with the 9th payment, the default status on your loan would be removed and you will have your loans back in good standing.

You will not be required to wait 9 months to regain eligibility for student aid. You can regain eligibility for additional federal student aid after you have made 6 monthly payments under the repayment plan you have. You will still have to make 3 remaining payments in order to get out of default.

How to Start Loan Rehabilitation?

In order to start the rehabilitation process, you should contact the Department of Education’s Default Resolution Group to find out who the lender is. The DRG will tell you which collection agency is handling your loans.

The collection agency will then calculate how much your monthly rehabilitation payments will be. After this amount is calculated, you will make your first payment using a debit card or use your checking account information.

Scheduling your payments using your checking account information is the better route to take. This way, you will not have to worry about updating the collection agency if your card has been lost or stolen.

Once the payments have been scheduled, the last thing you need to do is sign your student loan rehabilitation agreement letter. This agreement will provide the term of the loan rehabilitation program and all your responsibilities under it.

After you have signed the loan rehabilitation agreement, you will be required to return it to the collection agency after which you will have to wait and make your payments for 9 months until you are out of default.

What Happens After Student Loan Rehabilitation?

Once you complete student loan rehabilitation, you might have your collection fees waived and your loan will be sent to a new loan servicer.

When your loan has been serviced, you will have to contact your new servicer to enroll yourself in an income-driven repayment plan.

2.Loan Consolidation.

A loan consolidation option will take your defaulted federal loan and will combine it with another loan to create a new one called a Direct Consolidation loan.

With a consolidation loan, you can get out of default and be eligible for financial aid in about 3 months only. The weighted average of the loans consolidated by you will be the interest rate for your new Direct Loan.

How to Get a Consolidation Loan?

You can consolidate your loan at

You will need to have a Federal Student AID ID to login to the site after which you will be able to view all of your loans. You can then choose which loans you want to consolidate.

It might be a smart move not consolidating all of your loans if you have begun earning credit towards Public Service Loan Forgiveness or Teacher Forgiveness.

Since you are in default, you will be required to apply to an income-driven repayment plan so you can make your loan payments under it.

You can use your social security number to import your adjusted gross income from the IRS. There is also the option of submitting a paper loan consolidation application. It will allow lenders to easily keep records of your documents, when they were submitted and to whom. And when you are dealing with loan servicers, especially if your loan is so extensive, it is important to keep a record of all the information.

Rehabilitation vs. Consolidation

Consolidation can be a good option for you, should you choose it, because it is faster than rehabilitation and you get to choose your loan servicer while being less likely to be in default again.

The only negative is that your student loan debt is likely to balloon with consolidation loans which means the accrued interest and collection fees is added to your principal loan balance, also known as capitalization, when you consolidate.

Whereas, when it comes to loan rehabilitation, the US Department of Education has a policy about not capitalizing collection fees when rehabilitation has been completed. So when you rehabilitate and your loan transfers to a new loan servicer, the loan amount you have to pay will only include your principal and interest.

Moreover, rehabilitation can remove the default status from your credit report, improving your credit score and making your credit history blemish-free again.

However, loan rehabilitation does not remove the report of late payment history which will stay unless you get it deleted.

What if you Cannot Make the Student Loan Payments Even After a Loan Consolidation or Rehabilitation?

Being unable to make their monthly student loan payments after consolidating or rehabilitating their loan is a common mistake made by students who are still in school. Many borrowers that go back to school only manage to get a part-time job which ends up not being enough to cover their loan payments while financing their living expenses.

If you are having a hard time making your monthly student loan payments, do not ignore them and let them default again after you have consolidated or rehabilitated your loan. Once you are out of default, you can be eligible for loan deferment.

Deferring student loans to go back to school allows you to temporarily postpone your monthly payments. However, not everyone can qualify for a loan deferment.

Some of the considerations required in order to get approved for a student loan deferment are:

  1. You are attending school either full or half-time.
  2. You are unemployed.
  3. You are receiving state or federal assistance.
  4. Your monthly income is less than 150% of your state’s poverty guidelines.
  5. You are in the Peace Corps or on active military duty.
  6. You are undergoing treatment for cancer.

Once you are approved for a loan deferment, you can postpone your loan payments for up to three years. However, this should not be confused with student loan default forgiveness. Your loan will not go away if you stop making your payments. You would still have to pay the loan after the deferment period is over.

Why Should You Get Out of Default?

Having a defaulted federal student loan makes you an undesirable candidate when applying for additional federal student financial aid in case you decide you want to go back to school to finish your undergraduate program or enroll in a graduate program. If you do not have a source of funds, it can be a roadblock on your way back to school.

Final Thoughts

So as we can, the answer to the question, “how to go back to school with defaulted student loans?” is pretty simple.

All you have to do is make sure your student loans are no longer defaulted so you can go back to school to either finish your undergraduate program or start a new graduate one.

You can either consolidate your loan, which can cause your loan balance to balloon, rehabilitate your loan or opt for loan deferment. All these options will help you get your loan out of default. If that does not seem like a feasible option for you, the only choice you are left with is opting to pay for the remainder of your education or any future education you want to obtain from your own pocket without any financial aid. This way, you will not be required to go through the difficult process of getting your existing loans into good standing before you go back to school. However, this is only an option for people who can afford to.

Tony Bennett

Tony Bennett

Tony Benett makes his living in the insurance industry by teaching and consulting. He is also recognized by the legal profession as an expert on insurance coverages. His insurance experience includes having worked at the company level, owned an independent general agency and having worked for an insurance association. He has received various certificates over the past few years and helps his clients and readers by giving them a realistic outlook on what they can expect to achieve within their set targets. At Insurance Noon, he is known for his in-depth analysis and attention to details with accuracy. He has been published as one of the most referred agents by his peers in the insurance community. Tony loves the outdoors and most sport events. His passion other than providing excellent advice is playing golf.

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