How To Go Back To School With Defaulted Student Loans?

Discover how to return to school with Defaulted student loans and how it affects schooling. Keep on reading the article and acknowledge yourself for this.

Getting a student loan and making monthly payments for one takes work. It 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 assured, defaulting on your student loans is severe and can have serious consequences. Returning to school poses a grave challenge if students cannot use out-of-pocket funding for their education. However, even though it is essential to ensure your student loans are in good standing, you can quickly recover from a student loan default and still qualify for a student loan.

How do you go Back to School With Defaulted Student Loans?

Back to School With Defaulted Student Loans
Image source: Canva

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

  • Complete the FAFSA: Filling out the Free Application for Federal Student Aid (FAFSA) should be your first step in finding funding for further education. Remember that to be eligible for federal help. You must also fulfill all other standards and not have any federal student loans in default.
  • Apply for grants and scholarships: Unlike student loans, scholarships and budgets don’t need repayment. It’s a good idea to apply for as many scholarships and grants as possible because there is no restriction on the number of awards you may get.
  • Obtain federal student: If you successfully input your federal loan default, you could borrow more to pay for your school expenses. A credit check is not necessary for many federal loans(except PLUS loans), which might make them a particularly desirable alternative if your credit has been harmed by default.
  • To fill any shortfalls, take out private student loans: After you’ve used your federal loan, grant, and scholarship options, personal loans could be an excellent choice to help you close any remaining financial gaps. Unlike federal loans, you often need vital to exceptional credit to get approved for a private loan. It could be challenging to qualify after default because of this increased credit criterion.

How to Get Student Loans Out of Default?

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

  • Loan rehabilitation
  • Loan Consolidation

1. Loan rehabilitation

1. Loan rehabilitation Image source: Techno FAQ
Image source: Techno FAQ

It allows the student access to student aid after nine monthly payments have been made under a loan rehabilitation agreement within ten months. However, Perkins Loans require you to make nine monthly payments within nine months.

After you finish the 9th payment, It will remove the default status on your loan, and you will have your loans back in good standing.

You will not be required to wait nine months to regain eligibility for student aid. You can regain eligibility for additional federal student aid after making six monthly payments under your repayment plan. Also, you must still make three remaining payments to get out of default.

How to Start Loan Rehabilitation?

How to Start Loan Rehabilitation defaulted student loan
Image Source: College Raptor

To start the rehabilitation process, 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 checking account information.

Scheduling your payments using your checking account information is the better route. You can update 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.

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 nine months until you are out of default.

What Happens After Student Loan Rehabilitation?

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

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

2. Loan Consolidation.

A loan consolidation option will combine your defaulted federal loan 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 three 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?

Image Source: FSA ID
Image Source: FSA ID

You can consolidate your loan at

You will need a Federal Student AID ID to log in to the site, after which you can view your loans. Additionally, you can then choose which loans you want to consolidate.

Consider consolidating only some of your loans if you have begun earning credit toward Public Service Loan Forgiveness or Teacher Forgiveness.

Since you are in default, you must apply to an income-driven repayment plan to 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 It introduced them, and to whom. And when you are dealing with loan servicers, especially if your loan is so extensive, it is essential to keep a record of all the information.

Rehabilitation vs. Consolidation

Rehabilitation vs. Consolidation
Image Source: Canva

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

The only negative is that your student loan debt will likely balloon with consolidation loans. The accrued interest and collection fees are added to your principal loan balance or capitalization when you consolidate.

Regarding loan rehabilitation, the US Department of Education has a policy about not capitalizing collection fees when the restoration has been completed. So when you rehabilitate and your loan transfers to a new loan servicer, the loan amount you must 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.

Consequences Of Defaulting On Private Student Loans

 Image Source: Canva
Image Source: Canva

You lose eligibility for several student loan-related benefits if you go into default on your loans. If you default on your student loan, you are not eligible for anything, including forbearance, deferral, debt forgiveness, and even more financial help. The following are the repercussions of student loan default:

Harm to credit

Regardless of the outcome, the missing payments will lower your credit score. If you have bad credit, getting a credit card will be challenging. You’ll have to pay high-interest rates and need a larger down payment to get approved for loans.

A rising loan balance

Your loan balance might increase as a result of interest and collection costs.

Becoming ineligible for further student loan features

If you stay caught up on a student loan, you will only be eligible for forbearance, deferral, debt forgiveness programs, and other loan modifications.

Lost earnings

If the government owns your defaulted debts, they may follow repayment through salary garnishment, tax return offsets, or Social Security income offsets.

Difficulty obtaining a mortgage

It can make it more challenging to purchase a property.

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

what if you are unable to make defaulted student loan payments
Image Source:

Being unable to make their monthly student loan payments after consolidating or rehabilitating their loan is a common mistake students still in school make. Many borrowers who return to school only manage to get a part-time job, which is needed to cover their loan payments while financing their living expenses.

If you need help making your monthly student loan payments, pay attention to 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 return to school allows you to postpone your monthly payments temporarily. However, not everyone can qualify for a loan deferment.

Some of the considerations required 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 exceeds 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 approved for a loan deferment, you can postpone your loan payments for up to three years. However, this should be distinct from 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.


frequently asked questions defaulted student loans
Image Source: Helpjuice

What occurs if you default on a loan?

When you are in default on loan, your account is transferred to a debt collection company, which makes an effort to collect your credit score, makes it more difficult for you to borrow money in the future, leads to fines, and may even result in the seizure of your personal belongings.

Which reasons contribute most to default?

If the debtor cannot pay their loan, a default may happen. When a borrower fails to make due payments or otherwise violates the condition of the loans, a loan default occurs.

What is the defaulted loan recovery rate?

The recovery rate makes it possible to calculate the loss resulting from the default. It is known as loss-given default (LGD). As a result, the LGD is 40% if the recovery rate is 60%.

What elements contribute to loan default?

Aside from the borrower’s income and credit history, other important variables affecting loan delinquencies include the kind of loan, its length, interest, and cost.

Why Should You Get Out of Default?

A defaulted federal student loan makes you an undesirable candidate when applying for additional federal financial aid if you return to school to finish your undergraduate or 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 see, 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 no longer default 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. Suppose that is not a feasible option for y. In that case, your only choice is to pay for the remainder of your education or any future education you want to obtain from your pocket without any financial aid. This way, you will not be required to go through the complicated process of getting your existing loans into good standing before returning 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.