How To Return To College After Defaulting On A Loan

Student loan settlements allow you to "settle" for an amount less than you owe after you've already defaulted. Some lenders accept 50-90% of your total loan if they determine that it's the only feasible way you can pay off your remaining debt. However, loan holders usually garnish your wages and tax refunds to receive the full amount you owe.

If you think you're a candidate for settlement, first identify the collection agency your debt has been sold to at studentaid.gov. Contact the agency and tell them you would like to explore settling your student loan. If they are receptive, you can begin to negotiate a new payment plan and timeframe. Once you come to an agreement, ask for it to be sent to you in writing. When you've finished paying off your settlement, make sure you receive documentation that the student loan has been satisfied.

After you've made all your payments, you should regain financial aid eligibility.

A direct consolidation loan applies to those with multiple federal student loans. The process combines all your loans into one and usually lowers your total monthly payment.

You can apply on studentaid.gov or download a paper application and mail it to the Department of Education (ED). The application gives you a few repayment plan options, including the standard 10-year repayment, income-contingent repayment, and graduated repayment. Before the process is complete, you will receive a summary of your new plan. If you do not contact the ED within 15 days of application to stop the process, your consolidation will proceed automatically.

Consolidation can lower your monthly payment by extending your repayment timeline by up to 30 years. However, you will end up paying more in interest in the long run.

With direct loan rehabilitation, you agree to make nine monthly payments within a 10-month period on time. Each payment should occur within 20 days of the due date. With this option, you can regain eligibility for federal assistance after just six monthly payments, but you still need to pay the three remaining payments on time. So, if going back to school quickly is your priority, this may be your best option.

To start the process, contact your loan holder, who can discuss the terms of rehabilitation with you. If you decide to move forward, the loan holder will determine the monthly amount you would pay using the IBR formula. They will likely ask you to provide documentation of your income in order to calculate this amount and finalize the agreement.

Within 15 days of the determination, the loan holder must give you a written rehabilitation agreement. After completing student loan rehabilitation, your loan is usually assigned to a new servicer. Afterward, all collection activities such as wage garnishment stop.

You can only rehabilitate your loan once. If you default on your loan again, you'll need to find another option, such as loan consolidation.