Defaulting on student loans can present an obstacle if you want to go back to school. Student loan default, which occurs after 270 days of missed payments on federal student loans, typically makes you ineligible for federal student aid. That means borrowers in default can’t access the grants, work-study programs and student loans that help make college affordable.
However, you have options to get your student loans out of default, such as loan rehabilitation, consolidation or debt settlement. If you’re wondering how to go back to school with defaulted student loans, here’s a closer look at your options.
[Read: Best Student Loans for Bad Credit. ]
1. Rehabilitate Your Loans
The Education Department has long offered two solutions to student loan default: loan rehabilitation and loan consolidation. Loan rehabilitation takes longer than consolidation, but it has the added benefit of removing the default from your credit history (late payments prior to default will still show up).
To rehabilitate a defaulted student loan, you must agree to make nine voluntary, reasonable and affordable monthly payments within 20 days of your due date over a period of 10 consecutive months. Once you’ve fulfilled your obligations, your loan will go back into active status and you’ll regain eligibility for federal repayment plans, forgiveness programs and financial aid.
2. Apply for Loan Consolidation
Consolidating your loans with a direct consolidation loan is a quicker path to getting out of default, but it won’t remove the record of default from your credit report. To consolidate your defaulted student loans, you must agree to repay the consolidated loan under an income-driven repayment plan. Alternatively, you’ll have to make three consecutive, voluntary, on-time, full monthly payments on the defaulted loan before you can consolidate it.
[READ Best Student Loan Refinance Lenders]
3. Negotiate a Student Loan Settlement
It may be possible to close out your student loan through debt settlement. For federal student loans, debt settlement is usually only an option after you’ve exhausted other avenues for getting out of default, such as rehabilitation and consolidation.
If you successfully negotiate a debt settlement, your loan servicer may agree to accept a lower amount than what you owe, although the amount may vary by loan type.
“Settlements of defaulted federal student loans are limited by strict guidelines, so most borrowers will not get a substantial reduction,” says student loan lawyer Adam Minsky. “Settlements of defaulted private student loans are more variable.”
If you and your loan holder agree to an amount, you may have to pay this amount as a lump sum or use a payment plan. After you’ve made payments, the servicer should mark your loan as paid in full.
Debt settlement can be a complicated process, and there’s no guarantee of success. You may wish to hire a student loan lawyer or debt settlement company to navigate the process on your behalf. Be careful if you go this route, since debt settlement services can charge high fees or, in the worst case scenario, turn out to be scams.
Note that paying off your student loan balance in full is another option for getting student loans out of default and restoring your access to federal financial aid. However, this option isn’t realistic for most borrowers in default.
[Personal Loan Calculator: Estimate Monthly Student Loan Payments]
How to Handle Private Student Loans in Default
Defaulting on private student loans from a bank, credit union or other lender doesn’t make you ineligible for federal financial aid. You’ll still be able to submit the FAFSA and access federal grants, work-study and student loans for college or graduate school.
However, it may not be a good idea to take on more debt when you’re already behind on your student loan payments, and private loan default is still a difficult situation.
“Defaulting on private loans should be taken seriously, as they have more grave and immediate consequences,” says Karen McCarthy, vice president of public policy and federal relations with the National Association of Student Financial Aid Administrators. “For borrowers dealing with private student loans in default, they should reach out to their private student loan servicer about repayment options.”
While there’s no standard program for getting private student loans out of default, some lenders may be willing to set up a payment plan or hardship assistance option. Other approaches you can take include:
— Negotiate a student debt settlement. As with federal student loans, you may be able to pay off your student loans by offering a lower amount than what you owe. You’ll likely have to prove that your payments are unaffordable and your financial situation is unlikely to change in the foreseeable future.
— Try to discharge your student loans through bankruptcy. Filing for Chapter 7 or Chapter 13 bankruptcy is another option, but you may have to prove that your loans are causing undue hardship in your life that makes it impossible for you to maintain a minimal standard of living. While hiring a lawyer isn’t required, you may work with one to boost your chances of success. Organizations like Legal Services Corporation and Student Loan Borrower Assistance may be able to connect you with free or low-cost legal help.
Unlike federal student loans, private student loans have a statute of limitations, after which creditors can no longer take you to court over repayment. Certain actions, however, can restart the statute of limitations, such as making a payment or even acknowledging that you owe the debt.
Being aware of the statute of limitations in your state can help inform your decision of how best to proceed with your defaulted private student loans.
More from U.S. News
How to Prioritize Your Debts When Student Loan Payments Resume
How to Go Back to School With Defaulted Student Loans originally appeared on usnews.com
Update 05/11/26: This story was previously published at an earlier date and has been updated with new information.