Beginning on May 5th, 2025, the Department of Education will resume collections on defaulted student loans. Defaulted loans many include any where a payment has not been made in more than 270 days. The Federal government has the authority to claim federal payments, such as your IRS tax refund, Social Security benefit payments, Railroad retirement or Office of Personnel Management (OPM) retirement benefits, in order to pay down your defaulted loan balance through a program called Treasury Offset.
If you have not been making payments on your student loans since before the COVID pandemic began, you should log in to your account on studentaid.gov to check whether or not they are in default. Regardless of your loan status, all borrowers are encouraged to check out the repayment options currently available for your type of loan(s). If your loan is in good standing, you can make changes to your repayment plan at any time!
If you are in default, you can still take steps to help avoid these federal payments being collected for your loan debt! The two main ways to get out of default are:
- Rehabilitate your loan(s), or
- Consolidate your loan(s).
How to Rehabilitate Your Loan
To start the loan rehabilitation process, you must contact your loan holder. If you’re not sure who your loan holder is, you can log in to studentaid.gov and view your loan servicer details to get your loan holder’s contact information.
What you need to do to rehabilitate your loan(s) depends on your loan type and who holds your loan. In general, in order to rehabilitate a loan you must make nine monthly payments in a row. The amount of the required payment may vary according to the type of loan and your current annual income. Depending on your income, your required monthly rehabilitation payment could be as low as $5.
Rehabilitating loans in collections
If your wages or federal benefits are being garnished in order to pay your student loans, these payments do not count toward loan rehabilitation. In order to stop these collections, you must either complete at least five monthly loan rehabilitation payments. When your loan is rehabilitated, the default status will be removed from your loan, and collection of payments through wage garnishment or Treasury offset will stop.
Impact on Credit History and Elegibility for Benefits
Through loan rehabilitation, you’ll regain eligibility for benefits that were available on the loan before you defaulted, such as deferment, forbearance, a choice of repayment plans, and loan forgiveness. The record of default will also be removed from your credit history, although any late payments reported by your loan holder will still appear on your credit report for up to seven years.
If you rehabilitate a defaulted loan and then default on that loan again, you can’t rehabilitate it a second time. Rehabilitation is a one-time opportunity.
How to Consolidate Your Loan
Another way to get out of default is to consolidate your defaulted federal student loan(s) into a Direct Consolidation Loan. Loan consolidation allows you to pay off one or more federal student loans with a new loan.
Keep in mind that when you consolidate a loan, your new loan balance will include all previously accrued interest as well as the original principal balance. Then you’ll get charged future interest on a higher balance, which could cause you to pay more overall (compared to other options for getting out of default). Learn more about consolidation.
To consolidate a defaulted federal student loan into a new Direct Consolidation Loan, you must either
- agree to repay the new loan under an income-driven repayment (IDR) plan, or
- make three consecutive, voluntary, on-time, full monthly payments on the defaulted loan before you consolidate it.
Your monthly payment amount will be determined by the loan holder, but must take your income and financial circumstances into account. The payment amount cannot be more than what is reasonable and affordable based on your total financial circumstances.
Consolidating Loans in Collections
If you want to consolidate a defaulted loan that is being collected through garnishment of your wages or that is being collected in accordance with a court order after a judgment was obtained against you, you cannot consolidate the loan unless the wage garnishment order has been lifted or the judgment has been vacated.
Impact on Credit History and Elegibility for Benefits
After your defaulted loan has been consolidated, your Direct Consolidation Loan will be eligible for benefits such as deferment, forbearance, and loan forgiveness. However, if you consolidate a defaulted loan, the record of the default will remain in your credit history. Late payments will remain on your credit report for seven years from when they were first reported.
Get Help With Your Defaulted Loans
For more detailed information about the benefits of rehabilitating vs. consolidating a loan (as well as other repayment options), check out https://studentaid.gov/manage-loans/default/get-out.
Remember, if you need help with your defaulted federal student loan, you will need to contact the holder of your defaulted loan. To find out who holds your loan, log in and view your loan servicer details.
If you are contacted by a company asking you to pay “enrollment,” “subscription,” or “maintenance” fees to help you get out of default, you should walk away. Your loan holder will help you with your defaulted loan for free.
You can also contact the Default Resolution Group directly to discuss repayment options and provide information about your current financial situation. The Default Resolution Group can be reached by phone at 1-800-621-3115 or online at https://myeddebt.ed.gov/borrower/#/home. All documents, such as your most recent tax return, must be submitted by mail to the following address:
U.S. Department of Education
Default Resolution Group
P.O. Box 5609
Greenville, TX 75403-5609
