How to move student loans out of default

Opening Credits columnist Eric Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for

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Question for the expert

Dear Opening Credits,
My student loans were sent to a collection agency. I have been trying to get a reasonable payment plan, but the collection agency keeps denying what is affordable to me. I have even sent them a payment and they sent the money order back to me. How do I take care of this and make them accept my payment?  -- Trisha 

Answer for the expert Dear Trisha,
Hollywood is missing out on a blockbuster horror movie: Student loans gone bad. It would be a real scream-fest. Because when these obligations go into default, the process of trying to get them on back on track can make the most well-intentioned borrower shriek with madness. 

It is frustratingly true that when a defaulted student loan lands with a collection agency, making amends can be far more difficult to do in real life than it is on paper. Some of these collectors are very hard to deal with and they're getting tougher, too. According to a 2012 National Association of Consumer Bankruptcy Attorneys survey, 65 percent of bankruptcy attorneys said that student loan provider debt collections have become "much more" or "somewhat more" aggressive in the past 18 months.

You do have rights, though.  If your student loans were federally guaranteed, you're allowed to set up a "reasonable and affordable" payment plan to "cure" the loan, which is what it sounds like you're tried to do.

According to the law, you have to make nine, consecutive, "full" payments. But "full" is defined in a way that benefits you. The law says, "payment in the full amount required means payment of an amount that is reasonable and affordable, based on the borrower's total financial circumstances, as agreed to by the borrower and the agency."

Expect to negotiate, and expect to have to provide documentation and a budget. The good news: After nine consecutive installments of these same fixed payments, your loan should be rehabilitated. Your loan should then revert back to a financial institution and the notice of the default lifted from your credit reports.

Under the law, you only have one shot at this deal, Trisha, so don't falter again.

See related: Student loan debt: the next time bomb?, Can I go back to college if student loans are in default?, Steps to make good on a defaulted student loan

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Updated: 04-24-2019