BACK

bernardaSv / iStock / Getty Images

Matt About Money

How to move student loans out of default

Summary

Hollywood is missing out on a blockbuster horror movie: Student loans gone bad. Getting defaulted student loans back on track can drive you mad

The content on this page is accurate as of the posting date; however, some of our partner offers may have expired. Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

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 

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

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

What’s up next?

In Matt About Money

After bankruptcy, will banks ever lend to you again?

A series of unfortunate events can suddenly lead to bankruptcy, but is the hit to your credit one that marks you for life?

Published: March 21, 2012

See more stories
Credit Card Rate Report Updated: January 22nd, 2020
Business
15.01%
Airline
16.91%
Cash Back
17.32%
Reward
17.11%
Student
18.55%

Questions or comments?

Contact us

Editorial corrections policies

Learn more

Join the Discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company’s business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.