You want to avoid defaulting on your student loans because the consequences are significant. Most student loans are considered in default when the borrower fails to make required payments for 270 days. When the loan goes into default it is assigned to a debt collector, which can then add collection fees of up to 25% of the loan balance. Default loans also subject the borrower to garnishment of 15% of your wages without any judgment or court action, seizure of your tax refunds, seizure of 15% your social security benefits, and denies you eligibility for new education grants or loans. There are two methods to “cure” a default loan- consolidation and rehabilitation.


Consolidation can only be done through Direct Loans. It allows you to consolidate your defaulted student loan or loans into a new Direct consolidation loan, similar to refinancing. It is at this time that the borrower generally puts the new loan into an income based repayment program. This process takes between 30 to 90 days to complete. Not all loans are eligible for consolidation and there are limits on how many times you can consolidate.


Rehabilitation is a process where the borrower makes nine voluntary (reasonable and affordable) payments within a ten month period, at which time the loan is cured and current. The main advantage of rehabilitation over consolidation is that when a loan is successfully rehabilitated, the default notation is completely removed from the borrower’s credit report. In contrast, consolidation results in a notation that the defaulted loan was paid in full.