According to the Federal Student Aid Ombudsman, student loans are considered default if you have not made a payment in 270 days. Before the loan becomes default, you may be eligible for a deferment, forbearance, graduated payment plan or income-contingent payment plan, which are different types of payment relief. If you fail to make satisfactory arrangements with the lender and allow the loan to reach default status, the lender will start legal proceeding against you, which will result in wage garnishments, judgments or tax refund offsets. Paying the loan off in full will bring you out of default but a negative rating will remain on your credit report for up to seven years.
The federal government has established loan consolidation programs to help borrowers restructure their student loans and get out of default. The two programs funded by the federal government are (FFEL) Loan Consolidation Program and the Direct Loan Program. Each program provides consumers the opportunity to consolidate their student loans making repayment feasible. To qualify for a consolidation loan with one of these programs while in default, you must agree to make adequate payment arrangements with their current lender and agree to repay the new loan under the programs Income Contingent Repayment plan. You me be ineligible for consolidation under these programs if a judgment has been issued against you or if you are trying to consolidate a defaulted Direct Consolidation Loan.
The loan rehabilitation program helps you get out of default status so you can later qualify for new loans and grants. According to the National Council of Higher Education Loan Programs, the Loan Rehabilitation Program allows a defaulted borrower who has made nine voluntary and timely payments within a 10-month period to have his or her loan sold back to a student loan lender. This action removes the loan from default status and deletes the derogatory entry of default from the borrower’s credit bureau record allowing the borrower eligibility again in the Title IV Student Aid program