What to Do If You Have a Defaulted Student Loan (Even Later in Life)
Student loans are something many people expect to deal with earlier in life.
But for some, they don’t go away.
In fact, I’ve recently seen situations where someone later in life is still dealing with a loan that has gone into default.
It can feel overwhelming.
Especially when you’re not sure what your options are—or if there even are any.
The good news is this:
There is a way to fix it.
Read My A Simple Guide to Financial Peace After 60
What “Default” Really Means
A loan in default usually means payments haven’t been made for a long period of time.
At that point:
the loan is sent to collections
fees may be added
credit is affected
It can also lead to things like:
tax refund offsets
wage garnishment
reductions in Social Security
That’s why it’s important not to ignore it.
The Most Practical Way to Fix It
There are a few ways to deal with a defaulted loan, but one stands out as the most practical for most people.
It’s called loan rehabilitation.
How Loan Rehabilitation Works
The process is straightforward.
You agree to make 9 monthly payments.
These payments are based on your income, not the total loan amount.
For many people, that means the payment can be quite manageable.
Sometimes much lower than expected.
What Happens After 9 Payments
Once those payments are completed:
the loan is no longer in default
collections activity stops
the loan returns to good standing
In many cases, it also improves how the loan appears on your credit report.
Another Option (But Not Always the Best One)
There is also a faster option called loan consolidation.
This can remove the loan from default more quickly.
However:
the default history may remain on your credit
it doesn’t provide the same “clean reset” as rehabilitation
For that reason, it’s often worth taking a little more time and doing it the right way.
The First Step
The process begins with a simple phone call.
You contact the group handling the defaulted loan and ask about entering a rehabilitation program.
They will explain:
your payment amount
when payments begin
how to move forward
A Practical Way to Think About It
Situations like this can feel stressful.
But they don’t have to stay that way.
This isn’t about solving everything at once.
It’s about taking one step, then the next.
A Closing Thought
Financial challenges don’t disappear just because we’ve reached a certain stage of life.
But neither do the options to deal with them.
Sometimes the most important step is simply deciding to address the situation—and moving forward from there.
Suggested Reading:
Why Cutting Expenses Matters More Than Earning More on a Fixed Income