Student Loan Default
September 25, 2018 7:09 PM   Subscribe

I defaulted on my student loans. Location: United States (surprise!). If you've ever defaulted on your student loans and had to make a decision to commit to loan *rehabilitation* vs loan *consolidation*, what did you ultimately choose and why? And how did the process and subsequent payments work out for you?

I defaulted on my FFEL Stafford Unsubsidized Loans; the earliest of these loans originated in 2007. I'm trying to make an informed decision about whether I should attempt Loan Rehabilitation (giving me the opportunity to have the default, although not the late payments, removed from my credit history) or Loan Consolidation.

- I am gainfully employed but my discretionary income is not much after rent/utilities and my other debt repayments. But, I'm willing to pay and know I may have some options as far as income-based repayment.
- I also have a few other student loans, but they're in forbearance.
- I'm not currently being garnished, but involuntary/non-court ordered garnishment is a possibility, of course
- I need to make a decision in the next two (2) days. (Technically I have 6 days but I'm treating it like it's only 2, because this needs to get done ASAP.)
- I've read all the info on the StudentAid.Ed.Gov website about the two options, but it would help to hear others' stories- things tend to make more sense to me when I can read real life examples.
- Can you tell me more about the consequences on your credit, depending on what option you went with? I'm not looking to buy a house anytime soon but I read horror stories about people not even being able to rent because of this stuff.

ALSO: Please assume that I have already 1) spoken with the debt collectors and did not find their answers helpful, 2) have already spoken with some non-profit student loan aid agencies. I'm looking for insight from *others who have been through this or know someone who has*.

If you're more comfortable replying anonymously, I have a sockpuppet email - studentloandefault @
posted by anonymous to Work & Money (7 answers total) 5 users marked this as a favorite
The subreddit for StudentLoans is awesome. Ask there.
posted by k8t at 7:11 PM on September 25, 2018

I did this. I was in default, would have been in garnishment except I was self-employed and had no pay checks (or tax returns) for them to garnish. I went through their rehab program (my loans and rehab are through Navient) and they were definitely on team “get this out of default” and worked with me to make sure I could afford the payments. After a few months I was eligible for the standard income-based repayment plan moving forward. It worked really well for me.
posted by okayokayigive at 7:15 PM on September 25, 2018

The benefit to your credit report of having the default notation removed is quite minimal. The major damage is done by the nine months'-plus of missed payments. If your credit is trashed, rehab is not going to undo the damage.

I generally recommend to people that they consolidate out of default--in order to do so immediately, you will have to sign up to enroll in an income-driven repayment plan (for you, IBR), where you should've been already. It's too easy for something to go wrong during rehab. I'm not judging you, but, in making financial plans for the future, it's best to be severely realistic with yourself about what your past behavior reveals about your tendencies, so that you can make the plans you have the best chance of carrying out. You (by definition) haven't been able to keep on top of your payments in the past, nor have you been able to manage to access the alternatives available to you--that tells me you need to keep it as simple as possible and not stack any more plates onto what you're already juggling. And, for FFEL borrowers, the benefit is hardly worth it. (IIRC, there was a time when Ed may have been charging Direct loan borrowers different fees based on whether they rehabbed or consolidated, but Ed doesn't determine fees for FFEL borrowers.)

Consolidation should also have the benefit of moving you into Direct loans, which have better repayment plans than are available to FFEL borrowers. Rehab will leave you in the FFEL program.

Be aware that either way they're liable to stick you with anywhere from 18.5-25% "collection charges." Not something you can do anything about--just something to be conscious of.

Don't get cozy with your servicer. They're not on your side. Illinois, California, Washington state, and Mississippi, as well as the CFPB, have all sued (e.g.) Navient for misleading borrowers in various ways. You're right to read up as much as you can and ask questions.
posted by praemunire at 7:46 PM on September 25, 2018 [2 favorites]

i don't have specific advice, but just words of encouragement. I defaulted on my student loans, got them out of default and after a few years of being a responsible debt slave, my credit is back to the point where buying a house is a reasonable idea. Default is not the end of the world like i thought it would be and there's still a future. I did have some trouble finding an apartment around then, but explaining the default on my report eventually worked to convince a landlord that i would indeed pay rent.
posted by dis_integration at 9:31 PM on September 25, 2018

I had defaulted during a period of underemployment about 10 years ago, and could never get to an agreement I knew I could hold to with such little income, so they garnished my meager paycheck for six months and then we re-reviewed things at that time, and I had a stabler job by then so was able to get back on regular payments.

We were in the process of filing bankruptcy, or had just filed bankruptcy at this time (I don't remember the exact timeline ), so up through the defaulting the student loans weren't my only problem so I can't speak to what effect those specifically had on my credit.

I will say, though, even in rehabilitation or whatever, it still shows up as a delinquent debt on your credit report; it still showed up on my credit report for years, beyond bankruptcy and then some, after we had gotten our finances back on track. Also, the whole "after {x} years things fall of your credit report" doesn't always seem to be the case with special debts like student loans.

The thing about trying to "figure out the best way" to get through the default doesn't work with student loans. No matter what, they always have the ability to take up to 20% of your paycheck, full stop, they have no real incentive to cut you a deal because you knew the right form to fill out or have a really good reason you can't pay your student loans. The only thing you can do is see if they can accept a payment you're able to do, or try and get back into forebearance, but they don't have to agree to anything that doesn't fit the letter of the law, they just garnish.

On the other hand: my wife, who has been a freelancer for many years, a couple years ago paid $300 to one of those "Student Loans In Default? We Can Help!" places; on one hand, they did ultimately help her negotiate a pretty low student loan payment and get her back on track after years of forebearance; on the other hand, they seemed to spend a lot of their time delaying or filing wrong paperwork or just not doing what they were supposed to be doing, so YMMV.
posted by AzraelBrown at 4:56 AM on September 26, 2018

I had a forbearance on a <$20k consolidated student loan and defaulted for years on it, then (hoping they wouldn't find me) went radio silent. Duh, that didn't work. But what did work was finally saying 'hey, I really really want to make good on this but I can only do so much with so little income, I'm paying for my mother's medical care and (spelled out other expensive necessary expenditures), can we work something doable out?' Now I'm on an income-based monthly payment that I can afford. Since then I have been religious about making my payments online and on time, every time. It has taken some time, but my credit score has improved significantly since then. I don't know how that works if you are already being garnished, but it's a possible option.
Good luck.
posted by mcbeth at 7:37 AM on September 26, 2018

my wife, who has been a freelancer for many years, a couple years ago paid $300 to one of those "Student Loans In Default? We Can Help!" places; on one hand, they did ultimately help her negotiate a pretty low student loan payment and get her back on track after years of forebearance; on the other hand, they seemed to spend a lot of their time delaying or filing wrong paperwork or just not doing what they were supposed to be doing

Just FYI, these places are all scams. At best, they will charge you a lot to file some very simple paperwork that any college graduate could handle. They don't actually negotiate anything.

(AzraelBrown, just to be safe, I would check to make sure that your wife is actually paying on her student loans what she thinks she's paying. A common tactic is to slip in a poorly-disclosed monthly (!!!) fee. If she's not paying directly to her servicer, there's likely a problem.)
posted by praemunire at 8:47 AM on September 26, 2018

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