Student Loan In Collection, But Now You Can Pay? Here’s what to do – Forbes Advisor

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About a million borrowers fail to repay their student loans each year, and that number could increase.

Research from the Brookings Institute has found that nearly 40% of borrowers who took out student loans in the early 2000s could default by 2023. This potentially represents millions of borrowers. To make matters worse, the Covid-19 pandemic has put many borrowers in a financial situation they never expected to experience.

But what if a borrower in default on their student loans can suddenly afford to make their payments? Is it too late or can these borrowers get out of default? Here are the options for borrowers whose loans have gone to collections.

Federal student loan options

Borrowers with federal student loans can use one of two methods to withdraw their loans from collections.


You can consolidate federal student loans that have been sent to collections to reduce or simplify your monthly payments. Student loan and bankruptcy attorney Jay Fleischman says this process normally takes 90 days or less. Once the loan is consolidated, the loan is no longer in default.

“Of course, I would normally view consolidation as the first line of defense,” Fleischman said.

During the consolidation process, you can choose from a variety of repayment plans, including income-based reimbursement. If you work in a public or nonprofit service, you can start working for Public service loan remission (PSLF). If you are a teacher or health care professional, you may be eligible for a forgiveness program.

If you choose the route of consolidation, your credit report will always show that you have defaulted on your loans. This can affect your chances of getting another loan, such as a mortgage or a small business loan. But the default will have less of an impact on your credit report over time and will generally disappear from your report within seven years.

You will not be eligible for consolidation if your loans are already consolidated, if you only have one direct loan, if your wages are already garnished (unless the garnishment is lifted) or if the lender has obtained a gain legal action against you (unless he has been released).

The federal government also has certain general eligibility requirements for federal student loans. If you lose your eligibility due to a criminal act or other reason, you will not be eligible for consolidation. In these cases, your next best option is rehabilitation.


Rehabilitation is another avenue available for borrowers whose student loans have gone to collections. The process involves borrowers making nine separate voluntary payments over a 10-month period to get their loans back in good standing.

Monthly payments are calculated at 15% of your discretionary income. Discretionary income is the difference between your annual income and 150% of federal poverty guidelines for your condition and the size of your family. Once these nine payments are made, you will no longer be in default and you can resume your regular payments.

If the government has already started garnishing your wages, it won’t stop until you make your fifth rehab payment.

Because rehabilitation is a much longer process, Fleischman says he would only recommend it to borrowers who do not qualify for consolidation.

One of the advantages of rehabilitation over consolidation is that it will erase all evidence of default on your credit report. However, the report will still show any late payments you made that led to the default in the first place. These late payments will stay on your credit report for seven years.

Options for private student loans

Borrowers whose private student loans have gone to collections have fewer alternatives than those with federal loans.

Most private lenders will not allow you to start making regular payments again. Instead, you will need to deal with the collection agency, which will allow you to either settle the debt for less than the amount owed or pay it off in full. If the collection agency gives up part of your student loans, it may be counted as income and you will owe taxes on the amount.

How to prevent federal student loans from going to collections

The federal government will send student loans to collections after nine months of non-payment. If you’ve already missed a payment or are worried about missing one in the future, here are some strategies to consider.

Change your repayment plan

Borrowers with federal loans can switch to a less expensive repayment plan if they are currently making payments under the standard repayment plan.

These options include income-based repayment, in which payments will be determined based on your annual salary and family size. Depending on the type of loan you have, the remaining balance will be written off after 20 or 25 years of payments. Borrowers will have to pay taxes on the remitted amount.

You can also use a expanded or progressive repayment plan if you want a lower monthly payment. However, these plans do not include any loan forgiveness. You can use the Federal Student Assistance Loan Simulator to see how your payment may change.

Request an adjournment

If the payments from an income-tested plan are still too high, you can ask defer your federal loans. Federal loan borrowers can defer their loans for up to 12 months at a time for a total of 36 months.

If you have subsidized student loans, the federal government can waive any interest that would normally accumulate during the deferral. If you only have unsubsidized loans, interest will continue to accrue.

How to prevent private student loans from being sent to collections

While borrowers with private student loans have fewer options than those with federal loans, there are some steps they can take before their loans go into default.

Request abstention

Some private lenders have their own abstention programs for borrowers. Most of these programs will continue to charge interest during the deferred period, and this interest may be added to the original balance.

Some lenders offer forbearance programs to those who have been made redundant or on leave. Under SoFi’s Unemployment Protection Program, for example, payments will be deferred in three-month increments and can be renewed for a total of 12 months.

CommonBond offers a three-month forbearance program for those experiencing economic difficulties. This program is available for a total of 24 months, but borrowers cannot defer payments for more than 12 consecutive months at a time.

Contact the lender

If your private lender doesn’t offer a deferment or you’ve maximized the deferment, Fleischman says the next step is to contact the lender. You never know what kind of assistance they can offer unless you call.

“This lack of communication is really one of the main reasons why so many borrowers are in default,” Fleischman said.

Many borrowers avoid calling their lender because they feel embarrassed, says Fleischman, but being transparent will lead to better results than avoiding the problem.

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