If I Have a Student Loan in Default, How Can I Get Financial Help to Go Back to School?

Written by James Hirby | Fact checked by The Law Dictionary staff |  

Despite the dire pronouncements that you may have heard from your lender, you can recover from a student loan default with relative ease. First, you'll need to avoid blaming yourself for your financial predicament. Every year, many thousands of American students and graduates find themselves in default through no fault of their own. A poor job market is a major driver of student loan defaults. The steadily-rising cost of college tuition is an important factor as well. These days, the typical college undergraduate can expect to graduate with more than $20,000 in outstanding debt. This is a major problem with potentially dire consequences for the global economy.

Next, you'll need to talk to your lender. Unfortunately, you can't secure any federally-backed student loans with a defaulted loan on your financial record. While you may be able to find private funding for your educational endeavors, most private lenders also frown upon former students whose loans have entered default. Since your default has probably damaged your credit score, it's unlikely that you'd qualify for a major private student loan. As such, you'll almost certainly need to take care of your defaulted loan before returning to school.

Your lender won't make this easy for you. Depending upon its specific policies, you may be required to make as many as nine on-time payments on your defaulted loan. This can take the better part of a year. Once you've done this, your loan will officially be removed from the default docket. This will render you eligible for federal student aid once more. However, you'll need to do some additional work to put your debts behind you.

Given the negative credit-score effects of your loan default, you'll face higher borrowing costs for the foreseeable future. While the cost of your federally-issued Stafford loans might not increase, virtually every other source of funding for which you're eligible will become considerably more expensive. This arrangement may persist for several years. Although there's no hard-and-fast "good credit" threshold, your credit score will probably need to be at least 600 in order to boost your chances of finding a prime rate on a student loan.

It's important to note that these higher borrowing costs could have serious repercussions for your financial future. In addition to saddling you with a higher burden of post-graduation debt, your expensive loans could eat into your day-to-day budget. If you begin to struggle to make your high-interest loan payments, you might find yourself in default once more.

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