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How to Deal with a Defaulted But Paid-Off Student Loan that Reappears

Mark Kantrowitz

March 05, 2012

Defaulted borrowers can also negotiate a settlement on their debt. Borrowers who negotiate a settlement should have the agreement reviewed by an attorney before signing it and make sure they receive a “paid in full” statement after paying the settlement amount. The paid in full statement should be retained by the borrower indefinitely.

Receipt of federal student aid during a subsequent period of enrollment certainly suggests that the defaulted loan was paid in full. However, it is possible that the college incorrectly awarded federal student aid to a student who was still in default on a federal education loan.

If a borrower believes that a defaulted loan was paid in full, the borrower should first obtain a list of his or her federal education loans through the National Student Loan Data System (NSLDS).

It is also sometimes helpful for the borrower to get a free copy of his or her credit reports at www.annualcreditreport.com, since the federal student loans should be included in the credit report. (Beware of lookalike services that charge for a copy of the credit reports or that require the consumer to pay for credit monitoring or other services in exchange for their free credit reports.)

The borrower should review the loan’s payment history. If it appears that one or more payments were not credited to the account, the borrower will need to provide proof that the payments were made, such as a photocopy of the front and back of each canceled check, a copy of a credit card statement showing a payment made by credit card or a copy of the notice of Treasury offset of a federal or state income tax refund. To obtain a copy of the Treasury offset notice, contact the US Treasury’s Financial Management Service (FMS) at 1-800-304-3107.

Contact the US Department of Education’s Debt Collection Service for further assistance by calling 1-800-621-3115 or sending email to drghelp@ed.gov. Note that this email address does not allow attachments. Proof of payment will need to be sent by US postal mail, not email.


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