I gave college a shot when I was 18 and dropped out due to major
health problems. Student loans obviously did not disappear because of
this and I have been struggling with them ever since. Now at age 24 I
finally feel that I am healthy enough to give school a second try.
I thought I had every detail worked out down to registering for my
classes. Unfortunately, I have not been communicating with the student
loan people because I am not in a good place financially right now. I
just got a brief message from my school saying something along the
lines of: "You can't get your financial aid because you defaulted on a
student loan." Now I am freaking out and don't know what to do. I'm
finally ready and excited to give school a second try but certainly
can't afford it without any financial aid. What can I do?
— Mary S.
Students who are in default on a federal student loan are ineligible
for additional federal student aid.
There are only two options for regaining eligibility for federal
student aid. One is to repay the loan in full. The other is to make
arrangements with the loan holder to repay the loan. After you have
made at least six consecutive monthly payments according to those
arrangements, you will regain eligibility for federal student aid. If
you are subject to a judgment for failure to repay the loans, the six
monthly payments must be voluntary. Payments made through wage
garnishment or the offset of income tax refunds are not considered
voluntary, but those involuntary payments may be considered by the
loan holder when determining an acceptable monthly payment amount. You
must continue to make these payments as required by the loan holder to
continue to retain eligibility for federal student aid.
(If you make 9 out of 10 consecutive, full and voluntary monthly
payments, the loans will be rehabilitated and the default will be
cleared from your credit history. The loans will then once again be
eligible for deferments. After you have rehabilitated the loans, you
can switch into the income-based repayment plan, which usually yields
the lowest monthly payments. Under income-based repayment, the monthly
loan payments are based on a percentage of your discretionary income,
as opposed to the amount you owe. If your monthly income is less than
150% of the poverty line, your monthly loan payments will be
zero. Financially-distressed borrowers often choose the income-based
Regaining eligibility for federal student aid by making six monthly
loan payments is a one-time opportunity. If you default on the loans
again, your only option for regaining eligibility for federal student
aid will be by paying off the loans in full. So be sure to continue
making the payments as required. You will be able to get an in-school
deferment on the loans after you have rehabilitated them.
Thus the quickest way to regain eligibility for federal student aid is
to pay off the loans in full. Perhaps a relative is willing to help
you pay off your debts? If you are willing and able to make a lump
sum payment to settle the debt, it is sometimes possible to get the US
Department of Education to waive the collection charges or part of the
accrued but unpaid interest on a defaulted loan.
See Student Loan Debt Settlements
on the FinAid site for additional details.
Otherwise it will take six months for you to regain eligibility, which
may force you to delay your enrollment.