What is the Quickest Way to Get My Student Loans Out of Default?


Dear Steve,

Hello! I am writing for your advice on a complicated student loan situation. I am currently in default for 13 separate federal student loans, totaling $42,000 in federal student loan debt. I unfortunately also have another hefty $80,000 in private student loans in which my payments are current. I pay nearly $800 a month in just private student loan payments.

Today I found out the US Department of Education has begun garnishing my paycheck for the defaulted 13 federal loans. I need to tackle this mountain of debt and the problems associated with it as soon as possible. Please help!

Now that my paycheck has begun to be garnished, and after some research, it seems I have two options, Rehabilitation or Consolidation. Is this correct?

I have two Federal Perkins Loans. I work in health care. Would I be able to have the Perkins Loans cancelled even if they are in default?

My credit has taken a humongous hit from my student loan default and my credit score is in the 500’s. In fact, I have little debt aside from my student loans. While I tackle the issue that is my defaulted student loans, I would also like to make the best decision for my credit in the long run. Does rehabilitation remove the default from my credit history? If so, would the removal improve my credit score significantly more than Consolidation?

In essence, which would be the best decision, Rehabilitation or Consolidation? Which would improve my credit score best and by an estimated how much?

Any and all advice is greatly appreciated as I begin my reparative journey in the immediate future. Thank you!



Dear Zoila,

Will that’s a heck of a situation, isn’t it.

Your best bet, outside of winning the lottery and paying the loans off, is probably to rehabilitate the federal loans. Keep in mind this is typically a one-time only option so if you do rehabilitate your loans you will probably never have a chance to use this option again.

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In a rehabilitation the wage garnishment will continue for five months and you will have to pay some negotiated amount on top of the garnishment. It can be as low as $5 but it is typically income dependent. I would suggest you read The Easiest Way to Stop a Student Loan Wage Garnishment – Loan Rehabilitation.

The garnishment will end after the fifth payment. At nine months your loans will be reported as current but this will not remove the old and accurate past default history. You will then be eligible to consolidate the loans in a Direct Loan and place them into an income driven repayment plan. After 120 on-time payments under that new plan you would be eligible, depending on your employment, for the Public Service Loan Forgiveness (PSLF) Program.

The private student loan situation is less promising. I am assuming the school was a federally recognized school since you had federal loans from the same school. That rules out a quick bankruptcy because the school was not Title IV recognized.

However, if the private student loans were disbursed directly to you and not the school then you might have a chance of pursuing a bankruptcy option. For more on this read this article.

Frankly, your credit score is the least of your worries at this point from the student loans. There is no quick fix and even rehabilitation is going to take time to stop the default notation.

But there are things you can do to begin improving credit, now. I would suggest you read this and this.

Damon Day - Pro Debt Coach

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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