Category Archives: Defaulted Student Loans

In a world where a good education is not only becoming increasingly important, but increasingly expensive as well, many students are applying for loans to help them pay for their education.

Unfortunately, many students will later default on loans because they simply can’t afford to pay them back. This had led to the U.S. Department of Education releasing a federal student loan default rate that covers a period of three years versus the normal two year period. This is the first time the Department of Education has made this sort of change to alleviate the growing issue of student loan default.

Within two years after graduating from college, a student attempting to pay back a loan often defaults on it at a rate of 9.1%. By the time they have been out of school for three years, many of them end up in default at a rate of 13.4%.

Public colleges have reported that students default on their loans at a rate of 11% and private colleges have reported that their students default on their loans at a 7.5% rate.

Experts speculate that if the percentage of people who are unemployed goes down the default rates will go down also. They feel that the combination of unemployment levels and a stagnant economy are the two things that are running the default rates so high.

For-profit schools have begun to offer debt counseling to their students, and this is helping to cut down slightly on default rates. Schools will continue to fight their rising default rates.


When it comes to student loans, many people end up in debt. Proper management of this debt is critical in helping a recent college graduate to become financially stable. Student loan consolidation is recommended to everyone who has a hard time paying off their loan once they have graduated from college.

A student loan should be used as a last resort if all other possible options have been exhausted. Any student that needs help paying for college should first look into free sources of financial aid, such as a scholarship, work-study program or grant. It is also recommended that a student first calculate the amount they can comfortably afford to pay back when the time comes. They should also figure out how much their monthly payment will be so they are prepared to make those payments in full and on time.

When it comes time to pay off a student loan, the process is much easier if the student has built a good credit history. If the status of a student loan changes, the student is urged to contact the institute that granted the loan. This is a necessity if the student will be moving, changing their name or graduating.

Private education loan consolidation is important for students who want to consolidate several student loans into one convenient package. Although the interest paid over the life of the loan may increase, this is an excellent option for students wishing to lower their monthly payment amount or refinance student loan debt and based on credit scores, the monthly interest rate may even decrease.


When the term “default” is used in any context, it typically does not mean anything positive. Defaulting on a loan means that the borrower has failed to make the necessary payments for a period of time. Defaulting on student loans is sadly not an uncommon trend. Many students take out loans when planning to get their education, only to realize after graduation that they just don’t make enough money to handle all of their financial commitments because they are unemployed or under-employed.

Students often find themselves in over their heads with their student loans and in default when:

  • They expect that they will find a good paying job in their field soon after graduation.
  • They don’t think about the minimum monthly student loan payment and how that will fit into their budget.
  • They initially intend only to get one degree, and further their education with a PHD program, or something even more costly.

A student loan is considered in default when no payment has been made for at least 270 days. Having a loan in default can prevent borrowers from taking out additional Federal student loans in the future, and it can hurt their credit standing. Wages can even be garnished in those that have refused to pay for an extended period of time. Many students also ask a parent of guardian to co-sign on a loan for them, so having a loan in default can also impact other people in a negative way.

Overcoming Student Loans in Default

  • Loan Rehabilitation – a loan rehabilitation option requires that individuals make at least 9 consecutive payments as part of the arrangement to get back in good standing. If the arrangement is disrupted then the rehabilitation process must begin again as per the original agreement.
  • Loan consolidation – when a loan is in default, a method to get it back into good standing is to pay the loan off in full. This may not realistically be an option for many people, unless they seek a loan consolidation. A consolidation loan allows them to combine multiple loans carried so they’re with one lender, and only have one payment. Individuals struggling with interest charges can benefit from choosing this option.
  • Repayment – if a loan is in default, it will be forgiven if paid off in full.