Can I Qualify for Student Loan Forgiveness If My Loans Are in Default?

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The Biden administration’s student loan forgiveness plan will provide financial relief to about 43 million federal student loan borrowers, according to White House estimates. For those in default of their loans, however, a lot depends on the type of loan.

Even if your loan is in default, you will likely still qualify for forgiveness under the Biden plan, Forbes said. This also applies if collection activities were halted on your debt during the federal student loan payment pause.

However, defaulted direct loans are not eligible for the Public Student Loan Forgiveness program, according to the U.S. Department of Education. PSLF is available to government or not-for-profit employees who have made at least 120 qualifying payments, or 10 years’ worth.

You do have one option if you have a defaulted loan you want to become eligible for PSLF: resolve the default through rehabilitation or consolidation.

To begin the loan rehabilitation process, you’ll need to first contact your loan holder. The process after that depends on the loan type and who holds your loan. For example, if you hold a William D. Ford Federal Direct Loan or Federal Family Education Loan, you’ll need to agree in writing to make nine voluntary, reasonable and affordable monthly payments within 20 days of the due date, and make all nine payments during a period of 10 consecutive months.

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When your loan is rehabilitated, the default status will be removed and collection of payments through wage garnishment or Treasury offset will end, the Education Department said. You will also be eligible for loan forgiveness through the PSLF.

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You can also get out of default by consolidating your defaulted federal student loan into a Direct Consolidation Loan, which lets you pay off one or more federal student loans under the new consolidated loan. To do this, you must either agree to repay the consolidated loan under an income-driven repayment plan or make three consecutive, voluntary, on-time and full monthly payments on the defaulted loan before you consolidate it.

Another option for federal student loans in default is to sign up for the Department of Education’s Fresh Start program, which lets borrowers return defaulted federal loans to good standing. Loans that are eligible for Fresh Start include direct loans, Federal Family Education Loans and Perkins loans that are held by the Department of Education.

Fresh Start won’t play much role in whether you qualify for loan forgiveness under the Biden plan — you still should be eligible for that even if your loan is in default. But it’s a way to improve your credit score and make it easier to qualify for future loans, including student loans.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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