Millions of borrowers with defaulted federal student loans may soon be facing significant credit reporting and collections consequences, as an extension on paused actions against defaulted borrowers is set to expire. That extension, which is ending now, is the final period of relief before draconian collections efforts may resume.
Borrowers in default on their student loans still have options to cure their defaulted status and return to good standing. Doing so may allow them to access affordable payment plans and potentially get on track for eventual student loan forgiveness. But remaining in default could have dire consequences including credit damage, substantial fees and penalties, and so-called “involuntary” administrative collections efforts, which can be devastating.
Payments were automatically paused for most borrowers starting in March 2020. After multiple extensions, that pause officially ended in August 2023. During the pause, negative credit reporting and collection activity were also paused. To help ease borrowers back into repayment, the government created a one-year “on-ramp” period from September 2023 to September 2024. During this time, missed payments wouldn’t be reported as late, preventing credit damage. But as of October 2024, missing payments once again counted toward delinquency. By February 2025, borrowers who hadn’t made payments since then began seeing the impact—90-day late marks appearing on credit reports. This caused borrowers to have credit scores drop as much as 90-100 points or more overnight.
Borrowers may have limited options to fix their credit, but retroactive forbearance and goodwill requests to servicers could help. Fresh Start is no longer an option, as that program ended last fall. However, borrowers may be able to utilize two other default resolution programs.
Rehabilitation For Federal Student Loans
Rehabilitation is a program that allows borrowers to make repayment arrangements while in default on their federal student loans. Borrowers must enter into an agreement with their defaulted loan holder to make at least nine timely monthly payments over a 10-month period. Payments would be based on the borrower’s income. After the borrower completes all of their obligations under the rehabilitation program, their student loans should be restored to good standing, and the prior record of default should be deleted from their credit history (although the record of missed payments may remain).
Consolidation For Federal Student Loans
Another potential option for borrowers is Direct loan consolidation, which allows borrowers to combine existing federal student loans into a new federal consolidation loan. Borrowers who choose an income-driven repayment plan for their new consolidation loan don’t have to make any payments to qualify (unlike rehabilitation), but consolidation does not always have quite as good of a credit reporting outcome as rehabilitation does
For any further help or information on how to negotiate your student loans, email us at
Commentaires