Note that the situation for student loans has changed due to the impact of the coronavirus outbreak and relief efforts from the government, student loan lenders and others. This includes a halt to all collections on federally-held student loans. Check out our Student Loan Hero Coronavirus Information Center for additional news and details.
* * *
If you stop making payments on your student loans, they could fall into default and even get sold to a debt collector. Ending up in collections can have a heap of bad consequences, so it’s crucial to learn how to get your student loans out of collections and back into good standing.
Here’s what you should know about how to get out — and stay out — of collections:
- How student loans end up in collections
- What happens once you’re in collections
- How to get student loans out of collections
- How to avoid going into student loan default in the first place
If your student loans end up in collections, it’s because you’ve defaulted on them. Federal student loans go into default if you haven’t made payments on your loans for 270 days. Rules for private student loans vary, but they can go into default even sooner.
Once this happens, the balance of your loan is due immediately. This is commonly known as “acceleration.”
If your loan is in collections, there are a ton of potential consequences. And several of them can cause real financial pain.
If your account goes to collections, you’ll be assessed collection fees in addition to the student loans you owe. These fees vary depending on who holds your loans, but they can be anywhere from about 18% to 40% of your outstanding balance. Just to put that in perspective, adding an extra 40% to a student loan balance of $30,000 would mean your new balance is $42,000.
If these fees aren’t bad enough, it doesn’t end there. As long as your loans remain in default, the following can also happen:
- Wages can be garnished and income tax refunds can be taken to repay debt.
- You can become ineligible for federal financial aid.
- You can become ineligible for a deferment on loans.
- You can lose subsidized interest benefits.
- Defaulted loans will appear on your credit report for up to seven years, negatively affecting your credit score and your ability to get other types of loans.
Student loan collection agencies will attempt to collect this debt from you. As you’ve probably heard, debt collectors sometimes use aggressive tactics to get you to pay the money you owe. If you’re being contacted regularly, make sure you understand your legal rights under the Fair Debt Collection Practices Act.
Knowing these laws can affect not only how much you owe but also how and when debt collectors can contact you to recover what you owe. There’s a lengthy list of what student loan collection agencies cannot do to get you to pay. It includes harassment, like threatening you or using obscene language. They also can’t lie to you or tell you you’ll be arrested if you don’t pay.
You can find the full list of practices prohibited by the Fair Debt Collection Practices Act on the FTC website.
Hopefully, these alarming consequences have convinced you to do all you can to stay out of default. But what if you’re already dealing with student loan collections? You probably want to get out.
If you’re in collections, you’ll need to take action to get out. Ignoring the problem won’t make it go away.
One simple way if you’ve just landed in default is to get caught up on payments quickly. If you make a qualifying payment on a federal student loan that will result in your being less than 270 days delinquent, you may be able to remove the default and collections status immediately. If not, you still have other options for reviving federal student loans:
- Rehabilitation means agreeing to a payment plan with the Department of Education. Once you’ve made the required number of payments on time, your loan may become rehabilitated.
- Student loan consolidation can help by combining the balances of several loans into one. This can include loans in default. However, the Department of Education says you’ll typically be “required to make at least three consecutive, voluntary and on-time payments prior to consolidation.”
- Discharging student loans with bankruptcy may be an option, too. While it may be difficult to have your loans discharged in bankruptcy, it’s not impossible if you meet the right conditions.
- Finally, you could just repay the entire amount of the loan. However, given the size of most loans, this probably isn’t a feasible option.
What about private student loans?
Private student loans unfortunately don’t qualify for these programs. If you’re in default, you’ll need to contact your lender about steps you can take. If your loan has already been sold, you might need to negotiate repayment with the debt collector.
Your alternative option is waiting until the statute of limitations on your debt runs out – but the debt collector could sue you in the meantime. Learn more about the consequences of defaulting on private student loans here.
Once your loan is out of default, be careful not to end up in the same spot again. Hopefully, you’re now on a manageable payment plan that lets you repay without missing payments and falling behind again. But it’s possible that could change. The key is to be proactive and get help if you do run into problems – before you end up joining collections again.
To start, make sure your payment plan is the right option for you. There are various student loan repayment plans that can bring the monthly payment amount down based on a variety of factors. Just keep in mind that many of these payment plans will increase the total amount you’ll have to repay.
If you can’t pay, see if either student loan deferment or forbearance is an option for you. Deferment means you can temporarily stop making payments on your loans, and interest doesn’t accrue on subsidized loans during that time. You’ll typically be eligible if you’re enrolled in college at least half time or in other cases like unemployment or military service.
Forbearance isn’t as advantageous as deferment, as you’ll have to pay interest on all loans, but it will keep you out of default. With forbearance, you may be able to stop making monthly payments for up to 12 months due to financial hardship, illness or other reasons. For additional information, see our post on student loan deferment and forbearance.
Bottom line: Always take action to find potential alternatives to ending up in default. You’ll be glad you did.
Interested in refinancing student loans?Here are the top 6 lenders of 2021!
|Lender||Variable APR||Eligible Degrees|
|1.89% – 5.99%1||Undergrad & Graduate|
|1.99% – 5.64%2||Undergrad & Graduate|
|1.91% – 5.25%3||Undergrad & Graduate|
|2.25% – 6.88%4||Undergrad & Graduate|
|1.89% – 5.90%5||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|Check out the testimonials and our in-depth reviews! |
1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of Feburary 1, 2021.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of October 26, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 10/26/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 02/17/2021 student loan refinancing rates range from 1.91% APR – 5.25% Variable APR with AutoPay and 2.95% APR – 7.63% Fixed APR with AutoPay.
4 Important Disclosures for SoFi.
5 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of January 4, 2021. Information and rates are subject to change without notice.