How to Repair Credit After Student Loan Default

Written by Amanda Push
Cat Alford
Kristina Byas

November 22, 2021November 22, 2021Credit & DebtCredit & Debt, Featured1295Amanda Push

Edited by Pearly Huang
Michael Kitchen

Updated on November 22, 2021

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been reviewed, commissioned or otherwise endorsed by any of our network partners.

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If you default on student loans, credit repair is possible. The world isn’t over — you’ll still be able to borrow money again in the future, so long as you take the steps necessary to repair your credit.

We won’t lie: This can be a lengthy process. But once you get started, you could see your score start to rise in just a matter of a few months. Here’s a list of tips and strategies on how to repair credit after student loan default…

How student loan default can impact your credit
How to repair credit after student loan default
Why you should continue these best practices

How student loan default can impact your credit

As you know, student loan default can have a big impact on that credit score. If your payment is missed or late for a given period of time, or if you stop making payments completely, student loan default can be the result. Your credit score and report will reflect a poor payment history, and when it comes time to finance a car, apply for an apartment or do anything else that will require a peek at your credit score, you’ll look risky to lenders and creditors.

Credit scores range from 300 to 850. This score is calculated by examining a person’s current debt, the type and number of accounts they have open, their credit history, credit utilization and payment history.

How to repair credit after student loan default

Get out of default
Pay off other debts
Pay all your bills on time
Consider a secured credit card
Apply for a credit-building loan

Get out of default

In order to repair your credit, you need to get out of student loan default first.

When you default on your loan, it can be sent to collections, at which point you will be notified, usually by mail. If you receive such a notice, the first step is to call the phone number on the letter sent to you to learn about your options.

Typically, you have three possibilities in this scenario:

- Pay off your loans. The simplest way to get out of student loan default is to pay off your loan in full. This is obviously easier said than done, as the average student loan balance is in the tens of thousands of dollars.

However, if you have a family member who can help you out by loaning you money at a lower interest rate, then this might be a reasonable option. Another option is to apply for a loan to pay off your student debt with a cosigner in order to obtain better APR rates and terms.

- Rehabilitate your loans. You might be able to work with your loan servicer or collections agency on a plan to make a series of affordable monthly payments. When you call, explain that you want to get out of default and can only pay a certain amount each month.

The benefit of loan rehabilitation is that, as long as you make your monthly payments on time for that given period of time, you will most likely be able to remove the default status from your credit report.

Consolidate your loans. If you have several federal student loans, you can choose to consolidate them into one, which will count as a payment and bring you out of default. In order to qualify for consolidation (and note, this is for federal rather than private student loans), you have two choices: You can make three on-time payments before applying for the federal Direct Consolidation loan, or you can apply for an income-driven repayment plan, which will set your monthly payments on the new loan at a portion of your disposable income to make repayment more affordable.

Pay off other debts

Your credit utilization makes up 30% of your credit score, so if you have other debts, like credit cards or a car loan, your next step should be to lower those balances once your student loans are under control.

If your credit card interest rates are well above your student loan interest rates, it would be wise to focus on paying those as quickly as possible, since mathematically speaking, paying off the debt with the higher interest rate first will save the most money over time.

Additionally, if your credit cards are maxed out, it will not reflect well on your credit score. You need to have as much “space” — that is, available credit — as possible. Consider opening a new line of credit in addition to paying down your loans so you can increase your credit utilization. (Just don’t rack up any new debt).

Pay all your bills on time

If you struggle with your other bills, like your phone bill or your mortgage, it’s time to sit down and take a long hard look at your finances to ensure you always pay your bills on time. It’s more important than you might think: Your payment history is the most significant factor of your score, at 35%.

By following a budget, you can avoid late payments further denting your credit score. Keep in mind that skipping payments on your bills can stay on your credit report for seven years, so be sure to stay on top of payments dates and consider enrolling in autopay options.

Consider a secured credit card

If you’re working to repair credit after student loan default, chances are, your credit may have suffered as a result of defaulting. This may make it more difficult to get favorable APR rates and loan terms until you polish up your credit score.

If you have fair or bad credit, consider looking into secured credit cards. Unlike traditional credit cards, you’ll have to pay a deposit and you’ll receive a credit card equal to the amount of the deposit (or maybe more, depending on the creditor). Every month that you pay your bill on time, the lender will report it to the credit bureaus. As a result, your payment history will improve and so will your credit score.

However, if you’re late on a payment, it will have a negative impact on your credit, so be sure to pay your bills on time, every time, and your credit score will improve as time passes.

Apply for a credit-building loan

Credit-building loans are a type of loan used to specifically help borrowers build their credit. Unlike a personal loan where you receive a lump sum and repay it back with interest over an established period of time, when you take out a credit-building loan, the amount you borrow is held in an account that you can’t access until you’ve paid off the loan.

These types of loans can be more easily accessed than traditionals loans if you have bad credit because the lender is taking on less of a risk by holding the money you borrowed. Over time, the lender will report to the three credit bureaus that you’ve been repaying your loan which can eventually lead to your credit score increasing.

Why you should continue these best practices

Unfortunately, working to repair credit after student loan default is not often an easy or quick process. You have to consistently pay your bills on time, maintain low credit card balances and periodically open new lines of credit (that you don’t max out) to keep pushing your score higher.

If you do all of these things and are patient, you may soon be well on your way to seeing improvements. Many people have done it before you, and although going into default is never a good thing, there are still options for having financial success in the future.

Kristina Byas and Amanda Push contributed to this report.

Interested in refinancing student loans?

Here are the top 9 lenders of 2022!

Lender	Variable APR	Eligible Degrees
	2.49% – 11.72%¹	Undergrad & Graduate	Visit Splash
	2.50% – 6.30%²	Undergrad & Graduate	Visit Laurel Road
	4.13% – 7.39%³	Undergrad & Graduate	Visit Lendkey
	2.49% – 7.99%⁴	Undergrad & Graduate	Visit Earnest
	2.49% – 7.99%⁵	Undergrad & Graduate	Visit NaviRefi
	3.24% – 8.24%⁶	Undergrad & Graduate	Visit SoFi
	2.48% – 7.98%	Undergrad & Graduate	Visit Elfi
	1.74% – 7.99%⁷	Undergrad & Graduate	Visit Purefy
	3.69% – 9.92%⁸	Undergrad & Graduate	Visit Citizens
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 September 6, 2022. ² 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 $9 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. Checking your rate with Laurel Road only requires a soft credit pull, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score. Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan. After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship. During any period of forbearance interest will continue to accrue. At the end of the forbearance period, any unpaid accrued interest will be capitalized and be added to the remaining principle amount of the loan. Automatic Payment (“AutoPay”) Discount: if the borrower chooses to make monthly payments automatically from a bank account, the interest rate will decrease by 0.25% and will increase back if the borrower stops making (or we stop accepting) monthly payments automatically from the borrower’s bank account. The 0.25% AutoPay discount will not reduce the monthly payment; instead, the discount is applied to the principal to help pay the loan down faster. 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 April 29, 2021. Information and rates are subject to change without notice. ³ Important Disclosures for LendKey. LendKey Disclosures 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 09/09/2022 student loan refinancing rates range from 4.13% APR – 7.39% Variable APR with AutoPay and 2.99% APR – 9.93% Fixed APR with AutoPay. ⁴ Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest. Earnest Disclosures You can choose between fixed and variable rates. Fixed interest rates are 3.99% – 8.74% APR (3.74% – 8.49% APR with Auto Pay discount). Starting variable interest rates are 2.74% APR to 8.24% APR (2.49% – 7.99% APR with Auto Pay discount). Variable rates are based on an index, the 30-day Average Secured Overnight Financing Rate (SOFR) plus a margin. Variable rates are reset monthly based on the fluctuation of the index. We do not currently offer variable rate loans in AK, CO, CT, HI, IL, KY, MA, MN, MS, NH, OH, OK, SC, TN, TX, and VA. ⁵ Important Disclosures for Navient. Navient Disclosures You can choose between fixed and variable rates. Fixed interest rates are 3.99% – 8.74% APR (3.74% – 8.49% APR with Auto Pay discount). Starting variable interest rates are 2.74% APR to 8.24% APR (2.49% – 7.99% APR with Auto Pay discount). Variable rates are based on an index, the 30-day Average Secured Overnight Financing Rate (SOFR) plus a margin. Variable rates are reset monthly based on the fluctuation of the index. We do not currently offer variable rate loans in AK, CO, CT, HI, IL, KY, MA, MN, MS, NH, OH, OK, SC, TN, TX, and VA. ⁶ Important Disclosures for SoFi. SoFi Disclosures Fixed rates range from 3.99% APR to 8.24% APR with a 0.25% autopay discount. Variable rates from 3.24% APR to 8.24% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi. ⁷ Important Disclosures for Purefy. Purefy Disclosures Purefy Student Loan Refinancing Rate and Terms Disclosure: Annual Percentage Rates (APR) ranges and examples are based on information provided to Purefy by lenders participating in Purefy’s rate comparison platform. For student loan refinancing, the participating lenders offer fixed rates ranging from 2.73% – 7.99% APR, and variable rates ranging from 1.74% – 7.99% APR. The maximum variable rate is 25.00%. Your interest rate will be based on the lender’s requirements. In most cases, lenders determine the interest rates based on your credit score, degree type and other credit and financial criteria. Only borrowers with excellent credit and meeting other lender criteria will qualify for the lowest rate available. Rates and terms are subject to change at any time without notice. Terms and conditions apply. ⁸ Important Disclosures for Citizens. CitizensBank Disclosures Education Refinance Loan Rate Disclosure: Variable interest rates range from 3.69%-9.92% (3.69%-9.92% APR). Fixed interest rates range from 4.49%-10.11% (4.49%-10.11% APR). Undergraduate Rate Disclosure: Variable interest rates range from 6.39%- 9.60% (6.39% – 9.60% APR). Fixed interest rates range from 6.58% – 9.79% (6.58% – 9.79% APR). Graduate Rate Disclosure: Variable interest rates range from 3.69% – 9.16% (3.69% – 9.16% APR). Fixed interest rates range from 4.49% – 9.35% (4.49% – 9.35% APR). Education Refinance Loan for Parents Rate Disclosure: Variable interest rates range from 3.69%- 9.09% (3.69%- 9.09% APR). Fixed interest rates range from 4.49% – 9.28% (4.49% – 9.28% APR). Medical Residency Refinance Loan Rate Disclosure: Variable interest rates range from 3.69% – 9.16% (3.69% – 9.16% APR). Fixed interest rates range from 4.49% – 9.35% (4.49% – 9.35% APR).