Resolving a Loan Default
Federal Requirements for Default Resolution
Federal regulations prohibit the awarding of additional federal student aid (FSA) to students who have defaulted on a federal student loan. However, a student can regain eligibility for FSA by resolving the default status.
The U.S. Department of Education has established the following three methods to resolve a default status:
- Repayment in full (including consolidation) - A student can resolve a default by repaying the loan in full
- Satisfactory repayment arrangements - A student in default on an FSA loan can regain eligibility after making six consecutive, full, on- time, voluntary payments under a repayment arrangement that is satisfactory to the loan holder. A student may regain eligibility under this option only one time
- Loan rehabilitation - Although a student can regain eligibility for all FSA funds by making satisfactory repayment arrangements, the loan is still in default. After the student makes nine full, voluntary payments on time (no later than 20 days after the due date) within 10 consecutive months, the loan becomes eligible for rehabilitation.
After a default status has been resolved, sufficient documentation must be sent to the school indicating the student has regained federal aid eligibility. Per federal regulations, the documentation must be from the entity that reported the default to NSLDS; clearly show that each defaulted loan has been resolved; be provided in writing on the entity’s letterhead (or other format that ensures its origin) and dated.
Additional information can be found at the U.S. Department of Education’s Federal Student Aid website: http://www2.ed.gov/offices/OSFAP/DCS/index.html
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Links to additional resources