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Can You Refinance a Defaulted Student Loan?

Can You Refinance a Defaulted Student Loan?
Jennifer Calonia
Jennifer CaloniaUpdated August 3, 2022
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Refinancing defaulted student loans might be challenging because a default hurts your credit record, and refinancing requires a credit check. The government paused federal student loan payments, interest charges, and collections on defaulted federal student loans during the Covid-19 pandemic.The Covid-19 forbearance is set to end on Aug. 30, 2023. As a result, interest accrual on federal student loans will resume on Sept. 1, and payments will be due starting in October 2023. The U.S. Department of Education announced an “on ramp” so that late payments on federal student loans from October 2023 through September 2024 will not be considered delinquent. However, borrowers at risk of default should be aware of their options when the federal student loan “on ramp” ends.

What Does It Mean to Default on Student Loans?

Loan default refers to the status of your student loan repayment. It means that you didn’t repay your student debt based on the terms of your promissory note. (The note is a legal document that contains the Borrower's Rights and Responsibilities and Terms and Conditions for repayment.)However, if you default on a federal student loan, your account isn’t necessarily put in default automatically. Your loan servicer must show that it made multiple attempts to communicate with you for the past due payment. If due diligence was performed to obtain payment from you, but you still haven’t made a federal student loan payment in nine months (270 days), your servicer may initiate steps to place your loan in default. But such actions may not occur during the federal student loan “on ramp” period from October 2023 through September 2024.

Defaulted Private Student Loans

Borrowers who have defaulted on private student loans are faced with a different scenario. The timeline that private lenders typically report a default status on a past due account is about 90 days (or three missed consecutive payments).

What Happens if You Default on a Loan?

Student loan default consequences for borrowers are significant. The following can happen as a result of a default depending on whether you defaulted on federal or private student loans:
  • Credit reports are negatively impacted for up to seven years.
  • Difficulty securing other types of consumer loans or credit.
  • Lender can sue you to recoup your total debt.
  • Collection agency can contact you for payment.
  • Might affect professional license renewal.
  • Future tax refunds might be withheld.
  • Some of your Social Security benefit payments might be withheld.
  • Wages automatically garnished.
  • Lose eligibility for other federal student loan benefits.
Avoiding your student loan obligations doesn’t make them go away. You’re still liable for the student loan debt you owe, even if they’re in default.

How to Get a Defaulted Student Loan Back in Good Standing

When it comes to federal student loan default, there are two ways to move forward and get out of default: loan rehabilitation and student loan consolidation.

Repaying Your Debt

The fastest path to getting a defaulted federal or private student loan back to good standing is paying off the loan. Admittedly, this isn’t always possible since not being able to afford your payments might have gotten your loan into default in the first place. However, depending on your situation and defaulted loan in question, a debt collector might be able to waive certain fees or negotiate a lower amount to settle the debt, if you commit to paying it in full. 

Loan Rehab

Loan rehabilitation is available for defaulted federal student loans. It’s an option that helps you retain federal student loan benefits, like deferment and forbearance, in addition to remaining eligible for loan forgiveness programs or new federal student loans. Rehabilitation also provides the key benefit of removing a default record from your credit report after you’ve fulfilled the program requirements. The late payments leading to the default, however, remain on your record.For Direct Loans and Federal Family Education Loans, your loan holder will calculate a “reasonable and affordable” monthly payment amount. Within 20 days of your payment due date, you must sign a written agreement to make nine payments at the calculated amount during a consecutive 10-month period.To rehabilitate a defaulted Perkins Loan, you must make full monthly payment within 20 days of your due date for nine months straight.

Student Loan Consolidation

You can get a defaulted student loan back in good standing with a Direct Loan Consolidation. To consolidate the loan in default, you must choose one of the following options:
  • Enroll in income-driven repayment (IDR) plans to repay the consolidation loan. IDR plans lower your monthly payment, but extend your repayment term. This means you’ll pay more interest over time. 
  • Make three full, consecutive, voluntary, on-time monthly payments before consolidation. Your lender will determine a “reasonable and affordable” payment amount you’re required to make to satisfy this requirement. 
If you choose to consolidate your defaulted loan, be aware that you won’t be able to reconsolidate the same loan without including another eligible loan.

Avoiding Student Loan Default

Before you find yourself in default, discuss repayment relief options with your servicer or lender as soon as possible. Lenders are often willing to work with you to find an agreeable solution.


Under a student loan forbearance, you can temporarily reduce or pause your payments during the forbearance period. Under new rules and regulations, interest capitalization will no longer occur when a federal student loan borrower leaves a forbearance. That new rule took effect on July 1, 2023, according to the U.S. Department of Education.You might be eligible for forbearance if you’re experiencing financial hardship, medical costs, employment changes (like unemployment), or other unique circumstances. If you’re at risk of default, contact your lender to see if you’re eligible for student loan forbearance.


Deferment can also assist you if you need to temporarily pause your federal loan payments. The Department of Education offers deferment for various situations, like economic hardship, while you’re in school, enlisted in active duty military service, undergoing cancer treatment, and more. Private student loan lenders sometimes offer their own private student loan deferment option for borrowers in need of temporary relief. However, their requirements vary, so reach out to your lender to learn more.

Changing Repayment Plans

If your current federal loan repayment plan isn’t realistic for your financial situation, and you don’t foresee this improving in the long term, an income-driven repayment (IDR) plan might be a solution.Depending on your income and family size, you might be eligible for a monthly payment as low as $0. Additionally, you might be eligible for loan forgiveness at the end of your IDR repayment period.If you have private student loans and can’t afford your payments, contact your lender to discuss your repayment plan options.

Federal Consolidation

You don’t have to wait until your federal student loan account is in default to request a Direct Consolidation Loan from your servicer. If you’re missing payments because keeping track of multiple accounts, payments, and due dates is difficult, consolidating your federal loans simplifies your repayment. With a Direct Consolidation Loan, any eligible federal loan that you combine will become one loan, with one interest rate and one payment to remember.

Private Refinancing

A private student loan refinance might be a useful repayment strategy if you qualify for a lower interest rate than your current loan rates. Refinancing turns one or more loans into a new private refinance loan with a different interest rate and new terms.Since refinancing is offered by private financial institutions, like banks, credit unions, and online lenders, you’ll need to provide proof of income, have strong credit, and meet other requirements.However, if you can secure a competitive refinancing rate, you might be able to reduce your monthly payment and your long-term interest charges.Refinancing is an option for both federal and private student loans. However, the caveat with refinancing federal loans is you’ll lose government protections and benefits for the amount of the student loan that you refinance. Private education loans, including student refinance loans, are not eligible for Public Service Loan Forgiveness, Teacher Loan Forgiveness, or federal IDR plans.

The Takeaway

If left unaddressed, student loan default consequences can wreak havoc on your credit. Take preemptive steps to avoid student loan default. If you’re already in default, talk with your loan servicer or lender about your options moving forward.As soon as your monthly payment starts to be unmanageable, talk to your lender about your payment plan options. Also, consider whether refinancing can help lower your payment.There’s a path forward for your student loans. If you've weighed the pros and cons of student loan refinancing, for example, compare a handful of lenders to find your lowest eligible rates. Lantern’s student loan refinance marketplace makes evaluating multiple lender offers side-by-side easier.See which rates you qualify for!

Frequently Asked Questions

Can defaulted student loans be refinanced?
Can you consolidate defaulted private student loans?
Will consolidating defaulted student loans hurt my credit?
Photo credit: iStock/SolisImages

About the Author

Jennifer Calonia

Jennifer Calonia

Jennifer Calonia is a Los Angeles-based finance writer who has covered the gamut, including student loans, credit card rewards, consumer loans, and debt. Her work has been featured in outlets like Bankrate, NerdWallet, Business Insider, Yahoo Finance, and U.S. News.
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