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Student Loan Collections: What It Is and What Happens

Student Loan Collections: What It Is and What Happens
Jennifer Calonia
Jennifer CaloniaUpdated January 3, 2025
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent, and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or network providers. Read more about our Editorial Guidelines and How We Make Money.
The average federal student loan debt in 2024 was $37,853 per borrower, according to Education Data Initiative. Student loan debt in the United States totals $1.753 trillion.With such a large amount of debt, it’s not surprising that borrowers sometimes face difficulty repaying their education loans.  Having student loans in collections can be stressful for borrowers and bear long-term consequences. Here’s a look at what it means and how to pay student loans in collections — as well as some tips for avoiding student loan collections going forward.

What Are Collections?

Collections is an action that’s initiated by a creditor, such as a student loan lender, when an account is multiple months past due. When a credit account goes to collections — whether an in-house department through the creditor, a debt collection agency, or lawyer — the collector will attempt to contact you through various means to get payment.Additionally, debt collectors might attempt to sue you to get court-enforced payment on the unpaid debt.

Do Student Loans Go to Collections?

Defaulted student loans can go to collections, just like other types of consumer debt, such as credit cards and auto loans. However, based on the kind of student loan debt you have — federal vs. private — the journey to debt collection varies

When Do Student Loans Go to Collections?

The timeline for delinquency and when student loans go to collections depends on your loan type.

Federal Student Loans Become Delinquent

Delinquency is typically the first step before your account goes into default, and collections are initiated. If you fail to make a federal student loan payment, your account is delinquent starting on the first day after your due date. Your loan status will continue to be delinquent until you make sufficient payments to bring your account back to good standing. If you still haven’t made a payment for 90 days or more, the delinquency will be reported to the credit bureaus.

Federal Student Loans Go Into Default

Typically, your Direct Loan is considered in default if you haven’t made a payment for a minimum of 270 days. For Perkins Loan borrowers, your loan holder can mark your loan as defaulted as soon as the first payment is late.

Private Student Loans Go Into Default

Unlike federal student loans, private student loans are generally considered in default after 90 days of not submitting a payment. During this time, your lender will likely report the defaulted student loan to the three credit bureaus.Your lender might contact you to collect payment or resolve the debt, or it might hire or sell your debt to a debt collection agency which will also contact you to collect the debt. The collector might also choose to sue you in an effort to collect payment. 

How to Pay Student Loans in Collections

Understanding how to pay student loans in collections can help you move forward from default.  

Paying Federal Student Loans in Collections

When your federal student loans are in default, your total student debt — not just your missed payments — is due immediately. The most direct way to get your federal student loans out of default is by making a lump-sum payment on your debt. However, this isn’t an option that’s financially feasible for many borrowers. There are two alternative solutions to consider:
  • Loan rehabilitation: For Direct and FFEL Loans, you must sign a written agreement to make nine voluntary and reasonable monthly payments over a consecutive 10-month period. The payment amount will be determined by your servicer, and payments must be made within 20 days of their due date. Perkins Loans have different requirements.
  • Loan consolidation: Another option is combining your defaulted loans into a Direct Consolidation Loan. To do so, you must either:
  • Repay the consolidated loan under an income-driven repayment (IDR) plan, or
  • Make three voluntary, on-time full payments in a row before applying for consolidation.
The main difference between rehabilitation vs. consolidation is that rehabilitation can result in removing the default from your credit history. Additionally, rehabilitation allows you to choose your repayment plan moving forward. Consolidation, on the other hand, will not remove the derogatory default from your credit report, and offers limited options for repayment plans.

Paying Private Student Loans in Collections

If you have existing student loan collections in place, there are a series of steps you can take, depending on your situation. If you’ve confirmed that the debt under collections is yours and that you owe it, you can:
  • Repay the amount that’s owed.
  • Settle the debt for a lower, lump-sum amount.
  • Negotiate a revised repayment plan.
  • Declare bankruptcy and request that the defaulted private student loan debt be discharged if you can prove it presents an undue hardship (this requires a separate case through bankruptcy court).
Consider talking to a debt attorney to learn about your specific options and the best way to proceed. You can also reach out to a nonprofit credit counseling agency, like the National Foundation for Credit Counseling, to seek guidance.

Tips to Avoid Having Student Loans Sent to Collections

Student loan collections are typically triggered by not making payments on your education debt for multiple months. To avoid defaulted student loans, submit payments on time and ensure that your repayment plan is realistic for your budget.

Continue to Make Payments

Make sure your loan doesn’t go into default due to simple forgetfulness. Add your payment due date to your calendar, and better yet, consider enrolling in auto-pay so you never miss a payment.If your financial situation has changed, and you can no longer afford your monthly payment, reach out to your lender or servicer to discuss your repayment plan options. For example, federal loan borrowers can request an income-driven repayment plan from their servicer. An IDR plan adjusts borrowers’ required monthly payment to an amount that’s manageable, based on their discretionary income and family size.Discussing alternative repayment options ahead of a missed payment will help you to avoid ending up with defaulted student loans in collections.

Consider Refinancing Your Student Loans

A student loan refinance pays off your original loan(s) and creates a new loan in its place. This new refinance loan can offer a path toward a more manageable repayment plan, in addition to possibly a lower interest rate, if you qualify. For example, if your current loan payments are too high, extending your term can help lower your monthly payment amount. This strategy, however, means you might pay more interest overall.The pros and cons of refinancing should be taken into consideration before pursuing this repayment option. Refinancing an existing private student loan might make sense if you can secure a favorable rate and term that makes repayment more manageable. When refinancing federal loans, however, you automatically lose federal benefits. For example, you’ll lose access to student loan forgiveness programs, income-driven repayment plans, and extended deferment and forbearance protections.Additionally, be aware that not all lenders offer in-school deferment if you refinance while still in school. You might be required to start repayment immediately, which might be problematic if you can’t afford to make monthly payments while taking classes.Read through the terms and repayment options offered by refinancing lenders carefully, before proceeding.

The Takeaway

If a student loan refinance sounds like a realistic way to make your repayment experience more manageable, the first step is comparing your options. It’s a good idea to shop around with a handful of lenders to find the best offer you qualify for. Lantern can make this search easier. Its marketplace features multiple refinance lenders, based on your preferred loan features. That way, you can refinance student loans with the best option available to you.Explore refinancing student loans through Lantern now.

Frequently Asked Questions

What happens if I don't pay back my student loans?
How do I know if my student loans are in collections?
Do collections hurt my credit score?
Photo credit: iStock/LaylaBird
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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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