Managing a Defaulted Student Loan

A defaulted student loan can ruin your credit, especially if you have little else on your credit report. You may have very good reasons for falling behind in your student loan payments, but the credit bureaus and the lenders don’t care what those may be. It can seem like a hopeless situation that causes you to ignore the student loans altogether - an even bigger mistake.

Thankfully, the situation is not hopeless. You have options for managing your defaulted student loan, and it doesn’t have to include going hungry to make your payments. You simply need to know your options, and know how to determine the best one for your situation.

If your defaulted student loan is through a federal loan program, you may have the option of applying for an economic deferment. An economic deferment is basically a grace period that allows you to avoid making payments for a period of six months to one year. Approval of the deferment is based on financial need.

There is one major disadvantage to this method. If your defaulted loan is a subsidized loan, the government may pay your interest through the economic deferment period. However, if you do not qualify for this interest subsidy, interest will accrue on the loan even while no payments are required. This can make for a larger debt, and subsequently larger payments when the grace period ends.

Another option for handling your defaulted student loan is consolidation. You can easily consolidate your defaulted loans with your loans in good standing. The consolidation process essentially pays off the original defaulted loan, getting it off your credit and out of your budget. If you are able to consolidate through a federal program, you will have many options for keeping your payments and interest low.

If you only have one or two student loans, or if your loans are nearly repaid, you may consider refinancing. Refinancing student loans is also an easy process. You simply need to find a lender willing to work with you. Many such lenders do not require a credit check for the refinance of student loans. Again, this essentially pays off the original defaulted student loan and allows you to start fresh with your payments and your credit history.

Of course, your credit report may still show the loan as being a "slow pay." However, a slow pay is much better than a defaulted loan, and makes a huge difference in your credit score. When you handle your defaulted student loan instead of ignoring it, your budget, your credit, and your financial future are secure.

Defaulted student loans
Learn more about defaulted student loans and consolidating student loans.