What Happens in Student Loan Default
Federal student loans enter default after 270 days of non-payment (approximately 9 months). Effects: entire balance becomes immediately due, credit score damage of 100–150 points, wages can be garnished (up to 15%), tax refunds can be seized, and federal benefits can be withheld.
Recovery Option 1: Loan Rehabilitation
Make 9 consecutive voluntary payments within 10 months (payments are income-based, sometimes as low as $5). After 9 payments: the default is removed from your credit report (though the delinquency history may remain). Loan is returned to good standing. This is the only way to remove the default notation from credit.
Recovery Option 2: Loan Consolidation
Consolidate defaulted loans into a new Direct Consolidation Loan. Faster than rehabilitation (immediate resolution vs. 9 months). However, default notation remains on credit report for 7 years (vs. removal through rehabilitation). Suitable when speed matters more than credit report cleanup.
Student loan default recovery options comparison
| Recovery Path | Timeline | Credit Impact | Access to Federal Programs After |
|---|---|---|---|
| Loan Rehabilitation | 9 months | Default removed from credit | Full access to IDR, deferment, PSLF |
| Loan Consolidation | 1–3 months | Default stays on record 7 years | Full access restored |
| Repayment in Full | Immediate | Default stays on record 7 years | Loan is closed |
The Biden administration’s Fresh Start initiative (through September 2024) allowed millions of defaulted borrowers to exit default simply by contacting their servicer. Check with MOHELA or your servicer whether any temporary default relief provisions remain available — the landscape changes regularly.
Recovering From Capitalized Interest
Capitalized interest (unpaid accrued interest added to principal) permanently increases your balance. Recovery: switch to SAVE plan (prevents further capitalization), and if balance grew significantly, model whether IDR forgiveness has become more valuable than agressive paydown.
Model Your Recovery Path
Enter your current balance (post-default or post-capitalization) — see the repayment plan that gets you back on track fastest.