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Student Loans Student Loan Repayment

What to Do If Student Loans Are in Collections

When you miss a certain amount of student loan payments, your student loans could end up in collections. Delinquency begins if you miss your payment by a single day. Default occurs when you haven’t paid in at least 90 days for private loans and 270 days for federal loans. 

After you default, the lender can send your debt to a collection agency or begin collection activities. The collection will show up on your credit reports and could lower your credit score. Understanding what to do after this happens could help you rebuild your credit or even get a fresh start.

How to find my student loans in collections

The first step to dealing with the consequences of a student loan default is to determine whether you have federal or private student loans. 

The U.S. government issues federal student loans, and lenders, including banks, credit unions, and online lenders, issue private student loans. If you aren’t sure what type of loan went into default, check your last billing statement. The document should have details about which loan type you have. 

The default rules based on loan type are as follows:

  • Private student loans: If you haven’t made a payment in at least 90 days, investigate whether your loans are in default. Private student loan lenders may push your loans into collections after 90 days, but the timeline varies by lender. 
  • Federal student loans: Federal student loans are considered in default after 270 days, which means you have more time to pay. 

After defaulting on a private loan, contact your lender to determine whether it’s sent the loan to collections. 

If you default on a federal student loan, the Department of Education (DoE) or a guaranty agency may hold it. Federal student loan borrowers can contact the DoE’s Default Resolution Group to determine the status of their loan. 

What does it mean if my student loans are in collections? 

When you default on a private student loan, the lender might transfer your debt to a debt collection agency or collector. The collector can then contact you to collect the amount owed.

If you default on a federal student loan, the federal government can collect the debt by garnishing your wages or federal tax refund.

In addition, if you ignore a federal or private student loan in collections, the loan servicer could file a lawsuit against you. And if it wins, you might have to pay the outstanding amount plus various other costs, such as attorney and collection fees.

What to do if you have federal student loans in collections

The federal government can collect on your loan obligations in several ways, including withholding income from your tax refund, federal benefit payments, or wages. It’s easy to see how this could push your financial situation from bad to worse. 

If your federal student loans are about to go to collections, consider taking the following steps to minimize the fallout. 

  1. Catch up on payments: If you have missed a payment on your federal student loans, avoid default by catching up on the loan payments. 
  2. Work out a new payment arrangement before defaulting: It’s not always possible to catch up with your payments. Contact your loan servicer to determine what options are available. For example, you might qualify for an income-driven repayment plan
  3. Contact Default Resolution Group: If you’ve already missed payments for more than 270 days, contact the DoE’s Default Resolution Group. This group will direct you to the current loan servicer. 
  4. Ask for a loan rehabilitation agreement: Loan rehabilitation removes the loan from default. As the borrower, you must make nine voluntary and reasonable payments within 20 days of the due date over 10 months.  
  5. Prepare your budget for collections: If you can’t avoid collections, the government can start collecting debt by withholding funds from your income tax refund, federal benefits payments, and your paycheck. 
  6. Consider bankruptcy: In some cases, it’s possible to discharge debt through bankruptcy actions. This is a last resort if you’re struggling. 
  7. Consider full repayment: Of course, repaying the loan in full is a challenge for most. But if it’s an option for you, it can eliminate the uncomfortable collections process. 

What to do if you have private student loans in collections

If you have private student loans, the collections process is different. Consider taking the following steps:

  1. Learn your lender’s rules: Every private lender operates with different collections rules. If you’re concerned about default, get familiar with your lender’s process.
  2. Catch up on payments: A single missed payment won’t make you default. If possible, try to catch up on missed payments to avoid collections. 
  3. Double-check the default details: If your loan is in collections, start by confirming the details of your outstanding loan balance. Perhaps the lender made a mistake that pushed your loan into collections. If you find discrepancies, dispute the debt. 
  4. Negotiate a settlement: You can settle with the debt collections company to pay off the debt for less than you owe. Make sure to get any agreement in writing. 
  5. Pay off the loan: Paying off the loan balance isn’t often feasible. But if you can swing it, this will remove this loan from your life. 
  6. Consider bankruptcy: If you are out of options, bankruptcy is a possible last resort. We recommend working with a lawyer to determine the best course of action. 

Can you file bankruptcy on student loans in collections?

It’s often more difficult to discharge student loan debts, but it’s possible under the right circumstances. 

If you can prove undue hardship, bankruptcy might be the right option. Bankruptcy is often more viable for borrowers with private loans than federal student loans. Explore your student loan bankruptcy options today.  

How to settle student loans in collections

Settling means paying off the loan for less than you owe. For example, you might settle your debt with $10,000 if you owe $15,000. 

It’s easy to see why settling your student loans is an attractive option. Here are strategies for settling your private and federal student loans. 

Federal student loans

Federal student loans are often difficult to settle, but it’s possible. 

The government has guidelines on accepting settlements. It is often willing to waive collection costs and up to 30% of the interest and principal. 

Be prepared for a tough negotiation. If you land on a settlement agreement, get the details in writing. 

Private student loans

If your private student loans are in collections, you can try to negotiate a settlement

Start by determining how much you can afford to repay. You can only open the negotiations if you’re experiencing financial hardship. Lenders might be willing to accept the following solutions:

  • A lump sum
  • Lower monthly payments
  • A lower interest rate

Can student loans in collections be forgiven?

Yes, student loans in collections can be forgiven

Through the DoE’s Fresh Start Program, borrowers with defaulted federal student loans can return to making payments without a past-due balance. 

If you start making payments on your defaulted loan, the Fresh Start initiative may give you access to loan forgiveness programs. 

  • How to get started: To enroll in Fresh Start, contact the DoE by logging in on the Debt Resolution website or dialing 1-800-621-3115 (1-877-825-9923 if you’re hearing impaired or deaf). You can also contact the department via mail at P.O. Box 5609, Greenville, TX 75403. 
  • Eligibility: You might be eligible if you’ve defaulted on a Direct Loan, Federal Family Education Loan, or Perkins Loan owned by DoE.
  • Deadline: You must enroll by September 30, 2024.


If a guaranty agency owns your federal loans, you must contact the respective agency to enroll in the Fresh Start program.

Private student loans are ineligible for forgiveness programs, regardless of whether the loans are in collections. 

How to pay student loans in collections

If you have delinquent student loans, you can resume making monthly payments until you hit default. When possible, continue making payments to avoid default. 

After you default, your lender or loan servicer may send the loan to collections. At this point, private student loan borrowers must communicate with their lenders to determine the next steps. In some cases, you can resume monthly payments. In other cases, a lump sum is your only option. 

If your federal student loans are in default, the Fresh Start program allows you to resume monthly payments at any time. Restarting your payments will help you avoid collections activity for an entire year and gain access to loan rehabilitation options. 

Can you consolidate student loans in collections?

It is challenging but not impossible to consolidate student loans in collections

To consolidate a federal student loan, you must make three consecutive payments or enroll in an income-driven repayment plan. Consolidation might result in more manageable monthly payments. 

To consolidate private student loans, you might need to enlist a cosigner. After defaulting on your student loans, your credit score will take a hit, and you might struggle to get approved for a debt consolidation loan.