Released: October 17, 2018

Help Desk FAQ

I’m being contacted by a student loan collector because I can’t make my payments—what can I do?

If you default on your private student loan and don’t make up the missed payments, the lender probably will sue you and may get a judgment that allows it to garnish as much as 25 percent of your wages. In addition, the court order may allow the lender to seize your tax refund, take funds you deposit in your bank accounts, and place a lien on property you own (car, home, etc.). 

Before that happens, you can try to negotiate a payment plan if you can afford any monthly payment. Or, if you have access to a lump sum, you can try to “settle” with the lender—in other words, get it to agree to accept a lower amount than the current balance to satisfy the debt.

If you default on your federal student loan, the two main remedies are loan consolidation and loan rehabilitation. A Direct Consolidation Loan allows you to combine multiple federal loans into one loan and pay it off over 30 years. This could simplify, and even lower, your monthly payments. You may also resume eligibility for an income-driven repayment plan. Loan rehabilitation is a longer process but offers some benefits over consolidation. Loan rehabilitation removes the default from your credit history and stops wage garnishment. You’ll also regain eligibility for loan deferment, forgiveness, forbearance, federal student aid and a choice of repayment plans. Find a rundown of consolidation and rehabilitation requirements in the Getting Out of Default section of the Federal Student Aid website.

Learn more in the Winter 2017-2018 “Repaying Your Student Loans” issue of Consumer Action News.