Dealing with a Student Loan in Collections

If you've fallen behind on your student loans and they've gone into collections, you're not alone, and you're not stuck. You still have control, even if the situation feels overwhelming.

As of mid-2025, millions of borrowers are facing default, primarily due to the end of the federal pandemic-related pause. That pause delayed payments for years, but once lifted, it triggered a wave of collection activity. Now, many are navigating default and looking for a path forward.

Let's break down what happens and what you can do about it.

Understand What Collections Mean

Lenders send your loan to collections after you default on it. For federal loans, that usually happens when you don't make a payment for 270 days. For private loans, the timeline is often shorter, typically around 90 days, depending on the lender.

Once your loan goes into collections, you may face:

  • A sharp drop in your credit score due to the default
  • Transfer of federal loans to the Department of Education's Default Resolution Group
  • Referral of private loans to third-party collection agencies
  • Wage garnishment or seizure of your tax refund for federal loans
  • Legal action from private lenders if you ignore the debt

Collectors can seem aggressive, but they must follow the law. The Fair Debt Collection Practices Act protects you from threats, harassment, and deceptive tactics.

When a debt collector contacts you, respond; don't ignore them. Write back and request documentation to confirm the debt is legitimate before proceeding.

Step 1: Identify Your Loan Type

Start by figuring out whether you have a federal or private loan:

  • Visit studentaid.gov and log in. If your loan doesn't appear there, it's likely private.
  • Check your billing statements or contact your loan servicer to confirm the type of loan.

Step 2: Choose a Recovery Plan

If You Have Federal Loans

You can take several actions to exit default and regain access to financial aid and repayment options.

1. Rehabilitate Your Loan

Agree to make nine on-time payments over 10 months. After six payments, you regain access to federal aid. Once you complete the plan, the government removes the default from your credit history, though late payments stay. You can only use this option once per loan.

2. Consolidate Your Loans

Combine one or more loans into a new Direct Consolidation Loan. You must either:

  • Make three on-time monthly payments
  • Or enroll in an income-driven repayment (IDR) plan

While consolidation doesn't remove the default from your credit report, it puts your loans back in good standing. It stops wage garnishment or tax refund offsets.

3. Pay Off the Loan in Full

If you can afford it, pay the balance in full to resolve the default immediately.

4. Prepare for Collections

If you take no action, expect serious consequences, including:

  • Garnished wages
  • Intercepted tax refunds
  • Loss of access to federal aid

If You Have Private Loans

Private loans don't come with the same protections as federal ones, but you still have options.

1. Contact Your Lender or Collector

Request your account details, including your balance and any applicable fees.

2. Catch Up on Payments

If you've only missed a few payments, bring the account up to date to avoid further damage.

3. Dispute Errors

If something looks wrong—like the amount owed or date of default—submit a written dispute and request corrections.

4. Negotiate a Settlement

Offer to settle the loan for less than the full balance. Collectors often accept lump sums or structured payment plans.

5. Work with a Professional

Debt relief companies or financial counselors can negotiate on your behalf and guide your recovery plan.

6. Explore Bankruptcy (Rarely Used)

In extreme cases, you may pursue bankruptcy. Courts rarely discharge student loans, but it's possible if you can prove undue hardship.

Rehabilitation vs. Consolidation: Key Differences

Loan Rehabilitation removes your default status from your credit report once you complete it. To qualify, you must make nine on-time monthly payments within 10 months. This process takes longer but helps clean up your credit history more effectively.

Loan Consolidation does not remove the default from your credit report. To consolidate, you need to make three on-time monthly payments or enroll in an income-driven repayment (IDR) plan. Consolidation is faster than rehabilitation and immediately brings your loan back into good standing, stopping wage garnishment or tax refund seizures.

Both options halt collection actions once processing begins, so it's essential to act promptly before garnishments or offsets escalate.

Take Action Now

Student loan collections don't mark the end of your financial journey—they create a detour. Whether you have federal or private loans, you can take steps to fix the situation.

If you have federal loans, consider rehabilitation or consolidation to exit default and regain your benefits. If you have private loans, focus on effective communication, negotiation, and, if necessary, settlement.

What matters most is that you act. Waiting only makes things worse. Even small steps, such as accessing your loan portal or contacting a collector, can put you back in control. The sooner you act, the sooner you'll move past collections and rebuild your financial health.

Paying for College | Repaying Student Loans