 TITLE: What to Expect If You Default on a Student Loan CONTENT: How to Rebuild Credit After Student Loan Default\n------------------------------------------------\nFederal student loans come with two structured ways to get out of default, both of which can help you rebuild credit:\n*   **Student loan rehabilitation**: When you rehabilitate a defaulted federal loan, you agree to make nine on-time payments within a 10-month period. You'll generally pay 15% of your monthly discretionary income during this time. For Perkins loans, your loan holder will determine the monthly payment.  \n    Once your loan has been rehabilitated, you'll regain benefits including access to federal student aid. Wage and tax return garnishment will end. Rehabilitation also offers the advantage of removing the default notation from your credit report. Your pre-default missed payments will remain, but the removal of the default record could benefit your credit.\n*   **Student loan consolidation**: You can also turn your defaulted student loan into a direct consolidation loan to get out of default. This process requires you to either make three full, on-time payments toward the defaulted loan before consolidating or to repay the new loan on an income-driven repayment plan.  \n    If you choose this route, the default record won't come off your credit report. But consolidation can be a faster process than rehabilitation, and your new consolidation loan will be listed as current on your credit report as you make on-time payments.\nPrivate lenders generally don't offer defaulted-loan restoration options. But ask your lender what you can do to bring your defaulted loans back into good standing. Be sure to check into whether your private lender will remove any negative marks from your credit report as part of a loan rehabilitation program.\nYou can also work to rebuild credit on your own after default—whether you have federal or private loans—by making use of responsible credit habits:\n*   Pay all bills on time on all your credit accounts, including credit cards and other loans.\n*   If you have credit cards with balances, pay them off completely every month, if possible, and keep the balances you carry from month to month low, or at zero, going forward. Credit utilization, or the amount of available credit you're currently using, is the second-most important factor in your credit score (after payment history).\n*   When you're ready, consider applying for a secured credit card that's meant to improve your credit score. To get a secured card, you'll pay a cash deposit that becomes your credit limit. You likely won't have access to a large credit line, but positive payment history on the account is an important part of improving your credit score.\n### Bouncing Back From Student Loan Default\nWhile student loan default can be distressing—both financially and emotionally—there is a way forward. Take advantage of rehabilitation strategies offered by the government for federal student loans, and reach out to your lender if you have private loans.\nAs difficult as the process may seem, the sooner you address the default and commit to making on-time payments, the sooner your credit can recover. Also, if your loans are in danger of defaulting but haven't yet, take this opportunity to get ahead of the issue and talk to your lender as soon as you can.\nConsider signing up for repayment plans that can lower your bill, or opt to postpone payments until you're back on steadier footing. Aim to avoid missed payments and a record of default so you can keep your credit, and your overall financial health, strong. END