How to Repair Credit After a Student Loan Default

If you take out a student loan to finance your education, but fail to make payments on the loan, your student loan will fall into default. According to myFICO.com, your history of making timely payments on your debts is responsible for 35 percent of your credit score. Defaulting on your student loan damages your credit score substantially. Unfortunately, the only method available for repairing the damage done to your credit report after defaulting on a private student loan is time. However, if, like most students, you opted for a low-interest federal student loan, you have the option to rehabilitate your loan and repair the damage nonpayment has done to your credit history.

Instructions

1

Structure a budget that will allow you to make regular student loan payments for long enough to bring the loan out of default. If you are struggling financially, asking for deferral or forbearance to avoid paying the loan until you have more disposable income is an option----but only once the loan is no longer in default. If you must seek out financial assistance from friends and family members to bring your loan current, do so.

2

Call the U.S. Department of Education (DOE) and explain that you would like the opportunity to rehabilitate your student loan. You will be enrolled in the loan rehabilitation program. If your wages are currently being garnished by the government in an attempt to recover the loan, wage garnishment will end to give you the opportunity to rehabilitate. Use this opportunity to negotiate a monthly payment that is acceptable to the DOE, but not so expensive that you cannot comfortably pay your other bills while you are rehabilitating your loan.

3

Pay your student loan payments on time for a minimum of nine months. This requirement applies to Perkins Loans, Federal Family Education Loans (FFELs) and Direct Loans. Any money the government withholds from you during the rehabilitation process (such as withholding your income tax return) cannot be counted toward loan rehabilitation funds. The most important aspect of successful loan rehabilitation is to always pay on time, lest you forfeit all the progress you have made toward rehabilitation. You can opt to have the DOE draft payments from your bank account automatically every month if you are afraid of forgetting to make your payment.

4

Verify that changes have been made to your credit reports. Once you have successfully completed the loan rehabilitation program, the DOE will update your credit reports to reflect a "paid as agreed" notation in lieu of late payment notations. Rather than hurting your credit score, your student loan will now help your credit score. After the change is made, you may see a jump of 100 credit points or more, depending on your previous score.