Can I Qualify for Financial Aid After Paying Off a Defaulted Student Loan?
Defaulting on private student loans may prevent you from receiving new loans through another private lending institution. However, many private lending institutions service federal student loans, so it is important to know about your type of loan. You may qualify for federal financial aid after you pay off your defaulted federal student loans including all applicable fees and accrued interest.
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Federal Student Loan Eligibility Reinstatement
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If you are currently in default of your federal student loans but the U.S. Department of Education is not currently garnishing your wages, you do not have to pay off your loan in full before you are eligible to receive additional federal student aid. You must contact the U.S. Department of Education regarding your defaulted federal student loan and work out satisfactory payment arrangements. Once you do that, the Department reinstates your federal student aid eligibility after you make six months of on-time payments.
Federal Student Loan Default
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Your federal student loans enter default status once you become 270 to 360 days past due on your payments. At this time, you are not eligible for new federal student loans. If you choose not to work out payment arrangements or enter the student loan rehabilitation program with the U.S. Department of Education, it is likely that the government will begin garnishing your wages. You are not eligible for new federal student aid during the duration of your garnishment. After you pay the total amount of the garnishment in full, you are once again eligible to receive federal student aid.
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Private Lender Default
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If you have defaulted on student loans through a private lender, it does not affect your eligibility for federal student aid. The U.S. Department of Education does not use your credit report and score as factors for federal student loan eligibility. After paying off a defaulted student loan through a private lender, the consequences of the default to your credit report and score may prevent a private lender approving you for a new student loan.
Federal Aid Through Private Lenders
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Private lending institutions service federal student loans through funds awarded to them by the U.S. Department of Education. Any student loan serviced through a private lender on behalf of the federal government is a federal student loan. If you default on a federal loan serviced through a private lender, you are eligible to receive federal financial aid once you pay off the loan. To determine whether you have a private lender loan or a federal loan serviced through a private lender, you need to contact the lender or collection agency named on your most recent loan paperwork.
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