How Long After Paying a Default Am I Eligible for a Student Loan?
The federal student loan program is based on financial need, not on credit scores, and the government does not deny you aid due to defaults on private debts, such as credit cards and auto loans. However, if you have previously taken out a student loan, defaulting on that debt will make you ineligible to receive federal financial aid for school. In the past it was difficult to become re-eligible for federal student aid, but new laws have made matters much easier. There are now several ways to rehabilitate the defaulted loan, and once you've done so you can become eligible for financial aid once more.
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Default Status
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If you fall behind on student loan repayments and don't make alternate payment arrangements with your lender, your loan will go into a default status. Student loans subsidized by the federal government are one of the few types of debt that cannot be charged off in bankruptcy, and there is no statute of limitations on the debt collection. The default is entered onto your credit report, and your tax refunds may be garnished. The only options to get your loan out of default are repayment, rehabilitation or consolidation.
Repayment
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The quickest option for restoring your eligibility is simply to repay the defaulted loan in full. You can do this by calling the U.S. Department of Education directly at 1-800-621-3115, mailing payment to the DOE or mailing payment to the original lender if it still holds your loan. Once the loan is paid and your records are updated, you are immediately eligible for federal student aid.
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Rehabilitation
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If you cannot afford to make the full loan payment, you can apply for rehabilitation. Upon entering the loan rehabilitation program, you will work with the lender to set up reasonable monthly payments. After nine consecutive payments made in 10 months, not counting any garnishments, you'll be considered to be out of default and will become eligible for new student loans.
Loan Consolidation
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If you hold more than one student loan, you may be eligible for a consolidation loan through the FFEL or William D. Ford Direct Loan Program. This program allows you to combine all loans into a single loan with a single monthly payment. After three months of making payments on time and in full, your defaulted loan will be considered out of default. You'll be eligible for federal financial aid.
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