Did Delinquent Student Loans Make Your Credit Score Plunge? Here's What to Do Next
- Delinquent student loans can be fixed—start by talking to the federal government to make a plan.
- Loan rehabilitation, loan consolidation, and income-driven repayment plans are a few options to get back on track with delinquent student loans.
- Dealing with your delinquent student loans could be your opportunity to get rid of other debt and move forward with your financial life.
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The COVID-19 pandemic kicked off a long pause for federal student loan payments beginning in 2020. The pause was extended in 2023, but those bills came due in 2025. The federal government announced that collections would resume for people with overdue or delinquent federal student loans.
If you have delinquent federal student loans, you might have noticed a dip in your credit score. That’s because the federal government is collecting on delinquent student loans again, and these unpaid loans are showing up as negative items on your credit report. A bad credit score is just one consequence of unpaid federal student loans. If you go too long without repaying or responding to the federal government, the government could also garnish your wages and keep your tax refunds.
Take heart. The federal government will work with you even if you have delinquent student loans, and you’ve got a few ways to get back on track with payments. Dealing with your delinquent student loans could help you get a jumpstart on getting rid of debt and improving your financial life.
Here’s a quick step-by-step action plan for what to do next if your credit score took a hit from delinquent student loans.
Freedom Debt Relief isn't a credit repair organization and doesn't provide or offer services or advice to repair, modify, or improve your credit.
Step 1: Talk to the Federal Government
If your credit score took a hit from delinquent federal student loans, it’s time to talk to the government. Don’t ignore emails or letters from the Department of Education or your student loan servicer. The government wants you to contact them to talk about the best way to start repaying your overdue student loans.
Follow the instructions on any communication you’ve received from the Department of Education Office of Federal Student Aid. Check out the U.S. Department of Education website for more details that might be relevant to your situation. If your federal student loans are in default (meaning you haven’t made any payments in over 360 days), contact the Default Resolution Group.
Different types of federal student loans might have different rules for how to get out of default. Contacting the federal government is the best way to start figuring out how to get back on track with federal student loan payments.
Step 2: Sign Up for a Repayment Plan
Even if your federal student loans are seriously delinquent or in default, you still have choices for how to get back on track with payments. Depending on your loan or program, your new payments might be more affordable than you think.
After you talk to the federal government, they can help you understand your options for repaying your overdue federal student loans. Your choices might include the following.
Income driven repayment (IDR) plan
This repayment plan gives you an affordable monthly payment based on your discretionary income—not your total income. IDR plan payments can be as low as $0 per month if you have low or no income.
Loan rehabilitation
This process lets you fix or rehabilitate an overdue federal student loan by making small consistent monthly payments. Based on your income, your payments with loan rehabilitation might be as low as $5 per month.
Loan consolidation
If you have multiple federal student loans, you can combine them into one new loan with federal student loan consolidation. This process works in the same way as a personal debt consolidation loan, but with specific rules for federal student loans. This choice might not be right for everyone. Find out if you can qualify for lower payments with an IDR plan or loan rehabilitation.
Different ways to repay your federal student loans will have benefits and limitations. Think carefully before you decide which choice is best for you.
Note that it’s not advisable to consolidate your federal loans into a new private loan unless you’re certain you won’t need to take advantage of any of the benefits, including IDR, that are offered to federal student loan borrowers.
Step 3: Boost Your Cash Flow
You might have affordable new federal student loan payments and still find it expensive to get back to paying your delinquent student loans. It could be a good time to increase your income to meet those monthly payments. Think about asking for a raise at your job, taking on extra hours at work, getting a part-time job on the weekends, or starting a side hustle for extra cash.
Step 4: Get Rid of Other Debt
If you’ve fallen behind on federal student loan payments, you might also be struggling with other types of debt, like credit card debt. Fixing your overdue student loans could be a good chance to get rid of more debt.
If your credit score has taken a hit from delinquent student loans, you might want to consider debt relief to get rid of credit card debt or other personal debts. Using a debt settlement program can help you get rid of credit card debt and other unsecured debts faster. Debt settlement isn’t an option for federal student loans. But putting your other debts behind you could make it easier to afford your student loan payments.
Contact Freedom Debt Relief for a free consultation on your options for debt relief.
Step 5: Rebuild Your Credit
Delinquent federal student loans can still damage your credit score. Here’s a way to start rebuilding your credit after getting an affordable plan to repay your student loans. First, make a plan for how to rebuild your credit.
You might want to start by applying for a secured credit card. This can help you start building positive payment history in a low-risk way, with your card’s borrowing limit tied to a small cash deposit. Make all your payments on time. After a few months, you might qualify to graduate to a typical unsecured credit card.
Delinquent student loans don’t have to keep you from qualifying for other credit and loans in the future. You can get back on track with your federal student loans, rebuild your credit, and move on with your life.
Freedom Debt Relief is not a Credit Repair Organization and does not provide or offer services or advice to repair, modify, or improve your credit.
Author Information
Written by
Ben Gran
Ben Gran is a personal finance writer with years of experience in banking, investing and financial services. A graduate of Rice University, Ben has written financial education content for Business Insider, The Motley Fool, Forbes Advisor, Prudential, Lending Tree, fintech companies, and regional banks like First Horizon.
Reviewed by
Kimberly Rotter
Kimberly Rotter is a financial counselor and consumer credit expert who helps people with average or low incomes discover how to create wealth and opportunities. She’s a veteran writer and editor who has spent more than 30 years creating thousands of hours of educational content in every possible format.
Are private student loans eligible for income-driven repayment plans?
No. Income-driven repayment is a program for federal student loans. However, you may be able to negotiate something similar for a private student loan. If your income is too limited to make your scheduled payments, you may be able to work out a more affordable repayment plan. You may have to show the lender proof of your income and other debts.
What are private student loan consolidation interest rates?
If you consolidate debt, you'll pay the market rate for the type of consolidation loan you choose. Interest rates can and do change daily. Unsecured personal loans tend to have a higher interest rate than home equity loans. But you can't get a home equity loan unless you're a homeowner with sufficient equity. Rates will vary over time and depend on your credit situation.
Is debt consolidation a good idea for student loan debt?
No. Government-backed student loans aren’t particularly good candidates for debt consolidation. Most already have low interest rates. And government-sponsored student loans offer borrowers special rights and advantages like forgiveness, in some cases, and income-based repayment programs. You’d lose those special features if you replaced this kind of loan with another form of debt. Private student loans may be better candidates for debt consolidation.