Student loan default occurs when you do not make payments for 270 days or more. Immediately, you are no longer eligible for federal financial aid. Still, there are student loan default options available for students who want to return to college.
Going back to school with defaulted loans is possible, but there are strategic steps you must take to regain financial aid eligibility. This guide provides tips and advice on how to get financial aid back after defaulting on your student loans.
Can You Get Financial Aid Again After Student Loan Default?
Federal student aid default leaves you ineligible for all types of federal aid, including grants, work-study programs, and low-interest student loans. However, you can regain financial aid eligibility if you work to rectify the situation through loan repayment, rehabilitation, or consolidation.
The Short Answer for Returning Students
Yes, you can regain eligibility for financial aid, but here is how to get financial aid back:
- Get out of default. You can do this by repaying the balance in full or pursuing loan rehabilitation or consolidation.
- Contact your loan service provider. Before you can regain eligibility, you will need to make six monthly payments on your loan.
Why Default Doesn’t Have to Stop Your Education
Your default status need not make your academic dreams come to a halt. Defaulted student loans financial aid options are available, and keep in mind that admissions and financial aid are entirely separate entities. You can still gain admission to your desired degree program if you meet academic qualifications, such as having a high school diploma or meeting a minimum GPA requirement.
How Does Default Affect Federal Financial Aid Eligibility?
If your federal student loans go into default, you are no longer eligible for federal financial aid, including grants, scholarships, work-study programs, and additional loans. It is important to note that student loan default makes you ineligible for any Title IV benefits as well. Your default student loan status has to change before you can regain eligibility for federal aid.
Why Default Suspends Access to Grants, Loans, and Work-Study
Student loan default is a signal that you may be a high-risk candidate for further aid from the federal government — and statutory rules prevent the federal government from providing grants, loans, and work-study programs to applicants in student loan default.
How Default Can Place a Hold on Your FAFSA
Students who are interested in federal financial aid must fill out and submit the Free Application for Federal Student Aid (FAFSA) each school year. During FAFSA review, the Department of Education checks all information against the National Student Loan Data System. If you are in default, a hold will be placed on your FAFSA application. It is best to fill out and submit your FAFSA after default status changes.
Is Being Admitted to College the Same as Qualifying for Financial Aid?
No, admissions and financial aid are entirely separate. You can be admitted to a college even if your student loans are in default, as long as you meet all criteria, which may include:
- Earning a high school diploma
- Completing prerequisite coursework
- Maintaining a minimum GPA
- Submitting additional application materials
Why Admission and Federal Aid Are Two Separate Things
The admissions team is simply evaluating candidates based on their eligibility for the program and their fit within the overall university culture. They evaluate academic criteria and additional materials to determine if the student is a strong candidate for success within their campus community. Not all students require federal aid, so federal aid eligibility is not a consideration in the admissions process.
What This Distinction Means for Your Plan
Your student loan default status will not impact your ability to be admitted to your chosen degree program, but regaining Title IV eligibility or federal financial aid eligibility may limit your access. For more information about financial aid for returning students with defaulted loans, contact the Indiana Wesleyan University (IWU) Tuition and Aid Office.
How Do You Regain Financial Aid Eligibility After Default?
Understanding how to get financial aid back can help you navigate student loan default. There are three main student loan default options to consider:
Restoring Eligibility Through Loan Rehabilitation
Loan rehabilitation is a preferable route for many returning students because it protects their credit and minimizes the risk of long-term financial ramifications. However, this takes longer than other pathways.
To complete loan rehabilitation, you must make nine monthly payments over a 10-month time period. After the fifth payment, your financial aid eligibility returns. Once the rehabilitation process is complete, your default status is removed from your credit report.
Restoring Eligibility Through Loan Consolidation
Loan consolidation is a faster option, which is why many returning students choose this program to get out of default. Here, your existing student loan debt is consolidated into a new Direct Consolidation Loan. In most cases, you are eligible for financial aid again within two months.
If you choose consolidation, you need to keep in mind that all unpaid interest and principal combine into your new loan, so your balance will be higher. You also still have to pay collection fees. In addition, your default status is not removed from your credit report.
Restoring Eligibility by Paying in Full
You can immediately regain financial aid eligibility by paying your loan back in full. However, for most borrowers, this is not a viable or realistic option, which is why the vast majority pursue loan rehabilitation or loan consolidation based on their personal circumstances and priorities.
How Long Does It Take to Get Aid Eligibility Back?
The amount of time it takes to regain financial aid eligibility depends on the student loan default option you choose. Take into account your timeline for returning to school, your personal priorities, and your ability to begin a repayment plan on your defaulted loans.
Comparing Timelines for Each Path
Here's an at-a-glance look at the timelines for regaining financial aid eligibility:
- Loan Rehabilitation – about 5 months. Loan rehabilitation involves nine monthly payments across 10 months, and most students regain financial aid eligibility after the fifth payment.
- Loan Consolidation – about 2 months. Loan consolidation combines your unpaid interest and principal balance into one Direct Consolidation Loan. Most students are eligible for financial aid again after making two payments on the loan.
- Loan Repayment – immediately. Paying off the full balance of your defaulted student loan immediately clears your status and lets you regain eligibility for federal aid benefits, including grants, work-study programs, and low-interest loans.
What Steps Confirm Your Eligibility Is Restored?
Once you have taken the steps needed to rectify your defaulted student loans, your eligibility should be restored. However, you will want to confirm that your default status has been cleared. Knowing the steps to take can help you verify that your loans are no longer in default and you have regained financial aid eligibility.
Notifying Your Financial Aid Office and Verifying Your Status
- Contact your school's financial aid office and notify them that your default status should be cleared.
- Review your account details on the gov Dashboard, which has information about your application status and default status.
Could You Still Lose Aid for Other Reasons?
While student loan default automatically makes you ineligible for financial aid, you can still lose federal aid for other reasons. Working to maintain your eligibility calls for vigilance. You should collaborate closely with your school's financial aid office to learn more about securing and keeping federal financial aid.
Other Eligibility Factors Worth Checking
Other factors are taken into account when distributing federal aid:
- Satisfactory academic progress – Most federal aid is available dependent upon you continuing to make satisfactory academic progress within your degree program. Depending on the type of aid you qualify for and receive, you may have to maintain a minimum GPA or continue to earn required credits within your degree program.
- Citizenship status – Some eligible noncitizens can get federal aid, but if your citizenship status changes or is revoked, you will no longer be eligible.
- Incarceration – Incarcerated students may find that their federal aid eligibility is impacted. They can still receive federal Pell Grants if enrolled in a prison education program. Incarcerated individuals not enrolled in a prison education program are ineligible for federal financial aid.
Your Next Steps Toward Financial Aid and a Degree
If your student loans are in default status, this does not signal the end of your academic journey. Student loan default help is available, and you can still proceed to earn your degree and pursue your professional goals. The key is to begin exploring student loan default options as soon as possible and choose the pathway that lets you regain eligibility in time to start your degree program.
Official Resources and Where to Get Help
The first step is to contact the Federal Student Aid Defaulted Loans Support Center. This official resource can provide you with additional information about the next best steps for your personal circumstances.
Remember that student loan policies and repayment programs can change. Work closely with your loan service provider and confirm all details on StudentAid.gov.
This article is designed to provide general information, not financial advice. IWU Financial Aid can provide you with further guidance regarding your specific situation.
Learn More About Financial Aid for Returning Students at IWU
Federal financial aid default can lead to serious and lasting consequences — but student loan default does not necessarily mean the end of your academic journey. At IWU, we have cultivated a supportive and welcoming campus for all students, including those going back to school with defaulted loans. The Tuition and Aid Office can offer personalized student loan default help for your specific situation.
Find your degree program, request more information about IWU's Christ-centered campus, and apply today.
