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The Biden administration’s student loan relief plan will provide financial relief to about 43 million federal borrowers, according to White House estimates. For those who are in default, however, much depends on the type of loan.
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Even if your loan is in default, you’ll likely still qualify for a rebate under the Biden plan, Forbes said. This also applies if collection activities have been halted on your debt during the federal student loan payment break.
However, delinquent direct loans are not eligible for the Public Student Loan Forgiveness program, according to the U.S. Department of Education. The PSLF is available to government or nonprofit employees who have made at least 120 qualifying payments, or 10 years.
You have an option if you have a defaulted loan that you want to make PSLF eligible: resolve the default through rehabilitation or consolidation.
To begin the loan rehabilitation process, you will first need to contact your loan holder. The next process depends on the type of loan and your loan holder. For example, if you have a William D. Ford Federal Direct Loan or a Federal Family Education Loan, you will need to agree in writing to make nine voluntary, reasonable, and affordable monthly payments within 20 days of the due date. , and to make the nine payments for a period of 10 consecutive months.
When your loan is rehabilitated, the default status will be removed and collection of payments by wage garnishment or treasury compensation will end, the Department for Education said. You can also benefit from loan forgiveness via the PSLF.
You can also get out of default by consolidating your defaulted federal student loan into a direct consolidation loan, which allows you to pay off one or more federal student loans under the new consolidated loan. To do this, you must either agree to repay the consolidated loan under an income-driven repayment plan or make three consecutive, voluntary, timely, and full monthly payments on the defaulted loan before consolidating it.
Another option for federal student loans in default is to enroll in the Department of Education’s Fresh Start program, which allows borrowers to bring defaulted federal loans back into good standing. Loans eligible for Fresh Start include Direct Loans, Federal Home Education Loans, and Perkins Loans held by the Department of Education.
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Fresh Start won’t play much of a role in whether you qualify for loan forgiveness under the Biden plan — you should still qualify even if your loan is in default. But it’s a way to improve your credit score and make it easier to qualify for future loans, including student loans.
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