Can you refinance a student loan in default?

There’s a chance you can refinance a student loan that’s in default, but you might need a cosigner’s help. (iStock)

The economy has been in deep trouble since the coronavirus pandemic started shuttering businesses and leaving millions unemployed. Many Americans are having personal finance trouble, particularly with late payments and piling bills — and those who already had existing debt (like a student loan) may be falling even further behind. In this case, student loan refinancing to save money may seem like a good option.

Student loan refinancing can be a smart move if you’re facing financial hardship. Not only could it lower your monthly student loan payment, but it could also reduce your interest rates (and the money you spend in the long run), too. But can you refinance a student loan in default?

If you wait until you’ve fallen behind on payments or defaulted on your loans, it could make refinancing that much harder. In some cases, it may disqualify you from refinancing student debt altogether.

Here’s what you need to know about student loan refinancing if your loans are in default.

Can I still refinance student loans in default?

In theory, refinancing your student loans could help you address any defaults and get back on track payment-wise. The only problem? Qualifying for one will be hard.

Though there are no rules against refinancing a loan in default. But refinancing is still, at its heart, applying for a new loan. And loans come with various requirements regarding credit score, debt, income, and more. Since loans in default can hurt all three of these financial areas, it could make it hard to get approved.

To find out if you qualify for a student loan refinance, enter your estimated credit score and other simple personal information into Credible's free online tools.

Sometimes, though, bringing in a cosigner could help your case.

To see what you'd pay on a private student loan refinance, either with or without a cosigner, you can visit Credible today to view a rates table that allows you to compare fixed and variable rates from multiple lenders at once with no impact on your credit score.


“Typically, you won’t be able to refinance a student loan in default by yourself," said Robert Farrington, founder of “The reason is your credit. However, there may be some rare scenarios where you can qualify with a cosigner. In that case, you may be able to refinance a loan in default.”

What happens if a student loan goes into default?

If your loans are in default, it essentially means you’ve failed to repay them as originally agreed. On federal student loans, you’re usually considered “in default” once you’re 270 days (or nine months) behind. On private student loans, it’s less time — typically 120 days or four months.

Once you’ve gone into default, lenders will take action and try to recoup the money they’re owed.

“There are a lot of consequences of going into student loan default,” Farrington said. “First, you’re going to take a big hit on your credit score and see the default on your credit report. This can have big implications for borrowing in the future or even other things like renting an apartment or getting a job. Second, there will be collection activities on your loan. This can mean wage garnishments, tax refund offsets — where the government takes your tax refund — or you could even be sued by your lender.”


How do I get out of default on student loans?

Getting out of default — or avoiding a default student loan altogether is key.

If you do fall so behind that your loans go into default, there are options — especially if you have federal loans. You can get out of default by seeking student loan forgiveness, applying for deferment or forbearance, or taking out an income-based repayment plan. You can contact the Department of Education’s Default Resolution Group for assistance. You can also consider loan consolidation or loan rehabilitation — both programs offered through the federal government.

“The best way, for federal loans, is to rehabilitate your loans in default,” Farrington said. “Student loan rehabilitation is a special program where you make nine payments, and your loan goes out of default and back to your loan servicer. A benefit of this is that the default is also removed from your credit report. However, this is a one-time option, and if you don’t make the nine payments, you could fall right back into default.”

Refinancing your student loans is also an option (particularly for private student loan holders).

To learn more about student loan refinancing and compare private lenders, check out Credible.


Just remember: With private student loans, your options will depend on your lender.

“Some lenders will remove the default from the borrower's credit history if the borrower signs up for auto-debit and makes a number of payments on the defaulted loan,” said Mark Kantrowitz, vice president of research at

How to manage student loans

As with most things, prevention is the best policy when it comes to student loans. From the get-go, you should take steps to prevent a late or missed payment. This could mean configuring auto-payments or, if that makes you nervous, try setting a monthly alarm to remind you that your payment is due.

If you come into hard times, contact your lender ASAP to discuss your options. There may be a way to lower your payment, either through refinancing or an income-based repayment plan.

“The best way to prevent default is to get on a repayment plan you can afford,” Farrington said. “For federal loans, this may mean an income-driven repayment plan. Income-driven repayment plans can have monthly payments as low as $0 per month if you don’t make much money. That will keep you out of default. With private loans, you can ask your lender if they offer any flexibility in your monthly payments or if they offer different repayment plan options.”


Should I refinance my student loans now?

If you do consider refinancing to lower your payment or reduce your rate, make sure you shop around first.

Rates and terms vary widely by lender, so use a tool like Credible to be sure you’re getting the best deal. You can compare private lenders and see what rates each have to offer.


You should also use an accurate student loan refinance calculator before agreeing to a credit check. This will ensure you’re getting a payment you can afford.