Getting Out of Default

There are three options for getting out of default on your federal loans.

For defaulted Federal Perkins Loans, contact the school where you received your loan.

  • Loan Repayment
  • Loan Rehabilitation
  • Loan Consolidation

Loan Repayment

By paying your defaulted loan in full, you’ll receive these benefits:

  • National credit bureaus will be updated to show your defaulted loan as paid in full.
  • You regain federal student financial aid eligibility.
  • Your IRS tax refund will not be seized.
  • You’ll realize interest cost savings.
  • You may realize collection costs savings.

To make payments on your HESC loan, you can have payments automatically deducted from your checking account through SMARTCHECK/SMARTPAY. Repaying your loan with SMARTCHECK/SMARTPAY is fast, convenient and free. 

For information about repaying your defaulted FFEL loan serviced by HESC, contact the Office of Default Collections at This email address is being protected from spambots. You need JavaScript enabled to view it..

For information about other defaulted federal student loans serviced by the U.S. Department of Education (ED), visit Federal Student Aid's or call 800-433-3243.

Loan Rehabilitation

If you are in default on a Federal Family Education Loan (FFEL) being serviced by HESC, the Rehabilitation Loan Program gives you the opportunity to have your loans removed from default and repair your credit.

Benefits of loan rehabilitation include regained eligibility for benefits that were available on your loan before you defaulted, such as deferment, forbearance, a choice of repayment plans, loan forgiveness, and eligibility for additional federal student aid.  Additionally, these negative consequences are removed:

  • Default status on your defaulted loan,
  • Default status reported to the national credit bureaus,
  • Wage garnishment, and
  • Any withholding of your income tax refund made by the Internal Revenue Service (IRS) or NYS Department of Taxation and Finance.

How student loan rehabilitation works:

  • You must make nine consecutive, voluntary, agreed-upon monthly payments that are received within a 10-month period. Money received by HESC from your tax refund or as garnished wages from your paycheck does not qualify as these payments are not voluntary.  NOTE: A good way to pay back your student loan is by enrolling in SMARTCHECK, our preauthorized electronic debit service.

  • Every monthly payment must be received within 20 days of the due date.

  • You must agree to pay a fee of up to 16% of the unpaid principal and accrued interest. These costs are added to your unpaid balance when the loan or loans are sold to the lender. This is a one-time fee to rehabilitate your loan but the collection costs that you may be paying now will be removed from your loan.

  • The Rehabilitation fee of 16% will not be added to the total unpaid principal and accrued interest on your loan(s) at the time of rehabilitation sale to the lender provided that you entered into a satisfactory repayment agreement agreeing to rehabilitate your loans within 60 days of HESC’s default loan purchase letter; and you sign, date and return the entire “Acknowledgment of Debt Agreement for Rehabilitation Loan Programs” agreement, and it is received by HESC within 60 days of the date reflected at the top of page one of the agreement. You must fulfill all of the terms of your repayment agreement including having made your first agreed upon monthly payment no later than 75 days after the date of the default loan purchase letter.
  • Once your loan is rehabilitated, you no longer make payments to HESC on your loan – HESC moves your loan back to a lender and you resume making payments on your loan to the lender.

  • All national credit agencies are notified that your loan is no longer in default, helping to repair your credit and, as a result, your overall credit score may improve.

For more information or to begin your loan rehabilitation, contact HESC at This email address is being protected from spambots. You need JavaScript enabled to view it..

Loan Consolidation

If you have several federal education loans, you may want to consider combining them into one new loan with one monthly payment. This is called loan consolidation and can help keep you organized and on track with repayment.

Like many federal loan borrowers, you may have both FFEL and Direct Loans. The U.S. Department of Education encourages borrowers with both types of loans to consolidate them into the Direct Loan program.

If you want to consolidate a defaulted loan, you must either make satisfactory repayment arrangements on the loan with your current loan servicer before you consolidate, or you must agree to repay your new Direct Consolidation Loan under one of these repayment plans:

  • Income-Based Repayment
  • Pay As You Earn Repayment
  • Income-Contingent Repayment

Is consolidating your loans right for you? Consider the advantages and disadvantages carefully before you act. Once you consolidate, you are locked into a loan with a fixed interest rate.  If you just want to reduce your monthly payment, discuss the federal loan repayment options available with your lender.

Eligible student loans.

Calculate the benefit of consolidating your federal student loans.

Federal Loan Consolidation


If consolidating variable interest rate loans, you save money if you consolidate while variable interest rates are low.

Variable interest rates change annually. Therefore, if you consolidate your variable interest rate loans and the interest rates drop the following year, you have "locked" into the higher interest rate for the life of the loan.


Single Payment
If you have loans with multiple lenders/holders, you send a monthly payment to each. However, if you consolidate all those loans, you make a single payment.

Lower Monthly Payment
Consolidation Loan monthly payments are lower because the repayment period is longer.

Loss of Deferment and Forgiveness Benefits
You may not be eligible to receive the same deferments on your Consolidation Loan that you were eligible to receive on your original loans. Also, you might lose eligibility for certain cancellation or forgiveness programs, especially if you are including Perkins Loans in the Consolidation. (In either case, check with your lender.)

More Interest Paid With a longer repayment period, you'll pay more interest over the life of the loan.

What Else?

Manage Monthly Budget Savings from reduced monthly payments allows you to pay other monthly bills with higher interest rates, such as credit cards.

Remove Loans From Default Status After making satisfactory repayment arrangements with the holder of your loans in default, you can consolidate those loans and reinstate benefits (deferments, eligibility to apply for financial aid, etc.) that were lost when your loans were placed in default.

No Extra Costs There are no application or processing fees and there are no prepayment penalties.

Loss of Payment Incentives You may forfeit any payment incentives/discounts you are currently receiving. (Check with your lender.)

Visit the Federal Student Loan Consolidation Webpage for more information.

Private Loans

There are few private loan consolidation options. You should know the interest rate, fees and terms before you sign any agreement. In general, you cannot consolidate private loans into federal loans, but avoid the temptation to consolidate federal loans into private; you may lose some valuable benefits available to federal loan holders. Review information about private student loans.


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