Student Loan Credit Repair: How To Fix Your Credit After Default or Late Payments

More than one in three student loan borrowers have missed a payment, according to the 2023-2024 Student Loan Borrower Survey from the Consumer Financial Protection Bureau. Making late payments and potentially entering default can have significant consequences, especially regarding your credit.

Now that the federal loan “on-ramp” and Fresh Start program are no longer available, borrowers need to do more work to get in good standing and fix their credit after student loan default or late payments.

This guide covers student loan credit repair strategies that can help you going forward.

How do student loans affect your credit score?

As a borrowing tool, your student loans can help you establish a credit history. If you repay what you owe by the due date, you can continue to build credit.

“Student loans affect credit scores in the same way as other installment loans. Making on-time payments will build a positive credit history and reduce your debt over time. That will help credit scores,” says Rod Griffin, senior director of consumer education and advocacy for Experian.

But if you miss a payment or wind up in default, it can hurt your credit. Federal loans are delinquent one day after the due date and in default after 270 days. Your loan servicer will report federal loans that are 90 or more days delinquent to the credit bureaus.

For private student loans, the definitions for delinquency and default, and when those statuses are reported to the credit bureaus, may vary by lender. In general, your private lender may report your delinquent payments within 30 to 60 days of being past due. Private loan default may occur 90 days or more after your missed payment. Be sure to check with your private loan lender and your promissory note before actually missing a payment.

“Late payments or defaulting on student loans will hurt scores just as failing to repay a car loan or any other loan … Missed payments will decrease scores significantly,” says Griffin. “Defaulting on a student loan will lower scores even further and could take months or even years for them to recover.”

Steps to repair your credit after student loan issues

If you miss your monthly student loan payment or are in default, your credit can take a hit. In fact, late payments show up on your credit report for seven years after being reported. But taking action can help with student loan credit repair.

Here's how to rebuild your credit after missed loan payments:

• Get current: You need to get current to repair your credit score with student loans in default or delinquency. That means making payments that are past due and being up to date on your payment schedule.
• Rehabilitate defaulted federal student loans: Through student loan rehabilitation, you agree to make 9 monthly payments within 10 months. Your monthly payment amount is typically 10% to 15% of your yearly discretionary income, divided by 12.
• Consolidate defaulted federal student loans: Another option for getting out of federal student loan default is with a Direct Consolidation Loan. You can either make 3 full and consecutive payments before you consolidate or agree to repay your Direct Consolidation Loan through an income-driven repayment (IDR) plan. 
• Request a goodwill adjustment: If you missed a payment due to a medical issue or other unforeseen event, one student loan credit repair strategy is to request a goodwill adjustment. Through a goodwill adjustment, you ask your creditor for forgiveness and to remove the late payment. While it's possible, this option can be a long shot.
• Pay in full: Student loan default and its credit impact can be serious. While likely not an option, one way to get out of student loan default is to pay off your balance in full.

Student loan rehabilitation vs. consolidation

If your federal loans are in default, it's important to understand how student loan credit repair works with rehabilitation and consolidation.

“You may be able to consolidate the student loans to reduce your monthly payment amount, become eligible for deferment or forbearance, and qualify for loan forgiveness programs,” says Griffin. “However, loan consolidation does not remove the record of default from your credit history.”

“You might also qualify for student loan rehabilitation programs. Rehabilitation offers similar advantages to consolidation, and also removes the record of default from your credit history,” Griffin adds.

However, note that student loan rehabilitation is a one-shot deal — you can only take advantage of it once. When you consolidate, your unpaid interest capitalizes, which means the unpaid interest gets added to the principal balance. Because your principal balance is now higher, you'll pay more interest on a higher amount.

Refinancing as a credit repair strategy

Student loan refinancing allows you to take on a new loan to pay off your current ones. It can be a smart idea if you're approved for a lower interest rate, and it can help you change your repayment term and monthly payment amount. For example, a longer term typically means lower monthly payments (and more interest).

However, if you've missed a student loan payment or have been in default, it can be challenging to get approved on your own since refinancing lenders generally want borrowers with good credit.

Getting a cosigner with excellent credit may help you qualify for a refinancing loan with better terms. But be aware that they share the responsibility for the loan if you miss payments. On top of that, refinancing causes you to forfeit federal loan benefits like consolidation, rehabilitation, income-driven repayment plans, and loan forgiveness.

Current student loan refinance rates

Other ways to rebuild credit after student loan issues

Credit recovery for student loan borrowers can be a long game. While you might be focused on student loan credit repair, you can improve your credit in other ways. For example, focus on the top two factors that impact your credit score:.

1. Payment history
2. Amounts owed

The most important thing is to be consistent with on-time payments for all your loans and credit accounts. Secondly, pay down other debts and improve your credit utilization, which is the percentage of available credit you use. A good benchmark is less than 30%.

Lastly, monitor your credit and regularly check your credit reports for any errors with AnnualCreditReport.com. If there are, you can dispute any mistakes with the credit bureaus.

“Removing mistakes from your report is simple and free. The bureaus make it easy and convenient,” says Martin Lynch, president of the Financial Counseling Association of America.

Tips to prevent future credit damage from student loans

It can take a while to fix your credit after student loan default or missed payments, so it's best to pick a strategy that will work for you in the long term.

“The key is to settle on a repayment plan that makes sense for your budget and then never miss a payment. Then, as your balances comes down and your months of on-time payments pile up, you'll demonstrate that you're a responsible borrower,” says Lynch.

“And because student loans typically take at least 10 years to repay, you'll be sending out good signals about yourself to your next lender for a long time,” he adds.

In addition to picking the right repayment plan, be sure to communicate early if you're facing any issues that prevent you from making on-time payments. Some tips to prevent future credit damage from student loans include:

• Set up autopay: Through autopay, your monthly payments are taken directly from your bank account, so you can avoid missing a payment. As an added bonus, you may be able to reduce your interest rate, since some lenders offer a rate discount for signing up for autopay. Make sure you can cover the payment to avoid getting hit with overdraft fees.
• Create a budget: Look at your total income and expenses and create a budget that can help you stay within your means. Include your monthly student loan payment(s) so you can stay on track. Checking in once a week may help you course correct if you're overspending.
• Update your contact info: If you move, change emails, or switch phone numbers, update your contact info. You don't want to miss important communications from your student loan servicer.

Talk to your loan servicer: If you're facing financial hardship, unemployment, or other extenuating circumstances, contact your loan servicer right away. You may be eligible for deferment, forbearance, or $0 payments through an eligible income-driven repayment plan.