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Defaulted Student Loan & Credit Report

Defaulted Student Loan & Credit Report
Mark Cappel
UpdatedJan 25, 2010
Key Takeaways:
  • Federal law controls the behavior of credit reporting agencies.
  • Delinquent federal student loans can be reported indefinitely.
  • Become current on federal student loan payments to wash them from a credit report.

I defaulted on a student loan, which appears on my credit report. How do I remove this derogatory entry?

In 2009, I consolidated my four student loans with William D. Ford’s income contingent program. Background: Since 2005 I have lost two jobs and both times my student loans went into default with two different servicers. I’ve been back to work for one year now. I had made five payments under the Ford ICP until they received my tax info from the IRS — my current temporary job pays 60% less than I was making and therefore they have set my monthly payment at -0-. But I expect that to change this year. Is there anything I can do to remove Nelnet (the last servicer) and the guaranty agency from my credit report? Anything I can do to make it better? Is it true that if I make 12 consecutive payments (or even "non-payments" at 0.00 with Ford that Nelnet will be removed from my credit report? Nelnet also sent me to a collection agency; I set up the Ford ICP through the collection agency. Am I screwed because I failed to rehab my loans before switching to the ICP? Nelnet and the guaranty agency are hurting my FICO and I am at a loss as to fix it. Thanks a million for any advice.

Let us start with a look at the rules for what can appear when on a credit report.

Federal law (US Code Title 15, §1681c) controls the behavior of credit reporting agencies (CRAs). The specific law is called the Fair Credit Reporting Act (FCRA). Under FCRA §605 (a) and (b), an account in collection will appear on a consumer’s credit report for up to 7½ years. To determine when an account will be removed by the CRAs (TransUnion, Equifax, and Experian and others), add 7 years to the date of first delinquency. The date of first delinquency is shown in credit reports. Subsequent activity, such as resolving the debt or one debt collector selling the debt to another collector, is irrelevant to the 7-year rule.

Some debts have a reporting period longer than 7 years, including:

  • Tax liens: 10 years if unpaid, or 7 years from the payment date
  • Bankruptcy: 10 years from the date of filing (15 U.S.C. §1681c)
  • Perkins student loans: Until paid in full (20 U.S.C. §1087cc(c)(3))
  • Direct and FFEL loans: 7 years from default or rehabilitation date (20 U.S.C. §1080a(f)(1) and 20 U.S.C. §1087e(a)(1))
  • Judgments: 7 years or the debtor’s state statute of limitations on judgments, whichever is longer

The FCRA 7-year rule is separate from state statutes of limitations for debt issues.

According to the Dept. of Education Web page Repaying Student Loans Held by the U.S. Department of Education, to get a negative credit report made by the Department removed, you must successfully complete the Dept. of Education’s loan rehabilitation program.

The William D. Ford income contingent program concerns direct loans. According to the Dept. of Education loan rehabilitation page I just mentioned, "To rehabilitate a Direct Loan, you must make at least nine (9) full payments of an agreed amount within twenty (20) days of their monthly due dates over a ten (10) month period to the U.S. Department of Education (Department). Payments secured from you on an involuntary basis, such as through wage garnishment or litigation, cannot be counted toward your nine (9) payments. Once you have made the required payments, your loan(s) will be returned to the Direct Loan Servicing Center."

At the risk of stating the obvious, it would appear that the best way for a person to wash a delinquent student loan from their credit report is to become current on payments.

You might be curious if bankruptcy will resolve a student loan. Alas, no, unless there is a hardship involved. See the resource Student Loan Bankruptcy to learn more.

I hope this information helps you Find. Learn & Save.




MMike Puccio, Mar, 2014
I have an outstanding student loan from 1996 in the amount of $2,625. I spoke to a collection agent today. I was advised I have been "lucky" so far because it hasn't been on any of my credit reports in the past 7-8 years that I know of. She said this new agency will report it, and I have two options: 1. Pay monthly and have it show as delinquent being paid, or 2. Have it show on my credit report as delinquent and not being paid.

I want to make my first payment, but am unsure of how this might or might not affect my credit score and/or report. Any input is greatly appreciated!

BBill, Mar, 2014
Two contradictory answers for you, and the correct one depends on if your loan is federally guaranteed:

Private Student Loan: If the student loan is private, the collection agent misinformed you. When it comes to credit reports, the Fair Credit Reporting Act treats private student loans the same as any other delinquent consumer loan. They can be reported for 7 years from the date of first delinquency. If a private student loan became delinquent in 1996, it could be reported on your credit reports until sometime in 2003 or early 2004. The collection agent violates the FCRA if it adds this 1996 private student loan to your credit report today.

If this is a private student loan, do not pay the collection agent anything, or make a written reinstatement of the debt! The next time this collection agent calls, ask for his or her employer's name and address, and the account number of this collection account. Then send the collection agent a written cease communications notice. Why? A private student loan that went delinquent in 1996 is long past every state's statute of limitations. A collection agent filing a lawsuit against you for time-barred debt violates the Fair Debt Collection Practices Act. In other words, you have no legal obligation to pay a private student loan that's been delinquent for 18 years.

Federal Student Loan: The rules are different for federal student loans. State statutes of limitations do not apply to federal student loans. If the loan is federal, then validate the debt. If the collection agent validates a federal student loan debt, then negotiate a payment plan.

The collection agent is permitted to add delinquent federal student loans to your credit report, regardless of the date of first delinquency.
JJackie, Dec, 2010
I am in default on my federal student loan. When I graduated college in 2003 from MN, I consolidated all my loans through CFS. I became deliquent and have not made a payment in approx. 2 years. After making a lot of bad financial decisions with autos and credit cards through the years, I have finally smartend up and made amends. I am now debt free with the exception of the student loan which I would like to begin make payments on again. Allied Interstate, a collection agency, has this loan. Is my only option to work with Allied? If so, would it be wise to settle on an amount, as they did offer this in their last letter. I read before that settling can do more damage to a credit report. OR is it possible to go back to my original consolidator(CFS)to ask for loan rehabilitation - and start all over?
BBill, Dec, 2010
Collegiate Funding Services (CFS) was purchased by Chase Education Finance in 2006, which in turn is a division of JPMorgan Chase. Chase no longer consolidates student loans. Back in the day when student loan consolidation was possible, debtors could consolidate private student loans with a private loan, or consolidate federal student loans into a private loan, or consolidate federal student loans with a federal consolidation loan. It is unclear if your consolidated student loan is still backed by a federal guarantee, or if your consolidated loan is private. My guess is your consolidated loan is now private because your collection account landed in the hands of a collection agent willing to settle for a lump sum. If the loan was federally backed, it would be far more likely you would be dealing with a 15% wage garnishment administered by the Dept. of Education now instead of a private collection agent. My answer assumes your debt is private.

Consider taking the following steps to handle the debt: 1. Go to and get a no-cost, no-gimmick copy of your credit report from one of the credit reporting agencies. See if Allied Interstate still owns your collection account. A credit report may not be accurate, but if Allied Interstate sold your account to another collection account, your credit report may indicate the new owner. 2. Collection agents sometimes work as contractors for the owner of the collection account. Sometimes they buy the collection account outright. It is likely, but not certain, that Allied Interstate owns your collection account. I base this assumption on the fact it proposed a settlement for the debt. Most collection accounts are sold for pennies on the dollar. 3. Open a negotiation with the owner of your collection account. If you reach a settlement be absolutely certain to reduce it to writing, which the collection agent signs. In other words, create a written contract.

If the original creditor (in this case CFS) sold your collection account, it is unlikely it will want to speak with you about the debt. If, however, Allied Interstate was merely a contractor working on CFS's behalf, then CFS will be happy to see you start paying the debt to it directly.