Defaulted Student Loan 20 Years Ago: What to Do?

Having a defaulted student loan from 20 years ago can have significant long-term consequences. Here’s what you need to know and potential steps to address the situation:

Consequences of Defaulted Student Loans:

• Credit Score Damage: Defaulted loans severely harm your credit score, making it difficult to get new credit cards, loans, or even rent an apartment.
• Wage Garnishment: The government can garnish your wages (take money from your paycheck) without a court order.
• Tax Refund Seizure: Your tax refunds can be taken to repay the defaulted loan.
• Ineligibility for Benefits: You might be disqualified from federal benefits like getting additional student aid or securing some government loans.
• No Statute of Limitations (Usually): Federal student loans generally don’t have a statute of limitations, meaning you can be pursued for payment indefinitely.

What Can You Do?

• Verify the Debt: First, confirm the loan exists and that you are the responsible party. Get details on the amount owed, the lender, and default date. You can usually do this through the National Student Loan Data System (NSLDS): https://studentaid.gov/

• Don’t Ignore It: The problem won’t disappear. Proactive steps are crucial.

• Options for Federal Student Loans:

  • Rehabilitation: Contact the loan holder to set up a payment plan. After several on-time payments, the default is removed from your credit report.
  • Consolidation: Consolidating your defaulted loan into a new one can stop wage garnishment and make it eligible for income-driven repayment plans.
  • Negotiation: In rare cases, you might be able to negotiate a settlement for less than the full amount.

• Options for Private Student Loans:

  • Contact the Lender: Explain your situation and see if they’re willing to negotiate a repayment plan or settlement.
  • Statute of Limitations: Unlike federal loans, private student loans DO have statutes of limitations that vary by state. Seek legal advice to see if this applies to you.

Important Considerations:

• Professional Help: Consider contacting a credit counselor or financial advisor specializing in student debt for personalized advice.
• Free Resources: The Department of Education has resources to help you get back on track with defaulted student loans.
• Avoid Scams: Be wary of companies claiming to eliminate student debt for a fee.