If I Have a Defaulted Loan, Can I Still Use My GI Bill?

Servicemen can use the GI bill to get education benefits.
i Creatas/Creatas/Getty Images

If you defaulted on a federal student loan, or if you have yet to pay the excess payment on a federal student aid grant or loan, you’re ineligible to receive federal student aid under the GI bill. Furthermore, you can borrow only a limited amount each year with federal student aid. If you’ve crossed that limit, you’re ineligible for aid. So, if you want to use GI bill benefits, bring your loans to a current status soon.

Student Loan Repayment Options

Your loan becomes payable when you graduate or drop out of school. You can pay in installment or repay your loans in full. You also can use the direct loan program or the William D. Ford program to consolidate federal student loans. This program allows you to make affordable payments according to your current monthly income. The loan rehabilitation option moves your loan from a default status and removes any records of that status. You’ll then begin making payments on the loan, depending on the loan type.

Collection Activities

If you don’t make payments on your student loans, the Default Resolution Group of the U.S. Department of Education might conduct collection activities internally, garnish your wages or assign your account to a private collection agency. These collection agencies work under guidelines that the Fair Debt Collection Practices Act sets. Before referring your account to a collection agency, the DRG sends you notices warning you of their intentions. If you pay back the amount you owe through a collection agency, you’ll also have to pay the commissions due to this agency.

Student Loan Records

The National Student Loan Data System has complete information about your student loans. When you get an education loan or a grant, the school, loan provider or guaranty agency reports the loan to the NSLDS within a month of your receiving the money. The system updates when you pay amounts toward your loans. If there are errors in your NSLDS record, contact the relevant agency for corrections. For example, contact your federal loan servicer for Federal Direct Loans, or the guaranty agency for Federal Family Education Loans. If you have a Perkins loan, you’ll need to contact your school directly.

Student Loan Repayment Assistance

Government agencies sometimes provide student loan repayment assistance as a recruitment incentive. If you accept this incentive, you’ll need to remain with the agency for a minimum of three years. If you leave the agency before the three-year requirement, you’ll need to repay the agency for any amounts it paid on your behalf. If you enlist under the SLRP, you can qualify for GI Bill benefits, but the time you spend satisfying the three-year requirement with the agency does not count toward qualifications for GI bill benefits.

the nest