Student loan default carries implications for your credit for years into the future. Defaulting does not excuse you from your obligation to repay the debt, either, so the process can be extremely difficult in the present. If you default on your loans while overseas, you may be eligible for loan rehabilitation to attempt to restore the debt.
Rehabilitation Explained
Rehabilitation is a unique type of hardship assistance that simply means the lender will stop enforcing your default. No collections agencies will contact you, and no legal action will be taken against you. During this period of time, you will be permitted to make payments to attempt to bring your balance current. Interest on your monthly payments can be reduced or suspended. If you have a federal debt, such as a Direct Loan or Perkins Loan, you will need to make nine consecutive payments on time in order to rehabilitate your loan. Private lenders may be more flexible with the option if they present it, but they are less likely to offer rehabilitation.
Qualifying for Rehabilitation
Not everyone will be extended the opportunity to rehabilitate a loan in default. Instead, this option is reserved for those borrowers who experienced a unique financial hardship that prevented them from meeting payment obligations. In your case, being overseas may qualify you. You will have to show that you were under financial pressure, though, and not just that you neglected payment. Show this by providing evidence you made a good faith effort to pay your debts before going overseas. Then show you have the ability to continue payments now.
Discharging a Loan
If you would like to remove your obligation to the debt but do not believe rehabilitation is an option, you may be able to have the loan discharged. Most discharges are only offered in unique events, such as your death or disablement. However, if you file for bankruptcy and show repaying the loan would cause "undue hardship," your student debt may be discharged. Having the loan discharged will remove it from your credit history, meaning you would still be eligible for federal loans in the future. This option is less favorable, though, because it is harder to achieve, and you must declare bankruptcy to be eligible.
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