Consolidating your student loans may be a way to get out of default, but it is not guaranteed. You should contact your loan servicer and discuss your options for getting out of default.
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Consolidating your student loans may be a viable option to get out of default, but it is not a guaranteed solution. It depends on the type of loan you have, as well as your individual circumstances.
According to the Federal Student Aid website, there are two types of consolidation loans: federal and private. If you have defaulted on a federal student loan, consolidating it may help you get out of default through one of two options.
One option is to consolidate your defaulted federal loans into a new Direct Consolidation Loan, which will put you on a new repayment plan with a lower monthly payment. This new repayment plan may be based on your income, which can help make your payments more affordable.
The other option is to rehabilitate your defaulted federal loans. This means that you will make a series of nine on-time, voluntary, and reasonable payments over a ten month period, which will restore your loan to good standing and remove the default from your credit history. Once you’ve made the required payments, you can also consolidate your loans to take advantage of the new repayment plan options.
If you have defaulted on a private student loan, consolidating it may not be as straightforward. You may need to work with your loan servicer or lender to negotiate a repayment plan or settle the debt. Private student loan consolidation also often requires good credit, which may be an issue if you are already in default.
As the famous financial expert Dave Ramsey advises, “the big idea is to pay off the debts and not incur anymore.” Consolidating your student loans can be a helpful tool to get out of default and manage your debt, but it’s important to explore all your options and come up with a plan that works for your unique situation.
|Type of Loan||Consolidation Option|
|Federal||Consolidate into a new Direct Consolidation Loan, or rehab the loan by making nine on-time payments|
|Private||Work with loan servicer or lender to negotiate a repayment plan or settlement. Requires good credit.|
- Over 7 million borrowers were in default on their student loans as of 2021, according to the Department of Education.
- Defaulting on your student loans can lead to wage garnishment, tax refund offsets, and damage to your credit score.
- Student loan consolidation can also simplify repayment by combining several loans into one new loan with one monthly payment.
The video explains the consequences of federal student loan default, including wage garnishments and loss of social security benefits, and how to get out of default through payment, consolidation, or rehabilitation. The easiest option is paying off the loans, but consolidation or rehabilitation may be necessary. Consolidation for older loans may incur a collection fee, while rehabilitation involves making nine voluntary payments that are reasonable based on income. The lawyer emphasizes the importance of resolving student loan debt and seeking professional assistance if needed to pursue forgiveness or income-driven repayment plans.
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Another option for getting out of default is to consolidate your defaulted federal student loan into a Direct Consolidation Loan. Loan consolidation allows you to pay off one or more federal student loans with a new consolidation loan.
Consolidating student loans is a strategic way to get out of federal loan default. You combine federal loans into one new direct student loan with its own interest rate. It’s one of the three ways the federal government lets you get out of default — along with full repayment and loan rehabilitation.
Consolidation to get out of default works well for many borrowers with defaulted loans. After obtaining a consolidation loan, you get a fresh start, becoming eligible for new loans, grants, and even deferments.
Loan consolidation allows you to pay off your defaulted federal student loans by consolidating (combining) your loans into a new Direct Consolidation Loan. To consolidate a defaulted federal student loan into a new Direct Consolidation Loan, you must either agree to repay the new Direct Consolidation Loan under an income-driven repayment plan or
Fortunately, there are a couple of ways to get out of default: You can rehabilitate your federal student loans or consolidate them through the Direct Consolidation Loan program. You may consolidate any defaulted federal student loan, with one exception.
Consolidate your loans:Consolidate your loans into one new loan and make three full, on-time consecutive payments or agree to make payments on an to get your loans out of default. Consolidation is a quicker option than loan rehabilitation, but has one downside: The default will remain on your credit report for up to seven years.
If you already have student loans in default, loan consolidation can help you pay off that loan if you agree to repay the new loan under an IDR plan or make three voluntary, on-time and full monthly payments on a defaulted loan before consolidating it.
And for borrowers with federal student loans in default, the Fresh Start program could give them a clean slate, removing the default from their credit reports.
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Consolidating defaulted federal student loans can be a good way to avoid having to immediately pay the full balance of what you owe, and it can also stop your credit score from taking any further damage from your missed payments.