Consolidating student loans that are in default

If your loans go into default, the servicer may send them to a subservicer, called a collection agency.Because student loans are backed by the federal government, these collection agencies (or the servicer) have other options to force someone to pay.

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Once your loan is rehabilitated, the default status will be removed from your loan.

You are eligible for benefits that were available on the loan before you defaulted, such as deferment, forbearance, a choice of repayment plans, and loan forgiveness.

Late payments reported before the loan defaulted will not be removed from your credit history.

The third 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 single, new loan that has a fixed interest rate.

You can also select an income driven repayment plan.You’ll also be eligible to receive federal student aid again.However, consolidation of a defaulted loan does not remove the record of the default from your credit history.Defaulted PLUS loan - If you want to consolidate a defaulted PLUS loan that you obtained as a parent for your child's education, the only income-driven plan you can choose is the Income-Contingent Repayment Plan (ICR Plan).Once the defaulted loan is consolidated, you will be eligible for benefits such as de­ferment, forbearance and loan forgiveness.One of the best things about student loans are the numerous repayment options that are available.

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