Default Student Loan Consolidation

If one or more of your student loans are in default or about to go into default and you are looking to do a consolidation in order to make your payments more manageable, there are a number of things you need to know.

First of all, your federal student loans will not be considered in default until you have gone 270 days, or about nine months, without having made any payments. So if you are approaching this limit you should make some sort of payment in short order to reset the clock on default. Of course your credit report will still show late payments, but it won’t show your loan in default which is something you want to avoid.

There are a number of penalties for having your student loans go into default. You will be charged penalties for late payments and for having defaulted. You will also be charged large fees for collection of the debt, and this penalty alone can add tens of thousands of dollars to your loan balance. On top of this interest will accrue on all these sums. People who let their student loans go into default are often surprised to learn that they now owe 2-3 times the amount of money they actually borrowed in the first place. In addition the default can show on your credit report for seven years, and this could make it difficult to get a car loan or a mortgage. There are ways to avoid this happening and those will be discussed in a moment. If you default on student loans you can have a professional license taken away, and you will probably be turned down for a job with the U.S. government if you were to apply for one. If that isn’t enough your wages can be garnished as can any income tax refunds you might be entitled to as well as disability payments you are owed or any social security income. Sometimes employers will check the credit records of applicants, and thus you might miss the chance for a job at some point. You will also lose some of the rights that go along with having federal student loans. Hopefully these are enough reasons to fully understand why student loan payments should be made a priority and that letting these loans go into default is not trivial.

However, if default is already a fact of life for you, there are certain things you can do to get rid of most of the damage. This process is called rehabilitation. Before doing a loan consolidation a borrower in default should make three on-time payments of the troubled loan. After that, doing a consolidation will help you avoid certain default repercussions like wage garnishment, for example. At this point you need to make six more on-time payments, for a total of nine, and your loan is now eligible for rehabilitation. At this point your default should be removed from your credit records, and it is a wise idea to order credit reports from the three major reporting agencies to verify that this has been done. Your report will still show late payments, but that is better than having a default on your record.

A student loan consolidation can help a person avoid going into default. The best course of action is to avoid default at any cost and to understand what your rights and options are. Unfortunately a large number of student loan borrowers end up learning about the penalties and consequences mentioned above the hard way, by actually defaulting on their loans. A fair number of these amass enough penalties and fees that they end up with enormous debts that they simply cannot pay off. They end up facing a lifetime of repaying a mountain of student loan debt.