When a student loan goes into default, borrowers have a choice to make. Loan repayment programs or loan rehabilitation are two available options, but are only applicable to those who meet certain criteria. If you do not qualify for either of these options, you may be wondering about consolidation and asking, “Can I consolidate defaulted student loans?”
The answer is yes, but there are certain restrictions to consider:
- To be eligible for consolidation, the borrower must make three voluntary, consecutive and on-time (within 15 days of when it is due) monthly payments on their defaulted loan.
- A borrower who cannot make three consecutive payments can consolidate if they agree to repay the consolidated loan under an income-based, income-sensitive or income-contingent plan.
- A borrower with an active amount dispute on his or her student loans cannot usually consolidate.
Disadvantages of Consolidating Defaulted Loans
While consolidating your defaulted loan may make repayment more streamlined, there are some reasons it might not be an ideal course of action. The following drawbacks should be discussed when determining if consolidation is right for you:
- The default record will still show on your credit report, even if you consolidate and pay off the rest of the loans without any other issues
- You may have to pay collection costs of 18.5 percent on your total unpaid loan amount
- There will likely be an increase in your student loan balance after consolidation due to collection fees and possibly a higher interest rate
Benefits of Consolidating Defaulted Loans
Once you figure out if you qualify for consolidation and you and your loan officer decide it’s the right choice, you can enjoy the following benefits:
- More time to repay your loan
- Less expensive collection costs
- Relief from garnishments and tax intercepts
Be sure to weigh the positives and negatives of consolidating your defaulted loans before making a decision. If consolidation is the best option for you, your loan servicer can help you get started, or you can talk with a Take Charge America student loan counselor.
Get started now! Call 877-784-2008 or schedule a call here.