You can consolidate a federal student loan that is in default if:
- you're not being garnished for that loan
- you agree to repay the consolidation loan under an income-driven repayment plan and
- you either have another loan to consolidate it with or the loan you're wanting to consolidate is a Perkins Loan, Parent Plus Loan, or FFEL Loan.
Let me explain the last requirement.
Ordinarily, a consolidation loan requires the borrower to include at least two federal student loans in the consolidation. If you have one federal student loan and that loan is an FFEL, Parent Plus, or Perkins Loan, you can apply for a Direct Consolidation Loan for just that one loan.
This works because by consolidating, you're changing the loan program/loan type of the loan.
The loan ultimately remains a federal student loan. But now it's a Direct Consolidation Loan. And since the loan is a Direct Consolidation Loan that's now out of default, it's eligible for a different set of options for student loan forgiveness, repayment, deferment, etc.
How to apply for loan consolidation
You typically have two options to complete the student loan consolidation application:
- You can apply for free at studentaid.gov or
- You can get the debt collection agency to process the loan application for you.
Of the two options, I prefer the first. The reason why is because the loan consolidation process is quicker using studentaid.gov. It's faster because you're allowed to complete the loan consolidation application and get out of student loan default if you agree to pay the loan under an income-driven repayment plan.
If you go through the debt collector or the Default Resolution Group, you'll be required to make 3 monthly payments under the income-based repayment plan before submitting it.
In my experience, the only benefit for choosing the second option is having someone else process the application for you.
Can you consolidate a student loan that has already been consolidated?
Unlike the loan rehabilitation program, which is a one-time thing, you can consolidate a consolidation loan if:
- You have a loan to consolidate it with or
- The loan is a FFEL consolidation loan.
Let's break that down.
Say you have multiple loans: a Direct Consolidation Loan, a Direct Loan, subsidized, and a Direct Loan unsubsidized. Now say you want to consolidate the 3 loans into a new Direct Consolidation Loan. You can do that.
Now say you have one federal loan: a FFEL Consolidation Loan. In that case, you can consolidate the loan by itself. In doing so, you would be turning your FFEL Consolidation Loan into a Direct Consolidation Loan.
Why would any borrower do this? I can think of two reasons. First, to get a better repayment plan (the REPAYE repayment plan). Second, to qualify for loan forgiveness under the Public Service Loan Forgiveness program. (Only Direct Loans qualify for loan forgiveness under that program.)
When do monthly payments on defaulted consolidated student loans start?
Your first monthly payment on your student loan consolidation will typically be about 2 months after the loan consolidation completes.
You shouldn't be surprised by your monthly payment because you should know the payment amount well before then.
About two weeks before the loan consolidation process is over, your loan servicer will send you a loan summary.
The loan summary will tell you:
- the total student debt included in the consolidate loan
- the new interest rate and
- your estimated monthly payment for the repayment option you chose.
If you can't afford the estimated student loan payment, check two things. First, check the repayment plan you chose. Second, check the income information and family size you selected on the repayment plan application.
Make sure the information is accurate. If it isn't, submit a corrected application to your servicer.
What are the benefits of working with an attorney to help consolidate defaulted student loans?
The real benefit of hiring a student loan lawyer to help with a defaulted student loan is to get expert advice. The lawyer will be able to look at your situation and know what's the best option for you to deal with all of your student loan debt - not just the defaulted loan.
Loan consolidation isn't right for every borrower. Sometimes the loan rehabilitation program is a better option because you can waive the collection fees.
When I meet with clients, I look at every student loan they borrowed, including any private student loan they may have.
My goal is to develop a complete plan that sets them up for success in the future. So if they want to buy a house, they can buy it without worrying about their credit history. Or if they want to get married and start a family, they don't have to worry about burdening their spouse with their student loan mess.
Basically, my goal is to help alleviate the student loan burden they've had for years.