 |
Letting a student loan go into default has serious consequences. One of the gravest is that you might not be able to finish your degree.
If you have student loans in default, you're not eligible for additional federal aid (including both grants and loans).
You can still go back to school, you'll just have to pay your tuition yourself, which can be quite a burden.
But default isn't the end of the story. If you rehabilitate or consolidate your defaulted loans, you could become eligible for federal aid again.
Keep reading to learn everything you need to know about loan rehabilitation and consolidation so you can decide what's right for you.
Regaining Access to Federal Student Aid
You lose access to all federal student aid when you default on a federal student loan, including grants.
If you make six monthly payments on your defaulted loan, as determined by your loan servicer, you'll regain access to aid.
If you go this route, your loan will still be considered in default. You may be able to get grants but not additional loans.
Rehabilitating Your Defaulted Loans
When you rehabilitate a defaulted loan, you make a series of payments in exchange for taking the loan out of default.
Once your loan is out of default, you're eligible to apply for additional federal loans if you want to go back to school.
Timeline
Rehabilitation requires a series of on-time monthly payments, usually nine. So expect it to take at least nine months.
While you're making the nine monthly payments, your loans are still considered to be in default.
You won't become eligible for federal loans again until after you've completed the rehabilitation process.
Impact on Your Credit
When you rehabilitate a defaulted loan, the default is removed from your credit history.
Unfortunately, all those late payments that led to the default will still show in your credit history for seven years.
Other Considerations
You only get the opportunity to rehabilitate your defaulted loans once. If you've already done it, you can't do it again.
If your loan servicer was garnishing your wages, they may continue to do so while you're rehabilitating your defaulted loans.
Private lenders typically don't offer rehabilitation. This is only an option for federal loans.
Getting Started with Rehabilitation
Contact your loan servicer. If you're not sure who that is, log in to your federal student aid account.
Tell your loan servicer you want to rehabilitate your defaulted loans. They'll talk through the terms of the agreement with you.
Rehabilitation is a written, contractual agreement. It typically requires that you make nine agreed-upon monthly payments on time.
After you've made the nine payments, your defaulted loans are rehabilitated.
After rehabilitation, choose an income-based repayment plan to ensure you can keep up with your payments and avoid another default.
Consolidating Your Loans
Consolidation takes all your old loans and puts them together in a brand-new loan.
Since a consolidation loan is a new loan, any defaulted loans are automatically no longer in default if they're consolidated.
Timeline
You might have to make three consecutive on-time payments on your defaulted loans before they can be consolidated.
Since defaulted loans are automatically taken out of default when they're consolidated, the effect is immediate.
As soon as you complete the consolidation, you'll immediately be eligible for additional federal loans to go back to school.
Impact on Your Credit
Since a consolidation loan is a new loan, the old loans will still show that they were in default.
Starting a new consolidation loan means you'll pay back your loan over a longer period of time. It will potentially impact your credit for longer.
Other Considerations
If you've defaulted on a Direct Consolidation Loan, you can only get out of default if you consolidate it with another eligible loan.
Consolidation also consolidates any outstanding interest, so you'll end up paying interest on a higher balance.
When you consolidate, you might lose benefits associated with your original loans, such as cancellation benefits.
Getting Started with Consolidation
Head over to the Federal Student Aid website to fill out the loan consolidation application. There's no fee to apply.
Once your application is complete, you'll sign a new promissory note. Under consolidation, you'll pay a single monthly payment.
It can take up to six weeks for your loan servicer to process your consolidation application.
After consolidation, you'll regain access to federal student aid, including grants and additional loans so you can go back to school.
Learn More about Going Back to School after Student Loan Default
If you or someone you care about wants to finish their degree but has defaulted on their student loans, our team is here to help.
Call our helpline today to get more information on funding solutions for your online or in-person degree.