When Things Go Too Far

The Master Promissory Note you sign when you apply for any type of student loan is a legal document that binds you to a loan repayment. Any failure to stick to that agreement and you could find your loan(s) in default. Typically late loan payments are considered delinquent, but if you fail to pay one or more loans for an extended period of time your lender may consider you in default.

Consolidation loans for student loan borrowers are easier than ever to secure, even if you have poor credit or no credit. Default is unnecessary.

Fall Out from Default

Defaulted loans are reported to credit bureaus. They are applied to your credit history and may affect your credit for years to come, unless you handle the situation directly. According to legal agreements between you and your lender, they may turn over your loan to a collection agency, and in a worst-case scenario even sue you for the full amount of your loan. The federal government has the option to garnish your wages and take your income tax refunds for purposes of repayment. In other words, if you don't ante up some cash or at least make some measure of attempt to repay, "they" will come after you, one way or the other.

Options for Consolidating Defaulted Student Loans

Is it possible to consolidate defaulted student loans? Well, obviously the best scenario would be to consolidate BEFORE you default, but there are a couple of available options if you've let things go too far.

• Student loans borrowed through the Federal Direct Loan Program, or directly from the U.S. government, may be eligible for a Direct Consolidation Loan even if they are in default. However, each situation is different. If one or more of your Direct Federal student loans is in default, you may "rehabilitate" by following the U.S. Department of Education's Loan Rehabilitation program.
• Federal Family Education Loan Program (FFELP) loans that are in default through a private student loan provider are almost always ineligible for a FFEL consolidation. A FFEL loan is considered in default if it is delinquent in excess of 270 days. First contact your lender. Your loan may have gone to the lender's guaranty agency, the company that financially guarantees federal loans. In most cases you can move a loan out of default and back into repayment status once you make three consecutive monthly payments on the loan. Do this and you are able to apply for consolidation.

As soon as you are unable to manage monthly student loan repayment you should contact your lender for financial guidance. Student loans are expensive and consolidation loans are easier than ever to secure.