How To Consolidate Defaulted Student Loans

Defaulting on a student loan has big ramifications. The government is relentless. They use a couple of really effective tactics to recover their money. The most embarrassing practice is called Administative Wage Garnishment. They'll contact your employer about your debt. Seriously. And it's totally legal. They will mandate that your employer withold a portion of your paycheck from you and send it to them. This continues until the debt is paid. Another problem for you is that they can and will keep all of your tax refunds until the loan is paid off. Talk about feeling backed into a corner. Now for the good news: You can consolidate your defaulted student loans and be in the government's good graces pretty quickly. You have to take a good look at your loans and figure out which program will work for you.

FFEL loan consolidation program
The Federal Family Education Loan program allows borrowers and in some cases parents of borrows to consolidate their defaulted student loans. To qualify for a FFEL consolidation loan you must be in repayment. Call the Department of Education and arrange to make three consecutive monthly payments on your loans. After you have made three voluntary, consecutive payments you will qualify for the FFEL consolidation loan. Your loans will be paid off by a commercial lender. Your balances will show as zero on your credit reports. You will have a new loan with the commercial lender instead of several. You will enter into a new repayment agreement with one monthly payment and a new interest rate.

William D. Ford Direct Loans program
The William D. Ford Direct Loans consolidation program is a great option for borrowers who have several student loans in default and for whom making several monthly payments is very unaffordable. The process requires more work but this consolidation loan is income contingent. Your loans will be consolidated into one and your monthly payment will be figured based on your adjusted gross income. The Department of Education provides an online calculator. Use it to see if consolidating under this program will save you money.

Although there are a number of consolidation programs available to you, if your student loans are in a default status it is probably wise to consult a credit repair attorney.


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Discover how to fix any student loan in default and get credit.