Consolidating Federal Student Loans
What happens after you consolidate federal student loans and then default on your payments? Unfortunately, some student borrowers find that even after they’ve combined their student loan debt, they can’t make the payments. In fact, it is common for borrowers to consolidate federal student loans in an effort to keep their loan current. If this fails, however, the borrower is faced with unpleasant results.
To begin, a loan in default may be assigned to a collection agency. This would take place after several efforts of the lender to contact the borrower about bringing the loan current. If you find yourself heading to or in default, the best thing to do is contact your lender before you education loan is sent to the collection agency.
Additionally, the loan’s default may be reported to the national credit bureaus. This will drive the borrower’s credit score down. Even worse, the borrower will lose their right to request a deferment and they will no longer be eligible for new federal student aid. To protect yourself from losing these privileges, make a considerable effort to keep your federal student loan current, by contacting your lender.
If you consolidate federal student loans and are still having problems making your monthly payment, inquire about a deferment (before you are late on your payment) and other options available to you during times of economic hardship.
In order to resolve a defaulted student loan, the borrower must either make repayment arrangements or rehabilitate the loan (which in turn restores Title IV benefits to the borrower).
A borrower might also look into having their student loan cancelled under federal regulations. As a general rule of thumb, loan cancellation requires significant proof of hardship, death, or permanent disability. Specific information on federal student loan cancellation can be found at www.ed.gov
Lastly, if a borrower feels that he or she has the right to argue a defaulted federal loan, a dispute can be filed. An official dispute requires supporting documentation and must be done, initially, through the lender.