Student Loan Consolidation to Get Out of Default

You can get out of default on your federal student loans by consolidating them.

You can get out of default on your federal student loans by consolidating them into a new Direct Consolidation Loan through the U.S. Department of Education. Getting out of default is important if you want to qualify for certain federal repayment plans, borrow new loans to go back to school, or improve your credit rating.

How Student Loan Consolidation Works

You can consolidate your federal student loans into a Direct Consolidation Loan whether or not you’re in default. Consolidating your loans is a lot like refinancing a mortgage; it creates a new loan with different terms. You can consolidate one loan or several loans.

Be aware, though, that you could lose certain benefits—like reduced interest rates or repayment incentive programs—that are available under the loans that you’re consolidating. If you include a Perkins Loan, for instance, in the consolidation, you’ll lose specific cancellation benefits that are only available from that program. (Learn the pros and cons of federal student loan consolidation.)

Consolidation When You’re in Default: Requirements

If you’re in default, you’ll have to meet some requirements before you can consolidate your loans. You must either:

  • make three consecutive, voluntary, on-time, full monthly payments on the defaulted loan before you consolidate it, or
  • agree to repay the Direct Consolidation Loan under an income-based repayment plan. (For more information on income-based repayment plans, see Student Loan Repayment Plans.)

Consolidating Loans Subject to Garnishments or Judgments

You can’t consolidate a defaulted loan that’s being collected through a wage garnishment or in accordance with a court order after a judgment is entered against you unless the garnishment order is lifted or the judgment is vacated.

Student Loan Consolidation and Your Credit Report

If you consolidate a defaulted student loan, the fact that you were once in default will be noted on your credit report along with the reported late payments before the loan went into default. The late payments will stay on your credit report for seven years.

On the other hand, rehabilitating your defaulted federal student loans, which is another way to get out of default, removes all mention of default from your credit report.

How to Consolidate a Defaulted Loan

To consolidate a defaulted loan, you must apply through You can submit your application online or through the mail after downloading and printing a paper application.

Once you get out of default, you’ll again become eligible for benefits like deferment, forbearance, student loan cancellation, and also to receive federal student aid.

Beware of Private Consolidation Loans and Scammer Companies That Offer to Help You

You should avoid private consolidation loans and companies that offer to help you get a Direct Consolidation Loan for a fee.

Avoid private consolidation loans for your federal student loans. Banks and private lenders sometimes try to get student loan borrowers to consolidate their federal student loans into a private consolidation loan (or to combine both federal and private student loans into a new, private consolidation loan) by promising “one low easy payment.” But consolidating your federal loans into a private loan is almost always a bad move. You’ll lose access to federal repayment plans, as well as forbearance, deferment, and cancellation options. (To learn more about the downsides to private consolidation loans, see Student Loan Consolidation: Federal Student Loans, Private Student Loans.)

Avoid scammers who offer to “help” you. You don’t have to pay a fee to consolidate your federal education loans into a Direct Consolidation Loan. Private companies sometimes offer to help borrowers get a Direct Consolidation Loan application, for a fee. These companies aren’t connected to the U.S. Department of Education or its loan servicers. You don’t need to pay for help to get a Direct Consolidation Loan—the application process is simple, as well as free. If for some reason you find you need help, you'd be much better off talking to a student loan attorney.

Getting More Information

If you need more information about consolidating your federal student loans into a Direct Consolidation Loan, go to the Department of Education’s website.

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