Consolidating Defaulted Student Loans

Consolidating Defaulted Student Loans

7 min read


A student loan consolidation program can help consumers pay off their loans faster by consolidating them into one loan at a lower interest rate. This decreases the amount of payments students make each month and helps reduce monthly debt repayments. It may also benefit students who have defaulted on their loans by making regular payments easier to handle. In addition, if a borrower defaults on his or her loan, they may be subject to higher fees that could increase the total cost of repayment. By consolidating loans, borrowers avoid these higher fees and keep their interest rates low. Students should contact lenders directly to determine whether they offer a loan consolidation program.

If you are in financial difficulty, you may qualify for relief under the federal bankruptcy code. You may be able to discharge some or all of your student loan obligations in a Chapter 13 bankruptcy case. You may want to consider filing a Chapter 13 plan even if you do not have any outstanding debt because it may allow you to save money on taxes and other debts. Note that certain types of student loans cannot be discharged in bankruptcy. Talk to an attorney about your options.

There are several reasons why a person might need to file for bankruptcy. One reason is if he or she owes more than $360,000 in student loan debt. To find out whether you can file Chapter 7 or a Chapter 13 bankruptcy, visit

Consolidating your loans can ease the burden of paying back the debt and help you manage your finances. However, be sure to compare loan programs before choosing one. Be aware of how much you will pay in terms of interest rates, fees, and payment amounts. Also, be cautious of companies that promise to lower your payments without offering specific details about how they will accomplish this goal.

Many loan servicers will automatically consolidate eligible loans upon submission of paperwork. Other companies require borrowers to submit documentation showing that their income is less than 250% of the national poverty level (currently $23,850). Borrowers may also be required to submit additional documents, including tax returns, wage statements, bank statements, and proof of insurance.

After submitting information, a company will review your application. If approved, there may be an initial processing fee. Then, a letter will be sent informing you if your loan was accepted and providing information about the exact date your loan will be consolidated.

Once your loan is consolidated, you will no longer receive periodic billings. Instead, you’ll get notice of new payments due on your account.

Loan amounts and interest rates vary depending on what type of loan you have. Generally, the larger the loan balance, the lower the interest rate.

If you’re planning on using your consolidated loan to buy a home, make sure the lender agrees to accept the loan as payment-in-full if property prices fall below a certain threshold.

Borrowers may also opt to use a different kind of loan, such as a Direct Consolidation Loan, if they have already paid down a significant portion of their original loans. Direct Consolidation Loans are often offered at lower interest rates than traditional consolidation loans. They may also allow borrowers to choose between fixed and variable interest rates.

If you decide to consolidate your loans and take advantage of a loan consolidation program, remember that you must complete the entire course of treatment before you can qualify for the program’s benefits. You must also provide proof of employment or self-sufficiency. Some programs only allow for partial deferment.

Your credit report may affect your eligibility for loan consolidation programs. Lenders use your FICO score and other factors to establish whether or not you qualify for a particular loan. If your score falls below 600, you may be denied access to the loan consolidation program.

Before deciding whether to pursue loan consolidation, ask yourself if you really need to reduce your debt. Is the opportunity for a lower interest rate well worth sacrificing your credit history? Keep in mind that most loan consolidation programs charge upfront costs.

While it may seem tempting to consolidate your debt, it’s best to think carefully about whether this option is right for you. Remember that you’ll still be responsible for repaying your loans until they’re fully repaid, and you won’t eliminate your debt entirely.

Consolidating Defaulted Student Loans

The Federal Government of the United States began a national student loan default program back in December 2010. This program offers consolidation options to borrowers who have already started defaulting on their loans. These borrowers may choose either a fixed rate consolidation or a variable rate consolidation. Consolidation rates range from 3% – 6%, depending on the type of loan. Borrowers choosing a fixed rate consolidation would pay a higher interest rate than borrowers choosing a variable rate option. A borrower could end up paying much more over time if they opt to use a fixed rate option. In order to qualify, applicants must meet certain criteria including income, credit score (as low as 550), amount owed, etc. There are many different types of federal student loans, and only some of them can be consolidated into one payment per month. If borrowers want to consolidate their loans, they must do so while still making payments towards these debts.

Consolidating Defaulted Student Loans

In the past decade, student loan debt has exploded, with outstanding student loans totaling over $1 trillion dollars. Many students take out large sums of money and fail to meet their obligations. As a result, they have a default on their loans. While students who qualify for forgiveness programs may get some relief, many don’t. After ten years, borrowers are still responsible for paying off their loans, even if they never make any payments.

The good news is that those with federal student loans can consolidate them. There is no need to worry about interest rates — consolidating your loans is essentially just taking advantage of lower interest rates. When consolidated, a single monthly payment replaces several smaller ones. Plus, you won’t pay fees or penalties for missing a bill payment. And while consolidation doesn’t eliminate your debt entirely, it does make it easier to manage. Most importantly, consolidation is a way to create financial flexibility, so you’ll have the freedom to focus on what’s really important in life.

Consolidation is a great option for eligible borrowers. However, it can be difficult for first-time filers to know whether they qualify. To learn whether you’re eligible, follow these steps to find out:

Step 1: Find out how much total debt you owe. You can do this online on, where you should only enter your Social Security number. If you’ve already filed for bankruptcy, you may not qualify.

Step 2: Check your income. A credit report shows your gross monthly income before taxes and deductions, so add 10 percent to that figure to account for state and local tax withholdings. Your adjusted income is then subtracted from either 25 percent or 20 percent of your discretionary income (you decide), whichever is greater. That calculation tells you whether you fall under the federal government’s repayment guidelines.

Step 3: Do the math. Divide your total debt by 12 for the length of your repayment period. This gives you your minimum payment amount. Since your payment could go higher depending on your situation, multiply the minimum payment times the maximum payment rate allowed. Then divide that sum by 120 to determine your maximum payment. Compare that number to the amount you’d pay if you paid your loans back in full immediately.

If you are below the maximum payment amount, you probably don’t qualify. But if you’re above that limit, you’re looking at a substantial decrease in your payoff amount.

Consolidating Defaulted Student Loans

By: The U.S. Department of Education

On August 1, 2012, President Obama signed into law H.R. 1540 (the Consolidated Appropriations Act, 2013), which included provisions that would have allowed certain student loan borrowers to have their loans discharged if they had not repaid them in full over 10 years. However, those provisions were struck down by the courts in December 2013, due to concerns about whether the government actually followed the requirements set forth under the statute. In January 2014, however, the Supreme Court held that the provision was unconstitutional. See Memorandum Opinion in United States v. Abbott Laboratories, Inc., 575 U.S. ___, 135 S.Ct. 2874 (2015).

In May 2017, Congress passed the Bipartisan Budget Act of 2018 (BBA-18) which provides relief to defaulting student loan borrowers who qualify based on their income. The BBA-18 contains several provisions affecting federal student loan borrowers. First, the BBA-18 expands eligibility for discharge of student loans under the Public Service Loan Forgiveness Program (PSLF) to include some private student loans. Under PSLF, eligible borrowers may receive forgiveness after making 120 monthly payments on their Direct Subsidized Loans and 120 monthly payments on their Federal Family Education Loan (FFEL) loans. Second, the BBA-2018 increases the repayment period for Income Based Repayment (IBR) Plans from 25 years to 30 years. Third, the BBA-018 extends the statutory deadline for entering into IBR plans from 12/31/2023 to July 1, 2028. Finally, the BBA-180 provides additional flexibility for borrowers to postpone making payments while transitioning out of IBR plans to avoid accrual of interest on the unpaid balance.

The Secretary of Education has issued regulations implementing the changes contained in the BBA-18. As a result of these changes, borrowers who enter into IBR programs will now have the option to pay off their loans early without incurring any interest charges during the transition period. If you decide to participate in an IBR program, you should work closely with your loan servicer to determine what payments you need to make each month to ensure timely completion of the plan.

Consolidating Defaulted Student Loans

The NDRHC is a 501(c)(3)) non-profit organization dedicated to providing free debt consolidation loans to people with defaulted student loan accounts. All advice offered is general in nature only and does not constitute specific legal advice designed to meet the unique circumstances of any individual or entity. We recommend seeking personal counsel if you have questions about any of this information.

The Consolidation Loan Process

The first step towards getting out of debt is understanding how the financial system works. That’s why we’re starting our series on consumer credit right here at YoungUp!

If you think you might qualify, just fill out our Free Application on our website and allow us to help you find the best solution for your situation.

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