From Debt Into Retirement

When a student loan goes into default, this means that the entire loan amount is due immediately. This happens after the loan company has not received payment for 270 days. The borrower no longer has the option of deferment or forbearance, even if they were eligible. Defaulting on student loans can have long lasted consequences, such as a lower credit score, wages can be garnished, and federal income tax refunds can be withheld. In addition, it is difficult to receive any further educational loans when the current ones are in default. If possible, one should try to consolidate defaulted student loans as soon as possible.

Consolidating defaulted loans into a new loan has many advantages, so it is important not to let them go further into default. A new consolidation loan shows that the old defaulted loans have been paid off. There will be a new promissory note and the borrower will start with a clean slate. It is also easier to manage only one monthly bill than several smaller bills for separate loans. More importantly, if there is a need to go into deferment or forbearance, it is possible to do that with a new consolidated loan.

To qualify for a consolidation, three months of on time payments need to be made. The new lender will pay for the previous loans that are being consolidated to roll it into one payment. A consolidation can save as much as 40% by not paying separate interest amounts on loans and can possibly lower the interest amount. In addition, the loan may qualify to be income based, so the monthly payment can be adjusted.

After the consolidation is complete, credit scores will be updated to show that this loan is no longer defaulted. This is a good thing because a defaulted loan is often seen as worse than bankruptcy for lenders, making it difficult to obtain a mortgage loans if needed. It drastically improves credit, but the defaulted loan will still be visible under credit history for seven years.

Someone who defaults on a loan and wants to go back to college can still get a loan. To do so, six payments made consecutively and on time will re-establish federal financial aid.

There are many companies that offer defaulted student loan consolidation. A quick search on the internet will reveal there are many companies willing to consolidate student loans, yet make sure that they are reputable. The safest and most secure route is to go through the federal government’s loan programs and try to receive a consolidation that way. If that is not possible, ask one of their loan advisors of reputable companies that can be of assistance.

There are two options for those going with a federal consolidation loan program. One is to make three affordable payments consecutively or agree on an income sensitive payment plan. If the income sensitive payment plan is selected, the three consecutive payments do not need to be made to qualify. The type of loan will determine whether or not the borrower is eligible to use a federal consolidation.

There are many options when considering loan consolidation on defaulted loans. The best advice is to do some research on loan companies, making sure they are in good standing with the Better Business Bureau, or go with the federal loan program. Consolidation is a great way to save a credit score that will affect all future loans, educational or not. In addition, wages can be garnished, and many jobs will ask if loans are in default, and will not consider hiring those with defaulted loans. There is no reason to wait, and borrowers should start the process today!