Can You Consolidate a Student Loan

Since 1992 the increase in student loan defaults is becoming a crucial problem in the United States, as more and more people are defaulting on their student loans. Graduates face a future of collection agencies, possible legal action, garnished wages and increased hurdles to get future loans or make major purchases, not to mention a life locked into decades of staggering debt.

Usually, Federal student loans in default may be consolidated in a Direct Consolidation Loan under certain conditions as we discuss here. There are numerous repayment options for consolidating defaulted loans, some include making 3 to 6 payments, and others under certain circumstances can be exempted from these payments all together.

Federal education loans in default may be consolidated in a Direct Consolidation Loan under one of these conditions:

• You agree to repay the loan(s) under the Income Contingent Repayment Plan.
• You make satisfactory repayment arrangements with the current loan holder(s).

Borrowers who do not have Direct Loans may be eligible for a Direct Consolidation Loan if they include at least one FFEL Loan and have been unable to obtain a Federal Consolidation Loan with a FFEL consolidation lender or have been unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms acceptable to them or intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program. Here are other conditions in which a defaulted loan may be consolidated:

• Borrowers who have only a Direct Consolidation Loan cannot consolidate again unless they include an additional loan.
• If they are trying to consolidate defaulted FFEL Consolidation Loans unless they have made satisfactory repayment arrangements with their current loan holder OR the borrowers agree to repay under the Income Contingent Repayment Plan.
• If they are trying to consolidate defaulted Perkins or health profession loans unless they have made satisfactory repayment arrangements with their current loan holders.

An individual with a defaulted student loan cannot consolidate defaulted loans under these conditions:

• If a judgment has been issued against a defaulted loan, it cannot be included in the consolidation unless the judgment order has been vacated (dismissed).
• If they are trying to consolidate defaulted Direct Consolidation Loans.
• If they are trying to consolidate defaulted FFEL Consolidation Loans unless they have made satisfactory repayment arrangements with their current loan holder OR the borrowers agree to repay under the Income Contingent Repayment Plan.
• If they are trying to consolidate defaulted Perkins or health professions loans unless they have made satisfactory repayment arrangements with their current loan holders.

A borrower may elect to enter a rehabilitation program before filing of consolidation or he may not. If, borrowers who want to completely clear the default notation from their credit records, they may want to consider another option: loan rehabilitation. Borrowers should contact their loan holders to obtain more information about this option.