How to Consolidate Defaulted Student Loans

If you have not made payments on your student loans for at least 270 days, ignored the notifications, and have not renegotiated repayment options, then you are a holder of defaulted student loans. If you have defaulted student loans, you will face consequences. These consequences include, but are not limited to, suffering bad credit history, being forced to repay the entire amount of the loan immediately, and being denied any other type of federal aid.

One way to get out of trouble after you have defaulted is by consolidating your student loans. Loan consolidation is the process of combining many loans, which can be different types, into one loan with one interest rate and one monthly payment. Consolidation can be carried out even if you only have one loan.


You must be a less than half-time student who is in a period of repayment and has made three consecutive on-time payments.

Step 1 - Decide if Consolidation is the Right Choice

Only consolidate your defaulted student loan if the interest rate on the new loan is less than that on your original loan. Make sure that you have not missed any opportunities to change your repayment plan to something that you can afford, such as an income contingent repayment plan.

Step 2- Decide What Type of Consolidation Works For You

One type of consolidation loan is called a Federal Family Education Loan(FFEL) Consolidation Loan. This type of loan allows borrowers to turn multiple loans into one loan on one repayment schedule. A commercial lender will make the monthly payments for you. Your credit score will not be harmed.  You will be in debt to the commercial lender, not the lender of your original loan. The new loan will have a new interest rate and a new repayment schedule that you will be responsible to meet.   

Another type of consolidation loan is for holders of direct student loans. This is called a Direct Consolidation Loan. Here, the United States Department of Education pays off the original loan and makes a new loan. In order to be able to use this type of consolidation loan, you must own at least one direct student loan or one FFEL that is in default. If you own an FFEL, but cannot get a Federal Consolidation Loan that is sensitive to your income schedule, you may be eligible to receive a Direct Consolidation Loan

Step 3 - Apply

Both FFEL Consolidation Loan applications and Direct Consolidation Loan applications are available online. Once you fill out the application and submit it, you will be sent a promissory note to sign and send back to the department. The department in charge of your consolidation will then verify your information, contact your original lenders, and inform you when you are or are not approved for consolidation. Continue to make payments on your original loan until you are notified. 

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