The experience of defaulting on any type of loan can create a stressful and financially burdensome situation, especially for students that are already overwhelmed with fiscal responsibilities. After a student loan is defaulted on the remainder of the loan may be transferred over to a collection agency, and the student may be liable for additional expenses, including attorney fees if a lawsuit is brought against them for the remainder of the loan amount. In addition, the student may have their wages garnished by up to 15%, and their state and federal income tax refunds may be canceled. Furthermore, the student will become ineligible for federal interest benefits, Social Security benefits, and deferments unless the defaulted loans are consolidated. Perhaps the most detrimental effect of defaulting on student loan is the fact that the student’s credit score will be damaged, thereby decreasing their chances of obtaining approval for future loans, credit cards, and vehicle/home rentals. If you’ve already defaulted on your student loans, consider the advantages of learning how to consolidate defaulted student loans.
What Is Student Loan Consolidation?
Student loan consolidation allows you to combine the monthly repayments of several student loans into a centralized monthly repayment with lower interest rates and a longer loan term to increase your chances of avoiding debt. In addition to simplifying the process of making monthly repayments, student loan consolidation also decreases the total amount of monthly repayments. In fact, it is possible to decrease the amount of monthly repayments by up to 30 to 40% in some cases. When a student consolidates their defaulted loans into a new loan they’ll sign a new promissory note that will give them a completely fresh start. In order to consolidate your defaulted student loans you’ll need to apply for a new consolidation loan with a separate lender, who will pay off your current debts and then charge you a lower monthly repayment in order to cover the expenses of the defaulted student loans.
Requesting Deferment or Forbearance after Consolidating Defaulted Student Loans
Student loan deferment and forbearance can give you the time needed to reorganize your finances, repay other debts, and earn the money needed to repay your student loans, which will likely eliminate some of the financial burden that is causing you to have difficulty in making repayments. Deferment postpones the entirety of repayment requirements for a certain period of time, while forbearance simply delays payment of the principal (the student is still required to pay interest each month). If you are currently enrolled in some form of continued education or a medical internship or residency, you may be able to receive approval for loan deferment. You may also be approved for student loan deferment if you are currently dealing with economic hardship or can prove that your income level is below a certain point. Finally, it may be possible to receive approval for public service deferment if you are currently serving in the Armed Forces or are occupied in a governmental job position.
Seeking Loan Forgiveness or Cancellation
Although most students are ineligible to have their loan canceled, there are some circumstances in which the loan could be forgiven so that the student is able to avoid defaulting without making any more repayments. If you are considering seeking loan forgiveness or cancellation it is important to understand the qualifications that must be met in order to be deemed eligible for this option. Students that are childcare providers or teachers are enrolled in military or public service, or who are dealing with some form of disability may be eligible to have their student loans forgiven. Furthermore, you may also be able to have the loan cancelled if the school closed while you were enrolled.