Consolidating private loans in default
Among other potential down sides, you may lose important rights by consolidating.If you still want to consolidate, you don’t have to include all of your eligible loans.Consolidating your loans is a lot like refinancing a mortgage; it creates a new loan with different terms. Be aware, though, that you could lose certain benefits—like reduced interest rates or repayment incentive programs—that are available under the loans that you’re consolidating.If you include a Perkins Loan, for instance, in the consolidation, you’ll lose specific cancellation benefits that are only available from that program.You should avoid private consolidation loans and companies that offer to help you get a Direct Consolidation Loan for a fee.Avoid private consolidation loans for your federal student loans.(Learn the pros and cons of federal student loan consolidation.) If you’re in default, you’ll have to meet some requirements before you can consolidate your loans.
Consolidation loan borrowers should not be charged origination fees.Once you are out of default, you can also choose one of the income-driven repayment plans.Whether you are current on your loans or in default, you should consider the pros and cons of consolidation before starting the process.You can get out of default on your federal student loans by consolidating them into a new Direct Consolidation Loan through the U. You can consolidate your federal student loans into a Direct Consolidation Loan whether or not you’re in default. Getting out of default is important if you want to qualify for certain federal repayment plans, borrow new loans to go back to school, or improve your credit rating.
After obtaining a consolidation loan, you get a fresh start, becoming eligible for new loans, grants, and even deferments.