Can I Consolidate My Defaulted Student Loans?

Consolidating student loans is a strategic way to get out of federal loan default. You combine federal loans into one new direct student loan with its own interest rate.

It’s one of the three ways the federal government lets you get out of default — along with full repayment and loan rehabilitation. And it’s the fastest way to do it if you can’t pay your balance in full.

» MORE: What is student loan default and how to recover

How to consolidate your defaulted loans

To consolidate your loans in default you have to meet one of two qualifications:

• Make three full, on-time consecutive monthly payments on the defaulted loan. The amount you pay is determined by the loan holder, but it can’t be more than what is affordable for your financial circumstances. (Under this option, you can enroll in any repayment plan.)

• Agree to enroll in an income-driven repayment plan.

If the loan in default was already consolidated as a direct loan you can still reconsolidate, but you must also include at least one other eligible loan in the consolidation. Without an additional eligible loan, the only way to get out of default is to pay in full or through loan rehabilitation.

» MORE: Is there a statute of limitations on student loans?

Borrowers with a defaulted FFEL Consolidation Loan can be reconsolidated, but only if you agree to repay under an income-driven plan.

For those whose defaulted loans are subject to wage garnishment or other collections, you can consolidate only if the wage garnishment order has been lifted or the judgment is vacated.

» MORE: What happens if you don't pay student loans?

Never pay to consolidate defaulted loans

If your loans are in default, you may feel pressure to get out of the hole quickly. When you’re desperate, you’re more likely to fall prey to scam companies asking for payment to consolidate or forgive your debt into a new federal consolidation loan.

But consolidating your debt through the federal government is always free. You can do so by logging in to your Federal Student Aid account and completing an application.

There are legitimate private lenders that refinance both federal and private loans into a new private loan, but you’ll lose federal repayment options. It’s also highly unlikely that private lenders would agree to consolidate defaulted loans. Previously defaulted loans may qualify, but it will depend on the lender’s policy.

» MORE: How can I get rid of student loans without paying?

Benefits of consolidating defaulted loans

Once your loans are in good standing, you’ll see multiple benefits restored, including eligibility for:

• Deferment.

• Forbearance.

• Income-driven repayment plans.

• Loan forgiveness programs.

• Federal financial aid if you return to school.

» MORE: How to go back to school with defaulted student loans

What to do after you consolidate defaulted loans

Once you consolidate loans, consider enrolling in an income-driven repayment plan to help avoid future default. It sets your payments at a portion of your income and extends your loan term. That payment can be as low as $0.

If you’re facing other financial difficulties, like a job loss, you can request an unemployment deferment or a forbearance to pause payments until you get back on your feet.