Defaulted Student Loan Consolidation
Consolidating your defaulted loans into a new loan will show that your old defaulted loans have been paid in full. You will sign a new promissory note, and be able to start from scratch! With only one lender to deal with and one monthly bill, you will find it easier than ever to manage your debt. Also, get reinstated with Deferment and Forbearance options.
If you default on your student loan:
- Your loans may be turned over to a collection agency.
- You'll be liable for the costs associated with collecting your loan, including court costs and attorney fees.
- You can be sued for the entire amount of your loan.
- Your wages may be garnished. (Federal law limits the amount that may be garnished to 15% of the borrower's take-home pay.)
- Your federal and state income tax refunds may be intercepted.
- The federal government may withhold part of your Social Security benefit payments. (The US Supreme Court upheld the government's ability to collect defaulted student loans in this manner without a statute of limitations in Lockhart v US (04-881, December 2005).)
- Your defaulted loans will appear on your credit record, making it difficult for you to obtain an auto loan, mortgage, or even credit cards. A bad credit record can also harm your ability to find a job.
- You won't receive any more federal financial aid until you repay the loan in full or make arrangements to repay what you already owe and make at least six consecutive, on-time, monthly payments. (You will also be ineligible for assistance under most federal benefit programs.)
- You'll be ineligible for deferments.
- Federal interest benefits will be denied.
- You may not be able to renew a professional license you hold.
Once a student loan goes into "default" status the full balance of the loan becomes due immediately. It also means that other options for delaying payment, including student loan deferment and forbearance, can no longer be used.
Eventually, unpaid defaulted student loans can have long-term consequences beyond just the loan directly. For example, your credit report will take a hit. Once the loan has been forwarded for collection your wages can be garnished and your federal income tax refunds can be withheld. You also lose your eligibility for other types of federal loans.