Am I eligible to refinance my student loans?

Avoiding Student Loan Default

The consequences of defaulting on federal or private student loans can be severe. The U.S. Department of Education, in particular, possesses strong powers for collecting on defaulted federal student loans.

What Can Happen When Student Loans Go Into Default

Characteristic Federal Student Loans Private Student Loans
Number of days of non-payment to go into default 270 days Typically, 120 days, but different lenders may have a different time-frame depending on their loan contracts
Action required to garnish your wages and/or federal/state tax refunds U.S. Department of Education can garnish without a court order Lawsuit and court judgment required
How much disposable pay can be garnished? Up to 15% Private lenders can garnish the lesser of 25% of your disposable income or all income which exceeds 30 times the Federal minimum wage
Can collection charges be added? Yes —  Collection costs can be as high as 24%, but can be reduced to 18.5% if you consolidate out of default or as low as 16% if you rehabilitate the loan Yes (not limited)
Default reported to credit agencies? Yes Yes
Can Social Security and retirement benefits be offset? Yes — up to 15% No
Can tax refunds be intercepted/offset? Yes No
Bankruptcy discharge Nearly impossible Nearly impossible

Tips for Avoiding Default

Already in Default?

If you are currently in default on your federal or private student loans, the first thing you should do is contact your lender or loan servicer to find out how to get your loans out of default. This is sometimes referred to as rehabilitation. Borrowers can rehabilitate defaulted federal student loans by making nine consecutive, full, voluntary and affordable on-time monthly payments within 20 days of the due date. The good thing about a rehabilitated loan is that once your loan is rehabilitated, any record of a default showing on your credit report will be removed, so this can result in a possible credit bump. However, any late payments that were reported before your loan went into default will stay on your report.

Another way for you to get the loan out of default is by going the consolidation route. To do this, you consolidate your federal student loan into a new Direct Consolidation loan. You can do this by simply agreeing to repay the consolidation loan under an income-based repayment plan, or you can first make three consecutive voluntary, on-time, full monthly payments on the defaulted loan before you consolidate it.

But what if you have already consolidated and your defaulted loan is a consolidation loan? In that case, going the consolidation route will depend on the type of loan you have. If you have a Direct Consolidation loan, you also have to include one other eligible loan to re-consolidate, in addition to meeting one of the two requirements above. If you do not have one other loan to re-consolidate, unfortunately, you’re out of luck. Your only options will be loan rehabilitation, or to repay the loan in full. If you have a defaulted Federal Family Education Loan (FFELP) Consolidation loan, you don’t have to have any new loans to re-consolidate and get your loans out of a default status.

You can re-consolidate by agreeing to repay the new consolidation loan using an income-driven repayment plan. The good news is that once your defaulted loan is consolidated, you become eligible for benefits such as deferment, forbearance, and loan forgiveness.

Your primary goal should be getting a monthly payment you can afford right now. When your finances improve, you can speed up your payments to save money on interest.

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Why Consolidate or Refinance Your Student Loans

Why Consolidate My Student Loans?

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Benefits of Student Loan Consolidation and Refinancing

Benefits of Student Loan Consolidation and Refinancing

Student loan consolidation or refinancing has several key benefits. You might be able to cut your payments & get a better rate. See if it's right for you.

How Student Loan Consolidation Works

How Student Loan Consolidation Works

Wondering what the first steps are in consolidating or refinancing your student loans? Check out these step-by-step instructions on how to get started.

Basics of Student Loan Refinancing

The Basics of Student Loan Refinancing for 2018

Deciding if you should consolidate or refinance your student loans can get pretty confusing. Learn more about the benefits and drawbacks of refinancing.

5 Common Myths About Student Loan Refinancing

5 Common Myths About Student Loan Refinancing

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Should You Find a Student Loan Cosigner or Go It Alone

Student Loan Refinancing: Cosigner or No Cosigner?

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The Pros and Cons of Refinancing Parent PLUS Loans

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Private Student Loan Refinancing Interest Rates

Private Student Loan Refinancing Interest Rates

The interest rate on a private refinance loan is determined by the borrower's or cosigner's credit rating. See the impact of different rates on payments.

Get the answers to your questions about private student loan refinancing. Learn more about the benefits, which loans are eligible and how long it takes.

Federal Student Loan Consolidation

Federal Student Loan Consolidation

Learn about the benefits of federal student loan consolidation, what loans can be consolidated & how it can help you manage existing student loan debt.

Federal Student Loan Consolidation Interest Rates

Federal Student Loan Consolidation Interest Rates

When you consolidate your federal student loans, your interest rate will be roughly the same as your current loans. See an example of the rate calculation.

How do I combine multiple federal loans into one loan? How long does it take to consolidate student loans? Get the answers to these questions and more.

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Min. Loan Amount $10,000 Degree required. Must have graduated from an eligible school. Repayment Terms 5, 10, or 15 years
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Am I eligible to refinance my student loans?