Federal Student Consolidation (Straightening out Default)
One of the worst financial moves you can possibly make regarding your student loans is to default. Your credit history will instantly reflect negatively on any loan you want to apply for regardless of the purpose. Defaulted loans never go away and are among the first information that comes up on your credit record. This can affect your ability to buy a house or car and even whether or not you can rent an apartment.
If you have decided to take a federal student consolidation loan to help you straighten out your credit, you will need to begin repayment on your defaulted loan to start the process. Most federal student consolidation loan programs will not allow you to consolidate a defaulted loan, some will not even allow you to consolidate a delinquent loan.
Steps to get your Student Loan Federal Consolidation
You will need to take steps to get yourself back into good standing on your defaulted loan. In most cases you have to make a certain number of on time full payments, voluntarily, as a good faith measure to the loan holder. The lender will reinstate your loan and remove the default standing. You should be aware that your loan must stay in good standing after this point in order for you to be eligible for various government benefits and additional student loans. Once you have current standing you can work on your federal student consolidation loan to keep yourself in good standing and pay off the loan completely.
Benefits of Rehab
When you rehabilitate your default standing you get a number of benefits.
- Your credit will almost immediately improve. The lender will report a change to your status in as little as a month.
- You will regain eligibility for federal loan benefits like forbearance and deferments.
- You become eligible for the various types of loan repayment methods.
- You will regain the maximum amount of time for repayment on the loan.
You can consolidate your, now current, loan(s) into a federal student consolidation loan program to save yourself money in interest and give yourself a longer period of time for repayment.
Benefits of Consolidation
- You can choose from the four main repayment methods: standard, graduate, extended and income sensitive.
- You can change the repayment method annually.
- You can get a lower interest rate on a single larger loan.
- You retain forbearance and deferment eligibility with federal student consolidation loan programs.
- You may be able to have interest subsidized during deferment periods.
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