Another option for getting out of default is to consolidate your defaulted federal student loan into a Direct Consolidation Loan. Loan consolidation allows you to pay off one or more federal student loans with a new consolidation loan.
To consolidate a defaulted federal student loan into a new Direct Consolidation Loan, you must either
agree to repay the new Direct Consolidation Loan under an income-driven repayment plan, or
make three consecutive, voluntary, on-time, full monthly payments on the defaulted loan before you consolidate it.
Note: If you choose to make three payments on the defaulted loan before you consolidate it, the required payment amount will be determined by your loan holder, but cannot be more than what is reasonable and affordable based on your total financial circumstances.
There are special considerations if you want to reconsolidate an existing Direct Consolidation Loan or Federal (FFEL) Consolidation Loan that is in default:
To reconsolidate a defaulted Direct Consolidation Loan, you must also include at least one other eligible loan in the consolidation in addition to meeting one of the two requirements described above. If you have no other eligible loans that can be included in the consolidation, you cannot get out of default by consolidating a defaulted Direct Consolidation Loan. Your options are repayment in full or loan rehabilitation.
You may reconsolidate a defaulted FFEL Consolidation Loan without including any additional loans in the consolidation, but only if you agree to repay the new Direct Consolidation Loan under an income-driven repayment plan. If you include at least one other eligible loan in the consolidation, you’re eligible to reconsolidate a defaulted FFEL Consolidation Loan if you meet either of the two requirements described above.
In addition, if you want to consolidate a defaulted loan that is being collected through garnishment of your wages, or that is being collected in accordance with a court order after a judgment was obtained against you, you cannot consolidate the loan unless the wage garnishment order has been lifted or the judgment has been vacated.
If you choose to repay the new Direct Consolidation Loan under an income-driven plan, you must select one of the available income-driven repayment plans at the time you apply for the consolidation loan and provide documentation of your income.
Note: If you want to consolidate a defaulted PLUS loan that you obtained as a parent to pay for your child’s education, the only income-driven plan you can choose is the Income-Contingent Repayment Plan (ICR).
If you choose to make three consecutive, voluntary, on-time, full monthly payments on your defaulted loan before you consolidate it, you may repay the new Direct Consolidation Loan under any repayment plan you are eligible for.
After your defaulted loan has been consolidated, your Direct Consolidation Loan will be eligible for benefits such as deferment, forbearance, and loan forgiveness. You’ll also be eligible to receive additional federal student aid, but unlike loan rehabilitation, consolidation of a defaulted loan does not remove the record of the default from your credit history.
One option for getting your loan out of default is loan rehabilitation. To start the loan rehabilitation process, you must contact your loan holder. If you’re not sure who your loan holder is, you can log in and select “View loan servicer details” to get your loan holder’s contact information.
William D. Ford Federal Direct Loan (Direct Loan) Program and Federal Family Education Loan (FFEL) Program
To rehabilitate a defaulted Direct Loan or FFEL Program loan, you must
agree in writing to make nine voluntary, reasonable, and affordable monthly payments (as determined by your loan holder) within 20 days of the due date, and
make all nine payments during a period of 10 consecutive months.