Getting Out of Default - Loan Consolidation Tab

Loan Consolidation

If you have several federal education loans, you may want to consider combining them into one new loan with one monthly payment. This is called loan consolidation and can help keep you organized and on track with repayment.

Like many federal loan borrowers, you may have both FFEL and Direct Loans. The U.S. Department of Education encourages borrowers with both types of loans to consolidate them into the Direct Loan program.

If you want to consolidate a defaulted loan, you must either make satisfactory repayment arrangements on the loan with your current loan servicer before you consolidate, or you must agree to repay your new Direct Consolidation Loan under one of these repayment plans:

  • Income-Based Repayment
  • Pay As You Earn Repayment
  • Income-Contingent Repayment

Is consolidating your loans right for you? Consider the advantages and disadvantages carefully before you act. Once you consolidate, you are locked into a loan with a fixed interest rate.  If you just want to reduce your monthly payment, discuss the federal loan repayment options available with your lender.

Eligible student loans.

Calculate the benefit of consolidating your federal student loans.

Federal Loan Consolidation


If consolidating variable interest rate loans, you save money if you consolidate while variable interest rates are low.

Variable interest rates change annually. Therefore, if you consolidate your variable interest rate loans and the interest rates drop the following year, you have "locked" into the higher interest rate for the life of the loan.


Single Payment
If you have loans with multiple lenders/holders, you send a monthly payment to each. However, if you consolidate all those loans, you make a single payment.

Lower Monthly Payment
Consolidation Loan monthly payments are lower because the repayment period is longer.

Loss of Deferment and Forgiveness Benefits
You may not be eligible to receive the same deferments on your Consolidation Loan that you were eligible to receive on your original loans. Also, you might lose eligibility for certain cancellation or forgiveness programs, especially if you are including Perkins Loans in the Consolidation. (In either case, check with your lender.)

More Interest Paid With a longer repayment period, you'll pay more interest over the life of the loan.

What Else?

Manage Monthly Budget Savings from reduced monthly payments allows you to pay other monthly bills with higher interest rates, such as credit cards.

Remove Loans From Default Status After making satisfactory repayment arrangements with the holder of your loans in default, you can consolidate those loans and reinstate benefits (deferments, eligibility to apply for financial aid, etc.) that were lost when your loans were placed in default.

No Extra Costs There are no application or processing fees and there are no prepayment penalties.

Loss of Payment Incentives You may forfeit any payment incentives/discounts you are currently receiving. (Check with your lender.)

Visit the Federal Student Loan Consolidation Webpage for more information.

Private Loans

There are few private loan consolidation options. You should know the interest rate, fees and terms before you sign any agreement. In general, you cannot consolidate private loans into federal loans, but avoid the temptation to consolidate federal loans into private; you may lose some valuable benefits available to federal loan holders. Review information about private student loans.

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