Collections Temporarily Paused
Due to the COVID-19 payment pause, most collections on federal student loan debt have stopped. While the payment pause is ending at the end of August 2023, the Department of Education announced a new program, called Fresh Start, to help borrowers get out of default quickly and easily before collections begin again.
The Fresh Start program will run until one year after the payment pause ends. The pause on collections will continue for all loans that are eligible for Fresh Start (loans that defaulted before the pandemic) through the end of the Fresh Start period. Don’t miss out. See our page on Fresh Start for more information about signing up for this time-limited program.
Loan consolidation is one way to get your student loan out of default. If you consolidate your defaulted loans into a new Direct Consolidation Loan, your loan will be removed from default, all collections will stop, and you will be able to access affordable loan repayment options through the income-driven repayment (IDR) program.
There are downsides to consolidating your loans, and it may not be the best option for you to get your loans out of default. For more information on loan consolidation, see the Department of Education’s website and view our page on consolidating loans to understand the pros and cons of consolidation.
Am I Eligible to Get My Loans Out of Default Through Consolidation?
Unfortunately, not everyone with defaulted student loans is eligible to get out of default through consolidation. To get a Direct Loan out of default through consolidation, you have to have at least one other eligible loan, such as a FFEL Loan or non-defaulted Direct Loan, that you can combine with your defaulted loan into the new Direct Consolidation Loan. If you don’t have any other eligible loans that you can consolidate with your defaulted Direct Loan, then you will not be able to consolidate your loans to get out of default. This rule only applies to Direct Loans and it doesn’t apply to borrowers with defaulted FFEL or Perkins Loans.
How Do I Apply for Loan Consolidation to Get Out of Default?
To consolidate a defaulted federal student loan into a new Direct Consolidation Loan, you have to:
- agree to repay the new Direct Consolidation Loan under an IDR plan, or
- make three consecutive, voluntary, on-time, full monthly payments on the defaulted loan before you consolidate it.
Contact your loan servicer to get more information about consolidating your defaulted student loans to get out of default. You can apply to consolidate your loans online through the Department of Education’s website.
What Happens After My Loans are Consolidated?
After your loans are consolidated, your loan will be removed from default; collections, such as wage garnishment and tax refund offset, will stop; and you will be placed back into repayment. Your loans may also be transferred to a new loan servicer.
You will get a notice from your loan servicer about returning to repayment after you get out of default. You will have to continue to make monthly payments on your loans to avoid defaulting again, so pay close attention to any notices your loan holder or servicer sends you about your new payment amount and due date.
If you consolidated your loans by agreeing to sign up for an IDR plan, your payment will be based on the IDR plan signed up for. If you consolidated by making three full payments, you can sign up for whatever repayment plan you are eligible for, including IDR plans. Under an IDR plan, your payments are based on your income and family size and could be as low as $0 per month. You should ask your loan holder or servicer about your loan repayment options, including IDR plans, before your repayments start.