Defaulted Loans

  1. What if I am not sure what loan(s) I have?  
  2. What is a forbearance?  
  3. Can I change repayment plans?  
  4. Can I Consolidate a Defaulted Loan?  
  5. Can I consolidate a Perkins Loan?  
  6. Can I consolidate a PLUS Loan?  
  7. Can I consolidate an existing consolidation loan?  
  8. Can I consolidate health professions loans?  
  9. Can I consolidate jointly with my spouse?  
  10. Can I consolidate my loans if I am enrolled in school?
  11. Can I consolidate my loans that are in grace?  
  12. Can I delay processing of my consolidation application?  
  13. Can I obtain a Direct Consolidation Loan if I don’t have any Direct Loans?  
  14. Can I prepay on my loan?  
  15. Do I qualify for a deferment?  
  16. How can I avoid going into default?  
  17. How do I apply to have my loans consolidated?  
  18. How do I make payments?  
  19. How do I resolve my defaulted loan?  
  20. How does Total Education Indebtedness effect the repayment term of my Direct Consolidation Loan?
  21. How is the amount of my payment calculated under the ICR plan?  
  22. How long does it take to consolidate my loans once I submit my application?  
  23. How long may I defer my payments?  
  24. If I am applying for a HUD (FHA) or VA loan how do I become qualified if I have defaulted on my student loans?  
  25. If I have a defaulted student loan, will I be able to receive another loan?  
  26. Should I rehabilitate before consolidating my defaulted loan?  
  27. What are the benefits of a Direct Consolidation Loan?  
  28. What are the conditions for cancelling all or part of my loan?  
  29. What are the consequences of defaulting?  
  30. What are the differences between FFEL Consolidation vs. Direct Consolidation?
  31. What are the repayment plans?  
  32. What is cancellation?  
  33. What is default and what are the consequences?  
  34. What is deferment?  
  35. What is next?  
  36. What loans can I consolidate?  
  37. What special conditions apply if I am in repayment and just consolidating now?  
  38. When can I expect my first bill?  
  39. Who is eligible for a Direct Consolidation Loan?


What if I am not sure what loan(s) I have?

Go to the National Student Loan Data System (NSLDS) at http://www.nslds.ed.gov/nslds_SA/ to confirm your federal student loans. For other loans, refer to your financial aid information or the exit interview material you received when you left school.


What is a forbearance?

If you’re not eligible for a deferment, consider a forbearance. A forbearance is another way to temporarily reduce or suspend your regular loan payments. You may be granted forbearance if you are willing, but temporarily unable to make full or partial payments and do not qualify for deferment.

During a forbearance, interest continue to accrue on all loan types
• you may pay the interest, saving you money over the life of the loan;
• if you do not pay the interest, your loan holder will add it to your principle balance when your forbearance ends.

In most cases, a forbearance is granted at the loan holder’s discretion


Can I change repayment plans?

Yes. Most borrowers may change repayment plans at any time. However, borrowers who are required to repay under the ICR plan must make three consecutive monthly payments before changing to another plan. There is no limit to the number of times borrowers may change plans.
• A borrower may change to the ICR plan at any time. After the change, the borrower’s repayment period will be a maximum of 25 years. If loans are not fully repaid after 25 years of repayment, any unpaid amount will be forgiven. The maximum 25-year repayment period may include prior periods of repayment under certain other repayment plans, and certain periods of economic hardship deferment. The forgiven amount may be considered taxable income. (The ICR Plan is NOT available if you have a Direct PLUS Consolidation Loan(s) made before July 1, 2006 and/or a Direct PLUS Loan(s). However, you are eligible to repay any Direct Consolidation Loan(s) made on/after July 1, 2006 under the ICR Plan even if it includes a PLUS Loan(s).)
• A borrower may change to another plan as long as the new plan has a repayment term that is longer than the amount of time the borrower has already spent in repayment. The new repayment term is determined by subtracting the amount of time a borrower has spent in repayment from the term allowed under the new plan.


Can I Consolidate a Defaulted Loan?

Generally, Federal education loan(s) in default may be consolidated in a Direct Consolidation Loan if borrowers:
• Agree to repay the loan(s) under the Income Contingent Repayment Plan.
OR
• Make satisfactory repayment arrangements with the current loan holder(s).

If, before applying for consolidation, borrowers who want to completely clear the default notation from their credit records, they may want to consider another option: loan rehabilitation. Borrowers should contact their loan holders to obtain more information about this option.

Borrowers cannot consolidate defaulted loans under these conditions:
• If a judgment has been issued against a defaulted loan, it cannot be included in the consolidation unless the judgment order has been vacated (dismissed).
• If they are trying to consolidate defaulted Direct Consolidation Loans.
• If they are trying to consolidate defaulted FFEL Consolidation Loans unless they have made satisfactory repayment arrangements with their current loan holder OR the borrowers agree to repay under the Income Contingent Repayment Plan.
• If they are trying to consolidate defaulted Perkins or health professions loans unless they have made satisfactory repayment arrangements with their current loan holders.

Note: Borrowers with defaulted FFEL or Direct Loan Program loans may be liable for collection costs incurred to collect the loans. If the holder of the defaulted loan, which may be either the U.S. Department of Education or a guaranty agency, retains a collection agency to collect defaulted loans, charges imposed by the collection agency may be added to the amount borrowers owe. This means that the amount of the Direct Consolidation Loan may include collection costs of up to 18.5% of the principal and interest outstanding on the defaulted loan.

For defaulted Perkins Loans and health professions loans, collection costs may equal as much as the amount owed at the time the defaulted loan is paid off through consolidation.


Can I consolidate a Perkins Loan?

Yes, it is possible to consolidate Perkins Loans into a Direct Consolidation Loan if borrowers include at least one Direct Loan or Federal Family Education Loan (FFEL) in their request. Perkins Loans cannot be included in a Direct Consolidation Loan by themselves. Furthermore, all Perkins Loans consolidated into the Direct Loan Program will be included in the unsubsidized portion of the Direct Consolidation Loan.

Borrowers should carefully weigh the advantages and disadvantages of including a Perkins Loan in a consolidation loan. While the borrowers gain the benefits of the Direct Consolidation Loan Program, they also lose the benefits associated with the Perkins Loan Program.
We recommend that you consider the following points prior to making a decision:
• Perkins Loans are eligible for additional cancellation/forgiveness benefits, such as performing certain kinds of public service. This benefit is lost when a Perkins Loan is included in a Direct Consolidation Loan.
• Perkins Loans have a grace period of 6-9 months. When a Perkins loan is consolidated, any remaining grace period is lost.
• Interest does not accrue when a Perkins Loan is placed in deferment. Since a Perkins Loan is included in the unsubsidized portion of a Direct Consolidation Loan, borrowers are responsible for interest that accrues throughout the deferment period.
• Perkins Loans generally have a lower interest rate but have a less flexible repayment period of 10 years.

The Direct Consolidation Loan Program offers standard, graduated, extended and income contingent repayment plans which may lower monthly payments.


Can I consolidate a PLUS Loan?

Yes, PLUS Loans can be consolidated into a Direct Consolidation Loan.


Can I consolidate an existing consolidation loan?

Yes, under three conditions:
• Borrowers can consolidate existing consolidation loans into a new Direct Consolidation Loan if they include at least one other FFEL or Direct Loan into the new consolidation loan.
• Borrowers can consolidate a single Federal Consolidation Loan if the loan is in default status or has been submitted to a guaranty agency for default aversion by the loan holder.
• Borrowers can consolidate a single Federal Consolidation Loan if they intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.

Borrowers who have only a Direct Consolidation Loan cannot consolidate again unless they include an additional loan.
NOTE: The Direct Loan Servicing Center has information on the Public Service Loan Forgiveness Program.


Can I consolidate health professions loans?

Yes, With a Direct Consolidation Loan, borrowers can include certain health profession loans sponsored through the U.S. Department of Health and Human Services with other Federal education loans in their Direct Consolidation Loan. Borrowers must include at least one Direct Loan or Federal Family Education Loan (FFEL) Program loan in the Direct Consolidation Loan.

Eligible Health Professions Loans
• Health Professions Student Loans (HPSL)
• Health Education Assistance Loans (HEAL)
• Loans for Disadvantaged Students (LDS)
• Nursing Student Loans (NSL)

The Advantages
Direct Consolidation Loans offer many advantages to borrowers of health professions loans. These include:
• a longer repayment period;
• a lower monthly payment; AND
• a single monthly payment

When deciding to consolidate a health professions loans, consider the following advantages:
• Borrowers who have defaulted on a HEAL may include the collection costs and late fees in a Direct Consolidation Loan. These fees may not be included in HEAL Refinancing.
• Under the Direct Consolidation Loan Program, HEAL borrowers may repay under the Income Contingent Repayment (ICR) Plan for the life of the loan. HEAL lenders are only required to offer an ICR Plan for the first five years.
• To qualify for an in-school deferment, Direct Consolidation Loan borrowers must be attending school at least half-time. HPSL, HEAL, and LDS borrowers are required to attend school full time to be eligible for an in-school deferment.

Issues to Consider
Before applying for a Direct Consolidation Loan, consider the following points:
• HEAL loans have fixed or variable rate that are tied to the average 91-day Treasury bill rate plus 3 percentage points. There is no maximum interest rate for variable rate HEAL loans. In contrast, the interest rate for a Direct Consolidation Loan is based on the weighted average of the interest rates on loans being consolidated, rounded to the nearest higher one-eighth of one percent. It is a fixed rate and will not exceed 8.25 percent.
• The interest on some health professions loans is subsidized by the U.S. Department of Health and Human Services. This interest subsidy is lost when these loans are included in a Direct Consolidation Loan.
• Interest does not accrue during deferment for HPSL, LDS, and NSL borrowers. Interest does accrue during deferment on the portion of Direct Consolidation Loans that include health professions loans.
• Borrowers who consolidate Health Professions Loans do not retain the deferment benefits that apply to those loans. However, they gain the deferment benefits that apply to Direct Consolidation Loans. For example, a borrower may be eligible for additional deferments if they have an outstanding balance on a FFEL made before July 1, 1993, when they obtain their first Direct Loan.


Can I consolidate jointly with my spouse?

No, Effective July, 1 2006 a married couple may no longer obtain a Direct Consolidation Loan as joint borrowers.


Can I consolidate my loans if I am enrolled in school?

Yes and No. Effective for Direct Consolidation Loan applications received on or after July 1, 2006, borrowers who are enrolled in school cannot consolidate loans that are in an in-school status. These are loans that have not yet entered or used up the 6-month grace period entitlement.
Borrowers still can consolidate loans that are in grace, repayment or deferment
Borrowers can add loans to an existing consolidation for up to 180 days after the Direct Consolidation Loan was first disbursed. If more than 180 days has passed, borrowers can apply for a new Direct Consolidation Loan. The new consolidation loan can include the original Direct Consolidation loan and must include another eligible outstanding Federal education loan.

Example: A borrower who has education loans stopped attending school for a year and the loans used up the 6-month grace period and entered repayment. The borrower returned to school and obtained a new loan. While enrolled, the borrower applies for a Direct Consolidation Loan. The Direct Consolidation Loan can include the first group of loans the borrower received, but not the newly received loans. Once the borrower leaves school again he or she can add these new loans to the existing consolidation loan or submit a new Direct Loan Consolidation application to combine the original consolidation loan and the other remaining loans.


Can I consolidate my loans that are in grace?

Yes, Borrowers who consolidate loans that are in grace may receive a lower interest rate on their Direct Consolidation Loans if they are consolidating variable rate loans. However, once grace status loans are consolidated borrowers lose any remaining grace period. Borrowers receive their first bills within 60 days after the new Direct Consolidation Loan is made.
The timing in which an application is submitted is important:
• Loans first disbursed on or after July 1, 2006 have fixed interest rates. While borrowers with fixed interest rate loans can consolidate while in grace, there is no benefit to do so since the interest rates for in-grace and in-repayment are the same.
• Borrowers with variable interest rate loans should apply for Direct Consolidation Loans while their loans are in the grace status in order for them to receive the possible interest rate benefit.
• Since repayment begins within 60 days of the day the Direct Consolidation Loan is made, borrowers should not apply too early in their loans’ grace periods; otherwise borrowers lose any remaining grace period. For example, if a borrower’s loans are consolidated during the second month of grace, they would begin repayment within 60 days, thus forfeiting the remaining portion of the grace period. Therefore, borrowers should wait until about half-way through the 6-month grace period before applying for a Direct Consolidation Loan.


Can I delay processing of my consolidation application?

Yes, you can delay the processing of your Direct Consolidation Loan until closer to the end of your grace period end date if any of the loans you want to consolidate are in a grace period.
Normally, when you consolidate your existing loan(s) into a new Direct Consolidation Loan, you will be required to start repayment of your new loan immediately. However, if any loan you want to consolidate is still in a grace period, you can delay entering repayment on your new Direct Consolidation Loan until closer to your grace period end date by entering your expected grace period end date (month and year) in the space provided on the application. We will start processing your application about 45 days before the expected grace period end date that you provide. If you leave the expected grace period end date blank on your consolidation application, your Direct Consolidation Loan will enter repayment immediately.
You can select a date up to nine (9) months into the future. If your grace end date is more than 9 months away, wait to submit your application.


Can I obtain a Direct Consolidation Loan if I don’t have any Direct Loans?

Yes, borrowers without any Direct Loans may be eligible for a Direct Consolidation Loan if they include at least one FFEL Loan and have been unable to obtain a Federal Consolidation Loan with a FFEL consolidation lender or have been unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms acceptable to them or intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.
NOTE: The Direct Loan Servicing Center has information on the Public Loan Service Forgiveness Program.


Can I prepay on my loan?

Borrowers may prepay all or part of the unpaid balance on any Direct Loan at any time, without an early repayment penalty. If a borrower makes a payment that exceeds the required monthly payment, the prepayment will be applied first to any charges or collection costs, then to outstanding interest, and last to principal. However, if a borrower’s account has no outstanding interest, the prepayment is applied entirely to principal. If the prepayment is twice the borrower’s monthly payment, the next payment due date is advanced unless the borrower specifies otherwise. The borrower will be notified of a revised due date


Do I qualify for a deferment?

Depending on the type of loan you have, and when the loan was borrowed, you may be eligible to defer repayment of your loan if you are:
• In school (including graduate/post-graduate fellowships and rehabilitation training
• Unemployed
• Experiencing economic hardship
• Engaged in service that qualifies you for cancellation


How can I avoid going into default?

Default CAN be avoided:
• Before you take out a loan, make sure you fully understand your options and responsibilities. You should explore and use scholarships, grants, work-study, part-time jobs, and family contributions first to finance your education.
• Don’t borrow more than you need or more than you expect to be able to repay. Develop a sound—and realistic—financial plan.
• Make your loan payments on time, and notify your lender or servicer when you move or change your address.
• Contact your loan holder immediately if you start to have problems repaying. They may be able to provide you with some financing options and give you information about deferments and forbearance.

Keep a record regarding your loan. Make copies of all letters, canceled checks, and any forms you sign.


How do I apply to have my loans consolidated?

There are several ways that you can apply for a Direct Consolidation Loan:
1. Online Web Application – Apply Online. Visit the Application and Promissory Note Home Page.
2. Express Phone Application: 1-800-557-7392. Apply over the phone if you have all Direct Loans
3. Paper application
• Download a paper copy of the application and promissory note – including the complete contents of the application package. OR
• Request an application package be mailed to you:
o Phone at 1-800-557-7392 8AM to 8PM (EST)
(TDD 1-800-557-7395) or (334) 206-7400 outside USA
o E-mail at loan_consolidation@mail.eds.com


How do I make payments?

Borrowers receive monthly billing statements from the Direct Loan Servicing Center, unless they enroll in the Electronic Debit Account (EDA).
Borrowers receive a 0.25 percent discount on their interest rate for as long as they continue to make payments using EDA.
Borrowers must keep the Direct Loan Servicing Center informed of changes of address and to their names. Borrowers are responsible for making payments on time regardless of whether they receive billing statements. Borrowers should send payments to:
U.S. Department of Education
Direct Loan Payment Center
P.O. Box 530260
Atlanta, GA 30353-0260


How do I resolve my defaulted loan?

There are ways that a person can resolve a defaulted loan:

1) Pay the loan in full
2) Discuss a repayment plan with your lender
3) Determine if you qualify for payment relief
4) Rehabilitation
5) Consolidation

Pay the Loan in Full

By paying off the federal student loan, the loan will no longer be in default. You are now eligible to receive additional federal student aid.

Repayment Plans

You have several ways to repay your loan by making monthly installment payments on your account.
• Standard Repayment – fixed monthly payments of at least $50 with up to 10 years to repay in full.
• Graduated Repayment – monthly payments will begin low and increase gradually over time.
• Extended Repayment – lowers monthly payments over a longer period of time and has a predictable payment schedule.
• Income Contingent, Income-Sensitive, or Income-Based Repayment – monthly payments are calculated as a percentage of your income.

Payment Relief

If you have trouble making your student loan payments, contact your loan servicer immediately. You may qualify for some form of payment relief. Examples of relief are:
1) Deferment
2) Forbearance
3) Repayment Plan

Rehabilitation

You may want to consider rehabilitating your defaulted loan(s). Advantages of
rehabilitation include:
• Your loan(s) will no longer be considered to be in a default status.
• The default status reported by your loan holder to the national credit bureaus will be deleted.
• You will be eligible for the same benefits that were available on the loans before the loans defaulted. This may include deferment, forbearance, and Title IV eligibility.
• Wage garnishment ends and the Internal Revenue Service no longer withholds your income tax refund.

Please keep in mind:

• The amount of your monthly payment after rehabilitation may be more than the amount you paid while you were rehabilitating your loans.
• Any interest outstanding at the time your loan is rehabilitated will be added to your current outstanding principal balance, increasing the total amount you owe. Collection costs may also be added to your principal balance, increasing the total amount you owe.
• Delinquencies reported before the loan(s) defaulted will not be removed from your credit report

If you are a Direct Loan Borrower:
To rehabilitate a Direct Loan, you must make at least nine (9) full payments of an
agreed amount within twenty (20) days of their monthly due dates over a ten (10) month period to the U.S. Department of Education (Department). Payments secured from you on an involuntary basis, such as through wage garnishment or litigation, cannot be counted toward your nine (9) payments. Once you have made the required payments, your loan(s) will be returned to the Direct Loan Servicing Center.

If you are a FFEL loan borrower:
To rehabilitate a FFEL, you must make at least nine (9) full payments of an agreed amount within twenty (20) days of their monthly due dates over a ten (10) month period to the Department. Payments secured from you on an involuntary basis, such as through wage garnishment or litigation, cannot be counted toward your nine (9) payments. Once you have made the required payments, your loan(s) may be purchased by an eligible lending institution.

If you are a Perkins loan borrower:
To rehabilitate a Perkins Loan, you must make nine (9) on-time, monthly payments of an agreed amount to the Department. Payments secured from you on an involuntary basis, such as through wage garnishment or litigation, cannot be counted toward your nine (9) payments. Once you have made the required payments, your loan(s) will continue to be serviced by the Department until the balance owed is paid in full.

Consolidation

Consolidation loans allow you to combine different types of federal student loans to simplify repayment. Even if you have just one loan, you can also choose to consolidate it. Both the FFEL and Direct Loan Programs offer consolidation loans.
There are several advantages to consolidate or rehabilitate your loan as described in the categories below.

FFEL Consolidation Loans
A FFEL Consolidation Loan is designed to help student and parent borrowers
consolidate several types of federal student loans with various repayment schedules into one loan. With a FFEL Consolidation Loan, you will make only one payment a month. Under this program, your consolidation loan will be made by a commercial ender, credit bureaus will be notified that your account has a zero balance, and you will sign a new promissory note that will establish a new interest rate and repayment schedule. To receive a FFEL Consolidation Loan, you must be in repayment on your defaulted loan (that is, three voluntary, on-time, full monthly payments). Depending on the balance due, the repayment period may extend up to 30 years. If you owe no other delinquent or defaulted debts to the United States, you will again be eligible for other federal funds, including FHA loans, VA loans, and Title IV student financial aid funds.

Additional information on loan consolidation can be found on our main FSA site.

For full details, and to apply online for loan consolidation, please visit  http://loanconsolidation.ed.gov.


How does Total Education Indebtedness effect the repayment term of my Direct Consolidation Loan?

If you elect to repay your Direct Consolidation Loan under either the Standard or Graduated Repayment Plans, your repayment term is determined based on your consolidation loan amount and other eligible education loans that are not part of your Direct Consolidation Loan as long as you provided information about those loans on your application. Here are examples of how Total Education Indebtedness effects the repayment term for your Direct Consolidation Loan.

Your Existing Loans:

Loan A
$ 2,500

Loan B

$ 6,000

Loan C

$ 2,500

Loan D

$ 7,500

Loan E

$ 7,500

Loan F

$13,000

Total Outstanding Amount

$39,000

Examples 1 and 2 assume that you reported all your outstanding education loans on your consolidation application.

You Consolidate

Your Direct Consolidation Loan Amount

Your Other Eligible Education Loans

Your Total Education Indebtedness

Your Direct Consolidation Loan Repayment Term (approx.)

Example 1

Loans A and B

$8,500

$30,500

$17,000

15 Years

Example 2

Loans A, B, C, D, and E

$26,000

$13,000

$39,000

20 Years

In Example 1 you consolidated less that one-half of your eligible outstanding loans. As a result, we base your repayment term on your Direct Consolidation Loan amount plus other eligible indebtedness only in an amount equal to your new Direct Consolidation Loan:

Direct Consolidation Loan ($8,500) + Other Eligible Education Loan Allowance ($8,500)
= Total Indebtedness ($17,000)

In Example 2 you consolidated more than one-half of your eligible outstanding loans so the calculation of Total Education Indebtedness includes all of your other eligible education loans. The result is a longer repayment term than in Example 1.

Direct Consolidation Loan ($26,000) + Other Eligible Education Loan Allowance
($13,000) = Total Education Indebtedness ($39,000)

Finally, Example 3 illustrates the impact on your repayment term if you did not report all of your outstanding education loans on your Direct Consolidation Loan application. Your repayment plan term is shorter than
in Example 1.

You Consolidate

Your Direct Consolidation Loan Amount

Your Other Eligible Education Loans

Your Total Education Indebtedness

Your Direct Consolidation Loan Repayment Term (approx.)

Example 3

Loans A and B

$8,500

$0

$8,500

11 Years

Remember that the longer your repayment term the lower your monthly payment will be. However, this usually means that the total interest paid during repayment will be higher. Only you can decide what plan is best for you. And, you can change plans later if your plan no longer suits your needs. Use our convenient online calculator to estimate your number of monthly payments, monthly payment amounts and total interest to be paid for as many different scenarios as you like.


How is the amount of my payment calculated under the ICR plan?

The ICR Plan is designed to keep payments affordable. Generally, borrowers pay the lesser of:

·         the amount they would pay if they repaid their loan in 12 years, multiplied by an income percentage factor that varies with their annual income, or
·         20 percent of their discretionary income (AGI minus the poverty level for their family size)

Under the ICR plan, the monthly payment is $0 for borrowers with family incomes that are less than or equal to the U.S. Department of Health and Human Services poverty level for their family size. Borrowers whose calculated monthly payment is greater than $0 but less than $5 are required to make a $5 monthly payment. Other borrowers must pay the calculated monthly payment.
Until the Department receives income information from the IRS or alternative documentation of income, borrowers’ monthly payments are equal to the interest that accrues each month. If they are unable to make the interest-only payments, borrowers may request a forbearance until the first scheduled Income Contingent Repayment (ICR) plan payment is due.

The monthly payment in Example E is calculated as follows:

Step 1:
Multiply the principal balance by the constant multiplier for 8.25 percent interest (0.0109621)
$15,000 x 0.0109621 = $164.4315

Step 2:
Multiply the result by the income percentage factor that corresponds to the borrower’s income.
88.77 (0.8877) x 164.4315 = $146

Step 3:
Determine 20 percent of discretionary income (based on the poverty guidelines for a family of one).
($30,000 – $10,210) x 0.20 / 12 = $329.83

Step 4:
Payment is the amount determined in step 2 because it is less than 20 percent of discretionary income.

NOTE: This example is based on the 2007 income percentage factors and U.S. Department of Health and Human Services (HHS) poverty level guidelines.


How long does it take to consolidate my loans once I submit my application?

The consolidation process generally takes 60-90 days. Using our online Web application can reduce the amount of time it takes to consolidate a borrower’s loan. The process to retrieve payoff statements (called LVCs – Loan Verification Certificates) from your lenders takes the longest amount of time.


How long may I defer my payments?

There is no limit to how long you can defer payment on your loan(s) while you are enrolled:
·         At least half-time in an eligible institution, or
·         In a graduate or post-graduate fellowship program, or
·         In a rehabilitation program for disabled individuals

You may only defer payment for up to a total of three years on the basis that you are:
·         Seeking but unable to find full-time employment
·         Experiencing economic hardship

You may defer payment while you are performing service that qualifies you for cancellation.


If I am applying for a HUD (FHA) or VA loan how do I become qualified if I have defaulted on my student loans?

Your options for reinstating your eligibility to receive a HUD (FHA) or VA loan are: repay or satisfy the loan in full;  consolidate your loan through the Federal Family Education Loan (FFEL) loan consolidation program or the William D. Ford Direct Loan Program (Direct Loan Program); or rehabilitate your loan through our loan rehabilitation program. Since defaulted student loans have no statute of limitations for enforceability, you would remain ineligible to receive a HUD or VA loan until you complete one of the options mentioned above


If I have a defaulted student loan, will I be able to receive another loan?

You are not eligible for federal student financial aid. To explore other options for aid, please apply for a private loan here: https://www.elmselect.com/oll/Agreement.
Must complete loan application based on credit; may need credit-worthy cosigner.


Should I rehabilitate before consolidating my defaulted loan?

Rehabilitation or Consolidation?
There are many benefits to rehabilitating a defaulted loan before consolidation. If you consolidate a defaulted loan without rehabilitating it, your credit record continues to show a default status on the loan. This is true even after the consolidation loan pays off the defaulted loan in full.
•      Consolidating a defaulted loan will result in your credit report bearing the notation that the loan was in default but then “paid in full.” This notation will remain on the credit report for up to seven years. While a “paid in full” notation is preferable to an unpaid default, there is still the possibility that lenders will deny you future credit, such as mortgages, auto loans, or credit cards because of this notation.

However, if you rehabilitate a defaulted loan before consolidating it, the loan holder will update your credit record to no longer reflect the default status of the rehabilitated loan(s).
•      Rehabilitating a defaulted Direct Loan or FFEL loan requires that you make at least nine (9) full payments of an agreed amount within twenty (20) days of their monthly due dates over a ten (10) month period. Rehabilitating a defaulted Perkins loan requires twelve (12) on-time monthly payments. Contact your loan holder to obtain additional rehabilitation terms and conditions for your loan type.

Keep in mind that if you default on your loan, you are liable for any collection costs incurred to collect the loan. If you pay off the defaulted loan by taking out a Consolidation Loan, the amount you borrow must be enough to pay off your defaulted loan, including principal, interest, and collection costs. This means that the amount of the new loan may need to be up to 18.5% larger than the principal and interest outstanding on your defaulted loan.
Both rehabilitation and consolidation will reinstate your eligibility for additional   Federal student aid under Title IV of the Higher Education Act (Pell Grants, FFEL and Direct Loans etc.)


What are the benefits of a Direct Consolidation Loan?

Direct Consolidation Loans allow borrowers to combine one or more of their Federal education loans into a new loan that offers several advantages.
One Lender and One Monthly Payment. With only one lender and one monthly bill, it is easier than ever for borrowers to manage their debt. Borrowers have only one lender, the U.S. Department of Education, for all loans included in a Direct Consolidation Loan.
Flexible Repayment Options. Borrowers can choose from multiple plans to repay their Direct Consolidation Loan, including an Income Contingent Repayment Plan. These plans are designed to be flexible to meet the different and changing needs of borrowers. With a Direct Consolidation Loan, borrowers can switch repayment plans at anytime.
No Minimum or Maximum Loan Amounts or Fees. There is no minimum amount required to qualify for a Direct Consolidation Loan! In addition, consolidation is free.
Varied Deferment Options. Borrowers with Direct Consolidation Loans may qualify for renewed deferment benefits. If borrowers have exhausted the deferment options on their current Federal education loans, a Direct Consolidation Loan may renew many of those deferment options. In addition, borrowers may be eligible for additional deferment options if they have an outstanding balance on a FFEL Program loan made before July 1, 1993, when they obtain their first Direct Loan.
Reduced Monthly Payments. A Direct Consolidation Loan may ease the strain on a borrower’s budget by lowering the borrower’s overall monthly payment. The minimum monthly payment on a Direct Consolidation Loan may be lower than the combined payments charged on a borrower’s Federal education loans.
Retention of Subsidy Benefits. There are two (2) possible portions to a Direct Consolidation Loan: Subsidized and Unsubsidized. Borrowers retain their subsidy benefits on loans that are consolidated into the subsidized portion of a Direct Consolidation Loan.


What are the conditions for cancelling all or part of my loan?

Teacher service. If you are a new borrower* and are a full-time teacher in a low-income elementary or secondary school for 5 consecutive years, you may be able to have as much as $17,500 of your subsidized or unsubsidized loans cancelled.

* You are considered a new borrower if you did not have an outstanding balance on an FFEL or Direct Loan on Oct. 1, 1998, or on the date you obtained an FFEL or Direct Loan after Oct. 1, 1998.

Public service. If you are employed in certain public service jobs and have made 120 payments on your Direct Loans (after Oct. 1, 2007), the remaining balance that you owe may be forgiven. Only payments made under certain repayment plans may be counted toward the required 120 payments. You must not be in default on the loans that are forgiven.

School-related discharges. In certain cases, you may be able to have all or a part of your loan cancelled because:

·         Your school closed before you completed your program.
·         Your school forged your signature on your promissory note or falsely certified that you were eligible to get the loan.
·         Your loan was falsely certified because of identity theft (additional requirements apply).
·         You withdrew from school but the school didn’t pay a refund that it owed under its written policy or our regulations. Check with the school to see how refund policies apply to federal aid at the school.

In general, you must repay your loan even if you don’t graduate, can’t find work in your field of study, or are dissatisfied with the education program.

Disability, bankruptcy, or death.

•    Your loan may be discharged if you are determined to be totally and permanently disabled and you meet certain requirements during a 3-year conditional discharge period. To apply for this discharge, you must provide a physician’s statement that you became totally and permanently disabled after the loan was made. See your copy of the Borrower’s Rights and Responsibilities Statement for more information on the procedures and conditions for this discharge.
•    Your loan may be cancelled if it is discharged in bankruptcy. This is not an automatic process—you must prove to the bankruptcy court that repaying the loan would cause undue hardship.
•    For a student who dies, the loan will be cancelled if a family member or
other representative provides an original or a copy of the original or
certified copy of the death certificate to the Direct Loan Servicing Center.


What are the consequences of defaulting?

Borrowers who fail to make a payment on time are considered delinquent on their Direct Consolidation Loans. Borrowers who do not make payments for 270 days are in default. Defaulting has severe and long-lasting consequences, as follows:

  • The Department of Education can immediately demand repayment of the total loan amount due.
  • The Department of Education will attempt to collect the debt and may charge collection costs.
  • The Department of Education reports defaulted loans to national credit bureaus, damaging borrowers’ credit ratings and, making it difficult for borrowers to make purchases such as cars or homes.
  • Borrowers with loans in default are ineligible for Title IV student aid.
  • Borrowers with loans in default are ineligible for deferments
  • The Internal Revenue Service can withhold borrowers’ Federal income tax refunds.
  • Borrowers’ wages may be garnished.

It is important that borrowers with Direct Consolidation Loans stay in touch with the Direct Loan Servicing Center. Default can occur when borrowers fail to keep the Direct Loan Servicing Center up to date on address and name changes, causing billing statements to go astray. In addition, the Direct Loan Servicing Center can offer alternatives when borrowers have trouble making monthly payments. Borrowers may apply for a deferment or forbearance, or change repayment plans.


What are the differences between FFEL Consolidation vs. Direct Consolidation?

Borrowers are encouraged to check with their existing loan holders or servicers to find out about consolidation options available to them. Some differences between programs may include:
·         Minimum balances or numbers of loans required to apply.
·         Types of loans that can be consolidated.
·         A prior account relationship may be required.
·         Repayment incentive benefits to encourage good repayment behavior.
·         The convenience of electronic debit, ensuring that monthly payments are made on time.
·         Repayment plans offered, such as payments sensitive to a borrower’s income, family size, and total education indebtedness.


What are the repayment plans?

When repaying a Direct Consolidation Loan, you may choose from as many as four repayment plans with various term selections.

• Standard Repayment Plan: You will pay a fixed amount each month until your loan(s) are paid in full. Your monthly payments will be at least $50 for up to 10 to 30 years, based on your total education indebtedness.
• Graduated Repayment Plan: Your minimum payment amount will be at least equal to the amount of interest accrued monthly. Your payments start out low, and then increase every two years for up to 10 to 30 years, based on your total education indebtedness.
• Extended Repayment Plan: To be eligible, your Direct Loan balance must be greater than $30,000 and you will have up to 25 years to repay your loan(s). You have two payment options:
• Fixed Monthly Payment Option -You will pay a fixed amount each month until your loans are paid in full. Your monthly payments will be at least $50.
• Graduated Monthly Payment Option – Your minimum payment amount will be at least $50 or the amount of interest accrued monthly, whichever is greater. Your payments start out low, and then increase every two years.
• Income Contingent Repayment Plan (ICR):  Monthly payments that are based on a borrower’s
annual income, Direct Loan balance and family
size, and are spread over a term of up to 25
years.
• Income-Based Repayment Plan (IBR): Monthly payments that are based on annual income and family size, and spread over a term of 25 years. You must experience a partial financial hardship to initially select this plan and once you select this plan you cannot change to any other plan except the Standard Plan.

If you consolidate more than one loan type (subsidized, unsubsidized and PLUS) you will have one Direct Consolidation Loan with up to two parts: Direct Subsidized and Direct Unsubsidized (which includes PLUS) Consolidation Loans. Even with up to two parts of each Direct Consolidation Loan, you make only one payment each month.
If (1) you have not chosen a repayment plan, (2) you are not required to pay using ICR, and (3) we determine that you currently have other active Direct Loans; we may assign your new Direct Consolidation Loan(s) to the same repayment plan as your active loan(s). If you do not currently have active Direct Loan(s), we may assign your new Direct Consolidation Loan(s) to the Consolidation Standard Repayment Plan. You can change at a later date to other plans for which you may be eligible.
Standard Repayment Plan
Under this plan, you will pay a fixed amount of at least $50 each month for up to 10 to 30 years, based on your total education indebtedness. This plan may result in lower total interest paid when compared to repayment under one of the graduated plans. (See Example A and the Standard and Graduated Repayment Plan Repayment Periods Table)
Graduated Repayment Plan
Under this plan, you will pay a minimum payment amount at least equal to the amount of interest accrued monthly for up to 10 to 30 years, based on your total education indebtedness. Your payments start out low, and then increase every two years. Generally, the amount you will repay over the term of your loan will be higher under the Graduated Repayment Plan than under the Standard Repayment Plan. This plan may be beneficial if your income is low now but is likely to steadily increase. (See Example B and the Standard and Graduated Repayment Plan Repayment Periods Table)
Extended Repayment Plan
To qualify for this plan, your Direct Loan balance (your new Direct Consolidation Loan Amount plus other Direct Loans) must be greater than $30,000. Your plan options are:
Fixed Monthly Payment Option – Under this plan, you will pay a fixed amount of at least $50 each month for up to 25 years. Repayment under this plan will result in lower total interest paid when compared to graduated plans with similar terms. (See Example C and the Extended Repayment Plan Repayment Periods Table)
Graduated Monthly Payment Option – Under this plan, you will pay a minimum payment amount of at least $50 or the amount of interest accrued monthly, whichever is greater, for up to 25 years. Your payments start out low and then increase every two years. Repayment under this plan may provide lower initial monthly payments, although the total interest paid may be greater when compared to plans with similar terms with fixed payments. This plan may be beneficial if your income is low now but is likely to steadily increase. (See Example D and the Extended Repayment Plan Repayment Periods Table)
**Extended repayment terms are available to Direct Loan borrowers with no outstanding principal or interest balances as of October 7, 1998 and with more than $30,000 in Direct Loans.
Income Contingent Repayment (ICR)
The ICR/IBR Plan gives borrowers the flexibility to meet their obligations without causing them financial hardship. Monthly payments are based on borrowers’ annual Adjusted Gross Incomes (AGI), loan balance and family sizes. Income is obtained from the Internal Revenue Service (IRS) or from an Alternative Documentation of Income Form (discussed below) submitted by the borrowers. (See Example E).
To participate in the ICR Plan, borrowers (and if married, their spouse) must sign the Income Contingent and Income-Based Repayment Plan Consent to Disclosure of Tax Information Form. This authorizes the IRS to release borrowers’ income information to the Department of Education to calculate monthly payments. Monthly payments are adjusted annually to reflect inflation, family size and income.
Monthly payment amounts for some borrowers may not be enough to cover the interest accruing on their loans. This situation is referred to as negative amortization. In such cases, the unpaid interest is capitalized and added to the principal balance once per year. The amount added to the principal balance will never exceed 10 percent of the original Direct Consolidation Loan amount. Once this capitalization limit has been reached, interest continues to accrue but is not capitalized. The capitalization limit does not apply to interest that accrues during deferment or forbearance.
Under this plan, it is possible a borrower will not make payments large enough to pay off his or her loans in 25 years. If loans are not fully repaid after 25 years of repayment, any unpaid amount will be forgiven. The maximum 25-year repayment period may include prior periods of repayment under certain other repayment plans, and certain periods of economic hardship deferment. The forgiven amount may be considered taxable income.

Alternative Documentation of Income
Alternative documentation of income is required for Direct Consolidation Loan borrowers if their underlying loans were in the first or second year of repayment when they were consolidated. Alternative documentation includes pay stubs, canceled checks, or, if these are unavailable, signed statements explaining income resources.

Income-Based Repayment (IBR) Plan

While you consolidate your loan(s), you have a new repayment plan option called the Income-Based Repayment (IBR) Plan. The IBR Plan bases your monthly payment on your yearly income and you must have a partial financial hardship to enroll. This plan is an alternative to the Income Contingent Repayment (ICR) Plan and is designed to make repaying education loans easier for students who intend to pursue jobs with lower salaries, such as careers in public service. It does this by capping the monthly payments at 15 percent of your discretionary income (the difference between your Adjusted Gross Income and 150% of the poverty guideline for your family size and state of residence). If you are married and file taxes jointly, both your and your spouse’s income will be considered when calculating your IBR payment amount. If you are married AND file taxes separately, only your income will be considered when calculating your IBR payment amount. Like ICR, after 25 years of qualifying repayment, any remaining balance on the loan will be forgiven, but you may have to pay taxes on the amount forgiven.
To participate in the IBR Plan, you must authorize the U.S. Internal Revenue Service (IRS) to inform the U.S. Department of Education (the Department) of the amount of your income.
NOTE: The IBR Plan is not available for parent Direct PLUS Loans, Direct PLUS Consolidation Loans, or Direct Consolidation Loans that repaid parent Direct PLUS Loans or Federal Family Education Loan Program PLUS Loans made to parent borrowers. If you choose to include any ineligible loans, the resulting new Consolidation Loan cannot be repaid under the IBR Plan.

Alternative Documentation of Income
It is recommended that you provide Alternative Documentation of Income with your consolidation application. If you submit the income information with the application and we determine you are qualified for a partial financial hardship, you may be able to start repaying your new consolidation loan under the IBR Plan immediately. Otherwise, Direct Loan Servicing will request that you submit your income information and, until it is received, your initial monthly payment amounts will be based on the Standard repayment plan. Alternative documentation includes pay stubs, canceled checks, or, if these are unavailable, signed statements explaining income resources.


What is cancellation?

Cancellation rewards individuals who perform certain types of public service or are employed in certain occupations. For each complete year of service, a percentage of the loan may be canceled. The total percentage of the loan that can be canceled depends on the type of service performed—in some cases 100% of a loan may be canceled. You cannot receive a refund of money you paid toward a loan even if you were eligible, or eventually become eligible, to cancel that portion of the loan.


What is default and what are the consequences?

Borrowers who fail to make a payment on time are considered delinquent on their Direct Consolidation Loans. Borrowers who do not make payments for 270 days are in default. Defaulting has severe and long-lasting consequences, as follows:
·         The Department of Education can immediately demand repayment of the total loan amount due.
·         The Department of Education will attempt to collect the debt and may charge collection costs.
·         The Department of Education reports defaulted loans to national credit bureaus, damaging borrowers’ credit ratings (7 year min.) and, making it difficult for borrowers to make purchases such as cars or homes.
·         Borrowers with loans in default are ineligible for Title IV student aid.
·         Borrowers with loans in default are ineligible for deferments or forbearances.
·         The Internal Revenue Service can withhold borrowers’ Federal income tax refunds.
·         Borrowers’ wages may be garnished.
·         Seizure of portion of any federal payment ( ex: retirement annuities, social security, Medicare, payments made to you as a contractor/vendor…)
·         May lose state occupational license.
·         May be unable to rent an apartment.
·         May be turned down for employment.

It is important that borrowers with Direct Consolidation Loans stay in touch with the Direct Loan Servicing Center. Default can occur when borrowers fail to keep the Direct Loan Servicing Center up to date on address and name changes, causing billing statements to go astray. In addition, the Direct Loan Servicing Center can offer alternatives when borrowers have trouble making monthly payments. Borrowers may apply for a deferment or forbearance, or change repayment plans.


What is deferment?

A deferment is a temporary suspension of a borrower’s monthly loan payment.
There are many different types of deferments available.

During deferment of subsidized loans, principal payments are postponed and
interest does not accrue.

During deferment of unsubsidized loans, principal payments are postponed but interest continues to accrue. Accrued unpaid interest will be added to the principal balance (capitalized) of the loan(s) at the end of the deferment period. This will increase the amounts borrowers owe.


What is next?

Stay in touch with the Direct Loan Servicing Center—let them know if you’ve changed your name or permanent address, and make sure that they know when you’ve completed your educational program or transferred to another school.


What loans can I consolidate?

·    Stafford Loans
·    PLUS Loans
·    Perkins Loans
·    Health Professions Student Loans (HPSL)
·    Health Education Assistance Loans (HEAL)
·    Nursing Student Loans (NSLP)
·    National Direct Student Loans (NDSL)
·    SLS Loan (formerly ALAS Loans)
·    Federal Insured Student Loan (FISL)

Note: In general, you can consolidate only once and some loans may not be eligible for federal loan consolidation. Check with your lender if you have a loan different from ones listed here.


What special conditions apply if I am in repayment and just consolidating now?

Borrowers in repayment who want to consolidate their Federal education loans should continue making payments until their loan holder notifies them that their loans are paid in full.


When can I expect my first bill?

Borrowers will receive bills from the Direct Loan Servicing Center within 60 days of the first disbursement of their Direct Consolidation Loan.


Who is eligible for a Direct Consolidation Loan?

To qualify for Direct Consolidation Loans, borrowers must have at least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace, repayment, deferment, or default status. Loans that are in an in-school status cannot be included in a Direct Consolidation Loan.

Borrowers can consolidate most defaulted education loans, if they make satisfactory repayment arrangements with their current loan holder(s) or agree to repay their new Direct Consolidation Loan under the Income Contingent Repayment Plan.
Borrowers who do not have Direct Loans may be eligible for a Direct Consolidation Loan if they include at least one FFEL Loan and have been unable to obtain a Federal Consolidation Loan with a FFEL consolidation lender or have been unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms acceptable to them or intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.

Borrowers who have only a Direct Consolidation Loan cannot consolidate again unless they include an additional loan.

NOTE: The Direct Loan Servicing Center has information on the Public Service Loan Forgiveness Program.

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