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Dear Student Loan Hero,
I’m thinking about going to law school to have a better career path. However, I have student loans, and one of my old loans is in collections right now. Is there a consolidation or refinance option available so I can have these paid off under a new plan and pursue my education?
Dear Student Loan Borrower,
Unfortunately, if your student loans are in collections, that means they’re in default.
As you probably already know, this default makes you ineligible for federal student loans, which you may need to cover the costs of going back to school. A defaulted student loan also severely damages your credit, making it difficult for you to qualify for private student loans.
The good news is that you’re searching for ways to get out of default. So you’re on the right track. Here are your two options to consider.
Rehabilitate your defaulted student debt. For each loan, the lender will offer you a new monthly payment equal to 15% of your annual discretionary income divided by 12 (but no less than $5 a month). In return, you’ll agree to make nine payments over 10 months. Each payment must be made within 20 days of your due date.
After you’ve satisfied the conditions of your rehabilitation, your loans will no longer be in default and you’ll regain federal financial aid eligibility. The record of your student loan default will also be struck from your credit history. But your late payments leading up to the default will likely remain.
Apply for a Direct Consolidation Loan. If approved, your new Direct Consolidation Loan will pay off and replace your defaulted loans.
Before you can apply, you’ll need to fulfill one of two requirements:
- Make three consecutive and on-time monthly payments on the defaulted loans
- Agree to repay the new Direct Consolidation Loan through an income-driven repayment plan
As soon as your Direct Consolidation Loan is processed, your old loans will be out of default. You’ll also once again be eligible for federal student aid. Going the consolidation route can resolve your default more quickly than rehabilitation, but it won’t remove the default notice from your credit reports.
Each path out of default has its pros and cons, so choose carefully. Once you’re in the clear, you should read up on how to avoid student loan default. That way, you know what your options are to avoid landing in a similar situation down the road.
I hope this helps make sense of your options. Best of luck!
Student Loan Hero
Need a student loan?Here are our top student loan lenders of 2019!
|1 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB). Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. Loan products may not be available in certain jurisdictions, and certain restrictions, limitations; and terms and conditions may apply. Ascent is a federally registered trademark of Turnstile Capital Management (TCM) and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
2 Important Disclosures for CollegeAve.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or Nationwide Bank, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Information advertised valid as of 1/1/2019. Variable interest rates may increase after consummation.
3 Important Disclosures for Discover.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
SunTrust Bank, Member FDIC. ©2019 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
6 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
7 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
8 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|4.25% – 13.25%1||Undergraduate and Graduate|
|4.07% – 12.78%2||Undergraduate, Graduate, and Parents|
|4.84% – 13.49%3||Undergraduate and Graduate|
|4.62% – 11.47%*,4||Undergraduate and Graduate|
|4.38% – 13.38%5||Undergraduate and Graduate|
|5.85% – 6.99%6||Undergraduate and Graduate|
|3.95% – 9.81%7||Undergraduate, Graduate, and Parents|
|4.48% – 12.35%8||Undergraduate, Graduate, and Parents|