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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 2020!
|1.24% – 11.98%1||Undergraduate, Graduate, and Parents|
|1.25% – 9.44%*,2||Undergraduate and Graduate|
|1.24% – 12.49%3||Undergraduate and Graduate|
|1.24% – 11.44%4||Undergraduate, Graduate, and Parents|
|1.90% – 11.66%5||Undergraduate and Graduate|
|2.72% – 13.00%6||Undergraduate and Graduate|
|3.52% – 9.50%7||Undergraduate and Graduate|
|* 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.
1 Important Disclosures for College Ave.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, 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 7/1/2020. Variable interest rates may increase after consummation. Lowest advertised rates require selection of full principal and interest payments with the shortest available loan term.
2 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
3 Important Disclosures for Discover.
Lowest APRs shown for Discover Student Loans are available for the most creditworthy applicants for undergraduate loans, and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.
4 Important Disclosures for Earnest.
5 Important Disclosures for SoFi.
UNDERGRADUATE LOANS: Fixed rates from 4.23% to 11.76% annual percentage rate (“APR”) (with autopay), variable rates from 1.90% to 11.66% APR (with autopay). GRADUATE LOANS: Fixed rates from 4.13% to 11.83% APR (with autopay), variable rates from 1.80% to 11.73% APR (with autopay). MBA AND LAW SCHOOL LOANS: Fixed rates from 4.11% to 11.81% APR (with autopay), variable rates from 1.78% to 11.72% APR (with autopay). PARENT LOANS: Fixed rates from 4.23% to 11.26% APR (with autopay), variable rates from 1.90% to 11.16% APR (with autopay). For variable rate loans, the variable interest rate is derived from the one-month LIBOR rate plus a margin and your APR may increase after origination if the LIBOR increases. Changes in the one-month LIBOR rate may cause your monthly payment to increase or decrease. Interest rates for variable rate loans are capped at 13.95%, unless required to be lower to comply with applicable law. Lowest rates are reserved for the most creditworthy borrowers. If approved for a loan, the interest rate offered will depend on your creditworthiness, the repayment option you select, the term and amount of the loan and other factors, and will be within the ranges of rates listed above. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Information current as of 07/10/2020. Enrolling in autopay is not required to receive a loan from SoFi. SoFi Lending Corp., licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. NMLS #1121636 (www.nmlsconsumeraccess.org).
6 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 applicant’s ability to supply the necessary information for submission.
7 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restrictions. Loans are offered through CommonBond Lending, LLC (NMLS #1175900).