Student Loan Consolidation: What You Need To Know to Avoid Student Loan Default

Understanding student loan consolidation can be the difference between financial security with strong credit scores, and falling into loan default and the whole mess of financial difficulties that come with it. To avoid student loan default, you need to understand how student loans work, what defaulted student loans can do to your financial situation, and how student loan consolidation can help. Here are the basic facts that are most important to your understanding these issues, and how to go about acting on this knowledge.

About Student Loans

So, what exactly qualifies as a student loan? Just because you came to owe money while you were a student doesn’t mean it qualifies as a student loan. For example, credit card debt from college doesn’t qualify. An official student loan is different from other debt because it is given only to students (or parents supporting students), usually has a lower interest rate than other loans, and does not require payment (but does accrue interest) while the student is still in school.

Student loans come from different sources: some from the federal government, and some from private sources. Having multiple student loans from the same or different lenders is what makes student loan consolidation necessary.

Student Loan Default

After 6 or 12 months of leaving school, you will have to start paying back your student loan. If you do not make payments on your student loans when payments are due, your loan will be classified “delinquent,” and then will move into “default” if you do not make a payment for 27 days (or otherwise fail to meet payment requirements). The best thing to do is pursue student loan consolidation to avoid going into default on student loans.

Student loan default means that since you are not paying your lender back, your lender is allowed to take legal action to get back what you owe them. If you have several loans and are current on some but behind on others, you may actually have a mix of active and defaulted student loans.

Going into default on student loans is a very bad thing. It hurts your credit score for several years, it adds penalties causing you to owe even more money to your lender, and it means you will be limited on the federal financial aid you can receive for some time in the future.

Student Loan Consolidation

Many former students who are struggling financially end up avoiding student loan default by consolidating student loans that they owe. Consolidating multiple student loans means that instead of several payments each month, you make only one payment. The money you pay each month is reduced, but because you’re making lower payments, it takes longer to repay all of your student debt. Therefore, more interest accrues over time and you end up paying more money total.

If your student loans are through a private lender and have nothing to do with the federal student loan program, you need to contact your lender directly and ask them to work with you on loan consolidation.

If your student loans are federal, you can apply for loan consolidation online through the Department of Education’s “Federal Direct Consolidation” website. There are also many private websites that will help walk you through student loan consolidation and offer advice on the best choice for you based on your options, qualifications, and financial situation.

You don’t need to default on student loans: consolidating student loans can help keep your credit score healthy and keep you from acquiring additional debt. Understanding student loan consolidation is the first step in keeping your student loan debt from getting out of control.

Student Loan Consolidation: What You Need To Know to Avoid Student Loan Default

Leave a comment