Consolidating Federal Student Loans

Another option for resolving federal student loan defaults is federal student loan consolidation. The way this works, is a borrower obtains a new federal loan. The new federal loan, then pays off the old federal loan and begins to make payments on the new federal student loan. However, you do not only have to consolidate defaulted federal student loans, non-defaulted federal loans can also be consolidated.


In this CLE class video clip, Adam explains ways of consolidating your federal student loans.

Student Loan Debt Law CLE

If the borrower does decide to consolidate their federal student loans, and there are any loans in default, the borrower is required to select the income-based repayment plan. For most borrowers that are in default, the income driven plan is best anyway, though if you do not have any defaulted loans, a borrower can chose any of the other repayment plans available.

Federal student loan consolidation is a shorter process than the loan rehabilitation programs and only takes about 30 to 90 days to complete. On a borrower’s credit report, the old student loans are marked “paid in full”, and the new loan is listed separately.

Collections costs involved in loan consolidation will get capped at 18.5%, more than the 16% under rehabilitation, but evens out in the end, as rehabilitation runs 9 to 10 months. Like rehabilitation, loan consolidation is a one shot deal. If a borrower goes back to school and gets another student loan, they can not consolidate the new loan with an already consolidated loan.

If you choose to consolidate your federal student loans into a private loan, you can’t get back in and lose access to all of the safety nets you have with the federal student loan system. The lower interest rates make it tempting in many cases to do this, yet one must remember this is a one say street out of the federal loan program. Once you consolidate, or turn a federal loan into a private loan, that’s where the loan stays until it is paid.