What to Do About a Defaulted Loan

It has often been said that a private student in unable to consider consolidation once their loan has defaulted. This is not true, it is possible as long as you can make a proper arrangement with the loan's holder or agree that you will repay the new consolidation loan under a schedule that is quite income-sensitive.

There is a Way You Wouldn’t Be Eligible

The only way you wouldn't be eligible to consolidate your defaulted loan is if a court of law has issued a judgment in the matter, or if you've been issued a wage garnishment.

What to Do If You Are Eligible

As aforementioned, there are ways you can consolidate your defaulted loans if you are deemed eligible. Consolidating your loans gives you the chance to pay off the defaulted loan with payments that are affordable and within your budget. There are various programs under which you can achieve consolidation of a defaulted loan for a private student. They include the Federal Family Education Loan consolidation program, also referred to as FFEL, and the William D. Ford Direct Loan Program. You can even opt for a loan rehabilitation program.

Defaulted Loans Can Hurt Your Credit

The bad thing about a defaulted student loan is that your credit can be greatly affected. Consolidation of your loan can greatly help with this problem. The FFEL consolidation program and the William D. Ford Direct Loan Program are two wonderful solutions. They will help you to establish monthly payments that are best for you, while paying off your defaulted loan in a timely manner. Once you show that you are making an effort to pay off the defaulted loan, and are doing so on time each month, your credit report should start looking much better. The only way to successfully remove this negative mark on your credit report is to fully pay off the loan in a timely fashion.

There is Another Option

If you aren't eligible to consolidate your defaulted loan, but have a credit card with a large, open credit line, you can opt to pay your loan with your credit card. When you learn that you've defaulted on your private student loans, your first thought is to panic. However, if you are eligible to consolidate, you should have no problem paying off the loan and restoring your good credit.