How Default Consolidation Works
You can exit default by consolidating your defaulted federal loans into a new Direct Consolidation Loan and enrolling in an income-driven repayment plan. Unlike rehabilitation, consolidation can be completed in 30-60 days rather than 10 months. You must agree to repay under an IDR plan or make 3 consecutive voluntary payments before consolidating.
Apply at studentaid.gov. Select the defaulted loans for consolidation and choose an IDR plan. Once the consolidation processes, the defaulted loans are paid off and replaced with a new Direct Consolidation Loan in good standing.
Consolidation vs. Rehabilitation
Consolidation advantages: Much faster (weeks vs. months), stops garnishment sooner, immediately restores aid eligibility. Consolidation disadvantages: Does NOT remove the default from your credit report (the old default stays for 7 years), any unpaid interest is capitalized (added to principal), and you can only consolidate out of default once.
Rehabilitation advantages: Removes default from credit report, lower collection fee impact. Rehabilitation disadvantages: Takes 10 months, garnishment continues during rehabilitation, can only be used once.
Many borrowers choose based on urgency: if garnishment is devastating your finances, consolidate first to stop it quickly. If credit repair is the priority and you can tolerate 10 months, rehabilitate.
After Consolidation
Once consolidation is complete: 1. Confirm enrollment in your chosen IDR plan. 2. Set up autopay to prevent future default. 3. If you work for a PSLF-qualifying employer, submit the Employment Certification Form. 4. Begin your forgiveness clock -- payments on the new consolidation loan count toward IDR forgiveness from the consolidation date.
Note: consolidation resets your IDR forgiveness clock. Pre-consolidation payments on the defaulted loans don't count toward the 20-25 year forgiveness period on the new consolidation loan. The IDR Account Adjustment may have credited some historical time, but going forward, the clock starts fresh.
Frequently Asked Questions
Can I consolidate private student loans to exit default?
No. Direct Consolidation Loans are only available for federal student loans. Private student loans cannot be consolidated into federal loans. For private loan default, your options are negotiation, settlement, or bankruptcy.
Will consolidation stop my tax refund from being seized?
Once the consolidation is complete and the defaulted loan is paid off, the Treasury offset should stop. However, if your refund is seized before the consolidation processes, you may need to request a return of the offset from the Department of Education.
Can I consolidate out of default more than once?
You can only consolidate each loan out of default once. If you default on the consolidation loan itself, rehabilitation is your only option. This makes it critical to stay current on the consolidation loan by enrolling in an affordable IDR plan.
Check your bankruptcy discharge eligibility with our free screening tool.
Free Discharge Screener