Loan consolidation streamlines your payments by combining multiple loans into one loan with one monthly payment. There are potential benefits and drawbacks to loan consolidation:
- Often reduces your monthly payments
- Access to Income-Driven Repayment Plans and Forgiveness Options
- Offers a fixed interest rate
- Can result in a longer repayment period with more interest payments
- Losing out on certain borrower benefits
Visit the loan consolidation section of the studentaid.gov website to read more information.
Loan delinquency, or falling behind on payments, can become a major problem if your enrollment level drops below half-time, or if you experience difficult life events. Your loan can become delinquent the first day after you miss a student loan payment. Here are some ways that you can avoid becoming delinquent.
Deferment means that your loan repayment is temporarily postponed if you meet certain requirements. The most common reasons for deferment include:
- Being enrolled in graduate school on at least at least half-time or the equivalent
- Loss of job, or inability to find a job
- Extreme economic hardship
- Serving in the military service on active duty during war, or a national emergency or military operation
If you took out Federal Perkins or Direct Subsidized Stafford Loans, you do not have to pay principal or interest during a deferment period. If you took out Federal Direct Unsubsidized Stafford or Federal Graduate PLUS loans, you are responsible for paying the interest that accrues during a deferment period.
You must take certain steps in order to defer your loan officially. Learn more about deferments.
If you are not eligible for a deferment, your lender may grant you forbearance for a specific period of time. Forbearance is when your loan payments are postponed or reduced because you are experiencing financial difficulty due to hardship or illness. Forbearance is granted at your loan servicer's discretion. Learn more about forbearance.
The interest for your Federal Direct Unsubsidized Loan and Federal Direct Graduate PLUS Loan will accrue while you are in school and during your repayment period. Therefore, you should pay any interest that accrues, whenever possible, to avoid capitalization. Any unpaid interest incurred is capitalized resulting in an increase to the outstanding principal balance on your loan. Then, your interest is recalculated based on that higher principal balance, which means you’ll pay more in your loans over time. In some cases, this can also cause an increase to your monthly payment.
We want to help you avoid default whenever possible, and we know that sometimes unexpected things happen. If you lose your job, or experience another major change in finances, contact your lender immediately. They can suggest options such as changing your repayment plan, adjusting your payment due date, or getting a deferment or forbearance. These options are often better for your financial situation than default.
If you become delinquent on your student loans, your loan will be considered in default. The consequences of a student loan default can include:
- The lender requests immediate payment in full for the entire balance, including late and collection fees
- You become ineligible for any additional federal financial student aid
- You are no longer eligible to pursue options such as deferment or forbearance as well as other benefits like choosing a repayment plan
- The federal government can take legal action against you
- Your wages may be garnished
- Your Social Security or disability income, and/or your entire state or federal tax refund may be seized
- You may not be eligible to work in certain state and federal jobs
- Your credit history will be negatively impacted
Whenever possible, try to avoid defaulting on your loans. Your lender is the best person for you to contact for help.