Borrowers should understand potential financial consequences before consolidating or refinancing loans.
There are a number of programs that can help people who are behind on their federal student loans get back on track. And through Dec. 31, 2023, there's additional aid through the Education Department's "Fresh Start" initiative. Some things you should know about Fresh Start are:
You can now get federal grants and loans to go back to school.
COVID-19 collections are put on hold until 2023. This means you won't get collection calls or have your wages taken away. Also, your federal payments like tax refunds and Social Security benefits won't be withheld.
Usually, you can only rehabilitate one loan at a time. However, during Fresh Start, you can rehabilitate all of your loans without it counting toward the one-time limit.
If you've defaulted on your federal student loan debt, here are your options.
Choose to fix up your loan.
Student loan rehabilitation can get you out of default and restore your loans to good standing. Through rehabilitation, you must pay your student loans on time for a certain number of payments in a row. You can start to fix your loan by getting in touch with your loan servicer. You can find out who your loan servicer is by going to the Federal Student Aid website.
Consolidate Your Student Loans
When you combine one or more federal student loans into a Direct Consolidation Loan, this is called "student loan consolidation." Consolidating your loans can help you get out of default, lower your monthly payment, and make it easier to pay off your debts. To consolidate a loan that has gone into default, you must either make three consecutive monthly payments before consolidating or sign up for a repayment plan for your consolidated loan that is based on your income.
Pay the full amount due.
Most people who are having trouble paying back their student loans can't afford to pay off the full balance. If you had trouble making your monthly payments before you stopped, it's unlikely that you'll be able to pay off your debt all at once. However, repaying the entire past-due amount will remove you from default and restore your credit.