Best way to attack Student Loans in default

[premed428]

Applied for and received a student loan of 15k a few years back.

 

I then dropped out of college to pursue my lifelong dream of painting nude women on the beaches of Tahiti.

 

I differed my loans for about a year.

 

 

It has been about 1 1/2 years since my defferment stopped. My credit report shows a year of non payment.

 

 

 

If you have been in a simliar situation, please advise on what to do?

 

 

I was thinking of contacting the loan lady (who keeps sending me bills that I use for birdcage liner every few weeks) and asking her if she will take off the "no pays" off my credit report, I will start giving her whatever she is requesting I pay per month.

 

 

I read somewhere on here that it is impossible to do the 1-2 punch on a student loan, as those types of loans are exempt?

 

 

 

I do not want to weasel out of this debt....but at the same time, I think it is really affecting my credit score alot worse than the paid settlements or CO on my credit report.

[darth_fico]

Are you in default? Defaulted student loans will tank your score.

 

There is no SOL on student loans. 1-2 Punch is not an option.

 

If they are in default, you need to rehab them. Whatever you do, do NOT consolidate before rehab.

[premed428]

Are you in default? Defaulted student loans will tank your score.

 

There is no SOL on student loans. 1-2 Punch is not an option.

 

If they are in default, you need to rehab them. Whatever you do, do NOT consolidate before rehab.

 

Yes, I am in default.

 

Can you elaborate on "rehabbing" student loans? What exactly does that involve?

 

I just have one loan out. 15k. I have not paid one cent on the money I owe.

 

 

 

From what I am reading on CB....my only option is to contact the loan company and tell them I am going to start paying them however much they want me to pay monthly?

 

And if I start paying this month.....will my credit score rise? Or will it take 1-2 years of steady realiable payments on my student loan to make my credit score rise?

Edited January 21, 2007 by premed428

[chriswufgator]

That is unfortunately correct.

 

Student loans are a unique beast.

 

They are not subject to SOLs and also are not dichargeable in bankruptcy.

 

So they know they'll get their money eventually when you want to buy a house or a car or something, and thus they have absolutely NO incentive to work anything out with you, except of course a payment plan.

 

You need to call and arrange to start making payments again. Hate to say it, but it really is your only option.

[chriswufgator]

"Rehabbing" just refers to restarting payments, when it comes to student loans.

 

It's not like a card or something, where you're 'rehabbing' a charged off account.

 

SLs just sit and sit and sit. You pay them or you don't, but they'll always be there waiting for you. They don't go away.

[premed428]

That is unfortunately correct.

 

Student loans are a unique beast.

 

They are not subject to SOLs and also are not dichargeable in bankruptcy.

 

So they know they'll get their money eventually when you want to buy a house or a car or something, and thus they have absolutely NO incentive to work anything out with you, except of course a payment plan.

 

You need to call and arrange to start making payments again. Hate to say it, but it really is your only option.

 

 

Will my FICO scores instantly jump in a few weeks after I start making my first payments? How long can I expect to wait until my FICO scores go higher from making payments on my student loan?

 

It is only $200 a month that they want, so I can afford it.

 

 

Do you think they will agree to deleting the months of "no pay" off my credit report if I tell her I want to start making payments?

[darth_fico]

To rehab your loans, you will enter into an agreement (usually with the CA that is hounding you). You will make payments for a yesr (maybe less, depends on agreement). The payments can be fairly small, you negotiate that up-front. Paying off the loan immediately will NOT rehab the loan. You MUST make payments for the duration.

 

Then, the loan will be sold to another lender. Your loan will show current/paid as agreed, and all of your lates will be gone. It will show perfect history since the day you took out the original loan. Only when this has been done will your credit report cease to show the default.

[jcs0527]

We worked out that after one year of good payments they would show my husband's account as never late.

 

You just have to see what you can work out. The good thing is that they keep their promises.

[premed428]

Ouch....my paychecks are going to be considerably smaller for the next year or so.

Edited January 21, 2007 by premed428

[darth_fico]

Trust me, rehabbing your student loans will do amazing things for your credit.

 

It will also keep you from having your income tax refunds withheld, wages garnished, and keep you off the blacklist for government jobs.

 

And the sense of relief and accomplishment is beyond words.

[premed428]

Trust me, rehabbing your student loans will do amazing things for your credit.

 

It will also keep you from having your income tax refunds withheld, wages garnished, and keep you off the blacklist for government jobs.

 

And the sense of relief and accomplishment is beyond words.

 

 

Well....all fine and dandy, but I need a car loan ASAP. My current car is on it's last legs, so I gotta figure out the quickest fix I can.....Even if that means offering several hundreds of dollars per month for a few months?

 

I wonder if they will accept an offer like that...

 

FICO's are in the low 500's.

 

So this is my motivation.

Edited January 21, 2007 by premed428

[darth_fico]

Trust me, rehabbing your student loans will do amazing things for your credit.

 

It will also keep you from having your income tax refunds withheld, wages garnished, and keep you off the blacklist for government jobs.

 

And the sense of relief and accomplishment is beyond words.

 

 

Well....all fine and dandy, but I need a car loan ASAP. My current car is on it's last legs, so I gotta figure out the quickest fix I can.....Even if that means offering several hundreds of dollars per month for a few months.

 

FICO's are in the low 500's.

 

So this is my motivation.

 

 

Your interest rates my not be great, but most dealers will still finance you with default student loans as long as you don't have a repo.

[macuser]

Rehabilitation for student loans is regulated by the federal govt and is currently nine months of agreed upon payments, never late. Never late is within 15 dys of the pmt due date; you can't pay off ahead of schedule or make late pays. You don't have to give yr bank info. You can send money orders if you want. They have to rehab the loan if you specifically ask for rehabilitation but they often try to say your loan is not eligible - hogwash. If you had a govt guaranteed loan, it's eligible.

 

The derog info on the collection TL should disappear - deletion of the complete TL - but if the original lender is on the report, you may have to live with their negative TL until the seven year reporting period runs out. A guaranty agency TL should disappear. They are not the original lender.

 

Negotiate for yr best deal. They have to give you a reasonable and affordable payment, they have to give you the nine months pmt plan, and they have to delete the collection/guaranty agency TL, per federal regs. Anything more than that is negotiated (like forgiven collection fees, etc).

 

Do not consolidate before rehabbing or the collection/guaranty agency TL will remain. It only deletes with a rehab. The TL will not go away before the rehab is completed no matter what, so you're living with it that long at a minimum.

Edited January 21, 2007 by macuser

[premed428]

Rehabilitation for student loans is regulated by the federal govt and is currently nine months of agreed upon payments, never late. Never late is within 15 dys of the pmt due date; you can't pay off ahead of schedule or make late pays. You don't have to give yr bank info. You can send money orders if you want. They have to rehab the loan if you specifically ask for rehabilitation but they often try to say your loan is not eligible - hogwash. If you had a govt guaranteed loan, it's eligible.

 

The derog info on the collection TL should disappear - deletion of the complete TL - but if the original lender is on the report, you may have to live with their negative TL until the seven year reporting period runs out. A guaranty agency TL should disappear. They are not the original lender.

 

Negotiate for yr best deal. They have to give you a reasonable and affordable payment, they have to give you the nine months pmt plan, and they have to delete the collection/guaranty agency TL, per federal regs. Anything more than that is negotiated (like forgiven collection fees, etc).

 

Do not consolidate before rehabbing or the collection/guaranty agency TL will remain. It only deletes with a rehab. The TL will not go away before the rehab is completed no matter what, so you're living with it that long at a minimum.

 

I'm going to run out to the .99 cents store and buy a bunch of duct tape and tape my little Nissan up so tight that it will last me until October of this year.

 

I will call the lady this week and ask her for a "rehab"

 

 

thanks to all who replied in this thread.

[sarg]

Higher Education Act states at least 12 months of payments on time to be considered a rehab. Don't know where the 9 months is coming from, unless the Act was amended. I would google this to be sure (i got 12 months). On about $70k, my agreement ending 7/2005 was 12 months in $750/month payments and all derogs where removed from the three CRA's. Collection fees were removed as well. I consolidated with Citi right after rehab was complete. As others have posted, DO NOT consolidate out of default, it will not be removed from CRA's. Check out the student forum.

 

When I defaulted my FICO's were high 400's low 500's. My friend filed BK7 and had higher scores than me, WTF? Extremely difficult to finance a car when mine died. Auto loans could run you like 25% plus a huge down payment. Luckily, I live in a state with an interest rate cap of 18% on auto loans (in my siggy). Get that SL default fixed before you need a car! Good luck.

Edited January 21, 2007 by sarg

[macuser]

Higher Education Act states at least 12 months of payments on time to be considered a rehab. Don't know where the 9 months is coming from, unless the Act was amended. I would google this to be sure (i got 12 months). On about $70k, my agreement ending 7/2005 was 12 months in $750/month payments and all derogs where removed from the three CRA's. Collection fees were removed as well. I consolidated with Citi right after rehab was complete. As others have posted, DO NOT consolidate out of default, it will not be removed from CRA's. Check out the student forum.

 

When I defaulted my FICO's were high 400's low 500's. My friend filed BK7 and had higher scores than me, WTF? Extremely difficult to finance a car when mine died. Auto loans could run you like 25% plus a huge down payment. Luckily, I live in a state with an interest rate cap of 18% on auto loans (in my siggy). Get that SL default fixed before you need a car! Good luck.

Yes, it did change to nine. Recently. My rehab was for nine months. Google rehabilitation "nine consecutive" payments and you will see it now requires nine months.

• Rehabilitation is another option to get your student loan out of default. ... Make nine consecutive, on-time, voluntary, full monthly payments. ...
  

• Eligibility Requirements
   
  
• Make nine consecutive, on-time, voluntary, full monthly payments.
   
  
• Payments must be approved by TG.
   
  
• You cannot pay ahead or remit double payments.
   
  
• The account balance at the time of the rehabilitation must be at least $1,000.
  

Check the web site for your lender or guaranty agency, whoever currently holds the note.

Edited January 22, 2007 by macuser

[NAN101]

Then, the loan will be sold to another lender. Your loan will show current/paid as agreed, and all of your lates will be gone. It will show perfect history since the day you took out the original loan.

 

. With rehab, the default notation will be removed, but NOT the original lates, etc. by the original servicer, lender. The guarantor will remove the default after you complete rehab. Many people think it all goes away after rehab, it doesn't. But, with the default notation gone you're in a much better situation and usually the original lates, etc. (depending on how long you've been in rehab) will be ready to drop due to age or really aren't too much of a "negative" in terms of score.

 

Rehab IS the way to go though!! I wish I had done it sooner. I made my last rehab payment in October and loan was sold in November. The defaults dropped off at the beginning of this month FINALLY!! A couple of old Sallie Mae lates from way back when, but I can deal with that - they're almost dead now anyway.

 

Good luck.

[darth_fico]

Then, the loan will be sold to another lender. Your loan will show current/paid as agreed, and all of your lates will be gone. It will show perfect history since the day you took out the original loan.

 

. With rehab, the default notation will be removed, but NOT the original lates, etc. by the original servicer, lender. The guarantor will remove the default after you complete rehab. Many people think it all goes away after rehab, it doesn't. But, with the default notation gone you're in a much better situation and usually the original lates, etc. (depending on how long you've been in rehab) will be ready to drop due to age or really aren't too much of a "negative" in terms of score.

 

Rehab IS the way to go though!! I wish I had done it sooner. I made my last rehab payment in October and loan was sold in November. The defaults dropped off at the beginning of this month FINALLY!! A couple of old Sallie Mae lates from way back when, but I can deal with that - they're almost dead now anyway.

 

Good luck.

I rehabbed my student loans, and it did all go away.

 

I have no lates or delinquencies showing in any way whatsoever.

 

Just perfect payment history since the very first day of my original loans.

 

[MistakeOfPast]

Information for Financial Aid Professionals

 

www.ifap.ed.gov

 

 

Found great information in this section and even used some of these laws/regulations to have Ombudsman assist in removal of defaulted student loans.

[Gordo]

So what if I won the lottery or my Grandma gave me a big Christmas present, and I have enough money to pay off what I owe completely?

 

I have a defaulted loan of about $3000. I have had about $250/month garnished from my wages for the past few years.

 

Is there a good option if I were able to completely pay off my loan, or is it still best to go through a rehab first?

 

Thanks, good info in this thread.

[LynnInMN]

So what if I won the lottery or my Grandma gave me a big Christmas present, and I have enough money to pay off what I owe completely?

 

Well if you the won the lottery, the student loan would grab onto the money before you even saw it.

 

I have a defaulted loan of about $3000. I have had about $250/month garnished from my wages for the past few years.

 

Few years on a $3k loan?? About 15 months would have you paid off. How much do you still owe??

 

Is there a good option if I were able to completely pay off my loan, or is it still best to go through a rehab first?

 

It really depends on the age of the default and how much you actually owe. You have to have a minimum of $1000 remaining on the loan after the voluntary payments.

Thanks, good info in this thread.

[Gordo]

So what if I won the lottery or my Grandma gave me a big Christmas present, and I have enough money to pay off what I owe completely?

 

Well if you the won the lottery, the student loan would grab onto the money before you even saw it.

 

I have a defaulted loan of about $3000. I have had about $250/month garnished from my wages for the past few years.

 

Few years on a $3k loan?? About 15 months would have you paid off. How much do you still owe??

 

Is there a good option if I were able to completely pay off my loan, or is it still best to go through a rehab first?

 

It really depends on the age of the default and how much you actually owe. You have to have a minimum of $1000 remaining on the loan after the voluntary payments.

Thanks, good info in this thread.

 

$3000 is the amount that I still owe. It was originally an $8000 loan, and I think was maybe close to $10,000 after all of the fees, penalties,...

 

Thanks again.

[Cynic]

Just to clarify something:

 

Rehab removes the most recent default.

It does *not* guarantee removal of all previous delinquencies.

 

Number of payments needed to successfully rehab is determined by loan type.

[premed428]

Ok update:

 

I contacted the student loan company and here is what they told me:

 

At this point, my student loan is not eligable for "rehab" because it has not gone into collections.

 

I have not made payments in over a year since it was due....now it is only showing as seriously late.

 

 

 

They told me the best thing I could do, is start making payments then 6 months to a year after steady payments, I could call them and ask them if they could look into it.

 

Then I was told that the student loan company (who is affiliated with the U.S. Government btw) could not do anything to change the negative remarks on the credit report.

 

I countered with the fact that it makes no financial sense for me to start paying the student loan at this point, if they cannot guarantee me in writing that after 6 months to a year of steady payments, they will erase the negative remark off my credit report.

 

The CSR did make mention that after an account goes into collections, THEN rehab can occur.

 

 

 

Am I getting the runaround here? The guy I spoke with told me that he would "look into if there are any programs like that out there."

 

 

Anyone suggest my next step?

 

 

Is it ok to talk freely with the CSR reps on a student loan? I know you are supposed to play dumb when talking to CRA's or OC's or CA's over the phone (not supposed to talk to them in the first place).

 

thanks

[premed428]

Oh, and I also told the CSR that I had a job....

 

Was that a no-no?