Defaulted Student Loan questions

[jcarr492]

I am in default on a Stafford student loan from 1993 for 2650.00 or something close to that. Haven't heard a peep from them about this loan since 2000. Well, I'm wanting to go back to school this summer and applied for financial aid and it came back that I qualify for 976.00 in pell grant, BUT I must clear up the "default" status on my loan before I can recieve any financial aid.

 

I know it won't happen overnight unless I pay it in full..but I don't have the funds to pay in full right now. How do I go about contacting them to make payment arrangements? If I understand correctly, I will have to make six consecutive payments ON TIME before they will move to process the default status to current and that can take up to a year to do. I'm okay with that...I really need to get that default off my credit and pay off the loan anyhow. Its hurting my credit really badly anyhow. Has anyone ever had a defaulted student loan and succesfully gone back in to repayment status? Are the payments expensive? I don't want them to be really high that I can't afford them. Will there be any interest added on to the balance? All the financial aid site showed was what the loan was for...I'm sure there will be interest added on.

 

Julie

[Saria]

First, you should request that your thread be moved to the student loan forum.

 

Yes, there will be interest, and probably collection fees as well. You can get a detailed breakdown from the NSLDS (google it). That will also tell you which guarantor currently holds your loan. I believe you'll have to contact your guarantor to find out who the current CA is handling your account. Unlike with other debts, you will have to deal with the CA for this one. There isn't really any way around that.

 

Short of paying it off, your options for getting it out of default are rehabilitation and consolidation. Each has its advantages and disadvantages. If you choose to rehab, you'll regain eligibility for federal aid after your sixth payment. If you consolidate, you'll be eligible as soon as the consolidation is processed. Even though rehab takes longer, it can be better for your credit reports. But in your case, it's probably not reporting anymore unless it was subrogated by the Dept of Ed, and my initial thought is to lean toward consolidation. You'll need to do some reading about these two options.

 

If you choose to rehab, monthly payments of about 1% of the balance are typical in cases like this, but with a balance as low as yours you might have trouble talking them down to anything under $50. If that amount would be a hardship, however, you can try filling out some forms about your financial situation and see what they're willing to do. If you're unable to come to a reasonable agreement, there are other resources available to help you out.

 

Do some research, make some calls, and post any other questions you might have.

[vintagespeed]

...I will have to make six consecutive payments ON TIME before they will move to process the default status to current...

 

yes, that's how it's SUPPOSED to work.... many have reported that their SL never updated to current and the lates were not removed.

 

i would be afraid that if you start paying this SL they will post it on your credit and you'll be stuck with that negative history for the next 7yrs+.

 

i suggest finding a CU for a personal loan or other source for the money and PIF that sucker so they have no recourse against you. DOCUMENT E V E R Y T H I N G.

[jcarr492]

Okay, will request for this to be moved...I didn't see a student loan section...did I miss it?

 

 

How do you consolidate a loan..if you only have one loan? Don't you have to have more than one loan to consolidate it?

[Saria]

As long as the loan has never been consolidated before, it's not a problem if you only have one loan. Take a look at the Direct Loans website.

[Saria]

...I will have to make six consecutive payments ON TIME before they will move to process the default status to current...

 

yes, that's how it's SUPPOSED to work.... many have reported that their SL never updated to current and the lates were not removed.

 

This happens when people rehab without understanding what gets deleted and what doesn't. For FFEL loans, the guarantor's TL is removed, but the lender's TL - and lates - remain.

 

i would be afraid that if you start paying this SL they will post it on your credit and you'll be stuck with that negative history for the next 7yrs+.

 

i suggest finding a CU for a personal loan or other source for the money and PIF that sucker so they have no recourse against you. DOCUMENT E V E R Y T H I N G.

 

IMO, this is a bad idea. This would achieve the same end result as consolidation, but without any of the benefits. Consolidating through Direct Loans would be a much better move.

[breeze]

Okay, will request for this to be moved...I didn't see a student loan section...did I miss it?

 

 

How do you consolidate a loan..if you only have one loan? Don't you have to have more than one loan to consolidate it?

 

 

Scroll down on the main page. There are a lot of other forums.

[jcarr492]

I went to the NSLDS site and pulled up what I could find. It was a Stafford Subsidized loan back in may 1992. I made payments on and off till 1997(used deferment a few times in between). The loan amount was 2625.00, says outstanding principal balance is 3080.00 as of 6/2009. Outstanding interest balance is 2287.00 as of 6/2009 and says its a fixed interest rate, but doesn't say the percentage. At the bottom of the paper for the Contact information, it says "This loan has been transferred to the Debt Collection Service of the department of Education. For answers to questions concerning this aid please contact the service at 1-800-621-3115."

 

Do does that mean its been sold to a CA or does the DoE still have this loan?? I went to the direct loans website and it asked who the lender was...but i don't have that info. I want to call the number tomorrow..but scared to wake a sleeping dog in other words. Our income tax will be direct deposited on the 16th....so I guess I'm afraid by calling, they make take it upon themselves to somehow keep our income tax. Can they do that just by me calling and trying to get this all straightened out?

[Saria]

That probably means it was a Direct Loan. So, it was guaranteed by a different arm of the Dept of Ed, if you will, and that's who owns it now. Or, possibly, it wasn't originally a Direct Loan, but has been subrogated. Either way, DoE has it now.

 

SLs are never sold to CAs. More than likely, though, it has been assigned to a CA. That's who you'll have to deal with if you make any calls. If memory serves, if you call that number, it will give you the name and phone number of the CA it's been assigned to.

 

I wouldn't worry about this year's tax refund. The offset lists are prepared in advance, and I HIGHLY doubt they'd be able to grab a refund that's due to be deposited so soon.

[MB82x]

I have experienced EXACTLY what you are talking about, and I fixed it 100%!

 

Here is my experience...

 

1: I defaulted on two Stafford Loans.

 

2: I was contacted by a CA, and made arrangements to pay $200/month.

 

3: A few months later, I contacted the CA and explained that I wanted to send a check for $400, and have it count for two months - as I was expecting the following month to be tight financially.

 

4: The CA made note of my request, and then asked "why aren't you enrolled in rehabilitation?" - He explained I had made six payments on time - if he enrolled me into the rehab program, my loan would be taken back by the OC, and my reports would be cleaned of the defaults... Since I had made six payments, I had to make three more (he told me it was 9 consecutive payments to have the loan taken back...)

 

5: I made the final three payments, and the loan was taken back by the OC.

 

6: I pulled my credit reports and found 4 tradelines for the two student loans. Two reported as defaulted/claim filed... two reported with perfect history from the date the account was opened.

 

7: A lot went back and forth between OC and I. I called the OC and asked why the defaults were still reporting. The OC said "there should NOT be any defaults reporting"... just positive tradelines. I asked the OC to remove the defaults - and they said they can't just "remove it" - I need to dispute it with the CRAs first.

 

8: I emailed the Ombudsman, asking him to investigate the matter.

 

9: A few days later, the Ombudsman replied, stating he would investigate.

 

10: The following week, the Ombudsman contacted me by phone, stating that the negative tradelines would be removed within a week.

 

11: I was left with no negatives, and two tradelines reflecting 7-8 years of perfect payment history.

 

Also - in hindsight, the negative accounts would have probably come off with a simple CRA dispute - but I was new to credit repair at that point, and afraid of a bunch of things... like "making the OC mad" by disputing their information...

[jcarr492]

I pulled my free credit report last night just curious what was showing on my credit. It only gave me experian for the the free trial...but I have only three negatives on my credit. There are no judgments, bk's, foreclosures, or repos and the student loan is not showing on there at all. Is that the norm after so many years?

 

So, just so I'm understanding this...I already know about the rehab part. But on this direct loan website...how does that work exactly? If I go that route I mean. Is it faster to have it cleared up to current/bringing it out of default that way?? Or should I just do the rehab since its only one loan I'm dealing with?? Sorry, just want to be clear on this before I move further on it.

[Saria]

Yes, considering how old the loans are, that's normal. That's why I suggested consolidation in your case, which would get you out of default significantly sooner than rehab. The primary advantage of rehab over consolidation is a better credit report, but that's irrelevant in your case.

 

I think the only downside to consolidation for you might be collection costs. Hopefully Lynn to stop by to confirm this, but... If I remember correctly, when you rehab a Direct Loan, the collection costs are waived upon completion of the rehab. However, if you consolidate, I believe they'll be included in the new loan. I'll do some research later today about that, but I think that's how it will work. On a smaller loan like yours, you might well decide that it's worth paying the collection fees to get it out of default quicker, but that's something you'll have to decide.

[jcarr492]

Great Saria! I will look forward to what you find out! Thanks!