Full Version: Rehab VS Consolidation
Can anyone explain the difference between Rehab and Consolidation, which one you would want to try first what the benefits of each are etc. . .
To rehab loans, you must make an agreement to pay a set monthly amount on your loans AND STICK TO IT. At that point, your default will be removed from your credit report and all you have to do is KEEP MAKING PAYMENTS to keep your credit clean.
A consolidation simply pays off all existing loans and gives you one big loan to cover all. It can make payments more manageable, but it does not take the default off your record.
There are plenty of resources to explain these things in detail if you do a quick search. And you can always call your lender.
A consolidation simply pays off all existing loans and gives you one big loan to cover all. It can make payments more manageable, but it does not take the default off your record.
There are plenty of resources to explain these things in detail if you do a quick search. And you can always call your lender.
If you have defaulted, you should probably rehab first for your credit's sake. Consolidate next year.
Thanks so much!!
please rehab. its the only wait to clear your credit!!!!
how long must you be in rehab before they will make changes to your credit? I have been told you have to be in for 1 year, but have heard different stories as well.
Any info?
Thanks Mary
Oh also, can you rehab and once the changes are made consolidate? is that a possibility?
Any info?
Thanks Mary
Oh also, can you rehab and once the changes are made consolidate? is that a possibility?
I just finished a rehab on Tuesday and my loans are with DL. I had to make 12 CONSECUTIVE, ON TIME payments for it to be completed. (i changed my payment amount after 4 months ,missed a payment, and the clock started all over again).
i've heard after you finish a rehab that it takes anywhere from a couple weeks to 90 days for it to be reflected on ur reports.
and yes you can rehab your loans and then consolidate once ur rehab is done. but dont consolidate first if u need to rehab, i heard once u consolidate, u can't go back.
i've heard after you finish a rehab that it takes anywhere from a couple weeks to 90 days for it to be reflected on ur reports.
and yes you can rehab your loans and then consolidate once ur rehab is done. but dont consolidate first if u need to rehab, i heard once u consolidate, u can't go back.
thanks.
With consolidation, the defauled status remains, but you will also see new loans on your report. Not sure if the defaulted status are removed after 7yrs or not. maybe someone else can verify this. With Loan Rehab, about 12 on time payments.....you have a clean slate on your credit report...at least this is what I am told.
Little something to add, on how payments should be reasonable and affordable and just the logistics of.
Reference the Higher Education Act of 1965 and the 1998 Amendments (which I believe were the most recent changes of substance. There is a regular re-authorization, every five years or something like that, and there are always some minor changes.)
Section 674.39 Loan Rehabilitation
REHABILITATION OF LOANS
(A) IN GENERAL- If the borrower of a loan made under this part who has defaulted on the loan makes 12 on time, consecutive, monthly payments of amounts owed on the loan, as determined by the institution, or by the Secretary in the case of a loan held by the Secretary, the loan shall be considered rehabilitated, and the institution that made that loan (or the Secretary, in the case of a loan held by the Secretary) shall request that any credit bureau organization or credit reporting agency to which the default was reported remove the default from the borrower's credit history.
(B ) COMPARABLE CONDITIONS- As long as the borrower continues to make scheduled repayments on a loan rehabilitated under this paragraph, the rehabilitated loan shall be subject to the same terms and conditions, and qualify for the same benefits and privileges, as other loans made under this part.
(C ) ADDITIONAL ASSISTANCE- The borrower of a rehabilitated loan shall not be precluded by section 484 from receiving additional grant, loan, or work assistance under this title (for which the borrower is otherwise eligible) on the basis of defaulting on the loan prior to such rehabilitation.
(D) LIMITATIONS- A borrower only once may obtain the benefit of this paragraph with respect to rehabilitating a loan under this part.
RESTORATION OF ELIGIBILITY- If the borrower of a loan made under this part who has defaulted on that loan makes 6 on time, consecutive, monthly payments of amounts owed on such loan, the borrower's eligibility for grant, loan, or work assistance under this title shall be restored to the extent that the borrower is otherwise eligible. A borrower only once may obtain the benefit of this paragraph with respect to restored eligibility.
Sec. 682.405 Loan rehabilitation agreement
(a) General. (1) A guaranty agency that has a basic program agreement must enter into a loan rehabilitation agreement with the Secretary. The guaranty agency must establish a loan rehabilitation program for all borrowers with an enforceable promissory note for the purpose of rehabilitating defaulted loans so that the loan may be purchased, if practicable, by an eligible lender and removed from default status.
(2) A loan is considered to be rehabilitated only after the borrower has made one voluntary reasonable and affordable full payment each month and the payment is received by a guaranty agency or its agent within 15 days of the scheduled due date for 12 consecutive months in accordance with this section, and the loan has been sold to an eligible lender.
(3) After the loan has been rehabilitated, the borrower regains all benefits of the program, including any remaining deferment eligibility under section 428(b )(1)(M) of the Act, from the date of the rehabilitation.
(4) A borrower who wishes to rehabilitate a loan on which a judgment has been entered must sign a new promissory note prior to the sale of the loan to an eligible lender.
(b ) Terms of agreement. In the loan rehabilitation agreement, the guaranty agency agrees to ensure that its loan rehabilitation program meets the following requirements at all times:
(1) A borrower may request the rehabilitation of the borrower's defaulted FFEL loan held by the guaranty agency. The borrower must make one on-time voluntary full payment each month for 12 consecutive months to be eligible to have the defaulted loans rehabilitated. For purposes of this section, "full payment" means a reasonable and affordable payment agreed to by the borrower and the agency. The required amount of such monthly payment may be no more than is reasonable and affordable based upon the borrower's total financial circumstances. Voluntary payments are those made directly by the borrower regardless of whether there is a judgment against the borrower, and do not include payments obtained by income tax off-set, garnishment, or income or asset execution. A guaranty agency must attempt to secure a lender to purchase the loan at the end of the twelve-(12-)month payment period.
(i) For purposes of this section, the determination of reasonable and affordable must--
(A) Include a consideration of the borrower's and spouse's disposable income and reasonable and necessary expenses including, but not limited to, housing, utilities, food, medical costs, work-related expenses, dependent care costs and other Title IV repayment;
(B ) Not be a required minimum payment amount, e.g. $50, if the agency determines that a smaller amount is reasonable and affordable based on the borrower's total financial circumstances. The agency must include documentation in the borrower's file of the basis for the determination if the monthly reasonable and affordable payment established under this section is less than $50.00 or the monthly accrued interest on the loan, whichever is greater. However, $50.00 may not be the minimum payment for a borrower if the agency determines that a smaller amount is reasonable and affordable; and
(C ) Be based on the documentation provided by the borrower or other sources including, but not be limited to--
(1) Evidence of current income (e.g., proof of welfare benefits, Social Security benefits, child support, veterans' benefits, Supplemental Security Income, Workmen's Compensation, two most recent pay stubs, most recent copy of U.S. income tax return, State Department of Labor reports);
(2) Evidence of current expenses (e.g., a copy of the borrower's monthly household budget, on a form provided by the guaranty agency); and
(3) A statement of the unpaid balance on all FFEL loans held by other holders.
(ii) The agency must include any payment made under Sec. 682.401(b )(4) in determining whether the 12 consecutive payments required under paragraph (b )(1) of this section have been made.
(iii) A borrower may request that the monthly payment amount be adjusted due to a change in the borrower's total financial circumstances only upon providing the documentation specified in paragraph (b )(1)(i)(C ) of this section.
(iv) A guaranty agency must provide the borrower with a written statement confirming the borrower's reasonable and affordable payment amount, as determined by the agency, and explaining any other terms and conditions applicable to the required series of payments that must be made before a borrower's account can be considered for repurchase by an eligible lender. The statement must inform borrowers of the effects of having their loans rehabilitated (e.g. credit clearing, possibility of increased monthly payments). The statement must inform the borrower of the amount of the collection costs to be added to the unpaid principal at the time of the sale. The collection costs may not exceed 18.5 percent of the unpaid principal and accrued interest at the time of the sale.
(v) A guaranty agency must provide the borrower with an opportunity to object to terms of the rehabilitation of the borrower's defaulted loan.
(2) The guaranty agency must report to all national credit bureaus within 90 days of the date the loan was rehabilitated that the loan is no longer in a default status.
(3) An eligible lender purchasing a rehabilitated loan must establish a repayment schedule that meets the same requirements that are applicable to other FFEL Program loans made under the same loan type and provides for the borrower to make monthly payments at least as great as the average of the 12 consecutive monthly payments received by the guaranty agency. For the purposes of the maximum loan repayment period, the lender must treat the first payment made under the 12 consecutive payments as the first payment under the applicable maximum repayment term, as defined under sections 682.209(a) or (h).
Little something to add, on how payments should be reasonable and affordable and just the logistics of.
Reference the Higher Education Act of 1965 and the 1998 Amendments (which I believe were the most recent changes of substance. There is a regular re-authorization, every five years or something like that, and there are always some minor changes.)
Section 674.39 Loan Rehabilitation
REHABILITATION OF LOANS
(A) IN GENERAL- If the borrower of a loan made under this part who has defaulted on the loan makes 12 on time, consecutive, monthly payments of amounts owed on the loan, as determined by the institution, or by the Secretary in the case of a loan held by the Secretary, the loan shall be considered rehabilitated, and the institution that made that loan (or the Secretary, in the case of a loan held by the Secretary) shall request that any credit bureau organization or credit reporting agency to which the default was reported remove the default from the borrower's credit history.
(B ) COMPARABLE CONDITIONS- As long as the borrower continues to make scheduled repayments on a loan rehabilitated under this paragraph, the rehabilitated loan shall be subject to the same terms and conditions, and qualify for the same benefits and privileges, as other loans made under this part.
(C ) ADDITIONAL ASSISTANCE- The borrower of a rehabilitated loan shall not be precluded by section 484 from receiving additional grant, loan, or work assistance under this title (for which the borrower is otherwise eligible) on the basis of defaulting on the loan prior to such rehabilitation.
(D) LIMITATIONS- A borrower only once may obtain the benefit of this paragraph with respect to rehabilitating a loan under this part.
RESTORATION OF ELIGIBILITY- If the borrower of a loan made under this part who has defaulted on that loan makes 6 on time, consecutive, monthly payments of amounts owed on such loan, the borrower's eligibility for grant, loan, or work assistance under this title shall be restored to the extent that the borrower is otherwise eligible. A borrower only once may obtain the benefit of this paragraph with respect to restored eligibility.
Sec. 682.405 Loan rehabilitation agreement
(a) General. (1) A guaranty agency that has a basic program agreement must enter into a loan rehabilitation agreement with the Secretary. The guaranty agency must establish a loan rehabilitation program for all borrowers with an enforceable promissory note for the purpose of rehabilitating defaulted loans so that the loan may be purchased, if practicable, by an eligible lender and removed from default status.
(2) A loan is considered to be rehabilitated only after the borrower has made one voluntary reasonable and affordable full payment each month and the payment is received by a guaranty agency or its agent within 15 days of the scheduled due date for 12 consecutive months in accordance with this section, and the loan has been sold to an eligible lender.
(3) After the loan has been rehabilitated, the borrower regains all benefits of the program, including any remaining deferment eligibility under section 428(b )(1)(M) of the Act, from the date of the rehabilitation.
(4) A borrower who wishes to rehabilitate a loan on which a judgment has been entered must sign a new promissory note prior to the sale of the loan to an eligible lender.
(b ) Terms of agreement. In the loan rehabilitation agreement, the guaranty agency agrees to ensure that its loan rehabilitation program meets the following requirements at all times:
(1) A borrower may request the rehabilitation of the borrower's defaulted FFEL loan held by the guaranty agency. The borrower must make one on-time voluntary full payment each month for 12 consecutive months to be eligible to have the defaulted loans rehabilitated. For purposes of this section, "full payment" means a reasonable and affordable payment agreed to by the borrower and the agency. The required amount of such monthly payment may be no more than is reasonable and affordable based upon the borrower's total financial circumstances. Voluntary payments are those made directly by the borrower regardless of whether there is a judgment against the borrower, and do not include payments obtained by income tax off-set, garnishment, or income or asset execution. A guaranty agency must attempt to secure a lender to purchase the loan at the end of the twelve-(12-)month payment period.
(i) For purposes of this section, the determination of reasonable and affordable must--
(A) Include a consideration of the borrower's and spouse's disposable income and reasonable and necessary expenses including, but not limited to, housing, utilities, food, medical costs, work-related expenses, dependent care costs and other Title IV repayment;
(B ) Not be a required minimum payment amount, e.g. $50, if the agency determines that a smaller amount is reasonable and affordable based on the borrower's total financial circumstances. The agency must include documentation in the borrower's file of the basis for the determination if the monthly reasonable and affordable payment established under this section is less than $50.00 or the monthly accrued interest on the loan, whichever is greater. However, $50.00 may not be the minimum payment for a borrower if the agency determines that a smaller amount is reasonable and affordable; and
(C ) Be based on the documentation provided by the borrower or other sources including, but not be limited to--
(1) Evidence of current income (e.g., proof of welfare benefits, Social Security benefits, child support, veterans' benefits, Supplemental Security Income, Workmen's Compensation, two most recent pay stubs, most recent copy of U.S. income tax return, State Department of Labor reports);
(2) Evidence of current expenses (e.g., a copy of the borrower's monthly household budget, on a form provided by the guaranty agency); and
(3) A statement of the unpaid balance on all FFEL loans held by other holders.
(ii) The agency must include any payment made under Sec. 682.401(b )(4) in determining whether the 12 consecutive payments required under paragraph (b )(1) of this section have been made.
(iii) A borrower may request that the monthly payment amount be adjusted due to a change in the borrower's total financial circumstances only upon providing the documentation specified in paragraph (b )(1)(i)(C ) of this section.
(iv) A guaranty agency must provide the borrower with a written statement confirming the borrower's reasonable and affordable payment amount, as determined by the agency, and explaining any other terms and conditions applicable to the required series of payments that must be made before a borrower's account can be considered for repurchase by an eligible lender. The statement must inform borrowers of the effects of having their loans rehabilitated (e.g. credit clearing, possibility of increased monthly payments). The statement must inform the borrower of the amount of the collection costs to be added to the unpaid principal at the time of the sale. The collection costs may not exceed 18.5 percent of the unpaid principal and accrued interest at the time of the sale.
(v) A guaranty agency must provide the borrower with an opportunity to object to terms of the rehabilitation of the borrower's defaulted loan.
(2) The guaranty agency must report to all national credit bureaus within 90 days of the date the loan was rehabilitated that the loan is no longer in a default status.
(3) An eligible lender purchasing a rehabilitated loan must establish a repayment schedule that meets the same requirements that are applicable to other FFEL Program loans made under the same loan type and provides for the borrower to make monthly payments at least as great as the average of the 12 consecutive monthly payments received by the guaranty agency. For the purposes of the maximum loan repayment period, the lender must treat the first payment made under the 12 consecutive payments as the first payment under the applicable maximum repayment term, as defined under sections 682.209(a) or (h).
QUOTE(DaddyO @ Aug 22 2005, 09:13 AM)
With consolidation, the defauled status remains, but you will also see new loans on your report. Not sure if the defaulted status are removed after 7yrs or not.
Yup, it's deleted after 7 years, just like any other TL. However, the 7 year date calculation is different on SLs than on other types of TLs. The delete date is 7 years after the loan defaulted and the lender returned it to the guarantor for reimbursement (or whatever the "technical" term for that is!); not 7 1/2 years from the first negative that led to the default, as is the case with other TLs. That can be a big difference.
maybe someone else can verify this. With Loan Rehab, about 12 on time payments.....you have a clean slate on your credit report...at least this is what I am told.
The 12 payment thing can get a little tricky. You have to make 12 consecutive, on-time, reasonable payments in order to rehab the loan. However, sometimes it can take a few weeks to get the loan re-insured by the lender after those 12 payments, so you may have to make a 13th payment just to keep the loan current. That's not technically a rehab payment, but it can seem like it. As far as what's removed, well, like everything else in this realm, that's a little odd, too. Under the law, the only thing that's required to be removed is the default notation by the guarantor. The guarantor isn't required to remove any other negative information and the lender isn't required to remove anything at all. The Department of Education has urged guarantors to remove all negative information (and many, including DOE, do just that), but they aren't required to. If you search on this forum, you can find some people have had luck disputing items after rehab is over, but it's pretty hit or miss, even with the same lender/guarantor.
Yup, it's deleted after 7 years, just like any other TL. However, the 7 year date calculation is different on SLs than on other types of TLs. The delete date is 7 years after the loan defaulted and the lender returned it to the guarantor for reimbursement (or whatever the "technical" term for that is!); not 7 1/2 years from the first negative that led to the default, as is the case with other TLs. That can be a big difference.
maybe someone else can verify this. With Loan Rehab, about 12 on time payments.....you have a clean slate on your credit report...at least this is what I am told.
The 12 payment thing can get a little tricky. You have to make 12 consecutive, on-time, reasonable payments in order to rehab the loan. However, sometimes it can take a few weeks to get the loan re-insured by the lender after those 12 payments, so you may have to make a 13th payment just to keep the loan current. That's not technically a rehab payment, but it can seem like it. As far as what's removed, well, like everything else in this realm, that's a little odd, too. Under the law, the only thing that's required to be removed is the default notation by the guarantor. The guarantor isn't required to remove any other negative information and the lender isn't required to remove anything at all. The Department of Education has urged guarantors to remove all negative information (and many, including DOE, do just that), but they aren't required to. If you search on this forum, you can find some people have had luck disputing items after rehab is over, but it's pretty hit or miss, even with the same lender/guarantor.
Hope this helps!! Good luck!!
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