I finally spoke with the folks at HESC about rehabing my defaulted loans and what they told me has me puzzled.

I especifically said I want to enter rehab for all my defaulted loans. I also said that I couldn't pay the regular scheduled payment so I would need an affordable monthly payment plan. They said:

1) That I could get an IC payment plan, which I will need to pay on time for 12 months (nothing new there I knew as much) They also said that around the 10th month of being in this payment plan I can re-apply to have it extend for another 12 months, this so I can go on for an extra 2-3 months with the IC payments which sometimes is needed for HESC to sell the loans and have the new lender take over.

2) They asked me to send a good faith payment along with my application for the IC payment application.
This sounded to me as a down payment so I said I couldn't afford a down payment. They insisted I can't apply for the IC payment without this downpayment.

3) After I asked them point blank if what they were offering me was a rehab plan they said it was not "really" a rehab plan because in order to enter rehab you HAVE to make the regular scheduled payments (which I can't afford)

4) They also aid that this IC payment plan they're offering me will allow me to apply for rehab at the end of the 12 month period (but said it may need to go as long as 13-14 months--as I have read here as well) and that after the paperwork is completed I'll qualify to have the defaults removed from my CR AND to have the collection costs removed. But they won't put any of this in writing.

5) They also said (and this is the part where I need your advice to know if this is accurate) that when they sell my loans to a new lender; the new lender gets charged by them a 18.5% processing fee which the new lender passes on to the borrower and this fee gets tacked on to my outstanding principal (which leads me to believe that this money will also accrue interest)

Given what I heard from HESC I'm lead to believe that the only advantage of doing the rehab will be the removal of the default records from CR. Fees wise, since I'll have this 18.5% fee added to my principal balance, it will even out the saving of having the collection fees removed. In my case both amounts are fairly similar; give or take $1,000.

Am I getting the right information from HESC?
Please help.

I thought you were dealing with a CA for these loans? Either way, I would recommend calling back and telling them A..I want to rehab B...I am entitled to reasonable and affordable payments to qualify C...ask them where you should send your financial statement. (Yes you will need to do a financial statement including a payroll stub to qualfiy if asked.) D..If you meet resistance, tell them again you are entitled under the HEA. Let them know you will contact the student loan ombudsman if they wish not to help you out.



Edited for language. Watch the language, Lynn.

If you are in default, there is no such thing as an IC payment plan. It doesnt exist. Technically when you default your balance is excellerated and due in full. When applying for a rehab, you can request a "reasonable and affordable payment" per the HEA...Higher Education Act. However the "reseaonable and affordable payment" must be agreed on by both parties.

Yes, I am in default but they looked up my records and said that I could apply for a reduced payment plan; however, it will not be a rehab program. That's the part that bugs me because it sounds like after 12 months they may say that I can't/don't qualify to rehab and all the previous 12 months effort would have been in vane. I proposed an amount which they said sounded fine to them and they say to send the 2 recent pay stubs, list of expenses, etc, along with the "good faith payment"/downpayment to them for processing. IYO, how likely is it that at the end of the 12 month period--since I won't really be on a rehab program--they will say no, you don't qualify and then I won't get the benefits of rehab?

They cannot require you to make a down payment to qualify for rehab. You are entitled by law to reasonable and affordable.

I said that but they got defensive and basically said I didn't know what I was talking about and that they knew their job.


Bull. There is no such thing as an 18.5% processing fee. Some loans do NOT drop the collection fees and when the loan is consolidated, the interest is capitalized into the balance.
I thought that sounded fishy, but how can they get away with lying like that?


I thought you were dealing with a CA for these loans? Either way, I would recommend calling back and telling them A..I want to rehab B...I am entitled to reasonable and affordable payments to qualify C...ask them where you should send your financial statement. (Yes you will need to do a financial statement including a payroll stub to qualfiy if asked.) D..If you meet resistance, tell them again you are entitled under the HEA. Let them know you will contact the student loan ombudsman if they wish not to help you out.
I had a CA contact me several years ago (they sent me paperwork to do a consolidation), but nothing since then. The current wage garnishing is coming from HESC with payments going to a lockbox. I did tell them I was planning to contact the Ombudsman office if they couldn't help me but they acted like they didn't care.

Thanks again for your help.

I would say maybe call back once and talk to a supervisor. It they dont want to help, call the ombudsman. They will assist you in following the rules.

That's sort of what happened to me. I didn't use the "magic words," i.e. I didn't specifically say "I want to rehabilitate my loans" which you have to say in order to have them tell you about it (otherwise, they don't have to -- and they don't). I paid for 13 months, was told at the end that "my loan would be out of default, the collection costs and penalties would be removed, and my loan would be eligible for consolidation after completing their 12-month program (yeah, they never defined that -- I don't know what it means, either, since it apparently didn't mean rehab!!)." Well, basically, they didn't rehab my loan after I'd made all these payments and just consolidated my defaulted loan. If I'd known that was all I was doing, I could have consolidated after just a couple of months and saved myself a lot of money (basically, while it was paying the CA, all that my payments were going toward was collection costs/penalties and default interest).

Like Lynn said, they do not have to give you anything in writing regarding rehab. Just make sure that you document EVERYTHING (keep all correspondence, document all telephone conversations after you have them including what was said and who you talked to, etc.) so that you have a paper trail in case there's a problem after you've made the payments. If it becomes an issue, you should be fine if you've got all that (and you'll probably be fine anyway since you've made sure to specifically ask for rehab). I really wouldn't worry too much about it all going bad at the end. Just keep meticulous documents and make sure you check all of your bills from them and occasionally check your NSLDS database (someone incorrectly marked me in NSLDS as missing a payment during that time period, even though it was paid on time -- through auto debit -- and all of my bills said I was on time the whole time, so I never knew about it until months later when I checked NSLDS).

Good luck!!

I'm keeping notes and names of everyone I speak to, and what they say.
I'm just not sure my notes will be enough to do something if they don't keep up their end of the bargain and rehab my loans at the end.

I don't understand what's the point of an HESC agency engaging in this kind of behavior. I understand it from a CA since they're out to make money, but the HESC? Do HESC employees work on comission or what?

Thanks for the information.

This is exactly what I'm afraid of.
I think, given your case, I have reason to be skeptic about their non-writen promises to rehab my loans after I make 12 (or more) on time payments when I am not officially on rehab.
In my case I have asked for rehab by name and I'm just getting resistance.
I think my next step is the Ombudsman office.


I'm keeping notes and names of everyone I speak to, and what they say.
I'm just not sure my notes will be enough to do something if they don't keep up their end of the bargain and rehab my loans at the end.

I don't understand what's the point of an HESC agency engaging in this kind of behavior. I understand it from a CA since they're out to make money, but the HESC? Do HESC employees work on comission or what?

Thanks for the information.


There may also just be an issue of people not using the correct terms. The CSR *MAY* have meant "reasonable and affordable" instead of "IC" like they said and/or she could have been talking about capitalizing the collection costs (which, like Lynn said, they don't have to drop -- and not all do) instead of a "processing fee." People can sometimes get sloppy with jargon, especially if they're new or don't think you know the difference anyway.

Honestly, you have about zero chance of getting anything in writing from them (they don't have to, so some just don't do it). The main issue really isn't now, anyway. The issue of whether or not it works is at the end of the 12 months if they're trying to convince you to consolidate or anything like that and aren't going to sell your loans out again. If that happens, then, besides all of your records (including copies of your financial information that you'll have to send in to get an affordable payment agreed to), you'll have the 12 months of perfect payment history to prove what you were doing. It will work out fine!!!! I definitely know the stress you're going through, though.

Now, if they FLAT OUT tell you that you'll never be eligible for rehab or that you have to make a down payment or that you aren't eligible for rehab if you don't make the payments that they're demanding (without looking at your financial information and taking it into account -- they do have to agree to the payment, too, so just them not agreeing to your proposal is not enough to trigger that) AND you've called back and spoken to a qualified manager and gotten the same information, then you should probably look into talking to the ombudsman's office.

Good luck! Hope this helps!!

5) They also said (and this is the part where I need your advice to know if this is accurate) that when they sell my loans to a new lender; the new lender gets charged by them a 18.5% processing fee which the new lender passes on to the borrower and this fee gets tacked on to my outstanding principal (which leads me to believe that this money will also accrue interest)

Bull. There is no such thing as an 18.5% processing fee. Some loans do NOT drop the collection fees and when the loan is consolidated, the interest is capitalized into the balance.


I checked out the HESC web site and it turns out it's true they charge a 18.5% fee when they consolidate...here is what their web site says:

"Repair Damaged Credit
The Rehabilitation Loan Program gives student borrowers who have defaulted on loans the opportunity to have those loans removed from default and become eligible for student financial aid.

Here's How It Works

You must have made 12 consecutive, voluntary, agreed-upon monthly payments. If HESC is getting money to pay back your loan by taking some of your tax refund money, or taking money out of your paycheck (garnishing wages), then you are not eligible for another student loan because these payments are not voluntary. NOTE: A good way to pay back your student loan is by enrolling in SmartPay, our preauthorized electronic debit service.
The monthly payment must have been made on a timely basis. This is defined as payment within 15 days of the due date.
You must agree to pay a fee of up to 18.5 percent of the unpaid principal and accrued interest. These costs are added to your unpaid balance at the time the loan or loans are sold to the lender. This fee is approximately the same as the collection cost you are now paying on the defaulted loan. However, after the loan is rehabilitated, HESC will notify all national credit bureaus that the loan is no longer in default; an important benefit to borrowers trying to repair their damaged credit.
HESC will mail you an application if you qualify for the Rehabilitation Loan Program. Call or write to the numbers or address given below for additional information."

So I guess I feel better that at least the HESC people I spoke with were not outright lying to me (the thought did cross my mind) but on the other hand now I think it really sucks that NY HESC imposes this fee. Has anyone else heard/experience this? I imagine each state has its own HESC agency....right? Is NY the only state doing this?

Thanks for any input.

These are simply the collection charges assessed to your loan. You are simply agreeing to have them capitalzied into your loan.