Is it Better to Rehabilitate or Consolidate A Defaulted Student Loan?

Is it Better to Rehabilitate or Consolidate A Defaulted Student Loan?

by | Jul 4, 2018 | Default

If you’ve defaulted on your student loans there are two major ways to get out of default and put your student loans back in good standing. Read this if you want to know whether consolidation or rehabilitation is best for you. Estimated read time ~ 5 min. Estimated watch time at 1.5x speed ~3 min.

It can be tough not to feel discouraged when your student loans are in default. Fortunately there are two main options, rehabilitation and consolidation, available to get your student loans out of default. The third option is to pay your student loans off in full but this isn’t really an option because if a borrower could pay the loans off in full it’s unlikely they would have defaulted in the first place.

 

Let’s talk about the difference between student loan rehabilitation and consolidation for getting your defaulted student loans back in good standing.

 

Rehabilitation

 

What it is:  Student loan rehabilitation is set up with your student loan holder. To rehabilitate your student loan you will set up a monthly payment with your loan servicer. You’ll need to make nine payments within 20 days of their due dates during 10 consecutive months and then your defaulted loan will be back in good standing.

 

Advantages:  The biggest advantage of rehabilitating your student loan is that the record of default will be removed from your credit history. Your late payments that were reported before you went into default will remain on your credit history, but the default itself will be removed.

 

How to do it:  You’ll need to contact your student loan holder to get the process started. If you don’t know who your loan holder is you can log in to your Federal Student Aid Account to find out. Next you will provide your loan holder information about your income and they will determine a monthly payment that’s 15% of discretionary monthly income.

 

If that payment isn’t affordable you can ask the loan holder to calculate a reasonable alternative monthly payment. To do that you’ll need to provide documentation of monthly income and expenses. You’ll also need to fill out the Loan Information Income and Expense Document. 

 

Consolidation

 

What it is:  Student loan consolidation is set up with your student loan holder. To consolidate your student loan you will apply for a Direct Consolidation Loan and agree to repay it under an income-driven repayment plan. Borrowers can’t consolidate student loans that are being collected through wage garnishment unless the wage garnishment order is lifted.

 

Advantages:  The biggest advantage of consolidating your student loan is that your loan will quickly be out of default, rather than taking nine months like rehabilitation. Unfortunately your default will still show up on your credit history.

 

How to do it:  You’ll need to apply for a Direct Consolidation Loan. That application will require information about your income and you will need to enter an income-driven monthly repayment plan.

 

Problems?

 

If you’ve tried these steps and are feeling stuck you can contact the Department of Education’s Default Resolution Group at 1-800-621-3115.

 

What to Do When Your Student Loans are in Default

What to Do When Your Student Loans are in Default

by | Jun 27, 2018 | Default

Student loan default can be super frustrating to manage. If you want to know where to get started to get out of default, this post is for you. Estimated read  time ~ 5 minutes, estimated watch time at 1.5x ~ 3 minutes.

 

 

Student loans enter default when a borrower hasn’t made the minimum monthly payments for 270 days.

 

Step 1: Find out who holds your student loans

 

When your student loans are in default your federal student loan servicer still owns your loans. However they may have turned over the responsibility for collecting payment to a collections company. Typically the longer your student loans have been in default the more likely it is you’ll have to work directly with a collections company.

 

The best place to look at who holds your loans currently is the National Student Loan Data System (NSLDS). Typically the company name is listed as a hyperlink that you can click to find contact information.

 

Step 2: Contact your loan servicer or the collection agency.

 

When you find out who to contact, contact them. The first step in getting out of default is to get in touch with whoever is going to determine your repayment plan and get started.

 

Step 3: Provide necessary information and fill out necessary paperwork.

 

In order to set up your new repayment plan the company you’re working with is going to need a lot of information. This information includes sensitive stuff like income information. So you want to make sure the company you’re dealing with is legitimate. There are a lot of scammers preying on the desperation of borrowers with defaulted student loans. 

 

You can always make sure you’re working with someone legitimate by contacting the Default Resolution Group at the Dept of Ed.

 

Step 4: Be persistent and keep at it! You can do it!

 

Collections companies are often difficult to work with. Keep your head up and don’t be discouraged. It takes time to get into student loan default and it takes time to get back out. Keep working at it until you have a repayment strategy you can afford.

 

Next week I’ll talk about whether you should consolidate or rehabilitate your student loan default and discuss the pro’s and con’s of each.

 

 

Helpful Links

Student Loan Default Resolution Group (Dept of Ed) Phone number 1-800-621-3115

National Student Loan Data System (NSLDS)

List of Dept of Ed Student Loan Collection Agencies (scroll down page)