Student Loan Rehabilitation
A student loan rehabilitation program is generally an extended program where the borrower will make payments to rehabilitate the student loans to remove the default status. This will be done over either nine or ten months. This amount will be decided on before, and it will be an affordable amount that both the borrower and the lender find reasonable. Once the borrower has made these nine payments on time, the default status is removed from their credit history. If the borrower fails to make even one payment on time, they will have to start over again from the beginning.
How Your Payment Is Determined
As of July 2014, the lenders or the collection agency assigned to the defaulted loan are required to use the same calculation in the income-based repayment program to calculate the student loan
rehabilitation payment. In some cases, this payment will not be affordable. If this is the case, then the borrower can submit a Financial Disclosure for Reasonable and Affordable Rehabilitation Payments.
Even though the student loan rehabilitation payment might be the same as the IBR payment, the borrower will NOT be enrolled into an IBR program or receive any of the benefits of the IBR program, most notably loan forgiveness.
Things that are considered in the IBR rehabilitation payment:
- Disposable Income
- Social Security Benefits
- Welfare Benefits
- Family Size
Prior to July 1st, 2014, borrowers often found that they faced student loan rehabilitation payments of 1% on the remaining balance of the loan. With the current average balance of all student loan borrowers at $26,000, this means $260 a month.
However, with the new plan, borrowers are allowed to pay much less than this. With the current system, some payment plans are even as low as $0.00.
Positives and Negatives Related to Student Loan Rehabilitation
Before entering into student loan rehabilitation, it is important for you to educate yourself on both the positives and the negatives of this procedure. Basically, the negatives are mostly related to the fact that consolidation is another reasonable option. However, if consolidation is not an option for you, then student loan rehabilitation is the best alternative for you to get out of default as soon as possible.
- Rehabilitated loans are eligible for deferments and forbearances
- The borrower would be eligible for new student loans after getting out of default
- Default status is removed from the borrower’s credit report
- Collection agencies stop calling in an aggressive, harassing manner
- It takes up to ten months for the default status to be removed
- Any late payments could force the borrower to restart the process
- A federal student loan can only be rehabilitated once
What to Do if You Are in a Wage Garnishment
If you are in an active wage garnishment, the amount taken from it will not be applied to any student loan rehabilitation payments. You must make all the rehabilitation payments while also having your wages garnished at the same time. The only way to stop your student loan wage garnishment is to complete the whole process.
What If I Already Rehabilitated My Loan?
Student loans can, unfortunately, only be rehabilitated once.
If you find yourself in a situation where you are in default once again, student loan rehabilitation will not be an option. However, there is an option. You may be eligible for a student loan consolidation to remove the default status on your loans. This is done by consolidating your loans into the William D. Ford Direct Loan program. This means that all of your loans are combined into one new loan. At this point, you would no longer be in default.
No student loan rehabilitation fees are required if you wish to consolidate, but the default status on your loans that have been consolidated will still appear. However, all of them will display a balance of zero. Once the loans are consolidated, you are able to choose the IBR repayment plan, which means that you will always have an affordable payment plan and your chances of falling into default again are lessened considerably.
How Do I Get Started?
If you have examined the possibilities and decided that student loan rehabilitation is the best option for you, you will need to contact your lender, or the collections agency, to get the process started.
Other Options That May Be Easier For You
If your loans are in default and you do not wish to enter a student loan rehabilitation program, you can consider another option. You can consolidate into the William D. Ford Direct Loan program.
This means that all your defaulted loans will be consolidated into one new loan, very often with a new lender. The consolidation process takes 30-60 days from when your new lender receives your file. If you are completing the consolidation process all by yourself, there is no charge to apply and get the process started.
There is only one negative factor to consider with this consolidation. When your loans are no longer in default, your previous loans will still be displayed on your credit report along with the information that they were once in default. It will state that they have been paid off successfully, but if this is something you feel would affect your credit report negatively into the future, please consider whether consolidation is the best option for you.
If you have considered all the options and decided that you would like to pursue consolidation, please do not hesitate to give us a call today at (800) 784-1755.