Rehabilitation Program

Are you facing default on your student loan and not sure what to do? Well, you're not alone! About 9.5% of the 44 million people carrying federal student loan debt in the United States are in exactly the same boat . . . and that number is increasing every day. That's why lenders make sure there are options in place for dealing with this situation. And if that's what you're looking to do, then we can help!

UNDERSTANDING DEFAULT

Defaulting on your student loan is something more than just missing a payment or two . . . or even eight! From the moment you miss your first payment, your loan is considered delinquent-but that's not yet default. If you don't catch up on your payments, after 90 days your delinquency will be reported to the credit bureaus and it starts hurting your credit. But that's still not default. It's when you reach the magic number of 270 days with no payments (nine months) that your loan officially goes into default status. And default is a place you don't want to be.

What happens when you're in default? Some very bad things:

• The loan is assigned to a collection agency, which probably means lots of annoying calls and letters for you.
• The impact of transferring the loan to a collection agency will significantly impact your credit, making it hard to get a car loan, a mortgage, or a credit card-and pretty much guaranteeing you'll pay higher interest rates if you do manage to get a loan.
• You lose your eligibility for loan forbearance or deferment (i.e., the ability to temporarily postpone your loan payments), for loan forgiveness (such as may otherwise be available to some teachers, military personnel, and others), and for loan modification and payment plans (which might otherwise make it easier to get on track by potentially lowering your monthly payment). In short, going into default makes catching up on your loan even more difficult than it was before!
• You increase your loan balance with the addition of collections fees and could wind up adding years to your repayment schedule.
• Worst of all, you may face wage garnishment and/or tax offset (which means that a portion or your paychecks and your tax refunds may be withheld to pay on your loan). And what's more, that wage garnishment will continue even if you take the steps we're describing here to rehabilitate your loan-at least until that rehabilitation is complete.

OPTIONS FOR DEALING WITH DEFAULT

OK, but what if it's too late and you've defaulted already? Fortunately, you have two main options to take control of the situation and get your loan back on track:

• Loan CONSOLIDATION (the quicker of the two options, which we'll deal with in another article), and
• Loan REHABILITATION (a somewhat slower option, but one that has a number of distinct benefits).

WHAT IS LOAN REHABILITATION?

Loan rehabilitation is a one-time opportunity to get your loan out of default status by making nine payments in a ten-month period (which means you can miss one payment over the course of ten months). Best of all, these will be reasonable payments, based on your current financial situation. Your loan servicer will calculate a monthly payment amount that is equal to 15% of your discretionary income (i.e., the same formula that would be used to calculate an income-based repayment plan). And if that's still too high, with appropriate documentation of your income and expenses you can ask them to recalculate for a lower amount-which could be as low as $5! Make this new, lower payment for nine out of ten months, and your loan will come out of delinquent status! At that point, if you've been facing wage garnishments and tax offsets, those will stop. And-get this-your default will even be removed from your credit history! (Any late payments you made will remain in your credit report, but the more serious notation of "default" will be removed.) And then, to keep you in good standing, you'll once again be eligible for loan modification and payment plans, along with any forbearance, deferment, or forgiveness options were lost because of default. NOTE that, once your loan is rehabilitated, you'll be working with a new loan servicer, so you'll want to be sure to discuss all of your available options with that new servicer to be sure you stay on top of your new payment plan, because YOU WON'T GET THIS OPPORTUNITY AGAIN.

We can't stress that enough: Loan rehabilitation is a ONE-TIME option. You will not be permitted to enter into a loan rehabilitation agreement again. (If you rehabilitated a loan before August 14, 2008, though, you will have the chance for one more loan rehabilitation-but no more.) If you default again, loan rehabilitation will not be an option-though in some cases, loan consolidation may be available (see our article on loan consolidation for more information).

TAKING ADVANTAGE OF LOAN REHABILITATION

If loan rehabilitation sounds like the path you need to get your student loan out of default and stop collections activity, wage garnishment, and all the other negative effects of default, then contact us now!

• We'll guide you in contacting your loan servicer or collection agency to get the loan rehabilitation process started.
• You'll enter into a written agreement to make nine affordable payments over the course of ten months.
• You'll make each of those nine payments within 20 days of the due date.
• Your default status will be removed and you'll be eligible to negotiate a new payment plan. You'll even be eligible again for further loans and federal student aid!

Are you in default on your student loan? Loan rehabilitation may be the fresh start you need. Contact us to see if this is the right option for you.