Defaulted student loans can put a real kink in your financial affairs. They can eat up your tax refund year after year, keep you from getting desirable jobs, and even eventually stand between you and your home purchase goals.
The process of getting out from under a defaulted loan is daunting, but, it is vital if your goal is credit repair. Student loans don’t go away with bankruptcy and the penalty fees can give anyone sticker shock. But, rehabilitating your defaulted student loans is possible. Follow these steps:
Who Do You Owe What?
The first thing you’ll have to determine is who holds your loans and how much they total. Your loans could have been purchased and sold by collection companies several times, so, even if you remember your original lender, they may not own your debt. Fortunately, you can look up your current student loan creditors at the National Student Loan Data System.
Negotiate a Rehabilitation Deal
Now that you know who owns your loans, it’s time to contact your creditors and negotiate a rehabilitation deal. You will be asked to make nine on-time payments to bring the loans out of default.
What many people do not know is that, if you are unable to pay the full loan amount, you can negotiate a lower number. The holder of your loan will consider your income, assets and expenses and accept or decline your offer.
In some cases, you will find that you cannot get your student loan holder to make a reasonable agreement, or that they are asking you to pay loans that you do not feel you owe. You have a powerful friend on your side: your student loan ombudsman. This is someone who can negotiate on your behalf and mediate discussions with your loan holder.
Make On-Time Payments
To get your loans out of default, you will need to make nine on-time loans. You cannot make payments in advance. A payment is considered on-time if it arrives within 20 days of your due date. Some lenders will want to set up an automatic payment. Others will allow you to make the payments manually each month. If you have trouble remembering to pay bills, the automatic payment might be a good choice for you. Schedule it right after your paycheck hits your bank account so that you have the funds available.
It is very important to stay on the course once you have begun rehabilitation, since you only get one chance to rehabilitate your loans.
Check Your Credit Record to Make Sure It’s Correct
After you have gone through credit repair with the student loan rehabilitation process, it will appear on your credit record that you never defaulted on the loans. But, sometimes lenders do not submit the changes in a timely manner. In other cases, the records might show up twice. At this juncture, you can personally dispute the negative records or enlist the help of a credit repair expert.
It can seem like a massive task, but, when you tackle this one step at a time, it’s doable. Keep positive, keep on track, and soon you will be pursuing home purchase and other financial goals.
For more information on the credit repair process please contact our office at 617.265-7900 or click here to request a free consultation.