| The Default Story | | | | must realize that student loans must be dealt with |
| Legally, a default occurs the first time you fail to | | | | head on, and the sooner the better. |
| make a payment when it is due. But if you fail to | | | | Credit Repair Options |
| make your student loan payment for 180 days, your | | | | There are two great solutions that are designed to |
| loan will enter the "official" default status and take on | | | | solve all of your student loan problems. Both of these |
| a life of its own. This is the point at which the lender | | | | options can stop all collection activity, lower your |
| will report your student loan as defaulted to the | | | | interest rate and payment, and reinstate your right |
| credit bureaus. It is also the point at which a long list | | | | to borrow more money for school (in case you want |
| of bad things can start to occur. Your tax refund | | | | to go back to school). There are no qualification |
| checks can be seized and your wages can be | | | | requirements and you are not punished for having |
| garnished. | | | | bad credit. Everyone gets the same low interest rate. |
| What Happened? | | | | These two options are consolidation and rehabilitation. |
| Why are student loans so different from all other | | | | Both are a good fit with any credit repair process. |
| debts? Well, prior to 1991 the U.S. Department of | | | | Student Loan Consolidation |
| Education was empowered to collect delinquent | | | | Just contact the lender or collector and tell them that |
| student loans for only six years. But in 1991 an | | | | you would like to consolidate your defaulted loans. |
| amendment to the Higher U.S. Department of | | | | You will be required to make three monthly |
| Education Act lifted all time limits for collection. And | | | | payments on time. Once you have done this you will |
| the amendment was retroactive; student loans that | | | | qualify for consolidation. If you are attempting credit |
| were past the statute of limitation for collection prior | | | | repair you should note that after consolidation your |
| to the amendment became collectable again. And to | | | | credit report will be updated to show the |
| further reinforce the longevity of student loan debt, | | | | consolidated status, but the default notation will |
| a 1998 change in federal law made it virtually | | | | remain, like most derogatory information, for seven |
| impossible to discharge student loan debt in a | | | | years. If you are in a rough patch the consolidation |
| bankruptcy. | | | | program allows for up to three years forbearance. |
| The Reason for All This | | | | Ask your lender for details. My focus has been on |
| The theory behind making sure that student loan | | | | defaulted student loans, but it may be handy to note |
| debt can be collected forever is simple; the cost of | | | | that you do not need to be in default to enjoy the |
| student loans can be kept low by minimizing the | | | | benefits of consolidation. |
| number of borrowers that don't repay. And since | | | | Rehabilitation |
| education, and the availability of low cost education | | | | This is a slightly longer process, but has the extra |
| loans, is always a political priority, it was not all that | | | | benefit of removing the default status notation from |
| difficult to enact these changes. | | | | your credit report. To rehabilitate your loan you need |
| The Ultimate Collectors | | | | to make nine to twelve consecutive on-time |
| There is simply no way to escape the U.S. | | | | payments (depending on which type of student loan |
| Department of Education and their army of private | | | | you have). Once you have completed this process |
| collection agencies that collect on their behalf. In | | | | your loan is considered "seasoned" and is sold to a |
| addition, Sallie Mae, the nation's largest student loan | | | | new lender, and the default is wiped off of your |
| lender, has been purchasing collection agencies to | | | | credit. Once done, it is like it never happened. If you |
| track you down. So, what if they find you and you | | | | are attempting credit repair you should note that |
| say you have no money? Well, the U.S. Department | | | | your payment history, including any late payments |
| of Education now has the right to garnish wages, | | | | that you made, will remain, but your credit score will |
| grab your tax refunds, and even seize your Social | | | | benefit from the removal of the default. Borrowers |
| Security Checks (you read that right!), all without a | | | | are allowed to rehabilitate a defaulted student loan |
| court order. And, although Sallie Mae does not wield | | | | one time only. As always, contact your lender to |
| the same powers, they have started to turn over | | | | discuss the details. |
| hard cases to the U.S. Department of Education to | | | | Copyright © 2007 James W. Kemish. All |
| get the job done. Anyone attempting credit repair | | | | Content. All Rights Reserved. |