Consolidating Defaulted Student Loans

[Cynic]

It's complicated what happens with the negs when you rehab, since it depends on your loan type.

For Direct and Perkins loans, ALL NEGS are removed.

For FFELP loans, the negative info reported by the guarantor (the entity that bought your loan when you defaulted, USA Fund or a state agency) is removed, but NOT the lates reported by the original lender (the holder of the loan before you defaulted, Sallie Mae, Nelnet, the bank, etc).

The best solution for you as a borrower will vary according to your circumstances and the type of loan you have.

[LeslieR]

It's complicated what happens with the negs when you rehab, since it depends on your loan type.

For Direct and Perkins loans, ALL NEGS are removed.

For FFELP loans, the negative info reported by the guarantor (the entity that bought your loan when you defaulted, USA Fund or a state agency) is removed, but NOT the lates reported by the original lender (the holder of the loan before you defaulted, Sallie Mae, Nelnet, the bank, etc).

The best solution for you as a borrower will vary according to your circumstances and the type of loan you have.

I have not found this to be the case. My loans were Direct loans and Stafford loans (the predecessor to Direct loans). All parties that ever held or serviced the loan reported the negative info for the duration and I was told every which way by all of these entities and from experienced folks on this board that I couldn't do anything about it. I may be wrong, but if I am, then I have a lot of stuff on my reports that should have been deleted -- and I've worked very hard to get it deleted. And it's still there.

[Cynic]

I have not found this to be the case. My loans were Direct loans and Stafford loans (the predecessor to Direct loans). All parties that ever held or serviced the loan reported the negative info for the duration and I was told every which way by all of these entities and from experienced folks on this board that I couldn't do anything about it. I may be wrong, but if I am, then I have a lot of stuff on my reports that should have been deleted -- and I've worked very hard to get it deleted. And it's still there.

Well...Stafford loans still exist, and can be either Direct or FFELP. There was no "predecessor" to Direct loans; the older FFELP program (previously called the Guaranteed Student Loan program) also still exists.

A Direct loan is serviced by Direct Loans. Stafford loans serviced by anyone else are FFELP Stafford loans. Who is actually reporting, and what are they reporting?

[LeslieR]

Well...Stafford loans still exist, and can be either Direct or FFELP. There was no "predecessor" to Direct loans; the older FFELP program (previously called the Guaranteed Student Loan program) also still exists.

A Direct loan is serviced by Direct Loans. Stafford loans serviced by anyone else are FFELP Stafford loans. Who is actually reporting, and what are they reporting?

Appreciate your response. This IS very confusing and I don't mean to sound like I know what I'm talking about (you appear to) - I'm just speaking from my experience. Essentially, I got an MA at one school (2 years/4 semesters of Stafford loans). I moved to another school for a Ph.D. (4 years/12 quarters and probably some summers of loans) that participated in what was then the new Direct Loan program.

(Wouldn't you think someone with that much education would have been smart enough to get a forebearance or start paying the damn loans back??!!! But I digress.)

I guess I assumed at that time that DLs were replacing Staffords and having to go through the banks for federal funds.

All of this defaulted before being consolidated.

I have 3 Sallie Mae lines reporting "Account transferred or sold"

3 CA State Student Aid Commission lines reporting "collection account/paid",

9 US Department of Education accounts reporting "Paid collection/student loan assigned to government OR Collection account/paid or refinanced."

1 US Dept. of Ed. account for the full amount which was the bridge loan that paid off NCO and that Suntech (now Chase) bought - it's a positive TL

All of this is due to fall off in the next year and as such isn't affecting my score too much, so it's not a big deal for me...I've lived with it this long...but if it can help someone else, have at it.

[Cynic]

Ah.

More definitions:

Rehab: making a 9-12 consecutive, voluntary payments on a defaulted loan to take it out of default. You do this with the collection agency that's handling the defaulted loan. This may be difficult, but it's the only way to get any negative credit removed... many people choose to instead go with

Consolidation: taking out a new loan to repay your existing loans, either from a FFELP lender or from the Direct loan program. This gets your collection accounts paid, but with a new loan rather then with 9-12 monthly installments from you. This is the easy way out. It does not change the fact that you defaulted and got sent to collections before your loans were paid off with a new loan. Reading your posts, I get the impression that you consolidated and then started paying. No dice. You didn't rehab.

[LeslieR]

Ah.

More definitions:

Rehab: making a 9-12 consecutive, voluntary payments on a defaulted loan to take it out of default. You do this with the collection agency that's handling the defaulted loan. This may be difficult, but it's the only way to get any negative credit removed... many people choose to instead go with

Consolidation: taking out a new loan to repay your existing loans, either from a FFELP lender or from the Direct loan program. This gets your collection accounts paid, but with a new loan rather then with 9-12 monthly installments from you. This is the easy way out. It does not change the fact that you defaulted and got sent to collections before your loans were paid off with a new loan. Reading your posts, I get the impression that you consolidated and then started paying. No dice. You didn't rehab.

Gotcha! Thanks. After all these years, I didn't really get that. I thought that I rehabbed by making the payments to the new lender. Thanks for that clarification. The good news is, as I mentioned, this is all going away very soon AND I have an interest rate of less than 3% now after discounts for autodeductions and 36 consecutive ontime payments.

I hope my earlier comments didn't mislead or confuse anyone anymore than they already were

[southgal6]

It's really humbling when you think you've gotten things under some control and then the phone rings...Anyway, I thought that I had consolidated all of my loans under Sallie Mae (under deferment at this time,) but I somehow missed one. (many moves; paperwork somehow misplaced; no contact from any student loan lenders in 2 yrs) Now I hear from Zwicker & Associates regarding a private loan through the Access Group (KHESLC) I have, and they have proved is mine.

Questions:

(1) I know that the federal loans through KHESLC are not covered by the SOL; are the private ones? If so, this has passed. If not,

(2) can this defaulted loan be consolidated through Sallie Mae as well at this point?

(3) I not through Sallie Mae, what are my other options. As I stated, my other loans are under deferment. I am not in a position to pay anything at this time

Thank you for your assistance.

[LynnInMN]

It's really humbling when you think you've gotten things under some control and then the phone rings...Anyway, I thought that I had consolidated all of my loans under Sallie Mae (under deferment at this time,) but I somehow missed one. (many moves; paperwork somehow misplaced; no contact from any student loan lenders in 2 yrs) Now I hear from Zwicker & Associates regarding a private loan through the Access Group (KHESLC) I have, and they have proved is mine.

Questions:

(1) I know that the federal loans through KHESLC are not covered by the SOL; are the private ones? If so, this has passed. If not,

No SOL for a private loan from non profit source.

(2) can this defaulted loan be consolidated through Sallie Mae as well at this point?

Nope.

(3) I not through Sallie Mae, what are my other options. As I stated, my other loans are under deferment. I am not in a position to pay anything at this time

Thank you for your assistance.

Once you default on a private loan, the only option is to pay it off in full quickly.

[Cynic]

KHESLC falls within the definition of a "nonprofit or government unit". No SOL.

You can't consolidate private loans in the federal loan program. You may be able to refinance it through private finance, but it's doubtful considering the status.

There's no SOL, it won't stop accruing interest, and if you have a job and aren't already garnished @ max, you'll eventually find yourself in an involuntary repayment program.

[clmamk]

There is nothing "we'll see" about the consolidation of defaults. When I was collecting I assists 1000's of borrowers with consolidating their defaults. That option as been available probably for about 14 years if not longer!!

So, am I correct in understanding that you HAVE to enter into an agreement with the CA to rehab the loan for at least 9 months before you are eligible to consolidate? Or is it possible to consolidate a defaulted loan instead of rehabbing it? The reason I ask is that the monthly payment that the CA wants is just not feasible. My hope is that by consolidating, my monthly payment will be more manageable.

[LynnInMN]

So, am I correct in understanding that you HAVE to enter into an agreement with the CA to rehab the loan for at least 9 months before you are eligible to consolidate? Or is it possible to consolidate a defaulted loan instead of rehabbing it? The reason I ask is that the monthly payment that the CA wants is just not feasible. My hope is that by consolidating, my monthly payment will be more manageable.

Nope. You do not have to rehab first....it is just better for your credit. You can skip the rehab step and go directly to consolidation.

[starvingstudent]

Any tips as far as owing an actual university? I owe about 5,000 and it has recently been sent to collection. I cannot re-enroll until this amount is paid in full, and even if I were in the position to settle (p.s.. I'm not ) I have been told that it is not an option. I have a small student loan that I intend on rehabbing, however this big debt to the university is what is hurting me the most. I cannot get a loan to pay off the debt because my credit isnt high enough, and my credit isnt high enough due to my outstanding student debt. Im stuck in an excruciating catch 22 and would just like to continue my education. Any suggestions or comments are GREATLY appreciated.

[LynnInMN]

Was this a University (instituation) loan or a past due tuition account? Either way, until they are paid in full, you cannot get your transcripts or reenroll.

[starvingstudent]

past due tuition that has gone to collection. I know I cant re-enroll until it is paid in full, but I dont want to wait however many years it will take to pay it off before I continue my education. I have been trying (unsuccessfully) to get a loan to pay off the university, and just make payments to a fresh loan, but they have all said that my credit score isnt high enough, and because of my large school debt I am not eligible. I dont know what else to do...

[moneydiet]

I'm currently consolidating my defaulted student loans.

When you consolidate student loans through the Direct Loans program, you are put into the ICR, Income Contingent Repayment plan. This is very good for me, because my minimum monthly payment is going to drop to $0. Interest still accrues, and in ICR is capitalized yearly. After 25 years, any remaining balance is forgiven.

There is also a new replayment plan, IBR, Income Based Repayment. It's very similar to ICR, but it is better from what I've read for a few reasons. For example, interest does not become capitalized under IBR. You cannot start on IBR if you are consolidating defaulted loans, but apparently you can switch to IBR after you make three payments under ICR.

[LynnInMN]

Student loans are often used for the benefit of students and also for the education purpose. I think this is a great way to promote education.

often used?? This is the only reason student loans exist...to finance educational expenses. They are not available to borrow for any other purpose.

[christinag]

glad to hear that, i will try pay off before my future kids grow up..

[RTTech11]

Hi guys, I feel so fortunate to have found this forum..

My situation is the following:

I have about $33k in subs/unsubs loans with Sallie Mae as well as two private loans, one with Wachovia and one with SM. Currently, the $33k loans with SM which were defaulted are now in consolidation, and payments are supposed to start this December. Since these loans are in consolidation status already, would I be able to put them back in rehab, make payments for 8-9 months, and after that, consolidate them again once again to bring the interest rates and payment to a minimum?? Thanks in advance..

[LynnInMN]

Hi guys, I feel so fortunate to have found this forum..

My situation is the following:

I have about $33k in subs/unsubs loans with Sallie Mae as well as two private loans, one with Wachovia and one with SM. Currently, the $33k loans with SM which were defaulted are now in consolidation, and payments are supposed to start this December. Since these loans are in consolidation status already, would I be able to put them back in rehab, make payments for 8-9 months, and after that, consolidate them again once again to bring the interest rates and payment to a minimum?? Thanks in advance..

Nope. You interest is always a average of your current rates so that wont help. Plus you can opt for the income contingent repayment plan right now while in consoliation.

[RTTech11]

I was reading on ICRs and it seems like a very good idea for me. Two things concern me though, one is the time it'd take to pay off the loan: 25 long years for just $33K in my case and 2) I read that the Government penalyzes married couples for ICR type loans. My wife is currently a full time student, but I guess this would mean my payment would be higher once she starts working because the incomes would be combined.

However since I am an X-Ray tech, it seems I fall in the public service category and that means after 10 years the rest of the loan can be discharged by the Govmt, not bad.

I could probably afford a higher student loan payment right now since I just finish paying off all my credit cards, but I'd like to save some money as well as improve my credit ASAP. Just want to make the smartest decision to help me get there the fastest, I'll ask Sallie Mae about this option, thanks LynnInMN.

[NickL]

Indeed, debt consolidation became rather popular today as a lot of people possess debts and are eager to get rig of them. Besides, a lot of students have debts on their loans and consolidation is the best solution, as for me, because debt consolidation companies provide lower interest rates and the repayment period can be extended. Personally, I applied for student loans consolidation after the graduation and now it's much easier for me to manage my payments.

[RTTech11]

edited..

Edited February 24, 2011 by RTTech11

[RTTech11]

edited

Edited February 24, 2011 by RTTech11

[LynnInMN]

I just want to clarify the potential impact and final result of the

1. Debt Consolidation

2. Consumer Counseling

3. Making minimum Payments

4. Settling your unsecured debt

5. Bankruptcy

studentloansescape dot com

You advertising on this board too????

Student loans are not dischargable in bankruptcy. They cannot be included in a debt consoldiation program or consumer credit counseling.

Making minimum payments without approval will only result in you being garnished in the case of fed loans and sued for private.

Student loans can easily be settled without the use of settlement companies.

[littleMikey]

Today you can take our a Private student loan pretty much as quick as taking a walk to the grocery. Not only that its relatively easy to get private educational funds, the most financially devastating thing is that the lenders are willing to mail the check directly to the borrowers! At this point a happy borrower can go out and buy a nice luxury car. The bubble is yet to explode, and its going to be much nastier than sub prime mortgage explosion of 2008.