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Student Loan Question

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DoctorLoomis
Regular Contributor

Student Loan Question

My best friend has two student loans that are three years in default. They total about $3700. I explained to him about consolidation and rehabilitation. However, he claims the collection agency told him something rather strange.....if he rehabilitated the loans his credit would be cleaned up after nine payments or so. If he paid the $3700 right now in full his credit would NOT be cleaned up! Does this make sense? Is this the collection agency trying to make more money here?

Chase Southwest - $88,500 I CSP - $50,000 I Barclays Aviator Silver - $50,000 I Wells Fargo Sig - $25,000 I AMEX Amazon Prime - $40,000 I B of A Cash Rewards - $77,200 l AMEX Platinum NPSL l PayPal MC - $10,000 l Sportsmans Guide Visa - $18,400 l CITI Simplicity - $16,600 l CITI Premier - $17,000 | AMEX Hilton Honors - $20,000 | Discover It - $20,500 | Coldwater Creek MC - $10,000 | Williams Sonoma - $11,500 | Nordstrom VISA Sig - $20,000 | J Crew - $10,000 | Apple Card - $68,000
Message 1 of 4
3 REPLIES 3
guiness56
Epic Contributor

Re: Student Loan Question

Yes.  The rehab program is one that, once completed, removes the default information (not necessarily the lates) from the CR.  If he paid the balance today it would be like paying off the CO but the CO status would remain.

Message 2 of 4
trix_r_4_kids
Regular Contributor

Re: Student Loan Question

The CA is correct.  Rehab is better for credit.

 

With consolidation, the bad marks will stay on your credit if your loans previously were in default.  Even though your loan will be paid off and listed as “paid in full” on your credit report.  Just like any collection, it doesn't go away just because it's been paid.  Once loans are consolidated, you’ll get a new loan through consolidation and the old defaulted loan (although paid) will stay on your report for 7 years.

 

As I mentioned, to fix your credit, rehab is better.  After rehab, all past negative information in regard to your student loans will completely deleted from your credit file.  With student loan rehabilitation, you make 9 on-time payments on your student loans (for Direct or FFEL loans).

 

I lived through rehab and now there is no evidence of any student loan default on any of my credit reports.

I used to post my scores here. However, I'm prone to motion sickness and the ups and downs were nauseating.
Message 3 of 4
DoctorLoomis
Regular Contributor

Re: Student Loan Question

Thanks for all the advice. I just find it silly that if the borrower drags payment out over a period of months or years the credit will be repaired....but if he chooses to pay the entire balance and move on with his life his credit will suffer.

Chase Southwest - $88,500 I CSP - $50,000 I Barclays Aviator Silver - $50,000 I Wells Fargo Sig - $25,000 I AMEX Amazon Prime - $40,000 I B of A Cash Rewards - $77,200 l AMEX Platinum NPSL l PayPal MC - $10,000 l Sportsmans Guide Visa - $18,400 l CITI Simplicity - $16,600 l CITI Premier - $17,000 | AMEX Hilton Honors - $20,000 | Discover It - $20,500 | Coldwater Creek MC - $10,000 | Williams Sonoma - $11,500 | Nordstrom VISA Sig - $20,000 | J Crew - $10,000 | Apple Card - $68,000
Message 4 of 4
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