Defaulted Student Loan looong time ago, how to recover?

[JBinBigD]

I defaulted on a Stafford Loan a long time ago, in 2001 I think.  The loan went to the guarantor, which is Texas Guaranteed Student Loans (TGSL).  They have been garnishing my wages for several years now and the amount is up to $500 per month now.  Over that period I have increased my salary a lot and can afford to pay them even more than the $500 per month they are already garnishing. 

Problem is that when I contact them, they won't offer anything.  No rehab, no nothing.  I offered to make voluntary payments in addition to the garnishment to get the loan back to current but they won't do a thing.  They tell me there are no buyers so they can't offer a rehab.  I contact them once every couple of months and get the same story.

Now I'm trying to buy my first house and the lender says that a defaulted federal loan prevents me from qualifying.  So I'm stuck.  My credit score is decent 656 and rising, but there's nothing I can do about the defaulted loan.  They are getting $500 per month for 5+ years and I'm willing to pay more but they won't budge.

Is there anything I can do?  I want this thing out of default.

[JBinBigD]

Here is the statement from the guarantor website:

Note: Due to current market conditions in the student loan industry, specifically loss of all participating lenders, TG has suspended its rehabilitation program effective April 17, 2008. We are hopeful that this situation is temporary and that the program may be resumed in the near future. We encourage you to set up a repayment agreement with TG, so that if this program is resumed you will either meet, or be on your way to meeting, the eligibility requirements for the rehabilitation program.

[LynnInMN]

How much more do you owe? 

There is nothing stopping you from sending more money in directly each month to knock the balance down...it just wont bring you current.  TGSLP has always had a high default rate and getting rehab lenders has been hard. 

[JBinBigD]

I owe $19K more.  I plan to start sending an extra $250 per month with hope that when the lenders are available then they will consider my voluntary payments as part of the nine-consecutive in the rehab program.  However based on my conversation with them, the nine-consecutive payments will have to start over.

The main thing I want is for the loans not to be in default status on my credit report.   I've read that even if you do a consolidation refinance or pay it off completely that the default status will still show on credit report.  The only way to prevent it showing as default status is a rehab program.  Right?

In order to qualify for a home mortageg my best option is probably to save 10 to 20% of the cost of the home and get a conventional loan that is not FHA.   It looks like it would be better to save the money for a house than to send it all to TGSL since they aren't to change the status on my credit report no matter how much I send them.

[samwise7]

JBin, I was in the same situation.  I tried to re-hab my loans, even went through making payments for nearly a year with the hope of re-habbing.  But due to current economic conditions it did not work.  I was hoping to apply for an FHA insured mortgage and at that point I thought my chances were none.  But the FHA does not care that you defaulted on a student loan in the past, they just cannot insure while there is still a balance on the defaulted trade line.  I chose to consolidate.  It took about 6 weeks to complete and at the end I provided my lender with proof that the loan was consolidated, and that I did not owe any money on the defaulted loan.  Go to the mortgage boards on this forum.  Get some advice.  If you are trying to get a FHA mortgage, this situation is not as big an obstacle as you might think.

[LynnInMN]

The big problem is that he cannot consolidate while being garnished.

[Anonymous]

Hi,

I am in the same situation, I have been in rehabilitation for almost 2 years and because of the economy there are no lenders.  I am wanting to purchase home before year end.  I was told that they will possibly have a lender at the end of August but I do not know how much longer I can wait.  How long after you consolidated did it take for your credit score to raise?  How long ago did you consolidate? I wish I would have consolidated a long time ago and now I am not sure if I will get my scores up high enought to get approved. 

7/4/09

experian 591

equifax 601

transunion 654