Student Loans

[technicalogical]

I defaulted on two Stafford loans back in 07 and I'm now in a position where I am able to take care of these loans. There are several option that I have, but I am unsure of which one would be best for my situation. Before I state my options I'll give a little background. The loan total is $5800 and is currently held by NCO. I am going to be receiving a tax refund this year that would leave me with a balance of just over $1000, I am assuming that the tax return is going to be withheld, but I haven't had a refund in years, but they have withheld it in the past. I am also wanting to purchase a home in the next year, so I would like to take care of the SL in a way that will not negatively effect my credit score (currently in a steady rebuilding process, 660ish).

First option:

Contact NCO and start rehab

File income taxes and let the refund be applied to my SL balance

Make my rehab payments and have the loan paid off at the end of the rehab process

This option sounds good, but it's my understanding that you need to have the loan repurchased at the end of the rehab to get the credit score bump. Would a bank purchase back a loan that is only a few hundred dollars?

Second option:

Rehab with NCO

Postpone filling taxes until after the wage garnishment has been lifted

This is the option that I am considering the most. It allows for me to use the tax return to increase my down payment, the rehabed loan will be repurchased and the balance should be low enough that it would not effect debt ratio's for a FHA loan.

Third option:

File taxes and allow the refund to be withheld

Pay off remained as soon as soon as the other payment is processed

This option also sounds fine to me, it would allow for me to purchase a home sooner. However, I am afraid that this will put negative information on my CR. I have read elsewhere that paying off student loans that are in default without rehabing will place all of the bad payment history on your CR. I have invested some time and effort to get my score up over the past six months, I would really not like to trash that by paying off a loan. The fact that paying off a loan can be a negative is a serious head shaker.

All of these option have their pro's and con's, I just need a little internet counselling to get a feel for which option would be the best. If I left off any information, or if you have any further question about my situation, don't hesitate to ask. Thanks for taking the time to check out my post.

[omskillet]

How are the loans currently being reported on your CR's? You need to decide which option is going to change/reflect the best after you're done with those loans. If you can rehab directly with the NCO and get them to remove default status and possibly all previously lates that's going to make those TL's look much better.

If you pay off the loan and they still report as 180+ days late or defaulted or paid charge off but with 0 balance its going still be a derrogatory TL until it "falls off" your report.

So that goes back to my question of how are they reporting as of right now?

[technicalogical]

There are currently no TL's on my CR.  Do you think that if I paid it off without rehabing, that the TL would reappear?

[omskillet]

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technicalogical wrote:

There are currently no TL's on my CR.  Do you think that if I paid it off without rehabing, that the TL would reappear?

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WOW...you are very lucky! If you can confirm that they don't appear on your credit then of course your best bet is to pay them off and never look back. Its an interesting position you're in. If they are defaulted and unpaid you don't want them showing up on your report. Obviously you're still responsible morally and legally for the debt. I don't think paying for them is strictly going to them on your credit report. I do however think that some sort of rehabilitaion would prompt NCO to being reporting each monthly payment and possibly getting these TL's showing up.

The faster you pay them the less chance they have of selling or putting a claim with the government on your loans. If the loan is transferred you can definitely expect it to show up. Usually with a new history but not always.

Its a tough call. Hopefully others can chime in. Sounds like your best bet in my opinion is to pay it off and don't look back. I would do some research on the statute of limitations for loans to be put on your credit after they are paid.

[technicalogical]

I believe that after six or seven years, defaulted SL's will drop from your CR, however they will continue with wage garnishment and you will be denied any future SL's and government guaranteed programs like FHA and VA loans.  

I started the rehab process, I'm hoping that NCO doesn't report, and when the loan is repurchased, then it can be reported as a loan in good standing.