Just found out I owe $5 on a Federal loan from 2004. Couple questions before I pay it.

[VegasKyle]

I am planning on going back to school after a long hiatus.  During the course of applying fo financial aid I found I own $5 on a Federal Loan from 2004.  This loan is in default and is not reporting to any of the 3 credit agencies.  

1.)  If I call up and pay the $5 is the repayment going to cause it to start showing on my credit report?  I obviously don't want it to start showing up as a negitive.

2.)   Is simply paying off the loan going to get me back in the lenders good graces or are there other steps I need to take?  I want to be eligible for Federal and/or private student aid in the near future. 

[scvbd99]

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@VegasKyle wrote:

I am planning on going back to school after a long hiatus.  During the course of applying fo financial aid I found I own $5 on a Federal Loan from 2004.  This loan is in default and is not reporting to any of the 3 credit agencies.  

1.)  If I call up and pay the $5 is the repayment going to cause it to start showing on my credit report?  I obviously don't want it to start showing up as a negitive.

2.)   Is simply paying off the loan going to get me back in the lenders good graces or are there other steps I need to take?  I want to be eligible for Federal and/or private student aid in the near future. 

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I don't know about #1, but I'm sure somebody will chime in.   

As for #2, if you're not in default on any current federally backed student loans, and still have elibigility for Direct Loans (and need, of course, based on the FAFSA), then you should be fine.  

For private loans, it's up to the lender.  I recommend not taking one out if at all possible.  

[VegasKyle]

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@scvbd99 wrote:

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@VegasKyle wrote:

I am planning on going back to school after a long hiatus.  During the course of applying fo financial aid I found I own $5 on a Federal Loan from 2004.  This loan is in default and is not reporting to any of the 3 credit agencies.  

1.)  If I call up and pay the $5 is the repayment going to cause it to start showing on my credit report?  I obviously don't want it to start showing up as a negitive.

2.)   Is simply paying off the loan going to get me back in the lenders good graces or are there other steps I need to take?  I want to be eligible for Federal and/or private student aid in the near future. 

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I don't know about #1, but I'm sure somebody will chime in.   

As for #2, if you're not in default on any current federally backed student loans, and still have elibigility for Direct Loans (and need, of course, based on the FAFSA), then you should be fine.  

For private loans, it's up to the lender.  I recommend not taking one out if at all possible.  

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The loan is in default.  The $5 has been owed since 2004.  

[scvbd99]

Yeah, I understood.

I was saying that after you get that taken care of, you should be able to get more federal loans if you have reamining eligibility and need.  

You will not be eligible for new federal loans until you pay the $5 on that defaulted loan.  You can't rehab it because the balance isn't at least $1000.  If you want any other federal loans, you'll have to pay it, regardless of how it ends up being reported.  The lender is under no requirement to remove the notation that it defaulted, nor are they under any requirement to remove negative payment history.  

The defaulted loan will also never go away, and can show back up any time the creditor wants to show it.  It may be never, but I wouldn't want to take that chance.  The creditor has the following options for reporting defaulted student loans:

- 7 years from the date they are paid, or

- 7 years from the date they were first reported, or

- 7 years from the date the loan defaults again

[VegasKyle]

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@scvbd99 wrote:

- 7 years from the date they are paid, or

- 7 years from the date they were first reported, or

- 7 years from the date the loan defaults again

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This is what worries me about just paying the $5.  I know there is no SOL for fed loans and I know I need to pay it before I could get any additional Fed loans but if all of a sudden it started reporting on my credit report for the next 7 years it would be a disaster. 

[SCF]

I can't say I'm positive, but I doubt that paying it would start it reporting again.  Normally old student loans work their way back on to your reports when they are transferred to a new collection agency, and paying it off before that happens will probably do more to prevent it from showing back up on your reports.

As other posters have mentioned, you will need to pay it off to receive more federal financial aid, and this could also be a hang up if you need anything that checks CAIVRS, like an FHA or VA mortgage.  I'd get it taken care of ASAP.