PIF vs. Rehab Old Defaulted Loans That Have Dropped Off Report

[Anonymous]

Hello - I've got a couple of student loans (~$13k total) from ~2008 that are obviously no longer on my credit report, but I'd like to get them resolved ahead of a possible FHA loan at some point in the future. My questions are as follows:

- Is there any benefit to rehabbing vs. PIF if they've already dropped off my report? Because of my income, 9 payments is basically the total amount owed.

- If there is a benefit to rehabbing, can I just pay the 9 payments immediately and not mess with it monthly?

- If there is no benefit to rehabbing, is there any reason to pay the full amount vs. the compromise amount?

Thanks in advance for any insights offered!

[calyx]

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@Anonymous wrote:

- Is there any benefit to rehabbing vs. PIF if they've already dropped off my report? Because of my income, 9 payments is basically the total amount owed.

Yes, if these are among the oldest accounts you have, it can benefit your score by being factored into your aging metrics.

- If there is a benefit to rehabbing, can I just pay the 9 payments immediately and not mess with it monthly?

You can rehab it and as soon as the account is active and positive, pay the whole thing off.

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For most people, student loans are amongst their oldest accounts (if not the oldest accounts), so they tend to be VERY get at anchoring your credit report with aging.    As an example, when my DELINQUENT accounts disppeared and took the aging with them (I had a very thin file), I didn't have as much of a positive boost because all of my aging was reset to basically nothing.  If you are rehabbing multiple student loans, that anchor could be even stronger thanks to the math.

Is it worth it to you?  Do you have a year to get the rehab up and running and complete before you need to take out a loan?  There's a lot to be said for just paying it off and never having to worry about it again, and that might be worth more than an increased score.   If you have solid scores now, my recommendation would be to just pay it off.   If your score is borderline and could be helped by the ages of these AND you have the time to finish rehab/pay off the loan/get it all reported then go rehab.

[Anonymous]

Thank you for the reply, good information and insight.  My FICOs are currently high-Fair/low-Good range, and at least one is taking a hit for "short credit history", so I could use any boost.  I'm also not in a huge rush to buy a home, not sure I could even compete using an FHA loan in the current market, so I'm leaning towards rehabbing.  I suppose if my mortgage timeline changed I could always pay it off in full at that point, so might as well at least start rehabbing. Thanks again for the reply@

[unsungivy]

From the NPR article...

""We know so many of our borrowers have fallen on hard times, even before the pandemic. They maybe had delinquent payments or they'd have to default on their loans. And what we want to do is make sure they have a fresh start. We want to make sure that their loans are put in good standing again," Cardono told NPR.

This is big news for the roughly 7 million borrowers whose federal student loans are currently in default, many of whom had wages garnished and Social Security benefits withheld before the pandemic. When the pause eventually ends, those collections will not resume and these borrowers will be restored to good standing.

Normally, to exit default, the Education Department requires that borrowers coordinate with a default-focused loan servicing company and make nine "reasonable and affordable monthly payments... within 20 days of the due date" – and make them over the course of 10 consecutive months. With this restart, however, the Biden administration is using its pandemic authority and the ongoing repayment pause to waive this rehabilitation process."

No need to choose, the Gov is going to consider you "rehabbed" without having to do anything! I would recommend making sure you DON'T pay them off before they pull the trigger on considering you rehabbed, though, so that they don't get "stuck" that way if you pay them off before then (not sure if you're paying during the pause or not atm.)

[Anonymous]

Thank you so much for posting this - I saw a few headlines about the pause being extended but nothing else, and would have totally missed this part of it had you not posted.  I certainly don't deserve to be restored to good standing in this way, but I suppose it would be pretty foolish not to take them up on it.  Thanks again, it's greatly appreciated.