Boo Bee.. whatever you do, do not jump to consolidating those loans if they are in default. Rehabilitate them first making 9-12 consecutive payments. Once these payments are arranged you cannot default on them ever again because loan rehabilitation is done only ONCE as a courtesy. Why rehabilitate instead of consolidate :
-Upon purchaSe of a loan by an eligible lender, OSFA will report rehabilitation of the loan(s) within 90 days to all credit bureaus , and OSFA will request that the default reporting by OSFA be removed from the borrower's credit history. (this is unlike consolidation where the credit bureau information is not removed for seven years after default, even if the defaulted loan is paid in full.). OSFA does not have the authority to remove credit bureau reporting made the ORIGINATING lender (was your loan sold to another lender for consolidation?) or any other agency or lender.
Let me give you an idea of what happens when consolidating a loan is a bad move. My husband owed SMAE $49K for student loans , he defaulted. It was close to our wedding date and they started to demand payment, he told them he couldn't pay the full monthly payment. Well -they were real nice on the phone and enticed him to consolidate his $49k in school loans and he wouldn't have to make a payment for 6 months because they "understood" his situation. My husband grabbed on to the opportunity not knowing how devastating this would be to his credit report.
This was the result :
-his credit report now reads he had 5 SMae loans in which he defaulted (60+ days) and he is going to have a real hard time disputing because by consolidating
- HE VALIDATED the defaulted loans. Those babies are going to stay on there for a good 7 years. Again, I repeat the defaulted loans are now valid on all three bureaus because they were payed off through consolidation.
-credit dropped 120 points (credit to debt ratio increased to 80% - since we didn't like to open up too many credit card accounts)
-original loans had a 4.5% interest rate. Consolidated loans now have a 7% rate
-he does not qualify for the rehabilitation because technically he is has not defaulted on his new consolidated loans. The previous loans will remain saying "defaulted" on all three bureaus
I'm a newbie on this forum. I don't have many theories on how to clean your credit. All I can give you is real world exercises my husband and I have been through with student loans. You could learn alot from a dummy.
We have recently paid off our debts and sending $1K every month to student loans (more than the minimum $200). However, this is not enough to get into a new house and not be seen as a SUBPRIME borrower. Don't get me wrong, we can get someone to lend us money but the percentage rates they provide to us will have us paying any house off in 50-60 years. His student loans have basically ruined our ability to finance *anything*. Soo, we take very good care of our car and pray it never breaks down because we'll have to use our house deposit money we are saving in order not to pay PMI's to any lender.
Here is what my credit attorney provided to me, hope it helps you out :
>First, contact the Office of the Ombudsman at the Department of Education and let them know you are interested in rehabilitating your defaulted student loans. Use the word "rehabilitation" specifically because that refers to this specific program. Their toll-free number is 1-877-557-2575, and their website is http://ombudsman.ed.gov (with no "www"). This office will provide the necessary forms for beginning this process.
