Rehab or Income based repayment

[Anonymous]

New user trying to rebuild credit!

My husband has 2 student loans, total >$8K,  in default from Direct Loans & we have an intercept on our taxes. We were going to attempt the rehab process, however, the DL rep recommended Income Based Repayment.  According to him, we would pay two full payments of $171 & then the loans would come out of default status & IBR would begin, $71 month & the intercept would be taken off. 

Is this a good deal or should we pursue rehaabbing them?  I cannot get a definitive answer about the collections TLs being removed.  We want to follow the course that will have the most positive impact on his credit. 

[sean23]

I think you may have received some misinformation. Unless something has changed, usually how it works is: For loans in default you have the opportunity to rehab the loans by making 9 consecutive monthly payment. Once your rehab is complete and picked up by a servicer, THEN you have the opportunity to apply for income based repayment for the remainder of the loan. 

I've personally never heard of the default status being removed from a loan after only 2 payments. 

[SCF]

If the loans are in default, you can get them out of default in two ways:

1) Rehab, which involves 9 consecutive, on-time payments to the collection agency.  After that, the loan is sold to a servicer and default status removed.  Once the loan is with the new servicer, you are eligible to apply for any of the income-driven payment plans you qualify for.

2) Consolidation, which basically refinances your oustanding loan(s) with a new servicer.  It makes you immediately eligible for income-driven payment plans, and will clear the default status out of CAIVRS and the IRS off-set list quickly, but it does not result in any immediate improvements to your credit report.

Rehab is definitely the better option for people who are looking to improve their credit and can wait 9 months to see the rewards of their efforts.

[Anonymous]

Thank you for the reply. I want to choose what's going to help his credit.  However, we have a sizable tax return coming & my fear is the loan would be paid off before the 9mos was up in rehab, which wouldn't help our payment.  The rep at Direct Loans def leans in favor of consildation, with Direct Loans servicing the loans after the 2 payments are made. 
Will making those payments reset the date on the tradelines?  Currently they're set to come off 10/2016.