Student Loan Rehab vs Settlement.

[Anonymous]

Hello, 

This is my first post on this board. After a few days of no sleep and being driven to the edge of insanity, I have decided to post on this board to seek advice. 

I have 2 student loans currentyl in default status. THey are the only negative marks on my credit report and are bringing the score down to 550.

I am trying to fix my credit within 2 years so I will not be discriminated againt when I enter the workforce, after my Bacheleors degree. 

My question is...Would It be better to enter a rehabilitation program, or pay the amount as a settlement? (Original amount is 14k. Settlemnt will b 10.5k.)

Which option is best for me if I want to rebuild my credit the fastest?

Also, I should note that the *Date of First Delinquency* was 11/2011.--> Does this mean that after 7 years, the record will be completely off the report?

Please help. I am so stressed and Nobody in my family has experience with these matters. 

[SCF]

What type of loans are these?  Are they federal or private?  That will greatly influence your options.

Your defaulted account will fall off your report 7-7.5 years after the DOFD, you are correct about that.

[InvincibleSummer3]

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@Anonymous wrote:

Hello, 

This is my first post on this board. After a few days of no sleep and being driven to the edge of insanity, I have decided to post on this board to seek advice. 

I have 2 student loans currentyl in default status. THey are the only negative marks on my credit report and are bringing the score down to 550.

I am trying to fix my credit within 2 years so I will not be discriminated againt when I enter the workforce, after my Bacheleors degree. 

My question is...Would It be better to enter a rehabilitation program, or pay the amount as a settlement? (Original amount is 14k. Settlemnt will b 10.5k.)

Which option is best for me if I want to rebuild my credit the fastest?

Also, I should note that the *Date of First Delinquency* was 11/2011.--> Does this mean that after 7 years, the record will be completely off the report?

Please help. I am so stressed and Nobody in my family has experience with these matters. 

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Are these Federally-backed student loans? If so, I was in much the same situation, and I chose to rehab my loans. Here's why: at the end of the rehabilitation period, the historical default status is removed from your credit report. It's not a complete "get out of jail free" card, because the negative info that led up to the default can remain. But settling the loans will mean that the default info will remain for seven years. For me, getting the default status off, at least, was worth it. But it's a personal decision for everyone, so I urge you to do some research and make sure it works for you.

https://studentaid.ed.gov/sa/repay-loans/default/get-out

As far as your DOFD question: federal student loans are a bit of a different animal. If the loans remain unpaid, they can show up on your report indefinitely. There really is no "waiting it out". If you ignore them they won't magically drop off in 2018. You have to find some way to either pay them or bring them current, or they stick around forever. But if you rehab your federal loans? Then, yes, negative info would drop off after the seven year period. My loans are still showing some negative info from before the rehab period but my scores are in much better shape. I went from sub 500 scores to low 700's, and just closed on my first home. 

I wish you luck. Don't stress. It can get better.

[Anonymous]

Thanks for the replies. 

The loans are from Sallie Mae. They are both Federal Loans, listed as "Dept of Ed."

I have the means to pay the settlement amount right now and not worry about making another payment. So that is the reason that I was weighing it as an option.

My concern is that once I make the Settlement payment, my "clock" will be reset. 

Any advice on that?

[InvincibleSummer3]

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@Anonymous wrote:

Thanks for the replies. 

The loans are from Sallie Mae. They are both Federal Loans, listed as "Dept of Ed."

I have the means to pay the settlement amount right now and not worry about making another payment. So that is the reason that I was weighing it as an option.

My concern is that once I make the Settlement payment, my "clock" will be reset. 

Any advice on that?

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Well, no - the DOFD would still apply. But if you're looking to have your scores up within two years, then an exclusion timed for between November 2018 and May 2019 (roughly) doesn't really help you.

If you rehab, your scores could improve significantly within your two year time frame. That's certainly worth consideration. What about rehabbing the loan and then once the default status is off your credit reports then pay off the loans? That's the best of all worlds - default comes off fast and within a year you don't have to worry about payments hanging over your head.

[Anonymous]

That is definetly a valid point which I should take into consideration. 

I am definetly releved to hear that the clock will not be reset. 

I actually didnt even know it, but It turns out I was doing the rehabiliaition program throug Allied Interstate this entire time. 

Im actually on my 3rd payment. 

All this time, I thought that I was just making min. payments to reduced the loan amt!

So the question now is...

After I am done with my rehabilitation program, what happens? 

Will another tradeline be opened that corresponds with my newly transfered loan? WIll the defualt status be completely removed?

Lastly, do you think I will still be able to neg. a settlement with the new agency once I am out of default?

BIG THANKS!!

[InvincibleSummer3]

After you're finished with the rehab payments, the loan will be transferred to a new lender and your credit report should show positive trade lines from the time of default to the current date. The default status should be removed, but any lates leading up to the default may remain. Some lenders are better about being open to removing them than others.

You can always try to negotiate a settlement, but know that a settlement for less than the full amount will ding your credit score. It's better to just pay it off, IMO, so that way you're not racking up interest.

[6speed8]

Be wary of "settlement amounts." It might be common knowledge but it was news to me when it happened lol. This can happen with ANY type account you settle with. Credit card, mortgage, student loan,etc.

EXAMPLE: You settle your $15,000 loan for $10,000. They will 1099-C you to the IRS. The IRS will then view your income as $5000 more for the year and tax you on it. Look it up but if I recall correctly, ANY type of account that the settlement is more than $500 less than the original amount, gets 1099-C'd to the IRS...