Tax Returns and Student Loan Rehabilitation

[SashaDixon]

Honestly I can't say for sure how much it will effect your score, but once the default comes off and it turns into a positive TL, it should help your score some. Do you have any other positive TLs? I didn't have any, and my score came up about 30 points after I had made my first payment to ACS and it reported. I was AU on two accounts but had no individual CCs in my name. I was in the low 500s when I rehabbed, but I had ALOT of baddies that were paid or fell off. Still have more to concentrate on, and just recently opened two TLs (one in 7/13 and one just yesterday). I used a credit repair to remove duplicates, and that helped, but it also caused problems that I wasn't aware were issues til last Monday. I have heard that credit counselors are different then credit repair though.

[smpabst81]

I think a credit counseler and credit repair are very similar. I'm sure after the default comes off, it'll boost my score some, but I'm sure there is some lasting effects of default, but what exactly they are and how to reverse them is the big question. Seems no 2 answers are the same. What are the negative effects of using a credit repair?

[SashaDixon]

The credit repair I used had me dispute all of the negative accounts I had that were reporting duplicate accounts. But when they do that they have you dispute both accounts, which puts a dispute code on all of the negs, even the ones that verify. I had them on there for three years never knowing that you cant have disputes when trying to buy a home. I had them removed on Monday and I had significant dips in my credit scores due to them rescoring the old accounts. It was a pain, I pulled my FAKO scores and they showed 60-100 point drops, but I pulled all three of my FICOs from here and the drops were less on here 30-40. Take a little bit to bring my scores back up, but I will manage.  

As far as the defaults hurting your score long term? Won't happen because when you are done with the rehab program they sell to another lender and that default will be removed permanently from your CRAs.

Hope this helps.

[SashaDixon]

Let me say this though, I saw elsewhere on here that some lenders can/will pull a full CR sometimes, and these can show your entire credit history from the beginning. Not sure if those defaults will show on there or not.

[scvbd99]

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@SashaDixon wrote:

Let me say this though, I saw elsewhere on here that some lenders can/will pull a full CR sometimes, and these can show your entire credit history from the beginning. Not sure if those defaults will show on there or not.

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If you go through the rehab process, any reporting of previous default status on a credit report tradeline is a violation of federal law. The "full" credit report you're speaking of doesn't exist.  You pull your report from one of the CRA's, and you see the exact same tradeline/negative reporting history that any lender can see.  

When it comes to applying for home loans, lenders will often look around for and find debt not on your credit report due to passing SOL and such.  Maybe that's what you're talking about.  

[SashaDixon]

Yes, thats what I was talking about. I wasnt sure about the previous defaults on student loans. Thanks for clearing it up!!

[smpabst81]

So after many phone calls this is what I've gotten....

I spoke with the Collections Unit at the US Department of Education and essentially this is what happens.... Once they "certify" your tax return (generally up to a maximum dollar amount which is equivalent to the settlement amount on the loan and they generally do this by October or November) there are no rules put in place by the federal governement in regards to the decertification of your refund OTHER than if you have successfully rehabbed your loans that they must decertify your return.  There are no rules regarding the decertification of funds while during rehab.  So essentially, they will only decertify the funds during a loan rehab program if they "choose to do so".  The collections unit at the Dept of Ed said that the decertification of them during tax season without at least 50% of rehab payments made or completion of rehab is rare due to the high volume of people with defaulted loans trying to save their tax returns...simply put.... you didn't handle it and now its too late, tough cookies...lol  I have decided that since I owe $19k and get a sizeable return ($10k) that after getting my collection company to waive its fees ($3,700)...I'm going to go ahead and file and let them take my return as even though they are using a tax offset to recoupe the funds, I can still rehab my loan and by the time the rehab period is up, I will have completely cleared my debt on this batch of loans (in under a year!!). 

My question...

Since my tax offset is set "up to" $15k; will they just offset my federal return or will they take the balance out of my state return (meaning $10k from federal and $5k from state)? 

If they do that it will pay off my loan entirely and will still have to make that rehab loan payment to have the default removed from my credit report and then wait for a refund check from the US Department of Education. 

I'm just wondering what to expect, I don't want anymore sneaky little surprises.

Does anyone have experience with this? I live in Michigan  (if that makes any difference)

[smpabst81]

I spoke with the Collections Unit at the US Department of Education and essentially this is what happens.... Once they "certify" your tax return (generally up to a maximum dollar amount which is equivalent to the settlement amount on the loan and they generally do this by October or November) there are no rules put in place by the federal governement in regards to the decertification of your refund OTHER than if you have successfully rehabbed your loans that they must decertify your return.  There are no rules regarding the decertification of funds while during rehab.  So essentially, they will only decertify the funds during a loan rehab program if they "choose to do so".  The collections unit at the Dept of Ed said that the decertification of them during tax season without at least 50% of rehab payments made or completion of rehab is rare due to the high volume of people with defaulted loans trying to save their tax returns...simply put.... you didn't handle it and now its too late, tough cookies...lol  I have decided that since I owe $19k and get a sizeable return ($10k) that after getting my collection company to waive its fees ($3,700)...I'm going to go ahead and file and let them take my return as even though they are using a tax offset to recoupe the funds, I can still rehab my loan and by the time the rehab period is up, I will have completely cleared my debt on this batch of loans (in under a year!!). 

My question...

Since my tax offset is set "up to" $15k; will they just offset my federal return or will they take the balance out of my state return (meaning $10k from federal and $5k from state)? 

If they do that it will pay off my loan entirely and will still have to make that rehab loan payment to have the default removed from my credit report and then wait for a refund check from the US Department of Education. 

I'm just wondering what to expect, I don't want anymore sneaky little surprises.

Does anyone have experience with this? I live in Michigan  (if that makes any difference)

[scvbd99]

I don't know about the limits on state/federal taxes.  Hopefully somebody can help you with that.

I don't know how many loans you have or how far down your loans will go if you let them recoup with your tax returns, but if any them fall below a balance owed of $1,000, they might not be eligible for rehab, and therefore can't have the default removed, even if paid in full.   Sounds like you're just talking about one loan, though.  

[smpabst81]

Is it maybe a state by state thing?
I have 2 loans that I am currently rehabbing. The collection agency told me I can continue the rehab even if I have a zero balance and the dept of ed will send me an overpayment check.
This is paying down my debt by almost half