To Pay or To Rehab

[dman23]

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@SCF wrote:

If you go with rehab, the end result will be that you will have a clean tradeline for each rehabilitated loan, backdated to the original open date for the loan, on your report.  This could be a fantastic boost to your AAoA, but it does require the patience of 9 months of payments.

If you go with consolidation, the loans will be brought out of default immediately and a new tradeline opened on your report (with no back-dating) for the consolidation loan.  At that point, you can pay the loans off with whatever payment plan you choose.

You are not likely to get a settlement for less than full value with federal student loans.  They could be transferred to a new collection agency and reported to the CRAs at any time.  While they cannot bring back the old information about the original accounts and lates that led to the default, the new CA is free to open a collection account on your report because there is no statute of limitations for federal student loans.  These loans are also reported to CAIVRS - so if you go for a FHA, USDA or similar mortgage or your CPA license agency checks CAIVRS, this debt will cause problems for you.

If you can pay it off in full, call the current CA (you can find them on the NSLDS)  and just offer to pay.  I think they should just take the payment and clear CAIVRS for you, but make sure they won't slide a "paid collection" on your report.  If they say they will, I would do rehab or consolidate to avoid that.

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Sorry, misquoted in my previous reply.

No need to consolidate. The loans have been rolled into one loan already.

I possibly disagree here. About a year ago I was offered a settlement amount. I could be wrong here as maybe it was a settlement amount to get out of default with the remaining balance still due. A settlement amount will be something I'll discuss and if it is for $20,000-$21,000 out of $28,000 I'll make sure that the settlement offer fully satisfies the debt and that I am paid in full. If that is the case I will request that in writing.

I reviewed the CPA license application and it doesn't ask about having any student loans in default. So, if I go the rehab route on Monday I will apply for the license. If that question was on the application there is no way I would have checked no. Kinda defeats one of the CPA requirements of being of strong moral character.

Thanks for letting me know about CAIVR. Never knew about that.

Agreed. Thanks for your input and advice. I will follow up with posts letting you know what I decided to do and the outcome.

[dman23]

If you go with rehab, the end result will be that you will have a clean tradeline for each rehabilitated loan, backdated to the original open date for the loan, on your report.  This could be a fantastic boost to your AAoA, but it does require the patience of 9 months of payments.

SCF I came across this from isac.org that says, "If the loan is paid in full, the default will remain on your credit report for seven years following the final payment date, but your report will reflect a zero balance. If you rehabilitate your loan, the default will be removed from your credit report."

 https://www.isac.org/dotAsset/bafc691b-dddb-431d-8fc0-9ac50bc347b3.pdf

I like your advice on this. If available I will go the rehab route. From a credit perspective it's a no brainer. If I was able to settle in full for 20,000 I'd still rather pay 28,000 and rehab the loan. The amount of money saved when I apply for a mortgage because of a better credit report, and thus a lower inrerest rate will more than make up for the 8,000.

Thanks

[Involver]

I would go rehab, 100%.

The backdated TLs alone will be great for your payment history and AAoA. The default will be cleared from your name (even though it's not currently listed on your CRs) so you will need not fret over mortgage/CPA bringing this out of the woodwork and potentially doing some damage. You also make a good point that the $8000 difference to not settle should save you far more than that in the grand scheme of things.

[dman23]

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@Involver wrote:
I would go rehab, 100%.

The backdated TLs alone will be great for your payment history and AAoA. The default will be cleared from your name (even though it's not currently listed on your CRs) so you will need not fret over mortgage/CPA bringing this out of the woodwork and potentially doing some damage. You also make a good point that the $8000 difference to not settle should save you far more than that in the grand scheme of things.

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Thank you Involver. That's the way I'm going. As I am actively on the road to rebuilding my credit and credit score this route makes perfect sense. Last week I applied and was approved for 3 credit cards. Of course, this will lower my AAoA, but rehabbing this student loan is the perfect counter to this and in 9-10 months my AAoA will be higher than it was before I applied for credit cards. Great Stuff.

One last thing...SCF said, If you can pay it off in full, call the current CA (you can find them on the NSLDS)  and just offer to pay.  I think they should just take the payment and clear CAIVRS for you, but make sure they won't slide a "paid collection" on your report.  If they say they will, I would do rehab or consolidate to avoid that."

If I had to go this route then a "paid collection" on my report is not a positive thing and will stay on 7 years 180 days. Correct? How much would that hurt your credit score?

[SCF]

Paid collections are just as bad as unpaid collections for most (if not all?) of the FICO scoring models - it would be a big hit to your credit to have a new collection appear.  Honestly, I'm not sure they can do this, but it might be worth checking some of the threads over in Rebuilding Your Credit if you decide to look into paying them off completely.

[dman23]

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@SCF wrote:

Paid collections are just as bad as unpaid collections for most (if not all?) of the FICO scoring models - it would be a big hit to your credit to have a new collection appear.  Honestly, I'm not sure they can do this, but it might be worth checking some of the threads over in Rebuilding Your Credit if you decide to look into paying them off completely.

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Thanks.

[dman23]

Thanks to all who have replied. I decided to go the rehab route as it really seems to be a no brainer from a credit perspective.

First payment May 26th. After that payment I will call and have my payments debited on the first of the month. That should effectively make it 9 payments in 8 months and reduce the rehab time to 8 months.

That's it for now. I'll update when the time comes.

[Anonymous]

How did things end up working out for you dman23?  I'm in a similar situation and wonder if its better to pay in full or rehab,