What happens after rehab?

[dyanisme]

I have defaulted student loans, and I'm thinking about the rehabilitation program.   But I'm worried about what will happen to my payment amount.   Right now, I have an agreement with the DOE that is based on my ability to pay and I haven't missed a payment under that agreement.   So a part of me is scared to rock the boat (so to speak) because I'm in a managable situation right now with my student loans.    But in the next year or so, I'd like to buy a condo and I don't know how realistic that will be with defaulted student loans (even though I'm working with the DOE on payments.)

I know that I am eligible for loan rehabilitation, and I know that the DOE would continue to set up payments based on my ability to pay while I am in the rehab program.   But what happens once I've completed the program.   My understanding is that the original terms go back into effect, but I can't pay those terms and so that'll just set me up for failure again.    But even if I tried to maintain that payment level, it'll play havoc with my debt to income ration to the extent that it would basically rule out qualifying for a mortgage.   

So what I would like to know from those of you who have successfully completed loan rehab.... what happened once the program was successfully completed?    Did your payments go up dramatically?    Did you have options to help ensure the end payments were affordable for you for the long term?

Btw, the student loans are so old that they aren't even on my credit any longer.    Since I've worked through the initial negative impact of default and my overall score is pretty decent (it hovers at about 700 these days), rehab probably won't help me credit wise.   I'm simply trying to figure out my best chances to get approved for a mortgage.

[LynnInMN]

You will not qualify for a mortgage with this is default....there is a report they will run that it will how up. Plus most mortgage applications as about federal obligations. 

Have you looked at consolidating with Direct Loans to get this out of default?  You will automatically be assigned tot the Income Contingent Repayment plan which makes your payment affordable. 

[Anonymous]

Three letters: IBR

DW just completed rehabbing 2 defaulted loans. For one (about $10k), the payment stayed exactly the same at $113/mo. For the other (about 41k), the payment to the servicer went up $31 over the payment made to the CA ($287, up from $256). It's really in everyone's best interest to have your rehab payments be similar to your repayment payments, as should they skyrocket after completing rehab, you'd simply end up defaulting again.

I want to look into IBR for her, as on her salary alone, the Gov't will end up forgiving a LOT after 25 years, and her payments would be $0 for the first several years. However, we don't qualify with my salary added in, so we'd need to file our 2009 taxes as Married Filing Seperately, and I'm not sure if that really makes sense. For one thing, we'd be itemizing for the first time this year, and if one spouse itemizes, both need to.

I'm not to concerned with losing the student loan interest deduction, as what gives you more money in your pocket, not paying taxes on $3k (approx $1k savings), or not paying $5k (but paying taxes on it, approx $1.5k in additional tax)?

A big issue with IBR seems to be that if you don't end up actually getting that gov't forgiveness at the end, you've screwed yourself with a huge amount of accrued interest!

[bigtim]

Quoted from DOE:

15. Should I rehabilitate before consolidating my defaulted loan?

Rehabilitation or Consolidation?

There are many benefits to rehabilitating a defaulted loan before consolidation. If you consolidate a defaulted loan without rehabilitating it , your credit record continues to show a default status on the loan. This is true even after the consolidation loan pays off the defaulted loan in full.

Consolidating a defaulted loan will result in your credit report bearing the notation that the loan was in default but then "paid in full." This notation will remain on the credit report for up to seven years. While a "paid in full" notation is preferable to an unpaid default, , there is still the possibility that lenders will deny you future credit, such as mortgages, auto loans, or credit cards because of this notation.
However, if you rehabilitate a defaulted loan before consolidating it , the loan holder will update your credit record to no longer reflect the default status of the rehabilitated loan(s).

Rehabilitating a defaulted Direct Loan or FFEL loan requires that you make at least nine (9) full payments of an agreed amount within twenty (20) days of their monthly due dates over a ten (10) month period. Rehabilitating a defaulted Perkins loan requires twelve (12) on-time monthly payments. Contact your loan holder to obtain additional rehabilitation terms and conditions for your loan type.