topic Re: To Pay or To Rehab in Student Loans

To Pay or To Rehab

dman23 — Sat, 26 Apr 2014 16:58:55 GMT

First off, thanks to all contributors who share their knowledge and experience here. I've learned so much from this forum in just a few days. Well,I've had this student loan debt hanging over me for a long time. Baiscally, it was irresponsibility for not paying it. I wnet to nslds and found out how much I owe and who has the student loan. It's with DoE collection management system. There were 4 Subsidized Stafford loans all rolled into one. The 4 loans were Defaulted, Unresolved on 9/12/95. The current is Defaulted, Unresolved on 8/2/1996.

From what I've learned it seems this negative info. would have been dropped from my credit reports 7 years from 8/2/1996 as there is nothing on my 3 credit reports in regards to the student loan defaults. I'm applying for my CPA license and don't want this to come back and haunt me. I owe $28,000 and believe I could settle for around $20,000.

I understand the rehab process and if I am able to go that route it wouldn't hurt or affect my credit reports that much. Of course, I don't want to wait 9 or 10 months to apply for CPA license, so you see my dilemma.

My question is, if I pay this off in a lump sum will this necessarily be reported to the agencies and thus be a negative on my reports for at least another 7 years or so?

Re: To Pay or To Rehab

fezwhy — Sat, 26 Apr 2014 18:30:21 GMT

If you pay it off it will be reported as having a zero balance. Being reported as paid off and no balance looks better than being charged off. I found out last year that with a student loan in default that I was untouchable for getting a mortgage.

Re: To Pay or To Rehab

dman23 — Sat, 26 Apr 2014 18:50:52 GMT

Thanks. I will be looking to get a mortgage within a year. As of now I don't see a problem as there is nothing on my credit reports about the student loan. So I don't think the mortgagor would know about this still being in default. When the time comes I'll be putting 30-40% down so I think I'll get a mortgage from someone. Regardless I am paying it off so there won't be a charge off. Just wondering if I should rehab it, if possible, which seems the better way to go as far as your credit report, or pay it in full which I think is not the way to go as far as your credit report is concerned.

Re: To Pay or To Rehab

Whitneyy — Sat, 26 Apr 2014 19:28:36 GMT

I prefer rehab because it will either wipe old tradelines completely out or wipe them clean, leaving you with positive tradelines.

Re: To Pay or To Rehab

Whitneyy — Sat, 26 Apr 2014 19:29:42 GMT

@dman23 wrote:
Thanks. I will be looking to get a mortgage within a year. As of now I don't see a problem as there is nothing on my credit reports about the student loan. So I don't think the mortgagor would know about this still being in default. When the time comes I'll be putting 30-40% down so I think I'll get a mortgage from someone. Regardless I am paying it off so there won't be a charge off. Just wondering if I should rehab it, if possible, which seems the better way to go as far as your credit report, or pay it in full which I think is not the way to go as far as your credit report is concerned.

I have read that the lenders CAN pull up your debt owed.

Re: To Pay or To Rehab

dman23 — Sat, 26 Apr 2014 20:37:18 GMT

I'm kinda leaning that way too for now. I may gamble and apply for CPA license anyway and hope they don't check. Been researching online to get feedback on anyone approved or denied license with defaulted student loans, but to no avail so far. Takes about 3-4 weeks to learn of CPA application status. If I'm denied and as long as I can rectify the situation by paying off student loan then I may go ahead and apply for license. In the meantime arrange a rehab agreement with DoE and get that underway.

Still considering what to do and will have a decision Monday. Will posts decision and outcomes as they occur.

Just to confirm. As of now there are no tradelines on my credit reports regarding the student loan. If I go the rehab route it can only result in positive tradelines?

Thanks

Re: To Pay or To Rehab

SCF — Sat, 26 Apr 2014 22:07:52 GMT

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.

Re: To Pay or To Rehab

Whitneyy — Sat, 26 Apr 2014 22:30:01 GMT

@dman23 wrote:

Just to confirm. As of now there are no tradelines on my credit reports regarding the student loan. If I go the rehab route it can only result in positive tradelines?

Thanks

Yes, sir! That's what's good about rehab, only positive can come from it. You just have to make NINE on time payments to have this done. And then get picked up by a lender after rehab is done. Then, wait the 30-45 or whatever days for the credit bureaus to update. It's worth it to me because it back dates like you were never ever late!

Re: To Pay or To Rehab

dman23 — Sat, 26 Apr 2014 23:23:09 GMT

@Whitneyy wrote:
@dman23 wrote:

Just to confirm. As of now there are no tradelines on my credit reports regarding the student loan. If I go the rehab route it can only result in positive tradelines?

Thanks
Yes, sir! That's what's good about rehab, only positive can come from it. You just have to make NINE on time payments to have this done. And then get picked up by a lender after rehab is done. Then, wait the 30-45 or whatever days for the credit bureaus to update. It's worth it to me because it back dates like you were never ever late!

I like that! I would make the 9 payments or even suggest making 10 payments and pay it in full instead of even letting another lender pick it up.

Re: To Pay or To Rehab

dman23 — Sun, 27 Apr 2014 00:10:23 GMT

@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.
This sounds like the optimal way to go for sure. 9 months goes by fast. No problem with patience.

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.

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

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.

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 to get out of default status with the remaining balance still due. A settlement will be something I'll discuss and if it's for 20-21,000 out of $28,000 I'll make sure to know if that fully satisfies the debt and they're is no further obligation. If that is the case I will request any offer for full settlement in writing. I also think each individual case is different. In my case, they haven't received anything in over 16 years (I'm not proud of that as noone wants to be considered a deadbeat) and I'm not on a W-2 so no wage garnishment so I think a 21,000 offer pays it in full. I've always paid all my other debts in full even when a settlement was always an option. Of that $28,000 owed I would say 6-7,000 are added costs from the collection agencies which I felt was wrong.
I reviewed the CPA license application and it didn't ask about having any student loans in default so if I go the rehab route Monday I will apply for license. If that question was on the application there is no way I would have said no and hope they don't check. Kinda defeats the requirement having a strong moral character.
Thanks for letting me know about CAIVR. Never knew about that.

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.

Agreed.

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

Re: To Pay or To Rehab

dman23 — Sun, 27 Apr 2014 00:20:54 GMT

@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.

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.

Re: To Pay or To Rehab

dman23 — Sun, 27 Apr 2014 15:45:02 GMT

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

Re: To Pay or To Rehab

Involver — Mon, 28 Apr 2014 13:49:47 GMT

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.

Re: To Pay or To Rehab

dman23 — Mon, 28 Apr 2014 18:04:58 GMT

@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.

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?

Re: To Pay or To Rehab

SCF — Tue, 29 Apr 2014 03:46:53 GMT

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.

Re: To Pay or To Rehab

dman23 — Wed, 30 Apr 2014 15:26:23 GMT

@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.

Thanks.

Re: To Pay or To Rehab

dman23 — Fri, 23 May 2014 22:22:50 GMT

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.

Re: To Pay or To Rehab

Anonymous — Mon, 26 Oct 2015 22:40:15 GMT

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,