topic Re: Federal Student Loan Rehab - The Law and You .. please read in Student Loans

Federal Student Loan Rehab - The Law and You .. please read

Anonymous — Fri, 18 Feb 2011 17:08:25 GMT

there have been many posts recently regarding SL rehab and i think some of you guys are not fully understanding what this means.

in short, after you rehab a loan, the CRAs are required to remove the DEFAULT STATUS ONLY. see below for the exact language.

they will not delete your defaulted loan history. they will not delete your lates. they will not delete the tradeline.

what happens on your CR is this...

your loan status field is changed to PAID OR PAYING AS AGREED, the loan balance will be zero, and the loan will be closed and possibly marked TRANSFERRED TO ANOTHER LENDER in the remarks field.

the closed loan will stay on your report for 7 years from the date it was closed, and the lates will fall off 7 years from the date the late payment was due.

on the bright side, you reset the 10 year maximum loan repayment period and your new loan will stay on your report until paid in full plus 10 years. so the new loan it will outlast your old loans and if you pay on time every month you will have the positive history for much longer than you will have the negative history. also, any privileges lost by going into default are restored, and adverse actions such as wage garnishment and collection activities are ceased.

please note that i am not taking into account GW adjustments. it is possible that down the road you may be able to talk the lender of the defaulted loan into deleting the tradeline, but this is NOT required by law. they are actually required by law to report accurately, and any GW adjustment or 'mistake' in your favor is not the norm. if you have personal experience to the contrary please chime in. we'd like to know how you did it.

20 USC § 1078–6 (C)

Upon the sale or assignment of the loan, the Secretary, guaranty agency or other holder of the loan shall request any consumer reporting agency to which the Secretary, guaranty agency or holder, as applicable, reported the default of the loan, to remove the record of the default from the borrower’s credit history.

34 CFR § 682.405 (b)(2)

The guaranty agency must report to all national credit bureaus within 90 days of the date the loan was rehabilitated that the loan is no longer in a default status and that the default is to be removed from the borrower's credit history.

the applicable law for FFEL (stafford) loans is 20 USC § 1078–6, found here http://www.law.cornell.edu/uscode/uscode20/usc_sec_20_00001078----006-.html

the applicable regulation for FFEL loans is 34 CFR. § 682.405, found here http://law.justia.com/us/cfr/title34/34-3.1.3.1.40.html#34:3.1.3.1.40.4.40.6

the terms for rehabilitation of perkins loans are essentially the same as stafford loans.

Re: Federal Student Loan Rehab - The Law and You .. please read

Anonymous — Fri, 18 Feb 2011 18:05:30 GMT

My problem is that the old balance is still showing and has never been marked as 0 balance or referred to a different lender. Even though my loans have been rehabilitated, they are showing a big balance. The positive ones are on my report too, how do I get the bad ones to show 0 balance as they should. I can deal with it better if it shows the correct balance.

Re: Federal Student Loan Rehab - The Law and You .. please read

Anonymous — Fri, 18 Feb 2011 18:32:19 GMT

as i understand it, only the current holder of debt can show a balance on your CR. others must show zero. how long have you had the new loans? if not long, there may not have been enough time for the new info to make it through the system. if it's been more than a couple months you might want to initiate communication with the appropriate dept of the old lender. who is the lender? if it's sallie mae, contact their 'office of the customer advocate'. if it's another lender you want to find their ombudsman or some similar dept that will really investigate for you. try a corporate office and keep calling back if you get the runaround.

Re: Federal Student Loan Rehab - The Law and You .. please read

Anonymous — Fri, 18 Feb 2011 19:11:34 GMT

Loans came out of default in Oct of 2010. It is both Sallie Mae and Dept of Ed. Where do I find contact info for them. I have them all reporting the current good credit, but I have 2 Sallie Mae and 4 Dept of Ed that are reporting the old loans and showing balances instead of showing them as paid off.

Re: Federal Student Loan Rehab - The Law and You .. please read

Tazman81 — Fri, 18 Feb 2011 20:20:55 GMT

@Anonymous wrote:
there have been many posts recently regarding SL rehab and i think some of you guys are not fully understanding what this means.

in short, after you rehab a loan, the CRAs are required to remove the DEFAULT STATUS ONLY. see below for the exact language.

they will not delete your defaulted loan history. they will not delete your lates. they will not delete the tradeline.

what happens on your CR is this...
your loan status field is changed to PAID OR PAYING AS AGREED, the loan balance will be zero, and the loan will be closed and possibly marked TRANSFERRED TO ANOTHER LENDER in the remarks field.
the closed loan will stay on your report for 7 years from the date it was closed, and the lates will fall off 7 years from the date the late payment was due.

on the bright side, you reset the 10 year maximum loan repayment period and your new loan will stay on your report until paid in full plus 10 years. so the new loan it will outlast your old loans and if you pay on time every month you will have the positive history for much longer than you will have the negative history. also, any privileges lost by going into default are restored, and adverse actions such as wage garnishment and collection activities are ceased.

please note that i am not taking into account GW adjustments. it is possible that down the road you may be able to talk the lender of the defaulted loan into deleting the tradeline, but this is NOT required by law. they are actually required by law to report accurately, and any GW adjustment or 'mistake' in your favor is not the norm. if you have personal experience to the contrary please chime in. we'd like to know how you did it.

20 USC § 1078–6 (C)
Upon the sale or assignment of the loan, the Secretary, guaranty agency or other holder of the loan shall request any consumer reporting agency to which the Secretary, guaranty agency or holder, as applicable, reported the default of the loan, to remove the record of the default from the borrower’s credit history.

34 CFR § 682.405 (b)(2)
The guaranty agency must report to all national credit bureaus within 90 days of the date the loan was rehabilitated that the loan is no longer in a default status and that the default is to be removed from the borrower's credit history.

the applicable law for FFEL (stafford) loans is 20 USC § 1078–6, found here http://www.law.cornell.edu/uscode/uscode20/usc_sec_20_00001078----006-.html
the applicable regulation for FFEL loans is 34 CFR. § 682.405, found here http://law.justia.com/us/cfr/title34/34-3.1.3.1.40.html#34:3.1.3.1.40.4.40.6
the terms for rehabilitation of perkins loans are essentially the same as stafford loans.

As I read this, I guess I am reading it different than you are. My position would be if it were intended to only remove the "default status" then why would the sentence not stop there after "default status". I am not agreeing or disagreeing with you, just making a statement. Because to be honest with you, I don't even know anymore, and I don't even think any of the government agencies know. I wrote in to a few agencies and what I've gotten from all is "ask your lender". I can see where this law is read both ways, and I think that is why some have had success in having the status along with the lates removed from their credit reports and others have not. I have always understood it as having both the status and the lates removed, but in a way I am starting to question it because of the ambiguity of how the law is written. I guess it can be argued that in essence, a 30 day late is a "default". You have defaulted on your original terms of the contract to make timely payments, therefore that default (the 30 day late) is being reporting to the CRAs. Anyhow, good information. And like I said, not agreeing or disagreeing; just stating my position. Any other thoughts?

Re: Federal Student Loan Rehab - The Law and You .. please read

Anonymous — Thu, 24 Feb 2011 15:20:31 GMT

@Tazman81 wrote:
I guess it can be argued that in essence, a 30 day late is a "default". You have defaulted on your original terms of the contract to make timely payments, therefore that default (the 30 day late) is being reporting to the CRAs.
Section 435(l) of the Higher Education Act of 1965 defines a federal education loan that is paid in monthly installments to be in default if the loan is more than 270 days delinquent.

I'm reading the law with a very strict interpretation of the wording.

think of the loan as an object, an think of default as a status of that object.

the law requires removal of the status from the CR, but not the whole object.

20 USC § 1078–6 (C)

Upon the sale or assignment of the loan, the Secretary, guaranty agency or other holder of the loan shall request any consumer reporting agency to which the Secretary, guaranty agency or holder, as applicable, reported the default of the loan, to remove the record of the default from the borrower’s credit history.

34 CFR § 682.405 (b)(2)

default is a status. the loan is 'in default'.

i read the letter of the law as.. the 'default (status)' will be removed, and the law does not compel CRAs to remove the 'loan (object) which is in default'.

hope that makes sense.

the spirit of the law is open to interpretation, but obviously it is interpreted by the lenders and CRAs to mean the 'default status' is to be removed.

it is interpreted by debtors to mean the 'loan which is in default status' is to be removed. no offense to anyone, but i think this is a bit wishful, since the letter of the law requires no such thing. and in full disclosure, i just began reading the actual laws myself after many years of relying on SL CSRs and word of mouth information, much of which is flat wrong or at least skewed to promote the interest of the person giving the info.

but like i said before, if anyone has personal experience to the contrary, i'd like to hear it. i'm only writing this to shed some light where there seems to have been a lot of confusion regarding what the law requires, and if anyone can school me, i will stand to be corrected.

Re: Federal Student Loan Rehab - The Law and You .. please read

Anonymous — Thu, 01 Mar 2012 22:34:36 GMT

Here is my issue with your interpretation and please feel free to reply with your thoughts.

It would seem to me that the status of default by definition would be a student loan account in severe delinquency. You're stating that "default status" is merely a useless term tagged to an account. By only removing the term "default status" from the account you are serving nearly no purpose to the borrower in terms of helping their credit rating. It would seem the main idea behind the Rehabilitation is to give the borrower a second chance in regards to both ones credit rating and they're eligibility to receive new federal aid in various forms. Lets be honest, most of us trying to rehab our loans need it solely to acquire an acceptable credit rating, so the function it serves under your interpretation is barely of use.

Imagine you are a lender and you pull my credit report, (in this scenario I have completed the rehabilitation, had the "default status" term removed from my report, and am paying perfectly on my loans to the new lender) you see an account labeled "College Loan". It is clearly a student loan account and you naturally look at the payment history and it is horrific....for nearly a year no payment has been made and the account is just closed, the balance zeroed out and says "Paid as agreed" or whichever term they could use. What is the first thing you would think? Well he obviously defaulted on this student loan, clearly he's not responsible.....

Now I highly doubt you have defaulted on a student loan as you clearly have no clue what it looks like on a credit report. There is no tag or label that just says "In Default Status". On mine personally, it shows the last known payment history, which for me was 120+ days past due, and in the remarks it states "Loan permanently assigned to the government". I have completed the rehabilitation program and have been paying successfully to my new lender for six months. Yet my old account still exists in that condition....sure it doesn't specifically say "in default" but it never did, the default status is assumed because of the severe delinquency and "assignment to the government". Now I am wanting to buy a home because my financial situation warrants it but no lender will look at me because of my student loans, that "aren't in default" but clearly were defaulted on, are driving them away. As a side note, the only other debt I have is a car loan that has been paid on perfectly for years (auto loans are able to hit you with extremely high rates so they'll lend to anyone). So if you're thinking, "well I bet he has thousands of dollars in credit card debt" that would be incorrect, I have two credit cards that are used but always keep a zero balance at the end of the month.

Now don't get me wrong, I am a mature and understanding adult. I don't claim that I was preyed upon by the lenders or the government that loaned me the money to go to school. I willingly borrowed all the money and knowingly didn't pay it back as I was supposed to. I am willing to accept the consequences of my actions because I understand I'm the only one to blame for the situation I am in. Now here is the issue, I am being promised a second chance with this rehabilitation but as you describe it there is barely a second chance. Sure I am now eligible for federal aid in the form a student loans again but that is not why I went through the rehabilitation, I just wanted to repair my credit rating. I could have achieved the same thing by consolidating my loans again and not dealing with all the paperwork and headache that comes with the rehabilitation process.

Now as for my interpretation of the law, I believe that deleting the default status from ones credit history means removing the evidence of the delinquency that lead to the loan being in so called "default" status. I would appreciate any thoughts to the contrary and it would seem that the ambiguity here comes from the wording of "removing the record of default". What does that mean? As I stated my credit report never even labeled my student loan account as "default" so what purpose does "removing the word default" even serve me?

Thanks,

Matt

Re: Federal Student Loan Rehab - The Law and You .. please read

Anonymous — Thu, 01 Mar 2012 22:39:14 GMT

Thank you it finally took going up the chain and then redisputing it to get my rehabbed loans to report correctly. I am lucky that the lates will be off by this year. AES claimed that they never got notification of the rehab.

Re: Federal Student Loan Rehab - The Law and You .. please read

Anonymous — Thu, 01 Mar 2012 22:58:42 GMT

After making my first post i read through this reply. I don't agree with your analogy of the loan being an object and the default being a status of the object. I appreciate that you acknowledge it is open for interpretation and you understand that's your interpretation. But as for the way i understand it, the definition of "default" in terms of a student loan means being 270 or more days delinquent on payment. I'm not 100% on that definition but that was the consensus i found searching online.

Thus you fill in the definition in place of the actual word default and you get this:

"Upon the sale or assignment of the loan, the Secretary, guaranty agency or other holder of the loan shall request any consumer reporting agency to which the Secretary, guaranty agency or holder, as applicable, reported the "270 or more days of delinquency" of the loan, to remove the record of the "270 or more days of delinquency" from the borrower’s credit history."

I know it's not always that simple with the law, but I feel this is a different and intelligible way to interpret it.

Re: Federal Student Loan Rehab - The Law and You .. please read

Anonymous — Sat, 10 Mar 2012 03:35:10 GMT

This is really good information. Thank you for sharing. There is some good information on this site as well. It might help a lot of you the way it has helped me.

Re: Federal Student Loan Rehab - The Law and You .. please read

FicoTron — Tue, 13 Mar 2012 21:35:47 GMT

Just wanted to say that my rehabbed Direct Loan through The dept of Ed was updated to pays as agreed/never late, and they changed all my monthly bad marks to reflect on time payments.

Re: Federal Student Loan Rehab - The Law and You .. please read

SusieQ — Wed, 15 Oct 2014 20:01:49 GMT

I am agreement here regarding the definition of a defaulted loan and how it impacts the rehabilitated loan.

I had a defaulted loan thru Sallie Mae which was rehabbed thru their guarantor and then resold to AES. The loan has 2 entries on my credit report - 1 by Sallie Mae and 1 by AES. Same loan, same start date, etc.

First, Sallie Mae never complied with the 30 day requirement:

(ii) The prior holder of the loan must, within 30 days of receiving the notification from the guaranty agency, request that any consumer reporting agency to which the default claim payment or other equivalent record was reported remove such record from the borrower's credit history.

They never updated the credit report until I brought it to their attention nearly a year later. When they did update, they only removed the word "default" from the remarks, but kept a 300 day default payment history (10 - 120 day notations 12/2009-9/2010) in the payment section, along with various notation in the remarks and status section such as debt being paid through insurance and transferred to another office. This is not sufficient. Keeping the delinquencies (IMO) is not complying with the spirit and intent of § 682.405. Anyone looking at that history and comments knows the loan defaulted.

Tired of fighting with them. Today I filed a formal complaint with the US Ombudsman Group of the US Department of Education. I will let you know what they say.

Re: Federal Student Loan Rehab - The Law and You .. please read

Anonymous — Tue, 20 Jan 2015 21:43:02 GMT

Any update? I'm in the exact same situation and would love to know what else I can do that will actually be effective!

Thanks!

Re: Federal Student Loan Rehab - The Law and You .. please read

Anonymous — Sat, 04 Apr 2015 03:54:40 GMT

I've been working on cleaning up my credit for the past year and have made good progress. I have shaken the tree and have the stuff left that I have to climb up and pluck off. : ) One of those items is a defaulted student loan for 15,000 smackeroos that won't come off until April of 2018.

I have on my list that the way it should be plucked is by rehabbing it, but after reading this I'm second guessing this. What do you guys think - should I rehab this loan or just clean everything else up and let this die on the vine?

ok I'll stop with the tree.

Re: Federal Student Loan Rehab - The Law and You .. please read

ah32 — Sat, 04 Apr 2015 06:10:27 GMT

I was given two options to get out from default. I took the long road and decided (based on the info given over the phone) that rehabbing over 9-10 payments was the way to go. I agree with Matt. If we aren't given a second chance, why wouldn't we take the first option of 4 payments? I don't remember the details of the 4 payment plan, but it didn't give us the option to clean up our credit.

Re: Federal Student Loan Rehab - The Law and You .. please read

SCF — Sat, 04 Apr 2015 19:31:03 GMT

@Anonymous wrote:
I've been working on cleaning up my credit for the past year and have made good progress. I have shaken the tree and have the stuff left that I have to climb up and pluck off. : ) One of those items is a defaulted student loan for 15,000 smackeroos that won't come off until April of 2018.

I have on my list that the way it should be plucked is by rehabbing it, but after reading this I'm second guessing this. What do you guys think - should I rehab this loan or just clean everything else up and let this die on the vine?

ok I'll stop with the tree.

The problem with just waiting for a federal student loan to fall off your credit report is that it can reappear at any time. Although the original lates and defaulted tradeline will come off, every time it transfers to a different collection agency they can report the debt again. The debt itself will also remain collectible until your death, which means that they can seize tax returns, garnish wages, and even a portion of your Social Security if the debt is still around at that point. The real reason to rehab is so that you can pay back the debt and avoid those consequences - the benefits to your credit are really just a bonus.

Re: Federal Student Loan Rehab - The Law and You .. please read

Anonymous — Sat, 04 Apr 2015 23:22:13 GMT

aha. I didn't know they could just keep reposting it. Thank you so much for the response.