NEED ADVISE ON STUDENT LOAN...

[srodier]

My wife and I are one account away from buying our first house. We really need everyones help. My wife has a defaulted student loan on her reports. We intened to pay it off next week. I called today and they told me the pay off amount and a settlement amount (only about 200.00 difference). I need to know if we should settle or PIF? Also since the account is old (past SoL for other collections) will it fall off when paid (settled or PIF). If it dont fall off can I goodwill it off?? We need this account off her report to qualify for the house. ANY advise would help us decide which way to go. Thank you in advance!!! :-D 

[RobertEG]

Is it a federal or private student loan?

[srodier]

IT IS FEDERAL.

[rmduhon]

If it's federal, then I don't think it can be GW'd off. Federal student loans have different laws regarding them.

[stargazer25]

Federal Student Loans are a different beast compared to private loans. Read some of the threads here about it.

The short story is: FedLoan will not GW a thing. Not even lates. Not even with threats of getting sued. If the PIF amount to close the loan is only a $200 difference, PIF. You don't want the remark "Settled for less than the amount owed" on your CR. In a manual review, especially buying a house its better to have a closed account lates and all with a PIF than a closed account with lates and settled than less.

[RobertEG]

The Higher Education Act, which is federal law, trumps state law.

It exempts federal student loans from SOL, mandates that derogs be reported to at least one CRA, and extends the normal credit report exclusion provisions of the FCRA when the debt remains unpaid.

I assume that the showing of a defaulted student loan references a reporting of a collection.

The exclusion date of any adverse item depends upon its type.

Once you pay the federal student loan, then the normal credit report exclusion period for a collection of no later than 7 years plus 180 days from DOFD applies (with the CRAs normally doing the exclusion at 7 years from DOFD).

The key to your question as to whether or not it will be removed upon payment is the DOFD that was reported by the debt collector.

[srodier]

This is the answer I needed and was hoping for!!!!!! the date of 1st default is in 2009. What concerns me now is 2 years ago they took our taxes of 111.00 to put towards the defaulted loan. does that reset the time or should we be good?

[RobertEG]

No it does not reset the exclusion period.

The partial payment does not affect the exclusion period, which is based only on the DOFD once you discharge the loan.

[srodier]

Great, Thank you for your help!!!