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Consolidation AAOA

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Established Contributor

Consolidation AAOA

So I consolidated my loans so I could pay them under PSLF.
Now I see my AAOA is back to 3 years instead of the 19 years I had before I consolidated. I lost 40+ points off my credit Rating. My 19 years of AAOA were amazing.

I am worried that some of my credit cards may balance chase me now that I only have a AAOA of around 3 years. Unfortunately I just opened a card up a month ago this being the first card I have opened since 2015.

The other issue is when they start reporting the new consolidated loans that my aaoa and credit score will decrease even farther.

Has anyone else experienced this? Did your scores rebound? I haven't been under a 780 credit score for years.
Thanks to myFico for helping me rebuild and continue on the journey to Winning The Credit Game.
Plastiq Get 500 FFDs. 1225384 Acorns July 2019 53FTE4
Message 1 of 13
12 REPLIES 12
Community Leader
Valued Contributor

Re: Consolidation AAOA

Unfortunately by consolidating instead of rehabbing, what it does is give you a brand new loan at 100% utilization. I wouldn't say three years is that bad at all though. Keep in mind that this is an installment loan; it's expected that you would start at 100% and it's not uncommon such as people who lease cars or get a mortgage.
You'll get those 40 points back over time. But from the way you phased it "under 780" your current score is probably higher than you need it to be anyway.
My understanding of balance chasing is that it happens when your utilization on a card gets too high or sometimes when your score drops significantly (such as from a major delinquency). I could be wrong but I doubt you have anything to worry about. People consolidate they're student loans all the time.
Best of luck with your student loans. 🙂



Message 2 of 13
Established Contributor

Re: Consolidation AAOA REPAYE

I rehabbed the loans before I consolidated. All my loans showed up and gave me 19 years aaoa. Now I am starting to regret consolidation..

On a side note .. under REPAYE they do not count your spouses loans if the spouses loans are in default. This could be under any repayment plan.
Now I'm trying to go back to the regular payment plan as that payment is lower but for 20 years. They state it will still apply to my PSLF. I would have stayed on this plan from the beginning as the payment is lower then any other plan.
Here is a recap of my payments over 20+ years.
They started at around $500 a month under garnishment. Which made it extremely difficult but we did it for many years.
Rehab got the payments to $120 a month which was great.
REPAYE they want $395 a month which is now to high as they are taking even more from my wife in her garnishment.
Income Driven they want $300 a month.

Amazing how stuff changes so fast and the kicker is if I would have left them in garnishment, nothing was on my credit Rating and they would have been paid off sooner then10 years...
Thanks to myFico for helping me rebuild and continue on the journey to Winning The Credit Game.
Plastiq Get 500 FFDs. 1225384 Acorns July 2019 53FTE4
Message 3 of 13
Senior Contributor

Re: Consolidation AAOA REPAYE


@JamP wrote:
I rehabbed the loans before I consolidated. All my loans showed up and gave me 19 years aaoa. Now I am starting to regret consolidation..

On a side note .. under REPAYE they do not count your spouses loans if the spouses loans are in default. This could be under any repayment plan.
Now I'm trying to go back to the regular payment plan as that payment is lower but for 20 years. They state it will still apply to my PSLF. I would have stayed on this plan from the beginning as the payment is lower then any other plan.
Here is a recap of my payments over 20+ years.
They started at around $500 a month under garnishment. Which made it extremely difficult but we did it for many years.
Rehab got the payments to $120 a month which was great.
REPAYE they want $395 a month which is now to high as they are taking even more from my wife in her garnishment.
Income Driven they want $300 a month.

Amazing how stuff changes so fast and the kicker is if I would have left them in garnishment, nothing was on my credit Rating and they would have been paid off sooner then10 years...

I have a very similar timeline/account history as yours.    
Because I didn't struggle with the garnishments (I think it was ~800/month, but I don't have a lot of bills or any other debt), I just went ahead and "let it ride."
When I got the loans consolidated, I noticed that yeah, I could have everything paid off a lot faster with the garnishments, and now I have this stupid young loan on my account.
I went ahead and scheduled my payments for my old garnishment to have it paid off in a couple of years - I don't qualify for PSLF, and I just want the **bleep** thing done with.


EQ: 795 | EX: 785 | TU: 783 | Accounts: 2/6 6/12 10/24
Happy practitioner of AZE6or7or8
Message 4 of 13
Community Leader
Valued Contributor

Re: Consolidation AAOA REPAYE

Having a loan in default with a wage garnishment is a prime example of not taking financial responsibility. And creditors will treat it this way. If you go to buy a house, the default will be visible on other reports. It only seems like it disappears.

The government gives you one opportunity to make it right: you can choose rehabbing or consolidation. If you feel that you've somehow made a mistake, the only mistake would be in later consolidating. The consolidation creates a single, new loan at 100%. Whether it is lack of provided information or lack of understanding what a borrower is agreeing to, many have regretted doing consolidation instead of rehabbing, or rehabbing then later consolidating (often for a lower APR, unaware that it resets forgiveness).
The good news is that regardless of what a person chooses get out of rehab, their score should improve significantly.

JamP, I think you're going about it all wrong thinking about how a spouse's loans in default don't count. Actually, those other loans can be of benefit. With default, you have your loans, and they have theirs. However, with them both in good standing, you can pay then back with the income-driven repayment plan REPAY. No matter what plan you pick, if you file jointly it will count both incomes. REPAYE is unique; it also counts your spouse's federal loans. Now both of your payments will be adjusted to account for this joint debt and the payments will be reduced.

In default, there was also nothing stopping them from popping back up on your credit report. By making the payments through a wage garnishment, you kept it active and it could report at any time. In addition to the interest accruing and capitalizing, there are often hefty fees the collection agency adds. On an IDR plan the interest doesn't capitalize and I also believe they will never charge you interest on anything greater than the principal. You can also make larger payments if you want to be finished paying sooner.

The changes can be a lot to take in, but right now your score is accurate and will only get better. The sooner your wife can rehab her loans the better.



Message 5 of 13
Community Leader
Valued Contributor

Re: Consolidation AAOA REPAYE

calyx:
Actually you'll be done sooner than if you were having your wages garnished. If you're still paying the same amount (there is nothing stopping you from paying more than the minimum), you'll benefit from the lack of collection fees. You also got a significant credit score boost, right?



Message 6 of 13
Senior Contributor

Re: Consolidation AAOA REPAYE


@Sabii wrote:
calyx:
Actually you'll be done sooner than if you were having your wages garnished. If you're still paying the same amount (there is nothing stopping you from paying more than the minimum), you'll benefit from the lack of collection fees. You also got a significant credit score boost, right?

That is true - I did forget the fees, though TG didn't assess as many as a lot of places seem to.
I started my credit build (I didn't have credit beforehand) and was removing fraudulent accounts at the same time, so I'm not sure how much of the boost was from the student loans.  I went from 540 -> 610 with 1. getting a revolving account 2. removing the fraudulent accounts and 3.  getting the new, cleaner SLs - that's a lot in one month!

I do *not* for one minute regret bringing my loans current, and I know it's better for my credit, and honestly, it's the right thing to do, regardless.    I just thought it was interesting that my new loan is for 10-20 years which adds up to a lot of interest, when I was knocking it down so much faster with a garnishment.   By paying the same amount as the garnishment, I'm saving thousands in interest over doing it over the 'standard' or IBR plans.   It's the smarter move, money wise and since I'm already used to living on the reduced paycheck, is easy to keep up.

I'm also lucky that my lender pushes out my payment as well as applying to the principle.  I'm gonna have a heck of a <9% loan for a long, long time for the max scoring boost Smiley Happy


EQ: 795 | EX: 785 | TU: 783 | Accounts: 2/6 6/12 10/24
Happy practitioner of AZE6or7or8
Message 7 of 13
Community Leader
Valued Contributor

Re: Consolidation AAOA REPAYE

It was probably mostly the student loans. Your score boost is similar to other members. I'm helping someone with a thin file and loans in default again and nothing I do makes it budge much because the lates/ default kill the score. I personally know that the loan utilization doesn't count for much. I do wish that the collection agencies would be required to explain the long-term impact of rehabbing vs consolidation.
Default is not that surprising imo. They gave a mini-mortgage to a teenager. What does bother me is that Servicers don't guide people to the most affordable option when they are aware that standard repayment isn't working. My old servicer (RIP) just put me on deferment for almost a decade, lol! Where would the three of us be if if we were on IDR plans after graduation?
I'm glad that you're able to make the extra payments. At least you'll be done with your loan sooner. 🙂



Message 8 of 13
Senior Contributor

Re: Consolidation AAOA REPAYE

It's awesome that you're helping someone out!  And yeah knowing there are IDR, extended, etc. plans would've been SO nice, instead of just putting everyone on deferment and racking up interest.

My default happened when I was in the middle of an ugly divorce and my loan was reassigned to PHEAA - I was never informed and didn't update my payment information (I was in a not-great place financially and wasn't watching my accounts closely), next thing I know I'm garnished and thought "eff it, they're getting their money anyway."

I guess the only upside is that it was nearly 7 years ago, so at least all the baddies are coming off now and in the next few months.
I DO wish there were better/more clear information out there for borrowers.  I know it's our responsibility, but it could be made easier to understand, which would really help with compliance and payback (I think).  I also wish the guarantors/servicers were held to any kind of standard.   If I had been informed of the change in companies, I would've updated my information, but I literally didn't know.   I learned later that PHEAA is really good at not informing their 'clients' about changes.


EQ: 795 | EX: 785 | TU: 783 | Accounts: 2/6 6/12 10/24
Happy practitioner of AZE6or7or8
Message 9 of 13
Frequent Contributor

Re: Consolidation AAOA

I'm questioning the math here - I'm finding it hard to believe it's possible for an AAoA to drop from 19 years to 3 years from a loan consolidation.

 

Are you getting your AAoA and scores from a source that gives VantageScores and only takes into consideration open accounts? FICO scores include open and closed accounts in the AAoA calculation.

Message 10 of 13
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