Default Gov't Stud. Loans in collections, should I go into rehab?

[Anonymous]

Need help on a decision of how to handle 2 default loans in 2 collections.

I apologize ahead of time for the seemingly huge amount of info, but I figured if whoever reads it knows what I'm up against, they can better advise me. Please help me out!

Okay, here is the situation: I have not really done anything to pay any of these student loans or communicate with them. I recently pulled my credit report and decided that as my first priority #1 I want to GET RID OF MY DEBT that has been hanging over me for year, basically my default student loans and #2 Perhaps fix up my credit while I'm at it. I'm also thinking of going back to school to finish 2 years left of my bachelors.  I am unemployed and receiving decent unemployment right now and I have also saved some money in my savings.

I am in 2 different collections agencies - 1 is handling 2 of my default student loans of twin types/amounts and 2nd is handling 2 dispersements (2 parts) of another (1) loan.

1.  Original Lender: AES /PHEAA/Keystone Best

- 2 loans
- Dispersed on: Oct. 22, 2003, Original amount: $2625
- Dispersed on: Oct. 07, 2004, Original amount: $2625

AES is telling me that they are "showing an I-9 credit report - meaning federal debt - equivalent to bankruptcy on credit"

Being handled by: NCO collections agency
Info that NCO has given me:

- received March 23, 2011

- 2 loans - they have total of $6289.40 (They took off $237 in 2009, $723 in 2011, $57 in 2011 [They took my Tax returns], but have been continuing to add "financial fees" totaling in - $1046.54 at the moment) and current interest rate - 2.36%

- 1st loan: $3144.70 - 2.36% daily interest

- 2nd loan: $3144.70 - 2.36% daily interest

I have not given NCO any info at this time except confirming my personal information. I did not fill out any questionnaires or forms and have no told them my income or expenses. I'm guessing the options they gave me are just a general idea.

Options NCO has given me:

- Loan rehabilitation (I think they mean the Federal Loan Rehabilitation Program) - They told me that any interest and fees would continue while I am in this program. They said that the program would be 9-12 months and they would want me to make a down-payment of $1887 (they said I may be able to split the down-payment throughout the first 90 days of the program) and then $60 a month for the duration of the program. They said after 6-7 payments I would be eligible for financial aid again, and that after the 9th or 10th payment AES would take back the account and it would come out of default and be considered a loan in good standing, as well as any prior bad marks on my credit report would be erased as if I was never in default and then I can settle or make a payment plan with them.

- Payment in full - I pay the amount they have for me in full, which would still show almost as bad on my credit and I would still be showing all the bad marks I had.

- Consolidation - They would lower down-payment and monthly payments, give me a fixed interest rate that is higher, and would show on my credit and loan history pretty much as poorly as payment in full.

2. Original Lender: US Dept of Education/ Direct Loans (was also handled by DCS - debt collection of US Dept of Ed.)

- 2 dispersements (2 parts of 1 loan)
- Dispersed on: Jan. 17, 2007, Original amount: $2219 (Direct Loans - went into default May 2008, Came to DCS September 2008) Stafford Loan subsidized portion (meaning gov't payed interest while I was in school)
- Dispersed on: Jan. 17, 2007, Original amount: $3334 (Same dates as above for default and transfer) Stafford Loan unsubsidized portion

Being handled by: Coast Professional Inc

Info that Coast Professional Inc has given me:
- 2 dispersements (2 parts of 1 loan) - Total Balance: $7371 (Total balance w/collection costs and penalties is  $9165) - 6.8% daily interest
  - 1st dispersement: $2785.74 (Total balance w/collection costs and penalties $3590.24) - 6.8% daily interest
  - 2nd dispersement: $4325.93 (Total balance w/collection costs and penalties $5575.23) - 6.8% daily interest

I have verified my personal info with Coast Professional. Also, I have given them some extra info on me (don't know if that was smart or not) because the rep said he wanted to quickly get it to "show good intentions" on the loan and to prove that I can't make a payment in full/settlement and qualify me for the Federal Loan Rehabilitation Program. I told them that I am currently unemployed and receiving unemployment (which I really am), I also gave an estimate that I am receiving ~$1400/month in unemployment (I actually receive about $1800) and then I gave them estimates of how much I pay a month in these expenses, which they asked me about: rent - $350, car insurance - $260, cellphone - $120, food - $2-300, medical - $100. (I actually live at home and pay ~ under $1K in expenses).  They were more detailed and patient with me regarding everything we talked about and all of the questions I asked them. They also seemed to give me more info than NCO, the collector for the other loans. 

Options Coast Professional Inc has given me:

- Federal Loan Rehabilitation Program - They told me, similarly to NCO (the collection agency handling my other loans), that it's a 9-12 month program where you are usually out of default by the 9th payment and your account is sent back to the gov't, as well as that by the 6th payment you are elgibile for financial aid again. However, they gave me some new info that NCO had not given me. They said that the gov't not only erases all negative lines on your credit report, but they also refinance your loan and give you a much lower interest rate that turn back into yearly interest instead of daily and also that they would 98-100% of all collection costs on your balance. Coast Professional also said they could give me approximately the following program for the total balance of my loan: They said that they would make my monthly payment ~ 1.5-2% of my $7371 balance which would come out to ~ $115/month and I could put a down-payment = to 2 months payment ($230), also that they can split this down-payment into 2 and make it look like one of the payments is backdated so I could finish the program a month earlier, they also estimate that once I complete the program, my balance would be about $6300. In addition, they mentioned that if I have other loans that went through this program that I would be able to consolidate all of them once they were out of default.  Lastly, they said that I would have to provide 3 references of anyone who doesn't live with me - their name, phone number, relation, city and State and Zip.

- Settlement/payment in full - They told me that for this there are a few ways they would calculate the settlement and use the lowest number of all of them. They said that the settlement  would be ~$7k and usually allowed to be payed over a 3 month period. This however would leave a bad mark on my credit and leave all the old bad marks as well.

That's basically all of the info I have for you on my loans. I am really not sure why NCO is asking for such a monstrous down-payment on the loan rehab and if I can negotiate with them to give me the same program that Coast Professional is offering me. I have no idea if everything I was told was the truth or which parts were not and what other options and moves I have. If  you have any questions or comments please let me know, and if I have put too little or too much info, let me know as well. My question is basically pretty simple: What would be my best move keeping in mind my situation and my priorities?

[Tazman81]

Based on your priorities of cleaning up your credit, getting out of debt, and going back to school, I recommend you do the rehabilitation program for both.  You should contact NCO as the downpayment shouldn't be that high.  I've heard of 2 or 3 months of payments down, but never that amount.  It sounds like NCO is trying to get you to pay all of their Collection Agency fees up front.

Now, the only thing is I am not sure if you are able to do the rehabilitation program if you are not working.  Also, be aware that you can only attempt rehabilitation on a loan 1 time.  So, if you miss a payment, for whatever the reason, then they do not allow you to go through the program again.

Best of luck.  You will be back on your feet in no time.  It sounds like you have a good grasp on what to do with your student loans.

[Anonymous]

Based on your info, you definitely want to rehab these loans. It takes 9 monthly payments and makes your loans eligible for forberance, deferment, and also allows you to take out new loans if you desire. Direct Loans will wipe out all negative info, and it will look like you have been making timely payments all along. Private lenders like AES won't clear the lates on your reports, but it will show 2 new tradelines that will help your credit score.

The first thing you need to know is that there is no up-front payment that needs to be made. Your monthly payment is based on what is reasonable and affordable. Typically this is 1% of principle and interest. Believe it or not, being unemployed helps you, and is going to qualify you for cheap monthly payments. Check out the Income-Based Repayment (IBR) Plan. When I started rehabbing my student loans, I was unemployed and receiving no unemployment checks, and I asked for $25 monthly payments (on a total of $17,000 worth of loans) and they gave it to me (took some fighting).

Now, getting them to agree to that might be tough. NCO is going to demand that $1800 - they are in business to make money afterall. Explain to them that you were informed that you only need to pay what is reasonable and affordable, and mention the Income-Based Repayment Plan. They will probably say "We don't do that" or something to that effect. If you make no progress with them, contact AES and fill out the IBR form linked above. They should give you a monthly payment that is reasonable.

Coast Professional will be tough, you gave them too much info IMO. You can try to haggle them down to maybe $60-$75 month, or otherwise take their offer of $115 month (which is fair actually).

G/L and stand firm - don't let NCO get away with those crazy fees.