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Defaulted Fed Student Loan - Rehab or Pay in Full - Which is best to improve Credit Score?

New Member

Defaulted Fed Student Loan - Rehab or Pay in Full - Which is best to improve Credit Score?

Hi all, 

I have a Federal Student Loan (FFEL Consolidated) which is in major default and has been handed over to a collection agency.

Total outstanding is $31k in principle and $5k in interest, total ~$36,000

My question is what is the best way to repair my credit score?  Rehab the loan?  Pay it in full?  

All advice would be appreciated! 

Message 1 of 7
6 REPLIES
Community Leader
Legendary Contributor

Re: Defaulted Fed Student Loan - Rehab or Pay in Full - Which is best to improve Credit Score?

If you pay off the loan, it would no longer be in default status.

Rehab would also remove the "in default" status, but the loan would still be open with a remaining balance.

Thus, scoring would be slightly different, still taking into account unpaid balance, and keeping an active installlment loan.

 

What is the remaining balance, and do you have other installment loans?

 

 

Message 2 of 7
New Member

Re: Defaulted Fed Student Loan - Rehab or Pay in Full - Which is best to improve Credit Score?

Thank you for your insight.  My objective is to take the path which will improve my credit score the most and in the shortest amount of time.  I would like to be able to apply for a mortgage but clearly, this loan has greatly affected my FICO score. 

Message 3 of 7
New Member

Re: Defaulted Fed Student Loan - Rehab or Pay in Full - Which is best to improve Credit Score?

Balance is ~$36k (including interest)

Message 4 of 7
New Member

Re: Defaulted Fed Student Loan - Rehab or Pay in Full - Which is best to improve Credit Score?

I have no other installment loans. 

Message 5 of 7
New Member

Re: Defaulted Fed Student Loan - Rehab or Pay in Full - Which is best to improve Credit Score?

Hi , I went with rehab because a s part of the program they remove defaulted TLs. Not sure if that would happen if you just pay, that was not an option for me. I will say tha that rehab did wonders for my credit- it was not immediately but within 18 months my scores are up by over a 150 pts. With good payment history good CU etc. Definitely worth it. This is why I keep returning to this forum to tell others that they can do it too.

Message 6 of 7
New Member

Re: Defaulted Fed Student Loan - Rehab or Pay in Full - Which is best to improve Credit Score?

Thanks! 

Message 7 of 7