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Federal Student Loan Rehab Effect on Score?


Federal Student Loan Rehab Effect on Score?

Hi all, I graduated from college back in 2008. For many many years after that I was quite poor (hovering around the poverty level, food stamps etc) I didn't even attempt at paying back my $20k of federal student loans, had my car repo'd, evicted from my apartment, judgement against me you name it! 


Fastforward 10 years later, life is a lot different. My income is now probably in the top 1-2% of Americans all the derogs have fallen off my credit and I have a score in the high 7's now. 


However I still haven't dealt with my federal student loans. I know these never go away and there's no statute of limitations. However my student loans are completely gone from my score. I'm worried that if I rehabilitate them that all the previous years of deliquent payment will show up on my credit. I'm not sure if this is how it works for federal loans (I know it is how it works for old revolving credit accounts though)


I'm lucky in that the government hasn't come after me yet, but I do want to get this handled. Any advice on how to proceed? 



Message 1 of 4
Senior Contributor

Re: Federal Student Loan Rehab Effect on Score?

You have two options:  Rehab and Consolidation


I would go for rehab.  The default is removed from your student loans, and you'll end up with positive lines with the original opening date, so that could help your age related metrics (maybe, depending on threshholds crossed).

Consolidation would start a new tradeline, so you would be reducing your age factors and possibly lowering them past threshholds.

Ultimately, it would not have a drastic effect unless you had no installment loan, in which case it would help you satisfy your credit mix and increase your score there.

I wouldn't worry about derogatory information - since the negative information is so old, the 7 year limitation of reporting by CRAs will keep them off (it's not technically a 7 year limitation in this case, since they're federal loans, but the automation by the CRAs on reporting will help you here).


(I won't get into different payment plans and forgiveness since that's not what you're asking, but we can help you there, too if you need it).

F8 EQ: 804 | EX: 790 | TU: 809 | Accounts: 3/6 5/12 9/24
Happy practitioner of AZE9or10or11or12 | Team Finances > FICO
Message 2 of 4

Re: Federal Student Loan Rehab Effect on Score?

Thanks Calyx. I have one $5k installment loan that I got specifically to diversify my credit. While my score is techncially high I'm still not very appealing to lenders because the CL on my cards is only about $5k each and they're young age. I actually just leased a Tesla because I couldn't get a single bank to loan me money at any interest rate. Even with the lease I had to put down $13k (which I know is a bad idea but it was that or not get a car so *shrug*) 


So if rehabbing my loans will make me look more appealing to lenders that's even more interesting to me. 



Message 3 of 4
Valued Contributor

Re: Federal Student Loan Rehab Effect on Score?

You're right, it may be only a matter of time before they take action such as garnishment. Since it's fallen off and your score is already around 790(?) then I don't see any huge jump from getting it out of default. I would personally recommend rehabbing in your case because you get the age back when the old accounts are placed with a new servicer. The age might help you in getting new credit, though I'm not sure why you would be required to put so much down on a car with that high a credit score and that high of an income. I feel like I'm missing something...

At over 200k a year and a $20k loan you can probably expect the rehab to have a higher payment on even an income-based payment plan. This is okay, as you'll likely want to pay off the loan at a rapid pace after rehab to save on the interest. That's typically what people in this income range on the boards tend to do. There's are a few older threads you can refer to.
As for how quickly it would be suggested to pay it off, there are a lot of people in the personal finance section who can give you advice if you're interested in that.
Hope this helps. Good luck.

Message 4 of 4
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