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Rehab vs Pay in full

Bretthew2001
New Visitor

Rehab vs Pay in full

I have seen a lot of topics online that deal with the pros and cons of rehab vs consolidation. I haven't seen much in terms of the pros and cons of pay in full vs rehab.

 

As a little background:

I am going to be receiving a rather substantial bonus from my employer this year. It's enough to payoff my defaulted student loans. I have slowly chipped away at all of my other debt and the only negative thing on my credit report at this point are my defaulted student loans.


My question for all of you:

Would it be better to pay off the loans in full or enter the rehab program, make the payments, and then pay in full?

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calyx
Super Contributor

Re: Rehab vs Pay in full

I would go for rehab and then PIF when rehab is complete.


Why?
1.  It removes the default from the loans (so they are closed in good standing when you PIF, vs closed in not-good-standing)

2.  Even though you will PIF and it will be closed once rehab is done, the most recent activity will be current.  With the loans backdated (rehabbed loans keep their original open date), you'll have up to 10y of old loans continuing to help pad your aging metrics.   If you just PIF, the loans will come off at the 7y mark from the date your delinquency start (loans typically default at 270d late).

 

This is with FICO in mind, not your peace of mind.

If your loans went delinquent (you stopped paying, aka, your DOFD) more than 7y ago, and it's just easier for you to pay them off and forget about them, then go for it.  If the loans went delinquent less than 7y ago, they'll be hanging around on your credit report looking bad until the 7y mark, but it might be worth it to you to just PIF.   Either plan (PIF vs Rehab) gets that albatross off of your neck, one just takes more effort and will help keep aging metrics up.

 

 

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