cancel
Showing results for 
Search instead for 
Did you mean: 

Student Loan Rehabilitation VS. Consolidation - What is better for your score? Benefit of rehab?

New Contributor

Student Loan Rehabilitation VS. Consolidation - What is better for your score? Benefit of rehab?

It is my understand that both consolidation and rehabilitation brings the accounts out of default. The consolidation pays off your old loans so they are no longer in default status and the rehabilitation just removes the current default status. Consolidation doesn't require 9 months of payments. So what's the benefit of rehab?

Message 1 of 7
6 REPLIES
Community Leader
Legendary Contributor

Re: Student Loan Rehabilitation VS. Consolidation - What is better for your score? Benefit of rehab?

 

Chart from the National Consumer Law Center summarizes each:

 

Should I Consolidate or 

Rehabilitate My Federal Student Loan?

Consolidation

Rehabilitation

Consolidates previous loan(s) into one new loan.

You must rehabilitate each individual loan. After the rehabilitation process is over, you still have the same loan, but it is now current.

Allows you to get out of default quickly without making any preliminary payments.

Requires nine payments in a ten month period to get out of default.

No resale requirement.

For federally guaranteed loans, the rehabilitation process is not complete until the loan is sold or assigned to the government.

No need to negotiate “reasonable and affordable” payments with collectors.

You may have to negotiate “reasonable and affordable” payments with collectors to get out of

default. This is much easier for borrowers now that collectors are required to start by using the 15%

IBR formula to determine reasonable and affordable payments.

One time deal. With either of these options, you only get 1 chance to get out of default.

Fees of up to 18.5% may be added to the balance.

 Fees of up to 16% may be added to the balance.

Collectors cannot come after you once the consolidation or rehabilitation process is complete, as long as you stay current.

Allows you to have access to flexible repayment plans which calculate your payment based on your income. If you stay current with your payments, any remaining balance on the loans will be forgiven after a certain period of time (20 or 25 years depending on the program).

Slightly worse for your credit report because the notation indicating that you were in default and other negative information will remain on your credit report for 7 years.

Slightly better for your credit report because the notation indicating that you were in default will be erased. Other negative information remains for 7 years.

You might lose some legal rights and defenses.

You retain your prior legal rights and defenses.

You can choose your servicer.

No choice of servicer after rehabilitation.

For more information about student loan consolidation, rehabilitation, and repayment, visit: http://www.studentloanborrowerassistance.org.

Message 2 of 7
New Member

Re: Student Loan Rehabilitation VS. Consolidation - What is better for your score? Benefit of rehab?

Hi, I went thru the same thing but the distinction is really important. When u consolidate old loans close they show as paid but the default TLs remain. In other words they will only show it as out of default as of the day u consolidate them. So 2018. When you rehab the default TLs are removed. So say u defaulted in 2016- with rehab they will go back to that time and remove derogatory reporting. So rehab is much better in the long run. It has been 18 months since mine and my scores are up by over 150pts. Now they were low 550 or so but.... 700+ in 1 in 18 months most definitely worth it to me. Hope this helps.

Message 3 of 7
New Contributor

Re: Student Loan Rehabilitation VS. Consolidation - What is better for your score? Benefit of rehab?

hmm...interesting because the federal student loan site says it does not remove late payments:

"If you rehabilitate a defaulted loan, the record of the default will be removed from your credit history. However, your credit history will still show late payments that were reported by your loan holder before the loan went into default."

Message 4 of 7
Member

Re: Student Loan Rehabilitation VS. Consolidation - What is better for your score? Benefit of rehab?

how long did it take after you completed the rehab for your credit report to update?

Message 5 of 7
Frequent Contributor

Re: Student Loan Rehabilitation VS. Consolidation - What is better for your score? Benefit of rehab?

This is true. There is no guarantee that if you rehab that the late payments will be removed. Nonetheless, many have had success in getting them removed either through the rehab directly or working with the credit bureaus. It's best to get any mention of lates bring removed by the rehab people in writing, which they are most likely to do in the negotiations period.
Second, as these are Federal loans I'm guessing maybe student loans? They will be assigned to a loan servicer afterwards and you will continue as you had been. So you should be eligeable for the same low-income repayment plans, etc.

Now let's say you consolidate instead because you intend to pay of the full loan as quickly as possible and you are absolutely sure you will be financially able to for xx number of years... So all you need is a lower interest rate. This will essentially turn all your loans into a single big, newer loan. The utilization will show as 100% on your credit report and you will pay for the balance on that. Your old tradelines will remain; you cannot ask for a Goodwill adjustment on federal loans. Your AAoA/ AoYA will go down. Your score will likely go down due to these factors. You will no longer be eligible for the same repayment plans.
I don't have any personal experience with this but I'm helping someone through this very same process. It's a difficult decision and imo hinges on the method in which you intend to repay the loan. Good luck!



Message 6 of 7
Frequent Contributor

Re: Student Loan Rehabilitation VS. Consolidation - What is better for your score? Benefit of rehab?

I rehabbed. 

 

It made sense for me because I had a bunch of tradelines that had all notations of default removed after rehab, and the capitalized fees for the new tradelines were slightly lower than if I had just consolidated. 

 

It's an important choice for everybody to make depending on their individual circumstances. 

800+ for all 3 CRAs.

Took 4 years after rehabbing a bunch of defaulted student loans, but totally worth it.
Message 7 of 7