To Pay or To Rehab

[dman23]

First off, thanks to all contributors who share their knowledge and experience here. I've learned so much from this forum in just a few days. Well,I've had this student loan debt hanging over me for a long time. Baiscally, it was irresponsibility for not paying it. I wnet to nslds and found out how much I owe and who has the student loan. It's with DoE collection management system. There were 4 Subsidized Stafford loans all rolled into one. The 4 loans were Defaulted, Unresolved on 9/12/95. The current is Defaulted, Unresolved on 8/2/1996.

From what I've learned it seems this negative info. would have been dropped from my credit reports 7 years from 8/2/1996 as there is nothing on my 3 credit reports in regards to the student loan defaults. I'm applying for my CPA license and don't want this to come back and haunt me. I owe $28,000 and believe I could settle for around $20,000.

I understand the rehab process and if I am able to go that route it wouldn't hurt or affect my credit reports that much. Of course, I don't want to wait 9 or 10 months to apply for CPA license, so you see my dilemma.

My question is, if I pay this off in a lump sum will this necessarily be reported to the agencies and thus be a negative on my reports for at least another 7 years or so?

[fezwhy]

If you pay it off it will be reported as having a zero balance. Being reported as paid off and no balance looks better than being charged off. I found out last year that with a student loan in default that I was untouchable for getting a mortgage.

[dman23]

Thanks. I will be looking to get a mortgage within a year. As of now I don't see a problem as there is nothing on my credit reports about the student loan. So I don't think the mortgagor would know about this still being in default. When the time comes I'll be putting 30-40% down so I think I'll get a mortgage from someone. Regardless I am paying it off so there won't be a charge off. Just wondering if I should rehab it, if possible, which seems the better way to go as far as your credit report, or pay it in full which I think is not the way to go as far as your credit report is concerned.

[Whitneyy]

I prefer rehab because it will either wipe old tradelines completely out or wipe them clean, leaving you with positive tradelines. 

[Whitneyy]

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@dman23 wrote:

Thanks. I will be looking to get a mortgage within a year. As of now I don't see a problem as there is nothing on my credit reports about the student loan. So I don't think the mortgagor would know about this still being in default. When the time comes I'll be putting 30-40% down so I think I'll get a mortgage from someone. Regardless I am paying it off so there won't be a charge off. Just wondering if I should rehab it, if possible, which seems the better way to go as far as your credit report, or pay it in full which I think is not the way to go as far as your credit report is concerned.

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I have read that the lenders CAN pull up your debt owed.

[dman23]

I'm kinda leaning that way too for now. I may gamble and apply for CPA license anyway and hope they don't check. Been researching online to get feedback on anyone approved or denied license with defaulted student loans, but to no avail so far. Takes about 3-4 weeks to learn of CPA application status. If I'm denied and as long as I can rectify the situation by paying off student loan then I may go ahead and apply for license. In the meantime arrange a rehab agreement with DoE and get that underway.

Still considering what to do and will have a decision Monday. Will posts decision and outcomes as they occur.

Just to confirm. As of now there are no tradelines on my credit reports regarding the student loan. If I go the rehab route it can only result in positive tradelines?

Thanks

[SCF]

If you go with rehab, the end result will be that you will have a clean tradeline for each rehabilitated loan, backdated to the original open date for the loan, on your report.  This could be a fantastic boost to your AAoA, but it does require the patience of 9 months of payments.

If you go with consolidation, the loans will be brought out of default immediately and a new tradeline opened on your report (with no back-dating) for the consolidation loan.  At that point, you can pay the loans off with whatever payment plan you choose.

You are not likely to get a settlement for less than full value with federal student loans.  They could be transferred to a new collection agency and reported to the CRAs at any time.  While they cannot bring back the old information about the original accounts and lates that led to the default, the new CA is free to open a collection account on your report because there is no statute of limitations for federal student loans.  These loans are also reported to CAIVRS - so if you go for a FHA, USDA or similar mortgage or your CPA license agency checks CAIVRS, this debt will cause problems for you.

If you can pay it off in full, call the current CA (you can find them on the NSLDS)  and just offer to pay.  I think they should just take the payment and clear CAIVRS for you, but make sure they won't slide a "paid collection" on your report.  If they say they will, I would do rehab or consolidate to avoid that.

[Whitneyy]

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@dman23 wrote:

Just to confirm. As of now there are no tradelines on my credit reports regarding the student loan. If I go the rehab route it can only result in positive tradelines?

Thanks

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Yes, sir! That's what's good about rehab, only positive can come from it. You just have to make NINE on time payments to have this done. And then get picked up by a lender after rehab is done. Then, wait the 30-45 or whatever days for the credit bureaus to update. It's worth it to me because it back dates like you were never ever late!

[dman23]

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@Whitneyy wrote:

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@dman23 wrote:

Just to confirm. As of now there are no tradelines on my credit reports regarding the student loan. If I go the rehab route it can only result in positive tradelines?

Thanks

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Yes, sir! That's what's good about rehab, only positive can come from it. You just have to make NINE on time payments to have this done. And then get picked up by a lender after rehab is done. Then, wait the 30-45 or whatever days for the credit bureaus to update. It's worth it to me because it back dates like you were never ever late!

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I like that! I would make the 9 payments or even suggest making 10 payments and pay it in full instead of even letting another lender pick it up.

[dman23]

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@SCF wrote:

If you go with rehab, the end result will be that you will have a clean tradeline for each rehabilitated loan, backdated to the original open date for the loan, on your report.  This could be a fantastic boost to your AAoA, but it does require the patience of 9 months of payments.

This sounds like the optimal way to go for sure. 9 months goes by fast. No problem with patience.

If you go with consolidation, the loans will be brought out of default immediately and a new tradeline opened on your report (with no back-dating) for the consolidation loan.  At that point, you can pay the loans off with whatever payment plan you choose.

No need to consolidate. The loans have been rolled into one loan already.

You are not likely to get a settlement for less than full value with federal student loans.  They could be transferred to a new collection agency and reported to the CRAs at any time.  While they cannot bring back the old information about the original accounts and lates that led to the default, the new CA is free to open a collection account on your report because there is no statute of limitations for federal student loans.  These loans are also reported to CAIVRS - so if you go for a FHA, USDA or similar mortgage or your CPA license agency checks CAIVRS, this debt will cause problems for you.

I possibly disagree here. About a year ago I was offered a settlement amount. I could be wrong here as maybe it was a settlement to get out of default status with the remaining balance still due. A settlement will be something I'll discuss and if it's for 20-21,000 out of $28,000 I'll make sure to know if that fully satisfies the debt and they're is no further obligation. If that is the case I will request any offer for full settlement in writing. I also think each individual case is different. In my case, they haven't received anything in over 16 years (I'm not proud of that as noone wants to be considered a deadbeat) and I'm not on a W-2 so no wage garnishment so I think a 21,000 offer pays it in full. I've always paid all my other debts in full even when a settlement was always an option. Of that $28,000 owed I would say 6-7,000 are added costs from the collection agencies which I felt was wrong.

I reviewed the CPA license application and it didn't ask about having any student loans in default so if I go the rehab route Monday I will apply for license. If that question was on the application there is no way I would have said no and hope they don't check. Kinda defeats the requirement having a strong moral character.

Thanks for letting me know about CAIVR. Never knew about that.

If you can pay it off in full, call the current CA (you can find them on the NSLDS)  and just offer to pay.  I think they should just take the payment and clear CAIVRS for you, but make sure they won't slide a "paid collection" on your report.  If they say they will, I would do rehab or consolidate to avoid that.

Agreed.

Thanks for your input and advice. I will follow up with posts letting you know what I decided to do and the outcomes.

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