Will Settling an Aged Off Fed Student Loan Debt Make it Reappear and Tank Credit?

[Repairman]

I have about $20,000 in very old defaulted Federal Student Loans that are in collections and have also aged off of my credit report ages ago. My wages have recently begun to be garnished and I want to put an end to this for once and for all. Should the Collection Agency be receptive to settle, and I pay them off, will the loans reappear on my credit report after all those years, and negatively impact it and my score with say a “defaulted and paid less than owed” tradeline that would tarnish my report for a new 7 year period?

Im desperately trying to find the best way to get rid of this Student Loan debt, with the least impact to my credit (especially since it currently has 0 effect on my credit....I really don’t want that to change).

[Anonymous]

From what I read recently, that should not happen for to the fact that it's in default and it's past 7 years. Even if it could reappear, the lates could not.
https://ficoforums.myfico.com/t5/Student-Loans/Student-Loans-and-Credit-Reports-When-do-lates-fall-o...
For maximum benefit, I would consider rehabbing. After 9-10 months of payments it will put it back on your credit report in good standing. You could then pay it/ them off and have a good tradeline for 10 years.

[calyx]

+1 on Sabii's recommend to rehab.  You could end up with some pretty sweet aged lines.

I'm not sure a collection agency would be willing to settle (I assume you mean settling for less than 100% of the amount owed) because they have federal backing to collect (wages, tax return, social security), but if they would settle and you can pay the settlement in full, I might go for it just to be out of debt and out from under the student loans.

Good luck.

[Repairman]

Yes, I've heard before rehabbing is a good way to go but the reason I'm reluctant is I don't want to hand over my financial information to them. I made a large amount of money last year and because that, I fear my monthly payments would be set very high...higher than I actually can afford to pay. Additionally, I have several sources of income and they are currently only garnishing 1. I don't want to willingly hand over details so they can start immediately garnishing the others. Any help????

[Anonymous]

From my experience there are two ways to go. You can turn in your recent payroll etc information and then you'll be able to fill out the income & expenses form that will lower your payment. This sounds like it wouldn't be a good deal for you, although I truly believe whatever income sources you have and are paying taxes on will eventually be found out by them anyway. It will be more beneficial if your income has significantly decreased since last year.
Your second option is to use your taxes. You'll have to submit your complete tax return including the signature page. If your detailed employment information is on it, you might be better off with the first option.
You could also ask the collection agency what method they use to calculate the payment using either method. This would give you an opportunity to find out what the payment would be. However if you made the amount that you're saying you make, then it's highly unlikely that you cannot afford the payments. The more you make, the more likely that you can move it around from things that aren't necessities.
I would take a close look at what keeps you from making the payment they ask. If it's necessary financial obligations, then you're better off filling out the income and expense form, submitting your paystubs, etc. and whatever it takes to get the loan back on track. It might be difficult to make the payments with the garnishment, but you only have to make it work for 5 months. It's a one-time deal.
Other than that, you could potentially try to settle the debt. It won't get you anywhere near the benefits of rehab though. I would recommend consolidation without voluntary payments before I would recommend settling.

[Repairman]

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@Anonymous wrote:
For maximum benefit, I would consider rehabbing. After 9-10 months of payments it will put it back on your credit report in good standing. You could then pay it/ them off and have a good tradeline for 10 years.

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I have read elsewhere also, that rehabbing is a great option. The reason I am reluctant to rehab, however, is that I am reluctant to volunteer my financial info over to the collection agency. Last year I made a large amount of money and, because of that, I fear that the payments they would ask of me to fullfill the rehab agreement would be way to high for me to actually afford to pay. Also, I have multiple sources of income, and although I am currently being garnished from 1 source, I am not yet being garnished from the others, and I feel like that would just be an invitaion to them to hurry up and do so.

What do you guys think? Help!!!

[Repairman]

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@calyx wrote:

+1 on Sabii's recommend to rehab.  You could end up with some pretty sweet aged lines.

I'm not sure a collection agency would be willing to settle (I assume you mean settling for less than 100% of the amount owed) because they have federal backing to collect (wages, tax return, social security), but if they would settle and you can pay the settlement in full, I might go for it just to be out of debt and out from under the student loans.

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I've read that they are allowed to settle and often do, particulary in instances where they think they won't get they're money. If I could settle and get them to cancel the collection fees from the debt and possibly lower the amount due, I think that would be fantastic to get this out of the way. But my fear remains that my credit may be hurt by the reemergence of (a) negative trade line(s) on my credit report becasue of settling.

On the other hand, if that is the case, like you said, the aged lines that rehabbing would provide would indeed be very sweet.

[Repairman]

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@Anonymous wrote:
 However if you made the amount that you're saying you make, then it's highly unlikely that you cannot afford the payments. The more you make, the more likely that you can move it around from things that aren't necessities.
I would take a close look at what keeps you from making the payment they ask. If it's necessary financial obligations, then you're better off filling out the income and expense form, submitting your paystubs, etc. and whatever it takes to get the loan back on track. It might be difficult to make the payments with the garnishment, but you only have to make it work for 5 months. It's a one-time deal.
Other than that, you could potentially try to settle the debt. It won't get you anywhere near the benefits of rehab though. I would recommend consolidation without voluntary payments before I would recommend settling.

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I can't afford the high payments because of other financial obligations. Mainly huge credit card debt that was paid significantly down and continues to be paid by the income from over the past year. Additionally, things like high cost of living, and other bills and obligations, not to mention the current garnishment that is happening.

I was only aware of the income tax submission, but I wonder with the other option, could I only submit the paystubs from the job they are garnishing, or do they ask you if that is your sole source of income, and if not, list all others?

Why do you think settling should be my last option? You don't think getting rid of the debt, quickly and potentially for a lesser amount than is due is a great benefit of that option? Particularly since the Collections Agency is tacking on fees that are showing a due amount of over $4000 more than what is actually still due on the loans, according to the Federal Government site!

[Repairman]

Also, should I rehab, consolidate or settle, do I HAVE to go through the Collections Agency, or can I deal directly with the current lender or current guarantee agency?

[Anonymous]

I'm still recommending rehabbing. If you have high credit card balances, if you need to just put them on ice and pay the minimum until the garnishment passes. You really need to get these out of default and in good standing.
If you have the money to settle, I don't see where you don't have the money to rehab. I can see why submitting your taxes might give you a payment you can't afford. However, you cannot just submit the one paystub for what they are garnishing. Give them all of your income sources and all of your expenses, which lowers your payment (the form is very thorough in terms of expenses...I can give you a link of you want). You will be signing these forms; you don't want to be lying to the federal government. Not to mention, they can absolutely come after you later for "underpayment" of things due to falsely stating that was your income when it wasn't. They're probably not going to waste 5 months of potentially garnishing your additional sources of income when the rehab will just undo it.
I believe consolidation to be in the same category as settling. They both offer short-term gain with long-term negative consequences. Neither will remove the default and neither will restore your tradelines which have a great amount of age on them. Consolidation will give you a brand new loan. Both will take a long time to repair your credit from.
The best option for you, I believe is to find a way to rehab. You only have one opportunity to do so, so when you do make sure you can make all nine payments and on time.