When you let your student loan go into default, you may be subject to wage garnishments and you could be forfeiting your tax refund checks. The defaulted student loan will also have a negative impact on your credit report and it can be difficult to remove the record from your credit report entirely – even when you pay off your student loan in full. For many people, loan rehabilitation is the best possible solution for managing this outstanding debt.
Loan Rehabilitation and Your Federal Student Loan
If you have defaulted on a Federal student loan, the only way you can have this removed from your credit report is through a loan rehabilitation program. Loan rehabilitation involves making nine or twelve monthly payments towards your student loan on time, and in the amount you and your lender have agreed upon.
As long as you make all of your payments on time, the negative information about your student loans will be deleted completely from your credit history. You are able to make nine monthly payments on Direct Loans and Federal Family Education Loans, or 12 monthly payments on Perkins Loans. More information about the student loan rehabilitation process can be found here.
Dealing with a Defaulted Private Student Loan
If you have a private student loan in default, you may be able to negotiate terms with your creditor and have them delete the negative credit information on your behalf. Keep in mind that this isn’t always a simple process, and you will need some strong negotiating skills to ensure that they will take everything off your credit report as soon as possible. If you are able to pay the entire balance of your outstanding student loan – or make a lump sum payment – you may be able to have the negative information removed from your credit report.
Unfortunately, private lenders are often much tougher to work with than representatives from the Federal Department of Education. Even if you are able to pay off your student loan in full, a private lender may take their time to update your credit report and delete the negative information. Still, it’s worth flexing your negotiation skills for because the process can significantly improve your credit.
Things to Remember When Negotiating a Student Loan Settlement
If you are desperate to get the negative information about your defaulted student loan off your record, you may have considered a settlement offer from a loan rehabilitation company. Some companies suggest that you take the settlement offer so that the loan can be paid off. In this type of situation, the information about your defaulted student loan may still stay on your credit report.
When you accept any type of “settlement” offer, the company offering the settlement is under no obligation to remove the information from your credit report. As far as the credit bureaus are concerned, you didn’t pay your student loan back in full and the settlement itself will show up your credit report. More information about the drawbacks of negotiating and accepting a settlement offer can be found here.