A student loan rehabilitation is typically a 9-10 month payment program where the borrower will make agreed upon payments to rehabilitate the student loans to remove the default status. The payment amount is typically agreed upon by both the lender and the borrower, to be an affordable payment that the borrower can make. Once the borrower has made these nine payments, on time, the default status would be removed from the borrowers credit history.
How Your Payment Is Determined
As of July 2014, the lenders or the collection agency assigned to the defaulted loan should be using the same calculations used in the income based repayment program to calculate the rehabilitation payment. If this payment is still not affordable, the borrower can submit a Financial Disclosure for Reasonable and Affordable Rehabilitation Payments. Even though the rehabilitation payment may be the same as the IBR payment, the borrower will NOT be enrolled into an IBR program or receive any of the benefits of the IBR program such as loan forgiveness. Things that are considered in the IBR rehabilitation payment:
- Disposable Income
- Social Security Benefits
- Welfare Benefits
- Family Size
Prior to July 1st 2014, borrowers would often face a rehabilitation payment of 1% on the remaining balance of the loan. With the current average balance of all student loan borrowers at $26,000, this would mean $260/mo. With the new plan, borrowers can pay much less than this, even as low as $0.00 with the current system.
Positives and Negatives of a Rehabilitation
Before entering into a rehabilitation, its important to understand both the positives and the negatives of rehabilitating your student loans. The negatives only exist because of the option to consolidate rather than entering into a rehabilitation. If consolidation is not an option for you, then the rehabilitation should always be considered as the best option for getting out of default.
- Rehabilitated loans are eligible for deferments and forbearances
- Borrower would be eligible for new student loans
- Default status is removed from credit report
- Collections calls would stop
- It takes up to 10 months for the default status to be removed
- Any late payments could restart the rehabilitation period
- A federal student loan can only be rehabilitated once
Wage If I Am In A Wage Garnishment
If you are in an active wage garnishment, the amount taken from the wage garnishment will not be applied to any rehabilitation payments. You must make all the rehabilitation payments while also having your wages garnished concurrently. By going through a full & complete rehabilitation, your student loan wage garnishment will be stopped.
What If I Already Rehabilitated My Loan
Student loans can only be rehabilitated once. If you re-default on a loan, rehabilitation is no longer an option. You may be eligible for a student loan consolidation to remove the default status on your loans. When your loans are consolidated into the William D Ford Direct Loan program, all your loans would be combined into one new loan, and you would no longer be in default. No rehabilitation fees would be required to consolidate, but the default status on your loans that have been consolidated will still appear, although the loans will have a zero balance. Once consolidated, you are able to choose the IBR repayment plan and always have an affordable payment and limit your risk to falling into default again.
How Do I Begin The Rehabilitation
If you have determined that a rehabilitation is what is best for you, you will need to contact your lender, or the collections agency to get started.
Are There Any Easier Options?
Another option to get your loans out of default, is to consolidate into the William D Ford Direct Loan program. This consolidation would take all your default loans, and consolidate them into one new loan, often times with a new lender. The consolidation process takes 30-60 days from when your new lender receives your file. There would be no payments due to consolidate your loans if doing it on your own. The only negative with this consolidation is that while your loans are no longer in default, your previous loans will stop show as having been in default on your credit report, but with a current balance of $0.00 having been paid off through a consolidation. If you want to check your eligibilty for a consolidation, give us a call today at (561)424-6053