Default Status: What to do
Introduction: Student loan default can feel overwhelming, but it’s not the end of the road. Loan rehabilitation is a process designed to help borrowers restore their loans to good standing. This step-by-step guide will walk you through how loan rehabilitation works, its benefits, eligibility requirements, and what happens after your loans are rehabilitated.
Benefits of Loan Rehabilitation: Rehabilitation offers several key advantages:
- Removed Default Status: Once your loan is rehabilitated, the default status is removed from your credit report.
- Improved Credit Score: Removing the default helps improve your credit score, which can have long-term benefits for securing other loans or credit.
- Wage Garnishment Stops: If your wages were being garnished due to the default, this will stop once rehabilitation is complete.
- Eligibility for New Federal Aid: Loan rehabilitation restores your eligibility for future federal student aid.
Eligibility Criteria: To qualify for loan rehabilitation:
- You must be in default on your federal student loans.
- You must agree to make nine consecutive monthly payments within a 10-month period.
- Your payment amount will be based on your income and family size, ensuring it’s affordable.
Rehabilitation Process:
- Contact Your Loan Servicer: Reach out to your loan servicer to discuss loan rehabilitation options.
- Agree on a Payment Plan: You’ll work with your servicer to determine an affordable monthly payment based on your income.
- Make Nine Payments: You must make nine on-time monthly payments over a period of 10 months.
- Completion of Rehabilitation: After making the required payments, your loan will be removed from default and your credit will improve.
Post-Rehabilitation Steps: Once your loans are rehabilitated, it’s important to stay on track:
- Consider switching to an Income-Driven Repayment Plan to avoid falling behind again.
- Regularly monitor your payments and financial situation to ensure you stay current.
- Stay in contact with your loan servicer to ensure you’re aware of any changes or issues.
Conclusion: Loan rehabilitation is a powerful tool for getting out of default and back on track with your student loans. The process takes time and commitment, but the benefits are worth it. By following the steps above, you can restore your loan and your financial future.