I just called the collection agency that is handling my defaulted student loans. I entered into rehabilitation. I agreed to make 15 monthly payments and then the student loan will be wiped from my credit report as if it never defaulted. I could have consolidated them and then paid the original lender and the payments would have been less but the default would not be removed from my credit. I hope I made the right decision. I asked the rep how these monthly payments would appear on my report...he said they would show if they were made on time but that the default status will remain on there until the end of the rehabilitation period (june 2002) Does anyone know how this will affect my credit score? If these payments are made on time will it up my score....is it considered a positive line? I hope to qualify for a mortgage before then. BTW those of you that have been reading my post...we were considered a lease purchase on a house....it has already sold so we are concentrating on improving our credit while we continue to look for a house. I hope these student loans won't stand in our way but I wanted to get this rehab process started ASAP.
Shelby, First, the rehab is only 12 months, not 15. They may have told you 15, since the actual rehab process can take up to 15 months to complete. But you should call the original servicer THE DAY your 12th payment is posted to them and ask them to set up a rehab contract with the new servicer the loan will go to. Have them mail your contract to you, sign it and return it overnight. It should be done within on month, so that the only "extra" payment you will make is for the 13th month. Deal with the servicer on this; don't depend on the collection agency to get the ball rolling and get all the right docs sent. Besides, the original servicer is the one who legally has to do the rehab anyway - not the collection agency. Now, to answer your question... During my rehab time, my loans were reported as I5 (collection accounts) on all three reports and read "unpaid collection". I'm not an expert on house buying requirements, but I don't think any loan officer will approve you with unpaid collections listed. If it currently in default, and the LO knows it, I doubt the LO could approve it. Unpaid student loans are VERY risky to potential lenders b/c the government can and will take ALL your money to get them paid (i.e. no tax returns and wage garnishment). I suggest that you wait on the house until the rehab is completed. As long as the loans are in default, you won't get the tax incentives home-ownership offers anyway. Just be real agressive about it around the 11th month. I was on them like "white on rice" to the point that they rehabilitated all of my loans even though only one truly qualified at the time. I guess I wore them out, too. I hope things go well for you, Marci