Rehabilitated Student Loans
For many borrowers, the prospect of defaulting on a student loan is a nightmare. Defaulting can impact your credit score and make it difficult (or impossible) to take out other loans in the future. Fortunately, there’s an option for borrowers who are struggling with their monthly payments: rehabilitating their loans. Rehabilitated student loans have defaulted status removed from their credit report, so it’s easier for you to get other financing if needed — but there will be some consequences. In this article we’ll explain how rehabilitating your student loans works and what happens afterwards.
How Does Rehabilitation Affect Your Credit?
Rehabilitation affects your credit in several ways. The default notation will be removed from your credit report, and the defaulted loan will be removed from your credit report. Your repayment amount, monthly payment, and payment date will all be recalculated to reflect these changes. The change in status should never affect your ability to get loans or lines of credit unless the lender requires you to have perfect or near-perfect scores for rehabilitating a student loan that was in good standing at one point (in which case it’s probably not worth applying for that type of loan anyway).
What’s the Process for Rehabilitation?
If you are behind on your student loan payments and want to be able to make them again, the best thing you can do is to rehabilitate your loans. When you rehabilitate your loans, it will remove any past delinquency from your credit report and give you a fresh start. The process for rehabilitation is fairly straightforward:
- You must complete the application for rehabilitation. This will be sent by the lender or servicer of your loans once they receive notification that you’re interested in completing this process.
- You must submit proof of income or means-tested forgiveness programs as applicable based on federal regulations (if applicable). The lender/servicer will let you know what type(s) of documentation it requires so that they can verify who qualifies for repayment relief and how much money they would save over time if certain options were chosen instead (such as consolidating all student loan debt into one new loan with lower interest rates).
What If I Have Multiple Defaulted Loans?
If you are struggling to make payments on multiple federal student loans and have defaulted on at least one of them, the best option is to rehabilitate all of your loans simultaneously. The rehabilitation process is the same for each loan, so it’s more efficient to do everything at once than to rehabilitate each loan individually. You can also rehabilitate loans that haven’t yet defaulted if you want to prevent their default from occurring, though this approach will require additional paperwork and could also delay your eligibility for further federal aid.
Can I Go Back to an Income-Driven Repayment Plan After Rehabilitation?
You can go back to an income-driven repayment plan after rehabilitation. You do not need to reapply, but you may have to show documentation proving that your circumstances are still too difficult for you to pay all of your student loan debt. The servicer will record the default status on your credit report.
When you rehabilitate your student loans, the default notation will be removed from your credit report.
Rehabilitation is a process that can only be done by the lender. Most lenders allow student loans to be rehabilitated if they have been in default for less than four years and they are not being paid through an income-driven repayment plan.
If you decide to go the rehabilitation route, it’s important to understand some basics:
- Rehabilitation is a last resort, so it should only be used when other options have been exhausted. For example, if you’ve received multiple notices of default on your loan and you can’t afford payments as calculated under an income-driven repayment plan, then rehabilitation may be right for you.
- Rehabilitation can take up to three months from start to finish (including time allowed for sending paperwork and processing). This means that during this period of time your credit report will show both past-due status (which indicates “default”) along with current status (“rehab”). If the latter is not indicated, check with your servicer about what happens next before making any assumptions about what their policy might be regarding rehabbing their loans—some servicers will not accept applications after certain dates because there are too many pending applications already waiting approval; others won’t accept them at all unless they’ve first been approved by another servicer who holds those loans—”double servicing” is prohibited under federal law but unfortunately still occurs quite often across all types of consumer debt except mortgages, which tend toward strict compliance thanks largely due to government oversight!
In the end, rehabilitated loans will have a major impact on your credit score. The good news is that anyone who has defaulted on their student loans should take this opportunity to get back on track and start repaying them. You’ll be glad you did!