However, the U.S. Department of Education has a loan rehabilitation program to bring defaulted student loans current. There are several reasons as to why you should take advantage of this program. When you enter into the program, risk of wage garnishment ends, and the IRS will no longer be able to withhold your income tax refunds.
Additional advantages take place after you have completed the loan rehabilitation program. The loan will no longer be in default status and will be considered current. Furthermore, the negative credit reports to the three national credit bureaus associated with the loan will be deleted. You will now also regain eligibility for the benefits that were originally available on your loans before the loan defaulted. These benefits may include deferment, forbearance, and Title IV eligibility.
There are some differences to the program depending on the type of loan that you are trying to rehabilitate. In all cases, you are required to make nine full, on-time payments of an agreed amount within twenty days of their monthly due dates to the Department of Education.
The aforementioned differences have to do with the lender who services your loan after you complete the program. A Direct Loan will be returned to the Direct Loan Servicing Center, a FFEL Loan may be purchased by an eligible lending institution, and a Perkins Loan will be serviced by the Department of Education until the loan balance is paid off.
Some things to keep in mind:
- Payments secured through involuntary means, such as wage garnishment or litigation, cannot be counted towards your nine payments.
- You are only allowed to perform loan rehabilitation once per loan. That means if your loan falls back into default, you will have few if any options, and you will more than likely be responsible for the remaining balance in full.
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