Student loans can add up very quickly. It seems like a great thing at first: you get a ton of money and it doesn’t really matter if you have a terrible credit score. Since you can apply to student loans upon entrance into a college or university, most borrowers are so young, they have barely any credit to their name. These loans can help any student aspire towards the American dream.
However, late or missed payments and struggling with bills can turn those dreams into a nightmare in literally no time at all. If you were to miss 270 consecutive days of payments, that’s about nine months, your loans could go into a default status. This is the point when the U.S. Department of Education can sell your loans to collection agencies. Thus, the nightmare begins.
Julianna and Hugh are both in this situation. It can be a frightening time, and it can seem extremely difficult, nigh impossible, to get those loans out of collections and back under control. Collection fees can put your balance through the roof. Up to 25% of your payments will first go towards the collection fees, then towards the piled interest. If there’s anything left afterward, the rest of the payment will go towards the principal balance of the loan.
There are two options to take in order to get out of default status. Julianna took one, while Hugh took the other. These options are rehabilitation and consolidation. Julianna decided on rehabilitation. In order to have her loan rehabilitated, she needed to make nine payments within ten months towards the loan. The agreements made between the Department of Education and Julianna provided that she had reasonable and affordable loan payments for those ten months. Since Julianna was able to make all of those payments on time, her loan was rehabilitated. Since she chose this option, Julianna had the advantage of removing all negative comments concerning her defaulted loan from her credit score. In this case, it was like the loan never went into default in the first place. No one will ever know.
Hugh decided on consolidation. He wanted to make monthly payments that were reasonable and affordable for the length of the repayment period, not just during the rehabilitation process. With consolidation, Hugh was able to combine all of his student loans into one. This allowed for one monthly payment. He had to shop around for the best refinance options to make sure these payments would be reasonable and affordable based on his income, but he was able to do it. This is a better option than rehabilitation for those who have had their student loans in default for a very long time.
As can be seen through Julianna and Hugh’s examples, getting loans out of default and away from collection agencies is not impossible. It might seem so at first, but there are options out there for you. Call your loan servicer to discuss options. You can also speak with an attorney for legal advice concerning student loan debt.