Credit Repair

Fixing Credit After A Student Loan Default

When it comes to fixing credit after a student loan default, there is a step-by-step process that you have to follow. It won’t happen overnight. Therefore, if you are looking out for quick fixes, you are at the wrong place. It is very important for you to understand that a FICO score does not get damaged within a day or two. So, how can you recover the damage within such a short period of time? You must keep some patience and follow these strategies thoroughly. There are basically two things that you have to do – you have to implement the right strategies and you have to be consistent.

Do Some Strict Budgeting

35% of your credit score depends on how good you have been in making timely repayments. It means missing payments on your student loan will result in substantial damage to your credit worthiness. Therefore, the first thing that you have to do is to do some strict in order to avoid further defaults. If you are going through a financial crisis and do not have enough money to be current on your payments, you should contact the lending institution and request them for deferral or forbearance, which will officially allow you to stop making the repayment until your finances get back on track. Such options are usually available with student loans. However, you are advised not to use this option if you have resources (such as in the form of friends and family) to get the necessary funding to make the repayment. It will accelerate the process of fixing credit.

Contact DOE (The US Department of Education)

You also have an option to get your student loan rehabilitated by contacting the US Department of Education. You can give them a call and explain your specific situation. If they are convinced with your explanation, they will allow you to get enrolled in the loan rehabilitation program. This will eventually make life much easier for you, as it will stop wage garnishment in case the government is currently doing it in an attempt to recover the loan. This is a great chance for you to negotiate the terms and conditions of the loans. The new terms should be acceptable to the DOE. At the same time, the new monthly payment should be at a level that you can easily afford to pay while you are rehabilitating your loan.

Be Current on Your Payments for At Least 9 Months

Once you are through with step two, you should avoid making further defaults, at least for the next nine months, especially if the student loan in question is a Direct Loan, a Federal Family Education Loan, or a Perkins Loan. It is also important for you to keep in mind that the loan rehabilitation funds do not include the amount of money that has been withheld by the government during the rehabilitation process. Always remember, this strategy works only when you always pay on time.

Once you are through with all these three steps to after student loan default, you must follow up thoroughly in order to make sure that the relevant changes are reflecting in your credit report.

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Posted in Credit Repair, Fix Your Credit, Improving Credit Score | 4 Comments »

4 Responses to “Fixing Credit After A Student Loan Default”

  1. kate says:

    Student Loan is a loan which is taken by the student for completion of his/her education . The student is liable to reapay the loan only after he starts earning. And EMI will be fixed default can be when the person fails to pay the amount. This will have a bad impact on the FICO score but some practical remedies are listed in this article.First of all plan your salary as such so that you can repay student loan. Another way is you can lend some money from your near and dear ones. And is it doesnt work ask the lending institution for deferral where you are immediately relieved for making further payment but this will be with a surcharge. Another way is contact Department of Education by explaing the situation where they will counsel you and are entitled for some rehabilitation programwhere the terms and condition can be negotiated.But after fixing this no further defaults are allowed. Some extra amount has to be added with the current amount.

    This is a very informative article for defaulters because is we donot follow the above steps there can be provision for salary garnishment and which will directly affect the credit score. Thanx for this valuable information.

  2. ruby says:

    A student loan is designed not only to help students pay for university tuition but at the same time to purchase books and bear living expenses. The main difference between student loan and other types of loans is that of lower interest rates and deferred repayment schedule while the student is still in education.
    The sole aim of providing loan to students is to make them fulfill their dreams and not to constraint them from getting higher education just because they are either short of money or have no money. But to avail such facility the only and the basic thing that is to be kept in mind is “PAY ON TIME”. In case you turn out to be a defaulter due to any reason right strategy has to be opted. Following strict budgeting further defaults can be avoided. If still in crisis, contacting lending institution may allow you to stop making the repayments till your finances come in order.
    DOE(Department of Education) comes to rescue for loan rehabilitation in case your are not able to pay. The new customized installment is what you can easily pay. After rehabilitation, in any case you always have to pay on time.
    Keeping a check on credit report always helps in keeping pace with paying off loan… and thus maintaining your credibility!

  3. [...] FAFSA approval will make it easy for you to qualify for low rate private student loans. Overall, financing with bad credit for college education should not be a big problem if know where [...]

  4. John says:

    The article has everything, a loan defaulter need to know. Fixing Credit is really a difficult task which needs patience. I have gone through the same condition and get the conclusion that one should always go according to his/her budget plan. Keep each and every thing in your budget. It can be done by keeping the track of your expenses for some time. We can make budget monthly or quarterly depending upon our money schedule. For the first few months, we have to look for every single penny and then we can sort out our expenses in the different groups like very urgent, necessary, useless etc. We can go for some cutting of money on the entertainment, movies, parties etc. By doing this, we will save some amount of money which can be used for the repayment of loan. This small amount will become very big after few months of Saving. The habit of follow a budget keeps us in discipline and this will improve our financial status etc. The Second point given in article is very informative. It is good to know about role of DOE. If there is no other way left then you can go to DOE. But also the issue of financial discipline is essential part of our life. One has to very punctual for the repayment of Loan installments. The whole process can take a lot of time, so we have to become very patient and should follow the rules very carefully.

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