Student Loans can be one of the most difficult credit issues you will face. If you have fallen behind on your student loan payments, you probably already know that it is one of the most difficult debts to deal with. Unlike other debts, bankruptcy laws are such that student loans are not dis-chargeable in a bankruptcy.
Additionally, the IRS will likely take any tax refund that you are due and send it to the Department of Education until your loan is paid in full. (By the way, if this happens to you and you want to challenge it, you can go to www.studentloanborrowersassistance.org to learn more)
The good news is that the government offers you the ability to rehabilitate your student loans!
To do this, you will first need to call your lender and let them know. They will set an acceptable payment schedule up for you. Then you will need to make between 9 and 12 payments on time. (Don’t slip up – they used to offer this as often as you needed it, but now it is a one shot deal!)
Once you have done this, your loan will no longer be considered in default and the default status will be completely deleted from your credit file. Some lenders will offer to delete the negative history in entirety. If they do, MAKE SURE YOU GET THIS IN WRITING. Lately, I’ve been hearing of people that were promised this but once the 9-12 month period was up have been having difficulty getting what they were promised.
Other benefits of rehabilitating your loan include that you will regain eligibility for loan benefits such as deferment and forbearance. (make sure you use this if you are ever at risk of falling behind again) Additionally, your wage garnishment ends and the IRS will no longer take your tax refund.
It is important to note that most student loans are not discharged in a bankruptcy. So, even if you have filed for bankruptcy, it is important that you rehabilitate your student loans. Not doing so can make it very difficult to establish after bankruptcy credit – even something that is typically easy to get like credit cards after bankruptcy. In fact, having outstanding student loans will make it impossible to get mortgage loans after bankruptcy.
{ 4 comments }