Steps For Default Recovery Of Your Study Loan

Once you know that you have a defaulted loan, you need to immediately call your guaranty agency and make payment arrangements. Depending on the amount of the loan, you probably won’t be able to pay off the whole amount right away. Thus, you will most likely have to set up a payment plan.
Follow these steps for getting your loan out of default and making a payment plan:

1. Call your guaranty agency and ask for a payment plan.
2. Provide as much information as possible to the customer service agent about your financial circumstances so you can set up a payment plan you can reasonably afford.
3. Ask about time periods for rehabilitating your loan for getting new loans, consolidation, and removal of the default note from your credit report.
4. Choose a way to pay to ensure that payments are made each month, either through direct debit or automatic payments through your checking or savings account.
5. Confirm with your guaranty agency when your payments are done that a request has been made to all three credit bureaus (Equifax, TransUnion, and Experian) to remove the default from your records. The late payments will still appear, but at least it won’t look like you don’t make your loan payments.
6. Verify that the default on your credit report is removed by ordering credit reports from all three bureaus for free on www.annualcreditreport.com.

While it may be tempting to consolidate your loans ASAP, remove all fingers from your pen or Enter button until you’ve read the next paragraph. According to Martha Holler from Sallie Mae, consolidating loans after three on-time payments helps you avoid most repercussions such as wage garnishment and an inability to get new student loans if you return to school. But your loan will still be listed on your credit report as defaulted for seven years!

Making just six more on-time monthly payments makes your loan eligible for “rehabilitation.” At this point, your loan is eligible to be sold by your guarantor to a new lender and you can establish a new payment term. Once your rehabilitated loan is purchased by a new lender, the guarantor instructs the national credit bureaus and your original lender to remove the derogatory credit marks previously reported and you can start with a relatively clean slate.

Although you may still see missed payments on your credit report, your report won’t be tainted by the student loan equivalent of a car repossession or a foreclosed home. And remember that those payments, nine months in total, are set as “reasonable and affordable” based on your financial situation.
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