Student loans surely help to take away the burden away but what to do when you are in default. The best way is to be proactive and search for the best outcome of the available options. Now there are two actions that you can consider when you are in default: consolidation or rehabilitation. Both the options have their own advantages and disadvantages but will definitely help in getting out of the default situation.
Bruce Mesnekoff is an Author of The Ultimate guide to student loans, which you can easily purchase from Amazon and get all updates about student loan consolidation from it.
So Bruce Mesnekoff , According to you What is Default?
When a borrower misses the scheduled loan payment, the account will become delinquent and it will remain so till the loan is made current i.e. borrower makes the payment to bring loan up to date. After 90 days of missed payments, delinquency is reported to credit bureaus and after 270 days it goes into default.
As per Bruce Mesnekoff what is Rehabilitation of student loan.
Through rehabilitation borrowers are given the chance to get the loans out of default. The process involves paying nine payments within a ten month period as the program allows you to miss a payment or be late with it). Now further action depends on the type of loan i.e. whether you have direct loan or indirect loan. For direct loan, loan is rehabilitated after nine months but under indirect loan also known as FFEL loan, guarantor has to sell your loan to another buyer to complete the rehabilitation process. After you make nine payments you must have a minimum principal and an interest balance of $500. The payment of nine months cannot be done in lump sum. Also rehabilitation is only done once.
Pros and Cons Of Student Loan Rehabilitations
As discussed in starting of the paragraph, loan rehabilitation program has its own benefits and drawbacks. The advantages include that the rehabilitated loan will be eligible for future forbearances. Also if you want to return to school you are eligible for student aid and most importantly your credit report will not contain any loan default notation.
Drawbacks include the requirement to pay nine consecutive payments and also absence of any formula to decide the amount to be paid in monthly installments.
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