Rehabilitate Your Defaulted Loans Before Consolidation
During the tough economic times we are facing now, students tend to take many loans to successfully complete their education. Many students find themselves saddled with one or more student loans that they have to carefully monitor and make payments for every month.
In order to simplify the process and reduce strain, student loan borrowers are offered a chance to consolidate their loans under a single umbrella namely the Direct Loan Consolidation.
Many borrowers often wonder if it is better to rehabilitate a loan that is defaulted before opting for direct or Private Loan Consolidation. This is in fact a good option as a defaulted loan consolidated without rehabilitation will continue to show default status on the loan, even after the loan is paid in full. This severely affects the borrower’s credit score in the long run.
The very word default will keep lenders away and you will probably be denied future credit such as credit cards, auto loans and mortgages. The credit report, even after the loan is paid in full will show a notation that says the loan was in default but “paid in full”.
It is a good idea therefore to opt for direct loan consolidation after rehabilitation of the defaulted loan. The updated credit record will not then reflect the rehabilitated loan’s defaulted status.
Rehabilitation process of the FFEL or direct loan default requires you to pay at least nine complete installment amount within 20 days of the monthly due date for a period of 10 months. For Perkins loan rehabilitation, direct loans servicing will ask you to pay at least 12 monthly instalments on time.
Another important fact to be kept in mind is that collection costs incurred for loan collection is your responsibility if you happen to default on your loan. If you are planning on paying defaulted loan with the help of direct loan consolidation amount, it is important to ensure that the loan amount covers collection costs, interest and principal.
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