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Student Loan in Collections
Dear American Student Assistance:
I have a question regarding my defaulted student loans. My loans were sent to a collection agency, and I owe $42,000 for the loans and $12,000 for collection agency fees. I’m trying to set a payment plan and straighten out my credit so that I can buy a home in a year. What would you suggest I do? Your time and attention are very much appreciated.
Are these federal or private loans? If they are federal loans, your best bet will be to go through the loan rehabilitation program. This allows a lender to purchase your loan and you to regain all your rights and options under the federal student loan program after you make several consecutive on-time payments.
This will take about 9 or 10 months, and in the end the default will be removed from your credit report, which will significantly improve your score.
Rehabilitation will not, however, remove the prior delinquencies leading to the default, so you will still have some challenges on your report that only time will completely erase. If they are private loans, the best you can do is set up a payment plan and stick to it religiously. Then, when you apply for your mortgage, get a letter from the collection agency showing that you have made payments on time. This won’t completely clean up your credit, but it will certainly show your mortgage company a sign of good faith.
Graduating from college comes with new responsibilities. Repaying your student loan is one of them. Avoid any pitfalls along the way by learning how to successfully repay your loans.