If you’re struggling to repay your student loans and your credit score is suffering as a result, you may be wondering if student loan rehabilitation can help. The good news is that rehabilitating your student loans can have a positive impact on your credit score, but it’s important to understand the process and what you can expect before you get started.
In this guide, we’ll cover everything you need to know about student loan rehabilitation and how it can help your credit score. We’ll go over the process, the benefits, and the potential drawbacks, as well as answer some common questions about student loan rehabilitation.
What is Student Loan Rehabilitation?
Student loan rehabilitation is a program offered by the Department of Education that allows borrowers who are in default on their student loans to get back on track with their payments. The process involves making a series of 9 monthly payments that are based on your income and expenses. Once you’ve made the 9 payments, your default status will be removed, and your loans will be returned to their original repayment terms.
How Does Student Loan Rehabilitation Help Your Credit Score?
When you default on your student loans, it can have a severe negative impact on your credit score. This can make it difficult to qualify for credit cards, loans, and even rental housing. However, when you rehabilitate your student loans, the default status is removed from your credit reports, which can improve your score.
Additionally, making the rehabilitation payments on time will help to establish a positive payment history, which is one of the most important factors in determining your credit score.
What are the Benefits of Student Loan Rehabilitation?
In addition to improving your credit score, there are several other benefits to rehabilitating your student loans. For example, once you’ve rehabilitated your loans, you’ll be eligible for various loan forgiveness and income-driven repayment programs that can help you manage your payments and potentially have your remaining loan balance forgiven.
You will also be able to regain access to certain benefits, such as deferment and forbearance, that can help you temporarily postpone or reduce your payments.
What are the Drawbacks of Student Loan Rehabilitation?
While student loan rehabilitation can help you get back on track with your payments and improve your credit score, it’s not without its drawbacks. For example, the payments you’ll be required to make during the rehabilitation process are typically higher than what you would have been paying before you defaulted. Additionally, the payments will be based on your income and expenses, which can make it difficult to budget for.
Also, if you are not able to complete the 9 payments on time, you will have to start the process again.
Frequently Asked Questions about Student Loan Rehabilitation
Can I rehabilitate my student loans more than once?
Yes, you can rehabilitate your student loans more than once, but it’s important to note that you’ll have to start the process over from the beginning each time
Will I be able to qualify for loan forgiveness after rehabilitating my student loans?
Once your loans are rehabilitated, you’ll be eligible to apply for loan forgiveness programs like Public Service Loan Forgiveness.
How long does the student loan rehabilitation process take?
The process of rehabilitating your student loans typically takes around 9 months, as long as you make the payments on time and complete the process successfully.
Will I have to pay taxes on the loan forgiveness amount?
It depends on the loan forgiveness program you qualify for. Some programs, like Public Service Loan Forgiveness, do not require you to pay taxes on the forgiven amount, while others, like income-driven repayment plans, do.
Can I rehabilitate my student loans while they are in forbearance or deferment?
No, you cannot rehabilitate your student loans while they are in forbearance or deferment. You must make the payments on time and complete the 9 payments before your loans can be rehabilitated.
Conclusion
Student loan rehabilitation can be a great way to improve your credit score and get back on track with your payments. However, it’s important to understand the process and the potential drawbacks before you get started. Rehabilitation can help you regain access to certain benefits, lower payments and potentially have your remaining loan balance forgiven.
It’s also important to consider your current financial situation, and whether you can afford the higher payments required during the rehabilitation process. If you are unsure about the process or have any questions, it’s always a good idea to reach out to your loan servicer or a financial advisor for help.