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Will Student Loan Rehabilitation Fix My Credit?

Student loan rehabilitation is a process that allows those who have defaulted on federal student loans to make on-time payments for a set period of time in order to rehabilitate their loans and remove any default status from their credit reports. The program basically gives you a second chance to prove you can stay on top of your student loan debt.

However, the problem is that a lot of borrowers expect student loan rehabs to magically fix their credit scores as well. The truth of the matter is that if you're expecting your student loan rehabilitation to improve your FICO credit scores once the default status is removed, you're most likely going to be disappointed.

Yes, the default status should be removed from your credit reports after the loan is sold to a new lender, but all the late payments leading up to the default can remain on your credit reports for up to seven years. Those late payments are the real credit score killers, and they will continue to negatively impact your scores until they age and fall off your credit reports.

Student loan rehabilitations can certainly make financial sense, as they can allow you to once again become eligible for federal student aid or qualify for a more affordable repayment plan. However, don't let anyone trick you into thinking they are a cure-all for your FICO scores.

on Wed, 2016-07-06 16:42