Business & Finance Debt

Student Loan Default - Student Loan Rehabiltiation

What is the Rehabilitation payment program?

Rehabilitation payment program is the process by which a federal agency or a third-party given authority by a Federal agency, assess the borrower's financial situation to allow a payment arrangement. Through this process at the Dept. of Ed and the agency's discretion, the debtors will be allowed to repay their student loans through installment arrangements (payments). Only after the necessary documents have been obtained by Dept. of ED and the 3rd party agency the borrowers can complete the number of consistent payments required in order to successfully rehabilitate.

What is the purpose of the Rehabilitation payment program?

Student loan rehabilitation is a repayment program offered to borrowers with student loans in a default status. The purpose of the Rehabilitation payment program is to offer a solution for those who can not pay the entire balance of the loan (or a lump sum pay-off). The program is designed to get the loan back into good-standings with the Department of Education and to restore the status of the loan back to the status it was in, prior to defaulting. Before a payment option is offered the holder of the defaulted student loan(s) must provide a reason for not being able to satisfy the entire balance of the loan. Upon contact, if they determine that the borrower is in fact experiencing financial hardship, a borrower is allowed to make the payment arrangement. A borrower agreeing to the payments must complete a number of required monthly payments to show the consistency of their payments. By fulfilling the requirements of the arrangement a borrower may benefit from the program. By starting this program and by making the initial payment the individual will no longer qualify for the Federal wage garnishment.

Upon a successful completion of the rehabilitation payment program a borrower's student loan will not only be brought to a current status, but will also repair their credit. This program provides an opportunity to completely remove the negative rating that relates to a borrower's defaulted student loan, as if it never went into default.

Benefits to completing the program may include:

* Your loan(s) will no longer be considered to be in a default status.
* The default status reported by the loan holder to the national credit bureaus will be deleted.
* The borrower may become eligible for the same benefits that were available on the loans before the loans defaulted. This may include deferment, forbearance, and Title IV eligibility (to restore your eligibility to receive additional Title IV federal financial aid). **See section below**
* Wage garnishment ends and the Internal Revenue Service no longer withholds your income tax refund.

Title IV federal financial aid (Additional student aid):

A borrower may restore your eligibility to receive additional Title IV federal financial aid (Student assistance). The payment amount must be approved in advance by the department of education. By making the qualifying payments on the rehabilitation payment program the payments will be considered as an approved amount. By making six agreed-upon monthly payments over a six month period a borrower's eligibility to receive additional federal financial aid will be restored.

Other ways to receive additional federal financial aid:

* Repay or satisfy the loan in full.

* Consolidate your loan through the FFEL loan consolidation program or the William D. Ford Direct Loan Program.

* Rehabilitate your loan by completing the entire rehabilitation payment program.

Since defaulted student loans have no statute of limitations for enforceability, a borrower would remain ineligible for additional federal financial aid until they complete one of the options mentioned above.

Additional questions:
Do I lose my ability to settle on my loan(s) while on the Rehabilitation Program?

What if I can't afford the payment amount?

Am I really required to use a checking account?

How can I calculate the lowest payment?

What do I need do to get additional student aid?


What is a Treasury Offset?
Under this Treasury Offset Program, the Financial Management Service, a bureau of the US Department of Treasury will offset Federal and/or State payments if a borrower fails to pay their obligation. While the most common type of Federal payment offset is Federal income tax refunds, several other types, including social security benefit payments, are also eligible for full or partial offset. In other words, if a borrower has an outstanding debt and they have incoming social security benefits, this too can be subjected to the offset.

In addition to defaulted debts held by ED, defaulted loans held by guaranty agencies are also included in the process.

Other Federal and State agencies also certify debts for offset, but Department of Ed has historically been responsible for the largest volume of offsets. As a result, many tax professionals, and even the IRS, will automatically assume that an offset has been requested by the Department of Ed when, in fact, it may have gone to some other Federal or State debt.

What is Administrative Wage Garnishment (AWG)?
Administrative wage garnishment (A.W.G) is the process by which a Federal agency (Dept. of Education) or a third-party given authority by a Federal agency (the collection agencies) may, without first obtaining a court order, order an employer to withhold amounts from the debtor's wages to satisfy a delinquent debt. Dept. of Education considers AWG to be a tool of last resort. Before using AWG, Dept of Education expect its representatives to have attempted to resolve the debt through voluntary means: attempting to secure the balance in full, an approved settlement, or installment payments that are "reasonable and affordable" based on the debtor's individual financial circumstances. Some within the industry may consider this the guaranteed recovery method.

Representatives must consider whether the debtor presents a legitimate defense to the repayment of the debt(s), and whether AWG may be ineffective because the debtor is self-employed or a Federal employee, in which cases the collection agency will recommend litigation or a salary offset.

What is a compromise (Settlement agreement)?
Compromises are account settlements whereby Department of Ed (through the collection agencies) accepts a reduced overall payment to satisfy the debt(s) in full. The Department of Education can compromise FFEL or Perkins Loans of any amount, and suspend or terminate collection of these loans. It can be difficult, however to negotiate a "good" deal.

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