Federal Loan Rehabilitation Agreement: Giving Defaulted Borrowers a Fresh Start
Defaulting on federal student loans can have devastating consequences, including wage garnishment, tax refund interception, and negative impacts on credit scores. However, for those who are struggling to make ends meet, there is a potential solution: the Federal Loan Rehabilitation Agreement.
What is a Federal Loan Rehabilitation Agreement?
A Federal Loan Rehabilitation Agreement is a program designed to help borrowers who have defaulted on their federal student loans get back on track. It allows them to make a series of on-time, voluntary payments over nine months to the loan servicer in order to bring their loans out of default. Once the payments are completed, the borrower’s loans are considered to be in good standing once again.
How does it work?
To participate in the program, borrowers must contact their loan servicer and agree to make nine payments within a period of 10 months. The payments are based on a percentage of the borrower’s discretionary income, calculated as the difference between their adjusted gross income and 150% of the poverty guideline amount for their family size and state of residence.
The monthly payments are typically lower than what is required under other repayment plans, but the borrower must make all nine payments on time. Failure to do so will result in the default status being reinstated, and the borrower will be required to pay the full amount owed.
Benefits of Federal Loan Rehabilitation Agreement
One of the main benefits of the Federal Loan Rehabilitation Agreement is that it allows defaulted borrowers to repair their credit score. Once the borrower has made all the necessary payments, the default notation will be removed from their credit report, helping them to re-establish good credit.
Additionally, the program allows defaulters to regain eligibility for deferment, forbearance, and other options that may be available to borrowers in good standing. They may also become eligible for additional types of federal student aid, including grants and loans.
Is Federal Loan Rehabilitation Agreement right for you?
If you have defaulted on your federal student loans and are struggling to make payments, the Federal Loan Rehabilitation Agreement may be a good option to consider. However, before making a decision, it’s important to speak with your loan servicer and understand the terms of the program.
It’s also important to consider your long-term financial goals when deciding whether to participate in the program. While it can be beneficial for repairing credit and regaining eligibility for other types of loans, it may not be the best option if you’re facing financial hardship and are unable to make even the reduced payments required.
In conclusion, Federal Loan Rehabilitation Agreement is a useful option for those who are struggling with defaulted federal student loans. The program allows them to make monthly payments based on their discretionary income, repair their credit score, and become eligible for additional types of federal aid. However, it’s important to carefully consider the terms of the program and your long-term financial goals before making a decision.