Resolving student loan defaults

Once you default on your student loan, you may feel you have no options. As one of my readers said, you might feel like a "hamster in a wheel."  
You can't sit back and hope the problem will go away. It will not.  
Interest continues to accrue, and collection costs of up to 25 percent of the loan balance can be added to if your loan goes to a collection agency.
If you are in this situation, ask your lender about "rehabilitation."
Through rehabilitation, you can come to an agreement to make payments that are affordable to you and acceptable to the lender.  
If you live up to your part of the bargain, the loan comes out of default status.
That's significant. Rehabilitation stops wage garnishments and other offsets (which we discussed in last week's column) and reinstates eligibility for forbearance and deferment. And, importantly, your credit report is adjusted to show that your loan is no longer in default after the rehabilitation.  
Let's focus on rehabilitating three types of federal student loans: FFEL, Direct Loans and Perkins.
- FFEL loans. When Federal Family Education Loans default, they are assigned to a guaranty agency for collection. A guaranty agency administers the FFEL program in the state in which you live. FFEL loans are Federal Stafford, Federal Consolidation and Federal PLUS loans.


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