Ideas for Student Loans in Collections

With the increase of student loan defaults and collections reporting as negatives on credit reports, many people are struggling to clean up their consumer credit. Here are a few ideas on how to clean up some of the credit mess in the event that you want or need to get a loan (including home mortgages):

If a loan is defaulted call the lender: Many state and federal loan holders will offer rehabilitation programs. These normally require a commitment to make twelve consecutive on time monthly payments. Once you have completed the twelve month cycle your account will return to good standing and negative items removed from your credit report.

If a loan is in collections: Collection agencies are generally less willing to work with you to rehabilitate your debt. However, a collection agency may offer a settlement amount or allow you to arrange monthly payments. The problem with collection accounts is that they stay on your credit report until the debt is repaid, which may take a significant amount of time for larger loans and settling will stick around on your credit report as well. In addition, when you settle an account a lender will note that you borrowed the money and opted not to repay all the money borrowed. Here are some ideas for working with student loans in collections:

1. Contact any state assistance agencies: Vermont has VSAC and other states may have similar programs. Such organizations may offer to purchase the loan (provided it can be kept in good standing) or help direct you to other resources.

2. Contact your original lender: Some lenders may be willing to work out a repayment deal with you. Others may say that the account has been charged off and direct you back to the collection agency. It still does not hurt to try to discuss with the loan holder.

3. Contact your state's attorney general's office: They can inform you of your rights and what you can request at the very least.