What Is Student Loan Rehabilitation?
Federal student loans that are already in default status underwent a significant change last year. Those borrowers who have fallen behind on these loans are now eligible to apply for a program called “Income-Based Default Rehabilitation.”‘ Even though the new law does not excuse the entire loan balance, it does give the thousands of students who were struggling with the default loan status a much-needed break.
Income-Based Default Rehabilitation Explained
Borrowers who missed their student loan payments had a choice as of July 1, 2014. Either they could maintain their default status or they could submit an application for income-based rehabilitation. In order to remove the default status from a borrower’s credit record, this type of rehabilitation takes into account the borrower’s current income and offers a payment strategy consisting of 9 small payments (some could be as low as $5 per payment).
Why This Law Was Enacted
Before this new law, a borrower used to have to make a set monthly payment in order to avoid going into default on a loan. Depending on the organization in charge of the loan, this sum may vary considerably. Therefore, a borrower with a $50,000 loan may pay $100 each month, while a borrower with a $50,000 loan may pay $300 each month. The amount was set in accordance with a law titled “reasonable and affordable,” but the rate was chosen by the organization that held the loan.
The government made the decision to intervene and take a closer look at a person’s current income wage because these rates varied so greatly from agency to agency. An individual earning $30,000 annually cannot pay the same amount of money, if not more, than an individual earning $70,000 annually. Now that it is in place, the Default Rehabilitation law actually considers your entire income. In other words, the payments you’ll need to make to get back to your loan’s regular (non-default) status may be considerably lower than they were before.
Worth the Status
It is important to look into the Default Rehabilitation option if you have currently fallen behind on your federal student loans. Why? Because if you do not apply for income-based payments while in default, your wages may be garnished and you may experience other consequences associated with your default status. Even though each state is different, it is never in the borrower’s (you) best interest to continue making payments on a federal loan that is in default.
How do you submit a request for Default Rehabilitation? Making sure that you receive fair payments based on what you can actually afford is a difficult process that necessitates a deeper understanding of the new law. Employing a lawyer who is familiar with the nuances of this procedure is your best option if you need assistance and are currently in default status with any federal student loan.
