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Borrowers applying for consolidation who wish to completely clear the default notation from their credit records may want to consider loan rehabilitation. Student loan rehabilitation for consolidation will also reinstate their eligibility for additional Federal student aid, such as Pell Grants, FFEL and Direct Loans, under Title IV of the Higher Education Act.
Terms and conditions differ for specific loan types. Rehabilitating a defaulted loan generally requires that the borrower makes a minimum of 9 full payments over a ten10 month period, though rehabilitating a defaulted Perkins Loan requires 12 monthly payments.
When borrowers pay off a defaulted loan by taking out a Consolidation Loan they are liable for any collection costs incurred to collect the loan. The amount of the loan must be enough to pay off the defaulted loan, including the principal, interest and collection costs, therefore the amount of the new loan may need to be up to 18% or more larger than the principal and interest outstanding on the defaulted loan.
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