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Can I Fix My Credit Score After a Student Loan Default? by:
Sarah Elliott
Lexington Law - North Salt Lake City Office
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December 2, 2011
The rate of student loan defaults is at an all-time high. The jump is no surprise to many people who are struggling to find employment and pay their bills during what seems to be a never-ending recession. The cost of education coupled with poor jobs prospects has quickly become a recipe for disaster. Unfortunately for new grads, the burden of repaying student loan debt is practically unavoidable in any economic climate. In fact, it is one of the few debts that cannot be cancelled during bankruptcy proceedings. When the U.S. court system will not help and students cannot pay, many have no choice but to accept their default status and hope for the best. If you are thinking, “I will never be able to fix my credit,” don’t be discouraged. There are ways to weather the storm.
If you are in the final stages of default, you are probably facing restructured payments, garnished wages, a court ruling, or all of the above. Regardless of your situation, stick to the following best practices in the future. They can help put your credit score on the right path.
- Iron out a budget. Adhering to a strict budget is more important than ever. Create a realistic budget that includes your student loan repayment amounts. Cut out unnecessary expenses and look for additional ways to save on the necessities. While it may be difficult, now is the time to dig deep and focus on the important things.
- Work through “loan rehab.” In the case of federal loans, default isn’t always a dead end. Contact the Department of Education (DOE) to learn more about loan rehabilitation. This program allows you to renegotiate your loans terms and adopt an income-sensitive payment schedule. In addition to this service, they may also choose to suspend wage garnishments to provide you with further aid. At the end of the program (usually 12 months) the loan is considered rehabilitated if you have successfully followed the new terms.
- Keep your payments current. Whatever your loan type, sticking to a payment schedule is critical after defaulting. Not only will additional late payments damage your credit score, but they could result in further legal action from your lender or a voided loan rehabilitation period. Protect yourself by avoiding past mistakes.
- Follow up with the credit bureaus. Working toward a better credit score is a lengthy process, and every step counts. Keep tabs on your credit report by ordering a free copy every few months. Review the student loan citations and make sure the information is accurate. If you have been making payments on time, be sure to verify their presence in the account details. Healthy credit relies on positive citations from your creditors, and good behavior deserves recognition.
- Stay positive. While it may be tempting to drown in the “I’ll never fix my credit” mentality, wallowing won’t solve your problems. The best way to deal with credit score woes is to accept reality and work hard to avoid past mistakes. A good credit score may take years to achieve, but it’s worth the effort.
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The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance. |
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