Monday, September 24, 2007

Credit Repair and Student Loans

When your student loan goes into default, you may think that credit repair will help. Well, that isn't necessarily so. Credit repair is great for removing bad credit like late pays, charge offs and collections. Credit repair can also remove public records like judgements and bankruptcy/bankruptcies. But student loans are a little different.

Defaulted student loans can give you really bad credit. This is because, though it may only be one loan that you default on, it gets reported separately for every dispersement that was given. So, if you went to college for 2 years, and every semester you had a dispersement, it will show up on your credit report as 4 tradelines, one for each dispersement. But it gets worse!

Those 4 tradelines, or however many, while being paid on time, or in deferment, give you great credit. But just like creditors turn your credit card accounts to collections, so do student loan providers. Now, your tradelines double! And they are all giving you bad credit! Both the original provider and the collector are allowed to report these lines of credit on your credit report.

Credit repair can remove those tradelines, sometimes, but it is mainly by luck. But the luck isn't necessarily always good on them, when disputing. The government is usually pretty good at keeping those records, so they have no problem validating. The problem is, if it isn't reporting accurately, by law,it must report accurately. So if it is reporting inaccurately in your favor, they may correct it and then it looks even worse!

Even if you are lucky and the student loan entries come off, you will ALWAYS owe the debt to the government. They have enacted laws to always get theirs. This is a debt that is almost always paid or taken to the grave. They will eventually take your tax refunds, wages, social security, you name it.

The best thing to do with your defaulted student loan is to call your provider or the Dept. of Education. They can help you rehabilitate your loan, which will pull it out of the default status. Depending on what kind of loan you have, that will take 9-12 on time payments over the next 10 months, or according to an agreed payment plan. Payments that have been garnished, or paid involuntarily, will not count as part of the rehabilitation.

The good thing about rehabilitation though, is when you complete those payments, your credit is repaired on the student loans. They take them out of the derogatory category and mark them "paying as agreed". They do this without even having to dispute, in most cases. After you have rehabilitated your student loan, if needed, you can apply for deferment. You should repair any other credit issues on your report while the rehabilitation is going on. By the time your loan is rehabbed and you are applying for deferment, if you do apply for deferment, your credit reports should be looking pretty sweet!

Your FICO scores will take a jump from removing other negative items through credit repair. Then when your student loans move out of derogatory to satisfactory, your scores will rise even higher. Make sure you repair your credit on any student loans that are not showing in the positive categories on your credit report after you have finished the rehabilitation. This is when I see most positive results with credit repair for student loans.


  1. what if the student loan is paid off and still showing up as a negative account four different times can they be removed or will they just have to stay on your report. The balance is showing $0

    1. Hi Erica,
      Student loans once paid should come off. They are generally pretty accommodating with that. Just dispute with the bureaus. Tell them that they have duplicated the same thing 4 times and that is a violation of the FCRA. They should take off at least 3 of them if not all of them.

      Then if there is one left, go back and dispute again stating that you are not late on the account, that it is paid off. Its a way of "spinning" the truth. Request deletion again for that remaining one due to errors. Most likely, when they send the info to the student loan company, they will delete.

      This doesn't happen every time, but I have seen it happen enough to know that you have a good chance of having them removed.

  2. what if the student loan is paid off and still showing up as a negative account four different times can they be removed or will they just have to stay on your report. The balance is showing $0

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  4. Thank you for sharing such great information. It has help me in finding out more detail about Educational Loans!


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