Do student loan rehabilitations cause more problems than they solve? That is the question that one published report attempts to prove true by profiling a school teacher who graduated college in 2000 with $35,000 in student loans, saw that increase to $55,000 when he defaulted on them, and now owe $130,000 after an attempted rehabilitation with a collection agency.
The article is more evidence that the mainstream media is slowly picking up on the student loan crisis in America and the ARM industry can expect to see a lot more articles like this in the future. This article goes as far as to rank the 10 collection agencies that have the highest dollar amount of student loans that are in rehabilitation programs.
A student loan rehabilitation program works to get a borrower out of a defaulted loan situation and ends up with the default being removed from the individual’s credit report, if the individual makes a certain number of payments on time. Those payments are usually less than the regular monthly payment, and are meant to demonstrate the borrower’s intention to repay the debt. But the downside to a rehabilitation is the possibility of additional fees and interest that increase the amount owed by the individual. The article mentions one individual who went from owing $10,845 to owing $15,279 after going through a rehabilitation program. One-third of individuals who enter into a rehabilitation program end up defaulting again, based on data that was published by the Bureau of Consumer Financial Protection. Individuals who enter a rehabilitation program that is not income-driven are five times more likely to default again.
There are about $1.5 trillion in unpaid student loans right now, and 40% of individuals with a student loan are projected to default by 2023, according to one projection, thanks to low earnings and a high percentage of individuals who drop out before graduating.
The article does mention that individuals should communicate with whomever they are sending their payments to as soon as they realize they are not going to be able to make a payment or payments.
