Here we will outline the step by step process you will need to go through to get your federal student loans out of default.
We’ve entered snippets of the transcription of the podcast of the step by step sequence to go about getting our of default on your student loans and entering into a rehab.
Here they are:
Nick: If you’ve gone into default, what do you do?
So… This is very important for you to know the steps, and know to take the right steps, instead of just — willy-nilly calling the collection agency off of a whim to try to get your loans out of default.
First, to rehabilitate your loan, the first thing that you really want to do — first is, locate the collection agency. What collection agency is handling your loans? If you’re in garnishment — same thing. Who is garnishing my wages?
In order to find that and locate that, you would need your FSA ID, which is your user name and password, that you used for your federal student aid. Once you have that, you can go on to the website, called nslds.gov. When you use your user name and password, enter that in, it will show you a screen of how many loans you have, the amount of those loans; it would have an exclamation mark symbol next to the loans that are defaulted.
Marques: When you do click on that loan, it will say the name of the collection agency, and in this case, would say “guarantor” or “guarantee.” When it says “guarantee,” that is the collection agency that’s handling the loans, that the loans had been transferred to from your servicer.
It’s going to show the name of the collection agency, the address, the phone number. OK? Nine times out of ten, it’s going to say a collection agency called Debt Management. Debt Management is the central collection agency of the Department of Education. It’s basically the Department of Education’s default department.
Marques: Second step, guys — you want to gather your proof of income. All rehabilitation is is you’re coming into an agreement that you’re going to make payments towards your defaulted loan for a span of nine months. What the fight is is what your payment is going to be during that span of time.
Nick: OK. So, real quick — so we got to locate the income docs, because we’re going to try and use those to prove what we’re able to afford.
Marques: Your two most recent pay stubs is what you want to use. You can use your 1040 from your most recent tax return, but I would professionally advise you to limit such, because if you want to use a hardship, as we’re going to go and explain further, to have it based off of your monthly expenses, you only can use your pay stubs for that process. So we’re going to tell you about that process, because that’s what’s going to cause you to have the lowest rehabilitation payment for your span of nine months. So you want to gather your two most recent pay stubs.
Marques: It takes into consideration your monthly expenses and how much you make. But if you have no taxable income, the way you fill that financial disclosure out, you can say that you don’t have any income; you’re not receiving it; you’re monthly expenses, you don’t have any because you don’t have any income to place on those expenses. You can simply write a letter on that form stating — I have no taxable income and currently being supported by my family and friends.
Marques: Now, after you have your proof of income ready to go… Step three, pardon me — once you have your proof of income ready to go, you want to complete the financial disclosure form, which is what I dabbled into before. We’re going to have the link to finding that financial disclosure on the usstudentloancenter.org/step-by-step-rehab. But you want to gather that form. What you’re going to see is a form and the top portion is just going to have your information — your social, name, address, things of that nature — but below that, it’s going to have two columns. One column is going to be for your income; it’s going to ask you your employment income, your spouse’s employment income, if you’re receiving any kind of income from any other sources, whether it be child support, social security, workers compensation, or what have you — it’s going to have that on there that you can put down. On the right column, it’s going to have your monthly expenses.
Marques: But specifically — there actually are some specific categories that you have to send in supporting documents, whether it is big or low. Anything below, and you’ll see, line 16 on down. When it comes to dependent care, if you’re paying for day care or anything like that, any kind of daycare, required child support, if you have to pay child support, that has to be sent in as proof as well, federal student loan payments, if you’re making any loan payments on top of the payments that you’re trying to rehabilitate for the loan at hand, you would have to send that in if you want them to consider that as an expense.
Marques: Next step. Once you have all that situated, you want to send your pay stubs and your financial disclosure to the collection agency.
Give a call to the collection agency; find out what their fax number is, what their email is, submit that over to them, and then they’re going to take some time to calculate it, to make a calculation based off of what you sent to them.
Nick: Is it safe to say that you can locate the address inside of nslds when you locate the account?
Marques: Good question, but no. Because in the nslds, it’s more likely going to have the central collection agency which is Debt Management information. But it’s not going to show your direct collection agency’s information. Once you call Debt Management, they’re going to tell you what collection agency that is specifically handling your loans.
Nick: Gotcha. OK.
Marques: So the next step is to wait to about 48 hours, or maybe three days. Give a call back to that collection agency; make sure they received the pay stubs and that financial disclosure that you sent over to them, and then if they did, that is when you inquire about what the calculation that they came up with, what the proposal is. And remember it’s a proposed amount, because you don’t have to enter into the agreement. However, that payment that they came up with — it can’t lower any lower until you show any sort of more expenses to get that amount lowered.
Marques: You’re going to expect a lot of hold times, a lot of transfers, a lot of transfers to voicemails and not calls back. So you have to be really diligent. You know, some collection agencies are better than others, but when you’re talking about collection agencies, they’re all in their own boat; they know how to run their own ship, so you might have some that’s easier to get in contact, rather than others.
Marques: So say for instance they’ve calculated it and they’ve given you a payment that you feel is comfortable that you can make for that span of nine months, then you want to go ahead and enter into the agreement. You want to go ahead and make the first payment — you can do it over the phone; most collection agencies you can’t do it over the phone, you could do money order, you could do however they set it up.
Marques: You want to make that first payment, because once you make that first payment, you’re kind of making sure that you’re solidifying that proposed amount so it doesn’t raise up on you; the paperwork that you sent in doesn’t expire; you’re trying to solidify the deal. So you call and make that payment right there over the phone, and then — boom — they will set up the recurring payments to as well. They’ll give you the dates; some collection agencies allow you to choose a date or what have you between a time frame. So you make the first payment; set up the recurring payments.
Marques: If you don’t agree with the payment, the payment is higher than what you can go through for the nine months, then you want to go back to the drawing board, to your financial disclosure. You want to see if there’s any other expenses that you can pull up that you can send, that you can prove, that you can add to that, that’s going to create more of a balance from your expenses to your income.
That “other” category, where it says, like, credit cards, or things of that nature — there’s another trick called “personal loans.” Say for instance, your dad loaned you some money; if you can get a written statement from him saying that he loaned you this money, get it notarized, they can count that as an expense.
Marques: What they do is they read you a little something over the phone; they have their own scripts and things that they have to go over which is about what the rehabilitation is. I wouldn’t say that is needed for a lawyer; they do tell you straight up — it’s payments for nine months; after the fifth payment, fifth month, if you’re experiencing garnishment, the garnishment will suspend. They’ll tell you that it will come out of collections — all that is good.
They will actually, too — which is going to be my next step — is they will send you something called a rehabilitation agreement letter. And that is actually everything in black and white. That’s a statement from the collection agency saying that — we do agree, yes, and are bound to, if you make your payments on time for this span of time, we suspend your garnishment after the fifth payment; we will take your loans out of collections, and bring you back into good standing. All of that’s going to be in black and white. So if you do want to review it with a lawyer and things of that nature, that’s your opportunity, once you get that rehabilitation agreement letter.
Marques: So the very last step is — go ahead and continue to make the payments. Set a calendar for yourself; make sure the payment comes out. Some collection agencies have automatic withdrawal, so it’ll come out and not worry about it; some collection agencies, you actually have to call in — they’re old school — you have to call in manually and make a payment.
For now, you can listen to our podcast where student loan expert Marques McBride details out these steps for you.