How can I more quickly redeem my credit score?
February 15, 2011 4:55 PM   Subscribe

Another US student loan question: how can I best mitigate the damage to my credit score from a defaulted Perkins loan?

My Perkins loan is in collections currently, and the collections agency is giving me three options. One is to "pay in full," including the collections fees; the second is a "compromise offer," where the collections agent submits a request to somebody to forgo something from half to all of the collections fees (amounting to around ten percent of the loan itself, which started out at $5500). The other option she mentioned was to get into a reconsolidation program where after regular payments for 9-10 months, the loan will be redeemed from default.

The question is: I can afford to pay the thing off now, and I'd rather not have to think about it anymore. Which of these options will hurt my credit score the least? The collections agent was definitely less than helpful on this front. I currently have no intention of getting a mortgage or an auto loan, but I don't know the me of the future and I don't want to let her down. Should I choose one of these three options? Should I do the federal loan consolidation that I don't really understand?
posted by anonymous to Work & Money (3 answers total) 2 users marked this as a favorite
If this is what they're offering you, take it. Because:
- Your loan(s) will no longer be considered to be in a default status.
- The default status reported by your loan holder to the national credit bureaus will be deleted.
- You will be eligible for the same benefits that were available on the loans before the loans defaulted. This may include deferment, forbearance, and Title IV eligibility.
posted by SMPA at 5:06 PM on February 15, 2011

I had a Perkins loan go to collections, and they wanted to charge me collection fees around what you mentioned. They wouldn't work with me at all.

I contacted the original lender, explained that I had the money to pay the outstanding balance (not including the collection fees), and they agreed. I got a letter stating that the loan was paid in full, and it was reported to all the collection bureaus as paid. I never spoke to those collection bastards again.

If you have the money, it seems better for your peace of mind to go ahead and pay it off.
posted by HopperFan at 5:19 PM on February 15, 2011 [1 favorite]

I don't know if this is possible with Perkins loans, but anytime I've had something put into collections, I never pay the collections agency. I contact the original creditor and pay them directly.
posted by elpea at 7:30 PM on February 16, 2011

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