Understanding the Implications of a Permanently Assigned Student Loan to the Government
What Does It Mean When Your Student Loan Has Been Permanently Assigned to the Government?
If you see a statement on your credit report that your student loan has been assigned to the government, it likely indicates that you have defaulted on a government-insured student loan. This process can have significant consequences for your financial future and credit score.
What Happens When a Student Loan Is Permanently Assigned to the Government?
Once the insurance policy for the loan defaults, the government steps in to repay the outstanding debt, and the creditor then transfers the loan to the education department. After this, the government typically assigns the loan to a collection agency, such as Conserve General Revenue Corp. or the Maryland Collections Professional Bureau. From this point onward, you will need to actively work towards resolving your default status through consolidation or rehabilitation.
Student Loans vs. Credit Card Debt
Student loans are typically payment loans, meaning they have predefined terms for repayment. On the other hand, credit card debt is rotating debt where the balance and payments fluctuate based on the usage of the credit card.
Your FICO score is a critical component of your creditworthiness, taking into account various factors such as car loans, personal loans, credit card debt, etc. The most widely used credit score model for private lenders and financial institutions is the FICO score. Other scoring models, such as VantageScore and TRID, are also available.
Understanding Federal Student Loans and Default
Under the Federal Family Education Loan Program (FFELP), federal student loans are issued by private lenders but are guaranteed against default by the federal government. If the borrower fails to meet the repayment obligations for a period of at least 270 days, the guarantee agency, acting on behalf of the government, repays the lender and assumes the loan's title. At this point, the defaulted loan is reported to the credit bureaus, leading to a negative notation on your credit report and a potential hit to your FICO score.
Students have a one-time opportunity to rehabilitate their defaulted loan and remove the default from their credit history. To do this, you must negotiate with the guarantee agency to establish a repayment plan. If you make nine consecutive on-time, full, and reasonable payments as defined by the agreement, the loan can be rehabilitated and the default will be removed from your credit report.
Consequences and What to Avoid
If you default on your loans again after rehabilitation, you will lose the chance to rehabilitate the loans further. This emphasizes the critical importance of adhering to your agreed repayment plan and maintaining consistent payments to avoid falling into a default scenario again.
In conclusion, understanding the implications of a permanently assigned student loan to the government is crucial for managing your financial health. By staying informed and proactive, you can work towards resolving your default and improving your credit score.