Years ago, I went to a two-year school and obtained my Associate's
degree. I defaulted on the loan. However, my taxes were taken years
later (twice) to take care of the loan. In 1995, I enrolled at a
different college and was awarded the Pell Grant. I didn't take out
any more loans. I paid the difference with a scholarship from my
church. I have since enrolled in another college to finish my
bachelor's degree. Financial Aid is saying that I have an outstanding
school loan and that isn't true. What can I do to settle this once
and for all? I would like to finish my degree. I'm a single mom who
knows that there is money out there to assist me, but I can't get it
because of this looming issue. I don't want to take out loans to
finish school. The loan I had was taken care of and I have the award
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letter from the second college to prove that I was awarded the Pell
Grant after the default, which should signify that the loan was
repaid. Please advise so I can get in school ASAP. I've been
unemployed for over a year and I have to feed my kids! Please help!
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Defaulted loans are like the game Whac-A-Mole. No matter how many
times you deal with them, they keep on popping up.
It is not uncommon for a defaulted loan to reappear years later, even
if the borrower rehabilitated or repaid the debt. This is why it is
important for borrowers to preserve all student loan paperwork
There are many reasons why a loan can reappear even though the
borrower believes the loan was resolved long ago. Sometimes there are
errors in lender or guarantee agency records or old records are
restored from backup tapes. Sometimes a borrower mistakenly believes a
loan to have been paid in full, only to have the remaining balance
resurface when skip tracing eventually catches up with the
borrower. For example, the borrower may have repaid the original
amount borrowed but not the interest that accrued on the loan. Or the
borrower may have made payments equal to the outstanding loan balance,
but did not realize that collection charges of up to 25% are deducted
from each payment, leaving about a quarter of the debt still owing.
Even borrowers who were subjected to administrative wage garnishment
or Treasury offset of income tax refunds may not have paid off the
debt in full if the total payments fell short of the required payoff
Students who are in default on a federal student loan are not eligible
for further federal student aid. There is no statute of limitations on
federal education loans, so the loss of eligibility for federal
student aid can persist indefinitely.
Students who have defaulted on a federal student loan may regain
eligibility for federal student aid by rehabilitating the loan,
consolidating the loan or repaying the loan in full.
involves making a series of on-time voluntary monthly payments
according to an agreement between the borrower and the guarantee
agency or the US Department of Education. After six consecutive
on-time monthly payments, the borrower regains eligibility for federal
student aid. After the borrower makes 9 out of 10 consecutive on-time
monthly payments, the default is removed from the borrower's credit
record. Rehabilitation is a one-time opportunity. If a borrower
rehabilitates a loan and then redefaults, the only way to regain
eligibility for federal student aid is to repay the debt in full.