The process of fixing your credit can be daunting. Credit reports contain a lot of information and use different codes to tell a story about your financial responsibility. In regularly reviewing your report, you may encounter an entry that says, “collection account student loan permanently assigned to government.”
This status indicates that you’ve defaulted on a federal student loan, and it was paid through insurance and closed. But it doesn’t mean you no longer owe the debt. Here’s what you need to know when your credit report shows “student loan permanently assigned to government.”
What does student loan permanently assigned to the government mean
A student loan with a status of “government claim/insurance claim” means three things:
- You defaulted on a federal student loan owned by a guaranty agency.
- The government insured the loan.
- The insurance paid off your loan, and it was sent to the government for collections.
Most likely, the loan was placed with the Department of Education’s Default Resolution Group. The DRG may have kept your loan or sent it to one of the private debt collectors the government hires to help borrowers in default.
Is my student loan held by the government? Most student loans are made under programs administered by the federal government. You can find out if your loan is held by the government by contacting the Federal Student Aid Center at 800-433-3243. If you have loans on your credit report that aren’t with the Department of Education, those debts are private student loans owned by a bank or other lender.
How does default affect me?
Consequences of student loans being assigned to the government include:
- student loan wage garnishment
- tax refund and Social Security Benefit Offset
- cannot qualify for an FHA mortgage from the Federal Housing Administration
- ineligible for Title IV Financial Aid (new federal student loans, grants, etc.)
- loss of professional license (depending on state law)
- loss of eligibility for loan forgiveness or repayment options based on income
What to do if your student loans have been assigned to the government
The Department of Education offers borrowers three options to recover from student loan default: repayment, loan rehabilitation, and loan consolidation. The best option for you depends on your priorities.
If you want to get rid of your loans for good: Repayment
Once student loans default, the full amount owed —principal and interest — is immediately due. You have the choice to pay that amount and be done with your debt. You also will have the option to negotiate a student loan settlement for less than you owe, but don’t expect big savings. Federal student loan settlements typically remove the collection fees and save you about 10-15% on the remaining balance.
If you want to fix your credit: Loan Rehabilitation
Student loan rehabilitation is often the best option to fix your credit because it’s the only one that removes the default from your credit report. However, the late payments will remain for 7 years.
You can rehabilitate your loans by contacting the collection agency assigned your debt and asking to enter the program. Under the loan rehabilitation program terms, you must make nine monthly loan payments within 10 consecutive months. Your monthly payments will be 15% of your discretionary income. If you can’t afford that amount, you can request something more affordable.
You can only rehabilitate a student loan once. If you choose this option, make sure your contact information is up to date and that you can afford your payments once you complete the process. Ask the new loan servicer about enrolling in an income-driven repayment plan.
If you need to get out of default fast: Consolidation
Borrowers looking to go back to school or clear CAIVRS to get an FHA mortgage need to get out of default quickly. If you can’t afford a settlement, student loan consolidation is the fastest way out of default.
You can do either of the following to get a Direct Consolidation Loan:
- Make three full, on-time, consecutive monthly payments on the defaulted loan.
- Agree to repay your new loan under an income-driven repayment plan.
You can start the consolidation process by contacting the collection agency that has your loans or visiting studentaid.gov.
Consolidation does not remove the default line from your credit report.
Note: If you previously consolidated, you may be able to do so again. Borrowers with FFEL Consolidation Loans are allowed to consolidate a second time. The new loan will be made under the Direct Loan Program.
Need help with your loans? Let’s talk.
If all of this sounds overwhelming, I’m here to help. For years, I’ve worked with people just like you get their federal student loans out of default.
Schedule a free 10-minute call with me today. We’ll work together to develop a plan that fits your current financial situation and sets you up to meet your future goals.