Guarantor helps rehabilitate $400 million in defaulted federal student loans
USA Funds helps 42,600 student-loan borrowers restore good credit
USA Funds®, the nation’s leading education-loan guarantor, reports that it helped nearly 42,600 student-loan borrowers resolve loan defaults and restore their good credit during the fiscal year ending Sept. 30, 2007.
During the year USA Funds helped borrowers rehabilitate $400 million in federal student loans on which they previously had defaulted. Representing the largest category of student-loan-default resolutions for USA Funds, loan rehabilitation accounted for 42 percent of USA Funds’ total loan-default collections of $950 million, up from 33 percent of total collections three years ago.
Loan rehabilitation permits a borrower in default on a federal student loan to make nine affordable, voluntary monthly payments during a 10-month period; be restored to repayment on the remainder of the outstanding balance owed; and have the guarantor’s reporting of the loan default removed from the borrower’s credit record. Loan rehabilitation is one of three primary options for borrowers to resolve defaults on their federal student loans. Affordable repayment arrangements and loan consolidation are the other default-resolution options.
“USA Funds’ top priority is to prevent student-loan defaults in the first place,” said Carl C. Dalstrom, USA Funds president and CEO. “But for student-loan borrowers who default on their loans, loan rehabilitation often is the most-favorable resolution because it helps borrowers clean up their credit.”
During the past fiscal year, USA Funds’ overall default-recovery rate equaled nearly 39 percent of the outstanding amount of defaulted loans in its portfolio at the beginning of the year. In comparison, the average default-recovery rate for all guarantors for fiscal 2007 through August was 28 percent.
According to federal figures, student-loan defaults would have cost taxpayers more than $4.6 billion in fiscal 2006 were it not for default-recovery efforts by student-loan guarantors like USA Funds and by the U.S. Department of Education. These efforts helped offset $3.9 billion of those taxpayer costs.
Borrowers in default on federal student loans guaranteed by USA Funds may obtain additional information about loan rehabilitation and the other default-resolution options and take action to resolve their loan defaults by visiting the USA Funds Web site.