You rehabilitate your federal student loans by making monthly payments. If your defaulted loan is made under the Direct Loan Program or under the Federal Family Education Loan Program (FFELP) you'll make 9 monthly payments over a 10 month period. If you defaulted on a Federal Perkins Loan, you'll make monthly payments for 9 consecutive months.
Other options for getting out of default
In addition to loan rehabilitation, you can get your federal student loan out of default by negotiating a settlement and applying for loan consolidation.
Most borrowers can't afford federal student loan settlement options the Department of Education offers for defaulted student loans. Because of that, student loan consolidation is often the only real other option.
What does student loan rehabilitation do?
The student loan rehabilitation program brings your defaulted federal student loans back into good standing by making 9 on-time payments.
A payment is on-time if made within 20 days of the due date.
The rehab program also reinstates your eligibility for:
- loan forgiveness programs
- deferment and forbearance
- federal student aid
- income-driven repayment plans
Lastly, loan rehab will also:
- waive student loan collection costs that have been added to your loan balance (Only for loans held by the Department of Education)
- remove the default status from your credit report (it does not remove late payments from your credit history)
- allow you to protect your tax refund from offset (but only after you get the loan back into good standing)
What loans are eligible for loan rehabilitation?
Only federal student loans are eligible for loan rehabilitation.
Federal student loans include:
- Direct Consolidation Loans
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Federal Family Education Loans (FFEL)
- Perkins Loans
- Parent Plus Loans
There’s no private student loan rehabilitation program.
Who do I contact for student loan rehabilitation?
There are two ways to find out who to contact to start the student loan rehabilitation program:
- call the US Department of Education's Default Resolution Group (800-621-3115) and
- log in to studentaid.gov
When you call the Department of Education, the automated system will tell you which one of its debt collectors has your loans that are owned by the Department of Education. It will not tell you about other federal student loans you have that are owned by a guaranty agency.
To find out if you have any defaulted loans with a guaranty agency, you'll want to visit studentaid.gov.
After you log in to that site, you'll need to view all the federal student loans you're in default in.
You want to check to see who's the guaranty agency or loan holder. The loan holder is who you will contact to find out which loan servicer/collection agency your defaulted loans have been placed with.
What's the rehabilitation process?
After you find out who has your defaulted student loan debt, her's the loan rehabilitation process:
- Ask if you’re eligible for the loan rehabilitation program.
- If so, you'll provide your adjusted gross income (AGI) and family size to find your discretionary income. Your discretionary income is used to calculate your payment amount.
- If you can’t afford the payment amount calculated, ask for reasonable and affordable payments. Affordable payments are calculated using your income and expenses
- Once your rehabilitation payments are calculated you'll make your first payment and schedule your future monthly payments.
After those steps, you'll need to return proof of income (and expenses if necessary), the Loan Rehabilitation Income and Expense form (if necessary) and a signed rehabilitation agreement letter.
Pro-tip. Confirm the letter has been received and approved. I've seen many student loan borrowers have to restart the process
Click here to learn about Should I Sign the Student Loan Rehabilitation Agreement Letter?
Will student loan rehabilitation help my credit?
Successfully completing the student loan rehabilitation process, will likely increase your credit score for two reasons. First, it will remove the default status from your credit report and show your defaulted loans are back in good standing.
Loan rehabilitation will not remove the late loan payments from your credit history.
Second, it will make you eligible for a repayment plan based on your income. Getting into an income-based repayment plan will make it hard for you to default a second time because you have an affordable payment.
Should I consolidate or rehabilitate my defaulted loan?
Whether you should consolidate or rehabilitate your defaulted loan isn't something I can answer in this blog post. To effectively answer that question I'd want to know:
- Your loan balance
- The type of federal loans you have
- Your age, family size, and income
- How close you are to retirement
- Whether you rehabilitated once before
- How close you are to wage garnishment
Getting help with your defaulted loan
You can always contact the Student Aid Student Loan Support Center at 800-557-7394 to get help with your defaulted student loan.
Of course, you can always schedule a free 10-minute talk with me. During that talk I'll get a general idea of what's going on with your federal and private student loans so I can better understand what repayment options you have available to you.