#1 Student Loan Lawyer
Updated on October 3, 2022
Student loan rehabilitation is a one-shot opportunity that allows borrowers to get federal student loans out of default by making monthly payments. The collection agency handling your loans initially calculates your monthly payments using the adjusted gross income and dependents listed on your tax return.
If you can’t afford that amount, you can ask for a reasonable and affordable payment amount. At that point, the creditor will ask for your monthly income and expenses and family size to get a monthly payment as low as $5. The company will also ask you to sign and submit OMB No. 1845-0120: Loan Rehabilitation Income and Expense Information form.
Here’s what you need to know about completing that form.
What is the Loan Rehabilitation Income and Expense Information Form?
The Loan Rehabilitation Income and Expense Information form is a document used to help federal student loan borrowers with defaulted loans (FFEL Loans and Direct Loans) get a reasonable and affordable monthly payment.
Initially, the collection agency or loan holder sets the amount of your monthly payment for the Loan Rehabilitation Program at 15% of your annual discretionary income, divided by 12. They’ll calculate your discretionary income for the loan rehabilitation program by:
Finding the correct federal poverty guideline for your location and family size (based on dependents claimed on your most recent tax return).
Multiplying that number by 1.5.
Subtracting that number from your adjusted gross income.
If you can’t afford that amount, you can ask for a lower payment. The debt collector will then ask you questions about your monthly income and expenses, where you live, and your family size. It will use that information to complete the Loan Rehabilitation Income and Expense Information form. (The form used to be called the Financial Disclosure for Reasonable and Affordable Rehabilitation Payments)
The form is approved by the Office of Management and Budget and assigned a control number (in this case, OMB Control Number 1845-0120). Any form approved by the OMB must be reviewed at least every three years. The current form expires on June 30, 2023.
Who uses the Loan Rehabilitation Income and Expense Form?
The Loan Rehabilitation Income and Expense Information form is used by:
private collection agencies hired by the US Department of Education
guaranty agencies that own loans made under the Federal Family Education Loan (FFEL) Program
Loans eligible for the loan rehabilitation program include:
All loans made under the Direct Loan Program (Direct Unsubsidized, Direct PLUS Loans, Direct Consolidation Loans, etc.)
All loans made under the FFEL Program
Private lenders typically don’t offer loan rehabilitation for private student loans that are in default.
Note: Borrowers are not required to make payments to complete the student loan rehabilitation program until September 2022.
What information the Loan Rehabilitation Income and Expense Form checks
In addition to collecting your contacting information and Social Security Number (SSN), the Loan Rehabilitation Income and Expense Information form will look at your financial circumstances to determine affordable rehabilitation payments. Specifically, the form will review your monthly income from all sources and some of your living expenses.
The form requires you to provide financial information, such as:
Your employment income (e.g., pay stubs)
Your spouse’s employment income
Child-support and spousal-support payments
Social Security benefits
Workers’ compensation payments
Vocational rehabilitation payments
Public Assistance benefits
Your family size
Accepted Monthly Expenses
Food costs (groceries, take-out, PostMates, etc.)
Housing (rent, mortgage, maintenance costs, renter’s insurance, etc.)
Utilities (gas, water, lights, sewage, etc.)
Basic Communication (cell phone, landline, cable, internet, etc.)
Necessary medical/dental (out-of-pocket expenses, medical expenses, deductibles, insurance not taken out of your check)
Necessary insurance (deductible is taken out of your pay stub or that you pay out of pocket)
Transportation (car note, gas, auto insurance, public transportation, parking, maintenance, etc.)
Child/Dependent care (private school tuition only if it’s court-ordered)
Child support/spousal support payments (only if made by court order)
Federal student loan payments (including administrative wage garnishment payments).
Private student loan payments
While payments for life insurance, credit cards, pets, etc., aren’t considered necessary, they can be included if you submit proof that you’re paying those bills.
Required Supporting Documentation
For proof of income, you’ll need to submit your two most recent, consecutive pay stubs (or other payment information). You typically only need to provide proof of your actual expenses if they’re more than the allowed expenses for your family size and county of residence or if you’re claiming expenses for:
Necessary medical/dental costs more than $60 per month
Out of pocket health insurance costs not taken from your pay stub
Child/dependent care costs
Child support/spousal support payments
Federal student loan payments for loans you’re not rehabilitating
Private student loan payments
Note: The Department of Education uses the Internal Revenue Service expense standards as guidelines for acceptable expenses. For expenses that aren’t limited by the IRS standards, the Department also does not set a cap.
Where to submit the Loan Rehabilitation Income and Expense Information Form?
Once completed, you’ll send the form back to the collection agency either by mail, email, fax, upload, or using an e-signature service like DocuSign.
What happens after you submit the completed form?
After submitting the Loan Rehabilitation Income and Expense Information Form, the debt collector will calculate your monthly payment amount. From there, the collection agency should send you the Loan Rehabilitation Agreement letter, which will show your monthly rehabilitation payment amount. It will also explain the rehabilitation process:
You must make 9 voluntary, reasonable and affordable monthly payments within 20 days of the due date during 10 consecutive months.
Loan rehabilitation is a one-time thing.
You’ll be removed from the Treasury Offset Program after you complete the program.
You’ll regain eligibility for federal student aid after your 6th on-time payment.
At the end of the program, you’ll regain eligibility for income-driven repayment and loan forgiveness programs (teacher loan forgiveness, public service loan forgiveness, etc.) and deferments and forbearances.
The default status will be removed from your credit report after completing the rehabilitation program. The late payments will remain on your credit history.
Collection fees will be removed from your loan balance (only for loans for which the Department of Education is the lender)
You must keep making payments until your loans are sent to a loan servicer.
Talk To A Leading Student Loan Lawyer
If you’re worried you won’t get an affordable repayment plan to get out of default, I get it. That’s why I’m here to help — simply schedule a call with me.
I can get a general idea of what’s going on with your federal student loans and assess whether you should considerate or rehabilitate your loans. From there, we can create a game plan that best fits your needs and sets you up for student loan success.