Student Loan Rehabilitation: How the 9-Payment Rule Works & What Happens After

Student loan rehabilitation is a federal process that takes a loan out of default and returns it to good standing. It applies only to federal student loans. Private student loans follow different legal paths and are not eligible.

Rehabilitation is not forgiveness. The balance does not disappear, and interest continues to accrue. What changes is the loan’s legal status and the government’s ability to use aggressive collection tools like wage garnishment and tax refund offsets.

Once a loan is rehabilitated, default-related consequences are lifted, and the loan is returned to the standard federal servicing system.

Student loan rehabilitation works in four steps:

1. You sign a rehabilitation agreement with the loan holder or the Department of Education collections contractor.

2. You make nine voluntary, on-time payments within ten consecutive months.

3. Payments are income-based, subject to a $5 minimum reasonable and affordable payment floor.

4. After the ninth payment posts, the loan is removed from default and transferred to a regular servicer.

As of early 2026, student loan rehabilitation is still generally limited to one use per loan. The expanded rehabilitation rules enacted by Congress have not yet taken effect, and servicers continue to apply the existing one-rehabilitation limit in most cases.

Here’s what that means in practice:

• Current rule: Borrowers are generally limited to one rehabilitation per loan if the loan was rehabilitated on or after August 14, 2008, with limited exceptions for loans rehabilitated during the COVID-era payment pause or the Fresh Start period.

• What changes on July 1, 2027: Borrowers will be allowed to rehabilitate a defaulted loan twice. This change applies once the new rules take effect and are implemented by the Department of Education.

• Why the rules are changing: Congress expanded rehabilitation to give borrowers who re-default a second structured way out of default, instead of leaving permanent collections as the only option.

• Why the rules still look unchanged: Even though the law has passed, the Department of Education has not yet updated StudentAid.gov, forms, or servicer systems. Until that happens, borrowers will continue to see and be treated under the old rules.

Simply put, until July 1, 2027 — and until ED formally implements the new rules — most borrowers should expect servicers to apply the one-rehabilitation limit, even though the law allowing two rehabilitations has already been enacted.

You apply for student loan rehabilitation through the loan holder that currently controls the defaulted loan, not a regular servicer. For most borrowers, this means a Department of Education collections contractor.

The process is procedural and linear:

1. Request rehabilitation from the loan holder or the Department of Education’s Default Resolution Group.

2. The loan holder calculates a monthly rehabilitation payment using your income information and potentially your living expenses.

3. You receive and sign a rehabilitation agreement that sets the payment amount and due dates.

4. Rehabilitation officially begins when the first qualifying payment posts, not when the agreement is requested or signed.

Income documentation matters. If you do not provide current income information, the loan holder can set the payment using standard formulas rather than hardship-based calculations.

Student loan rehabilitation fails most often because of technical disqualifiers, not eligibility. Borrowers pay, but the payments don’t count. When that happens, the clock doesn’t move.

The most common problems are:

• Assuming garnishment payments count towards rehabilitation. Rehabilitation payments must be voluntary. Money taken through wage garnishment or tax refund offsets does not count toward the nine required payments. If you do not make a separate voluntary payment, rehabilitation does not begin.

• Making payments before a written agreement is in place. Payments made before a signed rehabilitation agreement do not count, even if the amount is correct.

• Failing to finalize income documentation. Estimated or “good faith” payments can be disqualified if income documentation later shows a higher required amount. Lower estimated payments may be retroactively invalidated.

• Missing the 20-day payment window. To qualify, each payment must post within 20 days of the due date. Payments that are too late—or mistimed within the billing cycle—may not count.

• Stopping voluntary payments too early while garnishment continues. Wage garnishment does not stop immediately. It is suspended only after five qualifying rehabilitation payments. Borrowers who stop making voluntary payments before that point can lose rehabilitation progress while garnishment continues.

• Paying under a “phantom” plan. Some collectors accept payments without formally enrolling the loan in rehabilitation. Borrowers can pay for months without removing default. A valid rehabilitation requires a written agreement confirming the terms.

Rehabilitation only works if payments are voluntary, timely, properly documented, and credited under a formal agreement. If any of those elements fail, the nine-payment count does not advance.

Once the ninth qualifying payment posts, the loan is officially removed from default. There is no additional application or approval step.

Here’s what changes:

• Default status is cleared. The loan is no longer legally in default.

• Collections unwind on different timelines. Wage garnishment is suspended after five qualifying rehabilitation payments, while tax refund offsets stop only after the default is fully resolved. Administrative delays can apply.

• The loan transfers to a regular servicer. Control moves from collections back to a standard federal loan servicer.

• Repayment options are restored. You regain access to income-driven repayment plans, deferment, forbearance, and federal forgiveness programs.

Related: How to Go Back to School With Defaulted Loans

Student loan rehabilitation improves your credit profile, but it does not erase all damage overnight.

When rehabilitation is completed, the default status is removed from your credit report. That matters because default is the most severe classification a student loan can have, and its removal stops ongoing negative reporting tied to collections.

What does not change:

• Late payments reported before default remain.

• Any negative history leading up to default stays on the report until it ages off.

Because of that, credit scores usually improve gradually, not immediately. The biggest benefit comes from eliminating default and stopping ongoing negative reporting tied to collections.

After rehabilitation, your credit can continue to recover if:

• The loan stays current under a new repayment plan

• No new delinquencies are reported

• Other debts remain in good standing

Related: How to Get Late Student Loan Payments Off Credit Report

Student loan rehabilitation is one of three ways to get out of default, and each option ends default differently.

Rehabilitation

Rehabilitation takes longer, but it removes the default and restores full access to federal repayment and forgiveness programs. It requires nine on-time payments and now allows two uses per loan under current law.

Consolidation

Consolidation moves a loan out of default faster by rolling it into a new Direct Consolidation Loan. Collections stop sooner, but the default remains on your credit report. Consolidation does not clean up default-related credit damage.

Related: Student Loan Rehabilitation vs Consolidation

Settlement

Settlement resolves the debt for less than the full balance, usually with a lump sum or short payment plan. It ends collections but permanently closes the door on federal repayment plans and forgiveness.

Related: Can You Negotiate a Student Loan Payoff

Rehabilitation is effective, but it is not always the right tool.

It may not make sense if:

• You need default resolved immediately. Rehabilitation takes at least nine months. Consolidation can end default faster.

• You cannot reliably make monthly payments. Missing or paying late on a single payment can void the agreement and force a restart.

• You are planning a lump-sum resolution. Settlement can end collections without a prolonged payment period, but it permanently ends federal protections.

• The loan has already been rehabilitated. Under current law, rehabilitation is limited to once per loan.