Student Loan Rehabilitation: A Guide to Qualifying

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Stanley tate

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If your federal student loan is in default, you may be eligible for student loan rehabilitation. Student loan rehabilitation allows you the opportunity to turn your federal student loan around and start fresh.

What does it mean to rehabilitate a student loan? Rehabilitating a student loan means bringing it out of default by making agreed payments that bring it back into good standing.

Loans under the Direct Loan Program or the Federal Family Education Loan Program (FFELP) will require 9 voluntary, full payments within a 10 consecutive months period. For a Federal Perkins Loan, you’ll need 9 consecutive months of payments.

For either option, you’ll first need to be in default before qualifying for student loan rehabilitation. If the payments are made as agreed upon, your loan will be brought back in good standing.

Is loan rehabilitation a good idea? Loan rehabilitation can be a good idea if you’re eligible, as it removes the student loan default from your credit report. The late payments that landed you in default will stay, unfortunately. But your credit may get a small boost by the student loan reporting as current.

What does student loan rehabilitation accomplish?

Student loan rehabilitation brings your defaulted federal student loans in good standing.

The student loan rehabilitation program can:

  • Remove the default from your credit report. Unfortunately, late payments will remain on your credit history.
  • Waive all collection costs added to your loan balance. This is only true for U.S. Department of Education loans.
  • Stop all collections efforts. Tactics to collect on a loan including wage garnishment, tax refund offset, lawsuits, and more.

Completing the student loan rehabilitation program also regains your eligibility for:

  • Further federal student aid
  • Student loan forgiveness programs
  • Deferment and forbearance
  • Income-driven repayment plans

If you choose the student loan rehabilitation program as your next step for student debt, there are many benefits to your life and peace of mind.

Which loans qualify for rehabilitation?

Only federal student loans are eligible for the loan rehabilitation program.

Examples of federal student loans include:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct Consolidation Loans
  • Federal Family Education Loans (FFEL Loan)
  • Perkins Loans
  • Parent Plus Loans
  • Grad Plus Loans

Unfortunately, private student loans cannot be rehabilitated.

There are two ways to check if your defaulted student loan is federal or private:

  • Go to, and you’ll find a list of your federal student loans along with their repayment status.
  • Obtain a copy of your credit report.

An important note: Federal student loans are only eligible for the rehabilitation program once. You can’t rehabilitate a federal student loan if it goes back into default after completing the rehabilitation program.

Eligibility For Student Loan Rehabilitation

Who is eligible for the student loan rehabilitation program? There are only 2 criteria that determine who can qualify to rehabilitate their loans.

You can go through the student loan rehabilitation program if you:

  • Have a federal student loan in default (not delinquency).
  • Have not successfully completed the loan rehabilitation program before.

That’s it — regardless of how long your student loans have been in default or how much you make. If you meet those two requirements, you can rehabilitate your federal student loans.

Remember, you can only go through loan rehabilitation once. If you decide to go this route, make sure you plan on keeping your federal student loan current after rehabilitation. If you default a second time, loan rehabilitation is no longer an option.

Completing Student Loan Rehabilitation

Completing the student loan rehabilitation program will help you turn around your defaulted student loans. In return, all you have to do is make on-time payments in the designated period.

You’ll need to be organized and committed to ensure you get through the rehabilitation program without any problems.

Staying On Track With Rehabilitation

The collection agencies the U.S. Department of Education uses aren’t always reliable at following up with student loan borrowers.

To eliminate anything that would prevent you from completing the rehabilitation program, you should:

  • Enroll in autopay for your monthly rehabilitation payments.
  • Submit your loan rehabilitation agreement letter and financial documents (tax return, pay stub, etc.) as soon as possible.
  • Calling the collection agency to confirm they received the letter and documents.
  • Confirming you're fully enrolled in the Loan Rehabilitation Program.

Along with keeping in constant contact with the collection agency, you want to stay on top of your payments.

The best way to make sure you don’t miss a payment is to sign up for autopay. Then, check your bank statements each month around your payment due date to see if the amount was debited from your account.

As a student loan lawyer, it’s common to see people have to restart the program because their card expired and they weren’t checking their monthly statements.

Can you rehabilitate a student loan twice? You cannot rehabilitate a student loan twice. You're only allowed to complete the loan rehabilitation program once per loan. However, if you started the rehabilitation program but never completed it, you can start a second time.

How Long Rehabilitation Takes

The student loan rehabilitation takes 9 months to complete. The Department of Education gives you a 10-month period to make those 9 payments. Additionally, you must make each payment within 20 days of the due date.

Once you’ve made your 9 monthly payments and submitted all of the necessary paperwork, your loan will be rehabilitated.

It will take about 30 days for the default to be removed from your credit report, depending on when you complete the program.

How To Get Into The Student Loan Rehabilitation Program

Applying for the student loan rehabilitation program takes a little digging and work on your part. In order to apply, you’ll need to:

  • Find out which of your federal student loans are in default.
  • Find out what agency currently has your loans.
  • Contact the agency and ask if you’re eligible for the loan rehabilitation program.
  • Complete the steps to get started.

To find out who to contact to start the student loan rehabilitation program, you can call the US Department of Education's Default Resolution Group (800-621-3115) or log in at to find your lender.

When you call the Department of Education, the automated system will tell you which one of its debt collectors has your loans. However, it will not tell you about other federal student loans you have that a guaranty agency owns.

To find out if you have any defaulted loans with a guaranty agency, you can visit After you log in, you can view all the federal student loans that are in default.

Alternatively, you can also ask the DRG to transfer you to the National Student Loan Data System (NSLDS) to find out about any potential defaulted loans.

You want to check to see who's the loan holder or guaranty agency. You’ll contact the loan holder to determine which loan servicer or collection agency your defaulted loans have been placed with.

Once you know who has your defaulted student loan debt, you can begin the loan rehabilitation process with these 4 steps:

  1. Call and ask if you’re eligible for the loan rehabilitation program.
  2. Provide your adjusted gross income (AGI) and family size to get your discretionary income amount. Your discretionary income is used to calculate your rehabilitation payment amount.
  3. If you can’t afford the calculated payment amount, ask for reasonable and affordable payments. Affordable payments are calculated using your monthly income and expenses. I’ve had many clients — even those who earn near 6 figures — pay less than $100 per month during the rehabilitation program.
  4. Once your rehabilitation monthly payment amount is calculated, you'll make your first payment and schedule your future monthly payments.

Note: Once your loans are out of default, you student loan payment will no longer based on your monthly expenses. Instead, you'll have to apply for an income-driven repayment plan to get an affordable payment amount. Your monthly payment will be 10-20% of your discretionary income.

Consolidation Vs. Rehabilitation

If rehabilitation is not an option for you, you also can get your federal student loan out of default by applying for loan consolidation or agreeing to a settlement.

Student loan settlements can be expensive and require a large lump sum of money. For this reason, consolidation may be the only other option other than rehabilitation.

Deciding whether to consolidate or rehabilitate our defaulted loan is an individualized choice. To choose what is best for you, there are a few factors to consider:

  • Your loan balance
  • The type of federal loans you have
  • Your age, income, and the size of your family
  • When you plan on retiring
  • Whether you rehabilitated once before
  • How close you are to wage garnishment

A consolidation loan is the process of obtaining a new loan to pay off your existing loans.

A Direct Consolidation Loan will pay off your defaulted student loan. In return, you’ll have a single, larger loan with one monthly payment. However, a Direct Consolidation Loan may extend your repayment length.

Applying for a Direct Consolidation Loan is a good idea if:

  • You have another federal student loan to consolidate the defaulted loan with, or
  • The loan you're consolidating was made under the Federal Family Education Loan Program (FFELP).

You can consolidate an FFEL Consolidation Loan into a Direct Consolidation Loan. You don't need to include another loan in your consolidation application.

The downsides to a student loan consolidation loan are:

  • It won’t remove the default from your credit report.
  • The collection costs won’t be waived. Instead, they will be transferred to the consolidation loan.
  • You may lose certain benefits like interest rate discounts or principal rebates.
  • You may lose any credit for student loan payments made towards a loan forgiveness program.

If you choose to rehabilitate your defaulted student loans, the default will be removed from your credit report. You’ll save money by ditching the collections fees and keeping your current repayment length.

What Happens After Student Loan Rehabilitation

Student loan rehabilitation brings your defaulted loans in good standing. After you’ve completed the loan rehabilitation program, three things happen:

  • some of the damage caused by default gets repaired
  • you gain back some of the programs and financial options you had before defaulting
  • your loans are sent to a new servicer.

Your monthly payment will be different from the one you had under the student loan rehabilitation agreement. You can request an affordable payment based on your discretionary income by applying for an income-driven repayment plan.

What are some good reasons for rehabilitating a student loan? Some good reasons for rehabilitating your student loans may include:

  • The default will be removed from your credit report.
  • Wage garnishments, Treasury offsets, and other collection efforts will stop.
  • You’ll regain access to further federal financial aid.
  • Your monthly student loan payments may be reduced.

Changes In Collection

When you complete the loan rehabilitation program, you’ll no longer have the burden of collection agencies. Collection activities like wage garnishment, tax refund offsets, and Social Security Income garnishment will stop.

Additionally, the collection fees added to your loan balance may be waived, saving you money.

Updated Information For Credit Bureaus

Once your loan is rehabilitated, your credit score may increase slightly as well.

After rehabilitation, the credit bureaus are updated to remove the default status from your student loans. A rehabilitated loan on your credit report doesn’t show any past default.

However, the late payments will continue to appear on your credit report even after completing the rehabilitation program. These late payments will continue to have a detrimental effect on your credit scores.

Hope isn’t lost — over time and with on-time payments, your credit score can improve. Just don’t expect it overnight.

Will student loan rehabilitation help my credit? Completing the rehab program can help your credit score by removing the default status from your credit report. But it won't remove the late payments. So if you're trying to fix your credit, loan rehabilitation may not be better than getting a consolidation loan or negotiating a settlement.

Regained Eligibility

Completing the student loan rehabilitation program also reinstates your eligibility for specific programs.

Loan rehabilitation allows you to:

  • Re-enter loan forgiveness programs
  • Apply for and obtain further federal student aid
  • Sign up for income-driven repayment plans and other repayment options
  • Apply for deferment and forbearance

What can I do for defaulted private student loans?

Although student loan rehabilitation is only available for federal student loans. However, you can still do something about your defaulted private student loans.

If you have a private student loan in default, your options are:

  • Settlement - Once the private loan goes to the party that ultimately controls it, you can begin negotiating for a settlement. Private loans will usually settle for anywhere between 40-75% of the balance. It’s often a good idea to seek legal advice if you choose to pursue this option — there can be a lot of back and forth between you and the lender.
  • Refinance/Consolidation Loan - If you can qualify for a refinance or a consolidation loan, it can help you start fresh with a new loan. The late payments and ensuing default likely severely damaged your credit, so this option may be tricky.
  • Repayment - If you have the cash to go ahead and pay off the outstanding balance, this is the quickest option. Depending on the balance, this could require quite a bit of money.

Talk To A Leading Student Loan Lawyer

If finding your defaulted student loans, dealing with collection agencies, and navigating this complex system crossed sounds exhausting, I get it. That’s why I’m here to help — simply schedule a free 10-minute talk with me.

I can get a general idea of what's going on with your federal and private student loans and assess your best options. From there, we can create a game plan that best fits your needs and sets you up for student loan success.

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I'm a student loan lawyer that helps people like you with their federal and private student loans wherever they live.

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