Student Loan Rehabilitation CARES Act: What It Is & How It Works

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The CARES Act allows borrowers to use student loan rehabilitation to dig out of default and not make payments until May 2022. If you still have defaulted federal student loans, start the rehabilitation program before the relief ends.

When the pause on student-loan payments ends, the U.S. Department of Education will restart collection efforts for 8 million borrowers in default. Those Americans will be subject to wage garnishment, tax refund withholding, and Social Security seizure when that happens. Democratic lawmakers urge the federal government to prevent that outcome by automatically removing the default status. But, as is true with blanket student loan forgiveness, that has yet to happen. Ultimately, the responsibility to get out of default rests with you.

Read on to learn how to use student loan rehabilitation to get out of default before the CARES Act benefits end.

The CARES Act froze most federal student loans

Last March, lawmakers passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which offered help to federal student loan borrowers. Those protections, which were limited to federal student loans owned by the Department of Education, included:

  • placing borrowers’ accounts in an administrative forbearance with a payment suspension
  • giving government and nonprofit employees automatic credit towards the 120 qualifying payments needed for the Public Service Loan Forgiveness Program
  • allowing borrowers in income-driven repayment plans to receive credit towards loan forgiveness
  • ​freezing the interest rate to 0%
  • prohibiting adverse credit reporting for late monthly payments
  • stopping collection attempts, wage garnishments, Social Security benefit offsets, and tax refund seizures

Those measures were set to expire at the beginning of the Biden Administration. But with the economy still in recovery, Congress extended those protections several times. Back in August 2021, it was announced that the pandemic-related student loan relief would end on January 31, 2022. However, the Biden-Harris administration extended the freeze once more through May 1, 2022.

Learn More: $10,000 Student Loan Forgiveness

Student Loan Rehabilitation and the CARES Act

Student loan rehabilitation is a one-shot program to get federal student loans out of default. Rehabilitation requires borrowers to make nine on-time payments — within 20 days of the due date — over 10 months. However, the CARES Act allows borrowers to skip those monthly payments and get credit for the nine required payments.

Lenders of private loans don’t offer rehabilitation as an option for loans that have defaulted. Here are some options to explore if you have charged-off private student loan debt.

If you started student loan rehabilitation…

Borrowers who signed the loan rehabilitation agreement before May 2021 should not have to make a payment to complete the program. The suspended payments count for the nine on-time payments.

You can check your payment status by contacting the Department of Education’s Default Resolution Group at 800-621-3115 or by checking MyEdDebt.

If you haven’t started student loan rehabilitation…

You’re not alone if you still have defaulted loans. More than 8 million borrowers remain in default on their federal student loans. You still have time to enter the rehabilitation program before collection activities resume in May 2022.

Follow these steps to rehabilitate student loans:

  • Step 1: Contact Default Resolution Group. After providing your Social Security number and birth date, a DRG representative will be able to locate your federal student loans in default that the Department of Education owns. They can also check the National Student Loan Data System to see if you have Federal Perkins Loans or FFEL Program loans in default with a private collection agency.
  • Step 2: Agree to a payment amount. The nine payments must be “reasonable and affordable,” which usually means 15% of your discretionary income. But if you can’t afford that amount, you can ask for a payment based on your income, expenses, and family size. Those payments can be as small as $5 per month. Remember that you won’t have to make your first payment until May 2022.
  • Step 3: Sign a rehabilitation agreement. To be fully enrolled in the rehabilitation program, you must sign a written agreement. The letter confirms the loans included in the rehabilitation, the monthly payment amount, and your eligibility for new financial aid.
  • Step 4: Pay as required. Before payments resume in May 2022, contact the collection agency to schedule your remaining payments to come out of your bank account with an auto draft.

Learn More: Student Loan Rehabilitation vs Consolidation: All Your Questions, Answered

Does the CARES Act cover my student loan?

The CARES Act covers student loans held by the Department of Education, including all Direct Loans, many Federal Family Education Loans, and most defaulted loans. The Act does not apply to private student loans and FFEL Loans owned by a guaranty agency.

Contact your student loan servicer or check Federal Student Aid to determine if your loan is receiving coronavirus-related benefits.

Want to start student loan rehabilitation before the CARES Act ends? Let’s talk.

If the thought of dealing with your student loans overwhelms you, 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 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.

UP NEXT: Student Loan Rehabilitation: How to Apply & Who Qualifies

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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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