Student loan lawyer Stanley Tate wearing a cardigan.

Student Loan Rehabilitation

March 30, 2020

Welcome to the complete guide to the Student Loan Rehabilitation Program

Use the navigation below to get started. And if you want to talk with a student loan expert about the rehab program, let’s chat.

What is a Student Loan Rehabilitation program?

Student loan rehabilitation is a program that lets a borrower bring her federal student loans current after defaulting. The rehab program is controlled by the Department of Education. The Department usually doesn’t handle the collection of the defaulted student loans themselves. Instead, they typically hire a private debt collection agency to handle the enrollment of student loan borrowers into the program.

Can you rehabilitate a student loan twice?

You cannot rehabilitate a defaulted federal student loan twice. You’re limited to one student loan rehabilitation per loan. If this is your second default, your options are limited to paying the loan off, filing chapter 13 bankruptcy, or applying for loan consolidation.

Click here to learn more about Can you rehabilitate a student loan twice?

Private student loans do not offer a loan rehabilitation program. The only way to get out of default is to pay what you owe or negotiate a settlement.

Loan TypeMonthly Payments# of Months to Make Payment
Direct Loans (including any Direct Consolidation Loan)910
FFELP Loans910
Perkins Loan99
Private student loanN/AN/A

What is the student loan rehabilitation program?

The student loan rehabilitation program lets you get your federal student loans out of default, stop wage garnishment, and regain eligibility for federal student aid. To get out of default, you have to:

  • agree to make 9 on-time payments in 10 consecutive months
  • return proof of income (tax return, pay stub, etc.)
  • sign and return the rehabilitation agreement letter

You can enroll in the rehabilitation program by contacting the private debt collection agency that has your loans.

Flowchart demonstrating what is student loan rehabilitation.

How to Find Who Has Your Defaulted Student Loans

You can find out who that collection agency is by calling the Department of Education’s Default Resolution Group at 800-621-3115. After you put in your social security number and date of birth, the autoresponder will tell you which collection agency has your federal loans.

Your monthly payments are calculated using either:

  • your adjusted gross income and number of dependents on your tax return or
  • your monthly income, expenses, and family size

Typically, you can get a more affordable payment if you use your income, expenses, and family size. This requires more work and completing the loan rehabilitation income and expense form.

Click here to read Tips for Completing the Loan Rehab Income and Expense Form

How Do You Qualify for Student Loan Rehabilitation?

You qualify for student loan rehabilitation if this is your first time rehabilitating the defaulted loan. You can only rehabilitate a federal loan one time. If you default a second time on your rehabilitated loan, you’re no longer eligible for that repayment option. Instead, your repayemnt options to get out of default are limited to Direct Loan consolidation or bankruptcy.

Is Loan Rehabilitation a Good Thing?

The loan rehabilitation program is a good option for two reasons:

  • it removes the default status from your credit report and
  • waives the collection costs from your loan balance

After you complete the loan rehabilitation program, your credit report will be updated to show that your loan is no longer in student loan default. This may improve your credit score slightly.

I say slightly because even though the default status will be removed, the late payments will remain in your credit history.

Click here to learn How to Get Federal Student Loan Collection Fees Waived

How long is student loan rehabilitation?

The student loan rehabilitation program lasts 9-10 months for most defaulted student loans. You can speed the process up by a month if you make your 9th rehabilitation payment within 20 days of the due date.

A federal Perkins Loan that’s in default takes 9 consecutive months of payments to get out of student loan default.

Should I Consolidate or Rehabilitate my student loans?

Consolidation gets your loans out of default quicker than rehabilitation. But rehabilitation usually waives collection fees. So if you want to get out of default fast (to get your tax refund for example) and don’t care that your loan debt may increase, a consolidation loan is the right choice. And if you want to keep your loan balance low: rehabilitate.

Flowchart comparing student loan consolidation vs rehabilitation.
Loan Rehabilitation vs Student Loan Consolidation
Benefitloan rehabilitationconsolidation loan
DefermentYesYes
ForbearanceYesYes
Student Aid (grants, loans, etc.)YesYes
Loan forgivenessYesYes
Remove default status from credit reportYesNo

Waive collection costs

YesNo
Choose loan servicerNoYes

Does loan rehabilitation stop administrative wage garnishment?

The loan rehabilitation program stops wage garnishment after you make 5 monthly payments. This means the garnishment will continue and you’ll make payments on top of the garnishment for 5 months.

Flowchart showing when garnishment stops after loan rehabilitation.

You may be able to speed up the process by making your 5th payment early.

Click here to learn How to Use Student Loan Rehabilitation to Stop a Wage Garnishment

How do you get into the student loan rehabilitation program?

To get into the student loan rehabilitation program, you’ll need to:

  1. Contact the debt collection agency that has your defaulted federal student loans
  2. Ask if you’re eligible for the loan rehabilitation program
  3. Let them calculate your discretionary income using your AGI and family size
  4. If you can’t afford the monthly payments they calculated, ask for reasonable and affordable payments
  5. They’ll calculate your monthly payments using your income and expenses
  6. Make your first payment and schedule future monthly payments
  7. Return proof of income (and expenses if necessary)
  8. Sign and return the rehabilitation agreement letter
  9. Confirm the letter has been received and approved

The last two steps are critical.

I’ve seen a lot of student loan borrowers either fail to turn in the paperwork or return it but fail to confirm the paperwork was received and approved. As a result, they end up with a wage garnishment.

Don’t think because you faxed or mailed the letter back that it was approved. Call and confirm.

Click here to read How Do I Rehabilitate a Student Loan?

Should I sign the loan rehabilitation agreement letter?

Yes, you should sign the loan rehabilitation agreement letter. While you may want to change some of the language in the letter, changes aren’t allowed. So if you want to get your loan out of default, sign the letter.

Click here to learn more about Should I Sign the Loan Rehabilitation Agreement Letter?

Problems With the Student Loan Rehabilitation Program

There are four main problems with the rehab program:

  • your affordable payment amount includes your spouse’s income if you’re married
  • it takes almost a year to get your loans out of default
  • the debt collection agencies can be hard to work with
  • it may be hard to keep track of your loans after you complete the program

Unfortunately, you can’t demand your defaulted loan be sent to a different collection agency. You have to work with them to get your loan out of default.

If they don’t answer the phone or return your voicemails, keep calling. It sucks, but that’s all you can do.

What happens after student loan rehabilitation?

Here’s what happens after you complete the program:

  • the collection fees are waived from your student loan debt
  • your loan is brought back into good standing
  • the credit reporting bureaus receive notice to remove the default status from your loans
  • your loan is sent to a new loan servicer
  • you regain eligibility for deferment, forbearance, and loan forgiveness programs
  • the loan servicer contacts you to set up new monthly payments under a repayment plan of your choice

Click here to read What Happens After Student Loan Rehabilitation

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