What is Student Loan Rehabilitation?

• Student loan rehabilitation is a one-time option to get federal loans out of default and stop collections.

• You must make nine consecutive, voluntary monthly payments under a formal rehabilitation agreement.

• Rehabilitation removes the default, but missed payments will still appear on your credit report.

The federal student loan rehabilitation program offers borrowers a way out of default. If your loans are currently in collections, rehabilitation helps you clear your record, end garnishments, and regain good standing with the Department of Education.

Here’s how the process works: You commit to nine consecutive, voluntary monthly payments under an official loan rehabilitation agreement. After successfully completing these payments, your default status is removed, and collections stop.

Keep in mind, this applies strictly to federal loans. Defaulted private loans aren’t eligible for this rehabilitation option.

With federal collections restarting May 5, 2025, rehabilitating your loans promptly can prevent wage garnishments or tax refund seizures. Delaying action could leave you vulnerable to collection activity.

You qualify for federal student loan default rehabilitation if all of the following are true:

• You have a defaulted federal student loan, such as a Direct Loan or FFEL Loan. Private loans don’t qualify, and federal Perkins Loans no longer qualify.

• You’re willing to sign a written loan rehabilitation agreement with your loan holder.

• You haven’t rehabbed the same loan before. Rehabilitation can only be used once per loan.

If you meet these conditions, you’re eligible to rehabilitate your student loans. If not, you’ll need to consider other solutions like consolidation.

Related: Student Loan Rehabilitation vs. Consolidation: Which is Better?

If your federal loans are in default and rehabilitation seems like your best option, here’s exactly how loan rehabilitation works step-by-step:

1. Contact your loan holder or assigned collection agency. Call to request enrollment in a loan rehabilitation plan. This effectively starts your application to rehab your loans. If you’re unsure who manages your account, log in at StudentAid.gov and review your loan details.

2. Establish your monthly rehabilitation payment. Your loan holder will set your repayment amount based on your adjusted gross income (AGI) and family size. If the initial monthly payment is unaffordable, ask them to consider your actual living expenses. This alternative payment calculation may lower your monthly payment to as little as $5.

3. Sign a formal loan rehabilitation agreement. This document confirms your monthly payment amount, the monthly payment due date, and outlines any applicable collection costs.

4. Make nine consecutive payments on or before each due date. Payments must be made each month, one at a time. That means auto-payments or lump-sum payments aren’t permitted under rehabilitation rules.

After completing these payments, your loan exits default status, collections stop, and you regain eligibility for critical federal loan benefits, including income-driven repayment (IDR) plans, deferment, and loan forgiveness programs. Once rehabilitation is complete, your loan will typically be transferred from the collection agency back to a regular servicer (your new lender).

Related: How to Get Student Loans Out of Default Fast

Once you finish the federal student loan rehabilitation program, several important changes occur:

• Your loan officially exits default. Your credit report will no longer show the loan as being in default. But the late payments from the default will remain for about 7.5 years.

• Collections activity stops completely and immediately. This means no further wage garnishments, tax refund seizures, or Social Security offsets.

• You regain eligibility for federal student loan benefits. You can request deferment or forbearance, enroll in an income-driven repayment plan, or pursue loan forgiveness through programs like Public Service Loan Forgiveness.

• You’re once again eligible for federal student aid. If you’re considering returning to school, you can submit a FAFSA and qualify for new loans or grants.

Rehabilitation only works if you follow the process carefully. Here are common pitfalls borrowers encounter during loan rehabilitation:

• Missing a payment. Skipping or making late payments resets your 9-month rehabilitation program, forcing you to start over from month one. We typically schedule payments using their checking account information rather than their debit card to avoid missing a payment because the card has expired.

• Expecting rehab to erase credit history. Rehab removes the default status but won’t erase your payment history. Late payments remain on your credit report.

• Not verifying prior rehab use. Each loan can go through rehabilitation only once. If you’ve previously rehabbed the loan, consider consolidation or negotiating a settlement instead.

• Attempting rehab for a private loan. Loan rehabilitation is only available for federal student loans; private lenders don’t provide this option.

Related:

• How to Consolidate Defaulted Student Loans

• Negotiating Federal Student Loan Settlements

Rehabilitation is an excellent program to get rid of your defaulted loans.

The rehabilitation process might take time and strict consistency, but when done right, it stops collections, clears your default, and reopens the door to forgiveness programs like PSLF.

But rehab only works once, and messing it up can cost you months. If you’re not sure if it’s the right move (or if you’ve already used it), we can help you figure out your next step.

Book a call with our student loan expert today.

We’re here to help you get a clear plan to get out of default for good.

Related reading:

• Student Loan Rehabilitation Income and Expense Form

• Is It Too Late to Address a Student Loan Defaulted 20 Years Ago?

• Student Loan Default Help: Where to Find It

• Can You Refinance Defaulted Student Loan Debt? Yes, Here’s How