SStudent loan rehabilitation is a process for borrowers to get their federal student loans out of default by making a series of nine manageable payments over a 10-month period. Defaulted private student loans are not eligible for rehabilitation.
Rehabilitation takes longer than student loan consolidation, which is the other primary option for default recovery. But rehabilitation is generally the better choice because it removes the default from your credit report while consolidation doesn’t.
Starting July 1, 2027, you can use rehabilitation to get out of student loan default up to two times. Previously, rehabilitation was a one-time opportunity. The change is a result of President Trump’s recent budget reconciliation bill.
How to rehabilitate defaulted student loans
Generally, you’ll need to follow these steps to rehabilitate student loans:
Contact your federal student loan holder. This could be the Default Resolution Group or different company, depending on your loans and how long they’ve been in default. Log in to your studentaid.gov account if you’re unsure whom to contact.
Send a copy of your most recent tax return. You’ll have to mail or fax a copy of your most recent tax return or tax transcript (hand-signed only) to the Education Department. The ED will use this information to determine your monthly payments and send you a rehabilitation agreement within 10 days of receipt.
Agree to a payment amount. Rehabilitation payments are 15% of your discretionary income, divided by 12. If you can’t afford that amount, you can request an alternative payment based on your overall finances. Alternative payments can be as small as $5 per month. (For loans taken out on or after July 1, 2027, the minimum monthly payment is $10.)
Sign and return your rehabilitation agreement. You must submit a written agreement to rehabilitate your defaulted loans. Don’t start making payments until you’ve officially started this process; they may not count toward rehabilitation.
Pay as required. Student loan rehabilitation requires you to make nine on-time payments over a 10-month period. Payments must also be voluntary. For example, money seized from your tax refund wouldn’t count as a payment.
Student loan rehabilitation calculator
What happens after student loan rehabilitation
After student loan rehabilitation, your loan is transferred to a new federal student loan servicer and your loans will return to good standing. Collection activities stop, and you’ll regain access to federal student aid and repayment options, such as income-driven repayment and relief via deferments and forbearances.
You need a strategy to afford your payments post-rehab, to avoid re-defaulting on your debt. If you originally fell behind because payments were too expensive, selecting an income-driven repayment (IDR) plan will likely be your best choice. Your new servicer may give you this option when you restart repayment, and you can ask about it if it isn’t offered initially. Your payments could be as low as $0 on existing IDR plans.
Borrowers will be allowed to rehabilitate up to two times. If you default for a third time, your primary remaining options will be consolidation, paying off your debt in full or refinancing (if you qualify).
If you reach that point, your loan holder may also agree to a student loan settlement, where you pay less than you originally owed. Filing for student loan bankruptcy could be an option as well. But neither of those options is guaranteed to save you money or get rid of your loans.
