Student Loan Rehabilitation: How to Qualify and Recover

If you’ve defaulted on your federal student loans, you may want to consider student loan rehabilitation as a solution.

Angela Brown Edited by Jared Hughes Updated November 28, 2022

Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as "Credible."

Many borrowers find themselves unable to make the required payments on their student loans, causing them to default and require student loan rehabilitation. Rehabilitation is one of the strategies used by the federal government to help a borrower out of the default status.

This process is vital for some borrowers, as it allows them to take responsibility for their debt and continue receiving federal student loan benefits.

Here’s what you should know about student loan rehabilitation:

What is student loan rehabilitation?
Eligibility for student loan rehabilitation
How loan rehabilitation works
Consolidation vs. rehabilitation
How to apply for student loan rehabilitation
Pros and cons of loan rehabilitation
What happens after student loan rehabilitation?
How to manage payments after rehabilitation
Student loan rehabilitation: Frequently asked questions

What is student loan rehabilitation?

Student loan rehabilitation is the process of removing a federal student loan, such as a Perkins or a Direct Loan, from default. The solution is a payment process that has specific requirements to follow.

A borrower must formally apply for a student loan rehabilitation then complete nine consecutive, on-time monthly payments of an amount determined by the lender.

Eligibility for student loan rehabilitation

Student loan rehabilitation is available for most federal student loans, including:

Direct Loans
Perkins Loans
Loans made under the Federal Family Education Loan (FFEL) Program

Tip: Unfortunately, most private student loan lenders don’t offer a rehabilitation option. If you have private loans in default, be sure to check with your lender to see what other assistance might be available to you.

To be eligible for federal rehabilitation, you must have a federal student loan in default.

How loan rehabilitation works

If your federal student loan is in default and you want to participate in the rehabilitation program, you’ll need to contact your loan holder. This might also mean dealing with a debt collection agency.

The exact requirements for student loan rehabilitation can vary depending on the type of federal student loans you have.

If you have Direct or FFEL Loans, you must agree to make nine voluntary, reasonable, and affordable payments over the span of 10 consecutive months. Your monthly payments on a loan rehabilitation plan will generally be 15% of your annual discretionary income divided by 12. However, if you can’t afford this amount, your lender might calculate a lower alternative payment after you provide documentation of your income and expenses.
If you have Perkins Loans, you’ll have to make full monthly payments within 20 days of your due date for nine consecutive months.

Keep in mind: If your wages have been garnished because of the default, the garnishment could continue until you’ve made progress on rehabilitation or your loan is out of default.

Consolidation vs. rehabilitation

Another option to get out of student loan default is by consolidating your federal student loans. Unlike rehabilitation, federal consolidation doesn’t require you to make payments for nine or 10 months. Instead, you have two options:

Agree to repay the consolidated loan under an IDR plan. With this option, your payments will generally be limited to 10% to 20% of your discretionary income, depending on the plan you choose. You could also have any remaining balance forgiven after 20 to 25 years. Keep in mind that if you want to consolidate a Parent PLUS Loan this way, you’ll only be able to sign up for the Income-Contingent Repayment (ICR) plan.
Make three consecutive, on-time, full monthly payments before you consolidate. The exact payment amount will be determined by your loan holder. Similar to payments made during rehabilitation, these payments can’t exceed what’s reasonable and affordable for your financial situation. Once these payments are made, you can choose any federal repayment plan that works for you.

Tip: Consolidation is generally a faster alternative than rehabilitation, which could make it a good choice if you want to get out of default as quickly as possible. It also gives you the option to extend your repayment term up to 25 or 30 years, which could greatly reduce your monthly payments.

However, keep in mind that you won’t be eligible for consolidation if:

Your wages are being garnished.
You have a previously consolidated loan in default and have no other federal loans to add to a new consolidation.

Additionally, unlike rehabilitation, consolidating your loans won’t remove the default from your credit history. If you’d like to get a head start on rebuilding your credit, rehabilitation might be the better option.

Can consolidation or rehabilitation lower your interest rate?

Neither consolidation nor rehabilitation can reduce your interest rate — you’ll have the same interest rate you started with regardless of which option you choose. The only way to potentially lower your student loan interest rate is through refinancing, but it might be hard to qualify with the damage done to your credit by default.

But keep in mind that refinancing your federal student loans will cost you access to federal protections and benefits.

How refinancing can help after loan rehabilitation

Refinancing is a great way to lower your interest rate and monthly payments once you finish loan rehabilitation. By visiting Credible, you can compare lenders and find the right option for you.

The student loan consolidation companies in the table below are Credible’s approved partner lenders. Because they compete for your business through Credible, you can request rates from all of them by filling out a single form. Then, you can compare your available options side-by-side. Requesting rates is free, doesn’t affect your credit score, and your personal information is not shared with our partner lenders unless you see an option you like.

Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.

Fixed APR: 3.99%+
Variable APR: 5.35%+
Min. credit score: 720
Loan amount: $10,000 to $400,000
Loan terms (years): 5, 7, 10, 15, 20
Repayment options: Military deferment, forbearance
Fees: Late fee
Discounts: Autopay
Eligibility: Must have a credit score of at least 720, a minimum income of $60,000, and must be a resident of Texas
Customer service: Email, phone
Soft credit check: 720
Cosigner release: No
Loan servicer: Firstmark Services
Max. Undergraduate Loan Balance: $100,000 - $149,000
Max. Graduate Loan Balance: $200,000 - $400,000
Offers Parent PLUS Refinancing: Does not disclose

Fixed APR: 5.89%+ 1
Variable APR: 7.02%+ 1
Min. credit score: Does not disclose
Loan amount: $10,000 to $750,000
Loan terms (years): 5, 7, 10, 15, 20
Repayment options: Immediate repayment, academic deferment, military deferment, forbearance, loans discharged upon death or disability
Fees: Late fee
Discounts: Autopay, loyalty
Eligibility: Must be a U.S. citizen or permanent resident and have at least $10,000 in student loans
Customer service: Email, phone, chat
Soft credit check: Yes
Cosigner release: After 24 to 36 months
Loan servicer: Firstmark Services
Max. Undergraduate Loan Balance: $100,000 to $149,000
Max. Graduate Loan Balance: Less than $150,000
Offers Parent PLUS Refinancing: Yes

Fixed APR: 6.99%+ 2
Variable APR: 6.99%+ 2
Min. credit score: Does not disclose
Loan amount: $5,000 to $300,000
Loan terms (years): 5, 7, 10, 12, 15
Repayment options: Military deferment, forbearance, loans discharged upon death or disability
Fees: Late fee
Discounts: Autopay
Eligibility: All states except for ME
Customer service: Email, phone, chat
Soft credit check: Yes
Cosigner release: After 24 to 36 months
Loan servicer: College Ave Servicing LLC
Max. Undergraduate Loan Balance: $100,000 to $149,000
Max. Graduate Loan Balance: Less than $300,000
Offers Parent PLUS Refinancing: Yes

Fixed APR: 6.0%+ 5
Variable APR: 8.07%+ 5
Min. credit score: 700
Loan amount: $7,500 to $200,000
Loan terms (years): 5, 10, 15, 20
Repayment options: Immediate repayment, academic deferment, forbearance, loans discharged upon death or disability
Fees: None
Discounts: Autopay
Eligibility: Must be a U.S. citizen or permanent resident and submit two personal references
Customer service: Email, phone
Soft credit check: Yes
Cosigner release: After 24 months
Loan servicer: Firstmark Services
Max. Undergraduate Loan Balance: $150,000 to $249,000
Max. Graduate Loan Balance: $150,000 to $199,000
Offers Parent PLUS Refinancing : Yes

Fixed APR: 4.84%+ 3
Variable APR: 5.28%+ 3
Min. credit score: 680
Loan amount: $10,000 to $250,000
Loan terms (years): 5, 7, 10, 15, 20
Repayment options: Forbearance
Fees: None
Discounts: None
Eligibility: Must be a U.S. citizen or permanent resident, have at least $15,000 in student loan debt, and have a bachelor’s degree or higher from an approved school
Customer service: Email, phone
Soft credit check: Yes
Cosigner release: No
Loan servicer: Mohela
Max. Undergraduate Loan Balance: $250,000
Max. Graduate Loan Balance: $250,000
Offers Parent PLUS Refinancing: Yes

Fixed APR: 6.15%+ 4
Variable APR: 8.5%+ 4
Min. credit score: 670
Loan amount: $5,000 to $250,000
Loan terms (years): 5, 10, 15, 20
Repayment options: Academic deferment, military deferment, forbearance
Fees: Late fee, returned payment fee
Discounts: Autopay
Eligibility: Must be U.S. citizen or permanent resident
Customer service: Email, phone, chat
Soft credit check: Yes
Cosigner release: Yes
Max undergraduate loan balance: $250,000
Max graduate loan balance: $250,000
Offers Parent PLUS refinancing: Yes

Fixed APR: 5.24%+
Variable APR: 5.54%+
Min. credit score: 700
Loan amount: $5,000 to $300,000
Loan terms (years): 5, 7, 10, 15
Max. undergraduate Loan Balance: $125,000
Time to Fund: 10 to 30 days
Repayment options: Immediate repayment, forbearance
Fees: Late fee
Discounts: Autopay
Eligibility: Must be a U.S. citizen or permanent resident and have already graduated with at least an associate degree from an eligible institution
Customer service: Email, phone
Soft credit check: Yes
Cosigner release: After 12 months
Loan servicer: LendKey Technologies Inc.
Max. graduate Loan Balance: $175,000
Credible Review: LendKey Student Loans review
Offers Parent PLUS Refinancing: No

Fixed APR: 6.2%+
Variable APR: N/A
Min. credit score: 670
Loan amount: $10,000 up to the total amount
Loan terms (years): 7, 10, 15
Repayment options: Military deferment, loans discharged upon death or disability
Fees: None
Discounts: None
Eligibility: Must be a U.S. citizen or permanent resident and have at least $10,000 in student loans
Customer service: Email, phone
Soft credit check: Yes
Cosigner release: No
Loan servicer: AES
Max. Undergraduate Loan Balance: No maximum
Max. Gradaute Loan Balance: No maximum
Offers Parent PLUS Refinancing: Yes

Fixed APR: 7.12%+ - 11.19%+ 8
Variable APR: 7.60%+ - 14.50%+ 8
Min. credit score: Mid-to-high 600's FICO 8
Loan amount: $5,000 to $500,000 (depending on degree)
Loan terms (years): 5, 7, 10, 15, 20, 25 years 8
Time to fund: 3 business days
Repayment options: Immediate
Fees: Late fee, NSF fee
Discounts: Autopay 8
Eligibility: Must be a U.S. citizen or have permanent residency status with a valid U.S. Social Security number
Customer service: Email, phone
Soft credit check: Yes 8
Cosigner release: After 24 months 8
Loan servicer: Firstmark Services
Max. undergraduate loan balance: $125,000
Max. graduate loan balance: $500,000
Offers Parent PLUS loans: Yes
Min. income: You or your cosigner must meet Nelnet Bank's income criteria

Fixed APR: 6.34%+
Variable APR: N/A
Min. credit score: 680
Loan amount: $7,500 to $250,000
Loan terms (years): 5, 10, 15
Repayment options: Academic deferment, military deferment, forbearance, loans discharged upon death or disability
Fees: None
Discounts: Autopay
Eligibility: Available in all 50 states; must also have at least $7,500 in student loans and a minimum income of $40,000
Customer service: Email, phone
Soft credit check: Does not disclose
Cosigner release: No
Loan servicer: Rhode Island Student Loan Authority
Max. Undergraduate Loan Balance: $150,000 - $249,000
Max. Graduate Loan Balance: $200,000 - $249,000
Offers Parent PLUS Refinancing: Yes

How to apply for student loan rehabilitation

If your federal student loans are owned by the U.S. Department of Education, follow these three steps to apply for rehabilitation:

Submit your latest tax return or tax transcript. You can do this by fax or by mail. The Department of Education will use this information to determine your monthly payment amount. If you are married, live with your spouse, and file taxes separately, you’ll also need to submit your spouse’s tax returns. Additionally, if your tax returns don’t accurately represent your income, you can fill out the Loan Rehabilitation Income and Expense Form.
Sign and return the agreement. You’ll be mailed a loan rehabilitation agreement within 10 business days of the Department of Education receiving your income information. This will include your payment amount, payment options, and agreement terms. You’ll then need to sign and return this form.
Make on-time payments for the agreed-upon time. Once the rehabilitation agreement is in place, you’ll need to make the required monthly payments. If you successfully make each of these payments, your loan will no longer be in default. The default status will also be removed from your credit report — though any late payments will remain.

Tip: If your federal student loans aren’t owned by the Department of Education, you’ll need to reach out to your loan holder to see what steps are required to apply for rehabilitation.

Pros and cons of loan rehabilitation

While loan rehabilitation can be a good option for some borrowers, it isn’t right for everyone. Here are some pros and cons to keep in mind:

Pros

Might lower your payments: If you have Direct or FFEL Loans, your payments on loan rehabilitation will be limited to 15% of your discretionary income — or less if you can’t afford it. This could significantly lower your monthly student loan payments to fit more comfortably in your budget.
Will restore your eligibility for other federal benefits: If you successfully complete loan rehabilitation, you’ll regain many of the other protections that generally come with federal loans — including access to income-driven repayment (IDR) plans and student loan forgiveness programs. You’ll also be able to apply for more federal financial aid.
Could help your credit: After rehabilitation, the default status of your loans will be removed from your credit history, which could improve your credit score. Just remember that any late payments you’ve made on your loans will remain on your credit report.

Cons

Relatively long process: The process of rehabilitation can be longer compared to other options, such as loan consolidation.
Late payments stay on your credit report: Unlike the default status, any late payments you’ve made on your loans will remain on your credit report after you’ve completed rehabilitation.
Payments will rise afterward: While rehabilitation could lower your monthly payments and lessen the strain on your budget, your payments will return to normal 90 days after your final rehabilitation payment. Making lower payments for several months could also add to your overall repayment time.

If you’re wondering how long it’ll take to pay off your student loans after rehabilitation, enter your loan information into the student loan repayment calculator below to find out. Use the slider to see how increasing your payments can change the payoff date.

Enter loan information

Loan balance ? Enter the remaining balance of your loans $ Interest rate ? Enter the average annual interest rate of your loans % Loan term ? Enter the amount of time left to repay your loan years

What if you increased your monthly payment?

Total Payment $ Total Interest $ Monthly Payment $

If you increase your payments by $ monthly on your $ loan at %, you will pay $ a month and pay off your loan by Jan 2021 .

Does refinancing make sense for you?
Compare offers from top refinancing lenders to determine your actual savings.

Checking rates won’t affect your credit score.

What happens after student loan rehabilitation?

Here’s what you can generally expect to happen after student loan rehabilitation:

You’ll resume your original payments. Once you’ve made the required payments to rehabilitate your loan, you’ll have 90 days until your monthly payments revert back to their original amount. This means your payments will likely rise unless you opt for a different repayment plan.
The default will be removed from your credit history. While your late payments will remain on your credit report, the removal of the default status might help your credit score.
Wage garnishments or tax return holds will end. Once your loan is out of default, you’ll no longer be subject to wage garnishments or holds on your tax returns.
You’ll regain eligibility for federal programs. Getting out of federal student loan default will restore your federal benefits and protections, such as access to income-driven repayment plans or student loan forgiveness programs.

How to manage payments after rehabilitation

Once your student loan has been rehabilitated, you’ll need to prepare to start making full, on-time payments so you can avoid defaulting again. You’ll generally have 90 days before your payments revert back to their original amount.

Here are a few options that could help you manage your payments going forward:

Opt for an income-driven repayment plan. If you sign up for an income-driven repayment plan, your payments will be based on your income — similar to the payments you make while during rehabilitation. IDR plan payments are typically limited to 10% to 20% of your income. Additionally, any remaining balance could be forgiven after 20 to 25 years, depending on the plan you choose.
Sign up for autopay. By opting for automatic payments, you won’t risk missing any of your student loan payments. Many loan servicers also provide a rate discount to borrowers who sign up for autopay.
Consolidate your loans. If you have multiple federal student loans, you can consolidate them with a federal Direct Consolidation Loan. By doing so, you could extend your repayment term up to 30 years, which could greatly reduce your payments. Just keep in mind that you’ll pay more interest over the life of your loan with a longer term.
Refinance your loans. Depending on your credit, you might qualify for a lower interest rate on your loans through refinancing — this could save you money on interest and even possibly help you pay off your student loans faster. Or you could opt to extend your repayment term to reduce your interest rate.

Keep in mind: While you can refinance both federal and private loans, refinancing federal student loans will cost you federal benefits and protections. For example, you’ll no longer be eligible for federal student loan deferment or forbearance options.

Can you qualify for refinancing after rehabilitation?

You’ll typically need good to excellent credit to be eligible for student loan refinancing — which could be difficult following a student loan default, even with successful rehabilitation.

Several lenders may offer refinancing for bad credit, but these loans generally come with higher interest rates compared to good credit loans.

Tip: If you’re struggling to get approved for refinancing, you could consider:

Applying with a cosigner. Having a cosigner with good credit can improve your approval chances. Even if you don’t need a cosigner to qualify, having one could get you a lower interest rate than you’d get on your own.
Improving your credit. If you can wait to refinance, you could focus on building your credit first, such as by making on-time payments on all of your bills or by paying down credit card balances.

Student loan rehabilitation: Frequently asked questions

Here are answers to several commonly asked questions regarding student loan rehabilitation:

How long does it take to rehabilitate a student loan?

This depends on the type of federal student loans you have.

If you have Direct or FFEL Loans, you must make your agreed-upon payments for 10 months.
If you have Perkins Loans, you must make your payments for nine months.

After you’ve made the required number of payments, your loans will no longer be in default. Keep in mind that it might also take a few weeks for the initial rehabilitation request to be processed by the Department of Education.

Will student loan rehabilitation help my credit score?

It might. If you successfully complete the loan rehabilitation program, your loan holder will ask the credit bureaus to remove the default status from your credit reports.

While late payments before your default will remain on your report, having the default status removed could still help your credit score.

Can you rehabilitate a student loan in collections?

Yes, you can. If you want to rehabilitate your student loans, you’ll need to contact the holder of your loan, which might either be your servicer or a debt collection agency.

How do I rehabilitate a defaulted student loan?

To rehabilitate a student loan, you’ll need to:

Contact your loan holder and submit the required documentation to sign up for rehabilitation.
Sign and submit the rehabilitation agreement.
Make the required payments for the designated amount of time — nine or 10 months, depending on the type of federal loans you have.

After you’ve made your final payment, your loan will no longer be in default.

Can you rehabilitate a student loan twice?

You can only rehabilitate a federal student loan once. However, on April 6, 2022, the U.S. Department of Education announced a new initiative called “Fresh Start” to help “…eliminate the negative effects of default for borrowers with defaulted federal student loans.” If any borrowers rehabilitated their student loans during the payment pause (from March 2020 onward), the Department of Education is allowing those borrowers the chance to rehabilitate again if they re-default.

What can I do for defaulted private student loans?

Unfortunately, private student loans aren’t eligible for federal programs like rehabilitation and consolidation. If you have private student loans in default, you’ll need to contact your lender to see what options might be available to you. Some private lenders even offer their own rehabilitation programs, but the requirements will vary by lender.

Keep in mind that many private student loan lenders will charge off loans after payments have been missed for 120 days. If this happens, the lender likely won’t offer any help for you to get out of default — so be sure to reach out to your lender before this time passes.

Nick Dauk contributed to the reporting for this article.

About the author Angela Brown

Angela Brown is a student loan, personal finance, and real estate authority and a contributor to Credible. Her work has appeared in Fox Business, LendingTree, FinanceBuzz, and Yahoo Finance.

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