Federal student loan rehabilitation is a process that allows borrowers who have defaulted on their federal student loans to bring their loans current by making nine on-time monthly payments. Once the borrower completes the nine payments, the default status is removed from their credit report and their loan is returned to good standing.
To begin the process of rehabilitating a defaulted federal student loan, the borrower should contact their loan servicer. The loan servicer will work with the borrower to establish a reasonable and affordable payment plan based on the borrower’s income and expenses. The monthly payment amount will be based on 15% of the borrower’s discretionary income or a fixed amount determined by the loan servicer.
It’s important to note that during the rehabilitation process, the borrower will continue to be responsible for any accrued interest, collection costs, and late fees that have been added to the loan. Once the borrower completes the nine on-time monthly payments, these additional charges will be waived.
Rehabilitating a defaulted federal student loan can be an effective way to bring a loan current and avoid the negative consequences of default, such as wage garnishment, tax refund offset, and damage to credit scores.