What is Student Loan Rehabilitation? -


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What is Student Loan Rehabilitation?

Student loan rehabilitation is the best option for borrowers to remove the default status from federal student loans. However, this rehabilitation program does not work for private student loans. Even though student loan consolidation helps with default recovery, student loan rehabilitation is the superior option as it gets your loan out of default and removes extra collection costs.  In this article, we will discuss student loan rehabilitation, how it works, pros, as well as cons.

Understanding Student Loan Rehabilitation

Typically, student loan rehabilitation is a payment program that spans 9-10 months where borrowers will make payments to rehabilitate their student loans. This way, the default status from their loan will be removed. The best candidates for this rehabilitation program are borrowers who have default student loans and are looking to start cleaning up their credit and get back on track.

Determining the Payments

Since July 2014, collection agencies and lenders have used a calculation to estimate the rehabilitation payment. If the payment calculated is still not affordable to the borrowers, they can submit what is called Affordable Rehabilitation Payments.  Other factors considered for this payment include rent, disposable income, food, family size, welfare benefits, and more.

Rehabilitating Student Loans

To begin rehabilitating student loans, borrowers must take the steps highlighted below:

Reach out to your federal loan holder

This loan holder could be a collection agency or the original lender depending on the type of loans the borrower has and how long it has been in default. You can find the contact information of loan holders on the US Department of Education’s Federal Student Aid site or your credit report.

Agree on a specific payment amount

It is important that the rehabilitation payment agreed on is affordable – 15% of your flexible income. However, as mentioned before, if you can’t afford the amount, you can request another payment based on your finances. The alternate payments can even be as small as $10 monthly.

Sign a rehabilitation agreement

To rehabilitate your loans, you must submit and sign a written agreement. Until you’ve officially begun the process, do not start making payments as they do not count towards the loan rehabilitation.  You may want to consult a counselor or attorney before signing anything.


  • Borrowers are eligible for forbearances and deferments after rehabilitation;
  • Eligibility for new student loans;
  • Removal of default status from a credit report is guaranteed; and/or
  • Calls for collections will stop.


It is important to understand the cons as well as pros before entering into a rehabilitation.

  • Late payments will restart the rehabilitation period;
  • It takes 9-10 months before the default status is removed from the credit score;
  • You can only rehabilitate your student loan once.

After Student Loan Rehabilitation

After the rehabilitation process, the lenders assign or sell your loan to a new servicer. After all collection activities stop, you will be able to access federal student aid and repayment options. However, it is important that you can afford your payments after the rehabilitation process.

If you have defaulted on your student loans or your monthly payments are unaffordable, you have options.  Student loan modifications can change your life for the better.  Elias Dsouza of Dsouza and Strachan Lawgroup Group has the skills and experience to get you back on track.  Contact Elias today for a free consultation

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