In loan rehabilitation, you agree on a new monthly payment and make those payments consistently for ten months. At that point, the “default” status will be removed, and you can continue making payments as all borrowers do.


A major benefit of rehabilitation, as compared to consolidation, is that once you complete the process, the “default” note can be removed from your credit report. This makes rehabilitation the best option, long-term, for many borrowers. If you need to get your loans out of default as quickly as possible, though, you may want to consider consolidation instead.
 Speak to a representative, and explain that you want to get your student loans out of default.


Be polite but persistent. Some collections agents will tell you that your only option is to pay the debt in full, but this isn’t necessarily true. If you ask specifically about your options for rehabilitation, you should be able to find out more about possible payment plans.
 Give an accurate description of your income, your financial obligations, and your understanding of what your annual “discretionary income” is. Be clear about any obstacles you may be facing in terms of repaying your loans, including:


unemployment, underemployment, or irregular employment
medical conditions or disabilities (yours or your dependents’)
any other circumstances that have contributed to a financial hardship

, Loan rehabilitation payments are not based on any one uniform formula, so you’ll have to negotiate these terms with your individual collections agency. Aim to pay no more than 20% of your discretionary income, as anything more may jeopardize your ability to make your payments on time – keeping you in default status indefinitely.


Again, the best approach when negotiating with your collections agent is to be polite but persistent. Explain that you will commit a significant percentage of your discretionary income, but insist that an amount above 20% is prohibitively high. Emphasize the fact that you do not want to miss any more payments.
 When you rehabilitate a loan, the agency can add a collection fee of up to 16% of your total loan balance to your principal. You will therefore see a significant increase in your total debt.
 If you miss a payment, you will have to start the process over, so make your student loans a priority. Keep in mind that payments must not be more than 20 days late to qualify.


Note that any payments that the collections agency pulled from you through garnishment do not count toward the rehabilitation process. You need to pay voluntarily for ten months to get your loans out of default.
 Your loans will not be removed from default status until they are sold to a lender. This can take anywhere from a few weeks to a few months.
 After you have made ten regular payments and your loans are sold to a lender, you will receive a Rehabilitation Approval Notice informing you that your student loans are rehabilitated. The “default” status will be removed.
 Don’t neglect your obligations once your loans are out of default. Make your payments each month to avoid future defaults.
Understand the loan rehabilitation process.
Contact the appropriate collections agency to ask about your options.
Explain your financial situation to your representative.
Determine your monthly payment.
Expect additional fees.
Make your payments consistently for ten months.
Be patient.
Get your Rehabilitation Approval Notice.
Continue making payments faithfully.
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