Quick answer
Student loan rehabilitation is a federal program that allows borrowers in default to get out of default by making nine voluntary, on-time monthly payments within ten consecutive months. Once you complete rehabilitation, the default is removed from your credit report, collection activity stops, and you regain access to federal student aid and income-driven repayment plans.
What student loan rehabilitation is
Student loan rehabilitation is a one-time program available to borrowers who have defaulted on federal student loans. It is governed by 20 U.S.C. § 1078-6 and applicable Department of Education regulations. The program allows you to exit default by demonstrating a pattern of voluntary payments — nine payments in ten months — at an amount determined by your loan servicer based on your income.
Rehabilitation is not automatic. You must contact your loan servicer or the Default Resolution Group and request to enter the program. Once you complete it, your loan is transferred to a new servicer, the default notation is removed from your credit report, and you are treated as a borrower in good standing.
How the payment amount is calculated
Your monthly rehabilitation payment is calculated at 15% of your discretionary income divided by 12. Discretionary income for this purpose is the difference between your adjusted gross income and 150% of the federal poverty guideline for your family size.
If that amount is zero or very low, you may qualify for a payment as low as $5 per month. The goal of the formula is to set a payment you can actually afford — not to maximize what the government collects.
What happens after you complete rehabilitation
When you complete nine on-time payments in ten months:
- Your loan is transferred to a new loan servicer.
- The default notation is removed from all three major credit bureaus — Equifax, Experian, and TransUnion.
- Collection fees may be added to your principal balance.
- You regain eligibility for federal student aid, income-driven repayment plans, deferment, and forbearance.
- Wage garnishment and tax refund intercepts must stop.
The removal of the default from your credit report is one of the most significant benefits. Late payment history from before the default may remain, but the default itself — which is among the most damaging items on a credit report — is removed.
Rehabilitation vs. consolidation
Rehabilitation is not the same as loan consolidation. Both can get you out of default, but they work differently and have different outcomes.
Rehabilitation removes the default notation from your credit report. Consolidation does not — it replaces the defaulted loan with a new loan in good standing but leaves the default notation on your record.
Rehabilitation can only be done once per loan. If you default again after rehabilitating, you cannot rehabilitate a second time — consolidation or repayment in full are your only exits.
Consolidation is faster — typically 30 to 90 days versus 10 months for rehabilitation. If speed is the priority and credit report cleanup is not, consolidation may be the better choice.
What rehabilitation does not do
Rehabilitation does not erase your debt. You still owe the full balance plus any collection fees added during the default period. It does not protect you from future default if you fall behind again. And it does not remove late payment history that predates the default — only the default notation itself.
Private student loans
Rehabilitation is a federal program. It does not apply to private student loans. If you have defaulted on a private student loan, your options depend on your lender’s policies and California law governing debt collection and lawsuits. If a private lender is suing you over a defaulted student loan, see our California Debt Lawsuit Course.
Could bankruptcy help?
Federal student loans are not automatically dischargeable in bankruptcy, but the standard has evolved. Under current Department of Justice guidance, borrowers experiencing genuine financial hardship may be able to discharge federal student loans through an adversary proceeding. Private student loans can sometimes be discharged more readily.
If you are dealing with student loan debt alongside other debts and struggling to keep up, it may be worth a conversation with a bankruptcy attorney to understand your full options.
Frequently asked questions
What is student loan rehabilitation?
Student loan rehabilitation is a federal program that lets defaulted borrowers exit default by making nine voluntary on-time payments in ten months. Completing it removes the default from your credit report and restores access to federal student aid.
How many times can I rehabilitate a student loan?
Once per loan. If you default again after completing rehabilitation, you cannot use the program a second time on that loan.
Does rehabilitation remove the default from my credit report?
Yes. Once you complete the nine payments, the default notation is removed from all three major credit bureaus. Late payment history before the default may remain.
Will wage garnishment stop during rehabilitation?
Administrative wage garnishment must stop once you are accepted into a rehabilitation agreement and making payments.
What if I can’t afford the rehabilitation payment?
The payment is calculated based on your income. If you have little or no income, you may qualify for a payment as low as $5 per month. Provide income documentation to your servicer and insist on the correct calculation.
Can private student loans be rehabilitated?
No. Rehabilitation is a federal program for federal loans only. Private student loan defaults are handled differently depending on your lender and applicable state law.