Quick overview

Student loan rehabilitation is a formal program for federal borrowers in default that restores the loan to good standing after a borrower makes a series of agreed, on‑time payments (usually nine payments within 10 months). It stops most collection activity, can remove the default notation from credit reports, and restores access to federal benefits and repayment options (U.S. Department of Education, studentaid.gov).

How rehabilitation works — step by step

  1. Contact your loan holder or the collection agency listed on your default notice to request rehabilitation. Your loan holder will evaluate your financial situation and offer a reasonable monthly payment amount. (If you need the federal contact, start at studentaid.gov/manage-loans/default/rehabilitation.)
  2. Accept the proposed payment plan and make the required payments — typically nine voluntary, acceptable payments within 10 months. Payments must be on time and for the agreed amount.
  3. After successful completion, the loan is returned to good standing and most collection activities (like wage garnishment, tax refund offsets, and Social Security offsets) stop. Your loan may be assigned to a new loan holder.

Note: Program rules and timelines reflect current federal guidance as of 2025. Always verify details with your servicer and studentaid.gov.

What rehabilitation does to your credit

  • Default notation: Successful rehabilitation generally results in the default status being removed from the loan on credit reports. However, individual late payments that were reported before rehabilitation can remain on your credit report for up to seven years from the original delinquency dates.
  • Credit rebuilding: Because the account is returned to good standing, your score can improve over time — but improvements depend on the rest of your credit profile and how old the negative items are.

Who is eligible

  • Any borrower with a federal student loan in default (Direct, FFEL, Stafford, or PLUS) can usually pursue rehabilitation. Private loans are not eligible for federal rehabilitation programs.
  • A single loan may be rehabilitated only once under federal rules; check with your servicer for specifics.

Pros and cons — practical comparison

Pros:

  • Removes default status and stops most collection actions quickly.
  • Restores access to federal repayment plans, loan consolidation (after rehab), and federal student aid.
  • Often better for credit than other fixes because default can be removed from credit reports.

Cons:

  • You must make timely payments for the full rehabilitation period (commonly nine payments within 10 months).
  • Previously reported late payments remain and can limit immediate score gains.
  • Rehabilitation applies only to federal loans; private lenders use different processes.

If you’re deciding between rehabilitation and consolidation, rehabilitation usually benefits credit reports more because it removes the default notation; consolidation can also end default but may not remove prior negative reporting (see our deeper comparison: Federal Consolidation vs Loan Rehabilitation: Paths to Fix Default).

Common mistakes and how to avoid them

  • Mistake: Assuming rehabilitation is automatic. It’s not — you must request it and agree to the payment plan.
  • Mistake: Missing one of the required payments. Missing a payment can reset the process; keep documentation and use autopay when possible.
  • Mistake: Not confirming how the loan will be reported to credit bureaus after rehabilitation. Ask your servicer for confirmation in writing.

Practical tips from experience

  • Use automatic bank withdrawals for your rehab payments to reduce the chance of a missed payment.
  • Keep a running file of payment confirmations, emails, and the rehabilitation agreement.
  • Once rehabilitated, consider enrolling in an income-driven repayment plan if your income is low — this preserves affordability and protects against future delinquencies.
  • If wage garnishment or other collection actions are in place, confirm the timeline for stopping those actions after you complete rehabilitation.

When rehabilitation may not be the best option

  • If you can afford to pay a lump-sum settlement and want to limit future credit exposure, negotiate with the collector — but be cautious: settlements can be taxed as income in certain circumstances and will still appear on credit reports as settled.
  • If you have multiple federal loans, speak with your servicer about which loans to rehabilitate first and whether consolidation after rehabilitation makes sense.

Related resources and internal guides

Authoritative sources

Professional note: In my practice helping borrowers reclaim loan eligibility, I’ve found clear communication with your servicer and consistent payments are the most reliable path to successful rehabilitation and measurable credit improvement.

Disclaimer: This article is educational only and does not constitute financial, legal, or tax advice. For guidance tailored to your situation, consult a qualified financial counselor or attorney.