Background

Defaulting on federal student loans can trigger wage garnishment, tax-refund offsets, and collection fees. Rehabilitation is a formal, one-time option offered by Federal Student Aid to end default for eligible federal loans and stop many collection activities once the borrower completes the program (Federal Student Aid). Successful rehabilitation returns the loan to good standing, though prior late payments remain visible on some credit reports.

How rehabilitation works — step-by-step

  1. Confirm eligibility. Only defaulted federal student loans held by the U.S. Department of Education or its authorized collection agencies qualify. Private student loans are not eligible (studentaid.gov).
  2. Contact the loan holder or collecting agency. Ask for a rehab application or request to enter a rehabilitation agreement. If your loans are in collections, the collection agency will usually work with you to set up the plan.
  3. Negotiate a ‘‘reasonable and affordable’’ payment. Rehabilitation requires making a series of nine agreed-upon monthly payments within 10 consecutive months. Payments are based on your income and living expenses; some servicers may accept very low payments depending on your situation (studentaid.gov).
  4. Make payments on time. Timely payments are critical. If you miss a required payment, the loan may be returned to default and collection actions could resume.
  5. Get confirmation in writing. After the ninth qualifying payment, the loan servicer or Department of Education should send written confirmation that the loan is rehabilitated and the default status is removed.

What rehabilitation does — and doesn’t do

  • Removes the default status from the loan and ends most collection activity, including wage garnishment and tax offsets if those actions were tied to the defaulted account. (Note: some offsets already applied may not be reversed automatically; you may need to request a refund.)
  • Restores eligibility for federal student aid programs and most repayment plans.
  • May improve your credit because the account is no longer marked as default, but prior missed payments and collection history can remain on your credit reports for up to seven years.
  • Does not erase the debt, interest, or collection fees automatically—these may still apply unless you negotiate otherwise.

Special considerations for forgiveness and PSLF

If you hope to pursue Public Service Loan Forgiveness (PSLF) later, check loan type after rehabilitation. FFEL loans rehabilitated and returned to good standing do not automatically qualify for PSLF; you may need to consolidate them into a Direct Consolidation Loan to pursue PSLF. See more on consolidation and forgiveness in our article on how consolidation can affect future forgiveness eligibility: How Student Loan Consolidation Can Affect Future Forgiveness Eligibility.

Who should consider rehabilitation

  • Borrowers in default who want to stop collection actions and restore access to federal aid.
  • Borrowers who can reasonably commit to making nine affordable monthly payments in a 10-month window.
  • Borrowers who want to regain eligibility for income-driven repayment plans or to enroll in benefits available only to loans in good standing.

Action checklist (what to do now)

  • Locate your loan holder or collection agency contact information at studentaid.gov or on your collection letters.
  • Request a rehabilitation application or ask to speak to the agency’s rehabilitation coordinator.
  • Gather income documentation (pay stubs, benefits statements) to help negotiate an affordable payment.
  • Make each agreed payment on time and keep proof (bank statements, receipts).
  • After the ninth payment, verify in writing that the default has been removed and check your credit report for updates.

Common mistakes and misconceptions

  • Thinking rehabilitation erases all negative credit history. It removes the default status but earlier missed payments and collection records often remain for up to seven years.
  • Assuming all loans and servicers follow identical rules. Processes and documentation requirements can vary; always get terms in writing.
  • Believing rehabilitation is the only option. Loan consolidation, settlement, or income-driven plans may be better depending on your goals—especially if you want PSLF.

Professional tips

  • If your income is low or unstable, ask for an income-based payment when negotiating rehab; servicers generally consider household income and necessary living expenses.
  • Keep copies of every rehab agreement, payment receipt, and written confirmation. Documentation makes it easier to challenge errors.
  • If a collection agency is uncooperative, contact Federal Student Aid or the Department of Education for help; you can also file a complaint with the Consumer Financial Protection Bureau (consumerfinance.gov).
  • After rehabilitation, confirm whether you should consolidate for forgiveness goals; read our guide on how servicer transfers and consolidation can affect timelines: How Loan Servicer Transfers Affect Your Student Loan Timeline.

Frequently asked questions

Q: What if I miss a payment during rehabilitation?
A: Missing a required payment can cause the loan to be returned to default and collection efforts to resume. If you foresee a missed payment, contact the servicer immediately to discuss options.

Q: Will rehabilitation hurt my credit further?
A: Rehabilitation removes the default notation, which typically helps credit. However, records of earlier missed payments and collection activity may still appear on credit reports for up to seven years.

Q: Can I rehabilitate the same loan more than once?
A: No. Federal guidance generally allows rehabilitation only once per loan. If you later default again, you’ll need to pursue other options such as consolidation or settlement.

Resources and authoritative references

Internal reading

Professional disclaimer

This article is educational and not personalized financial or legal advice. Rules and procedures can change; verify specifics with your loan servicer or the Department of Education before acting.