Rehabilitating Defaulted Student Loans

If you have defaulted on a student loan (Direct Loan, FFEL or any other federal student loan) you must rehabilitate that loan before you can be eligible for any federal student aid if you want to return to school, take out additional student loans or be eligible for benefits available to rehabilitated borrowers.

How to Rehab Defaulted Loans

How to Rehab Defaulted Loans

If you have defaulted on your student loan(s), the loan(s) have been placed with a collection agency. First, contact the collection agency and tell them that you want to rehabilitate your loan. You will have to make at least 9 on-time payments for the agreed-upon amount. The loan then has to be purchased by a lender for servicing. Remember, collection fees will be added to the principal balance of the loan(s).

Benefits of Rehabilitating Defaulted Loans

  • The default status of your loan(s) is removed from the National Student Loan Database System.  
  • Eligible to receive federal student aid to return to college and complete your education.
  • The default status is removed from your credit bureau record which improves your credit score.
  • If you have wage garnishment or withholding of income tax refunds, those will be removed.
  • You will be eligible for repayment options that may give you some breathing room in meeting your payment and keeping in your budget.

Most importantly, you will have a weight lifted off your shoulders. You will not have to not answer that ringing phone, dread going to the mailbox or tighten the budget because that paycheck has gotten smaller.

Note: After rehabilitation, your monthly payment may go up. The collection costs will be added to the principal of the loan(s). While the default status will be removed, any delinquent payments will remain on your credit report.

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