Getting Out of Default: Federal Student Loan Rehabilitation Explained

Defaulting on federal student loans can have serious consequences, including damage to your credit score, wage garnishment, and legal action. However, there is a way out of default, and it's called federal student loan rehabilitation. In this article, we'll explain what federal student loan rehabilitation is, how it works, and how you can apply for it.

What is Federal Student Loan Rehabilitation?

Federal student loan rehabilitation is a program offered by the U.S. Department of Education that allows borrowers to regain good standing on their federal student loans after defaulting. The program is designed to help borrowers who have experienced financial hardship and are unable to make their loan payments.

How Does Federal Student Loan Rehabilitation Work?

To participate in federal student loan rehabilitation, you must first contact your loan servicer and request the rehabilitation program. Your servicer will then provide you with an application and a rehabilitation agreement that outlines the terms of the program.

Once you've signed the agreement, you'll need to make nine on-time, full monthly payments within a 10-month period. These payments are typically a percentage of your total loan balance, and they're designed to be affordable based on your income.

After you've made the nine payments, your loan will be rehabilitated, and you'll be able to exit default. This means that your loan will be removed from default status, and you'll be eligible for federal student aid again.

It's important to note that rehabilitation only applies to federal student loans, not private student loans. If you have private student loans, you'll need to contact your lender directly to discuss your options for getting out of default.

Benefits of Federal Student Loan Rehabilitation

There are several benefits to participating in federal student loan rehabilitation:

1. You'll be able to exit default status and regain good standing on your loan.

2. You'll be eligible for federal student aid again, which can help you pay for college or career school.

3. You'll be able to consolidate your loans or apply for a new loan if you need to.

4. You'll avoid wage garnishment, tax refund interception, and other collection activities.

5. You'll be able to choose a repayment plan that's based on your income, which can make your monthly payments more affordable.

How to Apply for Federal Student Loan Rehabilitation

Applying for federal student loan rehabilitation is a straightforward process. Here's what you need to do:

1. Contact your loan servicer: Your servicer is the company that manages your student loans. You can find their contact information on your loan documents or by logging into your account online.

2. Request the rehabilitation program: Let your servicer know that you're interested in participating in the federal student loan rehabilitation program. They'll provide you with an application and a rehabilitation agreement.

3. Sign the agreement: Review the agreement carefully and make sure you understand the terms. Once you've signed the agreement, you'll need to make nine on-time, full monthly payments within a 10-month period.

4. Make your payments: Your servicer will provide you with a payment schedule that outlines the amount you need to pay each month. Make sure you pay on time to avoid defaulting again.

5. Complete the program: After you've made the nine payments, your loan will be rehabilitated, and you'll be able to exit default status.

Conclusion

Federal student loan rehabilitation is a great option for borrowers who have defaulted on their federal student loans. By participating in the program, you'll be able to regain good standing on your loan, avoid wage garnishment and other collection activities, and become eligible for federal student aid again.

If you're struggling to make your loan payments, don't hesitate to reach out to your loan servicer and ask about federal student loan rehabilitation. It's a simple and effective way to get back on track with your student loans and start building a brighter financial future.

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