What is Student Loan Rehabilitation?

If you have defaulted on a federal student loan, rehabilitation is one of the main routes back to good standing. The process involves making a series of qualifying payments under a formal agreement, after which the default is removed from your loan and your credit report.

This guide explains what student loan rehabilitation is, how it works, and what to expect before, during, and after the process.

Key points

• Student loan rehabilitation is a federal program that allows borrowers to bring a defaulted federal student loan back into good standing by making nine qualifying payments within 10 months.
• To apply, contact your loan holder, for most borrowers this is the Department of Education's Default Resolution Group at 1-800-621-3115. Provide income documentation, and sign a rehabilitation agreement.
• Your monthly payment is typically calculated at 15% of your annual discretionary income divided by 12, and each payment must be made within 20 days of the due date to count.

What is student loan rehabilitation?

Student loan rehabilitation is a federal program that allows borrowers with defaulted federal student loans to bring their loans back into good standing. When your loan is rehabilitated, the default status is removed, and collections stop. You also regain benefits that were available on your loan before you defaulted.

To complete rehabilitation, you must sign a Rehabilitation Agreement Letter with your loan holder and make nine on-time, voluntary payments within the timeframe set out in your agreement. ^[1]

How to apply for student loan rehabilitation

To rehabilitate your loans, you must first complete paperwork. This will likely take the following steps ^[2]

• Find out who holds your defaulted loan by logging into your StudentAid.gov account or calling the Default Resolution Group at 1-800-621-3115
• Call your loan holder and request a rehabilitation agreement. Your loan holder will ask for your income and family size to calculate your monthly payment, which in some cases can be as little as $5
• Provide proof of income, sign the agreement, and return it. Most borrowers do this by sending a copy of their most recent tax return. Payments made before you sign will not count toward rehabilitation
• Make nine on-time payments within ten months. Once complete, your loan will be removed from default and transferred to a new loan servicer

How does student loan rehabilitation work?

Once you enter into a student loan rehabilitation agreement, your loan servicer will assign you a monthly payment tied to your discretionary income. You must make nine payments within a 10-month period on time, which the government defines as within 20 days of the due date, and at the end of your agreement, the loan will no longer be in default.

Your credit report will no longer reflect that the loan went into default, though late payments leading up to it will remain for up to seven years. If the government was previously garnishing your wages or withholding your tax refunds related to your school loans being in default, those actions will end. You will also regain the ability to get more federal student aid and take advantage of repayment benefits, and you should no longer receive communications from collection agencies. ^[3]

How much will your rehabilitation payments be?

Under a standard loan rehabilitation agreement, your monthly payment amount will be equal to 15% of your annual discretionary income, divided by 12. ^[1]

If you cannot afford the payment your loan holder suggests, you can tell them it is too expensive. However, you will need to provide proof by completing a form and sending written evidence of your income and expenses. In some cases, the monthly payment can be as little as $5. ^[2]

What happens after your loan is rehabilitated?

Once the ninth qualifying payment posts, the loan is officially removed from default. There is no additional application or approval step.

Default status is cleared and the loan is no longer legally in default. Collections unwind on different timelines, with wage garnishment suspended after five qualifying rehabilitation payments, while tax refund offsets stop only after the default is fully resolved. Control of the loan moves from collections back to a standard federal loan servicer, and you regain access to income-driven repayment plans, deferment, forbearance, and federal forgiveness programs. ^[4]

Does student loan rehabilitation build your credit?

A major benefit of student loan rehabilitation is its positive impact on your credit. Unlike consolidation, rehabilitation removes the record of default from your credit report.

Your credit score may continue to be affected by late payments made before default, but it will likely benefit from the removal of the default notation. Student loan consolidation often happens faster than rehabilitation, within three months instead of nine, but the record of default will remain on your credit report for up to seven years.

Payment history is the most important factor in your credit score, and the more on-time payments you make going forward, the lower the impact your prior missed payments can have on your score. ^[3]

What happens to collections during rehabilitation?

Starting rehabilitation does not immediately stop collections. If collections were already underway before you began the process, they may continue even after you start making rehabilitation payments.

After your first five scheduled payments, federal regulations say that wage garnishment should stop, though you may need to call your loan holder to confirm they have actioned it. The Department of Education also says other collections, including tax refund seizures, may stop after five payments, but there is no guarantee.

Any money taken through garnishment or tax seizure does not count toward your nine rehabilitation payments. You must continue making separate voluntary payments throughout the process. ^[2]

Student loan rehabilitation vs. consolidation

Both rehabilitation and consolidation can get a federal student loan out of default, but they work differently and produce different outcomes.

Rehabilitation removes the default from your credit report but takes longer to complete, typically at least nine months. Consolidation may resolve the default faster, but the record of the default remains on your credit report for up to seven years. Neither option removes late payments reported before default, which will stay on your credit report for up to seven years regardless of which route you take.

There is also an eligibility difference worth noting. If your wages are currently being garnished, you are likely not eligible to consolidate until the garnishment is lifted. Rehabilitation remains an option in that situation, though garnishment will continue until you have made five qualifying payments.

Rehabilitation may suit those whose primary goal is credit repair or who do not qualify for consolidation. Consolidation may suit those who need to end collections quickly, simplify repayment, or have already used rehabilitation. ^[5]

Source ^[5]

Can a rehabilitated loan default again?

Yes. Completing rehabilitation does not protect against future default. Once rehabilitated, a loan will no longer be eligible for any future rehabilitation if the borrower defaults on it again. Rehabilitation is a one-time opportunity per loan. ^[6]

Beginning July 1, 2027, borrowers will be able to complete a loan rehabilitation twice to get out of default as a result of changes in the law under the Big Beautiful Bill. ^[2]

The best protection against re-defaulting is choosing a repayment plan you can sustain after rehabilitation is complete. ^[6]

Sources

1. Federal Student Aid. "Student Loan Rehabilitation for Borrowers in Default: FAQs." StudentAid.gov. https://studentaid.gov/articles/rehab/. Accessed June 18, 2026.
2. Student Loan Borrowers Assistance. "Loan Rehabilitation." National Consumer Law Center. https://studentloanborrowerassistance.org/for-borrowers/dealing-with-student-loan-debt/default-debt-collection/getting-out-of-default/rehabilitation/. Accessed June 18, 2026.
3. Experian. "What Is Student Loan Rehabilitation?" Experian.com. https://www.experian.com/blogs/ask-experian/what-is-student-loan-rehabilitation/. Accessed June 18, 2026.
4. Tate, Stanley. "Student Loan Rehabilitation: How the 9-Payment Rule Works & What Happens After." TateEsq.com. https://www.tateesq.com/learn/student-loan-rehab-program. Accessed June 18, 2026.
5. Credible. "Student Loan Rehabilitation vs. Consolidation: Which Is Better?" Credible.com. https://www.credible.com/refinance-student-loans/student-loan-rehabilitation-vs-consolidation. Accessed June 18, 2026.
6. UCLA Financial Education, Loan and Support Services. "Rehabilitate Your Student Loan." Loans.UCLA.edu. https://loans.ucla.edu/rehab-loan. Accessed June 18, 2026.

About the author

Becca has over 10 years of experience as a content writer, working across various industries including finance, digital marketing, education, travel, and technology. Her work has been featured in publications including Forbes, Business Insider, AOL, Yahoo, GOBankingRates, and more.