Student loan debt is an increasingly pressing issue in the United States. With over 44.5 million people collectively owing $1.5 trillion in student loan debt, it’s no wonder that borrowers are looking for ways to manage their loans and get back on track with repayment plans.

One of the most popular options available is student loan rehabilitation, which can help borrowers reduce their monthly payments and even have some of their debt forgiven or discharged after the successful completion of the program.

In this article, we’ll discuss what student loan rehabilitation is, how it works, and how you can qualify for it, so you can make an informed decision about your financial future.

What Is Student Loan Rehabilitation?

Student loan rehabilitation is a process by which borrowers who have defaulted on their federal student loans can bring them current again by making nine timely payments in 10 months.

Once these payments are made successfully, the borrower’s default status will be removed from their credit report and they will become eligible for additional federal aid if needed to continue their education or pursue other goals related to higher education. 

In addition, the Department of Education offers incentives such as reduced interest rates or waived collection fees when rehabilitating certain types of loans through its Federal Family Education Loan Program (FFELP) or William D. Ford Federal Direct Loan Program (DLP).

What Happens After a Student Loan Rehabilitation?

Once you’ve completed your nine consecutive full monthly payments within 20 days of the due date over a period of 10 months (or less), your default status will be removed from your credit report. You’ll become eligible for additional federal aid if you need any.

Additionally, any late fees associated with missed payments may be waived during this time frame, as well as any collection costs incurred prior to entering into a rehabilitation agreement with your lender(s).

Finally, depending on whether you’re enrolled in an income-driven repayment plan before entering into a rehabilitation agreement with lenders, there may also be potential savings associated with lower monthly payment amounts once rehabilitated loans enter the repayment phase again, following the successful completion thereof.

Federal Student Loan Rehabilitation Program Explained

The Federal Government offers several programs designed specifically for those struggling financially due to high levels of outstanding student loan debt. Here we have one called “Rehabilitation” which allows borrowers who have fallen behind on their repayments but still wish to remain compliant with terms set forth under the original promissory note they signed.

This particular program requires an individual to meet certain criteria outlined below before being considered eligible to participate therein: 

1. Financial Preparation

Must demonstrate the ability to pay off the entire balance owed plus applicable interest rates, which includes proof of a steady source of income. 

2. Payment Schedules 

Must agree to adhere to the specific payment schedule established by both parties.

3. Legal

Must sign a legally binding document outlining the terms and conditions of the said arrangement.

4. Forbearance Deferment

Must not already be granted forbearance, deferment, or another type of relief offered by government-sponsored entities.

5. Minor Crimes

Must not be currently delinquent for more than 9 months or 270 days.

6. Following Processes

Must submit an application form along with supporting documentation required for the review process. If approved, then the borrower begins making regular installments toward the principal amount borrowed until paid off completely.

Rehabilitating Defaulted Students Loans – Step-By-Step Guide

Defaulting on student loans has serious consequences, including damage done to one’s credit score. But fortunately, there are steps you can take toward getting back on track financially via rehabilitating those same debts through various programs offered by lenders and government agencies alike.

Rehabilitating defaulted student loans involves understanding each step necessary to complete the process successfully. First, contact the servicer to determine eligibility based upon meeting the criteria discussed. Second, submit the application form along with supporting documents requested And third, negotiate an acceptable payment plan that both sides agree upon.

How Do I Qualify For The Federal Government’s Student Loan Debt Relief Programs?

To qualify for federally funded relief programs like income-based repayment, public service loan forgiveness, teacher loan forgiveness, and Perkins loan cancellation, individuals must meet certain requirements set forth by the U.S. Department of Education.

These include having a valid Social Security number, filing taxes annually, demonstrating partial financial hardship, etc.

What Are The Benefits Of Participating In A Student Loan Rehabilitation Program?

Participating in a student loan rehabilitation program comes with many benefits beyond just removing defaults from one’s record. Here are some key advantages worth considering: 

  • Reduced Interest Rates. Many lenders offer reduced interest rates when participating in these types of programs. This means lower total cost of borrowing over a lifetime.
  • Lower Monthly Payments. Participants are typically only required to make 15% discretionary income divided by 12 instead of the standard amount owed, resulting in smaller, more manageable installments.
  • Waived Collection Fees. Any collection costs incurred before entering into agreement are often waived during course participation.
  • Increased Credit Score. Successful completion usually results in a positive impact score, since negative marks remove reports.
  • Improved Financial Standing. Not only does it improve rating, but also opens the door to better deals in future endeavors.


When faced with overwhelming amounts of unpaid educational expenses, taking advantage of available resources like those provided by the U.S. Department of Education is a great way to start tackling the problem in the head. Whether choose to enroll in an income-based repayment plan or apply for Perkins loan, opt to rehabilitate existing debts.


Q: What happens after my 9 months’ worth of payments?

A: You will be able to select one of the four income-driven repayment programs offered by the US government. These plans calculate your monthly payments based on your discretionary income. After that, you’ll make more reasonable payments for two decades or more.

Q: Can I combine different forms of relief?

A: Yes, depending on the situation, those who’re interested might be able to combine multiple forms together to create a comprehensive solution that best fits the circumstances. However, keep in mind that combining too many could lead to complications; therefore, it is advisable to speak to a professional beforehand to ensure everything goes smoothly. 

Q: Does participating affect my credit score?

A: Yes, generally speaking, successful completion often ends on a good note since negative marks remove reports.


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