Loan Rehabilitation

What Is Loan Rehabilitation?

Loan rehabilitation is a process that allows borrowers with defaulted federal student loans to restore their loans to good standing. By completing a series of agreed-upon payments, borrowers can remove the default status from their loan record.

Rehabilitation helps borrowers regain eligibility for federal student aid and repayment options.

Why It Matters

Defaulting on a student loan can damage credit scores, trigger collection efforts, and limit access to financial aid. Loan rehabilitation provides a path for borrowers to repair their loan status and avoid long-term financial consequences.

Successfully rehabilitating a loan may also remove the default from a borrower’s credit report.

How Loan Rehabilitation Works

Borrowers typically enter a rehabilitation agreement with their loan servicer or collection agency.

The process generally requires:

making a set number of consecutive, on-time payments
agreeing to an affordable payment amount based on income

After completing the required payments, the loan is transferred to a new servicer and the default status is removed.

Example

After falling behind on student loan payments and entering default, Maria works with her loan servicer to enter a rehabilitation program. She makes nine consecutive monthly payments and successfully restores her loan to good standing.