How to Get Student Loans Out of Default — What You Need to Know About Loan Rehabilitation

Katie Taylor Updated on May 13, 2019

In a perfect world, you'd be able to make your student loan payments on time every month. In fact, you'd pay extra.

But in reality, all of us can find ourselves with less cash than we need to pay the bills. If you've been struggling for long enough that your student loans are in default, you're probably looking for a way to get back into compliance with the terms of your repayment plan. Student loan rehabilitation may be your answer.

What is student loan rehabilitation?

When you rehabilitate a federal student loan, you're getting the opportunity to create a new, temporary repayment plan if your loans have gone into default.  

Rehabilitation for private student loans is rare. However, it's always worth calling your lender to discuss your options if your loan has gone in to default.

Can it get me out of default?

The good news about student loan rehabilitation is that its primary purpose is to get you out of default.

If you satisfy the full terms of your loan servicer's rehabilitation plan, your loan will no longer be in default. The default will also be removed from your credit history, though the previous late payments will remain for seven years. 

How does it work?

Of course, once you start diving into the ins and outs of student loan rehabiltation, your first question is probably: am I eligible for student loan rehabilitation?

You may be able to take advantage of student loan rehabilitation if you have Direct Loans, Federal Family Education Loans (FFEL), or Federal Perkins Loans. 

If your loan has gone into default — generally the result of failing to make a payment for at least 270 days — rehabilitation is one option for bringing that loan out of default. You'll need to apply to your loan servicer for each individual loan you hold. 

For FFEL and Direct Loans, you will be required to make nine voluntary, full payments in a 10-month period. That means you can miss one payment and still get your loans rehabilitated. If you have Federal Perkins Loans, you only get a nine-month period to make your nine full payments. 

You may be wondering how you're supposed to make those full payments now if you couldn't make them before. Well, under a rehabilitation program, you're only responsible for payments that are 15% of your discretionary income. Calculating your discretionary income can be a little confusing, but it's a big part of how federal student loan payments are determined, so it's worth understanding. 

In general terms, your discretionary income is the amount of money you have available each month after you've paid for necessities. The Department of Education employs a set formula for determining exactly what your discretionary income is, at least for the purposes of your student loan payments.

Your discretionary income is your adjusted gross income minus 150% of the federal poverty guideline for a family of your size. Fifteen percent of your discretionary income could be as low as $5 a month. Before you apply for rehabilitation, you may want to calculate your discretionary income

If you're still unable to pay the amount that your loan servicer has set for your rehabilitation plan, you can ask for a new calculation by submitting documentation showing what your income and actual expenses are. 

After you've submitted your nine full payments, your loan will no longer be in default. Your monthly payments will revert to the pre-default amount, and you will be able to apply for a different plan if you'd like to change your payments.

New call-to-action

What are the pros and cons of rehabilitation? 

If you're in default, rehabilitation sounds like a great idea. It is likely preferable to remaining in default, but there are some key points to keep in mind before you apply.


  • Your default will be removed from your credit history.

  • If you complete the plan, you will no longer be in default.

  • You will have an opportunity to get out of default while making payments that are likely smaller than your previous payments. 

  • After completing the rehabilitation plan, you will have access to federal benefits, like forbearance, deferment, loan forgiveness, and varied repayment plans. 


  • Your late payments will remain on your credit history. 

  • You may have difficulty affording the full payments once your rehabilitation plan ends. 

  • You may have to pay up to 16% of your loan balance in collection costs. The Department of Education is authorized to charge collection costs from borrowers in default.

  • You may only rehabilitate a loan once.  

What are alternatives to student loan rehabilitation?

If student loan rehabilitation doesn't work with your finances, you may have other options. The primary alternative to student loan rehabilitation is student loan consolidation

You may consolidate your federal student loans even if they are in default, and the process of consolidation will bring them out of default.

However, once you consolidate, you will be limited to income-driven repayment plans unless you are able to make three consecutive, full payments prior to consolidating. If you can make those payments, you'll be able to choose from all the available plans, including traditional or extended repayment plans. 

The big downside to consolidation is that the default will remain on your credit report — along with the late payments — for seven years. If improving your credit history is important to you, rehabilitation after default may be a better option.

Whether you use rehabilitation or consolidation, you only have one opportunity to bring a loan out of default. Any future defaults would be handled by a collections agency. 

If you're struggling to make your student loan payments or are already in default, consider rehabilitation or consolidation before you get too far behind. And learn how much you could save by consolidating

About the Author
Katie Taylor

Katie Taylor is a content writer and editor with expertise in law and policy, finance, and entrepreneurship. She writes for startups and small businesses about everything from bookkeeping to telecom. Her work has been featured in The Washington Post and She is continuing to pay off law school loans and lives in Richmond, Vermont with her wife, son, and an unruly dog. Read more by Katie Taylor

Refinance and Save Today With These Lenders

#1 - Nitro Recommended View More Details

Special offers for medical resident and fellow refinance products

  • Fixed rates: 2.49% - 6.31% APR
  • Variable rates: 1.88% - 6.15% APR
  • Minimum credit: 650
View More Details
Visit Splash View Loan Disclosure

Splash Financial is a leader in student loan refinancing with new rates as low as 2.49% fixed APR which can save you tens of thousands of dollars over the life of your loans. No application or origination fees and no prepayment penalties. Splash Financial is in all 50 states and is intensely focused on customer service. Splash Financial is also one of the few companies that offers a great medical resident and fellow refinance product. You can check your rate with Splash in just minutes.

  • Low interest rates – especially for graduate students
  • No application or origination fees. No prepayment penalties.
  • Co-signer release program - you can apply for a cosigner release form your loan after 12 months of on-time payments
  • Specialty product for doctors in training with low monthly payment

Click here to see more of Splash's offerings and to see how you can save money.

#2 View More Details

For every loan they fund, they contribute to the education of a child in need

  • Fixed rates: 2.83% - 6.74% APR
  • Variable rates: 1.99% - 6.84% APR
  • Minimum credit: 660
View More Details
Visit CommonBond View Loan Disclosure

CommonBond was founded in 2011 by three MBA graduates from the University of Pennsylvania’s Wharton School who wanted to help their peers escape from high-interest student loan debt. Its original focus was on grad students, but it has since expanded to cover undergrads as well.

Of all the companies we reviewed, CommonBond has some of the best customer service. The company prides itself on being easy to reach by email, phone, or live chat. It offers networking events, expert panels, insider newsletters, and even has a program help borrowers who lose their jobs to find new ones. CommonBond also makes you feel good about choosing to refinance with them by donating money to an education nonprofit for each loan they write.

CommonBond Student Loan Refinance review

  • Unemployment protections - If you lose your job or decide to go back to school, you can delay your payments for up to 24 months.
  • Social promise - For every loan they fund, they also contribute to the education of a child in need.
  • Hybrid loan option - Offerings include a 10-year hybrid loan with fixed interest for the first five years, and variable interest for the final five.
  • Referral bonus - For every friend you refer who refinances their loans with CommonBond, you’ll earn a $200 cash bonus.
  • Qualification - Borrowers must have graduated at least 2 years prior if they want to apply without a co-signer. And borrowers in 6 states – Idaho, Louisiana, Mississippi, Nevada, South Dakota, and Vermont – cannot currently refinance through CommonBond.

Get a personalized review of your refinancing options with CommonBond today.

#3 View More Details

SoFi is the leading student loan refinancing provider. 

  • Fixed rates: 2.49% - 6.94% APR
  • Variable rates: 2.25% - 6.59% APR
  • Minimum credit: 650
View More Details
Visit SoFi View Loan Disclosure

$30 billion+ in refinanced student loans. SoFi has some of the lowest interest rates and, unlike the other lenders we reviewed, there's no maximum on the amount you can finance. Some state restrictions may apply.

  • Serious savings: Save thousands of dollars thanks to flexible terms and low fixed or variable rates.
  • No hidden fees, no catch: No application or origination fees. No pre-payment penalties.
  • Fast, easy, and all online: Simple online application and access to live customer support 7 days a week.
  • Access to member benefits: SoFi members get career coaching, financial advice, and more—all at no cost.
  • 98% of surveyed members would recommend SoFi to a friend

Save thousands on your student loans and pay off your loans sooner. Find your rate.

#4 View More Details

Ability to apply for cosigner release after 24 consecutive payments. 

View More Details
Visit NelNetBank View Loan Disclosure

Give Your Life’s Journey a Jump-Start.

If you’re ready to put student loans in your rearview mirror, Nelnet Bank student loan refinancing offers low rates and flexible terms to help you start getting ahead.

  • VARIABLE RATES: 1.95% - 5.62% APR See Disclaimer
  • FIXED RATES: 2.48% - 6.62% APR See Disclaimer
  • AUTO DEBIT SAVINGS: We’ll knock .25% off of your interest rate when you enroll in auto debit. See Disclaimer
  • NO ORIGINATION FEES: No application, origination, or prepayment fees on Nelnet Bank loans.
  • HARDSHIP PROTECTION: Hardship forbearance helps protect against unexpected loss of income. See Disclaimer

See How Much You Can Save: Estimate your savings with a student loan refinance from Nelnet Bank.

#5 View More Details

Works with 300+ community lenders for higher approval chances

  • Fixed rates: 2.95% - 7.63% APR
  • Variable rates: 1.90% - 5.25% APR
  • Minimum credit: 660
View More Details
Visit LendKey View Loan Disclosure

Connecting student borrowers to a network of over 300 community lenders with low interest rates. By partnering with these lenders, LendKey is able to give consumers direct access to the best rates available from the most borrower friendly institutions. As the servicer of all loans obtained through its platform, you can rest easy knowing your personal information will be safe and that the best customer service team will be ready to answer your questions from application until your final payment.

LendKey Student Loan Refinance review

  • Lightning fast rate check - 2-minute rate check with no impact on your credit score
  • More lenders, more options - see the best offers from over 300+ community lenders for higher approval chances
  • Life of loan relationship - With LendKey, your personal information will never be sent or passed on to third parties. Their customer service team is with you from the moment you land on their website until you've completely repaid your loan.
  • Unmatched benefits- Community lenders put people over profits and offer unique benefits like cosigner release after 12 on-time payments, interest only repayment options to keep monthly payments low, the largest unemployment protection period in the market, and more.

Get a personalized quote from LendKey now.

#6 View More Details

Best for borrowers who want to customize their repayment schedule to pay off debt fast.

View More Details
Visit Earnest View Loan Disclosure

Using technology, data, and design to build affordable products, Earnest's lending products are built for a new generation seeking to reach life's milestones. The company understands every applicant's unique financial story to offer the lowest possible rates and radically flexible loan options for living life.

  • Commitment-free 2 minute rate check
  • Client Happiness can be reached via in app messaging, email, and phone 
  • No fees for origination, prepayment, or loan disbursement
  • Flexible terms let you pick your exact monthly payment or switch between fixed and variable rates
  • Skip a payment and make it up later
  • Online dashboard is designed to make it easy to apply for and manage your loan

Click here to apply with Earnest and to see how much you can save.

#7 View More Details

16 different loan term options – more flexibility to pay down your loan faster

  • Fixed rates: 3.24% - 5.54% APR
  • Variable rates: 3.34% - 5.69% APR
  • Minimum credit: 680
View More Details
Visit CollegeAve View Loan Disclosure

College Ave Student Loans offers major help and minor stress. We’ll help guide you through the process to find the right loan term and interest rate for you and the family budget.

  • Fast rate check: Get your new rate in 60 seconds 
  • Instant credit decision
  • Super flexible terms: 16 loan terms available from 5 to 20 years
  • No fees to apply

Click here to see more College Ave offerings and to start saving today! 


I reduced my student loan payment by $152 per month, by refinancing thru Nitro:

Save Money Now