Student Loans: Loan Rehabilitation

In this blog post in the student loan series, we will be talking about rehabilitation and consolidation for defaulted student loans. You default on a loan when you don’t make full payments on your loan for 270 days. There are very real consequences for defaulting on your loans, such as wage garnishment, liability for lawsuit, inability to receive further federal student aid, and more. The best option is to not default on your student loans in the first place. Please read our previous blog post about income-driven repayment plans that will allow you to remain in good standing on your loan in an array of financial situations. However, whether you were not previously given important information like this about your options, or if your situation made default an inevitability, there is something that you can do.

There is a process called student loan rehabilitation which is, typically, a 10-month payment program that allows you to remove the default status of your loan. In many cases, your monthly payment towards your debt is calculated the same as your monthly payment on the IBR repayment plan which was discussed in the previous blog post. Keep in mind that you are not actually enrolled in this plan, just using the same calculation. This means that your monthly payment is 15% of your discretionary income, meaning your payment can be as low as $5 per month if your gross income does not offset your necessary expenses. This might be true for many people that have been driven to default on their student loans.

The other path forward when your student loans have defaulted is to consolidate any defaulted federal loans.

There are many benefits to removing the default status of your student loans. You can start to build your credit back up, you regain access to repayment plans such as the income-driven plans we discussed, you are no longer subject to possible lawsuits, and so on. We highly recommend that, if you have defaulted on your student loans, you look into this option. If you aren’t sure if it’s for you or have any other questions please contact us here at the Massachusetts Debt Relief Foundation.