You can rehabilitate defaulted student loans, commit to a new repayment plan and restore your credit rating. Student loans do not go away. Even if you are able to dispute them on your credit report, they may be deleted, but it’s only a matter of time until they find their way back to you.
There is a remedy, one that will not only restore your credit rating but also stop any wage garnishments or IRS income tax refund withholding.
Rehabilitating your student loans means you will no longer be in default and the default status reported by your lender to the credit bureaus will be deleted. Your eligibility status will also be rehabilitated and the same benefits available on the student loans will return.
Any and all attempts to garnish your wages or withhold your income tax refund will cease. The borrower and lender must agree upon a reasonable payment plan and the borrower will have to sign a loan rehabilitation agreement.
In most cases, the loan will be rehabilitated after 9 or 12 consecutive payments have been made. The default status will be removed and the credit bureaus will be notified that the loan is in good standing. Any negative entry will be deleted.
Here is how it works for the various types of Loans:
Direct Loan:
To rehabilitate a Direct Loan, you must make at least nine (9) full payments of an agreed amount within twenty (20) days of their monthly due dates over a ten (10) month period to the U.S. Department of Education (Department). Payments secured from you on an involuntary basis, such as through wage garnishment or litigation, cannot be counted toward your nine (9) payments. Once you have made the required payments, your loan(s) will be returned to the Direct Loan Servicing Center.
FFEL Loan:
To rehabilitate a FFEL, you must make at least nine (9) full payments of an agreed amount within twenty (20) days of their monthly due dates over a ten (10) month period to the Department.
Payments secured from you on an involuntary basis, such as through wage garnishment or litigation, cannot be counted toward your nine (9) payments. Once you have made the required payments, your loan(s) may be purchased by an eligible lending institution.
Perkins Loan:
To rehabilitate a Perkins Loan, you must make twelve (12) on-time, monthly payments of an agreed amount to the Department. Payments secured from you on an involuntary basis, such as through wage garnishment or litigation, cannot be counted toward your twelve (12) payments. Once you have made the required payments, your loan(s) will continue to be serviced by the Department until the balance owed is paid in full.
For more information on Student Loan Rehab check the Department of Education’s website (www.ed.gov). If for some reason you are told by your lender that you cannot rehabilitate your loans contact the U.S. Department of Education’s Ombudsman (www.ombudsman.ed.gov). The Ombudsman office can help:
- Resolve discrepancies in loan balances and payments.
- Understand interest and collection charges.
- Rehabilitate loans by establishing satisfactory repayment plans.
- Defer or discharge loans.
Resolve issues related to income tax refund offsets, default status, consolidations, bankruptcies, service quality, and other customer concerns.
