Borrowers facing defaulted federal student loans can rehabilitate their debt through specific federal programs, with key actions including making nine consecutive on-time payments. The process restores credit standing and unlocks access to repayment plans and loan forgiveness.
- Nine consecutive on-time payments are required to rehabilitate a defaulted federal student loan
- Each payment must be at least $5 and made within 20 days of the due date
- Rehabilitation removes default status and restores eligibility for income-driven repayment and loan forgiveness
- Approximately 1.5 million borrowers were in default as of 2024, with average balances above $24,000
- Successful rehabilitation can increase credit scores by an average of 75 points within a year
- The process typically takes 18 to 24 months and is available for Direct and FFEL Program loans
Borrowers who have defaulted on federal student loans, defined as being 270 days past due, can take concrete steps to exit default and regain eligibility for federal benefits. The most effective method is loan rehabilitation, which requires making nine consecutive on-time payments under a new repayment plan. Each payment must be at least $5 and must be made within 20 days of the due date. Once completed, the default status is officially removed from the borrower's record. The U.S. Department of Education oversees the rehabilitation process, which is available for both Direct Loans and Federal Family Education Loan (FFEL) Program loans. After rehabilitation, borrowers regain eligibility for income-driven repayment plans, loan forgiveness programs, and deferment or forbearance options. Additionally, credit reporting agencies are required to remove the default notation from credit reports, potentially improving credit scores over time. Data from the Department of Education shows that approximately 1.5 million borrowers were in default as of 2024, with the average defaulted balance exceeding $24,000. However, borrowers who successfully rehabilitate their loans report an average increase of 75 points in their credit scores within 12 months. The rehabilitation process typically takes about 18 to 24 months, depending on the payment frequency and borrower’s financial capacity. The impact extends beyond individual borrowers—rehabilitation helps reduce federal loan delinquency rates and supports broader financial stability. Lenders and credit agencies benefit from improved loan performance, while borrowers gain access to future credit, housing, and employment opportunities. Federal agencies continue to promote rehabilitation through outreach and simplified application processes, including online portals and assistance from certified counseling providers.