Student Loan Rehabilitation

The Federal Student Loan Rehabilitation Program is generally a period of nine months, where the borrower makes reasonably calculated, consecutive payments into the loan. This process will remove the default status if the agreed upon monthly payments are made in full and on time. The defaulted loan is also removed from the students credit report; although, the previous late payments will still be noted to the credit history.

How The Rehabilitation Payments are Calculated

Federal Student Loan Rehabilitation payments are calculated by the same formula as IDR payments. The payment will be 15 of the borrowers annual discretionary income divided by 12. Your discretionary income is your annual gross (AGI) that is over 150 of the poverty guideline in your state and for your family size.

If this payment amount is not feasible or still to high for you to cover monthly, there may still be another option. You may be able to submit a Financial Disclosure for Reasonable and Affordable Rehabilitation Payments. This may eliminate any forgiveness.

IBR Rehabilitation

An IBR Rehabilitation will consider the following factors…

-Disposable Income

-Social Security Benefits

-Welfare Benefits

-Housing Cost

-Food/ Nutrition Cost

-Family Size

The option of having payments calculated by these factors gives the borrower piece of mind compared to the expectation for rehabilitation payments in the past. Prior to these changes, a loan rehabilitation payment would just be 1 of the current loan balance. Like the IBR, these rehabilitation payments can be as low as $0/month.

Although loan rehabilitation is a great way to get you loan back in good standing, it is equally important to understand the process and the benefits in full.

Things to look forward to:

-The loan would no longer be in default

-Put an end to wage garnishment or Federal Tax Offset

-Default status removed from the borrower’s credit report

-No more calls or letters from collections

-Regain access to deferment or forbearance time when needed

-Regain eligibility for Federal Student Loans in the future

A few other things to keep in mind in order to guarantee success from the loan rehabilitation process are that:

– The loan rehabilitation process can only be used once on a Federal Student Loan.

-It requires 9 consecutive payments within a 10 month period.

-Any late payments during this process could mean starting the rehabilitation over from the beginning.

-If you are currently suffering wage garnishment, the garnishment will continue until the servicer is satisfied that you are committed to make payments on your loan. This could mean the entire nine months that your loans are being rehabilitated, you are making a voluntary reasonable monthly payment as well as continuing to be garnished.

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