An ever-increasing number of student loan borrowers struggle to keep up with their payments; roughly 9 million federal loan borrowers were in default as of March 2026.
Under the current rules, borrowers in default can rehabilitate their loans — returning their debt into good standing — just once. But thanks to the One Big Beautiful Bill Act (OBBBA), borrowers will be able to take advantage of federal student loan rehabilitation up to two times starting on July 1, 2027.
What is federal student loan rehabilitation?
Defaulting on federal loans can have steep consequences, including damaged credit, garnished wages, and even the loss of your tax refund. Student loan rehabilitation is a program that allows borrowers who have defaulted on their federal loans to recover and bring their loans current.
To get out of default, there are two core options: loan rehabilitation and loan consolidation. With loan rehabilitation, you agree to make nine voluntary, reasonable, and affordable monthly payments within 20 days of the due date.
The payment amount is determined by your loan holder or servicer, and is either 10% to 15% of your discretionary income (depending on when you borrowed your loans), divided by 12.
If you make all nine payments within a period of 10 consecutive months, the loan rehabilitation process is complete, and you’re no longer in default. Afterward, you’re eligible for perks like income-driven repayment plans, and the default is removed from your credit report.
Related: How to get student loans out of default
Pros and cons of loan rehabilitation
Loan rehabilitation can be helpful, but it’s not for everyone. Weigh the advantages and drawbacks before moving forward.
How to apply for loan rehabilitation
To rehabilitate your loans, follow these steps:
Contact your loan servicer: For most borrowers in default, your loan servicer is the Default Resolution Group. You can confirm your loan servicer by logging into your StudentAid.gov account. Reach out to your servicer to request loan rehabilitation.
Mail or fax your request: Your loan servicer will send you a rehabilitation application, and you’ll need to submit copies of your tax returns by fax or through the mail.
Wait for confirmation: The loan servicer will send you a confirmation of the rehabilitation application, and confirm your new payment amount and due date.
How the One Big Beautiful Bill Act affects loan rehabilitation
President Donald Trump’s signature bill made substantial changes to the federal student loan program, including updates to loan rehabilitation rules. There are two main changes that go into effect starting on July 1, 2027:
1. Changed maximum usage
Previously, you could only rehabilitate your federal loans once. If you successfully rehabilitated your loans before defaulting a second time, you could not use the rehabilitation program again.
But the OBBB changed this, allowing borrowers to take advantage of loan rehabilitation up to two times. The new maximum rehabilitation limit will apply to federal Direct, Federal Family Education Loan (FFEL), and Perkins Loans.
2. Set new minimum payment
Previously, your loan payment during rehabilitation could be as low as $5. The OBBBA established a new payment: Starting on July 1, 2027, the new minimum payment amount is $10.
Related: 8 things student loan borrowers should consider before July 1
Rehabilitation vs. consolidation
The other way to handle defaulted federal student loans is to consolidate your debt with a Direct Consolidation Loan. It’s a faster process, but there are some key differences to keep in mind:
When you consolidate your loans, the accrued interest is added to the principal, and you’ll be charged interest on the new, higher balance.
You must commit to a new payment plan when you consolidate your defaulted loans.
Your defaulted loans stay on your credit report.
Borrowers in default still have the option to consolidate their federal student loans, but there are distinct trade-offs. See what happens if you consolidate your loans after July 1, 2026.
How to manage defaulted loans today
If you have loans in default, contact your loan servicer right away to discuss your options. Loan rehabilitation may be the best option if your goal is to remove the default from your credit.
Once you’ve completed the default rehabilitation process, follow these steps to keep your student loan repayment on track:
Sign up for a new payment plan that gives you a payment you can afford
Sign up for automatic payments to avoid accidentally missing another payment (and to qualify for an interest rate discount).
Re-certify your income and family size every year to ensure you stay on the payment plan you selected.
If you run into financial problems, reach out to your service before you miss a payment.
Loan rehabilitation FAQ
How many times can I rehabilitate defaulted federal student loans?
Currently, borrowers can only rehabilitate their federal loans once. But as of July 1, 2027, borrowers will be allowed to rehabilitate their loans twice.
Does student loan rehabilitation remove the default from my credit report?
Once you have made the nine required payments within 10 consecutive months, the default will be removed from your credit report. However, your late payments prior to the default will still affect your credit.
How long does federal student loan rehabilitation take?
The federal student loan rehabilitation process takes nine monthly payments within 10 months, so you can be out of default in under one year.
Is loan rehabilitation better than loan consolidation?
Whether loan rehabilitation is better than consolidation depends on your goals. Rehabilitation takes longer, but it removes the loan default from your credit report. By contrast, consolidation is faster, but the default remains on your credit report.
Read more: Student loan FAQ: Everything borrowers are asking about the overhaul
