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Student loans
Loan rehabilitation vs consolidation
Loan rehabilitation and consolidation are the two main ways to get a federal student loan out of default without repaying it in full. Consolidation is quicker to apply for; rehabilitation takes several months but gives benefits consolidation does not. 1
Talk to a lawyerHow it works
Neither is a bankruptcy procedure. To rehabilitate a Direct Loan or FFEL Program loan, you agree in writing to make nine voluntary, reasonable and affordable monthly payments, each within 20 days of the due date, over 9 or 10 consecutive months, depending on the loan. 1
Wage garnishment or Treasury offset can continue while you rehabilitate. Those payments do not count toward the nine and stop once the loan is out of default or you have made five rehabilitation payments. 1
To consolidate a defaulted loan into a new Direct Consolidation Loan, the borrower either agrees to repay it under an income-driven plan or first makes three consecutive, voluntary, on-time, full monthly payments on the defaulted loan. Accrued interest is added to the principal. For consolidation loans disbursed as of July 1, 2026, the only income-driven plan is the Repayment Assistance Plan. 1
What it covers
| Question | Rehabilitation | Consolidation |
|---|---|---|
| How fast is it? 1 | Several months 1 | Quick to apply for 1 |
| Is the record of default removed from your credit history? 1 | Yes, though late payments reported before the default still show 1 | No 1 |
| What are the limits? 1 | A one-time opportunity for a loan; beginning July 1, 2027, twice over each loan's lifetime 1 | Not possible while a wage garnishment order or court judgment on the loan is in place 1 |
| What comes after? 1 | Default status is removed and garnishment and Treasury offset stop 1 | Eligible for deferment, forbearance, forgiveness and new federal student aid 1 |
Common questions
Is rehabilitation better than consolidation?
It depends on what matters most to you. Rehabilitation removes the record of default from your credit history; consolidation does not, but it is quicker to apply for. A loan already rehabilitated once, or a garnishment order or judgment, can close one of the routes. 1
Should I pay a company to get my loan out of default?
No need. StudentAid.gov says your loan holder helps with a defaulted loan for free and tells borrowers to walk away from companies charging enrollment, subscription or maintenance fees. 1
Sources
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