Default feels terminal. It isn't. Federal loan rehabilitation is a 9-payments-in-10-months agreement that returns a defaulted loan to good standing and, unlike almost every other credit repair move, deletes the default from your credit report. Here's the payment math, the process, and the traps.
Most federal loans default at 270 days (about 9 months) of missed payments. The day it happens, the entire balance comes due, the loan leaves your servicer for a collection agency, and the default hits your credit report. Then the collection machinery starts: administrative wage garnishment of up to 15% of disposable pay (no court order needed), seizure of federal and state tax refunds, and, eventually, Social Security offsets. Collection costs also get added to what you owe.
Two ways out exist: rehabilitation and consolidation. They're not equal, and which one you pick has lasting consequences.
The loan holder must offer you a "reasonable and affordable" payment, and there's a formula for the standard offer: 15% of your discretionary income, divided by 12, where discretionary income is your adjusted gross income minus 150% of the federal poverty guideline for your family size and state. The payment floor is $5.
Run the 2026 numbers for a single borrower in the 48 contiguous states. The poverty guideline for a family of one is $15,960, so the protected amount is $23,940. At $42,000 of AGI:
Family size moves the number fast. That same borrower with two dependents protects $40,980 of income, and the payment collapses to $12.75. The rehabilitation calculator runs your exact AGI, family size, and state through the current guidelines.
Yes, and more borrowers should. The formula is the opening offer, not a wall. If $225.75 doesn't fit because of rent, child care, medical bills, or a income drop since your last tax return, you can document your actual income and necessary expenses and request a lower "reasonable and affordable" payment, potentially down to the $5 minimum. Get the agreed number in writing before you pay a cent, because payments that don't match the agreement don't count.
| Rehabilitation | Consolidation | |
|---|---|---|
| Payments to exit default | 9 in 10 months | Few (or IDR enrollment) |
| Default removed from credit | Yes | No (ages off in 7 yrs) |
| Can be used again | Once per loan | Yes, in new default |
| Best for | Credit-sensitive goals | Speed |
Miss a month and you generally lose the payments already made toward the nine; the window doesn't stretch. Set up autopay for the agreed amount the day you sign.
The most common mistake is treating month 10 as the finish line. The rehabilitated loan returns to a servicer with no plan attached, and slipping into default a second time burns your one shot. Within weeks of the transfer, submit an income-driven repayment application so your payment tracks your income and every month counts toward the 20-25 year IDR finish line or PSLF's 120. If your income is low or volatile, that recertification habit matters more than any single payment amount; the payoff calculator shows how the post-rehab balance behaves under different payments.
Enter AGI, family size, and state. Get the 15%-of-discretionary-income payment, the 9-payment total, and the 2026 guideline behind it.
Student Loan Rehabilitation Calculator →Nine qualifying monthly payments within a 10-month window. Each payment must be voluntary, on time, and in the agreed amount. Most borrowers are out of default inside a year of starting, and the default line comes off the credit report once the ninth payment posts.
The standard offer is 15% of your discretionary income divided by 12, where discretionary income is AGI minus 150% of the federal poverty guideline for your family size, with a $5 monthly floor. At $42,000 AGI and a family of one in the 48 states, that's $225.75 a month. You can negotiate a lower documented amount if necessary expenses make that unaffordable.
Partially. The default status itself is deleted from your credit report after rehabilitation, which is a real and uncommon win. But the late payments that preceded default remain for up to seven years. Lenders running manual underwriting, like mortgages, will still see the delinquency history even though the default is gone.
Collection tools tied to default, including administrative wage garnishment (up to 15% of disposable pay) and tax refund offsets, generally continue until the loan actually rehabilitates. Completing the 9 payments stops them. If the garnished amount plus the rehab payment is genuinely unaffordable, raise it with the loan holder when negotiating the agreement.
Education only, not legal or financial advice. Rules for loan rehabilitation are set by federal regulation (34 CFR 682.405 / 685.211); confirm current terms with your loan holder or studentaid.gov.