Rehabilitate a Loan

Under the loan rehabilitation program you and your loan holder (or the Department of Education if you have a defaulted Direct Loan) agree on a reasonable and affordable payment plan for nine (9) payments over a ten month period (Perkins Loan requires nine (9) consecutive monthly payments). In most cases, you sign a rehabilitation agreement specifying payments and responsibilities. A loan is rehabilitated only after you have voluntarily made the agreed-upon payments on-time and the loan has been purchased by a lender. Outstanding collection costs may be added to the principal amount.

Loan rehabilitation offers the following:

• The 9 voluntary on time payments you make while rehabilitating your loans will be subtracted from the maximum repayment term of your loan.
• Rehabilitating your loan(s) removes the default status of previously defaulted loans at completion of the process. National credit bureaus are notified when the loan is no longer considered in a default status.
• After the loan has been rehabilitated, you regain the balance of all benefits of the Title IV loan program, including any remaining eligibility for deferment or forbearance, from the date of the rehabilitation.
• Repayment plans available to other borrowers with the same loan type may be available to you, depending on your qualifying status.

Please keep in mind:

• The amount of your monthly payment after rehabilitation may be more than the amount you paid while you were rehabilitating your loans.
• Any interest outstanding at the time your loan is rehabilitated will be added to your current outstanding principal balance, increasing the total amount you owe. Collection costs may also be added to your principal balance, increasing the total amount you owe.
• Delinquencies reported before the loan(s) defaulted will not be removed from your credit report.

Make sure that you understand the differences in loan rehabilitation for the different loan programs. For questions on rehabilitation of Perkins loan, please contact your school directly to establish an agreement. Please keep in mind that schools often contract with companies to service Perkins Loans. In those instances, the servicing agreement will be made with the borrower by the company acting on behalf of the school. It takes 9 consecutive loan payments to rehabilitate a Perkins loan. For FFEL loans, at the completion of the schedule of rehabilitation payments, a participating lender must agree to purchase the defaulted loan and assume servicing of your loan. You must continue making payments during this time.