How to get out of student loan default: rehabilitation vs. consolidation

When your loans default, you lose most of the protections that come with federal loans. Getting out of default brings them back. Here's how each route works.

Option 1: Loan rehabilitation

Rehabilitation is a short agreement with the Department of Education. You make a set number of payments, and your loan goes back to normal.

How it works:

• Contact the Default Resolution Group at 1-800-621-3115 or through StudentAid.gov.
• Ask to rehabilitate your loans. You'll share income information, usually a recent tax return.
• You'll get a written agreement with your monthly payment. Sign it and send it back.
• Make nine on-time payments within 10 consecutive months. Each payment has to arrive within 20 days of its due date.

What it costs: Your payment is based on your income, not your balance. If that’s still too much, you can ask for a lower payment based on your actual expenses. Rehabilitation payments can be as low as $5 a month.

The big benefit: Once you finish, the default is removed from your credit report. The late payments that came before it stay, though.

The limits: Payments have to be voluntary, so garnished wages don’t count. Until now, you could only rehabilitate a loan once. Starting July 1, 2027, you can do it twice.

Option 2: Consolidation

A Direct Consolidation Loan pays off your defaulted loans with a brand-new federal loan. The new loan starts in good standing.

How it works: You apply on StudentAid.gov. To qualify, you have to put the new loan under an income-driven plan, or make three on-time, voluntary monthly payments on the defaulted loan first.

The big benefit: Consolidation can take weeks to months, compared with nearly a year for rehabilitation.

The tradeoffs: The default stays on your credit history. Unpaid interest and sometimes collection costs can be added to your new balance.

A catch: Any consolidation loan made on or after July 1, 2026 counts as a new loan. That limits you to two repayment plans (the Repayment Assistance Plan (RAP) and the Tiered Standard Plan) for all your federal loans. You'll lose access to Income-Based Repayment and other older plans.

Parent PLUS: New Parent PLUS loan consolidations can only be repaid under the Tiered Standard Plan, which bases payments on your balance, not your income. If you're a parent borrower, ask the Default Resolution Group about rehabilitation first.

Which one should you choose?

Rehabilitation is better if your credit matters most, you can wait about 10 months, and you haven't used rehabilitation on that loan before.

Go with consolidation if you need to get out of default fast because you’re going back to school, or if you've already used rehabilitation once.

Pay in full only if you have the money. Most people don't, and that's okay.

After you're out

Once you're back in good standing, choose a repayment plan you can keep up with. An income-driven plan is the best protection against defaulting again. Turn on autopay if you can, and keep your contact information current so you never miss a notice.