What Is Student Loan Rehabilitation

What Is Student Loan Rehabilitation?

Last year, a major change was made to federal student loans that are already in default loan status. Borrowers that have defaulted on these loans can now apply for something called ‘Income-Based Default Rehabilitation.’ While this new law doesn’t excuse a total loan amount, it does provide a much needed break for the thousands of students that were struggling with the default loan status.

Income-Based Default Rehabilitation Explained

Beginning on July 1, 2014, borrowers that defaulted on student loans were given a choice. They could either continue with the default status, or they could apply for Income-Based Rehabilitation. This type of rehabilitation takes into account a borrower’s current income, and offers a payment strategy consisting of 9 small payments (some could be as low as $5 per payment) in order to remove the default status from a borrower’s credit record.

Why This Law Was Enacted

At one point prior to this new law, a borrower had to pay a set monthly amount in order to get out of loan default. This amount could greatly fluctuate depending on the agency responsible for the loan. So while one borrower might pay $100 on a $50,000 loan per month, another borrower with the same amount of loan debt ($50,000) could wind up paying $300 per month. The amount set was established according to a law called ‘reasonable and affordable,’ but that rate was determined by the agency that held the loan.

Since these rates fluctuated so much from agency to agency, the government decided to step in and take a closer look at a person’s current income wage. A person that makes $30,000 per year cannot afford to pay the same, or more, than a person making $70,000 per year. Now, the Default Rehabilitation law exists, and this law really takes into account the total amount of money that you make. In other words, the payments that you will have to make in order to return to regular (non-default) loan status can be much lower than they used to be.

Worth the Status

If you have currently defaulted on your federal student loans, it’s worth taking a closer look at the Default Rehabilitation option. Why? Without applying for income-based payments while in default, your wages could be garnished and other things could happen to you based on your default status. While every state is unique, not paying back a federal loan that’s in default never works out well for the borrower (you).

How can you apply for Default Rehabilitation? This process is trickier than it sounds, and it does require some deeper understanding of the new law in order to make sure that you get fair payments based on what you can really afford. If you are currently in default status with any federal student loan and need help, your best course of action is to hire a lawyer that understands the intricacies of this process.

If you have defaulted on your federal student loans, taking a closer look at the Default Rehabilitation option may be in your best interest.