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Rehab Your Federal Education Loans and Get Out of Debt

Updated on August 28, 2010

If you have student loans from the federal government that are currently in default, you have the option to “rescue” those default student loans through the rehabilitation process. By rehabbing your student loans, you can bring your defaulted education loans current and save yourself from the dire consequences of owing an unpaid debt to federal government.


Collection Process for Defaulted Federal Education Loans

If you stop paying your student loans, the U.S. Department of Education will take quick and immediate action. First, notices will begin to arrive at your home demanding that you make a payment and bring your loans current. If you have the same phone number that you did when you initially applied for the loans, you’ll also start receiving telephone calls. While these collection methods are basically the same as the methods used by private collection agencies, the federal government’s reach goes much further. 


If you ignore the calls and letters, you may find yourself subject to a wage garnishment or bank account levy. While most creditors have to sue you before levying your bank accounts and garnishing your wages, the federal government is under no such legal limitation when collecting defaulted student loan debt. Thus, it can obtain the writ of garnishment or writ of execution necessary to seize funds from you involuntarily. Don’t expect to see a tax refund at the end of the fiscal year either. A defaulted federal education loan will result in any tax refund you would have received being seized by the U.S. Department of Education. 


How to Rehab Federal Education Loans

Contact the U.S. Department of Education and request to enter the student loan rehabilitation program. Once you are enrolled in the program, you must make nine months of on-time payments (ten payments total) before your loan will no longer be considered “in default.” Once default status is remedied, the government will also update this status on your credit report. 


If you’re currently under a wage garnishment order as a result of your failure to pay your student loan debt in a timely manner, the wage garnishment will continue during the rehab period. This means you’ll be paying double payments on your student loan for the duration of the rehabilitation period. Once rehab ends and your loan updates to “current,” however, the wage garnishment order will be dropped and you’ll once again make one monthly payment on your federal education loan. 


Benefits of Education Loan Rehabilitation

Rehabbing your student loans carries many benefits such as:


  • You’ll be able to qualify for FHA mortgage financing
  • You can apply for a deferment or forbearance 
  • You can apply for additional federal student loans
  • You can avoid eventual property liens
  • You can avoid high third-party collection fees


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