Federal help consolidating student loans
To rehabilitate a defaulted Direct Loan or FFEL Program loan, you must Under a loan rehabilitation agreement, your loan holder will determine a reasonable monthly payment amount that is equal to 15 percent of your annual discretionary income, divided by 12.
Discretionary income is the amount of your adjusted gross income (from your most recent federal income tax return) that exceeds 150 percent of the poverty guideline amount for your state and family size.
Late payments will remain on your credit report for seven years from when they were first reported.
It’s important that you fully understand loan rehabilitation and loan consolidation before making your decision.
Once you have made the required nine payments, your loans will no longer be in default.
To rehabilitate a defaulted Federal Perkins Loan, you must make a full monthly payment each month, within 20 days of the due date, for nine consecutive months.
To start the loan rehabilitation process, you must contact your loan holder.
*NOTE: We previously indicated that loan consolidation would result in removal of the record of default from a borrower’s credit history.However, your credit history will still show late payments that were reported by your loan holder before the loan went into default.