Two federal programs can pull your loans out of default: a Direct Consolidation Loan, which wraps up in roughly 30 to 90 days, or loan rehabilitation, which takes about ten months but deletes the default notation from your credit report. Both restore your eligibility for federal aid, deferment, and income-driven repayment, and both stop the collection pressure that comes with default. The right choice depends on whether you need speed or a cleaner credit file. Here is how to get student loans out of default, and how to pick between the two paths.
Confirm What You Owe and Who Holds It
Log in to StudentAid.gov with your FSA ID before you do anything else. The site shows every federal loan you hold, its current status, the balance (including accrued interest and collection fees), and the loan holder or collection agency assigned to your account. Note whether your loans are Direct Loans, Federal Family Education Loans (FFEL), or Perkins Loans, because the type affects which forms and options apply.
If your account information looks incomplete or you cannot log in, call the Federal Student Aid Information Center at 800-433-3243. Then pull together your most recent IRS Form 1040 and recent pay stubs. You will need income documentation for either path.
Option 1: Direct Loan Consolidation
Consolidation rolls one or more defaulted federal loans into a single new loan with a fresh repayment schedule. It is the fastest way out of default, typically 30 to 90 days from application to completion. You apply online at StudentAid.gov, choose the loans to combine, pick a servicer, and e-sign.
To qualify with defaulted loans, you must do one of two things: agree to repay the new consolidation loan under an income-driven repayment plan, or make three consecutive voluntary on-time payments on the defaulted loan before applying. Agreeing to an IDR plan is quicker because it requires no upfront payments. Income-Based Repayment (IBR) is the most widely available IDR option for consolidation loans. The SAVE plan is not currently accepting new enrollments due to a federal court injunction, and the Department of Education has proposed a settlement that would end the plan entirely.1Federal Student Aid. IDR Plan Court Actions: Impact on Borrowers
How the New Interest Rate Is Set
Your consolidation loan carries a fixed rate equal to the weighted average of the rates on the loans being combined, rounded up to the nearest one-eighth of one percent. Larger balances pull the average toward their rate. Consolidating $10,000 at 6% and $2,000 at 8%, for example, produces a weighted average of roughly 6.4%.2Office of the Law Revision Counsel. 20 U.S. Code 1078-3 – Federal Consolidation Loans
What Consolidation Will Not Do
Consolidation ends the default status but does not remove the default record from your credit report. That notation stays in your credit history even after the new loan is issued.3Federal Student Aid. Getting Out of Default Any unpaid interest and collection fees also capitalize into the new balance, so you will owe more than your original principal going forward. If credit repair matters more than speed, rehabilitation is the better fit.
Option 2: Loan Rehabilitation
Rehabilitation is a one-time chance to have the default removed from your credit report by completing a structured payment plan. You make nine voluntary on-time monthly payments within ten consecutive months, meaning you can miss one month in that window and still finish. Perkins Loan borrowers get no cushion: nine payments in a row, no missed months.4Federal Student Aid. Student Loan Rehabilitation for Borrowers in Default: FAQs
How Your Monthly Payment Is Calculated
Your rehabilitation payment is 15% of your annual discretionary income, divided by 12. Discretionary income is your adjusted gross income minus 150% of the federal poverty guideline for your family size and state.5Federal Student Aid. Discretionary Income For 2026, the poverty guideline for a single person in the 48 contiguous states is $15,960, so 150% of that is $23,940.6U.S. Department of Health and Human Services. 2026 Poverty Guidelines If you earn $35,000, your discretionary income comes out to $11,060 and your monthly payment lands around $138.
If the standard calculation still gives you a payment you cannot manage, ask your loan holder for a financial hardship form. It factors in reasonable living expenses and can bring the payment as low as $5 per month.
Starting the Process
Contact the collection agency or loan holder shown on your StudentAid.gov dashboard and request a written rehabilitation agreement. You will submit income documentation, either your most recent IRS Form 1040 or a tax transcript. If you send a copy of your 1040, it must be hand-signed; typed or electronic signatures are not accepted.4Federal Student Aid. Student Loan Rehabilitation for Borrowers in Default: FAQs Review the calculated payment carefully before signing. The clock starts on your first payment.
Rehabilitation can only be used once per loan. If you default again after rehabilitating, that door is closed and consolidation becomes your only route out. Be sure you can carry the payment schedule through the full ten months before you commit.
How Each Path Affects Your Credit Report
This is usually the deciding factor.
Rehabilitation: after your ninth qualifying payment, the Department of Education tells the credit bureaus to delete the default notation. Late payments reported before the loan went into default remain and age off under normal credit-reporting rules, but the default itself is gone.
Consolidation: the default notation stays. The old loan is marked as paid through the new consolidation loan, but the historical default record is not removed.3Federal Student Aid. Getting Out of Default
Rehabilitation wins on credit. Consolidation wins on speed. If you need aid eligibility restored in weeks so you can re-enroll in school, consolidate. If you want a cleaner file and can absorb ten months of payments, rehabilitate.
Stopping Wage Garnishment and Tax Refund Seizures
Once you are in default, the government can collect without a court order in two main ways: administrative wage garnishment of up to 15% of your disposable earnings per pay period, and Treasury offset, which redirects federal tax refunds and certain federal benefit payments toward the debt.7Federal Student Aid. Student Loan Delinquency and Default8U.S. Department of Labor. Fact Sheet 30: Wage Garnishment Protections of the Consumer Credit Protection Act
Before wage garnishment begins, you must receive a written notice of intent. You have 15 business days from the date the notice is mailed to submit a written request for a hearing. If your request arrives inside that window, no withholding order can issue until the hearing concludes.9eCFR. 31 CFR 285.11 – Administrative Wage Garnishment Miss the deadline and garnishment can start while your hearing is pending, though the agency may allow a delay if you can show the late filing was beyond your control.
Garnishment and offset generally continue until your consolidation loan is finalized or you complete all nine rehabilitation payments. Some collection agencies will voluntarily suspend garnishment once you enter a rehabilitation agreement and start paying. Ask your loan holder directly whether it will pause collection during the rehabilitation period.
Collection Costs Keep Growing
Federal law lets the government add “reasonable collection costs” to a defaulted balance on top of principal and interest.10GovInfo. 20 U.S. Code 1091a – Statute of Limitations, and State Court Judgments In practice, those costs can reach roughly 25% of the outstanding principal and interest. On a $30,000 defaulted balance, that is another $7,500 added to what you owe.
If you consolidate, the collection costs and unpaid interest capitalize into the new loan. If you rehabilitate, collection fees are generally removed once you complete the program. Either way, the longer the loan sits in default, the more the balance grows.
What Changes Once You Are Out
When your consolidation finalizes or your ninth rehabilitation payment posts, your federal aid eligibility comes back, so you can again apply for federal student loans, Pell Grants, and other aid.7Federal Student Aid. Student Loan Delinquency and Default Deferment and forbearance become available again if you hit hardship later. A new servicer takes over and will send you a notice with the first payment date.4Federal Student Aid. Student Loan Rehabilitation for Borrowers in Default: FAQs Credit reporting updates too: the default is deleted after rehabilitation, or the old loan is marked paid through consolidation with the default history still showing.
Watch your mail closely during the handoff. A missed first payment to the new servicer puts you back on the road to delinquency. Set up autopay as soon as your new account information arrives.
Fresh Start Is No Longer an Option
The Department of Education’s temporary Fresh Start program let borrowers with defaulted Direct Loans, FFEL, or ED-held Perkins Loans move out of default and have the default removed from their credit reports without making any payments. It closed to new enrollments on October 2, 2024.11Federal Student Aid. A Fresh Start for Federal Student Loan Borrowers in Default If you missed the deadline, consolidation and rehabilitation are your remaining options. Using Fresh Start did not count as your one-time rehabilitation opportunity, so rehabilitation remains available to borrowers who used it.