Repayment after the 2025 law · guide
Getting out of default: rehabilitation, consolidation and RAP
A defaulted Direct Loan is rehabilitated when the borrower makes 9 voluntary, reasonable and affordable monthly payments, each within 20 days of its due date, during 10 consecutive months. The amount starts from what the borrower would owe on an eligible income-driven plan, with a floor of $5 today and $10 for agreements from July 1, 2027; a household of two with $24,000 of income would start near $10. Until now, rehabilitation could be used only once per loan. Public Law 119-21 allows it twice, for any federal loan, from July 1, 2027, and the Department's regulations of May 1, 2026 apply the same limit to the suspension of wage garnishment during a rehabilitation. Once a loan is rehabilitated, the default is removed from the borrower's credit history. Two other routes remain: consolidation into a new Direct Consolidation Loan, and income-driven repayment of the defaulted loan itself, since IBR and the Repayment Assistance Plan both accept defaulted Direct Loans. Involuntary collections were delayed in January 2026 while the new plans were set up.
Your likely rehabilitation payment
Lowest IDR-based payment
$10
| RAP | $10 |
| IBR at 15% | $0 |
| Floor before July 1, 2027 / from then | $5 / $10 |
The Department starts from an eligible IDR payment and can adjust it to your finances.
A defaulted federal loan has three ways back. The 2025 law reopened one of them for borrowers who already used it once.
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The three routes compared
| Route | How it works | Effect on the default | Plan afterwards |
|---|---|---|---|
| Rehabilitation | 9 affordable payments within 20 days of the due date, over 10 months | Default removed from the credit history | Any plan the loans qualify for |
| Consolidation | New Direct Consolidation Loan repays the defaulted loans | Default ends; record of it remains | RAP or Tiered Standard for a new consolidation |
| Income-driven repayment of the defaulted loan | Payments under IBR or RAP while in default | Can lead to removal from default when the payment is $0 and covers the default date | Same plan |
How the rehabilitation payment is set
The regulation tells the Department to start from the payment you would owe under any eligible income-driven plan, and to treat it as reasonable and affordable unless your total financial circumstances justify another figure (34 CFR 685.211(f)). A borrower with one child and $24,000 of income would owe $10 on RAP and $0 on IBR at 15%. The rehabilitation payment would start near the lower of those, subject to the floor: $5 before July 1, 2027 and $10 after. The amount cannot be a fixed minimum such as $50 when a smaller one is affordable, nor a percentage of the balance. You sign a written agreement, and you can ask for an adjustment if your circumstances change, with documentation.
What happens during the ten months
The Department limits contact on the loan to collection activity required by law and to communications that support the rehabilitation. If your wages are being garnished, garnishment continues until you make five qualifying payments under the agreement, then the order is lifted unless you ask otherwise. Before July 1, 2027 a borrower can benefit from that suspension only once; from that date, twice per loan, matching the new rehabilitation limit. Payments made under a satisfactory repayment arrangement count toward the nine. A loan on which a court judgment has been obtained cannot be rehabilitated, and neither can a loan obtained by fraud for which the borrower was convicted.
Why the second chance matters
Some defaulted borrowers had already rehabilitated a loan once, sometimes years ago, then fell behind again. Under the old rule, that second default left consolidation or full repayment as the only exits, and consolidation does not remove the record of default. The 2025 law changes the limit in section 428F of the Higher Education Act from one time to two times, effective July 1, 2027, for any loan made, insured or guaranteed under title IV (Public Law 119-21, section 82003). The Department's January 2026 decision to delay involuntary collections was explained in part by giving defaulted borrowers time to use this second rehabilitation (Department of Education, January 16, 2026).
Using an income-driven plan from default
IBR and RAP both accept defaulted Direct Loans. Payments made in default under IBR, and certain amounts collected by garnishment or offset, can count toward IBR forgiveness within limits. There is also a direct exit: the Department stops considering a borrower in default when the borrower provides the information needed to calculate an income-driven payment, the calculated payment is $0, and the income used covers the point at which the loan defaulted. Because RAP never goes below $10, that exit works through IBR. Borrowers whose income was very low when they defaulted should ask about it.
Parent PLUS loans in default
Parents face fewer options. A defaulted parent PLUS loan can be rehabilitated like any Direct Loan, with a reasonable and affordable payment that the Department determines from the parent's total financial circumstances. But after rehabilitation the loan returns to the plans open to parent PLUS: standard plans, and for consolidations the ICR route until June 30, 2028 described on the parent PLUS repayment page. RAP is never available for it. A parent who consolidates out of default after July 1, 2026 creates a new loan that can only be repaid on the Tiered Standard plan, since a consolidation that repaid a parent PLUS loan is excluded from RAP. Parents near retirement should look closely at that fixed payment, and at its term, before choosing consolidation over rehabilitation.
A step-by-step path for a borrower in default today
First, log in to StudentAid.gov and identify which loans are in default and who holds them; defaulted federal loans are managed separately from loans in good standing. Second, decide between rehabilitation and consolidation. Rehabilitation takes about ten months and removes the default from your credit history; consolidation is faster and puts you on RAP or Tiered Standard right away. Third, if you choose rehabilitation, provide income information so that the payment is set from an income-driven formula rather than a figure you cannot afford, and ask whether a single application can enroll you in an income-driven plan at the end. Fourth, make every payment within 20 days of its due date; nine out of ten consecutive months are needed. Fifth, once the loan is back in repayment, choose a plan and set up auto pay. If you rehabilitated once before, check whether the second rehabilitation, available from July 1, 2027, fits your timing: an agreement started after that date benefits from it.
Throughout, keep copies of the agreement and of each payment confirmation. If a garnishment continues past the fifth qualifying payment, the regulation's rule on rescinding the order is the document to cite in your request to the Department.
After you are out of default
Choose a plan deliberately rather than accepting a default placement. A rehabilitated loan returns to the plan menu that applies to your loans: RAP, IBR and the old fixed plans if all your Direct Loans predate July 1, 2026, or RAP and Tiered Standard otherwise. Enroll in auto pay to protect on-time payments; the Department's reduced-rate offer is available to formerly defaulted borrowers once their loans are back in good standing. The plan comparator shows the payment on each plan, and the auto pay page explains the offer and its deadline.