Student Loan Default: Rehabilitation or Consolidation?

Pick rehabilitation if you can keep up a monthly payment for the next 10 months: it erases the default from your credit report, adds no collection fees on loans the U.S. Department of Education (ED) holds, and keeps the repayment plans your loans have now. Pick consolidation if you need the faster exit or already used rehabilitation on this loan; the default stays on your credit history and all your Direct Loans move to two plan choices. Start either one today in the Defaulted Loans Support Center on StudentAid.gov, or call ED's Default Resolution Group (DRG) at 1-800-621-3115.

Collections are paused, credit reporting is not

ED paused tax refund offsets and put its wage garnishment restart on hold on January 16, 2026, calling the delay temporary without setting an end date. For now, ED withholds no tax refunds for defaulted federal student loans. DRG still reports each defaulted loan to Equifax, Experian, Innovis and TransUnion every month until the default is resolved, on top of what your old servicer reported, so one loan can show up twice. Finish a route while the pause lasts.

Rehabilitation vs. consolidation side by side

	Rehabilitation	Consolidation
How it works	Nine monthly payments you make yourself, each within 20 days of its due date, during 10 consecutive months, so one month can slip	A new Direct Consolidation Loan pays off the defaulted loans. You qualify by agreeing to repay it under the Repayment Assistance Plan (RAP), or by making three consecutive, voluntary, on-time, full monthly payments first
Your payment meanwhile	Starts at your income-driven payment, never under $5 a month ($10 from July 1, 2027)	Three-payment route: an amount set from your finances. RAP route: nothing until the new loan's first bill
Time to leave default	Nine months at the earliest	Faster: the default ends when the new loan pays off the old ones
Credit report	After your ninth payment, ED asks the credit bureaus to delete the default; late payments your servicer reported before the default stay	The default and the earlier late payments can stay for up to 10 years
Added cost	No collection fees on loans ED holds	Collection costs of up to 18.5% of principal and interest, plus unpaid interest, join the new balance
Garnishment and offset	End when rehabilitation is complete; a wage garnishment order ends after your fifth payment the first time you try	End when the new loan pays off the defaulted loans; an active garnishment order must be lifted before you can consolidate
Plans afterward	Your loans keep their dates. With no Direct Loan made on or after July 1, 2026, Income-Based Repayment (IBR), RAP and the older fixed plans stay open	The new loan is made after July 1, 2026, so all your Direct Loans get two choices: RAP, or Tiered Standard, a fixed payment over 10 to 25 years set by your balance
Federal student aid	Returns after six consecutive on-time payments, a one-time benefit	Returns once the new loan is made

For most people the credit report settles it: only rehabilitation removes the default, so take it if you can pay on schedule. Rehabilitate as well if IBR would bill you less than RAP, because consolidation closes IBR; our RAP and IBR guide compares the two at your income. Consolidate when you need federal grants or loans for a term starting soon, or when you need out of default sooner than rehabilitation allows.

Start rehabilitation today

Sign in at StudentAid.gov, click Get Out of Default on your dashboard, then Apply for Rehabilitation. If My Loan Servicers lists a guaranty agency instead of DRG, use the guaranty-agency route below.
Upload income proof: both pages of your latest signed federal 1040, or an IRS tax transcript, plus your spouse's if you are married, live together and your spouse has taxable income. If your income or household has changed, upload pay stubs that show how often you are paid, an employer letter, or a bank or interest statement dated within the last 90 days, or your latest W-2.
Read the agreement; DRG answers online applications within 10 business days. If the payment is too high, object and mail or fax the Loan Rehabilitation: Income and Expense form with proof of each item to DRG, P.O. Box 5609, Greenville, TX 75403-5609, fax 1-240-931-3323. DRG then sets the payment from your household income and necessary costs: housing, food, utilities, phone, medical care, insurance, transportation, child care, support orders and other student loan payments.
Sign, then pay every month by debit card at StudentAid.gov, by phone with DRG, or by automatic bank debit that DRG sets up. Each month needs its own payment: DRG will not let you lump payments together to finish sooner.
After the ninth payment, watch for the email naming your new servicer, which arrives within 30 days, then apply for RAP or IBR at StudentAid.gov/idr. If a school needs proof, ask DRG for a letter confirming the loan is out of default.

Start consolidation today

Check your loan list. A defaulted Direct Consolidation Loan goes into a new consolidation only together with another eligible loan; on its own, rehabilitate it.
Apply in the Defaulted Loans Support Center and select every defaulted loan you want paid off.
Watch for a paid-in-full notice from each old loan holder and a repayment schedule from your new servicer before the first payment is due.
Turn on autopay with the new servicer by December 31, 2026 to get a 1% interest rate cut through June 30, 2028.

Where it splits

If you rehabilitated this loan before: a second rehabilitation opens on July 1, 2027, when the July 2025 Working Families Tax Cuts Act, first called the One Big Beautiful Bill Act, raises the limit to two per loan.
If you have Parent PLUS loans: rehabilitation returns them to the older fixed plans. A consolidation loan made now that pays off a Parent PLUS loan has one plan, Tiered Standard, and RAP is closed to it, so you qualify only by making the three payments first.
If a guaranty agency holds an older FFEL loan: rehabilitate through that agency on the same payment schedule. The agency can add collection costs of up to 16% of principal and interest when it sells or assigns the rehabilitated loan.

Your leverage when collections restart

Wage garnishment notice: ED mails it at least 30 days before garnishment begins, and garnishment can take up to 15% of disposable pay. Mail the Administrative Wage Garnishment Request for Hearing or Eligibility Determination form, postmarked within 30 days of the notice date, and ED issues no garnishment order until the hearing decision.
Treasury offset notice: the offset is set to start 65 days after the notice date. Sign a repayment agreement and make its first payment within those 65 days to stop it, or request a review in that window to pause it until a decision.
Discharge: total and permanent disability discharge has no deadline and can be requested while you are in default. A borrower defense claim on loans first disbursed on or after July 1, 2020 must be filed within 3 years of leaving the school.
Stuck application or wrong balance: file with the FSA Ombudsman at StudentAid.gov/feedback-center, or with the Consumer Financial Protection Bureau at consumerfinance.gov/complaint or (855) 411-2372.

Bring in a student loan lawyer or legal aid office if ED has won a court judgment on the loan, because a judgment rules out both rehabilitation and consolidation.

What to say when you call DRG

Call 1-800-621-3115 (TTY 1-877-825-9923), Monday through Friday 8 a.m. to 10 p.m. ET or Saturday 8 a.m. to 6 p.m. ET, and choose For Your Repayment Options.

"I want to get my defaulted federal student loans out of default through [rehabilitation / consolidation]. Please tell me which of my loans you hold, whether any has a judgment or a wage garnishment order, and whether I have rehabilitated any of them before. I am sending my income documents today; please send me the agreement with my monthly payment."

Today

Sign in to StudentAid.gov and open the Defaulted Loans Support Center.
Apply for rehabilitation or consolidation with your tax return or pay stubs at hand.
Put your first payment date on your calendar.

What comes back next: your rehabilitation agreement with the monthly amount, or your new servicer's schedule for the consolidation loan.