Federal Student Loan Rehabilitation Agreement: What You Need to Know
Student loans can be a vital source of funds for those pursuing higher studies, but repayment can be a daunting task. If you have defaulted on your federal student loans, a rehabilitation agreement can help you get back on track with your payments. Here`s all you need to know about the Federal Student Loan Rehabilitation Agreement.
What is a Federal Student Loan Rehabilitation Agreement?
If you have missed payments on your federal student loans for more than 270 days, your loans will be considered in default. Once your loans are in default, your wages can be garnished, your tax refunds can be intercepted, and your credit score can be negatively impacted.
A rehabilitation agreement is a program offered by the Department of Education that allows you to make a series of on-time payments to bring your loans out of default. Under this program, your loans will be removed from default status and you will once again become eligible for deferment, forbearance, and other federal student loan benefits.
How Does It Work?
To begin the rehabilitation process, you must contact the holder of your loan or your loan servicer. You will then agree on a monthly payment amount that is affordable for you. This amount is typically 15% of your discretionary income, but it can be as low as $5 per month.
You must make nine consecutive on-time payments within a period of ten months. Once you have made these payments, your loans will be considered rehabilitated, and any wage garnishments or tax intercepts will be stopped. You will also become eligible for deferment, forbearance, and other federal loan benefits.
Benefits of a Rehabilitation Agreement
A rehabilitation agreement has many benefits, including:
1. Improved credit score: Once your loans are out of default, your credit score will improve, making it easier for you to get credit in the future.
2. Reduced payments: The monthly payments you make under a rehabilitation agreement are typically lower than the payments you would make under other repayment plans.
3. No wage garnishments: Once your loans are rehabilitated, wage garnishments will stop.
4. Eligibility for federal loan benefits: Once your loans are rehabilitated, you will once again become eligible for deferment, forbearance, and other federal loan benefits.
A federal student loan rehabilitation agreement can be a lifeline for those struggling to repay their student loans. If you have defaulted on your loans, contact your loan servicer to see if a rehabilitation agreement is right for you. With lower payments, improved credit scores, and eligibility for federal loan benefits, a rehabilitation agreement can be the solution you need to get back on track with your payments, and ultimately, your financial future.