Trying to Rehabilitate Your Federal Student Loan? New Changes to Help

J Thomas Black
Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
Posted on Nov 21, 2013

On November 1, 2013, the Department of Education (ED) issued issued final regulations that make big changes to key student loan programs.

One of the most important for many of my clients is that if you are trying to rehabilitate or "rehab" a defaulted student loan. You must make 9 "on time" payments in 10 months to qualify to get a loan out of default. The problem has been that the debt collectors that ED has hired to collect the loans, always seem to want a larger payment for the rehab payments than the borrower can pay.

This is true even though the borrower intends to pay the loan using Income-Based Repayment (IBR) once the loan is out of default, and the rehab payments are supposed to be "reasonable and affordable" in amount.

Under the new regulations, the debt collectors must use the IBR formula to determine  the amount of the "reasonable and affordable" rehab payments. This should make it much easier for borrowers to rehabilitate their defaulted loans.

The new regulations are effective July 1, 2014 and apply to both FFEL (guaranteed) and Direct Loans. I understand that even though the new regs don't go into effect until July, that some collectors are using the IBR formula now to compute the reasonable and affordable amount.

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