Posted on Jul 22, 2014

Are you in default on your federal student loans? Are debt collectors calling you demanding money you don't have? Well, the good news is that with these loans there are a couple ways to get out of default: loan rehabilitation and loan consolidation.

Loan rehabilitation involves making timely, affordable payments for nine (9) months. Once this is done (and the loan is resold to a private lender if it is part of the FFEL program), then you are out of default and can get into a new, more affordable payment plan going forward.

So How Did This Get Easier?

Well, negotiating the monthly payment used to involve full financial disclosure by the borrower and the filling out of a lengthy form to provide the necessary information for the debt collector to determine the payment.

Now, thanks to changes that took effect on July 1, 2014, you just submit a tax return (or other proof of annual income like a W-2) and information on family size to determine your payment under the Income Based Repayment (IBR) guidelines.

This caps your monthly payment at 15% of your disposable income, and can be as little as $5 (or even $0) per month! If this payment is still too high, you can always submit the financial disclosure form to try and get a lower one.

Have a Wage Garnishment?

Has the Department of Education garnished your wages? Then more good news! It used to be that the garnishment would not go away during rehab; you would have to make your rehab payment in addition to the money garnished from your wages. Now, after 5 payments, you can apply to have the garnishment suspended.

So What Do I Do?

Rehab is a great way to get out of default, but there is more than one way to do it, and each person's circumstances are different. If you live in southern New Jersey and are looking to get your federal student loans out of default, then please feel free to call my office at 856-432-4113 or contact me through this site to schedule an appointment in my Woodbury office to discuss your case.

If you are looking for more information about student loans, you can also dowload my free book, I Graduated; Now What? A Guide to Dealing with Your Student Loans.

Related Topics

Steven J. Richardson
Connect with me
Bankruptcy, Collections, Student Loan, DUI and Traffic Court attorney in Woodbury, NJ.