Fill Out Loan Rehabilitation Income and Expense Form Online

How loan rehabilitation works

Rehabilitation is one of the main routes out of default on a federal student loan. To rehabilitate, you agree to a reasonable and affordable monthly payment and then make nine on-time payments within a window of ten consecutive months. On-time means within 20 days of the due date.

The loan holder first proposes a payment based on the 15 percent formula, which looks at the amount by which your adjusted gross income exceeds 150 percent of the poverty guideline for your family size and state, divided over twelve months. If that number does not fit your budget, you can object, and the loan holder sends you this form to calculate an alternative amount based solely on the income, expenses, and family size you report. The alternative can come out lower or higher than the formula amount, and you choose which of the two to accept.

What to report as income and expenses

Section 2 lists the monthly figures the loan holder will use. Report what you actually receive and spend each month, and be ready to supply documentation such as pay stubs or benefit statements if the loan holder asks.

• Income items include your employment income, your spouse's employment income if your spouse contributes to the household, child support received, Social Security benefits, worker's compensation, public assistance, and any other income with a description.
• If your total monthly income is zero, Item 9 asks you to explain your means of support.
• Expense items cover food, housing, utilities, basic communication, necessary medical and dental costs, necessary insurance, transportation, child and dependent care, legally required child or spousal support, federal student loan payments other than the loans being rehabilitated, private student loan payments, and other necessary expenses with an explanation.
• Do not list the same expense in more than one category, and enter zero for categories that do not apply.
• Section 3 records your family size, which includes you, your spouse, children who receive more than half their support from you, and others who live with you and rely on you for more than half of their support.
• Section 4 is your certification. Sign and date it, and have your spouse sign too if you are rehabilitating a joint Direct or Federal Consolidation Loan.

What happens after you submit

Your loan holder calculates the alternative payment from the information you provided and any documentation it requests. You then choose between the 15 percent formula amount and the alternative amount. If you accept neither, the rehabilitation request goes no further and the defaulted loans remain due under their existing terms.

Once you accept an amount, the loan holder sends a written rehabilitation agreement to sign and return, and your nine-payment schedule begins. If you miss the documentation deadline your loan holder sets, the request will not be considered, so respond promptly to any follow-up.

What rehabilitation does for you

Completing rehabilitation restores the benefits of the Direct Loan or FFEL Program, including access to deferment, forbearance, income-driven repayment plans, and new federal student aid. The loan holder also instructs credit bureaus to remove the default from your credit history, although the late payments that preceded it remain.

Two cautions from the form are worth noting. A loan can only be rehabilitated once, so a second default on the same loan closes this door. And after rehabilitation the loan transfers to a new servicer and lands on the standard repayment plan unless you pick another, so many borrowers apply for an income-driven plan at that point to keep payments close to what they paid during rehabilitation.