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Student Loan Law Series: Limits on Rehabilitation

As discussed in last week's blog, rehabilitation is a cure to defaulted student loans. However, rehabilitation has some limits attached to it. These limits hinder debtors from using rehabilitation as a solution for default, and therefore they must seek other ways to address the problem.

One of the limits with rehabilitation is that under the 2008 Higher Education Act, along with FFEL and Direct loans a borrower is only allowed to rehabilitate once for each loan. The limit takes place if the loan returns to defaulted status after it was rehabilitated.

Another limit is that loans that are subjected to judgment may not be eligible for rehabilitation. However, for someone in this situation they can renew their ability to rehabilitate a loan under certain circumstances.

Payments made due to the rehabilitation agreement must be voluntarily made by the borrower. Payments that qualify as "voluntary" are those made by the borrower themselves, and do not include involuntary payments such as: garnishment, income or asset execution, or after a judgment has been made on a loan. Involuntary payments will not be counted toward the nine consecutive payments a borrower is required to make in order to qualify for rehabilitation.

In the past few years some of the members of the National Council of Higher Education Loan Programs have agreed to dismiss garnishments for borrowers who show wiliness and consistency in making voluntary reasonable and affordable payments. Other members agreed to put voluntary payments toward the garnishment amount so that monthly payments for borrowers don't change. With these agreements of the council borrowers will be on track to cure default through rehabilitation even if they still have to pay some garnishment.

Borrowers should be aware that rehabilitation is a cure to default, even if there are limits to the loans and those who can be eligible for rehabilitation. One should take all things into account and make sure rehabilitation is the right option for them, all limits assessed.

Works Cited

Loonin, Deanne, and Geoff Walsh. Student Loan Law. Boston, MA: National Consumer Law

Center, 2010. Print.

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