The worst has happened; you defaulted on your PLUS loan and it is now in the hands of the state guaranty agency (or may still be held by your lender). It’s not a great situation but the loan can still be saved by a process called loan rehabilitation.
The first step is to contact the agency holding your loan and advise that you would like to resume payment and rehabilitate your loan. Lenders are often very willing to accept a different schedule of payments that you are better able to meet.
If you make arrangements to repay your debt that are acceptable to you and the lender and you make six consecutive on-time payments, you may regain eligibility for federal financial aid (lost when you defaulted). Remember that the payments must be voluntary — income tax offset, wage garnishment, or income or asset execution, don’t count.
Once you have made six consecutive payments, the holder of your loan will inform you of the possibility of loan rehabilitation; this program brings your loan out of default. The loan holder must provide you with a written statement identifying a reasonable and affordable payment amount and give you an opportunity to object to the terms. If you move forward on the agreed upon terms and make six more consecutive on-time monthly payments, the loan holder will either keep the loan or in the case of the guaranty agency, sell the loan to an eligible FFEL lender.
It’s very important that you continue to make payments while the holder of your defaulted loan processes the rehabilitation. Because of loan processing procedures, you may have to submit more than 12 payments before the loan is rehabilitated.
Once a loan is rehabilitated, you regain eligibility for any remaining deferment benefits. Plus, the loan holder must notify at least one credit bureau of the loan’s rehabilitated status within 90 days.
Loan rehabilitation provides an excellent second chance; be sure you follow the rules precisely in order to remove yourself from default and clean up your credit record.
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Plus Loan Rehabilitation
