What does it mean to “rehabilitate” a defaulted student loan?

Rehabilitating a defaulted student loan means making a series of on-time payments to bring the loan back into good standing. This process typically requires the borrower to make nine consecutive, on-time monthly payments within a specified timeframe, usually over ten months. Once these payments are made, the loan is considered rehabilitated, removing the default status and allowing the borrower to regain access to federal student aid and improve their credit score. This is crucial for borrowers looking to relieve financial strain and restore their ability to borrow in the future.

The other options describe different financial actions but do not pertain to the rehabilitation process. Filing for bankruptcy may eliminate the loan but does not reinstate good standing. Refinancing alters the terms of the loan but does not address a defaulted status. Transferring the loan to another lender does not rehabilitate it either. Thus, the correct understanding of rehabilitation is centered on a structured repayment plan that reinstates the borrower’s account.