Rehabilitation is a payment process that allows you to establish a regular payment history and move your loan out of default status.


To be eligible for rehabilitation, you must:

  • Sign and return a rehabilitation agreement.

  • Make at least nine satisfactory payments within 20 days of your payment due date.

  • Return supporting documentation of your total financial circumstances as requested.


After you have made the required payments and returned the completed agreement, the MDHEWD will attempt to sell your loan to an eligible lender.


Note: You must continue making satisfactory payments to the MDHEWD or the collection agency until you are notified that your loan(s) has been sold. Your monthly payment may change once your loan has been purchased by the new lender. Effective Aug. 14, 2008, loans in default can only be rehabilitated once.


Successful loan rehabilitation for your defaulted student loan will result in the following:

  • The MDHEWD will remove the default status on your MDHEWD-guaranteed loan.

  • The MDHEWD will advise the national credit bureaus to delete its negative entry from your credit report.

  • Collection costs will be reduced to 16 percent before being capitalized (added to the principle balance) at the time your loan is sold to a new lender.

  • Your eligibility for deferment or forbearance will be renewed.

  • Additional repayment plans will be available once your account is out of default status.

  • Your eligibility for new federal financial aid, such as Pell grants or new federal student loans, will be reinstated.


To reinstate your eligibility for federal student aid, you must:


After you have made six satisfactory payments, you may request a Title IV Reinstatement letter, which is necessary to receive new federal student aid.  Reinstatement requests must be made in writing to the MHDE; however, receipt of a Title IV Reinstatement letter does NOT automatically qualify you for federal student aid. You must file a Free Application for Federal Student Aid and meet any other need or merit requirements.


Note: You must continue to make satisfactory monthly payments within 20 days of your payment due date. If you obtain new Title IV student aid after your eligibility has been reinstated, you will not be eligible for Title IV reinstatement should you default on your loan(s) again.