Former Students With Defaulted Federal Loans Are Missing Out on a Key Cares Act Benefit

The US Department of Education (ED) in implementing the President’s executive order of August 21, 2020, has clarified the rehabilitation benefits for former student borrowers who have defaulted on a federal student loan.  Essentially, ED has extended the CARES Act benefits through December 31st.

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Student Loan Rehabilitation is by far the most popular program allowing borrowers with eligible defaulted loans to complete the required documents, make nine payments in ten months and their loans move back to a current status once all these requirements are complete.  However, now borrowers do not have to make payments until January 2021 and still receive credit as if they made a payment each month through December 2020.  For example, a borrower completing the required documentation would receive credit for making their first payment in September of 2020 can rehabilitate in May 2021.  They would receive payment credit for four months (September – December) and then make payments from January through May. Borrowers starting in September would only have to make five payments having received the CARES Act payment benefit for four months.   

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