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1.11.4 Getting Out of Default Through Repayment

The following are primary strategies to get out of default through repayment:

  • Loan Consolidation. Particularly for low-income clients, a Direct Loan consolidation with an income-based repayment plan is an excellent strategy to get out of default and pay only minimal, or even zero, dollars each month.346
  • Loan Rehabilitation. After making nine on-time payments during a period of ten consecutive months, a borrower can get out of default by rehabilitating a loan.347 The pros and cons of consolidation and rehabilitation are discussed in Chapter 7, infra.
  • Settlement or compromise may also be an option, as discussed in Chapter 7, infra.

Additionally, borrowers can renew eligibility for federal student aid by setting up reasonable and affordable payment plans. Six consecutive on-time monthly payments will renew eligibility but will not get the borrower out of default.348

Once out of default, clients are not only eligible to return to school but are also eligible for the flexible repayment options discussed in Chapter 3, infra, and deferment programs discussed in Chapter 4, infra.