| Adjusted Gross Income ($) From your most recent tax return Use Line 11 of IRS Form 1040 — not gross wages | |
| Household size Include yourself, spouse if filing jointly, and dependents you support | |
| Filing status | |
| State Alaska and Hawaii use different poverty guidelines |
| Current garnishment per check ($) From your pay stub or garnishment notice | |
| Pay frequency |
Loan Info (Optional) Used to estimate your remaining balance after the 9 rehabilitation payments
| Total loan balance ($) | |
| Interest rate (%)Estimate if unsure — use current rate |
This is an estimate. Your servicer will require income documentation — tax return or pay stubs — before setting your final payment amount. Payments at or below $0 may be set at a minimum of $5 by some servicers. Results are for educational reference only. financial-lit.com is not affiliated with the government or any loan servicer. We never collect or sell any information you enter.
Defaulted borrowers often face both wage garnishment and tax refund offsets at the same time. Learn what to do if your refund was intercepted.
Loan rehabilitation is a program that allows borrowers with defaulted federal student loans to restore their loans to good standing by making nine voluntary, on-time monthly payments over a 10-month period. The payment amount is negotiated with your loan servicer and is based on your income — not your loan balance.
Rehabilitation is the only option that removes the default notation from your credit report. Once completed, the default record is deleted entirely — not just marked as resolved. Wage garnishment and tax refund offsets also stop once rehabilitation is complete.
Rehabilitation can only be done once per loan. If you default again after completing rehabilitation, Direct Consolidation is your only path out. This is why enrolling in income-driven repayment immediately after rehabilitation is strongly recommended.
Rehabilitation payments are calculated using the Income-Based Repayment (IBR) formula:
Monthly payment = (AGI − 150% of Federal Poverty Guideline) × 15% ÷ 12
If the result is $0 or negative, some servicers set the payment at $5. Payments are never higher than what would be required under a standard 10-year repayment plan.
2026 Federal Poverty Guidelines (used in calculator)
| Household Size | Lower 48 + DC | Alaska | Hawaii |
|---|---|---|---|
| 1 | $15,650 | $19,550 | $18,000 |
| 2 | $21,150 | $26,430 | $24,330 |
| 3 | $26,650 | $33,310 | $30,660 |
| 4 | $32,150 | $40,190 | $36,990 |
| 5 | $37,650 | $47,070 | $43,320 |
| 6 | $43,150 | $53,950 | $49,650 |
| +1 each | +$5,500 | +$6,880 | +$6,330 |
150% of the poverty guideline is the threshold used to calculate discretionary income. Only income above this amount counts toward your payment calculation.
AGI vs. gross wages: The calculator uses Adjusted Gross Income (Line 11 on IRS Form 1040) — not your gross wages. AGI is typically lower than gross wages because it accounts for certain deductions like IRA contributions and student loan interest. Using gross wages would overestimate your payment.
Contact the Default Resolution Group — the federal office that manages defaulted student loans. They will walk you through the process, verify your income, and set your payment amount.
- Online: myeddebt.ed.gov
- Phone: 1-800-621-3115
You will need to provide income documentation — your most recent federal tax return or recent pay stubs. Once your payment is agreed upon you have 10 months to make 9 on-time payments. Missing a payment restarts the clock.
Garnishment stops after payment 5. You do not need to complete all 9 payments before garnishment is suspended — it stops once you have made five consecutive on-time rehabilitation payments.
Compare both options side by side — timeline, credit impact, garnishment, and forgiveness eligibility.
Use our free Wage Garnishment Calculator to estimate your total paycheck exposure.
About financial-lit.com
financial-lit.com is an independent educational resource. We are not affiliated with the federal government, the Department of Education, or any loan servicer. Every number you enter stays on your device. We never collect, store, or sell any personal information. These tools are for educational reference only — not a substitute for professional advice.
Sources: studentaid.gov — Federal Student Aid default resolution · aspe.hhs.gov — HHS Federal Poverty Guidelines · studentloanborrowerassistance.org