Examining the Mismanagement of the Student Loan Rehabilitation Process

Prior to 2010, the federal government authorized two loan programs through the Higher Education Act to help students and their families pay for college. As part of the health care overhaul in 2010, the Democrat-led Congress eliminated the Federal Family Education Loan Program, which offered student loans through private lenders, and shifted to 100 percent direct lending. The federal government now originates and oversees every single federal student loan issued. Is the federal government equipped to handle the enormous task it has taken on? In particular, a significant number of borrowers have raised concerns about the department’s inability to manage the critical loan rehabilitation process. In short, loan rehabilitation provides borrowers a one-time opportunity to get out of default. Once a borrower makes nine on-time monthly payments over a 10-month period, the loan returns to good standing, the default is removed from the borrower’s credit report, and eligibility for repayment options or additional financial aid are restored. Ensuring the rehabilitation process is working in a timely and effective manner is critical to the well-being of the nation’s borrowers. Defaulting on student loans has serious consequences for a borrower’s credit rating, making it more difficult to obtain affordable credit, secure a job, or take out a mortgage.