Consolidation is also an option for getting a federal student loan out of default. It is faster in that you generally are only required to make a few on time payments, but it does not have all the benefits rehabilitation has. While consolidation will remove the loan from default, making it again eligible for lower payments and other benefits, it will not remove the default line from your credit report. The credit report will show that the loan is again in good standing, but unlike with loan rehabilitation, it will still show the loan was in default at one point.
Consolidation may also lower the collection costs, but to 18.5% rather than the 16% offered under loan rehabilitation.
It should also be noted that not all loans are eligible for loan consolidation to get out of default. Some loan holders will refuse to release a loan for consolidation if the loan has a wage garnishment order in place. In that situation, rehabilitation is your only option for resolving the default other than to pay the loan in full. If you have already used your one time loan rehabilitation option, I’m afraid you will remain in default, under wage garnishment, until the loan is paid in full or you successfully appeal the wage garnishment order.