The Higher Education Act provides ways for a former student holding federal loans to get out of default. Under these programs, you can "rehabilitate" your loan by making 12 consecutive monthly payments. If you're in default on a bank or Department of Education issued loan (such as a Stafford Loan) the payments must be "reasonable and affordable." If you're in default on a school issued loan (such as a Perkins Loan), there is no "reasonable and affordable" provision, but similar standards are likely to be used for both.

The holder of your loan negotiates your monthly payment amount with you, considering:

• your disposable income -- the amount that remains after mandatory deductions, such as Social Security, taxes, union dues and child support withholdings, and

• your necessary expenses -- including housing, utilities, food, medical costs, dependent-care costs, work-related expenses and other student loan repayments.

If your expenses exceed your income, the agency can set a low monthly repayment amount, such as $5. For bank and Department of Education issued loans, if the agency agrees to an amount of less than $50 per month, however, it must place documentation in your Department of Education file showing why you are entitled to make low payments. Because low payment plans require this extra paperwork, many agencies resist setting payments under $50. But the law is clear that you are obligated to pay only what is reasonable and affordable -- and not a penny more. If the person with whom you speak refuses to grant you a low amount, ask to speak with the collections supervisor.

Before you request a repayment plan from the holder of your loan, gather bills, receipts, court orders and all other papers showing your necessary monthly expenses, as well as pay stubs or receipts of public assistance. The agency may send you a form to complete on which you list your income and expenses. If you completed a budgeting form, you can use the figures on it to complete this form. Attach a letter or statement pleading your case for an amount no more than you can truly afford. If you're more comfortable and feel you would be more persuasive talking rather than writing, call the agency representative and discuss the matter over the phone. You may still be required to complete a financial form in addition, however.

The agency will take anywhere from a few weeks to a few months to review your request. Once the agency decides on an amount you must repay each month, it will send you a notice of what it is. If it would be too much of a financial strain to make the payment every month, contact the agency at once. Do not enter into a repayment plan on which you are apt to default. The repayment program is a once-in-a-lifetime opportunity. If you don't live up to your promised payments, the government will not grant you another chance to get out of default this way.

Once you agree on a repayment amount, the agency will send you a confirming letter. The letter will spell out the terms and conditions of the repayment program, which are quite extensive.

If you make six consecutive monthly payments on time -- that is, within 15 days of the monthly due date -- you will become eligible to apply for new federal student loans or grants if you want to return to school. While you are applying for your new financial aid and even once school begins, you must continue to make the payments under your repayment plan. You must make at least 12 consecutive payments for your loans to come out of default. Once that happens, you can apply for an in-school deferment.

Even if you do not intend to return to school, the same rules apply. That is, once you make 12 consecutive monthly payments, your loan will no longer be in default. If you are eligible, you can then apply for a deferment -- that is, arrange to postpone your payments. Continue to make your monthly payments until your deferment is granted.

If you are not eligible for deferment, once you make 12 payments, the guarantee agency or Department of Education can sell your loan back to a company on the secondary market. This is called loan rehabilitation. Once your loan is rehabilitated, you will be put on a standard ten year repayment plan. If you've been paying very small amounts for 12 or more months, the new monthly payments probably will increase dramatically. If you can't afford them, you will need to request one of several flexible repayment options available.