DCS notified they are collecting.Now what?

That's what was agreed to according to the promissory note (payment in full upon default). They always ask for PIF. You may be able to rehab the loan but this entails making higher payments for an extended period of time. Is this a federal loan? SoapLady will be along shortly and will likely have more questions for you and can give you expert advice.

Has to be a private loan if there is a cosignor. Thus no rehab.

Unfortunately with private loans in default, the balance is due in full on demand. There is no provision to "get back on track"...once defaulted, it stays in default until the last penny is paid. They may eventually accept payments but they wont be affordable or easy....and even making payments, they will sue.

Best choice is to borrow funds and get this paid off/settled ASAP. Major damage has been done to both your wifes and daughters credit. A judgment will only make it worse.