I think when rebels rebel they should become a new faction. Like with a civil war it should be now two factions instead of the loyal being the real faction and the rest rebels. They should work as a nation instead of individual nations that share a border.

Plus a few more ideas about rebels.
1. Do they invade to take over more provinces? I forgot but if not they should.
2. Your nation should be able to faction re-emerge later if you lose. Maybe fast forward the map so many years and start off with no money but that would be cool to start with nothing but a buttload of troops.
3. A little advanced but if your country has a high happiness and the neighboring faction is dreadful and miserable, you should once in a while be able to invade and have the troops and population welcome and join you instead of fighting against you. That has actually happened in real life and that would be an all new way of playing the game if you could do it here.