July 1, 2000, the Loan Rehabilitation provision of the Higher Education Act, printed in the Federal Register of October 28, 1999, Section 674.39, took effect.
All institutions must establish a loan rehabilitation program for all Federal Perkins Loan fund borrowers. Loan Rehabilitation is a one-time benefit, which is extended to defaulted borrowers.
The intention of the program is to provide defaulted borrowers with a way to bring their accounts current and expunge negative credit reporting. Before this provision was enacted, a credit history could not be deleted even if the account was paid in full for a full seven years after the last payment made.
When the program was introduced, our billing service, A.C.S., did a mass mailing to all defaulted borrowers advising them that this benefit was available and to contact the college for further information and direction. At least the sixty-day final demand notice contains language regarding this benefit and instructions to contact the school.
To be eligible for rehabilitation with this institution, all interest and fees must be made current before the new repayment schedule is issued. The institution may at its discretion delete or modify late fees on a case-by-case basis if deletion of these fees is merited by the financial circumstances of the borrower. Deletion of late fees will be based on a history of unemployment or other such circumstances as would qualify the borrower for a forbearance or other type of hardship deferment on the account.
If an account is in a collection agency, only 24 percent of all collection fees can be included in the amount to be rehabilitated. Until July 1, 2002 the balance of amounts owed for litigation and collection fees may be charged to the institution's fund. Charging these costs to the fund depletes monies available for loans and this will be avoided whenever possible.
It is our institutional policy that after a loan is successfully rehabilitated it will revert to the school and be closed out of the agency in order to return to regular billing. Our agencies will be notified of this policy and reminded of the 24 percent cap.
Borrowers with judgments on their accounts are also eligible for rehabilitation. However, the payment plan established under the terms of the judgment will not satisfy the requirements for loan rehabilitation. The borrower must make payments over and above the terms of the judgment.
Payments in every case must be a minimum of $40.00 per month and large enough to pay off the account under a ten-year repayment plan. All those requesting loan rehabilitation will be asked to supply financial information, which will be used to determine a monthly payment amount on the loan.
If the loan balance is under $500.00 payments will be adjusted to retire the entire outstanding principal balance within the twelve-month repayment contract.
If a borrower, whose account is defaulted or past due, has been making regular payments in at least the minimum amount, (after July 1, 2000) the school may include those payments retroactively as part of the twelve month rehabilitation schedule. Each payment must have been consecutive (on time and monthly) to qualify.
Consecutive means one payment for each twelve months. (A borrower may not make two payments per month for six months to qualify for example) On time, means received by the school or by our billing service by the fifth day of each month. If a borrower misses a payment, he or she must start all over. A borrower may rehabilitate a loan only one time.
It is recommended if a borrower who has defaulted is identified and contacted, the offer of loan rehabilitation be made. Rehabilitation will benefit the institution and the borrower: it takes the borrower out of our default rate and it permits them a fresh start and a repair of an important facet of their consumer credit. Additionally, the borrower becomes eligible for all benefits covered in the original promissory note.
Except in the case of accounts that are in judgment, no new promissory note will be issued. A signed statement (rehabilitation affirmation form) attesting that the borrower understands what he/she is signing and the terms of the offer will be issued. This form contains language that says the statement supports the terms of the underlying note. The form and the new repayment schedule will be attached to the original promissory note.
Upon receipt of the signed documents, the institution will notify A.C.S. of the intended rehabilitation. The institution will verify that payments are made on time. At the end of the twelve-payment period, the institution will notify A.C.S., our Federal Perkins Loan servicing agency, to delete the credit history of the borrower as of the month renegotiation is completed.
- The school, loan servicer, or collection agency will notify defaulted borrowers that the Rehabilitation option is available or the borrower may request the Rehabilitation.
- The school, loan servicer, or collection agency will request financial information from the borrower in order to determine a fair and equitable payment amount in keeping with the terms of the Rehabilitation Policy.
- The borrower may be put on a temporary payment plan or forbearance in order to bring all interest and late fees completely current before a Rehabilitation plan is put in place.
- The borrower will receive an information packet in order to begin rehabilitation. The packet will consist of at least the following:
- An informational letter stating the amount that will be rehabilitated, the address to which all payments must be sent and the person to contact with any questions.
- A repayment schedule and a copy of the original Promissory Note
- A Rehabilitation Affirmation form
- The school, loan servicer, or collection agency will track all payments to verify that they are made on time. If the borrower fails to make an on time payment, the borrower will be notified that the Rehabilitation agreement is void and if they wish to continue they must request a new rehab agreement and schedule.
- Upon successful completion of twelve on-time monthly payments, the borrower will be notified that he/she has returned to regular billing.
- A.C.S. will be notified to delete the previous negative credit history within 30 days of the date the last validating payment is received.