Loan rehabilitation program policy
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, ACS, 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 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 ACS 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 ACS, our Federal Perkins
loan servicing agency, to delete the
credit history of the borrower as of the month renegotiation is
completed.
Procedures:
- The school will notify
defaulted borrowers that the rehabilitation option is available.
- The borrower must request the rehabilitation.
- The school 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 will track all payments to verify that they are
made on time. If the borrower fails to make an on time payment, the
school will notify him/her 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 is returned to regular
billing.
- ACS will
be notified to delete the previous negative credit history within 30
days of the date the last validating payment is received.