[Code of Federal Regulations]
[Title 34, Volume 3]
[Revised as of July 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 34CFR674.39]

[Page 593-594]
 
                           TITLE 34--EDUCATION
 
 CHAPTER VI--OFFICE OF POSTSECONDARY EDUCATION, DEPARTMENT OF EDUCATION
 
PART 674_FEDERAL PERKINS LOAN PROGRAM--Table of Contents
 
                        Subpart B_Terms of Loans
 
Sec. 674.39  Loan rehabilitation.

    (a) Each institution must establish a loan rehabilitation program 
for all borrowers for the purpose of rehabilitating defaulted loans made 
under this part, except for loans for which a judgment has been secured 
or loans obtained by fraud for which the borrower has been convicted of, 
or has pled nolo contendere or guilty to, a crime involving fraud in 
obtaining title IV, HEA program assistance. The institution's loan 
rehabilitation program must provide that--
    (1) A defaulted borrower is notified of the option and consequences 
of rehabilitating a loan; and
    (2) A loan is rehabilitated if the borrower makes an on-time, 
monthly payment, as determined by the institution, each month for twelve 
consecutive months and the borrower requests rehabilitation.
    (b) Within 30 days of receiving the borrower's last on-time, 
consecutive, monthly payment, the institution must--
    (1) Return the borrower to regular repayment status;
    (2) Treat the first payment made under the 12 consecutive payments 
as the first payment under the 10-year repayment maximum; and
    (3) Instruct any credit bureau to which the default was reported to 
remove the default from the borrower's credit history.
    (c) Collection costs on a rehabilitated loan--
    (1) If charged to the borrower, may not exceed 24 percent of the 
unpaid principal and accrued interest as of the date following 
application of the twelfth payment;
    (2) That exceed the amounts specified in paragraph (c)(1) of this 
section, may be charged to an institution's Fund until July 1, 2002 in 
accordance with Sec. 674.47(e)(5); and
    (3) Are not restricted to 24 percent in the event the borrower 
defaults on the rehabilitated loan.
    (d) After rehabilitating a defaulted loan and returning to regular 
repayment status, the borrower regains the balance of the benefits and 
privileges of the promissory note as applied prior to the borrower's 
default on the loan. Nothing in this paragraph prohibits an

[[Page 594]]

institution from offering the borrower flexible repayment options 
following the borrower's return to regular repayment status on a 
rehabilitated loan.
    (e) The borrower may rehabilitate a defaulted loan only one time.

(Approved by the Office of Management and Budget under control number 
1845-0023)

[64 FR 58311, Oct. 28, 1999, as amended at 65 FR 65614, Nov. 1, 2000; 67 
FR 67077, Nov. 1, 2002; 71 FR 45698, Aug. 9, 2006]