Section 464(h) of the Higher Education Act of 1965, as amended by P.L. 105-244 (Higher Education Amendments of 1998), provides new authority for the rehabilitation of defaulted Perkins loans. The Department of Education published final regulations (34 CFR 674.39) implementing this new authority for the Perkins Loan program of October 28, 1999. These regulations become effective on July 1, 2000.

The following is a summary new regulation for rehabilitation of Perkins loans.

  1. Each institution participating in the Perkins Loan program is required to establish a loan rehabilitation program for borrowers with defaulted Perkins Loans
  2. Institutions must notify borrowers with defaulted Perkins Loans of the option to rehabilitate by July 1, 2000
  3. Borrower must request rehabilitation
  4. Borrower must make twelve consecutive, voluntary monthly payments
  5. Borrower may only receive rehabilitation once per loan, unsuccessful rehabilitation attempts do not occur
  6. Once rehabilitated, a borrower:
    1. is returned to regular payment status
    2. receives a new repayment period that may extend up to nine years (ten years including the rehabilitation payments)
    3. has the credit bureau history on the defaulted loan removed
    4. will no longer be considered ineligible for Federal student financial assistance
    5. is subject to the remaining benefits and privileges of the original promissory not
    6. receive flexible repayment options

ESCI will perform the necessary tasks require by federal regulations, for rehabilitation. We will notify all delinquent borrowers before July 1, 2000. Our process will be as follows: ECSI will assign a collection code that signifies rehabilitation. We will track the account for twelve consecutive, monthly payments. After the 12th payment, ECSI will remove ALL credit bureau history for his rehabilitated loan and initialize a new reporting period the next month. The account will be returned to “regular” repayment status.