Section 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- (i) Requests rehabilitation; and(ii) Makes a full monthly payment-as determined by the institution-within 20 days of the due date, each month for 9 consecutive months.(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 nine 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 § 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 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.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; 74 FR 55661 , Oct. 28, 2009; 78 FR 65805 , Nov. 1, 2013 Approved by the Office of Management and Budget under control number 1845-0023