Sec. 243. Default reduction program

1,152 words·~5 min read·/bill/119/hr/4862/ih/section-243·

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Section 428F of the Higher Education Act of 1965 ( 20 U.S.C. 1078–6(a) ) is amended by adding at the end the following: Notwithstanding subsection (a), beginning on July 1, 2026, with respect to a defaulted loan made, insured, or guaranteed under this part or part D, the following shall apply: Such a defaulted loan (other than a loan described in subparagraph (B)) shall be rehabilitated if the borrower makes 9 voluntary, reasonable and affordable monthly payments within 20 days of the due date during 10 consecutive months.

The Secretary determines the amount of a borrower’s reasonable and affordable payment on the basis of a borrower’s total financial circumstances. A defaulted loan may not be eligible for rehabilitation under this subsection if— a judgment has been obtained on such loan; or such loan has been 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 financial assistance under this title. A borrower may obtain the benefits available under this subsection with respect to rehabilitating a loan not more than two times per loan.

During the rehabilitation period described in this paragraph, the Secretary shall limit contact with the borrower on the loan being rehabilitated to collection activities that are required by law or regulation and to communications that support the rehabilitation. Subject to subparagraphs

(A)through (H), the Secretary shall consider the borrower’s reasonable and affordable payment amount to be an amount equal to the minimum payment required under the Income-Driven Repayment Plan, except that if such amount is less than $5, the borrower’s monthly payment shall be $5. The Secretary may calculate the payment amount based on information provided orally by the borrower or the borrower’s representative and provide the borrower with a rehabilitation agreement using that amount. The Secretary requires the borrower to provide documentation to confirm the borrower’s adjusted gross income and family size. If the borrower does not provide the Secretary with any documentation requested by the Secretary to calculate or confirm the reasonable and affordable payment amount within a reasonable time deadline set by the Secretary, the rehabilitation agreement provided is null and void. A borrower may request that the monthly payment amount be adjusted due to a change in the borrower’s total financial circumstances only upon providing the documentation specified in paragraph (3). For purposes of subparagraph (A), a reasonable and affordable payment amount shall not— be a required minimum loan payment amount if the Secretary determines that a smaller amount is reasonable and affordable; a percentage of the borrower’s total loan balance; or based on other criteria unrelated to the borrower’s total financial circumstances. Not later than 15 business days of the Secretary’s determination of the borrower’s loan rehabilitation payment amount, the Secretary shall provide the borrower with a written rehabilitation agreement which shall include— the borrower’s reasonable and affordable payment amount, a prominent statement that the borrower may object orally or in writing to the reasonable and affordable payment amount with the method and timeframe for raising such an objection; a statement that the rehabilitation is null and void if the borrower does not provide the documentation required to calculate the reasonable and affordable payment amount; an explanation of any other terms and conditions applicable to the required series of payments that must be made; and information on the effects of having the loans rehabilitated. To accept the agreement, the borrower shall sign and return the agreement or accept the agreement electronically under a process provided by the Secretary. The Secretary may not impose any other conditions unrelated to the amount or timing of the rehabilitation payments in the rehabilitation agreement. The Secretary shall provide the borrower with a written statement that— confirms the borrower’s reasonable and affordable payment amount, as determined by the Secretary; explains any other terms and conditions applicable to the required series of payments that shall be made before the borrower’s account can be rehabilitated; informs the borrower that the borrower may object to the terms and conditions of the rehabilitation agreement; and explains the method and timeframe for objecting to the terms and conditions of the rehabilitation agreement. If the borrower objects to the monthly payment amount described in the statement under subparagraph (E), the Secretary shall recalculate the payment based solely on information provided on a form approved by the Secretary and, if requested, supporting documentation from the borrower and other sources, and shall consider each of the following: The borrower’s, and if applicable, the spouse’s current disposable income, including public assistance payments, and other income received by the borrower and the spouse, such as welfare benefits, Social Security benefits, Supplemental Security Income, and workers’ compensation. Spousal income is not considered if the spouse does not contribute to the borrower’s household income. Family size. Reasonable and necessary expenses, which shall include— Food. Housing. Utilities. Basic communication expenses. Necessary medical and dental costs. Necessary insurance costs. Transportation costs. Dependent care and other work-related expenses. Legally required child and spousal support. Other student loan payments for loans made, insured, or guaranteed under this title, or any other Federal law. Other expenses approved by the Secretary. The Secretary shall provide the borrower with a new written rehabilitation agreement confirming the borrower’s recalculated reasonable and affordable payment amount. To accept the agreement, the borrower must sign and return the agreement or accept the agreement electronically under a process provided by the Secretary. A borrower may request that the monthly payment amount be adjusted due to a change in the borrower’s total financial circumstances only upon providing the documentation specified in subparagraph (F). If a borrower’s loan is being collected by administrative wage garnishment while the borrower is also making monthly payments on the same loan under a loan rehabilitation agreement, the Secretary shall continue collecting the loan by administrative wage garnishment until the borrower makes five qualifying monthly payments under the rehabilitation agreement, unless the Secretary is otherwise precluded from doing so. After the borrower makes the fifth qualifying monthly payment, the Secretary, unless otherwise directed by the borrower, suspends the garnishment order issued to the borrower’s employer. A borrower may only obtain the benefit of a suspension of administrative wage garnishment while also attempting to rehabilitate a defaulted loan once. If a defaulted loan is rehabilitated, the Secretary shall instruct any consumer reporting agency to which the default was reported to remove the default, and any adverse item of information relating to such loan, from the borrower’s credit history. Beginning on July 1, 2026, the Secretary shall not consider a borrower in default on a loan if— the borrower provides information necessary to calculate a payment under an income-contingent or income-based repayment plan under this part or; the payment calculated pursuant to such a repayment plan is $0; and the income information used to calculate such payment covers the date on which the loan defaulted. .

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20 USC 1078–6(a)

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Sec. 243

Default reduction program

Cite20 USC 1078–6(a)

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