20 U.S.C. § 1078–6 — Default reduction program

(a) Other repayment incentives.
(1)(A) After a borrower makes 9 payments within 20 days of their due dates during 10 straight months on a loan for which the Secretary^* paid a guaranty, the guaranty agency must, if practical, sell the loan to an eligible lender. Starting July 1, 2014, if it cannot sell the loan, it must assign it to the Secretary.
(B) The agency or Secretary may not require monthly payments higher than what is reasonable and affordable based on the borrower’s complete financial situation. For a borrower with one or more qualifying loans made under part D on or after July 1, 2027, the total monthly payment for all those loans may not be less than $10.
(C) When the loan is sold or assigned, the Secretary, agency, or other holder must ask each consumer reporting agency^* that received the default report to remove the default from the borrower’s credit history.
(D) For a loan sold under (A)(i), the agency must, for a sale on or after July 1, 2014, repay the Secretary 100 percent of the outstanding principal multiplied by the reinsurance percentage in effect when the guaranty payment was made. To cover collection costs, the agency may charge the borrower up to 16 percent of the outstanding principal and interest at the sale and keep that amount from the sale proceeds. The Secretary must restore its obligation to reimburse the agency for amounts it may later spend on its insurance obligation and to pay the loan holder the special allowance under section 1087–1.
(E) For a loan assigned under (A)(ii), the agency must add to the outstanding principal and interest an amount equal to the charge allowed by (D)(i)(II)(aa). The Secretary must pay that added amount to the agency for deposit in its Operating Fund under section 1072b.
(F) The loan may not be sold to an eligible lender that the agency or Secretary has found substantially failed to use the required lender due diligence.
(G) A loan that does not meet (A) may still be sold or assigned if it was in default because of a clerical or data-processing error and, without that error, would not have been delinquent.
(2) Amounts the Secretary receives from a sale under (1)(A)(i) must be deducted when calculating the agency’s reimbursement eligibility under (1)(D)(ii)(I) for the fiscal year when the money was received, even if the default happened earlier.
(3) A borrower whose loan is sold or assigned under (1)(A) is not barred by section 1091 from receiving otherwise available additional loans or grants because of the earlier default.
(4) As long as the borrower keeps making scheduled payments, a loan sold or assigned under (1) keeps the same terms, conditions, benefits, and privileges as other loans under this part.
(5) A borrower may use this subsection to rehabilitate a particular loan only once.
(b) Satisfactory repayment arrangements to renew eligibility. Each guaranty agency must have a program allowing a borrower with a defaulted loan or loans to regain eligibility for all subchapter IV student aid after 6 straight monthly payments, whether or not the loan was sold or assigned. The monthly payment may not be higher than what is reasonable and affordable based on the borrower’s complete financial situation. A borrower may use this renewed-eligibility benefit only once.
(c) Financial and economic literacy. Each program under (b) must make financial and economic education materials available to a borrower who rehabilitated a loan.