**APPENDIX B**

**DEBT COLLECTION SERVICE**

The U.S. Department of Education (ED), Office of Postsecondary
Education, Student Financial Assistance Programs, Debt Collection
Services performs collection and administrative resolution activities on
debts resulting from non-payment of student loans made under the Federal
Family Education Loan (FFEL) Program: Stafford Loans \[formerly the
Guaranteed Student Loan Program and including Federally Insured Student
Loans\], Supplemental Loans for Students, PLUS Loans \[formerly Parental
Loans for Undergraduate Students\], and Consolidation Loans; the William
D. Ford Federal Direct Student Loan (Direct Loan) Program (formerly
known as the Federal Direct Student Loan Program): Federal Direct
Stafford/Ford Loan Program, Federal Direct Unsubsidized Stafford/Ford
Loan Program, Federal Direct Consolidation Loan, and Federal Direct Plus
Loans; and Federal Perkins Loans \[formerly National Direct/Defense
Student Loans\]. ED conducts similar collection and administrative
resolution activities on debts resulting from a student\'s failure to
fulfill grant requirements under the Pell Grant Program and the
Supplemental Educational Opportunity Grant Program.

**Background - The Programs**

The ED-Debt Collection System is designed to track collection activity
on various types of educational debts owed to ED. A brief description
for each of the loan and grant programs are listed below.

A. Federal Family Education Loan Programs

1\) Stafford Loan Program

The Stafford Loans \[formerly the Guaranteed Student Loan {GSL}
Program\] is authorized by Title IV, Part B of the Higher Education Act
of 1965, as amended (the HEA) (20 U.S.C. 1071 et seq.). These loans are
made by participating lending institutions using non-Federal funds. The
loans are either guaranteed by state or private non-profit guarantee
agencies and reinsured by the Federal Government, or are insured
directly by the Federal Government. The guarantee agencies, lenders or
subsequent note holders shall adhere to the due diligence requirements
in making, disbursing, servicing and collecting loans as outlined in the
applicable regulations, 34 CFR 682.206-208; 34 CFR 682.411; and 34 CFR
682.507.

2\) Supplemental Loans for Students

The Supplemental Loans for Students (SLS) is authorized by section 428A
of the HEA (20 U.S.C. 1087-1). Under the SLS Program, loans are made by
banks and other financial institutions to independent undergraduate,
graduate, and professional students with similar due diligence
requirements for all note holders.

3\) Consolidation Loan Program

The Consolidation Loan Program (CLP) is authorized by section 439(o) of
the HEA (20 U.S.C. 1087-2(o)). Under the consolidation loan program, the
Student Loan Marketing Association (SLMA), guarantee agencies, and
certain eligible lenders make loans to consolidate all of a borrower\'s
education financed student loans, except for PLUS loans. Once these
loans are granted, applicable due diligence is required of all note
holders.

4\) Parental Loans for Undergraduate Students

The PLUS Loans \[formerly Parental Loans for Undergraduate Students\] is
authorized by section 428B of HEA (20 U.S.C. 1078-2). Under the PLUS
program, loans are made by banks and other financial institutions to
parents of dependent students. Certain regulatory due diligence shall be
followed by all note holders.

B. William D. Ford Federal Direct Loan Program

Under the William D. Ford Federal Direct Loan (Direct Loan) Program, the
Secretary makes loans to enable a student or parent to pay the costs of
the student\'s attendance at a postsecondary school.

1\) Federal Direct Stafford/Ford Loan Program

The Federal Direct Stafford/Ford Loan Program is authorized by Title IV,
Part D of the HEA (20 U.S.C. 1087a et seq.). Loans made under this
program are referred to as Direct Subsidized Loans. This program
provides loans to undergraduate, graduate, and professional students
attending Direct Loan Program schools. The Secretary subsidizes the
interest while the borrower is in an in-school, grace, or deferment
period.

2\) Federal Direct Unsubsidized Stafford/Ford Loan Program

The Federal Direct Unsubsidized Stafford/Ford Loan Program is authorized
by Title IV, Part D of the HEA (20 U.S.C. 1087a et seq.). Loans made
under this program are referred to as Direct Unsubsidized Loans. This
program provides loans to undergraduate, graduate, and professional
students attending Direct Loan Program Schools. The borrower is
responsible for the interest that accrues during any period.

3\) Federal Direct PLUS Program

The Federal Direct PLUS Program is authorized by Title IV, Part D of the
HEA (20 U.S.C. 1087a et seq.). This program provides loans to parents of
dependent students attending schools that participate in the Direct Loan
Program. The borrower is responsible for the interest that accrues
during any period.

4\) Federal Direct Consolidation Loan Program

The Federal Direct Consolidation Loan Program is authorized by Title IV,
Part D of the HEA (20 U.S.C. 1087a et seq.). This program provides loans
to borrowers who consolidate certain Federal education loans, and one of
the components of the Direct Loan Program. There are three types of
Direct Consolidation Loans:

\(a\) Direct Subsidized Consolidation Loans: Subsidized Title IV
education loans may be consolidated. Interest is not charged to the
borrower during in-school and deferment periods.

\(b\) Direct Unsubsidized Consolidation Loans: Certain Federal education
loans may be consolidated into a Direct Unsubsidized Consolidation Loan.
The borrower is responsible for the interest that accrues during any
period.

\(c\) Direct Plus Consolidation Loans: Parent Loans for Undergraduate
Students, Federal PLUS, and Direct PLUS may be consolidated into a
Direct PLUS Consolidation Loan. The borrower is responsible for the
interest that accrues during any period.

C. Perkins Loan Program

The Perkins Loan Program \[formerly the National Defense/Direct Student
Loans {NDSL} Program\] is authorized by Title IV, Part E of the HEA (20
U.S.C. section 1087aa et seq.). Under this program, ED assists in the
establishment and maintenance of revolving loan funds at institutions of
higher education to provide low-interest, long-term loans to help
financially needy students pay their educational costs. Students shall
apply directly to their schools to participate in the Perkins Loan
program.

Perkins regulations, 34 CFR Part 674 Subpart C, require schools to
exercise due diligence in the collection of Perkins accounts. However,
in 1979, because of rising institutional Perkins default rate, ED
implemented provisions of the HEA, whereby schools could submit
defaulted loans to ED for additional collection activity (20 U.S.C.
Section 1087cc (a)).

D. Pell Grant Program

The Pell Grant Program is authorized by section 411 of the HEA (20
U.S.C. section 1070a et seg.). An individual student\'s award is based
upon his/her enrollment status, the cost of attendance at the
institution, and his/her Student Aid Index. Using this information and
the Pell Grant Payment Schedule for the appropriate year, the financial
aid officer at the institution calculates the student award.

When a student receives a grant greater that he/she is entitled to
receive, he/she is considered to have received an overpayment.
Overpayments may occur through incorrect calculation of an award,
through incorrect information reported by a student on his/her financial
aid application, a student dropping/withdrawing from class or a
student\'s failure to make satisfactory academic progress. If the
overpayment is not caused by an institutional error, the recipient is
liable. In these cases, an institution shall submit the account to ED
for collections as outlined in the Pell Grant regulations, 34 CFR
690.79, whenever the institution encounters serious difficulty in
collecting the overpayment.

E. Supplemental Educational Opportunity Grant Program

The Supplemental Educational Opportunity Grant (SEOG) program is
authorized under section 413A et seq. of the HEA (20 U.S.C. section
1070b et seq.). The program was initially authorized and incorporated
into the Higher Education Act by the Education Amendments of 1972
(Public Law 92-318). It superseded the Educational Opportunity Grants
Program that was established in 1965 by the Higher Education Act. These
grants are provided to undergraduate students with exceptional financial
need, with priority given to Pell Grant recipients. As with the Pell
Grant Program, whenever an institution encounters serious difficulty in
collecting the overpayment, the institution shall submit the account to
ED for collection.

Laws and Regulations Governing Collection Activity

The principal statutes and regulations governing ED\'s collection
activity are listed below. The contractor is required to comply with all
applicable Federal and State laws relating to debt collection and the
Privacy Act. Failure to comply will result in immediate punitive measure
and/or termination of the contract agreement.

\-- Title IV, Part B of the HEA (20 U.S.C. 1071 et seq.) and the
implementing regulations (34 CFR Part 682 \-- formerly 45 CFR Part 177);
Title IV, Part E of the HEA (20 U.S.C. 1087aa et seq.) and implementing
regulations (34 CFR Part 674 \-- formerly 45 CFR Part 174): and other
provisions of Title IV of the Higher Education Act, as amended,
including 20 U.S.C. 1091a and 1095a.

\-- The Federal Claims Collection Standards (4 CFR Parts 101-105).

\-- The Bankruptcy Code, as amended (11 U.S.C. 101 et seq.), especially
523(a)(8)(B).

\-- The Privacy Act of 1974 (5 U.S.C. 522a).

\-- ED Debt Collection Regulations (34 CFR Part 30).

**[ADDITIONAL DCS VOLUMES]{.underline}**

**DCS NON-CONTROLLED CORRESPONDENCE**

**ESTIMATED ANNUAL VOLUME**

Responses with standard form letter requiring 15,000

research via ED-DMCS

Response with standard paragraphs and/or 34,500

individual composition, requiring research

via ED-DMCS

Credit bureau inquiries requiring research 26,000

via ED-DMCS

Mortgage inquiries requiring research via 7,500

ED-DMCS

Financial status statements requiring 19,000

research via ED-DMCS

**DCS CONTROLLED CORRESPONDENCE**

**ESTIMATED ANNUAL VOLUME**

Responses with standard paragraphs

requiring research via ED-DMCS 800

Responses with standard paragraphs and/or 1,400

individual composition requiring research

via ED-DMCS and/or account file

Responses with standard paragraphs and/or 600

individual composition requiring research via

ED-DMCS and/or account fle, and/or extensive

research

**ESTIMATED ANNUAL VOLUME OF BANKRUPTCY**

**DOCUMENTATION**

Bankruptcy Document -

Not on ED-DMCS 15,000

Bankruptcy Document -

Account on ED-DMCS 35,000

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