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**THIS DATA CURRENT AS OF THE FEDERAL REGISTER DATED NOVEMBER 3, 2003**

**34 CFR - CHAPTER VI - PART 682\
**

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**§  682.415**  **Special insurance and reinsurance rules.**

(a)(1) A lender or lender servicer (as an agent for an eligible lender)
designated for exceptional performance under paragraph (b) of this
section shall receive 100 percent reimbursement on all claims submitted
for insurance during the 12-month period following the date the lender
or lender servicer and appropriate guaranty agencies receive
notification of the designation of the eligible lender or lender
servicer under paragraph (b) of this section. A guaranty agency or a
guaranty agency servicer (as an agent for a guaranty agency) designated
for exceptional performance under paragraph (c) of this section shall
receive the applicable reinsurance rate under section 428(c)(1) of the
Act on all claims submitted for payments by the guaranty agency or
guaranty agency servicer during the 12-month period following the date
the guaranty agency receives notification of its designation, or its
servicer\'s designation, under paragraph (c) of this section. A notice
of designation for exceptional performance under this section is deemed
to have been received by the lender, servicer, or guaranty agency no
later than 3 days after the date the notice is mailed, unless the
lender, servicer, or guaranty agency is able to prove otherwise.

\(2\) To receive a designation for exceptional performance under
paragraph (a)(1) of this section, a lender, servicer, and guaranty
agency must submit to the Secretary \--

\(i\) A written request for designation for exceptional performance that
includes \--

\(A\) The applicant\'s name and address;

\(B\) A contact person;

\(C\) Its ED identification number, if applicable;

\(D\) The name and address of applicable guarantors; and

\(E\) A copy of an annual financial audit performed in accordance with
the Audit Guide developed by the U.S. Department of Education, Office of
Inspector General, or one of the following as appropriate:

(*1*) A lender may submit a copy of an annual audit required under
§  682.305(c), if the audit period ends no more than 90 days prior to
the date the lender submits its request for designation.

(*2*) A servicer may submit a copy of the annual financial audit, as
defined, completed and submitted under 34 CFR 682.416(e), if the audit
period ends no more than 90 days prior to the date the servicer submits
its request for designation.

(*3*) A guaranty agency may submit a copy of the annual audit required
under section 428(b)(2)(D) of the Higher Education Act of 1965, as
amended, if the audit period ends no more than 90 days prior to the date
the guaranty agency submits its request for designation;

\(ii\) If the applicant is a servicer, a statement signed by the owner
or chief executive officer of the applicant certifying that the
applicant meets the definition of a servicer contained in paragraph
(d)(3) of this section; and

(iii)(A) A compliance audit of its loan portfolio, conducted by a
qualified independent organization meeting the criteria in paragraph
(b)(9) of this section, that yields a compliance performance rating of
97 percent or higher of all due diligence requirements applicable to
each loan, on average, with respect to the collection of delinquent or
defaulted loans and satisfying the requirements in paragraph (b)(1)(iv)
of this section or, if applicable, paragraph (c)(2)(i) of this section.
The audit period may end no more than 90 days prior to the date the
lender, servicer or guaranty agency submits its request for designation.

\(B\) To satisfy the requirement of paragraph (a)(2)(iii)(A) of this
section, a servicer may submit its annual compliance audit under 34 CFR
682.416(e), if the servicer includes in its report a measure of its
compliance performance rating required under paragraph (a)(2)(iii)(A) of
this section, if this audit is performed in accordance with an audit
guide developed by the U.S. Department of Education, Office of Inspector
General.

\(3\) The cost of audits for determining eligibility and continued
compliance under this section is the responsibility of the lender,
servicer, or guaranty agency.

\(4\) A lender or servicer shall also submit the information in
paragraph (a)(2) (i), (ii), or (iii) of this section to each appropriate
guaranty agency.

\(5\) A lender may be designated for exceptional performance for loans
that it services itself. A lender servicer may be designated for
exceptional performance only for all loans it services.

(6)(i) To prevent a lapse of a lender\'s, servicer\'s, or guaranty
agency\'s exceptional performance status after the end of the 12-month
period, the lender, servicer, or guaranty agency shall submit updated
information required under paragraph (a)(2) of this section to the
Secretary no later than 90 days after the end of the annual audit
period.

\(ii\) Upon the Secretary\'s determination that the lender, servicer, or
guaranty agency maintained at least a 97 percent compliance performance
rate and satisfies the other requirements for designation, the Secretary
notifies the lender, servicer, or guaranty agency that its redesignation
for exceptional performance begins on the date following the last day of
the previous 12-month period for which it received designation for
exceptional performance. However, a lender\'s, servicer\'s, or guaranty
agency\'s designation for exceptional performance continues until it
receives notification from the Secretary that its request for
redesignation is approved, or that its designation is revoked, under the
provisions of paragraph (b)(8)(iii) of this section.

\(iii\) The Secretary notifies the lender or lender servicer and the
appropriate guaranty agency within 60 days after the date the Secretary
receives the information, listed in paragraph (a)(2) of this section,
from the eligible lender or lender servicer, that the lender\'s or
lender servicer\'s reapplication for designation for exceptional
performance has been approved or denied. A notice under paragraph
(a)(6)(ii) of this section is determined to have been received by the
lender, servicer, or guaranty agency no later than 3 days after the
notice is mailed, unless the lender, servicer, or guaranty agency is
able to prove otherwise.

\(b\) *Determination of eligibility.* (1) The Secretary determines
whether to designate a lender or lender servicer for exceptional
performance based upon \--

\(i\) The annual compliance audit of collection activities required for
FFEL Program loans under §  682.411(c) through (h), and (m), if
applicable, serviced during the audit period;

\(ii\) Information from any guaranty agency regarding an eligible lender
or lender servicer desiring designation, including, but not limited to,
any information suggesting that the lender\'s or lender servicer\'s
request for designation should not be approved;

\(iii\) Any other information in the possession of the Secretary, or
submitted to the Secretary by any other agency or office of the Federal
Government; and

\(iv\) Evidence indicating that the lender or lender servicer has
complied with the requirements for converting FFEL Program loans to
repayment under §  682.209(a), and the timely filing requirements under
§§  682.402(g)(2) and 682.406(a)(5), in accordance with the audit guide
as published by the U.S. Department of Education, Office of Inspector
General. The audit submitted under paragraph (b)(1)(i) of this section
may satisfy this requirement, if a separate sample of loans is used.

\(2\) The Secretary informs the eligible lender or lender servicer, and
the appropriate guaranty agency, that the lender\'s or lender
servicer\'s request for designation as an exceptional lender or lender
servicer has been approved, unless the results of the audit are
persuasively rebutted by information under paragraphs (b) (1)(ii) or
(iii) of this section. If the request for designation is not approved,
the Secretary informs the lender or lender servicer and the appropriate
guaranty agency or agencies of the reason the application is not
approved.

\(3\) In calculating a lender\'s or lender servicer\'s compliance
rating, as referenced in paragraph (a)(2)(iii) of this section, the
universe for the audit must include all loans in the lender\'s or lender
servicer\'s FFEL Program portfolio that are serviced during the audit
period performed under the Department\'s regulations in §§  682.411,
682.209(a), 682.402(g)(2), and 682.406(a)(5). The calculation may
consider only due diligence activities applicable to the audit period.
The numerator must include the total number of collection activities
successfully completed, in accordance with program regulations, that are
serviced during the audit period. The denominator must include the total
number of collection activities required to be performed, in compliance
with program regulations, that are serviced during the audit period.
Using statistical sampling and evaluation techniques identified in an
audit guide prepared by the Department\'s Office of Inspector General, a
random sample of loans must be selected and evaluated.

\(4\) The Secretary notifies the lender or lender servicer and the
appropriate guaranty agency within 60 days after the date the Secretary
receives the information, listed in paragraph (a)(2) of this section,
from the eligible lender or lender servicer, that the lender\'s or
lender servicer\'s application for designation for exceptional
performance has been approved or denied.

(5)(i) Except as provided under paragraph (b)(8) of this section, a
guaranty agency may not refuse, solely on the basis of a violation of
repayment conversion, due diligence requirements, or timely filing
requirements, to pay an eligible lender or lender servicer, designated
for exceptional performance, 100 percent of the unpaid principal and
interest of all loans for which eligible claims are submitted for
insurance payment by that eligible lender or lender servicer. The
designation of a lender or lender servicer for exceptional performance
applies to loans that have been serviced by the lender or lender
servicer for the last 180 days prior to a borrower\'s default or earlier
in the case of death, disability, bankruptcy, or closed school and false
certification discharges.

\(ii\) A guaranty agency or the Secretary may require the lender or
lender servicer to repurchase a loan if the agency determines the loan
should not have been submitted as a claim. A guaranty agency may not
require repurchase of a loan based solely on the lender\'s violation of
the requirement relating to repayment conversion, due diligence, or
timely filing. The guaranty agency must pay claims to a lender or lender
servicer designated for exceptional performance in accordance with this
paragraph for the one-year period following the date the guaranty agency
receives notification of the lender\'s or lender servicer\'s designation
under paragraph (b)(2) of this section, unless the Secretary notifies
the guaranty agency that the lender\'s or lender servicer\'s designation
for exceptional performance has been revoked.

(6)(i) To maintain its designation for exceptional performance, the
lender or lender servicer must have a quarterly compliance audit of the
due diligence in collection activities required for FFEL Program loans
under §  682.411(c)-(h), and (m), if applicable, and for converting FFEL
Program loans to repayment under §  682.209(a) and timely filing
requirements under §§  682.402(g)(2) and 682.406(a)(5) conducted by a
qualified independent organization meeting the criteria in paragraph
(b)(9) of this section that results in a compliance rating for the
quarter of not less than 97 percent. The audit must indicate a
compliance performance rating of not less than 97 percent for two
consecutive months or 90 percent for any month. The quarterly audit may
not include any period covered by the annual financial and compliance
audit under paragraph (a)(2) of this section. The results of the
quarterly compliance audit must be submitted to the Secretary and to the
appropriate guaranty agencies within 90 days following the end of each
quarter.

\(ii\) If a lender or lender servicer has been designated for
exceptional performance for at least 15 months, a lender or lender
servicer may petition the Secretary for permission to have its internal
auditors perform the subsequent quarterly compliance audits required by
paragraph (b)(6)(i) of this section. If the Secretary approves the
request, the lender\'s or lender servicer\'s annual audit must assess
the reliability of the procedures used by the lender\'s or lender
servicer\'s internal auditor in performing the quarterly audits.

\(iii\) The lender or lender servicer shall perform three quarterly
audits and one annual audit that includes a representative sample of
fourth quarter collection activities to satisfy the requirements of this
paragraph.

(7)(i) Insurance payments made on eligible claims submitted by a lender
or lender servicer designated for exceptional performance are not
subject to additional review of repayment conversion, due diligence, and
timely filing requirements, or to required repurchase by the lender or
lender servicer, unless the Secretary determines that the eligible
lender or lender servicer engaged in fraud or other purposeful
misconduct in obtaining designation for exceptional performance.
Notwithstanding the payment requirements in this paragraph, nothing
prohibits the guaranty agency or the Secretary from reviewing the
lender\'s or lender servicer\'s activities in regard to the loans paid
under this paragraph as part of program oversight responsibilities, or
for requiring the lender to repurchase a loan if the agency determines
the loan should not have been submitted as a claim. The lender shall
file, and the guaranty agency shall maintain, the documentation the
guaranty agency normally requires its lenders to file with respect to
the collection history of each loan.

\(ii\) A lender or lender servicer designated under this section that
fails to service loans or otherwise comply with applicable program
regulations is considered in violation of 31 U.S.C. 3729.

(8)(i) The Secretary revokes the designation of a lender or lender
servicer for exceptional performance if \--

\(A\) The quarterly compliance audit required under paragraph (b)(6) of
this section is submitted to the Secretary and indicates that the lender
or lender servicer failed to maintain not less than 97 percent
compliance with due diligence standards for the quarter, or not less
than 97 percent compliance for 2 consecutive months, or 90 percent for
any month; or

\(B\) Any quarterly audit required in paragraph (b)(6) of this section
is not received by the Secretary within 90 days following the end of
each quarter.

\(ii\) The Secretary may revoke the designation of an exceptional lender
or lender servicer if \--

\(A\) The Secretary determines the eligible lender or lender servicer
failed to maintain an overall level of regulatory compliance consistent
with the audit submitted by the lender or lender servicer;

\(B\) The Secretary has reason to believe the lender or lender servicer
may have engaged in fraud in securing its designation for exceptional
performance; or

\(C\) The lender or lender servicer fails to service loans in accordance
with program regulations. For purposes of this paragraph, a lender or
lender servicer fails to service loans in accordance with program
regulations if the Secretary determines that the lender or lender
servicer has committed serious and material violations of the
regulations.

\(iii\) The date on which the event or condition occurred is the
effective date of the revocation, except for revocation under paragraph
(a)(6) of this section, which is effective at the close of the 12-month
period for which the lender or lender servicer received designation for
exceptional performance.

\(9\) Public accountants, public accounting firms, and external
government audit organizations that meet the qualification and
independence standards contained in Government Auditing Standards
published by the Comptroller General of the United States are acceptable
entities to perform the audits required under paragraphs (a)(2)(iii)(A)
and (b)(6) of this section.

(c)(1)(i) Except as provided under paragraph (c)(8) of this section, the
Secretary pays the applicable reinsurance rate under section
428(b)(1)(G) of the Act on all claims submitted by a guaranty agency or
guaranty agency servicer that has been designated for exceptional
performance.

\(ii\) A guaranty agency may be designated for exceptional performance
for loans that it services itself.

\(iii\) A guaranty agency servicer may be designated for exceptional
performance for loans it services.

\(iv\) A guaranty agency or guaranty agency servicer is designated for
exceptional performance for a 12-month period following the receipt, by
the guaranty agency or guaranty agency servicer, of the Secretary\'s
notification of designation.

\(v\) A notice under this paragraph is determined to have been received
no later than 3 days after the date the notice is mailed, unless the
guaranty agency or guaranty agency servicer is able to prove otherwise.

\(2\) The Secretary determines whether to designate a guaranty agency or
guaranty agency servicer for exceptional performance based upon \--

\(i\) The annual financial audit and a compliance audit of collection
activities, including timely claim payment and timely reinsurance filing
required for FFEL Program loans under §§  682.410(b)(6)(i) through
(xii), and 682.406 (a)(8) and (a)(9); and

\(ii\) Any other information in the possession of the Secretary.

\(3\) The Secretary informs the guaranty agency or guaranty agency
servicer that its request for designation for exceptional performance
has been approved, unless the results of the audit are persuasively
rebutted by other information received by the Secretary. If the
Secretary does not approve the guaranty agency\'s or guaranty agency
servicer\'s request for designation, the Secretary informs the guaranty
agency or guaranty agency servicer of the reason the application was not
approved.

\(4\) In calculating a guaranty agency\'s or guaranty agency servicer\'s
compliance rating, as referenced in paragraph (a)(2)(iii) of this
section, the Secretary requires that the universe of loans in the audit
sample must consist of all loans in the guaranty agency\'s or guaranty
agency servicer\'s FFEL Program portfolio that are serviced during the
audit period performed under the Department\'s regulations in
§§  682.410(b)(6)(i) through (xii) and 682.406 (a)(8) and (a)(9). The
calculation may consider only the due diligence activities that were or
should have been conducted during the audit period. The numerator must
include the total number of collection activities successfully completed
in accordance with program regulations on loans that were serviced
during the audit period. The denominator must include the total number
of collection activities required to be performed in compliance with
program regulations on loans that were serviced during the audit period.
Using statistical sampling and evaluation techniques identified in an
audit guide prepared by the Department\'s Office of Inspector General, a
random sample of loans must be selected and evaluated.

\(5\) The Secretary notifies a guaranty agency or guaranty agency
servicer, within 60 days after the date the Secretary receives the
information listed in paragraph (a)(2) of this section whether the
guaranty agency\'s or guaranty agency servicer\'s application for
designation for exceptional performance has been approved or denied.

(6)(i) To maintain its status as an exceptional guaranty agency or
guaranty agency servicer, the guaranty agency or guaranty agency
servicer must have a quarterly compliance audit of the due diligence in
collection activities of defaulted FFEL Program loans under
§§  682.410(b)(6)(i) through (xii) and 682.406(a)(8) and (a)(9)
conducted by a qualified independent organization meeting the criteria
in paragraph (c)(9) of this section. The audit must yield a compliance
performance rating of not less than 97 percent. The quarterly audit may
not include any period covered by the annual financial and compliance
audit required under paragraph (a)(2) of this section. The results of
the quarterly compliance audit must be submitted to the Secretary within
90 days following the end of each quarter.

\(ii\) If the guaranty agency or guaranty agency servicer has been
designated for exceptional performance for at least 15 months, the
guaranty agency or a guaranty agency servicer may petition the Secretary
for permission to have its internal auditors perform subsequent
quarterly compliance audits required by paragraph (c)(6)(i) of this
section. If the Secretary approves the request, the guaranty agency\'s
or guaranty agency servicer\'s annual audit must assess the reliability
of the procedures used by the guaranty agency\'s or the guaranty agency
servicer\'s internal auditor in performing the quarterly audits.

(7)(i) Payments of reinsurance made on claims, under the FFEL Program,
submitted by a guaranty agency or guaranty agency servicer designated
for exceptional performance are not subject to repayment based on
additional review of due diligence activities, including timely claim
payment, or timely filing for reinsurance covering a period during which
the guaranty agency or guaranty agency servicer was designated for any
reason other than a determination by the Secretary that the eligible
guaranty agency or guaranty agency servicer engaged in fraud or other
purposeful misconduct in obtaining designation for exceptional
performance.

\(ii\) A guaranty agency designated under this section that fails to
service loans or otherwise comply with applicable program regulations is
considered in violation of 31 U.S.C. 3729.

(8)(i) The Secretary may revoke the designation of a guaranty agency or
guaranty agency servicer for exceptional performance if the Secretary
has reason to believe the guaranty agency or guaranty agency servicer
fraudulently obtained its designation for exceptional performance.

\(ii\) The Secretary may revoke the designation for exceptional
performance upon 30 days\' notice, and an opportunity for a hearing
before the Secretary, if the Secretary finds that the guaranty agency or
guaranty agency servicer failed to maintain an acceptable overall level
of regulatory compliance.

\(9\) A qualified independent organization is an organization that meets
the criteria in paragraph (b)(9) of this section.

\(d\) *Definitions.* For purposes of this section \--

\(1\) *Due diligence requirements* means the activities required to be
performed by lenders or guaranty agencies on delinquent or defaulted
loans pursuant to §  682.411 (c) through (h), and (m), if applicable and
§§  682.410(b)(6)(i) through (xii) and 682.406(a)(8) and (a)(9);

\(2\) *Eligible loan* means a loan made, insured, or guaranteed under
part B of title IV of the Act; and

\(3\) *Servicer* means an entity that services and collects student
loans and that \--

\(i\) Has substantial experience in servicing and collecting consumer
loans or student loans;

\(ii\) Has an annual independent financial audit that is furnished to
the Secretary and any other parties designated by the Secretary;

\(iii\) Has business systems capable of meeting the requirements of part
B of title IV of the Act and applicable regulations;

\(iv\) Has adequate personnel knowledgeable about the student loan
programs authorized by part B of title IV of the Act; and

\(v\) Does not knowingly have any owner, majority shareholder, director,
or officer of the entity who has been convicted of a felony. (Approved
by the Office of Management and Budget under control number 1840-0538)
(Authority: 20 U.S.C. 1078-9)

\[59 FR 32866, June 24, 1994, as amended at 60 FR 30788, June 12, 1995;
64 FR 18981, Apr. 16, 1999; 66 FR 34764, June 29, 2001\]