1

34 CFR Part 682

Proposed Changes

Included in Notice of Proposed Rulemaking to be Published July 2013
Subpart A – Purpose and Scope

§682.100

The Federal Family Education Loan Program

2

Subpart A—Purpose and Scope

§ 682.100 The Federal Family Education 

Loan programs.

(a) This part governs the following 

four programs collectively referred to in 

these regulations as “the Federal Family 

Education Loan (FFEL) programs,” in which 

lenders use used their own funds prior to 

July 1, 2010, to make loans to enable a 

student or his or her parents to pay the 

costs of the student's attendance at 

postsecondary schools. prior to July 1, 2010:

(1) The Federal Stafford Loan 

(Stafford) Program, which encourages 

encouraged making loans to 

undergraduate, graduate, and professional 

students.

(2) The Federal Supplemental Loans 

for Students (SLS) Program, as in effect for 

periods of enrollment that began prior to 

July 1, 1994, which encouraged making 

loans to graduate, professional, 

independent undergraduate, and certain 

dependent undergraduate students.

(3) The Federal PLUS (PLUS) 

Program, which encourages encouraged

making loans to parents of dependent 

undergraduate students. Before October 

17, 1986, the PLUS Program also provided 

for making loans to graduate, professional, 

and independent undergraduate students. 

Before July 1, 1993, the PLUS Program also 

provided for making loans to parents of 

dependent graduate students. The PLUS 

Program also provides provided for making 

loans to graduate and professional students 

on or after July 1, 2006 and prior to July 1, 

2010.

(4) The Federal Consolidation Loan 

Program (Consolidation Loan Program), 

which encourages encouraged making loans 

to borrowers for the purpose of 

consolidating loans: under the Federal 

Insured Student Loan (FISL), Stafford loan, 

SLS, ALAS (as in effect before October 17, 

1986), PLUS, Perkins Loan programs, the 

Health Professions Student Loan (HPSL) 

including Loans for Disadvantaged Students 

(LDS) Program authorized by subpart II of 

part A of Title VII of the Public Health 

Services Act, Health Education Assistance 

Loans (HEAL) authorized by subpart I of Part 

A of Title VII of the Health Services Act, 

Nursing Student Loan Program loans 

authorized by subpart II of part B of title VIII 

of the Public Health Service Act, and 

existing loans obtained under the 

Consolidation Loan Program, and William D. 

Ford Direct Loan (Direct Loan) program 

loans, if the application for the 

Consolidation loan was received on or after 

November 13, 1997 and prior to July 1, 

2010.

(b)(1) Except for the loans 

guaranteed directly by the Secretary 

described in paragraph (b)(2) of this section, 

a guaranty agency guarantees a lender 

against losses due to default by the 

borrower on a FFEL loan. If the guaranty 

agency meets certain Federal requirements, 

the guaranty agency is reimbursed by the 

Secretary for all or part of the amount of 

default claims it pays to lenders.

(2)(i) The Secretary guarantees 

lenders against losses—
Subpart A – Purpose and Scope

§682.100

The Federal Family Education Loan Program

3

(A) Within the Stafford Loan 

Program, on loans made under Federal 

Insured Student Loan (FISL) Program;

(B) Within the PLUS Program, on 

loans made under the Federal PLUS 

Program;

(C) Within the SLS Program, on loans 

made under the Federal SLS Program as in 

effect for periods of enrollment that began 

prior to July 1, 1994; and

(D) Within the Consolidation Loan 

Program, on loans made under the Federal 

Consolidation Loan Program.

(ii) The loan programs listed in 

paragraph (b)(2)(i) of this section 

collectively are referred to in these 

regulations as the “Federal Guaranteed 

Student Loan (GSL) programs.”

(iii) The Federal GSL programs are 

were authorized to operate in States not 

served by a guaranty agency program. In 

addition, the FISL and Federal SLS (as in 

effect for periods of enrollment that began 

prior to July 1, 1994) programs are were

authorized, under limited circumstances, to 

operate in States in which a guaranty 

agency program does did not serve all 

eligible students.

(Authority: 20 U.S.C. 1701 to 1087–2)

[57 FR 60323, Dec. 18, 1992, as amended at 

59 FR 33348, June 28, 1994; 59 FR 61215, 

Nov. 29, 1994; 64 FR 18974, 18975, Apr. 16, 

1999; 64 FR 58952, Nov. 1, 1999; 66 FR 

34762, June 29, 2001; 71 FR 45698, Aug. 9, 

2006]
Subpart A – Purpose and Scope

§682.101

Participation in the FFEL Program

4

§ 682.101 Participation in the FFEL 

programs.

The following entities and persons 

participate in the FFEL programs:

(a) Eligible banks, savings and loan 

associations, credit unions, pension funds, 

insurance companies, schools, and State 

and private nonprofit agencies may 

makemade loans prior to July 1, 2010.

(b) Institutions of higher education, 

including most colleges, universities, 

graduate and professional schools, and 

many vocational, technical schools may

participate participated as schools, enabling 

an eligible student or his or her parents to 

obtain a loan to pay for the student's cost 

of education.

(c) Students who meet met certain 

requirements, including enrollment at a 

participating school, may borrow borrowed

under the Stafford Loan Program prior to 

July 1, 2010 and, for periods of enrollment 

that began prior to July 1, 1994, the SLS 

program. Parents of eligible dependent 

undergraduate students may borrow 

borrowed under the PLUS Program prior to 

July 1, 2010. Borrowers with outstanding 

Stafford, SLS, FISL, Perkins, HPSL, HEAL, 

ALAS, PLUS, or Nursing Student Loan 

Program loans may borrow borrowed under 

the Consolidation Loan Program prior to 

July 1, 2010. The PLUS Program also 

provides provided for making loans to 

graduate and professional students on or 

after July 1, 2006 and prior to July 1, 2010.

(Authority: 20 U.S.C. 1071 to 1087–2)

[57 FR 60323, Dec. 18, 1992, as amended at 

59 FR 61215, Nov. 29, 1994; 64 FR 18975, 

Apr. 16, 1999; 66 FR 34762, June 29, 2001; 

71 FR 45698, Aug. 9, 2006; 71 FR 64397, 

Nov. 1, 2006]
Subpart A – Purpose and Scope

§682.102

Obtaining and repaying a loan

5

§ 682.102 Obtaining and repaying 

Repaying a loan.

(a) Stafford loan application. 

Generally, to obtain a Stafford loan a 

student requests a loan by completing the 

Free Application for Federal Student Aid 

(FAFSA), and contacting the school, lender 

or guarantor. The school determines and 

certifies the student's eligibility for the loan. 

Prior to loan disbursement, the lender 

obtains a loan guarantee from a guaranty 

agency or the Secretary and the student 

completes a promissory note, unless the 

student has previously completed a Master 

Promissory Note (MPN) that the lender may 

use for the new loan.

(b) [Reserved]

(c) PLUS loan application. (1) For a 

parent to obtain a PLUS loan, the parent 

completes an application and submits it to 

the school for certification. After the school 

certifies the application, the application is 

submitted to a participating lender. If the 

lender decides to make the loan, the lender 

obtains a loan guarantee from a guaranty 

agency or the Secretary. Prior to loan 

disbursement, the parent completes a PLUS 

MPN, unless the parent has previously 

completed a PLUS MPN that the lender may 

use for the new loan.

(2) For a graduate or professional 

student to obtain a PLUS loan, the student 

applies for a PLUS Loan by completing a 

Free Application for Federal Student Aid 

(FAFSA) and contacting the school, lender 

or guarantor. The school determines and 

certifies the student's eligibility for the PLUS 

loan. After the school certifies the 

application, the application is submitted to 

a participating lender. If the lender decides 

to make the loan, the lender obtains a loan 

guarantee from a guaranty agency or the 

Secretary. Prior to loan disbursement, the 

student completes a PLUS MPN, unless the 

student has previously completed a PLUS 

MPN that the lender may use for the new 

loan.

(d) Consolidation loan application. 

Generally, to obtain a Consolidation loan, a 

borrower completes an application and 

submits it to a lender participating in the 

Consolidation Loan Program. If the lender 

decides to make the loan, the lender 

obtains a loan guarantee from a guaranty 

agency or the Secretary.

(e)(a) Repaying a loan —(1) General.

Generally, the borrower is obligated to 

repay the full amount of the loan, late fees, 

collection costs chargeable to the borrower, 

and any interest not payable by the 

Secretary. The borrower's obligation to 

repay is cancelled if the borrower dies, 

becomes totally and permanently disabled, 

or has that obligation discharged in 

bankruptcy. A parent borrower's obligation 

to repay a PLUS loan is cancelled if the 

student, on whose behalf the parent 

borrowed, dies. The borrower's or student's 

obligation to repay all or a portion of his or 

her loan may be cancelled if the student is 

unable to complete his or her program of 

study because the school closed or the 

borrower's or student's eligibility to borrow 

was falsely certified by the school. The 

obligation to repay all or a portion of a loan 

may be forgiven for Stafford loan borrowers 

who enter certain areas of the teaching or 

child care professions.
Subpart A – Purpose and Scope

§682.102

Obtaining and repaying a loan

6

(2)(b) Stafford loan repayment. In 

the case of a subsidized Stafford loan, a 

borrower is not required to make any 

principal payments on a Stafford loan

during the time the borrower is in school. 

The Secretary pays the interest on the 

borrower's behalf during the time the 

borrower is in school. When the borrower 

ceases to be enrolled on at least a half-time 

basis, a grace period begins during which no 

principal payments are required, and the 

Secretary continues to make interest 

payments on the borrower's behalf. In the 

case of an unsubsidized Stafford loan, the 

borrower is responsible for interest during 

these periods. At the end of the grace 

period, the repayment period begins. 

During the repayment period, for the 

subsidized and unsubsidized Stafford loan, 

the borrower pays both the principal and 

the interest accruing on the loan.

(3)(c) SLS loan repayment. Generally, 

the repayment period for an SLS loan begins 

immediately on the day of the last 

disbursement of the loan proceeds by the 

lender. The first payment of principal and 

interest on an SLS loan is due from the 

borrower within 60 days after the loan is 

fully disbursed unless a borrower who is 

also a Stafford loan borrower, but who has 

not yet entered repayment on the Stafford 

loan, requests that commencement of 

repayment on the SLS loan be deferred until 

the borrower's grace period on the Stafford 

loan expires.

(4)(d) PLUS loan repayment. 

Generally, the repayment period for a PLUS 

loan begins on the day the loan is fully 

disbursed by the lender. The first payment 

of principal and interest on a PLUS loan is 

due from the borrower within 60 days after 

the loan is fully disbursed.

(5)(e) Consolidation loan repayment. 

Generally, the repayment period for a 

Consolidation loan begins on the day the 

loan is disbursed. The first payment of 

principal and interest on a Consolidation 

loan is due from the borrower within 60 

days after the borrower's liability on all 

loans being consolidated has been 

discharged.

(6)(f) Deferment of repayment. 

Repayment of principal on a FFEL program 

loan may be deferred under the 

circumstances described in §682.210.

(7)(g) Default. If a borrower defaults 

on a loan, the guarantor reimburses the 

lender for the amount of its loss. The 

guarantor then collects the amount owed 

from the borrower.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1071 to 1087–2)

[57 FR 60323, Dec. 18, 1992, as amended at 

59 FR 25744, May 17, 1994; 59 FR 33348, 

June 28, 1994; 64 FR 18975, Apr. 16, 1999; 

64 FR 58952, Nov. 1, 1999; 68 FR 75428, 

Dec. 31, 2003; 71 FR 45698, Aug. 9, 2006]
Subpart A – Purpose and Scope

§682.103

Applicability of subparts

7

§ 682.103 Applicability of subparts.

(a) Subpart B of this part contains 

general provisions that are applicable to all 

participants in the FFEL and Federal GSL 

programs.

(b) The administration of the FFEL 

programs by a guaranty agency is subject to 

subparts C, D, F, and G of this part.

(c) The Federal FFEL and Federal GSL 

programs are subject to subparts C, E, F, 

and G of this part. 

(d) Certain requirements applicable 

to schools under all the FFEL and Federal 

GSL programs are set forth in subpart F of 

this part. 

(Authority: 20 U.S.C. 1071to 1087-2)

[57FR 60323, Dec.18, 1992, as amended at 

64 FR 18975, Apr.16, 1999; 64 FR 58952, 

Nov. 1, 1999]
Subpart B – General Provisions

§682.200

Definitions

8

Subpart B—General Provisions

§ 682.200 Definitions.

(a)(1) The definitions of the 

following terms used in this part are set 

forth in subpart A of the Student Assistance 

General Provisions, 34 CFR part 668:

Academic Competitiveness Grant 

(ACG) Program

Academic year

Campus-based programs

Dependent student

Eligible program

Eligible student

Enrolled

Expected family contribution (EFC)

Federal Consolidation Loan Program

Federal Pell Grant Program

Federal Perkins Loan Program

Federal PLUS Program

Federal Supplemental Educational 

Opportunity Grant (SEOG) Program

Federal Supplemental Loans for 

Students (SLS) Program

Federal Work-Study (FWS) Program

Full-time student

Graduate and professional student

Graduate or professional student

Half-time student

Independent student

Leveraging Educational Assistance 

Partnership (LEAP) Program

National of the United States 

(Referred to as U.S. Citizen or National in 34 

CFR 668.2)

National Science and Mathematics 

Access to Retain Talent Grant (National 

SMART Grant) Program

Payment period

Supplemental Educational 

Opportunity Grant (SEOG) Program

Supplemental Loans for Students 

(SLS) Program

Teacher Education Assistance for 

College and Higher Education (TEACH) 

Grant Program

TEACH Grant

Undergraduate student

(2) The following definitions are set 

forth in the regulations for Institutional 

Eligibility under the Higher Education Act of 

1965, as amended, 34 CFR part 600:

Accredited

Clock hour

Correspondence course

Credit hour

Educational program
Subpart B – General Provisions

§682.200

Definitions

9

Federal Family Education Loan 

Program (formerly known as the 

Guaranteed Student Loan (GSL) Program)

Foreign institution

Institution of higher education 

(§600.4)

Nationally recognized accrediting 

agency

Postsecondary Vocational Institution

Preaccredited

Secretary

State

(3) The definition for cost of 

attendance is set forth in section 472 of the 

Act, as amended.

(b) The following definitions also 

apply to this part:

Act. The Higher Education Act of 

1965, as amended, 20 U.S.C. 1071 et seq. 

Actual interest rate. The annual 

interest rate a lender charges on a loan, 

which may be equal to or less than the 

applicable interest rate on that loan.

Applicable interest rate. The 

maximum annual interest rate that a lender 

may charge under the Act on a loan.

Authority. Any private non-profit or 

public entity that may issue tax-exempt 

obligations to obtain funds to be used for 

the making or purchasingpurchase of FFEL 

loans. The term “Authority” also includes 

any agency, including a State postsecondary 

institution or any other instrumentality of a 

State or local governmental unit, regardless 

of the designation or primary purpose of 

that agency, that may issue tax-exempt 

obligations, any party authorized to issue 

those obligations on behalf of a 

governmental agency, and any non-profit 

organization authorized by law to issue taxexempt obligations.

Borrower. An individual to whom a 

FFEL Program loan is was made.

Co-Maker: One of two married 

individuals who jointly borrow a 

Consolidation loan, each of whom are 

eligible and who are jointly and severally 

liable for repayment of the loan. The term 

co-maker also includes one of two parents 

who are joint borrowers as previously 

authorized in the PLUS Program.

Default. The failure of a borrower 

and endorser, if any, or joint borrowers on a 

PLUS or Consolidation loan, to make an 

installment payment when due, or to meet 

other terms of the promissory note, the Act, 

or regulations as applicable, if the Secretary 

or guaranty agency finds it reasonable to 

conclude that the borrower and endorser, if 

any, no longer intend to honor the 

obligation to repay, provided that this 

failure persists for—

(1) 270 days for a loan repayable in

monthly installments; or

(2) 330 days for a loan repayable in 

less frequent installments.

Disbursement. The transfer of loan 

proceeds by a lender to a holder, in the case 

of a Consolidation loan, or to a borrower, a 

school, or an escrow agent by issuance of 
Subpart B – General Provisions

§682.200

Definitions

10

an individual check, a master check or by 

electronic funds transfer that may 

represent loan amounts for borrowers.

Disposable income. That part of an 

individual's compensation from an 

employer and other income from any 

source, including spousal income, that 

remains after the deduction of any amounts 

required by law to be withheld, or any child 

support or alimony payments that are made 

under a court order or legally enforceable 

written agreement. Amounts required by 

law to be withheld include, but are not

limited, to Federal, State, and local taxes, 

Social Security contributions, and wage 

garnishment payments.

Endorser. An individual who signs a 

promissory note and agrees to repay the 

loan in the event that the borrower does 

not.

Escrow agent. Any guaranty agency 

or other eligible lender that receives the 

proceeds of a FFEL program loan as an 

agent of an eligible lender for the purpose 

of transmitting those proceeds to the 

borrower or the borrower's school.

Estimated financial assistance. (1) 

The estimated amount of assistance for a 

period of enrollment that a student (or a 

parent on behalf of a student) will receive 

from Federal, State, institutional, or other 

sources, such as, scholarships, grants, the 

net earnings from need-based employment, 

or loans, including but not limited to—

(i) Except as provided in paragraph 

(2)(iii) of this definition, national service 

education awards or post-service benefits 

under title I of the National and Community 

Service Act of 1990 (AmeriCorps);

(ii) Except as provided in paragraph 

(2)(vii) of this definition, veterans' 

education benefits;

(iii) Any educational benefits paid 

because of enrollment in a postsecondary 

education institution, or to cover 

postsecondary education expenses;

(iv) Fellowships or assistantships, 

except non-need-based employment 

portions of such awards;

(v) Insurance programs for the 

student's education; and

(vi) The estimated amount of other 

Federal student financial aid, including but 

not limited to a Federal Pell Grant, 

Academic Competitiveness Grant, National 

SMART Grant, campus-based aid, and the 

gross amount (including fees) of subsidized 

and unsubsidized Federal Stafford Loans or 

subsidized and unsubsidized Federal Direct 

Stafford/Ford Loans, and Federal PLUS or 

Federal Direct PLUS Loans.

(2) Estimated financial assistance 

does not include—

(i) Those amounts used to replace 

the expected family contribution, including 

the amounts of any TEACH Grant, 

unsubsidized Federal Stafford or Federal 

Direct Stafford/Ford Loans, Federal PLUS or 

Federal Direct PLUS Loans, and non-federal 

non-need-based loans, including private, 

state-sponsored, and institutional loans. 

However, if the sum of the amounts 

received that are being used to replace the 

student's EFC exceed the EFC, the excess 
Subpart B – General Provisions

§682.200

Definitions

11

amount must be treated as estimated 

financial assistance;

(ii) Federal Perkins loan and Federal 

Work-Study funds that the student has 

declined;

(iii) For the purpose of determining 

eligibility for a subsidized Stafford loan, 

national service education awards or postservice benefits under title I of the National 

and Community Service Act of 1990 

(AmeriCorps);

(iv) Any portion of the estimated 

financial assistance described in paragraph 

(1) of this definition that is included in the 

calculation of the student's expected family 

contribution (EFC);

(v) Non-need-based employment 

earnings;

(vi) Assistance not received under a 

title IV, HEA program, if that assistance is 

designated to offset all or a portion of a 

specific amount of the cost of attendance 

and that component is excluded from the 

cost of attendance as well. If that assistance 

is excluded from either estimated financial 

assistance or cost of attendance, it must be 

excluded from both;

(vii) Federal veterans' education 

benefits paid under—

(A) Chapter 103 of title 10, United

States Code (Senior Reserve Officers' 

Training Corps);

(B) Chapter 106A of title 10, United 

States Code (Educational Assistance for 

Persons Enlisting for Active Duty);

(C) Chapter 1606 of title 10, United 

States Code (Selected Reserve Educational 

Assistance Program);

(D) Chapter 1607 of title 10, United 

States Code (Educational Assistance 

Program for Reserve Component Members 

Supporting Contingency Operations and 

Certain Other Operations);

(E) Chapter 30 of title 38, United 

States Code (All-Volunteer Force

Educational Assistance Program, also 

known as the “Montgomery GI Bill—active 

duty”);

(F) Chapter 31 of title 38, United 

States Code (Training and Rehabilitation for 

Veterans with Service-Connected 

Disabilities);

(G) Chapter 32 of title 38, United 

States Code (Post-Vietnam Era Veterans' 

Educational Assistance Program);

(H) Chapter 33 of title 38, United 

States Code (Post 9/11 Educational 

Assistance);

(I) Chapter 35 of title 38, United 

States Code (Survivors' and Dependents' 

Educational Assistance Program);

(J) Section 903 of the Department of 

Defense Authorization Act, 1981 (10 U.S.C. 

2141 note) (Educational Assistance Pilot 

Program);

(K) Section 156(b) of the “Joint 

Resolution making further continuing 

appropriations and providing for productive 

employment for the fiscal year 1983, and 

for other purposes” (42 U.S.C. 402 note) 
Subpart B – General Provisions

§682.200

Definitions

12

(Restored Entitlement Program for 

Survivors, also known as “Quayle benefits”);

(L) The provisions of chapter 3 of 

title 37, United States Code, related to 

subsistence allowances for members of the 

Reserve Officers Training Corps; and

(M) Any program that the Secretary 

may determine is covered by section 

480(c)(2) of the HEA; and

(viii) Iraq and Afghanistan Service 

Grants made under section 420R of the 

HEA.

Federal GSL programs. The Federal 

Insured Student Loan Program, the Federal 

Supplemental Loans for Students Program, 

the Federal PLUS Program, and the Federal 

Consolidation Loan Program.

Federal Insured Student Loan 

Program. The loan program authorized by 

title IV-B of the Act under which the 

Secretary directly insures lenders against 

losses.

Grace period. The period that begins 

on the day after a Stafford loan borrower 

ceases to be enrolled as at least a half-time 

student at an institution of higher education 

and ends on the day before the repayment 

period begins. See also “Post-deferment 

grace period.” For an SLS borrower who 

also has a Federal Stafford loan on which 

the borrower has not yet entered 

repayment, the grace period is an 

equivalent period after the borrower ceases 

to be enrolled as at least a half-time 

student at an institution of higher 

education.

Guaranty agency. A State or private 

nonprofit organization that has an 

agreement with the Secretary under which 

it will administer a loan guarantee program 

under the Act.

Holder. An eligible lender owning an 

FFEL Program loan including a Federal or 

State agency or an organization or 

corporation acting on behalf of such an 

agency and acting as a conservator, 

liquidator, or receiver of an eligible lender.

Legal guardian. An individual 

appointed by a court to be a “guardian” of a 

person and specifically required by the 

court to use his or her financial resources 

for the support of that person.

Lender. (1) The term “eligible 

lender” is defined in section 435(d) of the 

Act, and in paragraphs (2)–(5) of this 

definition.

(2) With respect to a National or 

State chartered bank, a mutual savings 

bank, a savings and loan association, a stock 

savings bank, or a credit union—

(i) The phrase “subject to 

examination and supervision” in section 

435(d) of the Act means “subject to 

examination and supervision in its capacity 

as a lender”;

(ii) The phrase “does not have as its 

primary consumer credit function the 

making or holding of loans made to 

students under this part” in section 435(d) 

of the Act means that the lender does not, 

or in the case of a bank holding company, 

the company's wholly-owned subsidiaries 

as a group do not at any time, hold FFEL 
Subpart B – General Provisions

§682.200

Definitions

13

Program loans that total more than onehalf of the lender's or subsidiaries' 

combined consumer credit loan portfolio, 

including home mortgages held by the 

lender or its subsidiaries. For purposes of 

this paragraph, loans held in trust by a 

trustee lender are not considered part of 

the trustee lender's consumer credit 

function.

(3) A bank that is subject to

examination and supervision by an agency 

of the United States, making student loans 

as a trustee, may be an eligible lender if it 

makes loans under an express trust, 

operated as a lender in the FFEL programs 

prior to January 1, 1975, and met the 

requirements of this paragraph prior to July 

23, 1992.

(4) The corporate parent or other 

owner of a school that qualifies as an 

eligible lender under section 435(d) of the 

Act is not an eligible lender unless the 

corporate parent or owner itself qualifies as 

an eligible lender under section 435(d) of 

the Act.

(5)(i) The term eligible lender does 

not include any lender that the Secretary 

determines, after notice and opportunity 

for a hearing before a designated 

Department official, has, directly or through 

an agent or contractor—

(A) Except as provided in paragraph 

(5)(ii) of this definition, offered, directly or 

indirectly, points, premiums, payments 

(including payments for referrals, finder 

fees or processing fees), or other 

inducements to any school, any employee 

of a school, or any individual or entity in 

order to secure applications for FFEL loans 

or FFEL loan volume. This includes but is not 

limited to—

(1) Payments or offerings of other 

benefits, including prizes or additional 

financial aid funds, to a prospective 

borrower or to a school or school employee 

in exchange for applying for or accepting a 

FFEL loan from the lender;

(2) Payments or other benefits, 

including payments of stock or other 

securities, tuition payments or 

reimbursements, to a school, a school 

employee, any school-affiliated 

organization, or to any other individual in 

exchange for FFEL loan applications, 

application referrals, or a specified volume 

or dollar amount of loans made, or 

placement on a school's list of 

recommended or suggested lenders;

(3) Payments or other benefits 

provided to a student at a school who acts 

as the lender's representative to secure 

FFEL loan applications from individual 

prospective borrowers, unless the student 

is also employed by the lender for other 

purposes and discloses that employment to 

school administrators and to prospective 

borrowers;

(4) Payments or other benefits to a 

loan solicitor or sales representative of a 

lender who visits schools to solicit individual 

prospective borrowers to apply for FFEL 

loans from the lender;

(5) Payment to another lender or 

any other party, including a school, a school 

employee, or a school-affiliated 

organization or its employees, of referral 

fees, finder fees or processing fees, except 
Subpart B – General Provisions

§682.200

Definitions

14

those processing fees necessary to comply 

with Federal or State law;

(6) Compensation to an employee of 

a school's financial aid office or other 

employee who has responsibilities with 

respect to student loans or other financial 

aid provided by the school or compensation 

to a school-affiliated organization or its 

employees, to serve on a lender's advisory 

board, commission or other group 

established by the lender, except that the 

lender may reimburse the employee for 

reasonable expenses incurred in providing 

the service;

(7) Payment of conference or 

training registration, travel, and lodging 

costs for an employee of a school or schoolaffiliated organization;

(8) Payment of entertainment 

expenses, including expenses for private 

hospitality suites, tickets to shows or 

sporting events, meals, alcoholic beverages, 

and any lodging, rental, transportation, and 

other gratuities related to lender-sponsored 

activities for employees of a school or a 

school-affiliated organization;

(9) Philanthropic activities, including 

providing scholarships, grants, restricted 

gifts, or financial contributions in exchange 

for FFEL loan applications or application 

referrals, or a specified volume or dollar 

amount of FFEL loans made, or placement 

on a school's list of recommended or 

suggested lenders;

(10) Performance of, or payment to 

another third party to perform, any school 

function required under title IV, except that 

the lender may perform entrance 

counseling and, as provided in 

§682.604(f)(a), and exit counseling as 

provided in §682.604(g), and may provide 

services to participating foreign schools at 

the direction of the Secretary, as a thirdparty servicer; and

(11) Any type of consulting 

arrangement or other contract with an 

employee of a financial aid office at a 

school, or an employee of a school who 

otherwise has responsibilities with respect 

to student loans or other financial aid 

provided by the school under which the 

employee would provide services to the 

lender.

(B) Conducted unsolicited mailings, 

by postal or electronic means, of student 

loan application forms to students enrolled 

in secondary schools or postsecondary 

institutions or to family members of such 

students, except to a student or borrower 

who previously has received a FFEL loan 

from the lender;

(C) Offered, directly or indirectly, a 

FFEL loan to a prospective borrower to 

induce the purchase of a policy of insurance 

or other product or service by the borrower 

or other person; or

(D) Engaged in fraudulent or 

misleading advertising with respect to its 

FFEL loan activities.

(ii) Notwithstanding paragraph (5)(i) 

of this definition, a lender, in carrying out 

its role in the FFEL program and in 

attempting to provide better service, may 

provide—
Subpart B – General Provisions

§682.200

Definitions

15

(A) Technical assistance to a school 

that is comparable to the kinds of technical 

assistance provided to a school by the 

Secretary under the Direct Loan program, as 

identified by the Secretary in a public 

announcement, such as a notice in the 

Federal Register;

(B) Support of and participation in a 

school's or a guaranty agency's student aid 

and financial literacy-related outreach 

activities, including in-person entrance and 

exit counseling, as long as the name of the 

entity that developed and paid for any 

materials is provided to the participants and 

the lender does not promote its student 

loan or other products;

(C) Meals, refreshments, and 

receptions that are reasonable in cost and 

scheduled in conjunction with training, 

meeting, or conference events if those 

meals, refreshments, or receptions are 

open to all training, meeting, or conference 

attendees;

(D) Toll-free telephone numbers for 

use by schools or others to obtain 

information about FFEL loans and free data 

transmission service for use by schools to 

electronically submit applicant loan 

processing information or student status 

confirmation data;

(E) A reduced origination fee in 

accordance with §682.202(c);

(F) A reduced interest rate as 

provided under the Act;

(G) Payment of Federal default fees 

in accordance with the Act;

(H) Purchase of a loan made by 

another lender at a premium;

(I) Other benefits to a borrower 

under a repayment incentive program that 

requires, at a minimum, one or more 

scheduled payments to receive or retain the 

benefit or under a loan forgiveness program 

for public service or other targeted 

purposes approved by the Secretary, 

provided these benefits are not marketed 

to secure loan applications or loan 

guarantees;

(J) Items of nominal value to 

schools, school-affiliated organizations, and 

borrowers that are offered as a form of 

generalized marketing or advertising, or to 

create good will; and

(K) Other services as identified and 

approved by the Secretary through a public 

announcement, such as a notice in the 

Federal Register.

(iii) For the purposes of this 

paragraph (5)—

(A) The term “school-affiliated 

organization” is defined in §682.200.

(B) The term “applications” includes 

the Free Application for Federal Student Aid 

(FAFSA), FFEL loan master promissory 

notes, and FFEL Consolidation loan 

application and promissory notes.

(C) The term “other benefits” 

includes, but is not limited to, preferential 

rates for or access to the lender's other 

financial products, information technology 

equipment, or non-loan processing or nonfinancial aid-related computer software at 

below market rental or purchase cost, and 
Subpart B – General Provisions

§682.200

Definitions

16

printing and distribution of college catalogs 

and other materials at reduced or no cost.

(6) The term eligible lender does not 

include any lender that—

(i) Is debarred or suspended, or any 

of whose principals or affiliates (as those 

terms are defined in 34 CFR part 85) is 

debarred or suspended under Executive 

Order (E.O.) 12549 (3 CFR, 1986 Comp., p. 

189) or the Federal Acquisition Regulation 

(FAR), 48 CFR part 9, subpart 9.4;

(ii) Is an affiliate, as defined in 34 

CFR part 85, of any person who is debarred 

or suspended under E.O. 12549 (3 CFR, 

1986 Comp., p. 189) or the FAR, 48 CFR part 

9, subpart 9.4; or

(iii) Employs a person who is 

debarred or suspended under E.O. 12549 (3 

CFR, 1986 Comp., p. 189) or the FAR, 48 CFR 

part 9, subpart 9.4, in a capacity that 

involves the administration or receipt of 

FFEL Program funds.

(7) An eligible lender may not make 

or hold a loan as trustee for a school, or for 

a school-affiliated organization as defined in 

this section, unless on or before September 

30, 2006—

(i) The eligible lender was serving as 

trustee for the school or school-affiliated 

organization under a contract entered into 

and continuing in effect as of that date; and

(ii) The eligible lender held at least 

one loan in trust on behalf of the school or 

school-affiliated organization on that date.

(8) As of January 1, 2007, and for 

loans first disbursed on or after that date 

under a trustee arrangement, an eligible 

lender operating as a trustee under a 

contract entered into on or before 

September 30, 2006, and which continues 

in effect with a school or a school-affiliated 

organization, must comply with the 

requirements of §682.601(a)(3), (a)(5), and 

(a)(7).--

(i) Must not—

(A) Make a loan to any 

undergraduate student;

(B) Make a loan other than a 

Federal Stafford loan to a graduate or 

professional student; or

(C) Make a loan to a borrower who 

is not enrolled at that school; 

(ii) Must offer loans that carry an 

origination fee or an interest rate, or both, 

that are less than the fee or rate authorized 

under the provisions of the Act; and

(iii) Must, for any fiscal year 

beginning on or after July 1, 2006 in which 

the school engages in activities as an 

eligible lender, submit an annual 

compliance audit that satisfies the following 

requirements:

(A) With regard to a school that is a 

governmental entity or a nonprofit 

organization, the audit must be conducted 

in accordance with §682.305(c)(2)(v) and 

chapter 75 of title 31, United States Code, 

and in addition, during years when the 

student financial aid cluster (as defined in 

Office of Management and Budget Circular 

A–133, Appendix B, Compliance 

Supplement) is not audited as a “major 

program” (as defined under 31 U.S.C. 7501) 
Subpart B – General Provisions

§682.200

Definitions

17

must, without regard to the amount of 

loans made, include in such audit the 

school's lending activities as a major 

program.

(B) With regard to a school that is 

not a governmental entity or a nonprofit 

organization, the audit must be conducted 

annually in accordance with 

§682.305(c)(2)(i) through (iii).

(C) With regard to any school, the 

audit must include a determination that—

(1) The school used all payments 

and proceeds (i.e., special allowance and 

interest payments from borrowers, interest 

subsidy payments, proceeds from the sale 

or other disposition of loans) from the loans 

for need-based grant programs;

(2) Those need-based grants

supplemented, rather than supplanted, the 

institution’s use of non-Federal funds for 

such grants; and

(3) The school used no more than a 

reasonable portion of payments and 

proceeds from the loans for direct 

administrative expenses.

Master Promissory Note (MPN). A 

promissory note under which the borrower 

may receive loans for a single period of 

enrollment or multiple periods of 

enrollment.

Nationwide consumer reporting 

agency. A consumer reporting agency that 

compiles and maintains files on consumers 

on a nationwide basis and as defined in 15 

U.S.C. 1681a(p).

Nonsubsidized Stafford loan. A 

Stafford loan made prior to October 1, 1992 

that does not qualify for interest benefits 

under §682.301(b) or special allowance 

payments under §682.302.

Origination relationship. A special 

business relationship between a school and 

a lender in which the lender delegates to 

the school, or to an entity or individual 

affiliated with the school, substantial 

functions or responsibilities normally 

performed by lenders before making FFEL 

program loans. In this situation, the school 

is considered to have “originated” a loan 

made by the lender.

Origination fee. A fee that the lender 

is required to pay the Secretary to help 

defray the Secretary's costs of subsidizing

the loan. The lender may pass this fee on to 

the Stafford loan borrower. The lender 

must pass this fee on to the SLS or PLUS 

borrower.

Participating school. A school that 

has in effect a current agreement with the 

Secretary under §682.600.

Period of enrollment. The period for 

which a Stafford, SLS, or PLUS loan is 

intended. The period of enrollment must 

coincide with one or more bona fide 

academic terms established by the school 

for which institutional charges are generally 

assessed (e.g., a semester, trimester, or 

quarter in weeks of instructional time, an 

academic year, or the length of the 

student's program of study in weeks of 

instructional time). The period of 

enrollment is also referred to as the loan 

period.
Subpart B – General Provisions

§682.200

Definitions

18

Post-deferment grace period. For a 

loan made prior to October 1, 1981, a single 

period of six consecutive months beginning 

on the day following the last day of an 

authorized deferment period.

Repayment period. (1) For a Stafford 

loan, the period beginning on the date 

following the expiration of the grace period 

and ending no later than 10 years, or 25 

years under an extended repayment 

schedule, from the date the first payment 

of principal is due from the borrower, 

exclusive of any period of deferment or 

forbearance.

(2) For unsubsidized Stafford loans, 

the period that begins on the day after the 

expiration of the applicable grace period 

that follows after the student ceases to be 

enrolled on at least a half-time basis and 

ending no later than 10 years or 25 years 

under an extended repayment schedule, 

from that date, exclusive of any period of 

deferment or forbearance. However, 

payments of interest are the responsibility 

of the borrower during the in-school and 

grace period, but may be capitalized by the 

lender.

(3) For SLS loans, the period that 

begins on the date the loan is disbursed, or 

if the loan is disbursed in more than one 

installment, on the date the last 

disbursement is made and ending no later 

than 10 years from that date, exclusive of 

any period of deferment or forbearance. 

The first payment of principal is due within 

60 days after the loan is fully disbursed 

unless a borrower who is also a Stafford 

loan borrower but who, has not yet entered 

repayment on the Stafford loan requests 

that commencement of repayment on the 

SLS loan be delayed until the borrower's 

grace period on the Stafford loan expires. 

Interest on the loan accrues and is due and 

payable from the date of the first 

disbursement of the loan. The borrower is 

responsible for paying interest on the loan 

during the grace period and periods of 

deferment, but the interest may be 

capitalized by the lender.

(4) For Federal PLUS loans, the 

period that begins on the date the loan is 

disbursed, or if the loan is disbursed in 

more than one installment, on the date the 

last disbursement is made and ending no 

later than 10 years, or 25 years under an 

extended repayment schedule, from that 

date, exclusive of any period of deferment 

or forbearance. Interest on the loan accrues 

and is due and payable from the date of the 

first disbursement of the loan.

(5) For Federal Consolidation loans, 

the period that begins on the date the loan 

is disbursed and ends no later than 10, 12, 

15, 20, 25, or 30 years from that date 

depending upon the sum of the amount of 

the Consolidation loan, and the unpaid 

balance on other student loans, exclusive of 

any period of deferment or forbearance.

Satisfactory repayment 

arrangement. (1) For purposes of regaining 

eligibility under the title IV student financial 

assistance programs §682.401(b)(4), the 

making of six (6) consecutive, on-time, 

voluntary full monthly payments on a 

defaulted loan. A borrower may only obtain 

the benefit of this paragraph with respect 

to renewed eligibility once.
Subpart B – General Provisions

§682.200

Definitions

19

(2) For purposes of consolidating a 

defaulted loan under 34 CFR 

682.201(c)(1)(iii)(C), the making of three (3) 

consecutive, on-time voluntary full monthly 

payments on a defaulted loan.

(3)(2) The required full monthly 

payment amount may not be more than is 

reasonable and affordable based on the 

borrower's total financial circumstances. 

Voluntary payments are those payments 

made directly by the borrower, and do not 

include payments obtained by income tax 

off-set, garnishment, or income or asset 

execution. On-time means a payment 

received by the Secretary or a guaranty 

agency or its agent within 15 20 days of the 

scheduled due date.

(3) A borrower has not used the one 

opportunity to renew eligibility for title IV 

assistance if the borrower makes six 

consecutive, on-time, voluntary full 

monthly payments under an agreement to 

rehabilitate a defaulted loan but does not 

receive additional title IV assistance prior to 

defaulting on that loan again. 

School. (1) An “institution of higher 

education” as that term is defined in 34 CFR 

600.4.

(2) For purposes of an in-school 

deferment, the term includes an institution 

of higher education, whether or not it 

participates in any title IV program or has 

lost its eligibility to participate in the FFEL 

program because of a high default rate.

School-affiliated organization. A 

school-affiliated organization is any 

organization that is directly or indirectly 

related to a school and includes, but is not 

limited to, alumni organizations, 

foundations, athletic organizations, and 

social, academic, and professional 

organizations.

School lender. A school, other than a 

correspondence school, that has entered 

into a contract of guarantee under this part 

with the Secretary or, a similar agreement 

with a guaranty agency.

Stafford Loan Program. The loan 

program authorized by Title IV-B of the Act 

which encourages the making of subsidized 

and unsubsidized loans to undergraduate, 

graduate, and professional students and is 

one of the Federal Family Education Loan 

programs.

State lender. In any State, a single 

State agency or private nonprofit agency 

designated by the State that has entered 

into a contract of guarantee under this part 

with the Secretary, or a similar agreement 

with a guaranty agency.

Subsidized Stafford Loan: A Stafford 

loan that qualifies for interest benefits 

under §682.301(b) and special allowance 

under §682.302.

Substantial gainful activity. A level 

of work performed for pay or profit that 

involves doing significant physical or mental 

activities, or a combination of both.

Temporarily totally disabled. The 

condition of an individual who, though not 

totally and permanently disabled, is unable 

to work and earn money or attend school, 

during a period of at least 60 days needed 

to recover from injury or illness. With 

regard to a disabled dependent of a 
Subpart B – General Provisions

§682.200

Definitions

20

borrower, this term means a spouse or 

other dependent who, during a period of 

injury or illness, requires continuous nursing 

or similar services for a period of at least 90 

days.

Third-party servicer. Any State or 

private, profit or nonprofit organization or 

any individual that enters into a contract 

with a lender or guaranty agency to 

administer, through either manual or 

automated processing, any aspect of the 

lender's or guaranty agency's FFEL 

programs required by any statutory 

provision of or applicable to Title IV of the 

HEA, any regulatory provision prescribed 

under that statutory authority, or any 

applicable special arrangement, agreement, 

or limitation entered into under the 

authority of statutes applicable to Title IV of 

the HEA that governs the FFEL programs, 

including, any applicable function described 

in the definition of third-party servicer in 34 

CFR part 668; originating, guaranteeing, 

monitoring, processing, servicing, or 

collecting loans; claims submission; or 

billing for interest benefits and special 

allowance.

Totally and permanently disabled. 

The condition of an individual who—

(1) Is unable to engage in any 

substantial gainful activity by reason of any 

medically determinable physical or mental 

impairment that—

(i) Can be expected to result in 

death;

(ii) Has lasted for a continuous 

period of not less than 60 months; or

(iii) Can be expected to last for a 

continuous period of not less than 60 

months; or

(2) Has been determined by the 

Secretary of Veterans Affairs to be 

unemployable due to a service-connected 

disability.

Unsubsidized Stafford loan. A loan 

made after October 1, 1992, authorized 

under section 428H of the Act for 

borrowers who do not qualify for interest 

benefits under §682.301(b) but do qualify 

for special allowance under §682.302.

Write-off. Cessation of collection 

activity on a defaulted FFEL loan due to a 

determination in accordance with 

applicable standards that no further 

collection activity is warranted.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 8 U.S.C. 1101; 20 U.S.C. 1070 to 

1087–2, 1088–1098, 1141; E.O. 12549 (3 

CFR, 1986 Comp., p. 189), E.O. 12689 (3 

CFR, 1989 Comp., p. 235))

[57 FR 60323, Dec. 18, 1992]

Editorial Note: For Federal Register 

citations affecting §682.200, see the List of 

CFR Sections Affected, which appears in the 

Finding Aids section of the printed volume 

and on GPO Access. 
Subpart B – General Provisions

§682.201

Eligible borrowers

21

§ 682.201 Eligible borrowers.

(a) Student Stafford borrower. 

Except for a refinanced SLS/PLUS loan made 

under §682.209 (e) or (f), a student is 

eligible to receive a Stafford loan, and an 

independent undergraduate student, a 

graduate or professional student, or, 

subject to paragraph (a)(3) of this section, a 

dependent undergraduate student, is 

eligible to receive an unsubsidized Stafford 

loan, if the student who is enrolled or 

accepted for enrollment on at least a halftime basis at a participating school meets 

the requirements for an eligible student 

under 34 CFR part 668, and—

(1) In the case of an undergraduate 

student who seeks a Stafford loan or 

unsubsidized Stafford loan for the cost of 

attendance at a school that participates in 

the Pell Grant Program, has received a final 

determination, or, in the case of a student 

who has filed an application with the school 

for a Pell Grant, a preliminary 

determination, from the school of the 

student's eligibility or ineligibility for a Pell 

Grant and, if eligible, has applied for the 

period of enrollment for which the loan is 

sought;

(2) In the case of any student who 

seeks an unsubsidized Stafford loan for the 

cost of attendance at a school that 

participates in the Stafford Loan Program, 

the student must—

(i) Receive a determination of need 

for a subsidized Stafford loan; and

(ii) If the determination of need is in 

excess of $200, have made a request to a 

lender for a subsidized Stafford loan;

(3) For purposes of a dependent 

undergraduate student's eligibility for an 

additional unsubsidized Stafford loan 

amount, as described at §682.204(d), is a 

dependent undergraduate student for 

whom the financial aid administrator 

determines and documents in the school's 

file, after review of the family financial 

information provided by the student and 

consideration of the student's debt burden, 

that the student's parents likely will be 

precluded by exceptional circumstances 

(e.g., denial of a PLUS loan to a parent 

based on adverse credit, the student's 

parent receives only public assistance or 

disability benefits, is incarcerated, or his or

her whereabouts are unknown) from 

borrowing under the PLUS Program and the 

student's family is otherwise unable to 

provide the student's expected family 

contribution. A parent's refusal to borrow a 

PLUS loan does not constitute an 

exceptional circumstance;

(4)(i) Reaffirms any FFEL loan 

amount on which there has been a total 

cessation of collection activity, including all 

principal, interest, collection costs, court 

costs, attorney fees, and late charges that 

have accrued on that amount up to the 

date of reaffirmation.

(ii) For purposes of paragraph (a)(4) 

of this section, reaffirmation means the 

acknowledgement of the loan by the 

borrower in a legally binding manner. The 

acknowledgement may include, but is not 

limited to, the borrower—

(A) Signing a new promissory note 

that includes the same terms and 
Subpart B – General Provisions

§682.201

Eligible borrowers

22

conditions as the original note signed by the 

borrower or repayment schedule; or

(B) Making a payment on the loan.

(5) The suspension of collection 

activity has been lifted from any loan on

which collection activity had been 

suspended based on a conditional 

determination that the borrower was 

totally and permanently disabled .

(6) In the case of a borrower whose 

prior loan under title IV of the Act or whose 

TEACH Grant service obligation was

discharged after a final determination of 

total and permanent disability, the student

borrower must—

(i) Obtain certification from a 

physician that the borrower is able to 

engage in substantial gainful activity;

(ii) Sign a statement acknowledging 

that the FFEL loan the borrower receives 

cannot be discharged in the future on the 

basis of any impairment present when the 

new loan is made, unless that impairment 

substantially deteriorates; and

(iii) If a borrower receives a new 

FFEL loan, other than a Federal

Consolidation Loan, within three years of 

the date that any previous title IV loan or 

TEACH Grant service obligation was 

discharged due to a total and permanent 

disability in accordance with 

§682.402(c)(3)(ii), 34 CFR 674.61(b)(3)(i), 34 

CFR 685.213, or 34 CFR 686.42(b) based on 

a discharge request received on or after July 

1, 2010, resume repayment on the 

previously discharged loan in accordance 

with §682.402(c)(5), 34 CFR 674.61(b)(5), or 

34 CFR 685.213(b)(4), or acknowledge that 

he or she is once again subject to the terms 

of the TEACH Grant agreement to serve 

before receiving the new loan.

(7) In the case of a borrower whose 

prior loan under title IV of the HEA was 

conditionally discharged after an initial 

determination that the borrower was 

totally and permanently disabled based on 

a discharge request received prior to July 1, 

2010, the borrower must—

(i) Comply with the requirements of 

paragraphs (a)(6)(i) and (a)(6)(ii) of this 

section; and

(ii) Sign a statement acknowledging 

that—

(A) The loan that has been 

conditionally discharged prior to a final 

determination of total and permanent 

disability cannot be discharged in the future 

on the basis of any impairment present 

when the borrower applied for a total and 

permanent disability discharge or when the

new loan is made unless that impairment 

substantially deteriorates; and

(B) Collection activity will resume on 

any loans in a conditional discharge period.

(8) In the case of any student who 

seeks a loan but does not have a certificate 

of graduation from a school providing 

secondary education or the recognized 

equivalent of such a certificate, the student 

meets the requirements under 34 CFR part 

668.32(e).

(9) Is not serving in a medical 

internship or residency program, except for 

an internship in dentistry.
Subpart B – General Provisions

§682.201

Eligible borrowers

23

(b) Student PLUS borrower. A 

graduate or professional student who is 

enrolled or accepted for enrollment on at 

least a half-time basis at a participating 

school is eligible to receive a PLUS Loan on 

or after July 1, 2006, if the student—

(1) Meets the requirements for an 

eligible student under 34 CFR 668;

(2) Meets the requirements of 

paragraphs (a)(4), (a)(5), (a)(6), (a)(7), (a)(8), 

and (a)(9) of this section, if applicable;

(3) Has received a determination of 

his or her annual loan maximum eligibility 

under the Federal Subsidized and 

Unsubsidized Stafford Loan Program or 

under the Federal Direct Subsidized 

Stafford/Ford Loan Program and Federal 

Direct Unsubsidized Stafford/Ford Loan 

Program, as applicable; and

(4) Does not have an adverse credit 

history in accordance with paragraphs 

(c)(2)(i) through (c)(2)(v) of this section, or 

obtains an endorser who has been 

determined not to have an adverse credit 

history, as provided for in paragraph 

(c)(1)(vii) of this section.

(c) Parent PLUS borrower. (1) A 

parent borrower, is eligible to receive a 

PLUS Program loan, other than a loan made 

under §682.209(e), if the parent—

(i) Is borrowing to pay for the 

educational costs of a dependent 

undergraduate student who meets the 

requirements for an eligible student set 

forth in 34 CFR part 668;

(ii) Provides his or her and the 

student's social security number;

(iii) Meets the requirements 

pertaining to citizenship and residency that 

apply to the student in 34 CFR 668.33;

(iv) Meets the requirements 

concerning defaults and overpayments that 

apply to the student in 34 CFR 668.35 and 

meets the requirements of judgment liens 

that apply to the student under 34 CFR 

668.32(g)(3);

(v) Except for the completion of a 

Statement of Selective Service Registration 

Status, complies with the requirements for 

submission of a Statement of Educational 

Purpose that apply to the student in 34 CFR 

part 668;

(vi) Meets the requirements of 

paragraphs (a)(4), (a)(5), (a)(6), and (a)(7) of 

this section, as applicable; and

(vii) In the case of a Federal PLUS 

loan made on or after July 1, 1993, does not 

have an adverse credit history or obtains an 

endorser who has been determined not to 

have an adverse credit history as provided 

in paragraph (c)(2)(ii) of this section.

(viii) Has completed repayment of 

any title IV, HEA program assistance 

obtained by fraud, if the parent has been 

convicted of, or has pled nolo contendere 

or guilty to, a crime involving fraud in 

obtaining title IV, HEA program assistance.

(2)(i) For purposes of this section, 

the lender must obtain a credit report on 

each applicant from at least one national 

credit bureau consumer reporting agency. 

The credit report must be secured within a 

timeframe that would ensure the most 

accurate, current representation of the 
Subpart B – General Provisions

§682.201

Eligible borrowers

24

borrower's credit history before the first 

day of the period of enrollment for which 

the loan is intended.

(ii) Unless the lender determines 

that extenuating circumstances existed, the 

lender must consider each applicant to have 

an adverse credit history based on the 

credit report if—

(A) The applicant is considered 90 or 

more days delinquent on the repayment of 

a debt; or

(B) The applicant has been the 

subject of a default determination, 

bankruptcy discharge, foreclosure, 

repossession, tax lien, wage garnishment, 

or write-off of a Title IV debt, during the five 

years preceding the date of the credit 

report.

(iii) Nothing in this paragraph 

precludes the lender from establishing 

more restrictive credit standards to 

determine whether the applicant has an 

adverse credit history.

(iv) The absence of any credit history 

is not an indication that the applicant has 

an adverse credit history and is not to be 

used as a reason to deny a PLUS loan to that 

applicant.

(v) The lender must retain a record 

of its basis for determining that extenuating 

circumstances existed. This record may 

include, but is not limited to, an updated 

credit report, a statement from the creditor 

that the borrower has made satisfactory 

arrangements to repay the debt, or a 

satisfactory statement from the borrower 

explaining any delinquencies with 

outstanding balances of less than $500.

(3) For purposes of paragraph (c)(1) 

of this section, a “parent” includes the 

individuals described in the definition of 

“parent” in 34 CFR 668.2 and the spouse of 

a parent who remarried, if that spouse's 

income and assets would have been taken 

into account when calculating a dependent 

student's expected family contribution.

(d) Consolidation program borrower. 

(1) An individual is eligible to receive a 

Consolidation loan if the individual—

(i) On the loans being 

consolidated—

(A) Is, at the time of application for a 

Consolidation loan—

(1) In a grace period preceding 

repayment;

(2) In repayment status;

(3) In a default status and has either 

made satisfactory repayment arrangements 

as defined in applicable program 

regulations or has agreed to repay the 

consolidation loan under the incomesensitive repayment plan described in 

§682.209(a)(6)(iii) or the income-based 

repayment plan described in §682.215;

(B) Not subject to a judgment 

secured through litigation, unless the 

judgment has been vacated;

(C) Not subject to an order for wage 

garnishment under section 488A of the Act, 

unless the order has been lifted;
Subpart B – General Provisions

§682.201

Eligible borrowers

25

(D) Not in default status resulting 

from a claim filed under §682.412.

(ii) Certifies that no other 

application for a Consolidation loan is 

pending; and

(iii) Agrees to notify the holder of 

any changes in address.

(2) A borrower may not consolidate 

a loan under this section for which the 

borrower is wholly or partially ineligible.

(e) A borrower's eligibility to receive 

a Consolidation loan terminates upon 

receipt of a Consolidation loan except 

that—

(1) Eligible loans received prior to 

the date a Consolidation loan was made 

and loans received during the 180-day 

period following the date a Consolidation 

loan was made, may be added to the 

Consolidation loan based on the borrower's 

request received by the lender during the 

180-day period after the date the 

Consolidation loan was made;

(2) A borrower who receives an 

eligible loan before or after the date a 

Consolidation loan is made may receive a 

subsequent Consolidation loan;

(3) A Consolidation loan borrower 

may consolidate an existing Consolidation 

loan if the borrower has at least one other 

eligible loan made before or after the 

existing Consolidation loan that will be 

consolidated;

(4) If the consolidation loan is in 

default or has been submitted to the 

guaranty agency for default aversion, the 

borrower may obtain a subsequent 

consolidation loan under the Federal Direct 

Consolidation Loan Program for purposes of 

obtaining an income contingent repayment 

plan or an income-based repayment plan; 

and

(5) A FFEL borrower may consolidate 

his or her loans (including a FFEL 

Consolidation Loan) into the Federal Direct 

Consolidation Loan Program for the 

purpose of using—

(i) The Public Service Loan 

Forgiveness Program; or

(ii) For FFEL Program loans first 

disbursed on or after October 1, 2008 

(including Federal Consolidation Loans that 

repaid FFEL or Direct Loan program Loans 

first disbursed on or after October 1, 2008), 

the no accrual of interest benefit for active 

duty service members.

(Authority: 20 U.S.C. 1077, 1078, 1078–1, 

1078–2, 1078–3, 1082, and 1091)

[57 FR 60323, Dec. 18, 1992, as amended at 

59 FR 25745, May 17, 1994; 59 FR 33349, 

June 28, 1994; 59 FR 61215, Nov. 29, 1994; 

60 FR 61756, 61815, Dec. 1, 1995; 60 FR 

65021, Dec. 18, 1995; 62 FR 63433, Nov. 28, 

1997; 64 FR 18975, Apr. 16, 1999; 64 FR 

58952, Nov. 1, 1999; 65 FR 65619, 65691, 

Nov. 1, 2000; 66 FR 44007, Aug. 21, 2001; 

68 FR 75428, Dec. 31, 2003; 71 FR 45699, 

Aug. 9, 2006; 71 FR 64397, Nov. 1, 2006 73 

FR 63248, Oct. 23, 2008; 74 FR 55990, Oct. 

29, 2009]
Subpart B – General Provisions

§682.202

Permissible charges by lenders to borrowers

26

§ 682.202 Permissible charges by lenders 

to borrowers.

The charges that lenders may 

impose on borrowers, either directly or 

indirectly, are limited to the following:

(a) Interest. The applicable interest 

rates for FFEL Program loans are given in 

paragraphs (a)(1) through (a)(4) and (a)(8) 

of this section.

(1) Stafford Loan Program. (i) For 

loans made prior to July 1, 1994, if, the 

borrower, on the date the promissory note 

evidencing the loan is was signed, has had

an outstanding balance of principal or 

interest on a previous Stafford loan, the 

interest rate is the applicable interest rate 

on that previous Stafford loan.

(ii) If the borrower, on the date the 

promissory note evidencing the loan is was

signed, has had no outstanding balance on 

any FFEL Program loan, and the first 

disbursement is was made—

(A) Prior to October 1, 1992, for a 

loan covering a period of instruction 

beginning on or after July 1, 1988, the 

interest rate is 8 percent until 48 months 

elapse after the repayment period begins, 

and 10 percent thereafter; or

(B) On or after October 1, 1992, and 

prior to July 1, 1994, the interest rate is a 

variable rate, applicable to each July 1–June 

30 period, that equals the lesser of—

(1) The bond equivalent rate of the 

91-day Treasury bills auctioned at the final 

auction prior to the June 1 immediately 

preceding the July 1–June 30 period, plus 

3.10 percent; or

(2) 9 percent.

(iii) For a Stafford loan for which the 

first disbursement is was made before 

October 1, 1992—

(A) If the borrower, on the date the 

promissory note is was signed, has had no 

outstanding balance on a Stafford loan but 

has had an outstanding balance of principal 

or interest on a PLUS or SLS loan made for a 

period of enrollment beginning before July 

1, 1988, or on a Consolidation loan that 

repaid a loan made for a period of 

enrollment beginning before July 1, 1988, 

the interest rate is 8 percent; or

(B) If the borrower, on the date the 

promissory note evidencing the loan is was

signed, has had an outstanding balance of 

principal or interest on a PLUS or SLS loan 

made for a period of enrollment beginning 

on or after July 1, 1988, or on a 

Consolidation loan that repaid a loan made 

for a period of enrollment beginning on or 

after July 1, 1988, the interest rate is 8 

percent until 48 months elapse after the 

repayment period begins, and 10 percent 

thereafter.

(iv) For a Stafford loan for which the 

first disbursement is was made on or after 

October 1, 1992, but before December 20, 

1993, if the borrower, on the date the 

promissory note evidencing the loan is was

signed, has had no outstanding balance on 

a Stafford loan but has had an outstanding 

balance of principal or interest on a PLUS, 

SLS, or Consolidation loan, the interest rate 

is 8 percent.

(v) For a Stafford loan for which the 

first disbursement is was made on or after 
Subpart B – General Provisions

§682.202

Permissible charges by lenders to borrowers

27

December 20, 1993 and prior to July 1, 

1994, if the borrower, on the date the 

promissory note is was signed, has had no 

outstanding balance on a Stafford loan but 

has had an outstanding balance of principal 

or interest on a PLUS, SLS, or Consolidation 

loan, the interest rate is the rate provided 

in paragraph (a)(1)(ii)(B) of this section.

(vi) For a Stafford loan for which the 

first disbursement is was made on or after 

July 1, 1994 and prior to July 1, 1995, for a 

period of enrollment that includes included

or begins began on or after July 1, 1994, the 

interest rate is a variable rate, applicable to 

each July 1–June 30 period, that equals the 

lesser of—

(A) The bond equivalent rate of the 

91-day Treasury bills auctioned at the final 

auction prior to the June 1 immediately 

preceding the July 1–June 30 period, plus 

3.10; or

(B) 8.25 percent.

(vii) For a Stafford loan for which the 

first disbursement is was made on or after 

July 1, 1995 and prior to July 1, 1998 the 

interest rate is a variable rate applicable to 

each July 1–June 30 period, that equals the 

lesser of—

(A) The bond equivalent rate of the 

91-day Treasury bills auctioned at the final 

auction prior to the June 1 immediately 

preceding the July 1–June 30 period, plus 

2.5 percent during the in-school, grace and 

deferment period and 3.10 percent during 

repayment; or

(B) 8.25 percent.

(viii) For a Stafford loan for which 

the first disbursement is was made on or 

after July 1, 1998, and prior to July 1, 2006, 

the interest rate is a variable rate, 

applicable to each July 1–June 30 period, 

that equals the lesser of—

(A) The bond equivalent rate of the 

91-day Treasury bills auctioned at the final 

auction prior to the June 1 immediately 

preceding the July 1–June 30 period plus 1.7 

percent during the in-school, grace and 

deferment periods and 2.3 percent during 

repayment; or

(B) 8.25 percent.

(ix) For a Stafford loan for which the 

first disbursement is was made on or after 

July 1, 2006, the interest rate is 6.8 percent.

(x) For a subsidized Stafford loan 

made to an undergraduate student for 

which the first disbursement is was made 

on or after:

(A) July 1, 2006 and before July 1, 

2008, the interest rate is 6.8 percent on the 

unpaid principal balance of the loan.

(B) July 1, 2008 and before July 1, 

2009, the interest rate is 6 percent on the 

unpaid principal balance of the loan.

(C) July 1, 2009 and before July 1, 

2010, the interest rate is 5.6 percent on the 

unpaid principal balance of the loan.

(D) July 1, 2010 and before July 1, 

2011, the interest rate is 4.5 percent on the 

unpaid principal balance of the loan.
Subpart B – General Provisions

§682.202

Permissible charges by lenders to borrowers

28

(E) July 1, 2011 and before July 

2012, the interest rate is 3.4 percent on the 

unpaid balance of the loan.

(2) PLUS Program. (i) For a combined 

repayment schedule under §682.209(d), the 

interest rate is the weighted average of the 

rates of all loans included under that 

schedule.

(ii) For a loan disbursed on or after 

July 1, 1987 but prior to October 1, 1992, 

and for any refinanced PLUS loan loan made 

under §682.209 (e) or (f), the interest rate is 

a variable rate, applicable to each July 1–

June 30 period, that equals the lesser of—

(A) The bond equivalent rate of the 

52-week Treasury bills auctioned at the final 

auction prior to the June 1 immediately 

preceding the July 1–June 30 period, plus 

3.25 percent; or

(B) 12 percent.

(iii) For a loan disbursed on or after 

October 1, 1992 and prior to July 1, 1994, 

the interest rate is a variable rate, 

applicable to each July 1–June 30 period, 

that equals the lesser of—

(A) The bond equivalent rate of the 

52-week Treasury bills auctioned at the final 

auction prior to the June 1 immediately 

preceding the July 1–June 30 period, plus 

3.10 percent; or

(B) 10 percent.

(iv) For a loan for which the first 

disbursement is was made on or after July 

1, 1994 and prior to July 1, 1998, the 

interest rate is a variable rate applicable to 

each July 1–June 30 period, that equals the 

lesser of—

(A) The bond equivalent rate of the 

52-week Treasury bills auctioned at the final 

auction prior to the June 1 immediately 

preceding the July 1–June 30 period, plus 

3.10 percent; or

(B) 9 percent.

(v) For a loan for which the first 

disbursement is was made on or after July 

1, 1998, the interest rate is a variable rate, 

applicable to each July 1–June 30 period, 

that equals the lesser of—

(A) The bond equivalent rate of the 

91-day Treasury bills auctioned at the final 

auction prior to the June 1 immediately 

preceding the July 1–June 30 period, plus 

3.10 percent; or

(B) 9 percent.

(vi)(A) Beginning on July 1, 2001, and 

prior to July 1, 2006, the interest rate on 

the loans described in paragraphs (a)(2)(ii) 

through (iv) of this section is a variable rate 

applicable to each July 1–June 30, as 

determined on the preceding June 26, and 

is equal to the weekly average 1-year 

constant maturity Treasury yield, as 

published by the Board of Governors of the 

Federal Reserve System, for the last 

calendar week ending on or before such 

June 26; plus—

(1) 3.25 percent for loans described 

in paragraph (a)(2)(ii) of this section; or

(2) 3.1 percent for loans described in 

paragraphs (a)(2)(iii) and (iv) of this section.
Subpart B – General Provisions

§682.202

Permissible charges by lenders to borrowers

29

(B) The interest rates calculated 

under paragraph (a)(2)(vi)(A) of this section 

shall not exceed the limits specified in 

paragraphs (a)(2)(ii)(B), (a)(2)(iii)(B), and 

(a)(2)(iv)(B) of this section, as applicable.

(vii) For a PLUS loan first disbursed 

on or after July 1, 2006, the interest rate is 

8.5 percent.

(3) SLS Program. (i) For a combined 

repayment schedule under §682.209(d), the 

interest rate is the weighted average of the 

rates of all loans included under that 

schedule.

(ii) For a loan disbursed on or after 

July 1, 1987 but prior to October 1, 1992, 

and for any refinanced SLS loan loan made 

under §682.209 (e) or (f), the interest rate is 

a variable rate, applicable to each July 1–

June 30 period, that equals the lesser of—

(A) The bond equivalent rate of the 

52-week Treasury bills auctioned at the final 

auction prior to the June 1 immediately 

preceding the July 1–June 30 period, plus 

3.25 percent; or

(B) 12 percent.

(iii) For a loan disbursed on or after 

October 1, 1992, the interest rate is a 

variable rate, applicable to each July 1–June 

30 period, that equals the lesser of—

(A) The bond equivalent rate of the 

52-week Treasury bills auctioned at the final 

auction prior to the June 1 immediately 

preceding the July 1–June 30 period, plus 

3.10 percent; or

(B) 11 percent.

(iv)(A) Beginning on July 1, 2001, the 

interest rate on the loans described in 

paragraphs (a)(3)(ii) and (iii) of this section 

is a variable rate applicable to each July 1–

June 30, as determined on the preceding 

June 26, and is equal to the weekly average 

1-year constant maturity Treasury yield, as 

published by the Board of Governors of the 

Federal Reserve System, for the last 

calendar week ending on or before such 

June 26; plus—

(1) 3.25 percent for loans described 

in paragraph (a)(3)(ii) of this section; or

(2) 3.1 percent for loans described in 

paragraph (a)(3)(iii) of this section.

(B) The interest rates calculated 

under paragraph (a)(3)(iv)(A) of this section 

shall not exceed the limits specified in 

paragraphs (a)(3)(ii)(B) and (a)(3)(iii)(B) of 

this section, as applicable.

(4) Consolidation Program. (i) A 

Consolidation Program loan made before 

July 1, 1994 bears interest at the rate that is 

the greater of—

(A) The weighted average of interest 

rates on the loans consolidated, rounded to 

the nearest whole percent; or

(B) 9 percent.

(ii) A Consolidation loan made on or 

after July 1, 1994, for which the loan 

application was received by the lender 

before November 13, 1997, bears interest 

at the rate that is equal to the weighted 

average of interest rates on the loans 

consolidated, rounded upward to the 

nearest whole percent.
Subpart B – General Provisions

§682.202

Permissible charges by lenders to borrowers

30

(iii) For a Consolidation loan for 

which the loan application was received by 

the lender on or after November 13, 1997 

and before October 1, 1998, the interest 

rate for the portion of the loan that 

consolidated loans other than HEAL loans is 

a variable rate, applicable to each July 1–

June 30 period, that equals the lesser of—

(A) The bond equivalent rate of the 

91-day Treasury bills auctioned at the final 

auction held prior to June 1 of each year 

plus 3.10 percent; or

(B) 8.25 percent.

(iv) For a Consolidation loan for 

which the application was received by the 

lender on or after October 1, 1998 and prior 

to July 1, 2010, the interest rate for the 

portion of the loan that consolidated loans 

other than HEAL loans is a fixed rate that is 

the lesser of—

(A) The weighted average of interest 

rates on the loans consolidated, rounded to 

the nearest higher one-eighth of one 

percent; or

(B) 8.25 percent.

(v) For a Consolidation loan for 

which the application was received by the 

lender on or after November 13, 1997 and 

prior to July 1, 2010, the annual interest 

rate applicable to the portion of each

consolidation loan that repaid HEAL loans is 

a variable rate adjusted annually on July 1 

and must be equal to the average of the 

bond equivalent rates of the 91-day 

Treasury bills auctioned for the quarter 

ending June 30, plus 3 percent. There is no 

maximum rate on this portion of the loan.

(5) Actual interest rates under the 

Stafford loan, SLS, PLUS, and Consolidation 

Programs. A lender may charge a borrower 

an actual rate of interest that is less than 

the applicable interest rate specified in 

paragraphs (a)(1)–(4) of this section.

(6) Refund of excess interest paid on 

Stafford loans. 

(i) For a loan with an applicable 

interest rate of 10 percent made prior to 

July 23, 1992, and for a loan with an 

applicable interest rate of 10 percent made 

from July 23, 1992 through September 30, 

1992, to a borrower with no outstanding 

FFEL Program loans—

(A) If during any calendar quarter, 

the sum of the average of the bond 

equivalent rates of the 91-day Treasury bills 

auctioned for that quarter, plus 3.25 

percent, is less than 10 percent, the lender 

shall calculate an adjustment and credit the 

adjustment as specified under paragraph 

(a)(6)(i)(B) of this section if the borrower's 

account is not more than 30 days 

delinquent on December 31. The amount of 

the adjustment for a calendar quarter is 

equal to—

(1) 10 percent minus the sum of the 

average of the bond equivalent rates of the 

91-day Treasury bills auctioned for the 

applicable quarter plus 3.25 percent;

(2) Multiplied by the average daily 

principal balance of the loan (not including 

unearned interest added to principal); and

(3) Divided by 4;

(B) No later than 30 calendar days 

after the end of the calendar year, the 
Subpart B – General Provisions

§682.202

Permissible charges by lenders to borrowers

31

holder of the loan shall credit any amounts 

computed under paragraph (a)(6)(i)(A) of 

this section to—

(1) The Secretary, for amounts paid 

during any period in which the borrower is 

eligible for interest benefits;

(2) The borrower's account to 

reduce the outstanding principal balance as 

of the date the holder adjusts the 

borrower's account, provided that the 

borrower's account was not more than 30 

days delinquent on that December 31; or

(3) The Secretary, for a borrower 

who on the last day of the calendar year is 

delinquent for more than 30 days.

(ii) For a fixed interest rate loan 

made on or after July 23, 1992 to a 

borrower with an outstanding FFEL Program 

loan—

(A) If during any calendar quarter, 

the sum of the average of the bond 

equivalent rates of the 91-day Treasury bills 

auctioned for that quarter, plus 3.10 

percent, is less than the applicable interest 

rate, the lender shall calculate an 

adjustment and credit the adjustment to 

reduce the outstanding principal balance of 

the loan as specified under paragraph 

(a)(6)(ii)(C) of this section if the borrower's 

account is not more than 30 days 

delinquent on December 31. The amount of 

an adjustment for a calendar quarter is 

equal to—

(1) The applicable interest rate 

minus the sum of the average of the bond 

equivalent rates of the 91-day Treasury bills 

auctioned for the applicable quarter plus 

3.10 percent;

(2) Multiplied by the average daily 

principal balance of the loan (not including 

unearned interest added to principal); and

(3) Divided by 4;

(B) For any quarter or portion 

thereof that the Secretary was obligated to 

pay interest subsidy on behalf of the 

borrower, the holder of the loan shall 

refund to the Secretary, no later than the 

end of the following quarter, any excess 

interest calculated in accordance with 

paragraph (a)(6)(ii)(A) of this section;

(C) For any other quarter, the holder 

of the loan shall, within 30 days of the end 

of the calendar year, reduce the borrower's 

outstanding principal by the amount of 

excess interest calculated under paragraph 

(a)(6)(ii)(A) of this section, provided that the 

borrower's account was not more than 30 

days delinquent as of December 31;

(D) For a borrower who on the last 

day of the calendar year is delinquent for 

more than 30 days, any excess interest 

calculated shall be refunded to the 

Secretary; and

(E) Notwithstanding paragraphs 

(a)(6)(ii)(B), (C) and (D) of this section, if the 

loan was disbursed during a quarter, the 

amount of any adjustment refunded to the 

Secretary or credited to the borrower for 

that quarter shall be prorated accordingly.

(7) Conversion to Variable Rate. 

(i) A lender or holder shall convert 

the interest rate on a loan under 
Subpart B – General Provisions

§682.202

Permissible charges by lenders to borrowers

32

paragraphs (a)(6)(i) or (ii) of this section to a 

variable rate.

(ii) The applicable interest rate for 

each 12-month period beginning on July 1 

and ending on June 30 preceding each 12-

month period is equal to the sum of—

(A) The bond equivalent rate of the 

91-day Treasury bills auctioned at the final 

auction prior to June 1; and

(B) 3.25 percent in the case of a loan 

described in paragraph (a)(6)(i) of this 

section or 3.10 percent in the case of a loan 

described in paragraph (a)(6)(ii) of this 

section.

(iii)(A) In connection with the 

conversion specified in paragraph 

(a)(6)(ii)(7)(i) of this section for any period 

prior to the conversion for which a rebate 

has not been provided under paragraph 

(a)(6) of this section, a lender or holder shall 

convert the interest rate to a variable rate.

(B) The interest rate for each period 

shall be reset quarterly and the applicable 

interest rate for the quarter or portion shall 

equal the sum of—

(1) The average of the bond 

equivalent rates of 91-day Treasury bills 

auctioned for the preceding 3-month 

period; and

(2) 3.25 percent in the case of loans 

as specified under paragraph (a)(6)(i) of this 

section or 3.10 percent in the case of loans 

as specified under paragraph (a)(6)(ii) of 

this section.

(iv)(A) The holder of a loan being 

converted under paragraph (a)(7)(iii)(A) of 

this section shall complete such conversion 

on or before January 1, 1995.

(B) The holder shall, not later than 

30 days prior to the conversion, provide the 

borrower with—

(1) A notice informing the borrower 

that the loan is being converted to a 

variable interest rate;

(2) A description of the rate to the 

borrower;

(3) The current interest rate; and

(4) An explanation that the variable 

rate will provide a substantially equivalent 

benefit as the adjustment otherwise 

provided under paragraph (a)(6) of this 

section.

(v) The notice may be provided as 

part of the disclosure requirement as 

specified under §682.205.

(vi) The interest rate as calculated 

under this paragraph may not exceed the 

maximum interest rate applicable to the 

loan prior to the conversion.

(8) Applicability of the 

Servicemembers Civil Relief Act (50 U.S.C 

527, App. sec. 207) . Notwithstanding 

paragraphs (a)(1) through (a)(4) of this 

section, effective August 14, 2008, upon the 

loan holder's receipt of the borrower's 

written request and a copy of the 

borrower's military orders, the maximum 

interest rate, as defined in 50 U.S.C. 527, 

App. section 207(d), on FFEL Program loans 

made prior to the borrower entering active 

duty status is 6 percent while the borrower 

is on active duty military service.
Subpart B – General Provisions

§682.202

Permissible charges by lenders to borrowers

33

(b) Capitalization. (1) A lender may 

add accrued interest and unpaid insurance 

premiums or Federal default fees to the 

borrower's unpaid principal balance in 

accordance with this section. This increase 

in the principal balance of a loan is called 

“capitalization.”

(2) Except as provided in paragraph 

(b)(4) and (b)(5) of this section, a lender 

may capitalize interest payable by the 

borrower that has accrued—

(i) For the period from the date the 

first disbursement was made to the 

beginning date of the in-school period or, 

for a PLUS loan, for the period from the 

date the first disbursement was made to 

the date the repayment period begins;

(ii) For the in-school or grace 

periods, or for a period needed to align 

repayment of an SLS with a Stafford loan, if 

capitalization is expressly authorized by the 

promissory note (or with the written 

consent of the borrower);

(iii) For a period of authorized 

deferment;

(iv) For a period of authorized 

forbearance; or

(v) For the period from the date the 

first installment payment was due until it 

was made.

(3) A lender may capitalize accrued 

interest under paragraphs (b)(2)(ii) through 

(iv) of this section no more frequently than 

quarterly. Capitalization is again permitted 

when repayment is required to begin or 

resume. A lender may capitalize accrued 

interest under paragraph (b)(2) (i) and (v) of 

this section only on the date repayment of 

principal is scheduled to begin.

(4)(i) For unsubsidized Stafford loans 

disbursed on or after October 7, 1998 and 

prior to July 1, 2000, the lender may 

capitalize the unpaid interest that accrues 

on the loan according to the requirements 

of section 428H(e)(2) of the Act.

(ii) For Stafford loans first disbursed 

on or after July 1, 2000, the lender may 

capitalize the unpaid interest—

(A) When the loan enters 

repayment;

(B) At the expiration of a period of 

authorized deferment;

(C) At the expiration of a period of 

authorized forbearance; and

(D) When the borrower defaults.

(5) For Consolidation loans, the 

lender may capitalize interest as provided in 

paragraphs (b)(2) and (b)(3) of this section, 

except that the lender may capitalize the 

unpaid interest for a period of authorized 

in-school deferment only at the expiration 

of the deferment.

(6) For any borrower in an in-school 

or grace period or the period needed to 

align repayment, deferment, or forbearance 

status, during which the Secretary does not 

pay interest benefits and for which the 

borrower has agreed to make payments of 

interest, the lender may capitalize past due 

interest provided that the lender has 

notified the borrower that the borrower's 

failure to resolve any delinquency 

constitutes the borrower's consent to 
Subpart B – General Provisions

§682.202

Permissible charges by lenders to borrowers

34

capitalization of delinquent interest and all 

interest that will accrue through the 

remainder of that period.

(c) Fees for FFEL Program loans. 

(1)(i) For Stafford loans first disbursed prior 

to July 1, 2006, a lender may charge a 

borrower an origination fee not to exceed 3 

percent of the principal amount of the loan.

(ii) For Stafford loans first disbursed 

on or after July 1, 2006, but before July 1, 

2007, a lender may charge a borrower an 

origination fee not to exceed 2 percent of 

the principal amount of the loan.

(iii) For Stafford loans first disbursed 

on or after July 1, 2007, but before July 1, 

2008, a lender may charge a borrower an 

origination fee not to exceed 1.5 percent of 

the principal amount of the loan.

(iv) For Stafford loans first disbursed 

on or after July 1, 2008, but before July 1, 

2009, a lender may charge a borrower an 

origination fee not to exceed 1 percent of 

the principal amount of the loan.

(v) For Stafford loans first disbursed 

on or after July 1, 2009, but before July 1, 

2010, a lender may charge a borrower an 

origination fee not to exceed .5 percent of 

the principal amount of the loan.

(vi) For Stafford loans first disbursed 

on or after July 1, 2010, a lender may not 

charge a borrower an origination fee.

(vii)(vi) Except as provided in 

paragraph (c)(2) of this section, a lender 

must charge all borrowers the same 

origination fee.

(2)(i) A lender may charge a lower 

origination fee than the amount specified in 

paragraph (c)(1) of this section to a 

borrower whose expected family 

contribution (EFC), used to determine 

eligibility for the loan, is equal to or less 

than the maximum qualifying EFC for a 

Federal Pell Grant at the time the loan is 

certified or to a borrower who qualifies for 

a subsidized Stafford loan. A lender must 

charge all such borrowers the same 

origination fee.

(ii) With the approval of the 

Secretary, a lender may use a standard 

comparable to that defined in paragraph 

(c)(2)(i) of this section.

(3) If a lender charges a lower 

origination fee on unsubsidized loans under 

paragraph (c)(1) or (c)(2) of this section, the 

lender must charge the same fee on 

subsidized loans.

(4)(i) For purposes of this paragraph 

(c), a lender is defined as:

(A) All entities under common 

ownership, including ownership by a 

common holding company, that make loans 

to borrowers in a particular state; and

(B) Any beneficial owner of loans 

that provides funds to an eligible lender 

trustee to make loans on the beneficial 

owner's behalf in a particular state.

(ii) If a lender as defined in 

paragraph (c)(4)(i) charges a lower 

origination fee to any borrower in a 

particular state under paragraphs (c)(1) or 

(c)(2) of this section, the lender must charge 

all such borrowers who reside in that state 
Subpart B – General Provisions

§682.202

Permissible charges by lenders to borrowers

35

or attend school in that state the same 

origination fee.

(5) Shall A lender must charge a 

borrower an origination fee on a PLUS loan 

of 3 percent of the principal amount of the 

loan;

(6) Shall A lender must deduct a pro 

rata portion of the fee (if charged) from 

each disbursement; and

(7) Shall A lender must refund by a 

credit against the borrower's loan balance 

the portion of the origination fee previously 

deducted from the loan that is attributable 

to any portion of the loan—

(i) That is returned by a school to a 

lender in order to comply with the Act or 

with applicable regulations;

(ii) That is repaid or returned within 

120 days of disbursement, unless—

(A) The borrower has no FFEL 

Program loans in repayment status and has 

requested, in writing, that the repaid or 

returned funds be used for a different 

purpose; or

(B) The borrower has a FFEL 

Program loan in repayment status, in which 

case the payment is applied in accordance 

with §682.209(b) unless the borrower has 

requested, in writing, that the repaid or 

returned funds be applied as a cancellation 

of all or part of the loan;

(iii) For which a loan check has not 

been negotiated within 120 days of 

disbursement; or

(iv) For which loan proceeds 

disbursed by electronic funds transfer or 

master check in accordance with 

§682.207(b)(1)(ii) (B) and (C) have not been 

released from the restricted account 

maintained by the school within 120 days of 

disbursement.

(d) Insurance premium and Federal 

default fee. (1) For loans guaranteed prior 

to July 1, 2006, a lender may charge the 

borrower the amount of the insurance 

premium paid by the lender to the 

guarantor (up to 1 percent of the principal 

amount of the loan) if that charge is 

provided for in the promissory note.

(2) For loans guaranteed on or after 

July 1, 2006 and prior to July 1, 2010, other 

than an SLS or PLUS loan refinanced under 

§682.209(e) or (f), a lender may charge the 

borrower the amount of the Federal default 

fee paid by the lender to the guarantor (up 

to 1 percent of the principal amount of the 

loan) if that charge is provided for in the 

promissory note.

(3) If the borrower is charged the 

insurance premium or the Federal default 

fee, the amount charged must be deducted 

proportionately from each disbursement of 

the borrower's loan proceeds, if the loan is 

disbursed in more than one installment.

(4) The lender shall refund the 

insurance premium or Federal default fee 

paid by the borrower in accordance with 

the circumstances and procedures 

applicable to the return of origination fees, 

as described in paragraph (c)(7) of this 

section.
Subpart B – General Provisions

§682.202

Permissible charges by lenders to borrowers

36

(e) Administrative charge for a 

refinanced PLUS or SLS Loan. A lender may 

charge a borrower up to $100 to cover the 

administrative costs of making a loan to a 

borrower under §682.209(e) for the 

purpose of refinancing a PLUS or SLS loan to 

secure a variable interest rate.

(f)(e) Late charge. (1) If authorized 

by the borrower's promissory note, the 

lender may require the borrower to pay a 

late charge under the circumstances 

described in paragraph (f)(e)(2) of this 

section. This charge may not exceed six 

cents for each dollar of each late 

installment.

(2) The lender may require the 

borrower to pay a late charge if the 

borrower fails to pay all or a portion of a 

required installment payment within 15 

days after it is due.

(g)(f) Collection charges. (1) If 

provided for in the borrower's promissory 

note, and notwithstanding any provisions of 

State law, the lender may require that the 

borrower or any endorser pay costs 

incurred by the lender or its agents in 

collecting installments not paid when due, 

including, but not limited to—

(i) Attorney's fees;

(ii) Court costs; and

(iii) Telegrams.

(2) The costs referred to in 

paragraph (g)(f)(1) of this section may not 

include routine collection costs associated 

with preparing letters or notices or with 

making personal contacts with the 

borrower (e.g., local and long-distance 

telephone calls).

(h)(g) Special allowance. Pursuant to 

§682.412(c), a lender may charge a 

borrower the amount of special allowance 

paid by the Secretary on behalf of the 

borrower.

(Authority: 20 U.S.C. 1077, 1078, 1078–1, 

1078–2, 1078–3, 1079, 1082, 1087–1, 

1091a)

[57 FR 60323, Dec. 18, 1992, as amended at 

59 FR 22475, Apr. 29, 1994; 59 FR 61427, 

Nov. 30, 1994; 61 FR 60486, Nov. 27, 1996; 

62 FR 63434, Nov. 28, 1997; 64 FR 18976, 

Apr. 16, 1999; 64 FR 58953, Nov. 1, 1999; 

66 FR 34762, June 29, 2001; 71 FR 45700, 

Aug. 9, 2006; 72 FR 62000, Nov. 1, 2007; 74 

FR 55991, Oct. 29, 2009]
Subpart B – General Provisions

§682.203

Responsible parties

37

§ 682.203 Responsible parties.

(a) Delegation of functions. A school, 

lender, or guaranty agency may contract or 

otherwise delegate the performance of its 

functions under the Act and this part to a 

servicing agency or other party. This 

contracting or other delegation of functions 

does not relieve the school, lender, or 

guaranty agency of its duty to comply with 

the requirements of the Act and this part.

(b) Trustee responsibility. A lender 

that holds a loan in its capacity as a trustee 

assumes responsibility for complying with 

all statutory and regulatory requirements 

imposed on any other holders of a loan.

(Authority: 20 U.S.C. 1082)
Subpart B – General Provisions

§682.204

Maximum loan amounts

38

§ 682.204 Maximum loan amounts.

(a) Stafford Loan Program annual 

limits. (1) In the case of an undergraduate 

student who has not successfully completed 

the first year of a program of 

undergraduate education, the total amount 

the student may borrow for any academic 

year of study under the Stafford Loan 

Program in combination with the Federal

Direct Stafford/Ford Subsidized Loan 

Program may not exceed the following:

(i) $2,625, or, for a loan disbursed 

on or after July 1, 2007, $3,500, for a 

program of study of at least a full academic 

year in length.

(ii) For a one-year program of study 

with less than a full academic year 

remaining, the amount that is the same 

ratio to $2,625, or, for a loan disbursed on 

or after July 1, 2007, $3,500, as the—

Number of semester, trimester, 

quarter, or clock hours enrolled

Number of semester, trimester, 

quarter, or clock hours in academic year

(iii) For a program of study that is 

less than a full academic year in length, the 

amount that is the same ratio to $2,625, or, 

for a loan disbursed on or after July 1, 2007,

$3,500 as the lesser of the—

Number of semester, trimester, 

quarter, or clock hours enrolled

Number of semester, trimester, 

quarter, or clock hours in academic year

or

Number of weeks in program

enrolled

Number of weeks in academic year

(2) In the case of a student who has 

successfully completed the first year of an 

undergraduate program but has not 

successfully completed the second year of 

an undergraduate program, the total 

amount the student may borrow for any 

academic year of study under the Stafford 

Loan Program in combination with the 

Federal Direct Stafford/Ford Subsidized

Loan Program may not exceed the 

following:

(i) $3,500, or, for a loan disbursed 

on or after July 1, 2007, $4,500, for a 

program whose length is at least a full 

academic year in length.

(ii) For a program of study with less 

than a full academic year remaining, an 

amount that is the same ratio to $3,500, or, 

for a loan disbursed on or after July 1, 2007,

$4,500, as the—

Number of semester, trimester, 

quarter, or clock hours enrolled

Number of semester, trimester, 

quarter, or clock hours in academic year

(3) In the case of an undergraduate 

student who has successfully completed the 

first and second years of a program of study 

of undergraduate education but has not 

successfully completed the remainder of 

the program, the total amount the student 

may borrow for any academic year of study 

under the Stafford Loan Program in 
Subpart B – General Provisions

§682.204

Maximum loan amounts

39

combination with the Federal Direct 

Subsidized Stafford/Ford Loan Program may 

not exceed the following:

(i) $5,500 for a program whose 

length is at least an academic year in length.

(ii) For a program of study with less 

than a full academic year remaining, an 

amount that is the same ratio to $5,500 as 

the—

Number of semester, trimester, 

quarter, or clock hours enrolled

Number of semester, trimester, 

quarter, or clock hours in academic year

(4) In the case of a student who has 

an associate or baccalaureate degree that is 

required for admission into a program and 

who is not a graduate or professional 

student, the total amount the student may 

borrow for any academic year of study may 

not exceed the amounts in paragraph (a)(3) 

of this section.

(5) In the case of a graduate or 

professional student, the total amount the 

student may borrow for loans made prior to 

July 1, 2010 for any academic year of study 

under the Stafford Loan Program, in 

combination with any amount borrowed 

under the Federal Direct Subsidized 

Stafford/Ford Loan Program, may not 

exceed $8,500.

(6) In the case of a student enrolled 

for no longer than one consecutive 12-

month period in a course of study necessary 

for enrollment in a program leading to a 

degree or certificate, the total amount the 

student may borrow for any academic year 

of study under the Stafford Loan Program in 

combination with the Federal Direct 

Stafford/Ford Subsidized Loan Program may 

not exceed the following:

(i) $2,625 for coursework necessary 

for enrollment in an undergraduate degree 

or certificate program.

(ii) $5,500 for coursework necessary 

for enrollment in a graduate or professional 

degree or certificate program for a student 

who has obtained a baccalaureate degree.

(7) In the case of a student who has 

obtained a baccalaureate degree and is 

enrolled or accepted for enrollment in 

coursework necessary for a professional 

credential or certification from a State that 

is required for employment as a teacher in 

an elementary or secondary school in that 

State, the total amount the student may 

borrow for any academic year of study 

under the Stafford Loan Program in 

combination with the Federal Direct 

Subsidized Stafford/Ford Loan Program may 

not exceed $5,500.

(8) Except as provided in paragraph 

(a)(4) of this section, an undergraduate 

student who is enrolled in a program that is 

one academic year or less in length may not 

borrow an amount for any academic year of 

study that exceeds the amounts in 

paragraph (a)(1) of this section.

(9) Except as provided in paragraph 

(a)(4) of this section—

(i) An undergraduate student who is 

enrolled in a program that is more than one 

academic year in length and who has not 

successfully completed the first year of that 

program may not borrow an amount for 
Subpart B – General Provisions

§682.204

Maximum loan amounts

40

any academic year of study that exceeds 

the amounts in paragraph (a)(1) of this 

section.

(ii) An undergraduate student who is 

enrolled in a program that is more than one 

academic year in length and who has 

successfully completed the first year of that 

program, but has not successfully 

completed the second year of the program, 

may not borrow an amount for any 

academic year of study that exceeds the 

amounts in paragraph (a)(2) of this section.

(b) Stafford Loan Program 

aggregate limits. The aggregate unpaid 

principal amount of all Stafford Loan 

Program loans in combination with loans 

received by the student under the Federal

Direct Subsidized Stafford/Ford Loan 

Program, but excluding the amount of 

capitalized interest may not exceed the 

following:

(1) $23,000 in the case of any 

student who has not successfully completed 

a program of study at the undergraduate 

level.

(2) $65,500, in the case of a 

graduate or professional student, including 

loans for undergraduate study.

(c) Unsubsidized Stafford Loan 

Program. (1) In the case of a dependent 

undergraduate student—

(i) For a loan first disbursed before 

July 1, 2008, the total amount the student 

may borrow for any period of study under 

the Unsubsidized Stafford Loan Program in 

combination with the Federal Direct 

Unsubsidized Stafford/Ford Loan Program is 

the same as the amount determined under 

paragraph (a) of this section, less any 

amount received under the Stafford Loan 

Program or the Federal Direct Stafford/Ford 

Loan Program.

(ii) Except for a dependent 

undergraduate student who qualifies for 

additional Unsubsidized Stafford Loan funds 

because the student’s parents are unable to 

borrow under the PLUS Loan Program,

under as described in paragraph (d) of this 

section in accordance with the conditions 

specified in §682.201(a)(3), for a loan first 

disbursed on or after July 1, 2008, the total 

amount the dependent undergraduate

student may borrow for any academic year

period of study under the Unsubsidized 

Stafford Loan Program in combination with 

the Federal Direct Unsubsidized 

Stafford/Ford Loan Program is the same as 

the amount determined under paragraph 

(a) of this section, less any amount received 

under the Stafford Loan Program or the 

Federal Direct Subsidized Stafford/Ford

Loan Program, plus—

(A)(i) $2,000, for a program of study 

of at least a full academic year in length.

(B)(ii) For a program of study that is 

at one academic year or more in length with 

less than a full academic year remaining, 

the amount that is the same ratio to $2,000 

as the—

Number of semester, trimester, 

quarter, or clock hours enrolled

Number of semester, trimester, 

quarter, or clock hours in academic year
Subpart B – General Provisions

§682.204

Maximum loan amounts

41

(C)(iii) For a program of study that is 

less than a full academic year in length, the 

amount that is the same ratio to $2,000 as 

the lesser of the—

Number of semester, trimester, 

quarter, or clock hours enrolled

Number of semester, trimester, 

quarter, or clock hours in academic year

or

Number of weeks enrolled in

program

Number of weeks in academic year

(2) In the case of an independent 

undergraduate student, a graduate or 

professional student, or certain dependent 

undergraduate students under the 

conditions specified in §682.201(a)(3), the 

total amount the student may borrow for 

any period of enrollment under the 

Unsubsidized Stafford Loan and Federal

Direct Unsubsidized Stafford/Ford Loan 

programs may not exceed the amounts 

determined under paragraph (a) of this 

section less any amount received under the 

Federal Stafford Loan Program or the 

Federal Direct Subsidized Stafford/Ford

Loan Program, in combination with the 

amounts determined under paragraph (d) 

of this section.

(d) Additional eligibility under the 

Unsubsidized Stafford Loan Program . An 

independent undergraduate student, 

graduate or professional student, and 

certain dependent undergraduate students 

under the conditions specified in 

§682.201(a)(3) may borrow additional

amounts under the Unsubsidized Stafford 

Loan Program in addition to any amount 

borrowed under paragraphs (a) and (c) of 

this section, except as provided in 

paragraph (d)(9) of this section. The 

additional amount that such a student may 

borrow for any academic year of study 

under the Unsubsidized Stafford Loan 

Program in combination with the Federal

Direct Unsubsidized Stafford/Ford Loan 

Program, in addition to the amounts 

allowed under paragraphs (a) and (c) of this 

section, except as provided in paragraph 

(d)(9) of this section for certain dependent 

undergraduate students—

(1) In the case of a student who has 

not successfully completed the first year of 

a program of undergraduate education, 

may not exceed the following:

(i) $4,000, or, for a loan first 

disbursed on or after July 1, 2008, $6,000,

for a program of study of at least a full 

academic year.

(ii) For a one-year program of study 

with less than a full academic year 

remaining, the amount that is the same 

ratio to $4,000, or, for a loan first disbursed 

on or after July 1, 2008, $6,000, as the—

Number of semester, trimester, 

quarter, or clock hours enrolled

Number of semester, trimester, 

quarter, or clock hours in academic year

(iii) For a program of study that is 

less than a full academic year in length, an 

amount that is the same ratio to $4,000, or, 

for a loan first disbursed on or after July 1, 

2008, $6,000, as the lesser of—
Subpart B – General Provisions

§682.204

Maximum loan amounts

42

Number of semester, trimester, 

quarter, or clock hours enrolled

Number of semester, trimester, 

quarter, or clock hours in academic year

Or

Number of weeks enrolled in 

program

Number of weeks in academic year

(2) In the case of a student who has 

completed the first year of a program of 

undergraduate education but has not 

successfully completed the second year of a 

program of undergraduate education may 

not exceed the following:

(i) $4,000, or, for a loan first 

disbursed on or after July 1, 2008, $6,000,

for a program of study of at least a full 

academic year in length.

(ii) For a program of study with less 

than a full academic year remaining, an 

amount that is the same ratio to $4,000, or, 

for a loan first disbursed on or after July 1, 

2008, $6,000, as the—

Number of semester, trimester, 

quarter, or clock hours enrolled

Number of semester, trimester, 

quarter, or clock hours in academic year

(3) In the case of a student who has 

successfully completed the second year of a 

program of undergraduate education, but 

has not completed the remainder of the 

program, may not exceed the following:

(i) $5,000, or, for a loan first 

disbursed on or after July 1, 2008, $7,000,

for a program of study of at least a full 

academic year.

(ii) For a program of study with less 

than a full academic year remaining, an 

amount that is the same ratio to $5,000, or, 

for a loan first disbursed on or after July 1, 

2008, $7,000, as the—

Number of semester, trimester, 

quarter, or clock hours enrolled

Number of semester, trimester, 

quarter, or clock hours in academic year

(4) In the case of a student who has 

an associate or baccalaureate degree that is 

required for admission into a program and 

who is not a graduate or professional 

student, the total amount the student may 

borrow for any academic year of study may 

not exceed the amounts in paragraph (d)(3) 

of this section.

(5) In the case of a graduate or 

professional student, may not exceed 

$10,000, or, for a loan disbursed on or after 

July 1, 2007, $12,000.

(6) In the case of a student enrolled 

for no longer than one consecutive 12-

month period in a course of study necessary 

for enrollment in a program leading to a 

degree or a certificate may not exceed the 

following:

(i) $4,000, or, for a loan first 

disbursed on or after July 1, 2008, $6,000,

for coursework necessary for enrollment in 

an undergraduate degree or certificate 

program.

(ii) $5,000, or, for a loan disbursed 

on or after July 1, 2007, $7,000, for 
Subpart B – General Provisions

§682.204

Maximum loan amounts

43

coursework necessary for enrollment in a 

graduate or professional degree or 

certificate program for a student who has 

obtained a baccalaureate degree.

(iii) In the case of a student who has 

obtained a baccalaureate degree and is 

enrolled or accepted for enrollment in a 

program necessary for a professional 

credential or a certification from a State 

that is required for employment as a 

teacher in an elementary or secondary 

school in that State, $5,000, or, for a loan 

disbursed on or after July 1, 2007, $7,000.

(7) Except as provided in paragraph 

(d)(4) of this section, an undergraduate 

student who is enrolled in a program that is 

one academic year or less in length may not 

borrow an amount for any academic year of 

study that exceeds the amounts in 

paragraph (d)(1) of this section.

(8) Except as provided in paragraph 

(d)(4) of this section—

(i) An undergraduate student who is 

enrolled in a program that is more than one 

academic year in length and who has not 

successfully completed the first year of that 

program may not borrow an amount for 

any academic year of study that exceeds 

the amounts in paragraph (d)(1) of this 

section.

(ii) An undergraduate student who is 

enrolled in a program that is more than one 

academic year in length and who has 

successfully completed the first year of that 

program, but has not successfully 

completed the second year of the program, 

may not borrow an amount for any 

academic year of study that exceeds the 

amounts in paragraph (d)(2) of this section.

(9) A dependent undergraduate 

student who qualifies for the additional 

Unsubsidized Stafford Loan amounts under 

this section in accordance with the 

conditions specified in §682.201(a)(3) is not 

eligible to receive the additional 

Unsubsidized Stafford Loan amounts under 

paragraph (c)(1)(ii) of this section.

(e) Combined Federal Stafford, SLS 

and Federal Unsubsidized Stafford Loan 

Program aggregate limits. The aggregate 

unpaid principal amount of Stafford Loans, 

Federal Direct Stafford/Ford Subsidized 

Loans, Unsubsidized Stafford Loans, Federal

Direct Unsubsidized Stafford/Ford Loans 

and SLS Loans, but excluding the amount of 

capitalized interest, may not exceed the 

following:

(1) $23,000, or, effective July 1, 

2008, $31,000, for a dependent 

undergraduate student.

(2) $46,000, or, effective July 1, 

2008, $57,500, for an independent 

undergraduate student or a dependent 

undergraduate student under the 

conditions specified in §682.201(a)(3).

(3) $138,500 for a graduate or 

professional student.

(f) SLS Program annual limit. (1) In 

the case of a loan for which the first 

disbursement is made prior to July 1, 1993, 

the total amount of all SLS loans that a 

student may borrow for any academic year 

may not exceed $4,000 or, if the student is 

entering or is enrolled in a program of 
Subpart B – General Provisions

§682.204

Maximum loan amounts

44

undergraduate education that is less than 

one academic year in length and the 

student's SLS loan application is certified 

pursuant to §682.603 by the school on or 

after January 1, 1990—

(i) $2,500 for a student enrolled in a 

program whose length is at least two-thirds 

of an academic year but less than a full 

academic year in length;

(ii) $1,500 for a student enrolled in a 

program whose length is less than twothirds of an academic year in length; and

(iii) $0 for a student enrolled in a 

program whose length is less than one-third 

of an academic year in length.

(2) In the case of a loan for which a 

first disbursement is made on or after July 

1, 1993, the total amount a student may 

borrow for an academic year under the SLS 

program—

(i) In the case of a student who has 

not successfully completed the first and 

second year of a program of undergraduate 

education, may not exceed the following—

(A) $4,000 for enrollment in a 

program whose length is at least a full 

academic year in length;

(B) $2,500 for enrollment in a 

program whose length is at least two-thirds 

but less than a full academic year in length;

(C) $1,500 for enrollment in a 

program whose length is at least one-third 

but less than two-thirds of an academic 

year in length;

(ii) Except as provided in paragraph 

(f)(3) of this section, in the case of a student 

who successfully completed the first and 

second year of an undergraduate program, 

but has not completed the remainder of the 

program, may not exceed the following—

(A) $5,000 for enrollment in a 

program whose length is at least a full 

academic year;

(B) $3,325 for enrollment in a 

program whose length is at least two-thirds 

of an academic year but less than a full 

academic year in length; or

(C) $1,675 for enrollment in a 

program whose length is at least one-third 

of an academic year but less than twothirds of an academic year; and

(iii) In the case of a graduate or 

professional student, may not exceed 

$10,000.

(3) For a period of enrollment 

beginning after October 1, 1993, but prior 

to July 1, 1994 for which the first 

disbursement is made prior to July 1, 1994, 

in the case of a student who has 

successfully completed the first and second 

years of a program but has not successfully 

completed the remainder of a program of 

undergraduate education—

(i) $5,000; or

(ii) If the student is enrolled in a 

program, the remainder of which is less 

than a full academic year, the maximum 

annual amount that the student may 

receive may not exceed the amount that 

bears the same ratio to the amount in 

paragraph (f)(3)(i) of this section as the 
Subpart B – General Provisions

§682.204

Maximum loan amounts

45

remainder measured in semester, 

trimester, quarter, or clock hours bears to 

one academic year.

(g)(f) SLS Program aggregate limit. 

The total unpaid principal amount of SLS 

Program loans made to—

(1) An undergraduate student may 

not exceed—

(i) $20,000, for loans for which the 

first disbursement is made prior to July 1, 

1993; or

(ii) $23,000, for loans for which the 

first disbursement was made on or after 

July 1, 1993; and

(2) A graduate student may not 

exceed—

(i) $20,000, for loans for which the 

first disbursement is made prior to July 1, 

1993; or

(ii) $73,000, for loans for which the 

first disbursement was made on or after 

July 1, 1993 including loans for 

undergraduate study.

(h)(g) PLUS Program annual limit. 

The total amount of all PLUS Program loans 

that a parent or student may borrow for 

any academic year of study may not exceed 

the student's cost of education minus other 

estimated financial assistance for that 

student.

(i)(h) Minimum loan interval. The 

annual loan limits applicable to a student 

apply to the length of the school's academic 

year.

(j)(i) Treatment of Consolidation 

loans for purposes of determining loan 

limits. The percentage of the outstanding 

balance on a Consolidation loan counted 

against a borrower's aggregate loan limits 

under the Stafford loan, Unsubsidized 

Stafford loan, Direct Stafford loan, Direct 

Unsubsidized loan, SLS, PLUS, Perkins Loan, 

or HEAL program must equal the 

percentage of the original amount of the 

Consolidation loan attributable to loans 

made to the borrower under that program.

(k)(j) Maximum loan amounts. In no 

case may a Stafford, PLUS, or SLS loan 

amount exceed the student's estimated 

cost of attendance for the period of 

enrollment for which the loan is intended, 

less—

(1) The student's estimated financial 

assistance for that period; and

(2) The borrower's expected family 

contribution for that period, in the case of a 

Stafford loan that is eligible for interest 

benefits.

(l)(k) In determining a Stafford loan 

amount in accordance with §682.204 (a), (c) 

and (d), the school must use the definition 

of academic year in 34 CFR 668.3.

(m)(l) Any TEACH Grants that have 

been converted to Direct Unsubsidized 

Loans are not counted against annual or 

any aggregate loan limits under paragraphs 

(c), (d), and (e), and (f) of this section.

(Authority: 20 U.S.C. 1070g, 1078, 1078–2, 

1078–3, 1078–8)

[59 FR 33350, June 28, 1994, as amended at 

64 FR 18976, Apr. 16, 1999; 64 FR 58954, 
Subpart B – General Provisions

§682.204

Maximum loan amounts

46

Nov. 1, 1999; 66 FR 34763, June 29, 2001; 

67 FR 67078, Nov. 1, 2002; 71 FR 45700, 

Aug. 9, 2006; 71 FR 64397, Nov. 1, 2006; 73 

FR 35495, June 23, 2008; 73 FR 36793, June 

30, 2008; 74 FR 55991, Oct. 29, 2009]
Subpart B – General Provisions

§682.205

Disclosure requirements for lenders

47

§ 682.205 Disclosure requirements for 

lenders.

(a) Initial disclosure statement. (1) A 

lender must disclose the information 

described in paragraph (a)(2) of this section 

to a borrower, in simple and 

understandable terms, before or at the time 

of the first disbursement on a Federal 

Stafford or Federal PLUS loan. The 

information given to the borrower must 

prominently and clearly display, in bold 

type, a clear and concise statement that the 

borrower is receiving a loan that must be 

repaid.

(2) The lender shall provide the 

borrower with—

(i) The lender's name;

(ii) A toll-free telephone number 

accessible from within the United States 

that the borrower can use to obtain 

additional loan information;

(iii) The address to which 

correspondence with the lender and 

payments should be sent;

(iv) Notice that the lender may sell 

or transfer the loan to another party and, if 

it does, that the address and identity of the 

party to which correspondence and 

payments should be sent may change;

(v) The principal amount of the loan;

(vi) The amount of any charges, 

including the origination fee if applicable, 

and the Federal default fee, to be collected 

by the lender before or at the time of each 

disbursement on the loan, and an 

explanation of whether those charges are 

to be deducted from the proceeds of the 

loan or paid separately by the borrower or 

paid by the lender;

(vii) The actual interest rate;

(viii) The annual and aggregate 

maximum amounts that may be borrowed;

(ix) A statement that information 

concerning the loan, including the date of 

disbursement and the amount of the loan, 

will be reported to each nationwide 

consumer reporting agency;

(x) An explanation of when 

repayment of the loan is required and when 

the borrower is required to pay the interest 

that accrues on the loan, and a description 

of the types of repayment plans available;

(xi) The minimum and maximum 

number of years in which the loan must be 

repaid and the minimum amount of 

required annual payments;

(xii) An explanation of any special 

options the borrower may have for 

consolidating or refinancing the loan;

(xiii) A statement that the borrower 

has the right to prepay all or part of the 

loan at any time, without penalty;

(xiv) A statement describing the 

circumstances under which repayment of 

the loan or interest that accrues on the loan 

may be deferred;

(xv) A statement of availability of the 

Department of Defense program for 

repayment of loans on the basis of military 

service, as provided for in 10 U.S.C. 2171;
Subpart B – General Provisions

§682.205

Disclosure requirements for lenders

48

(xvi) The definition of “default” 

found in §682.200, and the consequences 

to the borrower of a default, including a 

statement concerning likely litigation, a 

statement that the default will be reported 

to each nationwide consumer reporting 

agency, and statements that the borrower 

will be liable for substantial collection costs, 

that the borrower's Federal and State 

income tax refund may be withheld to pay 

the debt, that the borrower's wages may be 

garnished or offset, and that the borrower 

will be ineligible for additional Federal 

student financial aid, as well as for 

assistance under most Federal benefit 

programs;

(xvii) An explanation of the possible 

effects of accepting the loan on the 

student's eligibility for other forms of 

student financial assistance;

(xviii) An explanation of any costs 

the borrower may incur during repayment 

or in the collection of the loan including any 

fees the borrower may be charged;

(xix) In the case of a Stafford or 

student PLUS loan, a statement that the 

loan proceeds will be transmitted to the 

school for delivery to the borrower;

(xx) A statement of the total 

cumulative balance, including the loan 

applied for, owed to that lender, and an 

estimate of, or information that will allow 

the borrower to estimate, the projected 

monthly payment amount based on that 

cumulative outstanding balance;

(xxi) For unsubsidized Stafford or 

student PLUS borrowers, an explanation 

that the borrower may pay the interest 

while in school and, if the interest is not 

paid by the borrower while in school, when 

and how often the interest will be 

capitalized;

(xxii) For parent PLUS borrowers, an 

explanation that the parent may defer 

payment on the loan while the student on 

whose behalf the parent borrowed is 

enrolled at least half-time and, if the parent 

does not pay interest while the student is in 

school, when and how often interest will be 

capitalized, and that the parent may be 

eligible for a deferment on the loan if the 

parent is enrolled at least half-time;

(xxiii) A statement summarizing the 

circumstances in which a borrower may 

obtain forbearance on the loan; and

(xxiv) A description of the options 

available for forgiveness of the loan and the 

requirements to obtain that forgiveness.

(3) With the exception of paragraphs 

(a)(2)(i) through (a)(2)(iii), (a)(2)(v) through 

(a)(2)(vii), and (a)(2)(xx) of this section, a 

lender's disclosure requirements are met if 

it provides the borrower with either—

(i) The borrower's rights and 

responsibilities statement approved by the 

Secretary under paragraph (b) of this 

section; or

(ii) The plain language disclosure 

approved by the Secretary under paragraph 

(g) of this section for subsequent loans 

made under a Master Promissory Note.

(b) Separate statement of borrower 

rights and responsibilities. In addition to the 

disclosures required by paragraph (a) of this 

section, the lender must provide the 
Subpart B – General Provisions

§682.205

Disclosure requirements for lenders

49

borrower with a separate written 

statement, using simple and 

understandable terms, at or prior to the 

time of the first disbursement, that 

summarizes the rights and responsibilities 

of the borrower with respect to the loan. 

The statement must also warn the 

borrower about the consequences 

described in paragraph (a)(2)(xvi) of this 

section if the borrower defaults on the loan 

and that the default will be reported to 

each nationwide consumer reporting 

agency. The Borrower's Rights and 

Responsibilities statement approved by the 

Secretary satisfies this requirement.

(c)(a) Repayment information — (1) 

Disclosures at or prior to repayment . The 

lender must disclose the information 

described in paragraph (c)(a)(2) of this 

section, in simple and understandable 

terms, in a statement provided to the 

borrower at or prior to the beginning of the 

repayment period. In the case of a Federal 

Stafford or Federal PLUS loan, the 

disclosures required by this paragraph must 

be made not less than 30 days nor more 

than 150 days before the first payment on 

the loan is due from the borrower. If the 

borrower enters the repayment period 

without the lender's knowledge, the lender 

must provide the required disclosures to 

the borrower immediately upon discovering 

that the borrower has entered the 

repayment period.

(2) The lender shall provide the 

borrower with—

(i) The lender's name, a toll-free 

telephone number accessible from within 

the United States that the borrower can use 

to obtain additional loan information, and 

the address to which correspondence with 

the lender and payments should be sent;

(ii) The scheduled date the 

repayment period is to begin, or a 

deferment under §682.210(v), if applicable, 

is to end;

(iii) The estimated balance, including 

the estimated amount of interest to be 

capitalized, owed by the borrower as of the 

date upon which the repayment period is to 

begin, a deferment under §682.210(v), if 

applicable, is to end, or the date of the 

disclosure, whichever is later;

(iv) The actual interest rate on the 

loan;

(v) An explanation of any fees that 

may accrue or be charged to the borrower 

during the repayment period;

(vi) The borrower's repayment 

schedule, including the due date of the first 

installment and the number, amount, and 

frequency of payments based on the 

repayment schedule selected by the 

borrower;

(vii) Except in the case of a 

Consolidation loan, an explanation of any 

special options the borrower may have for 

consolidating or refinancing the loan and of 

the availability and terms of such other 

options;

(viii) The estimated total amount of 

interest to be paid on the loan, assuming 

that payments are made in accordance with 

the repayment schedule, and if interest has 

been paid, the amount of interest paid;
Subpart B – General Provisions

§682.205

Disclosure requirements for lenders

50

(ix) A statement that the borrower 

has the right to prepay all or part of the 

loan at any time, without penalty;

(x) Information on any special loan 

repayment benefits offered on the loan, 

including benefits that are contingent on 

repayment behavior, and any other special 

loan repayment benefits for which the 

borrower may be eligible that would reduce 

the amount or length of repayment; and at 

the request of the borrower, an explanation 

of the effect of a reduced interest rate on 

the borrower's total payoff amount and 

time for repayment;

(xi) If the lender provides a 

repayment benefit, any limitations on that 

benefit, any circumstances in which the 

borrower could lose that benefit, and 

whether and how the borrower may regain 

eligibility for the repayment benefit;

(xii) A description of all the 

repayment plans available to the borrower 

and a statement that the borrower may 

change plans during the repayment period 

at least annually;

(xiii) A description of the options 

available to the borrower to avoid or be 

removed from default, as well as any fees

associated with those options; and

(xiv) Any additional resources, 

including nonprofit organizations, 

advocates and counselors, including the 

Department of Education's Student Loan 

Ombudsman, the lender is aware of where 

the borrower may obtain additional advice 

and assistance on loan repayment.

(3) Required disclosures during 

repayment . In addition to the disclosures 

required in paragraph (c)(a)(1) of this 

section, the lender must provide the 

borrower of a FFEL loan with a bill or 

statement that corresponds to each 

payment installment time period in which a 

payment is due that includes in simple and 

understandable terms—

(i) The original principal amount of 

the borrower's loan;

(ii) The borrower's current balance, 

as of the time of the bill or statement;

(iii) The interest rate on the loan;

(iv) The total amount of interest for 

the preceding installment paid by the 

borrower;

(v) The aggregate amount paid by 

the borrower on the loan, and separately 

identifying the amount the borrower has 

paid in interest on the loan, the amount of 

fees the borrower has paid on the loan, and 

the amount paid against the balance in 

principal;

(vi) A description of each fee the 

borrower has been charged for the most 

recent preceding installment time period;

(vii) The date by which a payment 

must be made to avoid additional fees and 

the amount of that payment and the fees;

(viii) The lender's or servicer's 

address and toll-free telephone number for 

repayment options, payments and billing 

error purposes; and
Subpart B – General Provisions

§682.205

Disclosure requirements for lenders

51

(ix) A reminder that the borrower 

may change repayment plans, a list of all of 

the repayment plans that are available to 

the borrower, a link to the Department of 

Education's Web site for repayment plan 

information, and directions on how the 

borrower may request a change in 

repayment plans from the lender.

(4) Required disclosures for 

borrowers having difficulty making 

payments . (i) Except as provided in 

paragraph (a)(4)(ii) of this section, Tthe 

lender must shall provide a borrower who 

has notified the lender that he or she is 

having difficulty making payments with—

(i)(A) A description of the repayment 

plans available to the borrower, and how 

the borrower may request a change in 

repayment plan;

(ii)(B) A description of the 

requirements for obtaining forbearance on 

the loan and any costs associated with 

forbearance; and

(iii)(C) A description of the options 

available to the borrower to avoid default 

and any fees or costs associated with those 

options.

(ii) A disclosure under paragraph 

(a)(4)(i) of this section is not required if the 

borrower’s difficulty has been resolved 

through contact with the borrower resulting 

from an earlier disclosure or other 

communication between the lender and the 

borrower.

(5) Required disclosures for 

borrowers who are 60-days delinquent in 

making payments on a loan. (i) The lender 

shall provide to a borrower who is 60 days 

delinquent in making required payments a 

notice of—

(A) The date on which the loan will 

default if no payment is made;

(B) The minimum payment the 

borrower must make, as of the date of the 

notice, to avoid default, including the 

payment amount needed to bring the loan 

current or payment in full;

(C) A description of the options 

available to the borrower to avoid default, 

including deferment and forbearance and 

any fees and costs associated with those 

options;

(D) Any options for discharging the 

loan that may be available to the borrower; 

and

(E) Any additional resources, 

including nonprofit organizations, 

advocates and counselors, including the 

Department of Education's Student Loan 

Ombudsman, the lender is aware of where 

the borrower may obtain additional advice 

and assistance on loan repayment.

(ii) The notice must be sent within 

five business days of the date the borrower 

becomes 60 days delinquent, unless the 

lender has sent such a notice within the 

previous 120 days.

(d)(b) Exception to disclosure 

requirement. In the case of a Federal 

Unsubsidized Stafford loan or a Federal 

PLUS loan, the lender is not required to 

provide the information in paragraph 

(c)(a)(2)(viii) of this section if the lender, 

instead of that disclosure, provides the 
Subpart B – General Provisions

§682.205

Disclosure requirements for lenders

52

borrower with sample projections of the 

monthly repayment amounts assuming 

different levels of borrowing and interest 

accruals resulting from capitalization of 

interest while the borrower or student on 

whose behalf the loan is made is in school. 

Sample projections must disclose the cost 

to the borrower of principal and interest, 

interest only, and capitalized interest. The 

lender may rely on the Stafford and PLUS 

promissory notes and associated materials 

approved by the Secretary for purposes of 

complying with this section.

(e)(c) Borrower may not be charged 

for disclosures. The lender must provide the 

information required by this section at no 

cost to the borrower.

(f)(d) Method of disclosure. Any 

disclosure of information by a lender under 

this section may be through written or 

electronic means.

(g) Plain language disclosure. The 

plain language disclosure text, as approved 

by the Secretary, must be provided to a 

borrower in conjunction with subsequent 

loans taken under a previously signed 

Master Promissory Note. The requirements 

of paragraphs (a) and (b) of this section are 

satisfied for subsequent loans if the 

borrower is sent the plain language 

disclosure text and an initial disclosure 

containing the information required by 

paragraphs (a)(2)(i) through (iii), (a)(2)(v), 

(a)(2)(vi), (a)(2)(vii), and (a)(2)(xx) of this 

section.

(h)(e) Notice of availability of 

income-sensitive and income-based 

repayment options. (1) At the time of 

offering a borrower a loan and at the time 

of offering a borrower repayment options, 

the lender must provide the borrower with 

a notice that informs the borrower of the 

availability of income-sensitive and, except 

for parent PLUS borrowers and 

Consolidation Loan borrowers whose 

Consolidation Loan paid off one or more 

parent PLUS Loans, income-based 

repayment plans. This information may be 

provided in a separate notice or as part of 

the other disclosures required by this 

section. The notice must inform the 

borrower—

(i) That the borrower is eligible for 

income-sensitive repayment and may be 

eligible for income-based repayment, 

including through loan consolidation;

(ii) Of the procedures by which the 

borrower can elect income-sensitive or 

income-based repayment; and

(iii) Of where and how the borrower 

may obtain more information concerning 

income-sensitive and income-based 

repayment plans.

(2) The promissory note and 

associated materials approved by the 

Secretary satisfy the loan origination notice 

requirements provided for in paragraph 

(h)(e)(1) of this section.

(i) Separate disclosure for 

Consolidation loans . At the time the lender 

provides a Consolidation loan application to 

a prospective borrower, it must disclose to 

the prospective borrower, in simple and 

understandable terms—

(1) Whether consolidation will result 

in a loss of loan benefits, including, but not 
Subpart B – General Provisions

§682.205

Disclosure requirements for lenders

53

limited to, loan forgiveness, cancellation, 

deferment, or a reduced interest rate on 

FFEL or Direct Loans repaid through 

consolidation;

(2) If a borrower is repaying a 

Federal Perkins Loan with the Consolidation 

loan, that the borrower will lose—

(i) The interest-free periods 

available on the Perkins Loan while the 

borrower is enrolled in-school at least halftime, in the grace period, or in a deferment 

period; and

(ii) The cancellation benefits on the 

Perkins Loan. The lender must provide to 

the borrower a list of the Perkins Loan 

cancellation benefits that would not be 

available on the Consolidation loan.

(3) The repayment plans available to 

the borrower;

(4) The borrower's options to prepay 

the Consolidation loan, to pay the loan on a 

shorter repayment schedule, and to change 

repayment plans;

(5) That the borrower benefit 

programs for a Consolidation loan vary 

among lenders;

(6) The consequences of default on 

the Consolidation loan; and

(7) That applying for the 

Consolidation loan does not obligate the 

borrower to agree to take the Consolidation 

loan, and the process and deadline by 

which the borrower may cancel the 

Consolidation loan.

(j)(f) Disclosure procedures when a 

borrower's address is not available . If a 

lender receives information indicating it 

does not know the borrower's current 

address, the lender is excused from 

providing disclosure information under this 

section unless it receives communication 

indicating a valid borrower address before 

the 241st day of delinquency, at which 

point the lender must resume providing the 

installment bill or statement, and any other 

disclosure information required under this 

section not previously provided.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1077, 1078, 1078–1, 

1078–2, 1078–3, 1082, 1083(a))

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9119, Feb. 19, 1993; 59 FR 25745, 

May 17, 1994; 60 FR 30788, June 12, 1995; 

64 FR 18976, Apr. 16, 1999; 64 FR 58625, 

Oct. 29, 1999; 64 FR 58965, Nov. 1, 1999; 

71 FR 45700. Aug. 9, 2006; 73 FR 63248, 

Oct. 23, 2008; 74 FR 55992, Oct. 29, 2009]
Subpart B – General Provisions

§682.206

Due diligence in making a loan

54

§ 682.206 Due diligence in making a loan.

(a) General. (1) Loan-making duties 

include determining the borrower's loan 

amount, approving the borrower for a loan, 

explaining to the borrower his or her rights 

and responsibilities under the loan, and 

completing and having the borrower sign 

the promissory note (except with respect to 

subsequent loans made under an MPN).

(2) A lender that delegates 

substantial loan-making duties to a school 

on a loan thereby enters into a loan 

origination relationship with the school in 

regard to that loan. If that relationship 

exists, the lender may rely in good faith 

upon statements of the borrower made in 

the loan application process, but may not 

rely upon statements made by the school in 

that process. A non-school lender that does 

not have an origination relationship with a 

school with respect to a loan may rely in 

good faith upon statements of both the 

borrower and the school in the loan 

application process. Except as provided in 

34 CFR part 668, subpart E, a school lender 

may rely in good faith upon statements 

made by the borrower in the loan 

application process.

(b) Processing forms. Before 

disbursing a loan, a lender must determine 

that all required forms have been 

accurately completed by the borrower, the 

student, the school, and the lender. A 

lender may not ask the borrower to sign 

any form before the borrower has provided 

on the form all information requested from 

the borrower.

(c) Approval of borrower and 

determination of loan amount. (1) A lender 

may make a loan only to an eligible 

borrower. To the extent authorized by 

paragraph (a)(2) of this section, the lender 

may rely on the information provided by 

the school, the borrower, and, if the 

borrower is a parent, the student on whose 

behalf the loan is sought, in determining 

the borrower's eligibility for a loan.

(2) Except in the case of a 

Consolidation loan, in determining the 

amount of the loan to be made, in no case 

may the loan amount exceed the lesser of 

the amount the borrower requests, the 

amount certified by the school under 

§682.603, or the loan limits under 

§682.204.

(d)(1) The lender must ensure that 

each loan is supported by an executed 

legally-enforceable promissory note as 

proof of the borrower's indebtedness.

(e) Security, endorsement, and comakers. (1) A FFEL Program loan must be 

made without security or endorsement, 

except as provided in paragraph (e)(2) of 

this section.

(2) A Federal PLUS Program Loan 

may be made to an eligible borrower with 

an endorser who is secondarily liable for 

repayment of the loan.

(3) A Federal Consolidation loan, 

based on an application received prior to 

July 1, 2006, may be made to two eligible 

spouses provided both borrowers agree to 

be jointly and severally liable for repayment 

of the loan as co-makers.

(f) Additional requirements for 

Consolidation loans . (1) Prior to making any 
Subpart B – General Provisions

§682.206

Due diligence in making a loan

55

payments to pay off a loan with the 

proceeds of a Consolidation loan, the lender 

shall—

(i) Obtain from the holder of each 

loan to be consolidated a certification with 

respect to the loan held by the holder 

that—

(A) The loan is a legal, valid, and 

binding obligation of the borrower;

(B) The loan was made and serviced 

in compliance with applicable laws and 

regulations; and

(C) In the case of a FFEL loan, that 

the guarantee on the loan is in full force 

and effect; and

(ii) Consistent with the requirements 

of §682.205(i)(7), notify the borrower, upon 

receipt of all information necessary to make 

the Consolidation loan, of the borrower's 

option to cancel the Consolidation loan, and 

the deadline by which the borrower must 

notify the lender that he or she wishes to 

cancel the loan. The lender must allow the 

borrower no less than 10 days from the 

date of the notice to cancel the loan.

(2) The Consolidation loan lender 

may rely in good faith on the certification 

provided under paragraph (f)(1)(i) of this 

section by the holder of a loan to be 

consolidated.

(Approved by the Office of Management 

and Budget under control number 1840–

0538) 

(Authority: 20 U.S.C. 1077, 1078, 1078–1, 

1078–2, 1078–3, 1079, 1080, 1082, 1083, 

1085)

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9119, Feb. 19, 1993; 59 FR 25746, 

May 17, 1994; 59 FR 33352, June 28, 1994; 

64 FR 18976, Apr. 16, 1999; 64 FR 58957, 

Nov. 1, 1999; 66 FR 34763, June 29, 2001; 

68 FR 75428, Dec. 31, 2003; 71 FR 64398, 

Nov. 1, 2006; 74 FR 55993, Oct. 29, 2009]
Subpart B – General Provisions

§682.207

Due diligence in disbursing a loan

56

§ 682.207 Due diligence in disbursing a 

loan.

(a)(1) This section prescribes 

procedures for lenders to follow in 

disbursing Stafford and PLUS loans. This 

section does not prescribe procedures for a 

refinanced SLS or PLUS Program loan made 

under §682.209 (e) or (f). With respect to 

FISL and Federal PLUS loans, references to 

the “guaranty agency” in this section shall 

be understood to refer to the “Secretary.”

(2) The requirements of paragraphs 

(b)(1) (ii) and (v) of this section must be 

satisfied either by the lender or by an 

escrow agent with which the lender has an 

agreement pursuant to §682.408. The 

lender shall comply with paragraph 

(b)(1)(iii) of this section whether or not it 

disburses to an escrow agent.

(b)(1) In disbursing a loan, a 

lender—

(i)(A) May not disburse loan 

proceeds prior to the issuance of the 

guarantee commitment for the loan by the 

guaranty agency, except with the agency's 

prior approval; and

(B) Must disburse a Stafford or PLUS 

loan in accordance with the disbursement 

schedule provided by the school or any 

request made by the school modifying that 

schedule.

(ii) Shall disburse loan proceeds by—

(A) A check that is made payable to 

the borrower, or that is made co-payable to 

the borrower and the school for attendance 

at which the loan is intended, and requires 

the personal endorsement or other written 

certification of the borrower in order to be 

cashed or deposited in an account of the 

borrower at a financial institution;

(B) If authorized by the guarantor, 

electronic funds transfer to an account 

maintained in accordance with §668.163 by 

the school as trustee for the lender, the 

guaranty agency, the Secretary, and the 

borrower, that requires the approval of the 

borrower. A disbursement made by 

electronic funds transfer must be 

accompanied by a list of the names, social 

security numbers, and loan amounts of the 

borrowers who are receiving a portion of 

the disbursement; or

(C) If the school and the lender 

agree, a master check from the lender to 

the institution of higher education to an 

account maintained in accordance with

§688.163 by the school as trustee for the 

lender. A disbursement made by a master 

check must be accompanied by a list of the 

names, social security numbers, and loan 

amounts of the borrowers who are 

receiving a portion of the disbursement;

(iii) May not disburse loan proceeds 

earlier than is reasonably necessary to meet 

the student's cost of attendance for the 

period for which the loan is made, and, in 

no case without the Secretary's prior 

approval, disburse loan proceeds earlier 

than 30 days prior to the date on which the 

student is scheduled to enroll;

(iv) Shall require an escrow agent to 

disburse loan proceeds no later than 10 

days after the agent receives the proceeds 

from the lender.

(v) Shall disburse—
Subpart B – General Provisions

§682.207

Due diligence in disbursing a loan

57

(A) Except as provided in paragraph 

(b)(1)(v) (C)( 1 ) and (D) of this section, 

directly to the school;

(B) In the case of a Federal PLUS 

loan —

(1) By electronic funds transfer or 

master check from the lender in accordance 

with the disbursement schedule provided 

by the school to an account maintained in 

accordance with §668.163 by the school as 

trustee for the lender. A disbursement 

made by electronic funds transfer or master 

check must be accompanied by a list of the 

names, social security numbers, and loan 

amounts for the parent or student 

borrowers who are receiving a portion of 

the disbursement and the names and social 

security numbers of the students on whose 

behalf the parents are borrowing parent 

PLUS loans.

(2) By a check from the lender that is 

made co-payable to the institution and the 

parent borrower, for a parent PLUS loan, or 

student borrower, for a student PLUS loan, 

directly to the institution of higher 

education.

(C) In the case of a student enrolled 

in a study-abroad program approved for 

credit at the home institution in which the 

student is enrolled, if the student 

requests—

(1) A Stafford loan directly to the 

student only after verification of the 

student's enrollment with the home 

institution by the lender or guaranty 

agency; or

(2) To the home institution if the 

borrower provides a power-of-attorney to 

an individual not affiliated with the 

institution to endorse the check or 

complete an electronic funds transfer 

authorization.

(D) In the case of a student enrolled 

in an eligible foreign school, if the foreign 

school requests, a Stafford loan directly to 

the student only after verification of the 

student's enrollment by the lender or 

guaranty agency.

(vi) Except as provided in paragraph 

(f) of this section, may not disburse a 

second or subsequent disbursement of a 

Federal Stafford loan to a student who has 

ceased to be enrolled; and

(vii) May disburse a second or 

subsequent disbursement of an FFEL loan, 

at the request of the school, even if the 

borrower or the school returned the prior 

disbursement, unless the lender has 

information that the student is no longer 

enrolled.

(2)(i) A lender or guaranty agency 

must verify a borrower's enrollment at the 

foreign school, or a borrower's enrollment 

in a study-abroad program, prior to each 

disbursement of Stafford loan funds directly 

to a student by—

(A) For a student enrolled at a 

foreign school—

(1) The guaranty agency accessing 

the Department's Postsecondary Education 

Participants System (PEPS) Database (or any 

successor system) and confirming that the 
Subpart B – General Provisions

§682.207

Due diligence in disbursing a loan

58

foreign school the student is to attend is

certified to participate in the FFEL program.

(2) For a new student, contacting 

the foreign school the student is to attend 

in accordance with procedures specified by 

the Secretary, by telephone, e-mail or 

facsimile to verify the student's admission 

to the foreign school for the period for 

which the loan is intended at the 

enrollment status for which the loan was 

certified.

( 3 ) For a continuing student, 

contacting the foreign school the student is 

to attend in accordance with procedures 

specified by the Secretary, by telephone, email or facsimile to verify that the student is 

still enrolled at the foreign school for the 

period for which the loan is intended at the 

enrollment status for which the loan was 

certified.

(B) For a student enrolled in a studyabroad program, contacting the home 

institution in which the student is enrolled 

by telephone, facsimile or e-mail to verify—

(1) For a new student, the student's 

admission to the study-abroad program for 

the period for which the loan is intended at 

the enrollment status for which the loan is 

certified.

(2) For a continuing student, that 

the student is still enrolled in the studyabroad program for the period for which 

the loan is intended at the enrollment 

status for which the loan is certified.

(ii) The lender or guaranty agency 

that is verifying enrollment at the 

institution the student is to attend must 

maintain the following information in the 

student's file:

(A) The name and telephone 

number of the school representative 

contacted;

(B) The date of the contact;

(C) The enrollment period;

(D) Whether enrollment was verified 

at the enrollment status for which the loan 

was certified; and

(E) Any other pertinent information 

received from the school.

(iii) Guaranty agencies and lenders 

must coordinate their activities to ensure 

that the requirements of this paragraph are 

met prior to making any direct 

disbursement to a student.

(iv) If a lender disburses a Stafford 

loan directly to the borrower for 

attendance at an eligible foreign school, or 

to a borrower enrolled in a study-abroad 

program approved for credit at the home 

institution, as provided in paragraphs 

(b)(1)(v)(D) and (b)(1)(v)(D)( 1 ) of this 

section, the lender must, at the time of 

disbursement, notify the foreign school, for 

a borrower attending a foreign school, or 

the home institution in which the student is 

enrolled, for a borrower enrolled in a studyabroad program, of—

(A) The name and social security 

number of the student;

(B) The type of loan;
Subpart B – General Provisions

§682.207

Due diligence in disbursing a loan

59

(C) The amount of the 

disbursement, including the amount of any 

fees assessed the borrower;

(D) The date of the disbursement; 

and

(E) The name, address, telephone 

and fax number or electronic address of the 

lender, servicer, or guaranty agency to 

which any inquiries should be addressed.

(3) Except as provided in paragraph 

(b)(1)(v)(C)( 2 ) of this section, neither a 

lender nor a school may obtain a borrower's 

power-of-attorney or other authorization to 

endorse or otherwise approve the cashing 

of a loan check or the release of funds 

disbursed by electronic funds transfer, nor 

may a borrower provide this power-ofattorney or authorization to anyone else. 

However, the school may present the loan 

check to a financial institution for deposit in 

an account of the borrower pursuant to the 

borrower's endorsement or written 

certification under paragraph (b)(1)(ii)(A) of 

this section.

(c) Except as provided in paragraph 

(e) of this section, a lender must disburse 

any Stafford or PLUS loan in accordance 

with the disbursement schedule provided 

by the school as follows:

(1) Disbursement must be in two or 

more installments.

(2) No installment may exceed onehalf of the loan.

(3) Disbursement must be made on 

a payment period basis in accordance with 

the disbursement schedule provided by the 

school or any request made by the school 

modifying that schedule.

(d) If one or more scheduled 

disbursements have elapsed before a 

lender makes a disbursement and the 

student is still enrolled, the lender may 

include in the disbursement loan proceeds 

for previously scheduled, but unmade, 

disbursements.

(e) A lender must disburse the loan 

in one installment if the school submits a 

schedule for disbursement of loan proceeds 

in one installment as authorized by 

§682.604(c)(8).

(f) A lender may disburse loan 

proceeds after the student has ceased to be 

enrolled on at least a half-time basis only 

if—

(1) The school certified the 

borrower's loan eligibility before the date 

the student became ineligible and the loan 

funds will be used to pay educational costs 

that the school determines the student 

incurred for the period in which the student 

was enrolled and eligible;

(2) The student completed the first 

30 days of his or her program of study if the 

student was a first-year, first-time borrower 

as described in §682.604(c)(5); and

(3) In the case of a second or 

subsequent disbursement, the student 

graduated or successfully completed the 

period of enrollment for which the loan was 

intended.

(Approved by the Office of Management 

and Budget under control number 1845–

0022) 
Subpart B – General Provisions

§682.207

Due diligence in disbursing a loan

60

(Authority: 20 U.S.C. 1077, 1078, 1078–1, 

1078–2, 1078–3, 1079, 1080, 1082, 1085)

[57 FR 60323, Dec. 18, 1992]

Editorial Note: For Federal Register 

citations affecting §682.207, see the List of 

CFR Sections Affected, which appears in the 

Finding Aids section of the printed volume 

and on GPO Access.
Subpart B – General Provisions

§682.208

Due diligence in servicing a loan

61

§ 682.208 Due diligence in servicing a 

loan.

(a) The loan servicing process 

includes reporting to national credit 

bureausnationwide consumer reporting 

agencies, responding to borrower inquiries, 

establishing the terms of repayment, and 

reporting a borrower's enrollment and loan 

status information.

(b)(1) An eligible lender of a FFEL 

loan shall report to at least one national 

credit bureaueach nationwide consumer 

reporting agency—

(i) The total amount of FFEL loans 

the lender has made to the borrower, 

within 90 days of each disbursement;

(ii) The outstanding balance of the 

loans;

(iii) Information concerning the 

repayment status of the loan, no less 

frequently than every 90 days or quarterly 

after a change in that status from current to 

delinquent;

(iv) The date the loan is fully repaid 

by, or on behalf of, the borrower, or 

discharged by reason of the borrower's 

death, bankruptcy, or total and permanent 

disability, within 90 days after that date;

(v) Other information required by 

law to be reported.

(2) An eligible lender that has 

acquired a FFEL loan shall report to at least 

one national credit bureaueach nationwide 

consumer reporting agency the information 

required by paragraph (b)(1)(ii)–(v) of this 

section within 90 days of its acquisition of 

the loan.

(3) Upon receipt of a valid identity 

theft report as defined in section 603(q)(4) 

of the Fair Credit Reporting Act (15 U.S.C. 

1681a) or notification from a consumer 

reporting agency credit bureau that 

information furnished by the lender is a 

result of an alleged identity theft as defined 

in §682.402(e)(14), an eligible lender shall 

suspend consumer reporting agency credit 

bureau reporting for a period not to exceed 

120 days while the lender determines the 

enforceability of a loan.

(i) If the lender determines that a 

loan does not qualify for a discharge under 

§682.402(e)(1)(i)(C), but is nonetheless 

unenforceable, the lender must—

(A) Notify the consumer reporting 

agency credit bureau of its determination; 

and

(B) Comply with §§682.300(b)(2)(ix) 

and 682.302(d)(1)(viii).

(ii) [Reserved]

(4) If, within 3 years of the lender's 

receipt of an identity theft report, the 

lender receives from the borrower evidence 

specified in §682.402(e)(3)(v), the lender 

may submit a claim and receive interest 

subsidy and special allowance payments 

that would have accrued on the loan.

(c)(1) A lender shall respond within 

30 days after receipt to any inquiry from a 

borrower or any endorser on a loan.

(2) When a lender learns that a 

Stafford loan borrower or a student PLUS 
Subpart B – General Provisions

§682.208

Due diligence in servicing a loan

62

loan borrower is no longer enrolled at an 

institution of higher education on at least a 

half-time basis, the lender shall promptly 

contact the borrower in order to establish 

the terms of repayment.

(3)(i) If the borrower disputes the 

terms of the loan in writing and the lender 

does not resolve the dispute, the lender's 

response must provide the borrower with 

an appropriate contact at the guaranty 

agency for the resolution of the dispute.

(ii) If the guaranty agency does not 

resolve the dispute, the agency's response 

must provide the borrower with 

information on the availability of the 

Student Loan Ombudsman's office.

(d) Subject to the rules regarding 

maximum duration of a repayment period 

and minimum annual payment described in 

§682.209(a)(7), (c), and (h), nothing in this 

part is intended to limit a lender's discretion 

in establishing, or, with the borrower's 

consent, revising a borrower's repayment 

schedule—

(1) To provide for graduated or 

income-sensitive repayment terms. The 

Secretary strongly encourages lenders to 

provide a graduated or income-sensitive 

repayment schedule to a borrower 

providing for at least the payment of 

interest charges, unless the borrower 

requests otherwise, in order to make the 

borrower's repayment burden 

commensurate with his or her projected 

ability to pay; or

(2) To provide a single repayment 

schedule, as authorized and if practicable, 

for all FFEL program loans to the borrower 

held by the lender.

(e)(1) If the assignment or transfer 

of ownership interest of a Stafford, PLUS, 

SLS, or Consolidation loan is to result in a 

change in the identity of the party to whom 

the borrower must send subsequent 

payments, the assignor and assignee of the 

loan shall, no later than 45 days from the 

date the assignee acquires a legally 

enforceable right to receive payment from 

the borrower on the assigned loan, provide, 

either jointly or separately, a notice to the 

borrower of—

(i) The assignment;

(ii) The identity of the assignee;

(iii) The name and address of the 

party to whom subsequent payments or 

communications must be sent;

(iv) The telephone numbers of both 

the assignor and the assignee;

(v) The effective date of the 

assignment or transfer of the loan;

(vi) The date, if applicable, on which 

the current loan servicer will stop accepting 

payments; and

(vii) The date on which the new loan 

servicer will begin accepting payments.

(2) If the assignor and assignee 

separately provide the notice required by 

paragraph (e)(1) of this section, each notice 

must indicate that a corresponding notice 

will be sent by the other party to the 

assignment.
Subpart B – General Provisions

§682.208

Due diligence in servicing a loan

63

(3) For purposes of this paragraph, 

the term “assigned” is defined in 

§682.401(b)(17)(8)(ii).

(4) The assignee, or the assignor on 

behalf of the assignee, shall notify the 

guaranty agency that guaranteed the loan 

within 45 days of the date the assignee 

acquires a legally enforceable right to 

receive payment from the borrower on the 

loan of—

(i) The assignment; and

(ii) The name and address of the 

assignee, and the telephone number of the 

assignee that can be used to obtain 

information about the repayment of the 

loan.

(5) The requirements of this 

paragraph (e), as to borrower notification, 

apply if the borrower is in a grace period or 

has entered the repayment period.

(f)(1) Notwithstanding an error by 

the school or lender, a lender shall follow 

the procedures in §682.412 whenever it 

receives information that can be 

substantiated that the borrower, or the 

student on whose behalf a parent has 

borrowed, has been convicted of, or has 

pled nolo contendere or guilty to, a crime 

involving fraud in obtaining title IV, HEA 

program assistance, provided false or 

erroneous information or took actions that 

caused the student or borrower—

(i) To be ineligible for all or a portion 

of a loan made under this part;

(ii) To receive a Stafford loan subject 

to payment of Federal interest benefits as 

provided under §682.301, for which he or 

she was ineligible; or

(iii) To receive loan proceeds that 

were not paid to the school or repaid to the 

lender by or on behalf of a registered 

student who—

(A) The school notifies the lender 

under 34 CFR 668.21(a)(2)(ii) has withdrawn 

or been expelled prior to the first day of 

classes for the period of enrollment for 

which the loan was intended; or

(B) Failed to attend school during 

that period.

(2) For purposes of this section, the 

term “guaranty agency” in §682.412(e) 

refers to the Secretary in the case of a 

Federal GSL loan.

(g) If, during a period when the 

borrower is not delinquent, a lender 

receives information indicating it does not 

know the borrower's address, it may 

commence the skip-tracing activities 

specified in §682.411(g)(h).

(h) Notifying the borrower about a 

servicing change. If an FFEL Program loan 

has not been assigned, but there is a 

change in the identity of the party to whom 

the borrower must send subsequent 

payments or direct any communications 

concerning the loan, the holder of the loan 

shall, no later than 45 days after the date of 

the change, provide notice to the borrower 

of the name, telephone number, and 

address of the party to whom subsequent 

payments or communications must be sent. 

The requirements of this paragraph apply if 
Subpart B – General Provisions

§682.208

Due diligence in servicing a loan

64

the borrower is in a grace period or has 

entered the repayment period.

(i) A lender shall report enrollment 

and loan status information, or any Title IV 

loan-related data required by the Secretary, 

to the guaranty agency or to the Secretary, 

as applicable, by the deadline date 

established by the Secretary.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1077, 1078, 1078–1, 

1078–2, 1078–3, 1079, 1080, 1082, 1085)

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9119, Feb. 19, 1993; 59 FR 22476, 

Apr. 29, 1994; 64 FR 18976, Apr. 16, 1999; 

64 FR 58626, Oct. 29, 1999; 64 FR 58965, 

Nov. 1, 1999; 71 FR 45701, Aug. 9, 2006; 72 

FR 62000, 62031, Nov. 1, 2007; 74 FR 

55993, Oct. 29, 2009]
Subpart B – General Provisions

§682.209

Repayment of a loan

65

§ 682.209 Repayment of a loan.

(a) Conversion of a loan to 

repayment status. (1) For a Consolidation 

loan, the repayment period begins on the 

date the loan is disbursed. The first 

payment is due within 60 days after the 

date the loan is disbursed.

(2)(i) For a PLUS loan, the repayment 

period begins on the date of the last 

disbursement made on the loan. Interest 

accrues and is due and payable from the 

date of the first disbursement of the loan. 

The first payment is due within 60 days 

after the date the loan is fully disbursed.

(ii) For an SLS loan, the repayment 

period begins on the date the loan is 

disbursed, or, if the loan is disbursed in 

multiple installments, on the date of the 

last disbursement of the loan. Interest 

accrues and is due and payable from the 

date of the first disbursement of the loan. 

Except as provided in paragraph (a)(2)(iii), 

(a)(2)(iv), and (a)(2)(v) of this section the 

first payment is due within 60 days after the 

date the loan is fully disbursed.

(iii) For an SLS borrower who has not 

yet entered repayment on a Stafford loan, 

the borrower may postpone payment, 

consistent with the grace period on the 

borrower's Stafford loan.

(iv) If the lender first learns after the 

fact that an SLS borrower has entered the 

repayment period, the repayment begins 

no later than 75 days after the date the 

lender learns that the borrower has entered 

the repayment period.

(v) The lender may establish a first 

payment due date that is no more than an 

additional 30 days beyond the period 

specified in paragraphs (a)(2)(i)—(a)(2)(iv) 

of this section in order for the lender to 

comply with the required deadline 

contained in §682.205(c)(1).

(3)(i) Except as provided in 

paragraph (a)(4) of this section, for a 

Stafford loan the repayment period 

begins—

(A) For a borrower with a loan for 

which the applicable interest rate is 7 

percent per year, not less than 9 nor more 

than 12 months following the date on which 

the borrower is no longer enrolled on at 

least a half-time basis at an eligible school. 

The length of this grace period is 

determined by the lender for loans made 

under the FISL Program, and by the 

guaranty agency for loans guaranteed by 

the agency;

(B) For a borrower with a loan for 

which the initial applicable interest rate is 8 

or 9 percent per year, the day after 6 

months following the date on which the 

borrower is no longer enrolled on at least a 

half-time basis at an institution of higher 

education; and

(C) For a borrower with a loan with a 

variable interest rate, the day after 6 

months following the date on which the 

borrower is no longer enrolled on at least a 

half-time basis at an institution of higher 

education; and

(D) For a borrower with a loan for 

which the applicable interest rate is fixed at

6.0 percent per year, 5.6 percent per year, 
Subpart B – General Provisions

§682.209

Repayment of a loan

66

or 6.8 percent per year, the day after 6 

months following the date on which the 

borrower is no longer enrolled on at least a 

half-time basis at an institution of higher 

education;

(ii) The first payment on a Stafford 

loan is due on a date established by the 

lender that is no more than—

(A) 60 days following the first day 

that the repayment period begins;

(B) 60 days from the expiration of a 

deferment or forbearance period;

(C) 60 days following the end of the 

post deferment grace period;

(D) If the lender first learns after the 

fact that the borrower has entered the 

repayment period, no later than 75 days 

after the date the lender learns that the 

borrower has entered the repayment 

period; or

(E) An additional 30 days beyond the 

periods specified in paragraphs (a)(3)(ii)(A)–

(a)(3)(ii)(D) of this section in order for the 

lender to comply with the required 

deadlines contained in §682.205(c)(a)(1).

(iii) When determining the date that 

the student was no longer enrolled on at 

least a half-time basis, the lender must use 

a new date it receives from a school, unless 

the lender has already disclosed repayment 

terms to the borrower and the new date is 

within the same month and year as the 

most recent date reported to the lender.

(4) For a borrower of a Stafford loan 

who is a correspondence student, the grace 

period specified in paragraph (a)(3)(i) of this 

section begins on the earliest of—

(i) The day after the borrower 

completes the program;

(ii) The day after withdrawal as 

determined pursuant to 34 CFR 668.22; or

(iii) 60 days following the last day for 

completing the program as established by 

the school.

(5) For purposes of establishing the 

beginning of the repayment period for 

Stafford and SLS loans, the grace periods 

referenced in paragraphs (a)(2)(iii) and 

(a)(3)(i) of this section exclude any period 

during which a borrower who is a member 

of a reserve component of the Armed 

Forces named in section 10101 of title 10, 

United States Code is called or ordered to 

active duty for a period of more than 30 

days. Any single excluded period may not 

exceed three years and includes the time 

necessary for the borrower to resume 

enrollment at the next available regular 

enrollment period. Any Stafford or SLS 

borrower who is in a grace period when 

called or ordered to active duty as specified 

in this paragraph is entitled to a full grace 

period upon completion of the excluded 

period.

(6)(i) The repayment schedule may 

provide for substantially equal installment 

payments or for installment payments that 

increase or decrease in amount during the 

repayment period. If the loan has a variable 

interest rate that changes annually, the 

lender may establish a repayment schedule 

that—
Subpart B – General Provisions

§682.209

Repayment of a loan

67

(A) Provides for adjustments of the 

amount of the installment payment to 

reflect annual changes in the variable 

interest rate; or

(B) Contains no provision for an 

adjustment of the amount of the 

installment payment to reflect annual 

changes in the variable interest rate, but 

requires the lender to grant a forbearance 

to the borrower (or endorser, if applicable) 

for a period of up to 3 years of payments in 

accordance with §682.211(i)(5) in cases 

where the effect of a variable interest rate 

on a standard or graduated repayment 

schedule would result in a loan not being 

repaid within the maximum repayment 

term.

(ii) If a graduated or incomesensitive repayment schedule is 

established, it may not provide for any 

single installment that is more than three 

times greater than any other installment. 

An agreement as specified in paragraph 

(c)(1)(ii) of this section is not required if the 

schedule provides for less than the 

minimum annual payment amount 

specified in paragraph (c)(1)(i) of this 

section.

(iii) Not more than six months prior 

to the date that the borrower's first 

payment is due, the lender must offer the 

borrower a choice of a standard, incomesensitive, income-based, graduated, or, if 

applicable, an extended repayment 

schedule.

(iv) Except in the case of an incomebased repayment schedule, the repayment 

schedule must require that each payment 

equal at least the interest that accrues 

during the interval between scheduled 

payments.

(v) The lender shall require the 

borrower to repay the loan under a 

standard repayment schedule described in 

paragraph (a)(6)(vi) of this section if the 

borrower—

(A) Does not select an incomesensitive, income-based, graduated, or, if 

applicable, an extended repayment 

schedule within 45 days after being notified 

by the lender to choose a repayment 

schedule;

(B) Chooses an income-sensitive 

repayment schedule, but does not provide 

the documentation requested by the lender 

under paragraph (a)(6)(viii)(C) of this 

section within the time period specified by 

the lender; or

(C) Chooses an income-based 

repayment schedule, but does not provide 

the income documentation requested by 

the lender under §682.215(e)(1)(i) through 

(e)(1)(iii) within the time period specified by 

the lender. [NOTE: This paragraph reflects 

changes made by final regulations published 

on November 1, 2012 (77 FR 66088).]

(vi) Under a standard repayment 

schedule, the borrower is scheduled to pay 

either—

(A) The same amount for each 

installment payment made during the 

repayment period, except that the 

borrower's final payment may be slightly 

more or less than the other payments; or
Subpart B – General Provisions

§682.209

Repayment of a loan

68

(B) An installment amount that will 

be adjusted to reflect annual changes in the 

loan's variable interest rate.

(vii) Under a graduated repayment 

schedule—

(A)(1) The amount of the borrower's 

installment payment is scheduled to change 

(usually by increasing) during the course of 

the repayment period; or

(2) If the loan has a variable interest 

rate that changes annually, the lender may 

establish a repayment schedule that may 

have adjustments in the payment amount 

as provided under paragraph (a)(6)(i) of this 

section; and

(B) An agreement as specified in 

paragraph (c)(1)(ii) of this section is not 

required if the schedule provides for less 

than the minimum annual payment amount 

specified in paragraph (c)(1)(i) of this 

section.

(viii) Under an income-sensitive 

repayment schedule—

(A)(1) The amount of the borrower's 

installment payment is adjusted annually, 

based on the borrower's expected total 

monthly gross income received by the 

borrower from employment and from other 

sources during the course of the repayment 

period; or

(2) If the loan has a variable interest 

rate that changes annually, the lender may 

establish a repayment schedule that may 

have adjustments in the payment amount 

as provided under paragraph (a)(6)(i) of this 

section; and

(B) In general, the lender shall 

request the borrower to inform the lender 

of his or her income no earlier than 90 days 

prior to the due date of the borrower's 

initial installment payment and subsequent 

annual payment adjustment under an 

income-sensitive repayment schedule. The 

income information must be sufficient for 

the lender to make a reasonable 

determination of what the borrower's 

payment amount should be. If the lender 

receives late notification that the borrower 

has dropped below half-time enrollment 

status at a school, the lender may request 

that income information earlier than 90 

days prior to the due date of the borrower's 

initial installment payment;

(C) If the borrower reports income 

to the lender that the lender considers to 

be insufficient for establishing monthly 

installment payments that would repay the 

loan within the applicable maximum 

repayment period, the lender shall require 

the borrower to submit evidence showing 

the amount of the most recent total 

monthly gross income received by the 

borrower from employment and from other 

sources including, if applicable, pay 

statements from employers and 

documentation of any income received by 

the borrower from other parties;

(D) The lender shall grant a 

forbearance to the borrower (or endorser, if 

applicable) for a period of up to 5 years of 

payments in accordance with §682.211(i)(5) 

in cases where the effect of decreased 

installment amounts paid under an incomesensitive repayment schedule would result 

in a loan not being repaid within the 

maximum repayment term; and
Subpart B – General Provisions

§682.209

Repayment of a loan

69

(E) The lender shall inform the 

borrower that the loan must be repaid 

within the time limits specified under 

paragraph (a)(7) of this section.

(ix) Under an extended repayment 

schedule, a new borrower whose total 

outstanding principal and interest in FFEL 

loans exceed $30,000 may repay the loan 

on a fixed annual repayment amount or a 

graduated repayment amount for a period 

that may not exceed 25 years. For purposes 

of this section, a “new borrower” is an 

individual who has no outstanding principal 

or interest balance on an FFEL Program loan 

as of October 7, 1998, or on the date he or 

she obtains an FFEL Program loan after 

October 7, 1998.

(x) Under an income-based 

repayment schedule, the borrower repays 

the loan in accordance with §682.215.

(xi) A borrower may request a 

change in the repayment schedule on a 

loan. The lender must permit the borrower 

to change the repayment schedule no less 

frequently than annually, or at any time in 

the case of a borrower in an income-based 

repayment plan.

(xii) For purposes of this section, a 

lender shall, to the extent practicable 

require that all FFEL loans owed by a 

borrower to the lender be combined into 

one account and repaid under one 

repayment schedule. In that event, the 

word “loan” in this section shall mean all of 

the borrower's loans that were combined 

by the lender into that account.

(7)(i) Subject to paragraphs (a)(7)(ii) 

through (iv) of this section, and except as 

provided in paragraph (a)(6)(ix) a lender 

shall allow a borrower at least 5 years, but 

not more than 10 years, or 25 years under 

an extended repayment plan to repay a 

Stafford, SLS, or PLUS loan, calculated from 

the beginning of the repayment period. 

Except in the case of a FISL loan for a period 

of enrollment beginning on or after July 1, 

1986, the lender shall require a borrower to 

fully repay a FISL loan within 15 years after 

it is made.

(ii) If the borrower receives an 

authorized deferment or is granted 

forbearance, as described in §682.210 or 

§682.211 respectively, the periods of 

deferment or forbearance are excluded 

from determinations of the 5-, 10-, and 15-

and 25–year periods, and from the 10-, 12-, 

15-, 20-, 25-, and 30-year periods for 

repayment of a Consolidation loan pursuant 

to §682.209(h).

(iii) If the minimum annual 

repayment required in paragraph (c) of this 

section would result in complete repayment 

of the loan in less than 5 years, the 

borrower is not entitled to the full 5-year 

period.

(iv) The borrower may, prior to the 

beginning of the repayment period, request 

and be granted by the lender a repayment 

period of less than 5 years. Subject to 

paragraph (a)(7)(iii) of this section, a 

borrower who makes such a request may 

notify the lender at any time to extend the 

repayment period to a minimum of 5 years.

(8) If, with respect to the aggregate 

of all loans held by a lender, the total 

payment made by a borrower for a monthly 

or similar payment period would not 
Subpart B – General Provisions

§682.209

Repayment of a loan

70

otherwise be a multiple of five dollars, 

except in the case of payments made under 

an income-based repayment plan, the 

lender may round that periodic payment to 

the next highest whole dollar amount that 

is a multiple of five dollars.

(b) Payment application and 

prepayment. (1) Except in the case of 

payments made under an income-based 

repayment plan, the lender may credit the 

entire payment amount first to any late 

charges accrued or collection costs and 

then to any outstanding interest and then 

to outstanding principal.

(2)(i) The borrower may prepay the 

whole or any part of a loan at any time 

without penalty.

(ii) If the prepayment amount equals 

or exceeds the monthly payment amount 

under the repayment schedule established 

for the loan, the lender shall apply the 

prepayment to future installments by 

advancing the next payment due date, 

unless the borrower requests otherwise. 

The lender must either inform the borrower 

in advance using a prominent statement in 

the borrower's coupon book or billing 

statement that any additional full payment 

amounts submitted without instructions to 

the lender as to their handling will be 

applied to future scheduled payments with 

the borrower's next scheduled payment 

due date advanced consistent with the 

number of additional payments received, or 

provide a notification to the borrower after 

the payments are received informing the 

borrower that the payments have been so 

applied and the date of the borrower's next 

scheduled payment due date. Information 

related to next scheduled payment due 

date need not be provided to borrowers 

borrower's making such prepayments while 

in an in-school, grace, deferment, or 

forbearance period when payments are not 

due.

(c) Minimum annual payment. (1)(i) 

Subject to paragraph (c)(1)(ii) of this section 

and except as otherwise provided by a 

graduated, income-sensitive, extended, or 

income-based repayment plan selected by 

the borrower, during each year of the 

repayment period, a borrower's total 

payments to all holders of the borrower's 

FFEL Program loans must total at least $600 

or the unpaid balance of all loans, including 

interest, whichever amount is less.

(ii) If the borrower and the lender 

agree, the amount paid may be less.

(2) The provisions of paragraphs 

(c)(1) (i) and (ii) of this section may not 

result in an extension of the maximum 

repayment period unless forbearance as 

described in §682.211, or deferment 

described in §682.210, has been approved.

(d) Combined repayment of a 

borrower's student PLUS and SLS loans held 

by a lender. (1) A lender may, at the request 

of a student borrower, combine the 

borrower's, student PLUS and SLS loans 

held by it into a single repayment schedule.

(2) The repayment period on the 

loans included in the combined repayment 

schedule must be calculated based on the 

beginning of repayment of the most recent 

included loan.
Subpart B – General Provisions

§682.209

Repayment of a loan

71

(3) The interest rate on the loans 

included in the new combined repayment 

schedule must be the weighted average of 

the rates of all included loans.

(e) Refinancing a fixed-rate PLUS or 

SLS Program loan to secure a variable 

interest rate. (1) Subject to paragraph (g) of 

this section, a lender may, at the request of 

a borrower, refinance a PLUS or SLS loan 

with a fixed interest rate in order to permit 

the borrower to obtain a variable interest 

rate.

(2) A loan made under paragraph 

(e)(1) of this section—

(i) Must bear interest at the variable 

rate described in §682.202(a)(2)(ii) and 

(3)(ii) as appropriate; and

(ii) May not extend the repayment 

period provided for in paragraph (a)(7)(i) of 

this section.

(3) The lender may not charge an 

additional insurance premium or Federal 

default fee on the loan, but may charge the 

borrower an administrative fee pursuant to 

§682.202(e).

(f) Refinancing of a fixed-rate PLUS 

or SLS Program loan to secure a variable 

interest rate by discharge of previous loan. 

(1) Subject to paragraph (g) of this section, 

a borrower who has applied for, but been 

denied, a refinanced loan authorized under 

paragraph (e) of this section by the holder 

of the borrower's fixed-rate PLUS or SLS 

loan, may obtain a loan from another 

lender for the purpose of discharging the 

fixed-rate loan and obtaining a variable 

interest rate.

(2) A loan made under paragraph 

(f)(1) of this section—

(i) Must bear interest at the variable 

interest rate described in §682.202(a)(2)(ii) 

and (3)(ii) as appropriate;

(ii) May not operate to extend the 

repayment period provided for in paragraph 

(a)(7)(i) of this section; and

(iii) Must be disbursed to the holder 

of the fixed-rate loan to discharge the 

borrower's obligation thereon.

(3) Upon receipt of the proceeds of 

a loan made under paragraph (f)(1) of this 

section, the holder of the fixed-rate loan 

shall, within five business days, apply the 

proceeds to discharge the borrower's 

obligation on the fixed-rate loan, and 

provide the refinancing lender with either a 

copy of the borrower's original promissory 

note evidencing the fixed-rate loan or the 

holder's written certification that the 

borrower's obligation on the fixed-rate loan 

has been fully discharged.

(4) The refinancing lender may 

charge the borrower an insurance premium 

on a loan made under paragraph (f)(1) of 

this section, but may not charge a fee to 

cover administrative costs.

(5) For purposes of deferments 

under §682.210, the refinancing loan—

(i) Is considered a PLUS loan if any of 

the included loans is a PLUS loan made to a 

parent;

(ii) Is considered an SLS loan if the 

combined loan does not include a PLUS loan 

made to a parent; or
Subpart B – General Provisions

§682.209

Repayment of a loan

72

(iii) Is considered a loan to a “new 

borrower” as defined in §682.210(b)(7), if 

all the loans that were refinanced were 

made on or after July 1, 1987, for a period 

of enrollment beginning on or after that 

date.

(g) Conditions for refinancing certain 

loans. (1) A lender may not refinance a loan 

under paragraphs (e) or (f) of this section if 

that loan is in default, involves a violation of 

a condition of reinsurance described in 

§682.406, or, in the case of a Federal SLS or 

Federal PLUS loan, is uninsured by the 

Secretary.

(2)(i) Prior to refinancing a fixed-rate 

loan under paragraph (f) of this section, the 

lender shall obtain a written statement 

from the holder of the loan certifying that—

(A) The holder has refused to 

refinance the fixed-rate loan under 

paragraph (e) of this section; and

(B) The fixed-rate loan is eligible for 

insurance or reinsurance under paragraph 

(g)(1) of this section.

(ii) The holder of the fixed-rate loan 

shall, within 10 business days of receiving a 

lender's written request to provide a 

certification under paragraph (g)(2)(i) of this 

section, provide the lender with that 

certification, or provide the lender and the 

guarantor on the loan with a written 

explanation of the reasons for its inability to 

provide the certification to the requesting 

lender.

(iii) The refinancing lender may rely 

in good faith on the certification provided 

by the holder of the fixed-rate loan under 

paragraph (g)(2)(ii) of this section.

(h)(e) Consolidation loans. (1) For a 

Consolidation loan, the repayment period 

begins on the day of disbursement, with the 

first payment due within 60 days after the 

date of disbursement.

(2) If the sum of the amount of the 

Consolidation loan and the unpaid balance 

on other student loans to the applicant—

(i) Is less than $7,500, the borrower 

shall repay the Consolidation loan in not 

more than 10 years;

(ii) Is equal to or greater than $7,500 

but less than $10,000, the borrower shall 

repay the Consolidation loan in not more 

than 12 years;

(iii) Is equal to or greater than 

$10,000 but less than $20,000, the 

borrower shall repay the Consolidation loan 

in not more than 15 years;

(iv) Is equal to or greater than 

$20,000 but less than $40,000, the 

borrower shall repay the Consolidation loan 

in not more than 20 years;

(v) Is equal to or greater than 

$40,000 but less than $60,000, the 

borrower shall repay the Consolidation loan 

in not more than 25 years; or

(vi) Is equal to or greater than 

$60,000, the borrower shall repay the 

Consolidation loan in not more than 30 

years.
Subpart B – General Provisions

§682.209

Repayment of a loan

73

(3) For the purpose of paragraph 

(h)(e)(2) of this section, the unpaid balance 

on other student loans—

(i) May not exceed the amount of 

the Consolidation loan; and

(ii) With the exception of the 

defaulted title IV loans on which the 

borrower has made satisfactory repayment 

arrangements with the holder of the loan, 

does not include the unpaid balance on any 

defaulted loans.

(4) A repayment schedule for a 

Consolidation loan—

(i) Must be established by the 

lender;

(ii) Except in the case of an incomebased repayment schedule, Mmust require 

that each payment equal at least the 

interest that accrues during the interval 

between scheduled payments.

(5) Upon receipt of the proceeds of 

a loan made under paragraph (h)(e)(2) of 

this section, the holder of the underlying 

loan shall promptly apply the proceeds to 

discharge fully the borrower's obligation on 

the underlying loan, and provide the 

consolidating lender with the holder's 

written certification that the borrower's 

obligation on the underlying loan has been 

fully discharged.

(i)(f) Treatment by a lender of 

borrowers' title IV, HEA program funds 

received from schools if the borrower 

withdraws. (1) A lender shall treat a refund 

or a return of title IV, HEA program funds 

under §668.22 when a student withdraws 

received by the lender from a school as a 

credit against the principal amount owed by 

the borrower on the borrower's loan.

(2)(i) If a lender receives a refund or 

a return of title IV, HEA program funds 

under §668.22 when a student withdraws 

from a school on a loan that is no longer 

held by that lender, or that has been 

discharged by another lender by refinancing 

under §682.209(f) or by a Consolidation 

loan, the lender must transmit the amount 

of the payment, within 30 days of its 

receipt, to the lender to whom it assigned 

the loan, or to the lender that discharged 

the prior loan, with an explanation of the 

source of the payment.

(ii) Upon receipt of a refund or a 

return of title IV, HEA program funds 

transmitted under paragraph (i)(f)(2)(i) of 

this section, the holder of the loan promptly 

must provide written notice to the 

borrower that the holder has received the 

return of title IV, HEA program funds.

(j) Certification on loans to be repaid 

through consolidation. Within 10 business 

days after receiving a written request for a 

certification from a lender under 

§682.206(f), a holder shall either provide 

the requesting lender the certification or, if 

it is unable to certify to the matters 

described in that paragraph, provide the 

requesting lender and the guarantor on the 

loan at issue with a written explanation of 

the reasons for its inability to provide the 

certification.

(k)(g) Any lender holding a loan is 

subject to all claims and defenses that the 

borrower could assert against the school 

with respect to that loan if -
Subpart B – General Provisions

§682.209

Repayment of a loan

74

(1) The loan was made by the school 

or a school-affiliated organization; 

(2) The lender who made the loan 

provided an improper inducement, as 

described in paragraph (5)(i) of the 

definition of Lender in §682.200(b), to the 

school or any other party in connection 

with the making of the loan;

(3) The school refers borrowers to 

the lender; or

(4) The school is affiliated with the 

lender by common control, contract, or 

business arrangement.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1077, 1078, 1078–1, 

1078–2, 1078–3, 1079, 1082, 1085)

[57 FR 60323, Dec. 18, 1992]

Editorial Note: For Federal Register 

citations affecting §682.209, see the List of 

CFR Sections Affected, which appears in the 

Finding Aids section of the printed volume 

and on GPO Access. 
Subpart B – General Provisions

§682.210

Deferment

75

§ 682.210 Deferment.

(a) General. (1)(i) A borrower is 

entitled to have periodic installment 

payments of principal deferred during 

authorized periods after the beginning of 

the repayment period, pursuant to 

paragraph (b) and paragraphs (s) through 

(v) of this section.

(ii) With the exception of a 

deferment authorized under paragraph (o) 

of this section, a borrower may continue to 

receive a specific type of deferment that is 

limited to a maximum period of time only if 

the total amount of time that the borrower 

has received the deferment does not 

exceed the maximum time period allowed 

for the deferment.

(2)(i) For a loan made before 

October 1, 1981, the borrower is also 

entitled to have periodic installments of 

principal deferred during the six-month 

period (post-deferment grace period) that 

begins after the completion of each 

deferment period or combination of those 

periods, except as provided in paragraph 

(a)(2)(ii) of this section.

(ii) Once a borrower receives a postdeferment grace period following an 

unemployment deferment, as described in 

paragraph (b)(1)(v) of this section, the 

borrower does not qualify for additional 

post-deferment grace periods following 

subsequent unemployment deferments.

(3)(i) Interest accrues and is paid 

by—

(A) The Secretary during the 

deferment period for a subsidized Stafford 

loan and for all or a portion of a 

Consolidation loan that qualifies for interest 

benefits under §682.301; or

(B) The borrower during the 

deferment period and, as applicable, the 

post-deferment grace period, on all other 

loans.

(ii) A borrower who is responsible 

for payment of interest during a deferment 

period must be notified by the lender, at or 

before the time the deferment is granted, 

that the borrower has the option to pay the 

accruing interest or cancel the deferment 

and continue paying on the loan. The lender 

must also provide information, including an 

example, on the impact of capitalization of 

accrued, unpaid interest on loan principal, 

and on the total amount of interest to be 

paid over the life of the loan.

(4) As a condition for receiving a 

deferment, except for purposes of 

paragraphs (c)(1)(ii), (iii), and (iv) of this 

section, the borrower, or the borrower’s 

representative for purposes of paragraphs 

(i) and (t) of this section, must request the 

deferment, and provide the lender with all 

information and documents required to 

establish eligibility for a specific type of 

deferment.

(5) An authorized deferment period 

begins on the date that the holder 

determines is the date that the condition 

entitling the borrower to the deferment 

first existed, except that an initial 

unemployment deferment as described in 

paragraph (h)(2) of this section cannot 

begin more than 6 months before the date 

the holder receives a request and 

documentation required for the deferment.
Subpart B – General Provisions

§682.210

Deferment

76

(6) An authorized deferment period 

ends on the earlier of—

(i) The date when the condition 

establishing the borrower's eligibility for the 

deferment ends;

(ii) Except as provided in paragraph 

(a)(6)(iv) of this section, the date on which, 

as certified by an authorized official, the 

borrower's eligibility for the deferment is 

expected to end;

(iii) Except as provided in paragraph 

(a)(6)(iv) of this section, the expiration date 

of the period covered by any certification 

required by this section to be obtained for 

the deferment;

(iv) In the case of an in-school 

deferment, the student's anticipated 

graduation date as certified by an 

authorized official of the school; or

(v) The date when the condition 

providing the basis for the borrower's 

eligibility for the deferment has continued 

to exist for the maximum amount of time 

allowed for that type of deferment.

(7) A lender may not deny a 

borrower a deferment to which the 

borrower is entitled, even though the 

borrower may be delinquent, but not in 

default, in making required installment 

payments. The 270– or 330–day period 

required to establish default does not run 

during the deferment and post-deferment 

grace periods. Unless the lender has 

granted the borrower forbearance under 

§682.211, when the deferment and, if 

applicable, the post-deferment grace period 

expire, a borrower resumes any 

delinquency status that existed when the 

deferment period began.

(8) A borrower whose loan is in 

default is not eligible for a deferment on 

that loan, unless the borrower has made 

payment arrangements acceptable to the 

lender prior to the payment of a default 

claim by a guaranty agency.

(9) The borrower promptly must 

inform the lender when the condition 

entitling the borrower to a deferment no 

longer exists.

(10) Authorized deferments are 

described in paragraph (b) of this section. 

Specific requirements for each deferment 

are set forth in paragraphs (c) through (s) of 

this section.

(11) If two individuals are jointly 

liable for repayment of a PLUS loan or a 

Consolidation loan, the lender shall grant a 

request for deferment if both individuals 

simultaneously meet the requirements of 

this section for receiving the same, or 

different deferments.

(b) Authorized deferments for 

borrowers prior to July 1, 1993. (1) For all 

borrowers who are not new borrowers on 

or after July 1, 1993. Deferment is 

authorized for a FFEL borrower during any 

period when the borrower is—

(i) Except as provided in paragraph 

(c)(5)(b)(4) of this section, engaged in fulltime study at a school in accordance with 

paragraph (c) of this section., or at a school 

that is operated by the Federal Government 

(e.g., the service academies), unless the 

borrower is not a national of the United 
Subpart B – General Provisions

§682.210

Deferment

77

States and is pursuing a course of study at a 

school not located in a State;

(ii) Engaged in a course of study 

under an eligible graduate fellowship 

program in accordance with paragraph (d) 

of this section;

(iii) Engaged in a rehabilitation 

training program for disabled individuals in 

accordance with paragraph (d) of this 

section;

(iv) Temporarily totally disabled in 

accordance with paragraph (f) of this 

section, or unable to secure employment 

because the borrower is caring for a spouse 

or other dependent who is disabled and 

requires continuous nursing or similar 

services for up to three years in accordance 

with paragraph (g) of this section; or

(v) Conscientiously seeking, but 

unable to find, full-time employment in the 

United States, for up to two years in 

accordance with paragraph (h) of this 

section.

(2) For a borrower of aall Stafford or 

and SLS loanborrowers who are not new 

borrowers on or after July 1, 1993, and for a 

parent borrower of a PLUS loans made 

before August 15, 1983,. dDeferment is 

authorized during any period when the 

borrower is—

(i) On active duty status in the 

United States Armed Forces in accordance 

with paragraph (i) of this section, or an 

officer in the Commissioned Corps of the 

United States Public Health Service in 

accordance with paragraph (j) of this 

section, for up to three years (including any 

period during which the borrower received 

a deferment authorized under paragraph 

(b)(5)(i)(3)(ii) of this section);

(ii) A full-time volunteer under the 

Peace Corps Act, for up to three years, in 

accordance with paragraph (k) of this 

section;

(iii) A full-time volunteer under title I 

of the Domestic Volunteer Service Act of 

1973 (ACTION programs), for up to three 

years, in accordance with paragraph (l) of 

this section;

(iv) A full-time volunteer for a taxexempt organization, for up to three years, 

in accordance with paragraph (m) of this 

section; or

(v) Engaged in an internship of 

residency program, in accordance with 

paragraph (n) of this section, for up to two 

years (including any period during which 

the borrower received a deferment 

authorized under paragraph (b)(5)(iii)(3)(iv)

of this section).

(3) For a borrower of anew Stafford 

or SLS borrowers on or after July 1, 1987 but 

before July 1, 1993. loan who has been 

enrolled on at least a half-time basis at an 

institution of higher education during the 

six months preceding the beginning of this 

deferment, dDeferment is authorized

during a period of up to six months during 

which the borrower is—

(i) In accordance with paragraph (o) 

of this section, if the borrower has been 

enrolled on at least a half-time basis at an 

institution of higher education during the 

six months preceding the beginning of the 
Subpart B – General Provisions

§682.210

Deferment

78

deferment, for a period of up to six months 

during which the borrower is--

(i) (A)(A)(1) Pregnant;

(B)(2) Caring for his or her newborn 

child; or

(C)(3) Caring for a child immediately 

following the placement of the child with 

the borrower before or immediately 

following adoption; and

(ii)(B) Not attending a school or 

gainfully employed.;

(ii) During a period when the 

borrower is on active duty status in the 

National Oceanic and Atmospheric 

Administration Corps, for up to three years, 

in accordance with paragraph (p) of this 

section, (including any period during which 

the borrower received a deferment 

authorized under paragraph (b)(2)(i) of this 

section);

(iii) During a period of up to three 

years when the borrower is serving as a fulltime teacher in a public or non-profit 

private elementary or secondary school in a 

teacher shortage area designated by the 

Secretary under paragraph (q) of this 

section;

(iv) During a period when the 

borrower is engaged in an internship or 

residency program, for up to two years, in 

accordance with paragraph (n) of this 

section, (including any period during which 

the borrower received a deferment 

authorized under paragraph (b)(2)(v) of this 

section); or

(v) When a mother who has 

preschool-age children (i.e., children who 

have not enrolled in first grade) and who is 

earning not more than $1 per hour above 

the Federal minimum wage, for up to 12 

months of employment, and who began 

that full-time employment within one year 

of entering or re-entering the work force, in 

accordance with paragraph (r) of this 

section. Full-time employment involves at 

least 30 hours of work a week and it is 

expected to last at least 3 months.

(4) For a “new borrower,” as defined 

in paragraph (b)(7) of this sectionnew 

Stafford or SLS borrowers on or after July 1, 

1987,. dDeferment is authorized during 

periods when the borrower is engaged in at 

least half-time study at a school in 

accordance with paragraph (b) of this 

section., unless the borrower is not a 

national of the United States and is 

pursuing a course of study at a school not

located in a State.

(5) For a new borrower, as defined 

in paragraph (b)(7) of this section, of a 

Stafford or SLS loan, deferment is 

authorized during any period when the 

borrower is—

(i) On active duty status in the 

National Oceanic and Atmospheric 

Administration Corps, for up to three years 

(including any period during which the 

borrower received a deferment authorized 

under paragraph (b)(2)(i) of this section);

(ii) Up to three years of service as a 

full-time teacher in a public or non-profit 

private elementary or secondary school in a 

teacher shortage area designated by the 
Subpart B – General Provisions

§682.210

Deferment

79

Secretary under paragraph (q) of this 

section.

(iii) Engaged in an internship or 

residency program, for up to two years 

(including any period during which the 

borrower received a deferment authorized 

under paragraph (b)(2)(v) of this section); or

(iv) A mother who has preschool-age 

children (i.e., children who have not 

enrolled in first grade) and who is earning 

not more than $1 per hour above the 

Federal minimum wage, for up to 12 

months of employment, and who began 

that full-time employment within one year 

of entering or re-entering the work force. 

Full-time employment involves at least 30 

hours of work a week and it expected to last 

at least 3 months.

(6)(5) For anew parent PLUS 

borrowers on or after July 1, 1987 and 

before July 1, 1993. of a PLUS loan, 

dDeferment is authorized during any period 

when a student on whose behalf the parent 

borrower received the loan—

(i) Is not independent as defined in 

section 480(d) of the Act; and

(ii) Meets the conditions and 

provides the required documentation, for 

any of the deferments described in 

paragraphs (b)(1)(i)– through (iii) and (b)(4) 

of this section.

(7)(6) Definition of new borrower. 

For purposes of paragraphs (b)(3), (b)(4), 

and (b)(5) of this section, a “new borrower” 

with respect to a loan is a borrower who, on 

the date he or she signs the promissory 

note, has no outstanding balance on—

(i) A Stafford, SLS, or PLUS loan 

made prior to July 1, 1987 for a period of 

enrollment beginning prior to July 1, 1987; 

or

(ii) A Consolidation loan that repaid 

a loan made prior to July 1, 1987 and for a 

period of enrollment beginning prior to July 

1, 1987.

(c) In-school deferment. (1) Except as 

provided in paragraph (c)(5) of this section, 

the lender processes a deferment for fulltime study or half-time study at a school, 

when—

(i) The borrower submits a request 

and supporting documentation for a 

deferment;

(ii) The lender receives information 

from the borrower's school about the 

borrower's eligibility in connection with a 

new loan;

(iii) The lender receives student 

status information from the borrower's 

school, either directly or indirectly, 

indicating that the borrower's enrollment 

status supports eligibility for a deferment; 

or

(iv) The lender confirms a 

borrower's half-time enrollment status 

through the use of the National Student 

Loan Data System if requested to do so by 

the school the borrower is attending.

(2) The lender must notify the 

borrower that a deferment has been 

granted based on paragraphs (c)(1)(ii), (iii), 

or (iv) of this section and that the borrower 

has the option to cancel the deferment and 

continue paying on the loan.
Subpart B – General Provisions

§682.210

Deferment

80

(3) The lender must consider a 

deferment granted on the basis of a 

certified loan application or other 

information certified by the school to cover 

the period lasting until the anticipated 

graduation date appearing on the 

application, and as updated by notice or 

Student Status Confirmation Report update 

to the lender from the school or guaranty 

agency, unless and until it receives notice 

that the borrower has ceased the level of 

study ( i.e., full-time or half-time) required 

for the deferment.

(4) In the case of a FFEL borrower, 

the lender shall treat a certified loan 

application or other form certified by the 

school or for multiple holders of a 

borrower's loans, shared data from the 

Student Status Confirmation Report, as 

sufficient documentation for an in-school 

student deferment for any outstanding FFEL 

loan previously made to the borrower that 

is held by the lender.

(5) A borrower serving in a medical 

internship or residency program, except for 

an internship in dentistry, is prohibited 

from receiving or continuing a deferment 

on a Stafford, or a PLUS (unless based on 

the dependent's status) SLS, or 

Consolidation loan under paragraph (c) of 

this section.

(d) Graduate fellowship deferment. 

(1) To qualify for a deferment for study in a 

graduate fellowship program, a borrower 

shall provide the lender with a statement 

from an authorized official of the 

borrower's fellowship program certifying—

(i) That the borrower holds at least a 

baccalaureate degree conferred by an 

institution of higher education;

(ii) That the borrower has been 

accepted or recommended by an institution 

of higher education for acceptance on a fulltime basis into an eligible graduate 

fellowship program; and

(iii) The borrower's anticipated 

completion date in the program.

(2) For purposes of paragraph (d)(1) 

of this section, an eligible graduate 

fellowship program is a fellowship program 

that—

(i) Provides sufficient financial 

support to graduate fellows to allow for fulltime study for at least six months;

(ii) Requires a written statement 

from each applicant explaining the 

applicant's objectives before the award of 

that financial support;

(iii) Requires a graduate fellow to 

submit periodic reports, projects, or 

evidence of the fellow's progress; and

(iv) In the case of a course of study 

at a foreign university, accepts the course of 

study for completion of the fellowship 

program.

(e) Rehabilitation training program 

deferment. (1) To qualify for a rehabilitation 

training program deferment, a borrower 

shall provide the lender with a statement 

from an authorized official of the 

borrower's rehabilitation training program 

certifying that the borrower is either 

receiving, or is scheduled to receive, 
Subpart B – General Provisions

§682.210

Deferment

81

services under an eligible rehabilitation 

training program for disabled individuals.

(2) For purposes of paragraph (e)(1) 

of this section, an eligible rehabilitation 

training program for disabled individuals is 

a program that—

(i) Is licensed, approved, certified, or 

otherwise recognized as providing 

rehabilitation training to disabled 

individuals by—

(A) A State agency with 

responsibility for vocational rehabilitation 

programs;

(B) A State agency with 

responsibility for drug abuse treatment 

programs;

(C) A State agency with 

responsibility for mental health services 

program;

(D) A State agency with 

responsibility for alcohol abuse treatment 

programs; or

(E) The Department of Veterans 

Affairs; and

(ii) Provides or will provide the 

borrower with rehabilitation services under 

a written plan that—

(A) Is individualized to meet the 

borrower's needs;

(B) Specifies the date on which the 

services to the borrower are expected to 

end; and

(C) Is structured in a way that 

requires a substantial commitment by the 

borrower to his or her rehabilitation. The 

Secretary considers a substantial 

commitment by the borrower to be a 

commitment of time and effort that 

normally would prevent an individual from 

engaging in full-time employment, either 

because of the number of hours that must 

be devoted to rehabilitation or because of 

the nature of the rehabilitation. For the 

purpose of this paragraph, full-time 

employment involves at least 30 hours of 

work per week and is expected to last at 

least three months.

(f) Temporary total disability 

deferment. (1) To qualify for a temporary 

total disability deferment, a borrower shall 

provide the lender with a statement from a 

physician, who is a doctor of medicine or 

osteopathy and is legally authorized to 

practice, certifying that the borrower is 

temporarily totally disabled as defined in 

§682.200(b).

(2) A borrower is not considered 

temporarily totally disabled on the basis of 

a condition that existed before he or she 

applied for the loan, unless the condition 

has substantially deteriorated so as to 

render the borrower temporarily totally 

disabled, as substantiated by the statement 

required under paragraph (f)(1) of this 

section, after the borrower submitted the 

loan application.

(3) A lender may not grant a 

deferment based on a single certification 

under paragraph (f)(1) of this section 

beyond the date that is six months after the 

date of certification.

(g) Dependent's disability deferment. 

(1) To qualify for a deferment given to a 
Subpart B – General Provisions

§682.210

Deferment

82

borrower whose spouse or other 

dependent requires continuous nursing or 

similar services for a period of at least 90 

days, the borrower shall provide the lender 

with a statement—

(i) From a physician, who is a doctor 

of medicine or osteopathy and is legally 

authorized to practice, certifying that the 

borrower's spouse or dependent requires 

continuous nursing or similar services for a 

period of at least 90 days; and

(ii) From the borrower, certifying 

that the borrower is unable to secure fulltime employment because he or she is 

providing continuous nursing or similar 

services to the borrower's spouse or other 

dependent. For the purpose of this 

paragraph, full-time employment involves 

at least 30 hours of work per week and is 

expected to last at least three months.

(2) A lender may not grant a 

deferment based on a single certification 

under paragraph (g)(1) of this section 

beyond the date that is six months after the 

date of the certification.

(h) Unemployment deferment. (1) A 

borrower qualifies for an unemployment 

deferment by providing evidence of 

eligibility for unemployment benefits to the 

lender.

(2) A borrower also qualifies for an 

unemployment deferment by providing to 

the lender a written certification, or an 

equivalent as approved by the Secretary, 

that—

(i) The borrower has registered with 

a public or private employment agency, if 

one is available to the borrower within a 50-

mile radius of the borrower's current 

address; and

(ii) For all requests beyond the initial 

request, the borrower has made at least six 

diligent attempts during the preceding 6-

month period to secure full-time 

employment.

(3) For purposes of obtaining an 

unemployment deferment under paragraph 

(h)(2) of this section, the following rules 

apply:

(i) A borrower may qualify for an 

unemployment deferment whether or not 

the borrower has been previously 

employed.

(ii) An unemployment deferment is 

not justified if the borrower refuses to seek 

or accept employment in kinds of positions 

or at salary and responsibility levels for 

which the borrower feels overqualified by 

virtue of education or previous experience.

(iii) Full-time employment involves 

at least 30 hours of work a week and is 

expected to last at least three months.

(iv) The initial period of 

unemployment deferment may be granted 

for a period of unemployment beginning up 

to 6 months before the date the lender 

receives the borrower's request, and may 

be granted for up to 6 months after that 

date.

(4) A lender may not grant an 

unemployment deferment beyond the date 

that is 6 months after the date the 

borrower provides evidence of the 

borrower's eligibility for unemployment 
Subpart B – General Provisions

§682.210

Deferment

83

insurance benefits under paragraph (h)(1) 

of this section or the date the borrower 

provides the written certification, or an 

approved equivalent, under paragraph 

(h)(2) of this section.

(i) Military deferment. (1) To qualify 

for a military deferment, a borrower or a 

borrower's representative shall provide the 

lender with—

(i) A written statement from the 

borrower's commanding or personnel 

officer certifying—

(A) That the borrower is on active 

duty in the Armed Forces of the United 

States;

(B) The date on which the 

borrower's service began; and

(C) The date on which the 

borrower's service is expected to end; or

(ii)(A) A copy of the borrower's 

official military orders; and

(B) A copy of the borrower's military 

identification.

(2) For the purpose of this section, 

the Armed Forces means the Army, Navy, 

Air Force, Marine Corps, and the Coast 

Guard.

(3) A borrower enlisted in a reserve 

component of the Armed Forces may 

qualify for a military deferment only for 

service on a full-time basis that is expected 

to last for a period of at least one year in 

length, as evidenced by official military 

orders, unless an order for national 

mobilization of reservists is issued.

(4) A borrower enlisted in the 

National Guard qualifies for a military 

deferment only while the borrower is on 

active duty status as a member of the U.S. 

Army or Air Force Reserves, and meets the 

requirements of paragraph (i)(3) of this 

section.

(5) A lender that grants a military 

service deferment based on a request from 

a borrower's representative must notify the 

borrower that the deferment has been 

granted and that the borrower has the 

option to cancel the deferment and 

continue to make payments on the loan. 

The lender may also notify the borrower's 

representative of the outcome of the 

deferment request.

(j) Public Health Service deferment. 

To qualify for a Public Health Service 

deferment, the borrower shall provide the 

lender with a statement from an authorized 

official of the United States Public Health 

Service (USPHS) certifying—

(1) That the borrower is engaged in 

full-time service as an officer in the 

Commissioned Corps of the USPHS;

(2) The date on which the 

borrower's service began; and

(3) The date on which the 

borrower's service is expected to end.

(k) Peace Corps deferment. (1) To 

qualify for a deferment for service under 

the Peace Corps Act, the borrower shall 

provide the lender with a statement from 

an authorized official of the Peace Corps 

certifying—
Subpart B – General Provisions

§682.210

Deferment

84

(i) That the borrower has agreed to 

serve for a term of at least one year;

(ii) The date on which the 

borrower's service began; and

(iii) The date on which the 

borrower's service is expected to end.

(2) The lender must grant a 

deferment for the borrower's full term of 

service in the Peace Corps, not to exceed 

three years.

(l) Full-time volunteer service in the 

ACTION programs. To qualify for a 

deferment as a full-time paid volunteer in 

an ACTION program, the borrower shall 

provide the lender with a statement from 

an authorized official of the program 

certifying—

(1) That the borrower has agreed to 

serve for a term of at least one year;

(2) The date on which the 

borrower's service began; and

(3) The date on which the 

borrower's service is expected to end.

(m) Deferment for full-time 

volunteer service for a tax-exempt 

organization. To qualify for a deferment as 

a full-time paid volunteer for a tax-exempt 

organization, a borrower shall provide the 

lender with a statement from an authorized 

official of the volunteer program 

certifying—

(1) That the borrower—

(i) Serves in an organization that has 

obtained an exemption from taxation under 

section 501(c)(3) of the Internal Revenue 

Code of 1986;

(ii) Provides service to low-income 

persons and their communities to assist 

them in eliminating poverty and povertyrelated human, social, and environmental 

conditions;

(iii) Does not receive compensation 

that exceeds the rate prescribed under 

section 6 of the Fair Labor Standards Act of 

1938 (the Federal minimum wage), except 

that the tax-exempt organization may 

provide health, retirement, and other fringe 

benefits to the volunteer that are 

substantially equivalent to the benefits 

offered to other employees of the 

organization;

(iv) Does not, as part of his or her 

duties, give religious instruction, conduct 

worship services, engage in religious 

proselytizing, or engage in fund-raising to 

support religious activities; and

(v) Has agreed to serve on a full-time 

basis for a term of at least one year;

(2) The date on which the 

borrower's service began; and

(3) The date on which the 

borrower's service is expected to end.

(n) Internship or residency 

deferment. (1) To qualify for an internship 

or residency deferment under paragraphs 

(b)(2)(v)(3)(iv) or (b)(5)(iii) of this section, 

the borrower shall provide the lender with 

a statement from an authorized official of 

the organization with which the borrower is 

undertaking the internship or residency 

program certifying—
Subpart B – General Provisions

§682.210

Deferment

85

(i) That the internship or residency 

program is a supervised training program 

that requires the borrower to hold at least a 

baccalaureate degree prior to acceptance 

into the program;

(ii) That, except for a borrower that 

provides the statement from a State official 

described in paragraph (n)(2) of this section, 

the internship or residency program leads 

to a degree or certificate awarded by an 

institution of higher education, a hospital, 

or a health care facility that offers 

postgraduate training;

(iii) That the borrower has been 

accepted into the internship or residency 

program; and

(iv) The anticipated dates on which 

the borrower will begin and complete the 

internship or residency program, or, in the 

case of a borrower providing the statement 

described in paragraph (n)(2) of this section, 

the anticipated date on which the borrower 

will begin and complete the minimum 

period of participation in the internship 

program that the State requires be 

completed before an individual may be 

certified for professional practice or service.

(2) For a borrower who does not 

provide a statement certifying to the 

matters set forth in paragraph (n)(1)(ii) of 

this section to qualify for an internship 

deferment under paragraph (b)(2)(v)(3)(iv)

of this section, the borrower shall provide 

the lender with a statement from an official 

of the appropriate State licensing agency 

certifying that the internship or residency 

program, or a portion thereof, is required to 

be completed before the borrower may be 

certified for professional practice or service.

(o) Parental-leave deferment. (1) To 

qualify for the parental-leave deferment 

described in paragraph (b)(3)(i) of this 

section, the borrower shall provide the 

lender with—

(i) A statement from an authorized 

official of a participating school certifying 

that the borrower was enrolled on at least a 

half-time basis during the six months 

preceding the beginning of the deferment 

period;

(ii) A statement from the borrower 

certifying that the borrower—

(A) Is pregnant, caring for his or her 

newborn child, or caring for a child

immediately following the placement of the 

child with the borrower in connection with 

an adoption;

(B) Is not, and will not be, attending 

school during the deferment period; and

(C) Is not, and will not be, engaged 

in full-time employment during the 

deferment period; and

(iii) A physician's statement 

demonstrating the existence of the 

pregnancy, a birth certificate, or a 

statement from the adoption agency official 

evidencing a pre-adoption placement.

(2) For purposes of paragraph 

(o)(1)(ii)(C) of this section, full-time 

employment involves at least 30 hours of 

work per week and is expected to last at 

least three months.

(p) NOAA deferment. To qualify for a 

National Oceanic and Atmospheric 

Administration (NOAA) deferment, the 
Subpart B – General Provisions

§682.210

Deferment

86

borrower shall provide the lender with a 

statement from an authorized official of the 

NOAA corps, certifying—

(1) That the borrower is on active 

duty service in the NOAA corps;

(2) The date on which the 

borrower's service began; and

(3) The date on which the 

borrower's service is expected to end.

(q) Targeted teacher deferment. (1) 

To qualify for a targeted teacher deferment 

under paragraph (b)(5)(ii)(3)(iii) of this 

section, the borrower, for each school year 

of service for which a deferment is 

requested, must provide to the lender—

(i) A statement by the chief 

administrative officer of the public or 

nonprofit private elementary or secondary 

school in which the borrower is teaching, 

certifying that the borrower is employed as 

a full-time teacher; and

(ii) A certification that he or she is

teaching in a teacher shortage area 

designated by the Secretary as provided in 

paragraphs (q) (5) through (7) of this 

section, as described in paragraph (q)(2) of 

this section.

(2) In order to satisfy the 

requirement for certification that a 

borrower is teaching in a teacher shortage 

area designated by the Secretary, a 

borrower must do one of the following:

(i) If the borrower is teaching in a 

State in which the Chief State School Officer 

has complied with paragraph (q)(3) of this 

section and provides an annual listing of 

designated teacher shortage areas to the 

State's chief administrative officers whose 

schools are affected by the Secretary's 

designations, the borrower may obtain a 

certification that he or she is teaching in a 

teacher shortage area from his or her 

school's chief administrative officer.

(ii) If a borrower is teaching in a 

State in which the Chief State School Officer 

has not complied with paragraph (q)(3) of 

this section or does not provide an annual 

listing of designated teacher shortage areas 

to the State's chief administrative officers 

whose schools are affected by the 

Secretary's designations, the borrower must 

obtain certification that he or she is 

teaching in a teacher shortage area from 

the Chief State School Officer for the State 

in which the borrower is teaching.

(3) In the case of a State in which 

borrowers wish to obtain certifications as 

provided for in paragraph (q)(2)(i) of this 

section, the State's Chief State School 

Officer must first have notified the 

Secretary, by means of a one-time written 

assurance, that he or she provides annually 

to the State's chief administrative officers 

whose schools are affected by the 

Secretary's designations and the guaranty 

agency for that State, a listing of the 

teacher shortage areas designated by the 

Secretary as provided for in paragraphs (q) 

(5) through (7) of this section.

(4) If a borrower who receives a 

deferment continues to teach in the same 

teacher shortage area as that in which he or 

she was teaching when the deferment was 

originally granted, the borrower shall, at the 

borrower's request, continue to receive the 
Subpart B – General Provisions

§682.210

Deferment

87

deferment for those subsequent years, up 

to the three-year maximum deferment 

period, even if his or her position does not 

continue to be within an area designated by 

the Secretary as a teacher shortage area in 

those subsequent years. To continue to 

receive the deferment in a subsequent year 

under this paragraph, the borrower shall 

provide the lender with a statement by the 

chief administrative officer of the public or 

nonprofit private elementary or secondary 

school that employs the borrower, 

certifying that the borrower continues to be 

employed as a full-time teacher in the same 

teacher shortage area for which the 

deferment was received for the previous 

year.

(5) For purposes of this section a 

teacher shortage area is—

(i)(A) A geographic region of the 

State in which there is a shortage of 

elementary or secondary school teachers; 

or

(B) A specific grade level or 

academic, instructional, subject-matter, or 

discipline classification in which there is a 

statewide shortage of elementary or 

secondary school teachers; and

(ii) Designated by the Secretary 

under paragraphs (q)(6) or (q)(7) of this 

section.

(6)(i) In order for the Secretary to 

designate one or more teacher shortage 

areas in a State for a school year, the Chief 

State School Officer shall by January 1 of 

the calendar year in which the school year 

begins, and in accordance with objective 

written standards, propose teacher 

shortage areas to the Secretary for 

designation. With respect to private 

nonprofit schools included in the 

recommendation, the Chief State School 

Officer shall consult with appropriate 

officials of the private nonprofit schools in 

the State prior to submitting the 

recommendation.

(ii) In identifying teacher shortage 

areas to propose for designation under 

paragraph (q)(6)(i) of this section, the Chief 

State School Officer shall consider data 

from the school year in which the 

recommendation is to be made, unless that 

data is not yet available, in which case he or 

she may use data from the immediately 

preceding school year, with respect to—

(A) Teaching positions that are 

unfilled;

(B) Teaching positions that are filled 

by teachers who are certified by irregular, 

provisional, temporary, or emergency 

certification; and

(C) Teaching positions that are filled 

by teachers who are certified, but who are 

teaching in academic subject areas other 

than their area of preparation.

(iii) If the total number of 

unduplicated full-time equivalent (FTE) 

elementary or secondary teaching positions 

identified under paragraph (q)(6)(ii) of this 

section in the shortage areas proposed by 

the State for designation does not exceed 5 

percent of the total number of FTE 

elementary and secondary teaching 

positions in the State, the Secretary 

designates those areas as teacher shortage 

areas.
Subpart B – General Provisions

§682.210

Deferment

88

(iv) If the total number of 

unduplicated FTE elementary and 

secondary teaching positions identified 

under paragraph (q)(6)(ii) of this section in 

the shortage areas proposed by the State 

for designation exceeds 5 percent of the 

total number of elementary and secondary 

FTE teaching positions in the State, the 

Chief State School Officer shall submit, with 

the list of proposed areas, supporting 

documentation showing the methods used 

for identifying shortage areas, and an 

explanation of the reasons why the 

Secretary should nevertheless designate all 

of the proposed areas as teacher shortage 

areas. The explanation must include a 

ranking of the proposed shortage areas 

according to priority, to assist the Secretary 

in determining which areas should be 

designated. The Secretary, after considering 

the explanation, determines which shortage 

areas to designate as teacher shortage 

areas.

(7) A Chief State School Officer may 

submit to the Secretary for approval an 

alternative written procedure to the one 

described in paragraph (q)(6) of this section, 

for the Chief State School Officer to use to 

select the teacher shortage areas 

recommended to the Secretary for 

designation, and for the Secretary to use to 

choose the areas to be designated. If the 

Secretary approves the proposed 

alternative procedure, in writing, that 

procedure, once approved, may be used 

instead of the procedure described in 

paragraph (q)(6) of this section for 

designation of teacher shortage areas in 

that State.

(8) For purposes of paragraphs (q)(1) 

through (7) of this section—

(i) The definition of the term school 

in §682.200(b) does not apply;

(ii) Elementary school means a day 

or residential school that provides 

elementary education, as determined under 

State law;

(iii) Secondary school means a day or 

residential school that provides secondary 

education, as determined under State law. 

In the absence of applicable State law, the 

Secretary may determine, with respect to 

that State, whether the term “secondary 

school” includes education beyond the 

twelfth grade;

(iv) Teacher means a professional 

who provides direct and personal services 

to students for their educational 

development through classroom teaching;

(v) Chief State School Officer means 

the highest ranking educational official for 

elementary and secondary education for 

the State;

(vi) School year means the period 

from July 1 of a calendar year through June 

30 of the following calendar year;

(vii) Teacher shortage area means 

an area of specific grade, subject matter, or 

discipline classification, or a geographic 

area in which the Secretary determines that 

there is an inadequate supply of elementary 

or secondary school teachers; and

(viii) Full-time equivalent means the 

standard used by a State in defining fulltime employment, but not less than 30 
Subpart B – General Provisions

§682.210

Deferment

89

hours per week. For purposes of counting 

full-time equivalent teacher positions, a 

teacher working part of his or her total 

hours in a position that is designated as a 

teacher shortage area is counted on a pro 

rata basis corresponding to the percentage 

of his or her working hours spent in such a 

position.

(r) Working-mother deferment. (1) 

To qualify for the working-mother 

deferment described in paragraph 

(b)(5)(iv)(3)(v) of this section, the borrower 

shall provide the lender with a statement 

certifying that she—

(i) Is the mother of a preschool-age 

child;

(ii) Entered or reentered the 

workforce not more than one year before 

the beginning date of the period for which 

the deferment is being sought;

(iii) Is currently engaged in full-time 

employment; and

(iv) Does not receive compensation 

that exceeds $1 per hour above the rate 

prescribed under section 6 of the Fair Labor 

Standards Act of 1938 (the Federal 

minimum wage).

(2) In addition to the certification 

required under paragraph (r)(1) of this 

section, the borrower shall provide to the 

lender documents demonstrating the age of 

her child (e.g., a birth certificate) and the 

rate of her compensation (e.g., a pay stub 

showing her hourly rate of pay).

(3) For purposes of this paragraph—

(i) A preschool-age child is one who 

has not yet enrolled in first grade or a 

higher grade in elementary school; and

(ii) Full-time employment involves at 

least 30 hours of work a week and is 

expected to last at least 3 months.

(s) Deferments for new borrowers on 

or after July 1, 1993 —(1) General. (i) A new 

borrower who receives an FFEL Program 

loan first disbursed on or after July 1, 1993 

is entitled to receive deferments under 

paragraphs (s)(2) through (s)(6) of this 

section. For purposes of paragraphs (s)(2) 

through (s)(6) of this section, a “new 

borrower” is an individual who has no 

outstanding principal or interest balance on 

an FFEL Program loan as of July 1, 1993 or 

on the date he or she obtains a loan on or 

after July 1, 1993. This term also includes a 

borrower who obtains a Federal 

Consolidation Loan on or after July 1, 1993 

if the borrower has no other outstanding 

FFEL Program loan when the Consolidation 

Loan was made.

(ii) As a condition for receiving a 

deferment, except for purposes of 

paragraph (s)(2) of this section, the 

borrower must request the deferment and 

provide the lender with all information and 

documents required to establish eligibility 

for the deferment.

(iii) After receiving a borrower's 

written or verbal request, a lender may 

grant a deferment under paragraphs (s)(3) 

through (s)(6) of this section if the lender is 

able to confirm that the borrower has 

received a deferment on another FFEL loan 

or on a Direct Loan for the same reason and 

the same time period. The lender may grant 
Subpart B – General Provisions

§682.210

Deferment

90

the deferment based on information from 

the other FFEL loan holder or the Secretary 

or from an authoritative electronic 

database maintained or authorized by the 

Secretary that supports eligibility for the 

deferment for the same reason and the 

same time period.

(iv) A lender may rely in good faith 

on the information it receives under 

paragraph (s)(1)(iii) of this section when 

determining a borrower's eligibility for a 

deferment unless the lender, as of the date 

of the determination, has information 

indicating that the borrower does not 

qualify for the deferment. A lender must 

resolve any discrepant information before 

granting a deferment under paragraph 

(s)(1)(iii) of this section.

(v) A lender that grants a deferment 

under paragraph (s)(1)(iii) of this section 

must notify the borrower that the 

deferment has been granted and that the 

borrower has the option to pay interest that 

accrues on an unsubsidized FFEL loan or to 

cancel the deferment and continue to make 

payments on the loan.

(2) In-school deferment. An eligible 

borrower is entitled to a deferment based 

on the borrower's at least half-time study in 

accordance with the rules prescribed in 

§682.210(c), except that the borrower is 

not required to obtain a Stafford or SLS loan 

for the period of enrollment covered by the 

deferment.

(3) Graduate fellowship deferment. 

An eligible borrower is entitled to a 

graduate fellowship deferment in 

accordance with the rules prescribed in 

§682.210(d).

(4) Rehabilitation training program 

deferment. An eligible borrower is entitled 

to a rehabilitation training program 

deferment in accordance with the rules 

prescribed in §682.210(e).

(5) Unemployment deferment. An 

eligible borrower is entitled to an 

unemployment deferment in accordance 

with the rules prescribed in §682.210(h) for 

periods that, collectively, do not exceed 3 

years.

(6) Economic hardship deferment. 

An eligible borrower is entitled to an 

economic hardship deferment for periods 

of up to one year at a time that, collectively, 

do not exceed 3 years (except that a 

borrower who receives a deferment under 

paragraph (s)(6)(vi)(iv) of this section is 

entitled to an economic hardship 

deferment for the lesser of the borrower's 

full term of service in the Peace Corps or 

the borrower's remaining period of 

economic hardship deferment eligibility 

under the 3-year maximum), if the 

borrower provides documentation 

satisfactory to the lender showing that the 

borrower is within any of the categories 

described in paragraphs (s)(6)(i) through 

(s)(6)(vi)(iv) of this section.

(i) Has been granted an economic 

hardship deferment under either the Direct 

Loan or Federal Perkins Loan Programs for 

the period of time for which the borrower 

has requested an economic hardship 

deferment for his or her FFEL loan.

(ii) Is receiving payment under a 

Federal or State public assistance program, 

such as Aid to Families with Dependent 

Children, Supplemental Security Income, 
Subpart B – General Provisions

§682.210

Deferment

91

Food Stamps, or State general public 

assistance.

(iii) Is working full-time and has a 

monthly income that does not exceed the 

greater of (as calculated on a monthly 

basis)—

(A) The minimum wage rate 

described in section 6 of the Fair Labor 

Standards Act of 1938; or

(B) An amount equal to 150 percent 

of the poverty guideline applicable to the 

borrower's family size as published annually 

by the Department of Health and Human 

Services pursuant to 42 U.S.C. 9902(2). If a 

borrower is not a resident of a State 

identified in the poverty guidelines, the 

poverty guideline to be used for the 

borrower is the poverty guideline (for the 

relevant family size) used for the 48 

contiguous States.

(iv) Is serving as a volunteer in the 

Peace Corps.

(v) For an initial period of deferment 

granted under paragraph (s)(6)(iii) of this 

section, the lender must require the 

borrower to submit evidence showing the 

amount of the borrower's monthly income.

(vi) To qualify for a subsequent 

period of deferment that begins less than 

one year after the end of a period of 

deferment under paragraph (s)(6)(iii) of this 

section, the lender must require the 

borrower to submit evidence showing the 

amount of the borrower's monthly income 

or a copy of the borrower's most recently 

filed Federal income tax return.

(vii) For purposes of paragraph (s)(6) 

of this section, a borrower's monthly 

income is the gross amount of income 

received by the borrower from employment 

and from other sources, or one-twelfth of 

the borrower's adjusted gross income, as 

recorded on the borrower's most recently 

filed Federal income tax return.

(viii) For purposes of paragraph 

(s)(6) of this section, a borrower is 

considered to be working full-time if the 

borrower is expected to be employed for at 

least three consecutive months at 30 hours 

per week.

(ix) For purposes of paragraph 

(s)(6)(iii)(B) of this section, family size 

means the number that is determined by 

counting the borrower, the borrower's 

spouse, and the borrower's children, 

including unborn children who will be born 

during the period covered by the 

deferment, if the children receive more 

than half their support from the borrower. 

A borrower's family size includes other 

individuals if, at the time the borrower 

requests the economic hardship deferment, 

the other individuals—

(A) Live with the borrower; and

(B) Receive more than half their 

support from the borrower and will 

continue to receive this support from the 

borrower for the year the borrower certifies 

family size. Support includes money, gifts, 

loans, housing, food, clothes, car, medical 

and dental care, and payment of college 

costs.

(t) Military service deferments. (1) A 

borrower who receives a FFEL Program loan 
Subpart B – General Provisions

§682.210

Deferment

92

may receive a military service deferment for 

such loan for any period during which the 

borrower is—

(i) Serving on active duty during a 

war or other military operation or national 

emergency; or

(ii) Performing qualifying National 

Guard duty during a war or other military 

operation or national emergency.

(2) For a borrower whose active 

duty service includes October 1, 2007, or 

begins on or after that date, the deferment 

period ends 180 days after the 

demobilization date for each period of 

service described in paragraph (t)(1)(i) and 

(t)(1)(ii) of this section.

(3) Serving on active duty during a 

war or other military operation or national 

emergency means service by an individual 

who is—

(i) A Reserve of an Armed Force 

ordered to active duty under 10 U.S.C. 

12301(a), 12301(g), 12302, 12304 or 12306;

(ii) A retired member of an Armed 

Force ordered to active duty under 10 

U.S.C. 688 for service in connection with a 

war or other military operation or national 

emergency, regardless of the location at 

which such active duty service is performed; 

or

(iii) Any other member of an Armed 

Force on active duty in connection with 

such emergency or subsequent actions or 

conditions who has been assigned to a duty 

station at a location other than the location 

at which member is normally assigned.

(4) Qualifying National Guard duty 

during a war or other operation or national 

emergency means service as a member of 

the National Guard on full-time National 

Guard duty, as defined in 10 U.S.C. 

101(d)(5), under a call to active service 

authorized by the President or the 

Secretary of Defense for a period of more 

than 30 consecutive days under 32 U.S.C. 

502(f) in connection with a war, other 

military operation, or national emergency 

declared by the President and supported by 

Federal funds.

(5) Payments made by or on behalf 

of a borrower during a period for which the 

borrower qualified for a military service 

deferment are not refunded.

(6) As used in this paragraph—

(i) Active duty means active duty as 

defined in 10 U.S.C. 101(d)(1) except that it 

does not include active duty for training or 

attendance at a service school;

(ii) Military operation means a 

contingency operation as defined in 10 

U.S.C. 101(a)(13); and

(iii) National emergency means the 

national emergency by reason of certain 

terrorist attacks declared by the President 

on September 14, 2001, or subsequent 

national emergencies declared by the 

President by reason of terrorist attacks.

(7) To receive a military service 

deferment, the borrower, or the borrower's 

representative, must request the deferment 

and provide the lender with all information 

and documents required to establish 

eligibility for the deferment, except that a 
Subpart B – General Provisions

§682.210

Deferment

93

lender may grant a borrower a military

service deferment under the procedures 

specified in paragraphs (s)(1)(iii) through 

(s)(1)(v) of this section.

(8) A lender that grants a military 

service deferment based on a request from 

a borrower's representative must notify the 

borrower that the deferment has been 

granted and that the borrower has the 

option to cancel the deferment and 

continue to make payments on the loan. 

The lender may also notify the borrower's 

representative of the outcome of the 

deferment request.

(9) Without supporting 

documentation, a military service 

deferment may be granted to an otherwise 

eligible borrower for a period not to exceed 

the initial 12 months from the date the 

qualifying eligible service began based on a 

request from the borrower or the 

borrower's representative.

(u) Post-active duty student 

deferment. (1) Effective October 1, 2007, a 

borrower who receives a FFEL Program loan 

and is serving on active duty on that date, 

or begins serving on or after that date, is 

entitled to receive a post-active duty 

student deferment for 13 months following 

the conclusion of the borrower's active duty 

military service and any applicable grace 

period if—

(i) The borrower is a member of the 

National Guard or other reserve component 

of the Armed Forces of the United States or 

a member of such forces in retired status; 

and

(ii) The borrower was enrolled, on at 

least a half-time basis, in a program of 

instruction at an eligible institution at the 

time, or within six months prior to the time, 

the borrower was called to active duty.

(2) As used in paragraph (u)(1) of 

this section, “active duty” means active 

duty as defined in section 101(d)(1) of title 

10, United States Code for at least a 30-day 

period, except that—

(i) Active duty includes active State 

duty for members of the National Guard 

under which a Governor activates National 

Guard personnel based on State statute or 

policy and the activities of the National 

Guard are paid for with State funds;

(ii) Active duty includes full-time 

National Guard duty under which a 

Governor is authorized, with the approval 

of the President or the U.S. Secretary of 

Defense, to order a member to State active 

duty and the activities of the National 

Guard are paid for with Federal funds;

(iii) Active duty does not include 

active duty for training or attendance at a 

service school; and

(iv) Active duty does not include 

employment in a full-time, permanent 

position in the National Guard unless the 

borrower employed in such a position is 

reassigned to active duty under paragraph 

(u)(2)(i) of this section or full-time National 

Guard duty under paragraph (u)(2)(ii) of this 

section.

(3) If the borrower returns to 

enrolled student status, on at least a halftime basis, during the 13-month deferment 
Subpart B – General Provisions

§682.210

Deferment

94

period, the deferment expires at the time 

the borrower returns to enrolled student 

status, on at least a half-time basis.

(4) If a borrower qualifies for both a 

military service deferment and a post-active 

duty student deferment, the 180-day postdemobilization military service deferment 

period and the 13-month post-active duty 

student deferment period apply 

concurrently.

(5) To receive a post-active military

active duty student deferment, the 

borrower must request the deferment and 

provide the lender with all information and 

documents required to establish eligibility 

for the deferment, except that a lender may 

grant a borrower a post-active military

active duty student deferment under the 

procedures specified in paragraphs (s)(1)(iii) 

through (s)(1)(v) of this section.

(v) In-school deferments for PLUS 

loan borrowers with loans first disbursed on 

or after July 1, 2008 . (1)(i) A student PLUS 

borrower is entitled to a deferment on a 

PLUS loan first disbursed on or after July 1, 

2008 during the 6-month period that begins 

on the day after the student ceases to be 

enrolled on at least a half-time basis at an 

eligible institution.

(ii) If a lender grants an in-school 

deferment to a student PLUS borrower 

based on §682.210(c)(1)(ii), (iii), or (iv), the 

deferment period for a PLUS loan first 

disbursed on or after July 1, 2008 includes 

the 6-month post-enrollment period 

described in paragraph (v)(1)(i) of this 

section. The notice required by 

§682.210(c)(2) must inform the borrower 

that the in-school deferment on a PLUS loan 

first disbursed on or after July 1, 2008 will 

end six months after the day the borrower 

ceases to be enrolled on at least a half-time 

basis.

(2) Upon the request of the 

borrower, an eligible parent PLUS borrower 

must be granted a deferment on a PLUS 

loan first disbursed on or after July 1, 

2008—

(i) During the period when the 

student on whose behalf the loan was 

obtained is enrolled at an eligible institution 

on at least a half-time basis; and

(ii) During the 6-month period that 

begins on the later of the day after the 

student on whose behalf the loan was 

obtained ceases to be enrolled on at least a 

half-time basis or, if the parent borrower is 

also a student, the day after the parent 

borrower ceases to be enrolled on at least a 

half-time basis.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1077, 1078, 1078–1, 

1078–2, 1078–3, 1082, 1085)

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

[57 FR 60323, Dec. 18, 1992]

Editorial Note: For Federal Register 

citations affecting §682.210, see the List of 

CFR Sections Affected, which appears in the 

Finding Aids section of the printed volume 

and on GPO Access. 
Subpart B – General Provisions

§682.211

Forbearance

95

§ 682.211 Forbearance.

(a)(1) The Secretary encourages a 

lender to grant forbearance for the benefit 

of a borrower or endorser in order to 

prevent the borrower or endorser from 

defaulting on the borrower's or endorser's 

repayment obligation, or to permit the 

borrower or endorser to resume honoring 

that obligation after default. Forbearance 

means permitting the temporary cessation 

of payments, allowing an extension of time 

for making payments, or temporarily 

accepting smaller payments than previously 

were scheduled.

(2) Subject to paragraph (g) of this 

section, a lender may grant forbearance of 

payments of principal and interest under 

paragraphs (b), (c), and (d) of this section 

only if—

(i) The lender reasonably believes, 

and documents in the borrower's file, that 

the borrower or endorser intends to repay 

the loan but, due to poor health or other 

acceptable reasons, is currently unable to 

make scheduled payments; or

(ii) The borrower's payments of 

principal are deferred under §682.210 and 

the Secretary does not pay interest benefits 

on behalf of the borrower under §682.301.

(3) If two individuals are jointly liable 

for repayment of a PLUS loan or a 

Consolidation loan, the lender may grant 

forbearance on repayment of the loan only 

if the ability of both individuals to make 

scheduled payments has been impaired 

based on the same or differing conditions.

(4) Except as provided in paragraph 

(f)(10)(11) of this section, if payments of 

interest are forborne, they may be 

capitalized as provided in §682.202(b).

(b) A lender may grant forbearance 

if—

(1) The lender and the borrower or 

endorser agree to the terms of the 

forbearance and, unless the agreement was 

in writing, the lender sends, within 30 days, 

a notice to the borrower or endorser 

confirming the terms of the forbearance 

and records the terms of the forbearance in 

the borrower's file; or

(2) In the case of forbearance of 

interest during a period of deferment, if the 

lender informs the borrower at the time the 

deferment is granted that interest 

payments are to be forborne.

(c)Except as provided in paragraph 

(d)(2) of this section, A a lender may grant 

forbearance for a period of up to one year 

at a time if both the borrower or endorser 

and an authorized official of the lender 

agree to the terms of the forbearance. If 

the borrower or endorser requests the 

forbearance orally and If the lender and the 

borrower or endorser agree to the terms of 

the forbearance orally, the lender must 

notify the borrower or endorser of the 

terms within 30 days of that agreement.

(d) (1) A guaranty agency may 

authorize a lender to grant forbearance to 

permit a borrower or endorser to resume 

honoring the agreement to repay the debt 

after default but prior to claim payment. 

The terms of the forbearance agreement in 

this situation must include a new 
Subpart B – General Provisions

§682.211

Forbearance

96

agreement to repay the debt signed by the 

borrower or endorser or a written or oral 

affirmation of the borrower’s or endorser’s 

obligation signed agreement to repay the 

debt.

(2) If the forbearance is based on 

the borrower’s or endorser’s oral request 

and affirmation of the obligation to repay 

the debt--

(i) The forbearance period is limited 

to a period of 120 days;

(ii) Such a forbearance cannot be 

granted consecutively;

(iii) The lender must orally review 

with the borrower the terms and conditions

of the forbearance, including the 

consequences of interest capitalization, and 

other repayment options available to the 

borrower; and 

(iv) The lender must send a notice 

to the borrower or endorser, as provided in 

paragraph (c) of this section, that confirms 

the terms of the forbearance and the 

borrower’s or endorser’s affirmation of the 

obligation to repay the debt, and retain a 

record of the terms of the forbearance and 

affirmation in the borrower’s or endorser’s 

file.

(3) For purposes of this section, an 

“affirmation” means an acknowledgement 

of the loan by the borrower or endorser in a 

legally binding manner. The form of the 

affirmation may include, but is not limited 

to, the borrower’s or endorser’s--

(i) New signed repayment 

agreement or schedule, or another form of 

signed agreement to repay the debt;

(ii) Oral acknowledgment and 

agreement to repay the debt documented 

by the lender in the borrower’s or 

endorser’s file and confirmed by the lender 

in a notice to the borrower; or 

(iii) A payment made on the loan by 

the borrower or endorser. 

(e)(1) At the time of granting a 

borrower or endorser a forbearance, the 

lender must provide the borrower or 

endorser with information to assist the 

borrower or endorser in understanding the 

impact of capitalization of interest on the 

loan principal and total interest to be paid 

over the life of the loan; and

(2) At least once every 180 days 

during the period of forbearance, the 

lender must contact the borrower or 

endorser to inform the borrower or 

endorser of—

(i) The outstanding obligation to 

repay;

(ii) The amount of the unpaid 

principal balance and any unpaid interest 

that has accrued on the loan since the last 

notice provided to the borrower or 

endorser under this paragraph;

(iii) The fact that interest will accrue 

on the loan for the full term of the 

forbearance;

(iv) The amount of interest that will 

be capitalized, as of the date of the notice, 

and the date capitalization will occur;

(v) The option of the borrower or 

endorser to pay the interest that has 
Subpart B – General Provisions

§682.211

Forbearance

97

accrued before the interest is capitalized; 

and

(vi) The borrower's or endorser's 

option to discontinue the forbearance at 

any time.

(f) A lender may grant forbearance, 

upon notice to the borrower or if 

applicable, the endorser, with respect to 

payments of interest and principal that are 

overdue or would be due—

(1) For a properly granted period of 

deferment for which the lender learns the 

borrower did not qualify;

(2) Upon the beginning of an 

authorized deferment period under 

§682.210, or an administrative forbearance 

period as specified under paragraph 

(f)(1111) or (i)(2) of this section;or an 

authorized period of forbearance;

(3) For the period beginning when 

the borrower entered repayment without 

the lender's knowledge until the first 

payment due date was established;

(4) For the period prior to the 

borrower's filing of a bankruptcy petition as 

provided in §682.402(f);

(5) For the periods described in 

§682.402(c) in regard to the borrower's 

total and permanent disability;

(6) Upon receipt of a valid identity 

theft report as defined in section 603(q)(4) 

of the Fair Credit Reporting Act (15 U.S.C. 

1681a) or notification from a consumer 

reporting agency credit bureau that 

information furnished by the lender is a 

result of an alleged identity theft as defined 

in §682.402(e)(14), for a period not to 

exceed 120 days necessary for the lender to 

determine the enforceability of the loan. If 

the lender determines that the loan does 

not qualify for discharge under 

§682.402(e)(1)(i)(C), but is nonetheless 

unenforceable, the lender must comply 

with §§682.300(b)(2)(ix) and 

682.302(d)(1)(viii).

(7) For a period not to exceed an 

additional 60 days after the lender has 

suspended collection activity for the initial 

60-day period required pursuant to 

§682.211(i)(6) and §682.402(b)(3), when 

the lender receives reliable information that 

the borrower (or student on whose behalf a 

parent has borrowed a PLUS Loan) has died;

(8) For periods necessary for the 

Secretary or guaranty agency to determine 

the borrower's eligibility for discharge of 

the loan because of an unpaid refund, 

attendance at a closed school or false 

certification of loan eligibility, pursuant to 

§682.402(d) or (e), or the borrower's or, if 

applicable, endorser's bankruptcy, pursuant 

to §682.402(f);

(9) For a period of delinquency at 

the time a loan is sold or transferred, if the 

borrower or endorser is less than 60 days 

delinquent on the loan at the time of sale or 

transfer;

(10) For a period of delinquency that 

may remain after a borrower ends a period 

of deferment or mandatory forbearance 

until the next due date, which can be no 

later than 60 days after the period ends;

(11) For a period not to exceed 60 

days necessary for the lender to collect and 
Subpart B – General Provisions

§682.211

Forbearance

98

process documentation supporting the 

borrower's request for a deferment, 

forbearance, change in repayment plan, or 

consolidation loan. Interest that accrues 

during this period is not capitalized;

(12) For a period not to exceed 3 

months when the lender determines that a

borrower's ability to make payments has 

been adversely affected by a natural 

disaster, a local or national emergency as 

declared by the appropriate government 

agency, or a military mobilization;

(13) For a period not to exceed 60 

days necessary for the lender to collect and 

process documentation supporting the 

borrower's eligibility for loan forgiveness 

under the income-based repayment 

program. The lender must notify the 

borrower that the requirement to make 

payments on the loans for which 

forgiveness was requested has been 

suspended pending approval of the 

forgiveness by the guaranty agency;

(14) For a period of delinquency at 

the time a borrower makes a change to the 

repayment plan; or

(15) For PLUS loans first disbursed 

before July 1, 2008, to align repayment with 

a borrower's PLUS loans that were first 

disbursed on or after July 1, 2008, or with 

Stafford Loans that are subject to a grace 

period under §682.209(a)(3). The notice 

specified in paragraph (f) introductory text 

of this section must inform the borrower 

that the borrower has the option to cancel 

the forbearance and continue paying on the 

loan; or [NOTE: This paragraph reflects 

changes made by final regulations published 

on November 1, 2012 (77 FR 66088).]

(16) For the periods described in 

§682.215(e)(9) in regard to the incomebased repayment plan. [NOTE: This 

paragraph was added by final regulations 

published on November 1, 2012 (77 FR 

66088).]

(g) In granting a forbearance under 

this section, except for a forbearance under 

paragraph (i)(5) of this section, a lender 

shall grant a temporary cessation of 

payments, unless the borrower chooses 

another form of forbearance subject to 

paragraph (a)(1) of this section.

(h) Mandatory forbearance —(1) 

Medical or dental interns or residents. Upon 

receipt of a request and sufficient 

supporting documentation, as described in 

§682.210(n), from a borrower serving in a 

medical or dental internship or residency 

program, a lender shall grant forbearance 

to the borrower in yearly increments (or a 

lesser period equal to the actual period 

during which the borrower is eligible) if the 

borrower has exhausted his or her eligibility 

for a deferment under §682.210(n), or the 

borrower's promissory note does not 

provide for such a deferment—

(i) For the length of time remaining 

in the borrower's medical or dental 

internship or residency that must be 

successfully completed before the borrower 

may begin professional practice or service; 

or

(ii) For the length of time that the 

borrower is serving in a medical or dental 

internship or residency program leading to 

a degree or certificate awarded by an 

institution of higher education, a hospital, 
Subpart B – General Provisions

§682.211

Forbearance

99

or a health care facility that offers 

postgraduate training.

(2) Borrowers who are not medical 

or dental interns or residents, and 

endorsers. Upon receipt of a request and 

sufficient supporting documentation from 

an endorser (if applicable), or from a 

borrower (other than a borrower who is 

serving in a medical or dental internship or 

residency described in paragraph (h)(1) of 

this section), a lender shall grant 

forbearance—

(i) In increments up to one year, for 

periods that collectively do not exceed 

three years, if—

(A) The borrower or endorser is 

currently obligated to make payments on 

Title IV loans; and

(B) The amount of those payments 

each month (or a proportional share if the 

payments are due less frequently than 

monthly) is collectively equal to or greater 

than 20 percent of the borrower's or 

endorser's total monthly income;

(ii) In yearly increments (or a lesser 

period equal to the actual period during 

which the borrower is eligible) for as long as 

a borrower—

(A) Is serving in a national service 

position for which the borrower receives a 

national service educational award under 

the National and Community Service Trust 

Act of 1993;

(B) Is performing the type of service 

that would qualify the borrower for a 

partial repayment of his or her loan under 

the Student Loan Repayment Programs 

administered by the Department of Defense 

under 10 U.S.C. 2171;, 2173, 2174 or any 

other student loan repayment programs 

administered by the Department of 

Defense; or

(C) Is performing the type of service 

that would qualify the borrower for loan 

forgiveness and associated forbearance 

under the requirements of the teacher loan 

forgiveness program in §682.215216; and

(iii) In yearly increments (or a lesser 

period equal to the actual period for which 

the borrower is eligible) when a member of 

the National Guard who qualifies for a postactive duty student deferment, but does 

not qualify for a military service deferment 

or other deferment, is engaged in active 

State duty as defined in §682.210(u)(2)(i) 

and (ii) for a period of more than 30 

consecutive days, beginning—

(A) On the day after the grace period 

expires for a Stafford loan that has not 

entered repayment; or

(B) On the day after the borrower 

ceases at least half-time enrollment, for a 

FFEL loan in repayment.

(3) Forbearance agreement. After 

the lender determines the borrower's or 

endorser's eligibility, and the lender and the 

borrower or endorser agree to the terms of 

the forbearance granted under this section, 

the lender sends, within 30 days, a notice to 

the borrower or endorser confirming the 

terms of the forbearance and records the 

terms of the forbearance in the borrower's 

file.
Subpart B – General Provisions

§682.211

Forbearance

100

(4) Documentation. (i) Before 

granting a forbearance to a borrower or 

endorser under paragraph (h)(2)(i) of this 

section, the lender shall require the 

borrower or endorser to submit at least the 

following documentation:

(A) Evidence showing the amount of 

the most recent total monthly gross income 

received by the borrower or endorser from 

employment and from other sources; and

(B) Evidence showing the amount of 

the monthly payments owed by the 

borrower or endorser to other entities for 

the most recent month for the borrower's 

or endorser's Title IV loans.

(ii) Before granting a forbearance to 

a borrower or endorser under paragraph 

(h)(2)(ii)(B) of this section, the lender shall 

require the borrower or endorser to submit 

documentation showing the beginning and 

ending dates that the Department of 

Defense considers the borrower to be 

eligible for a partial repayment of his or her 

loan under the Student Loan Repayment 

Programs.

(iii) Before granting a forbearance to 

a borrower under paragraph (h)(2)(ii)(C) of 

this section, the lender must require the 

borrower to—

(A) Submit documentation for the 

period of the annual forbearance request 

showing the beginning and anticipated 

ending dates that the borrower is expected 

to perform, for that year, the type of service 

described in §682.215216(c); and

(B) Certify the borrower's intent to 

satisfy the requirements of §682.215216(c).

(i) Mandatory administrative 

forbearance. (1) The lender shall grant a 

mandatory administrative forbearance for 

the periods specified in paragraph (i)(2) of 

this section until the lender is notified by 

the Secretary or a guaranty agency that the 

forbearance period no longer applies. The 

lender may not require a borrower who is 

eligible for a forbearance under paragraph 

(i)(2)(ii) of this section to submit a request 

or supporting documentation, but shall 

require a borrower (or endorser, if 

applicable) who requests forbearance 

because of a military mobilization to 

provide documentation showing that he or 

she is subject to a military mobilization as 

described in paragraph (i)(4) of this section.

(2) The lender is not required to 

notify the borrower (or endorser, if 

applicable) at the time the forbearance is 

granted, but shall grant a forbearance to a 

borrower or endorser during a period, and 

the 30 days following the period, when the 

lender is notified by the Secretary that—

(i) Exceptional circumstances exist, 

such as a local or national emergency or 

military mobilization; or

(ii) The geographical area in which 

the borrower or endorser resides has been 

designated a disaster area by the president 

of the United States or Mexico, the Prime 

Minister of Canada, or by a Governor of a 

State.

(3) As soon as feasible, or by the 

date specified by the Secretary, the lender 

shall notify the borrower (or endorser, if 

applicable) that the lender has granted a 

forbearance and the date that payments 
Subpart B – General Provisions

§682.211

Forbearance

101

should resume. The lender's notification 

shall state that the borrower or endorser—

(i) May decline the forbearance and 

continue to be obligated to make scheduled 

payments; or

(ii) Consents to making payments in 

accordance with the lender's notification if 

the forbearance is not declined.

(4) For purposes of paragraph 

(i)(2)(i) of this section, the term “military 

mobilization” shall mean a situation in 

which the Department of Defense orders 

members of the National Guard or Reserves 

to active duty under sections 688, 12301(a), 

12301(g), 12302, 12304, and 12306 of title 

10, United States Code. This term also 

includes the assignment of other members 

of the Armed Forces to duty stations at 

locations other than the locations at which 

they were normally assigned, only if the 

military mobilization involved the activation 

of the National Guard or Reserves.

(5) The lender shall grant a 

mandatory administrative forbearance to a 

borrower (or endorser, if applicable) during 

a period when the borrower (or endorser, if 

applicable) is making payments for a period 

of—

(i) Up to 3 years of payments in 

cases where the effect of a variable interest 

rate on a standard or graduated repayment 

schedule would result in a loan not being 

repaid within the maximum repayment 

term; or

(ii) Up to 5 years of payments in 

cases where the effect of decreased 

installment amounts paid under an incomesensitive repayment schedule would result 

in the loan not being repaid within the 

maximum repayment term.

(6) The lender shall grant a 

mandatory administrative forbearance to a 

borrower for a period not to exceed 60 days 

after the lender receives reliable 

information indicating that the borrower (or 

student in the case of a PLUS loan) has died, 

until the lender receives documentation of 

death pursuant to §682.402(b)(3).

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1077, 1078, 1078–1, 

1078–2, 1078–3, 1080, 1082)

[57 FR 60323, Dec. 18, 1992]

Editorial Note: For Federal Register 

citations affecting §682.211, see the List of 

CFR Sections Affected, which appears in the 

Finding Aids section of the printed volume 

and on GPO Access. 
Subpart B – General Provisions

§682.212

Prohibited transactions

102

§ 682.212 Prohibited transactions.

(a) No points, premiums, payments, 

or additional interest of any kind may be 

paid or otherwise extended to any eligible 

lender or other party in order to—

(1) Secure funds for making loans; or

(2) Induce a lender to make loans to 

either the students or the parents of 

students of a particular school or particular 

category of students or their parents.

(b) The following are examples of 

transactions that, if entered into for the 

purposes described in paragraph (a) of this 

section, are prohibited:

(1) Cash payments by or on behalf of 

a school made to a lender or other party.

(2) The maintaining of a 

compensating balance by or on behalf of a 

school with a lender.

(3) Payments by or on behalf of a 

school to a lender of servicing costs on 

loans that the school does not own.

(4) Payments by or on behalf of a 

school to a lender of unreasonably high 

servicing costs on loans that the school 

does own.

(5) Purchase by or on behalf of a 

school of stock of the lender.

(6) Payments ostensibly made for 

other purposes.

(c) Except when purchased by an 

agency of any State functioning as a 

secondary market or in any other 

circumstances approved by the Secretary, 

notes, or any interest in notes, may not be 

sold or otherwise transferred at discount if 

the underlying loans were made—

(1) By a school; or

(2) To students or parents of 

students attending a school by a lender 

having common ownership with that 

school.

(d) Except to secure a loan from an 

agency of a State functioning as a secondary 

market or in other circumstances approved 

by the Secretary, a school or lender (with 

respect to a loan made to a student, or a 

parent of a student, attending a school 

having common ownership with that 

lender), may not use a loan made under the 

FFEL programs as collateral for any loan 

bearing aggregate interest and other 

charges in excess of the sum of the interest 

rate applicable to the loan plus the rate of 

the most recently prescribed special 

allowance under §682.302.

(e) The prohibitions described in 

paragraphs (a), (b), (c), and (d) of this 

section apply to any school, lender, or other 

party that would participate in a proscribed 

transaction.

(f) This section does not preclude a 

buyer of loans made by a school from 

obtaining from the loan seller a warranty 

that—

(1) Covers future reductions by the 

Secretary or a guaranty agency in 

computing the amount of loss payable on 

default claims filed on the loans, if the 

reductions are attributable to an act, or 
Subpart B – General Provisions

§682.212

Prohibited transactions

103

failure to act, on the part of the seller or 

previous holder; and

(2) Does not cover matters for which 

a purchaser is charged with responsibility 

under this part, such as due diligence in 

collecting loans.

(g) Section 490(c) of the Act 

provides that any person who knowingly 

and willfully makes an unlawful payment to 

an eligible lender as an inducement to 

make, or to acquire by assignment, a FFEL 

loan shall, upon conviction thereof, be fined 

not more than $10,000 or imprisoned not 

more than one year, or both.

(h) A school may, at its option, make 

available a list of recommended or 

suggested lenders, in print or any other 

medium or form, for use by the school's 

students or their parents provided that such 

list complies with the requirements in 34 

CFR 601.10 and 668.14(a)(28).

(Authority: 20 U.S.C. 1077, 1078, 1078–1, 

1078–2, 1078–3, 1082, 1097)

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

[57 FR 60323, Dec. 18, 1992, as amended at 

72 FR 62002, Nov. 1, 2007; 74 FR 55664, 

Oct. 28, 2009]
Subpart B – General Provisions

§682.213

Prohibition against the use of the Rule of 78s

104

§ 682.213 Prohibition against the use of 

the Rule of 78s.

For purposes of the calculations 

required by this part, a lender may not use 

the Rule of 78s to calculate the outstanding 

principal balance of a loan, except for a loan 

made to a borrower who entered 

repayment before June 26, 1987 and who 

was informed in the promissory note that 

interest on the loan would be calculated 

using the Rule of 78s. For those loans, the 

Rule of 78s must be used for the life of the 

loan.

(Authority: 20 U.S.C. 1077, 1078, 1078–1, 

1078–2, 1078–3, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 

68 FR 75429, Dec. 31, 2003]
Subpart B – General Provisions

§682.214

Compliance with equal credit opportunity requirements

105

§ 682.214 Compliance with equal credit 

opportunity requirements.

In making a Stafford loan on which 

interest benefits are to be paid, a lender 

shall comply with the equal credit 

opportunity requirements of Regulation B 

(12 CFR part 202). With regard to 

Regulation B, the Secretary considers the 

Stafford loan program to be a creditassistance program authorized by Federal 

law for the benefit of an economically 

disadvantaged class of persons within the 

meaning of 12 CFR 202.8(a)(1). Therefore, 

under 12 CFR 202.8(d), the lender may 

request a loan applicant to disclose his or 

her marital status, income from alimony, 

child support, and separate maintenance 

income, and spouse's financial resources.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1071–1087–2)

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9119, Feb. 19, 1993; 64 FR 58965, 

Nov. 1, 1999]
Subpart B – General Provisions

§682.215

Income-based repayment plan

106

§682.215 Income-based repayment plan. 

[NOTE: This section reflects changes made 

by final regulations published on November 

1, 2012 (77 FR 66088).]

(a) Definitions. As used in this 

section—

(1) Adjusted gross income (AGI) 

means the borrower's adjusted gross 

income as reported to the Internal Revenue 

Service. For a married borrower filing 

jointly, AGI includes both the borrower's 

and spouse's income. For a married 

borrower filing separately, AGI includes only 

the borrower's income.

(2) Eligible loan means any 

outstanding loan made to a borrower under 

the FFEL and Direct Loan programs except 

for a defaulted loan, a FFEL or Direct PLUS 

Loan made to a parent borrower, or a FFEL 

or Direct Consolidation Loan that repaid a 

FFEL or Direct PLUS Loan made to a parent 

borrower.

(3) Family size means the number 

that is determined by counting the 

borrower, the borrower's spouse, and the 

borrower's children, including unborn 

children who will be born during the year 

the borrower certifies family size, if the 

children receive more than half their 

support from the borrower. A borrower's 

family size includes other individuals if, at 

the time the borrower certifies family size, 

the other individuals—

(i) Live with the borrower; and

(ii) Receive more than half their 

support from the borrower and will 

continue to receive this support from the 

borrower for the year the borrower certifies 

family size. Support includes money, gifts, 

loans, housing, food, clothes, car, medical 

and dental care, and payment of college 

costs.

(4) Partial financial hardship means 

a circumstance in which—

(i) For an unmarried borrower or a 

married borrower who files an individual 

Federal tax return, the annual amount due 

on all of the borrower's eligible loans, as 

calculated under a standard repayment 

plan based on a 10-year repayment period, 

using the greater of the amount due at the 

time the borrower initially entered 

repayment or at the time the borrower 

elects the income-based repayment plan, 

exceeds 15 percent of the difference 

between the borrower's AGI and 150 

percent of the poverty guideline for the 

borrower's family size; or

(ii) For a married borrower who files 

a joint Federal tax return with his or her 

spouse, the annual amount due on all of the 

borrower's eligible loans and, if applicable, 

the spouse's eligible loans, as calculated 

under a standard repayment plan based on 

a 10-year repayment period, using the 

greater of the amount due at the time the 

loans initially entered repayment or at the 

time the borrower or spouse elects the 

income-based repayment plan, exceeds 15 

percent of the difference between the 

borrower's and spouse's AGI, and 150 

percent of the poverty guideline for the 

borrower's family size.

(5) Poverty guideline refers to the 

income categorized by State and family size 

in the poverty guidelines published annually 
Subpart B – General Provisions

§682.215

Income-based repayment plan

107

by the United States Department of Health 

and Human Services pursuant to 42 U.S.C. 

9902(2). If a borrower is not a resident of a 

State identified in the poverty guidelines, 

the poverty guideline to be used for the 

borrower is the poverty guideline (for the 

relevant family size) used for the 48 

contiguous States.

(b) Repayment plan. (1) A borrower 

may elect the income-based repayment 

plan only if the borrower has a partial 

financial hardship. The borrower's 

aggregate monthly loan payments are 

limited to no more than 15 percent of the 

amount by which the borrower's AGI 

exceeds 150 percent of the poverty line 

income applicable to the borrower's family 

size, divided by 12. The loan holder adjusts 

the calculated monthly payment if—

(i) Except for borrowers provided for 

in paragraph (b)(1)(ii) of this section, the 

total amount of the borrower's eligible 

loans includes loans not held by the loan 

holder, in which case the loan holder 

determines the borrower's adjusted 

monthly payment by multiplying the 

calculated payment by the percentage of 

the total outstanding principal amount of 

the borrower’s eligible loans that are held 

by the loan holder;

(ii) Both the borrower and the 

borrower's spouse have eligible loans and 

filed a joint Federal tax return, in which 

case the loan holder determines—

(A) Each borrower's percentage of 

the couple's total eligible loan debt;

(B) The adjusted monthly payment 

for each borrower by multiplying the 

calculated payment by the percentage 

determined in paragraph (b)(1)(ii)(A) of this 

section; and

(C) If the borrower's loans are held 

by multiple holders, the borrower's 

adjusted monthly payment by multiplying 

the payment determined in paragraph 

(b)(1)(ii)(B) of this section by the percentage 

of the total outstanding principal amount of 

the borrower’s eligible loans that are held 

by the loan holder;

(iii) The calculated amount under 

paragraph (b)(1), (b)(1)(i), or (b)(1)(ii) of this 

section is less than $5.00, in which case the 

borrower's monthly payment is $0.00; or

(iv) The calculated amount under 

paragraph (b)(1), (b)(1)(i), or (b)(1)(ii) of this 

section is equal to or greater than $5.00 but 

less than $10.00, in which case the 

borrower's monthly payment is $10.00.

(2) A borrower with eligible loans 

held by two or more loan holders must 

request income-based repayment from 

each loan holder if the borrower wants to 

repay all of his or her eligible loans under 

the income-based repayment plan. Each 

loan holder must apply the payment 

calculation rules in paragraphs (b)(1)(iii) and 

(iv) of this section to loans they hold.

(3) If a borrower elects the incomebased repayment plan on or after July 1,

2013, the loan holder must, unless the

borrower has some loans that are eligible 

for repayment under the income-based 

repayment plan and other loans that are 

not eligible for repayment under that plan, 

require that all eligible loans owed by the 
Subpart B – General Provisions

§682.215

Income-based repayment plan

108

borrower to that holder be repaid under 

the income-based repayment plan.

(4) If the borrower's monthly 

payment amount is not sufficient to pay the 

accrued interest on the borrower's 

subsidized Stafford Loans or the subsidized 

portion of the borrower's Federal 

Consolidation loan, the Secretary pays to 

the holder the remaining accrued interest 

for a period not to exceed three 

consecutive years from the established 

repayment period start date on each loan 

repaid under the income-based repayment 

plan. On a Consolidation Loan that repays 

loans on which the Secretary has paid 

accrued interest under this section, the 

three-year period includes the period for 

which the Secretary paid accrued interest 

on the underlying loans. The three-year 

period does not include any period during 

which the borrower receives an economic 

hardship deferment.

(5) Except as provided in paragraph 

(b)(4) of this section, accrued interest is 

capitalized at the time the borrower 

chooses to leave the income-based 

repayment plan or no longer has a partial 

financial hardship.

(6) If the borrower's monthly 

payment amount is not sufficient to pay any 

principal due, the payment of that principal 

is postponed until the borrower chooses to 

leave the income-based repayment plan or 

no longer has a partial financial hardship.

(7) The special allowance payment 

to a lender during the period in which the 

borrower has a partial financial hardship 

under the income-based repayment plan is 

calculated on the principal balance of the 

loan and any accrued interest unpaid by the 

borrower.

(8) The repayment period for a 

borrower under the income-based 

repayment plan may be greater than 10 

years.

(c) Payment application and 

prepayment. (1) The loan holder shall apply 

any payment made under the incomebased repayment plan in the following 

order:

(i) Accrued interest.

(ii) Collection costs.

(iii) Late charges.

(iv) Loan principal.

(2) The borrower may prepay the 

whole or any part of a loan at any time 

without penalty.

(3) If the prepayment amount equals 

or exceeds a monthly payment amount of 

$10.00 or more under the repayment 

schedule established for the loan, the loan 

holder shall apply the prepayment 

consistent with the requirements of 

§682.209(b)(2)(ii).

(4) If the prepayment amount 

exceeds the monthly payment amount of 

$0.00 under the repayment schedule 

established for the loan, the loan holder 

shall apply the prepayment consistent with 

the requirements of paragraph (c)(1) of this 

section.

(d) Changes in the payment amount.

(1) If a borrower no longer has a partial

financial hardship, the borrower may
Subpart B – General Provisions

§682.215

Income-based repayment plan

109

continue to make payments under the

income-based repayment plan but the loan 

holder must recalculate the borrower’s 

monthly payment. The loan holder also 

recalculates the monthly payment for a 

borrower who chooses to stop making 

income-based payments. In either case, as a 

result of the recalculation—

(i) The maximum monthly amount

that the loan holder requires the borrower 

to repay is the amount the borrower would 

have paid under the FFEL standard 

repayment plan based on a 10-year 

repayment period using the amount of the 

borrower’s eligible loans that was 

outstanding at the time the borrower began 

repayment on the loans with that holder 

under the income-based repayment plan; 

and

(ii) The borrower’s repayment 

period based on the recalculated payment

amount may exceed 10 years.

(2) If a borrower no longer wishes to

pay under the income-based repayment

plan, the borrower must pay under the FFEL 

standard repayment plan and the loan 

holder recalculates the borrower’s monthly 

payment based on—

(i) Except as provided in paragraph

(d)(2)(ii) of this section, the time remaining 

under the maximum 10-year repayment 

period and the amount of the borrower’s 

loans that was outstanding at the time the 

borrower discontinued paying under the 

income-based repayment plan; or

(ii) For a Consolidation Loan, the 

time remaining under the applicable

repayment period as initially determined 

under §682.209(h)(2) and the total amount 

of that loan that was outstanding at the 

time the borrower discontinued paying 

under the income-based repayment plan.

(3) A borrower who no longer 

wishes to repay under the income-based

repayment plan and who is required to

repay under the FFEL standard repayment 

plan in accordance with paragraph (d)(2) of 

this section may request a change to a 

different repayment plan after making one

monthly payment under the FFEL standard 

repayment plan. For this purpose, a 

monthly payment may include one payment 

made under a forbearance that provides for

temporarily accepting smaller payments

than previously scheduled, in accordance 

with 682.211(a)(1).

(e) Eligibility documentation, 

verification, and notifications. (1) The loan 

holder determines whether a borrower has 

a partial financial hardship to qualify for the 

income-based repayment plan for the year 

the borrower elects the plan and for each

subsequent year that the borrower remains 

on the plan. To make this determination, 

the loan holder requires the borrower to—

(i) Provide documentation, 

acceptable to the loan holder, of the 

borrower’s AGI;

(ii) If the borrower’s AGI is not

available, or the loan holder believes that 

the borrower’s reported AGI does not 

reasonably reflect the borrower’s current 

income, provide other documentation to 

verify income;

(iii) If the spouse of a married

borrower who files a joint Federal tax
Subpart B – General Provisions

§682.215

Income-based repayment plan

110

return has eligible loans and the loan holder 

does not hold at least one of the spouse’s 

eligible loans—

(A) Ensure that the borrower’s 

spouse has provided consent for the loan 

holder to obtain information about the 

spouse’s eligible loans from the National 

Student Loan Data System; or

(B) Provide other documentation,

acceptable to the loan holder, of the

spouse’s eligible loan information; and

(iv) Annually certify the borrower’s

family size. If the borrower fails to certify 

family size, the loan holder must assume a 

family size of one for that year.

(2) After making a determination 

that a borrower has a partial financial

hardship to qualify for the income-based

repayment plan for the year the borrower 

initially elects the plan and for any 

subsequent year that the borrower has a 

partial financial hardship, the loan holder 

must send the borrower a written

notification that provides the borrower

with—

(i) The borrower’s scheduled 

monthly payment amount, as calculated 

under paragraph (b)(1) of this section, and 

the time period during which this scheduled 

monthly payment amount will apply 

(annual payment period);

(ii) Information about the 

requirement for the borrower to annually 

provide the information described in 

paragraph (e)(1) of this section, if the 

borrower chooses to remain on the incomebased repayment plan after the initial year 

on the plan, and an explanation that the

borrower will be notified in advance of the 

date by which the loan holder must receive 

this information;

(iii) An explanation of the

consequences, as described in paragraphs 

(e)(1)(iv) and (e)(7) of this section, if the 

borrower does not provide the required 

information;

(iv) An explanation of the

consequences if the borrower no longer

wishes to repay under the income-based

repayment plan; and 

(v) Information about the 

borrower’s option to request, at any time 

during the borrower’s current annual 

payment period, that the loan holder 

recalculate the borrower’s monthly 

payment amount if the borrower’s financial

circumstances have changed and the

income amount that was used to calculate 

the borrower’s current monthly payment 

no longer reflects the borrower’s current 

income. If the loan holder recalculates the 

borrower’s monthly payment amount 

based on the borrower’s request, the loan 

holder must send the borrower a written 

notification that includes the information 

described in paragraphs (e)(2)(i) through 

(e)(2)(v) of this section.

(3) For each subsequent year that a

borrower who currently has a partial

financial hardship remains on the incomebased repayment plan, the loan holder 

must notify the borrower in writing of the 

requirements in paragraph (e)(1) of this 

section no later than 60 days and no earlier 

than 90 days prior to the date specified in 

paragraph (e)(3)(i) of this section. The 
Subpart B – General Provisions

§682.215

Income-based repayment plan

111

notification must provide the borrower 

with—

(i) The date, no earlier than 35 days

before the end of the borrower’s annual

payment period, by which the loan holder 

must receive all of the information 

described in paragraph (e)(1) of this section 

(annual deadline); and

(ii) The consequences if the loan

holder does not receive the information

within 10 days following the annual

deadline specified in the notice, including 

the borrower’s new monthly payment 

amount as determined under paragraph 

(d)(1) of this section, the effective date for 

the recalculated monthly payment amount, 

and the fact that unpaid accrued interest 

will be capitalized at the end of the 

borrower’s current annual payment period 

in accordance with paragraph (b)(5) of this

section.

(4) Each time a loan holder makes a

determination that a borrower no longer

has a partial financial hardship for a

subsequent year that the borrower wishes 

to remain on the plan, the loan holder must 

send the borrower a written notification 

that provides the borrower with—

(i) The borrower’s recalculated

monthly payment amount, as determined in 

accordance with paragraph (d)(1) of this 

section;

(ii) An explanation that unpaid

accrued interest will be capitalized in

accordance with paragraph (b)(5) of this

section; and

(iii) Information about the 

borrower’s option to request, at any time, 

that the loan holder redetermine whether 

the borrower has a partial financial

hardship, if the borrower’s financial

circumstances have changed and the

income amount used to determine that the 

borrower no longer has a partial financial 

hardship does not reflect the borrower’s 

current income, and an explanation that the 

borrower will be notified annually of this 

option. If the loan holder determines that 

the borrower again has a partial financial

hardship, the loan holder must recalculate 

the borrower’s monthly payment in 

accordance with paragraph (b)(1) of this 

section and send the borrower a written 

notification that includes the information 

described in paragraphs (e)(2)(i) through 

(e)(2)(v) of this section.

(5) For each subsequent year that a

borrower who does not currently have a

partial financial hardship remains on the 

income-based repayment plan, the loan 

holder must send the borrower a written 

notification that includes the information 

described in paragraph (e)(4)(iii) of this 

section.

(6) If a borrower who is currently

repaying under another repayment plan

selects the income-based repayment plan 

but does not provide the documentation 

described in paragraphs (e)(1)(i) through 

(e)(1)(iii) of this section, or if the loan holder 

determines that the borrower does not 

have a partial financial hardship, the 

borrower remains on his or her current 

repayment plan.
Subpart B – General Provisions

§682.215

Income-based repayment plan

112

(7) The loan holder designates the

repayment option described in paragraph 

(d)(1) of this section if a borrower who is 

currently repaying under the income-based 

repayment plan remains on the plan for a 

subsequent year but the loan holder does 

not receive the information described in

paragraphs (e)(1)(i) through (e)(1)(iii) of this 

section within 10 days of the specified 

annual deadline, unless the loan holder is 

able to determine the borrower’s new 

monthly payment amount before the end of 

the borrower’s current annual payment 

period.

(8) If the loan holder receives the

information described in paragraphs

(e)(1)(i) through (e)(1)(iii) of this section

within 10 days of the specified annual

deadline—

(i) The loan holder must promptly

determine the borrower’s new monthly

payment amount.

(ii) If the loan holder does not

determine the new monthly payment

amount by the end of the borrower’s

current annual payment period, the loan

holder must prevent the borrower’s

monthly payment amount from being

recalculated in accordance with paragraph 

(d)(1) of this section and maintain the 

borrower’s current scheduled monthly 

payment amount until the loan holder 

determines the new monthly payment 

amount.

(A) If the new monthly payment

amount is less than the borrower’s

previously calculated income-based

monthly payment amount, the loan holder 

must make the appropriate adjustment to 

the borrower’s account to reflect any 

payments at the previously calculated 

amount that the borrower made after the 

end of the most recent annual payment 

period. Notwithstanding the requirements 

of §682.209(b)(2)(ii), unless the borrower

requests otherwise the loan holder applies 

the excess payment amounts made after 

the end of the most recent annual payment 

period in accordance with the requirements 

of paragraph (c)(1) of this section.

(B) If the new monthly payment

amount is equal to or greater than the

borrower’s previously calculated incomebased monthly payment amount, the loan 

holder does not make any adjustments to 

the borrower’s account.

(iii) The new annual payment period

begins on the day after the end of the most 

recent annual payment period.

(9) If the loan holder receives the

documentation described in paragraphs

(e)(1)(i) through (e)(1)(iii) of this section

more than 10 days after the specified

annual deadline and the borrower’s

monthly payment amount is recalculated in 

accordance with paragraph (d)(1) of this 

section, the loan holder may grant 

forbearance with respect to payments that 

are overdue or would be due at the time 

the new calculated income-based monthly

payment amount is determined, if the new 

monthly payment amount is $0.00 or is less 

than the borrower’s previously calculated 

income-based monthly payment amount. 

Interest that accrues during the portion of 

this forbearance period that covers 

payments that are overdue after the end of 
Subpart B – General Provisions

§682.215

Income-based repayment plan

113

the prior annual payment period is not 

capitalized.

(f) Loan forgiveness. (1) To qualify 

for loan forgiveness after 25 years, the 

borrower must have participated in the 

income-based repayment plan and satisfied 

at least one of the following conditions 

during that period—

(i) Made reduced monthly payments

under a partial financial hardship as

provided in paragraph (b)(1) of this section, 

including a monthly payment amount of 

$0.00, as provided in paragraph (b)(1)(iii) of 

this section;

(ii) Made reduced monthly 

payments after the borrower no longer had 

a partial financial hardship or stopped 

making income-based payments as 

provided in paragraph (d)(1) of this section;

(iii) Made monthly payments under 

any repayment plan, that were not less 

than the amount required under the FFEL 

standard repayment plan described in 

§682.209(a)(6)(vi) with a 10-year 

repayment period for the amount of the 

borrower’s loans that were outstanding at 

the time the loans initially entered 

repayment;

(iv) Made monthly payments under 

the FFEL standard repayment plan 

described in §682.209(a)(6)(vi) based on a 

10-year repayment period; or

(v) Received an economic hardship 

deferment on eligible FFEL loans.

(2) As provided under paragraph 

(f)(4) of this section, the Secretary repays 

any outstanding balance of principal and 

accrued interest on FFEL loans for which the 

borrower qualifies for forgiveness if the 

guaranty agency determines that—

(i) The borrower made monthly 

payments under one or more of the 

repayment plans described in paragraph 

(f)(1) of this section, including a monthly 

amount of $0.00 as provided in paragraph 

(b)(1)(ii) of this section; and

(ii)(A) The borrower made those 

monthly payments each year for a 25-year 

period; or

(B) Through a combination of 

monthly payments and economic hardship 

deferments, the borrower made the 

equivalent of 25 years of payments.

(3) For a borrower who qualifies for 

the income-based repayment plan, the 

beginning date for the 25-year period is—

(i) For a borrower who has an 

eligible FFEL Consolidation Loan, the date 

the borrower made a payment or received 

an economic hardship deferment on that 

loan, before the date the borrower 

qualified for income-based repayment. The 

beginning date is the date the borrower 

made the payment or received the 

deferment, but no earlier than July 1, 2009;

(ii) For a borrower who has one or 

more other eligible FFEL loans, the date the 

borrower made a payment or received an 

economic hardship deferment on that loan. 

The beginning date is the date the borrower 

made that payment or received the 

deferment on that loan, but no earlier than 

July 1, 2009;
Subpart B – General Provisions

§682.215

Income-based repayment plan

114

(iii) For a borrower who did not 

make a payment or receive an economic 

hardship deferment on the loan under 

paragraph (f)(3)(i) or (ii) of this section, the 

date the borrower made a payment under 

the income-based repayment plan on the 

loan; or

(iv) If the borrower consolidates his 

or her eligible loans, the date the borrower 

made a payment on the FFEL Consolidation 

Loan that met the conditions in paragraph 

(f)(1) of this section.

(4) If a borrower satisfies the loan 

forgiveness requirements, the Secretary 

repays the outstanding balance and accrued 

interest on the FFEL Consolidation Loan 

described in paragraph (f)(3)(i), (iii), or (iv) 

of this section or other eligible FFEL loans 

described in paragraph (f)(3)(ii) or (iv) of 

this section.

(5) Any payments made on a

defaulted loan are not made under a

qualifying repayment plan and are not

counted toward the 25-year forgiveness

period.

(g) Loan forgiveness processing and 

payment. (1) The loan holder determines 

when a borrower has met the loan 

forgiveness requirements under paragraph 

(f) of this section and does not require the 

borrower to submit a request for loan 

forgiveness. No later than six months prior 

to the anticipated date that the borrower 

will meet the loan forgiveness 

requirements, the loan holder must send 

the borrower a written notice that 

includes—

(i) An explanation that the borrower

is approaching the date that he or she is 

expected to meet the requirements to

receive loan forgiveness;

(ii) A reminder that the borrower 

must continue to make the borrower’s

scheduled monthly payments; and

(iii) General information on the

current treatment of the forgiveness

amount for tax purposes, and instructions 

for the borrower to contact the Internal 

Revenue Service for more information.

(2) No later than 60 days after the 

loan holder determines that a borrower

qualifies for loan forgiveness, the loan

holder must request payment from the

guaranty agency.

(3) If the loan holder requests

payment from the guaranty agency later

than the period specified in paragraph (g)(2) 

of this section, interest that accrues on the 

discharged amount after the expiration of 

the 60-day filing period is ineligible for 

reimbursement by the Secretary, and the 

holder must repay all interest and special 

allowance received on the discharged 

amount for periods after the expiration of 

the 60-day filing period. The holder cannot

collect from the borrower any interest that 

is not paid by the Secretary under this 

paragraph.

(4)(i) Within 45 days of receiving the

holder’s request for payment, the guaranty 

agency must determine if the borrower 

meets the eligibility requirements for loan 

forgiveness under this section and must

notify the holder of its determination.
Subpart B – General Provisions

§682.215

Income-based repayment plan

115

(ii) If the guaranty agency approves

the loan forgiveness, it must, within the

same 45-day period required under

paragraph (g)(4)(i) of this section, pay the 

holder the amount of the forgiveness.

(5) After being notified by the

guaranty agency of its determination of the 

eligibility of the borrower for loan

forgiveness, the holder must, within 30

days—

(i) Inform the borrower of the

determination and, if appropriate, that the 

borrower’s repayment obligation on the 

loans is satisfied; and

(ii) Provide the borrower with the

information described in paragraph

(g)(1)(iii) of this section.

(6)(i) The holder must apply the

payment from the guaranty agency under 

paragraph (g)(4)(ii) of this section to satisfy 

the outstanding balance on those loans 

subject to income-based forgiveness; or

(ii) If the forgiveness amount 

exceeds the outstanding balance on the 

eligible loans subject to forgiveness, the 

loan holder must refund the excess amount

to the guaranty agency.

(7) If the guaranty agency does not

pay the forgiveness claim, the lender will 

continue the borrower in repayment on the 

loan. The lender is deemed to have 

exercised forbearance of both principal and 

interest from the date the borrower’s 

repayment obligation was suspended until a 

new payment due date is established. 

Unless the denial of the forgiveness claim 

was due to an error by the lender, the 

lender may capitalize any interest accrued 

and not paid during this period, in 

accordance with §682.202(b).

(8) The loan holder must promptly

return to the sender any payment received 

on a loan after the guaranty agency pays 

the loan holder the amount of loan 

forgiveness.

(Approved by the Office of Management 

and Budget under control number 1845–

NEWA.)

(Authority: 20 U.S.C. 1098e)

[73 FR 63249, Oct. 23, 2008, as amended at 

74 FR 55995, Oct. 29, 2009]
Subpart B – General Provisions

§682.216

Teacher loan forgiveness

116

§ 682.216 Teacher loan forgiveness 

program.

(a) General. (1) The teacher loan 

forgiveness program is intended to 

encourage individuals to enter and continue 

in the teaching profession. For new 

borrowers, the Secretary repays the 

amount specified in this paragraph on the 

borrower's subsidized and unsubsidized 

Federal Stafford Loans, Direct Subsidized 

Loans, Direct Unsubsidized Loans, and in 

certain cases, Federal Consolidation Loans 

or Direct Consolidation Loans. The 

forgiveness program is only available to a 

borrower who has no outstanding loan 

balance under the FFEL Program or the 

Direct Loan Program on October 1, 1998 or 

who has no outstanding loan balance on the 

date he or she obtains a loan after October 

1, 1998.

(2)(i) The borrower must have been 

employed at an eligible elementary or 

secondary school that serves low-income 

families or by an educational service agency 

that serves low-income families as a fulltime teacher for five consecutive complete 

academic years. The required five years of 

teaching may include any combination of 

qualifying teaching service at an eligible 

elementary or secondary school or an 

eligible educational service agency.

(ii) Teaching at an eligible 

elementary or secondary school may be 

counted toward the required five 

consecutive complete academic years only 

if at least one year of teaching was after the 

1997–1998 academic year.

(iii) Teaching forat an educational 

service agency may be counted toward the 

required five consecutive complete 

academic years only if the consecutive fiveyear period includes qualifying service at an 

eligible educational service agency 

performed after the 2007–2008 academic 

year.

(3) All borrowers eligible for teacher 

loan forgiveness may receive loan 

forgiveness of up to a combined total of 

$5,000 on the borrower's eligible FFEL and 

Direct Loan Program loans.

(4) A borrower may receive loan 

forgiveness of up to a combined total of 

$17,500 on the borrower's eligible FFEL and 

Direct Loan Program loans if the borrower 

was employed for five consecutive years—

(i) At an eligible secondary school as 

a highly qualified mathematics or science 

teacher, or forat an eligible educational 

service agency as a highly qualified teacher 

of mathematics or science to secondary 

school students; or

(ii) At an eligible elementary or 

secondary school or educational service 

agency as a special education teacher.

(5) The loan for which the borrower 

is seeking forgiveness must have been 

made prior to the end of the borrower's 

fifth year of qualifying teaching service.

(b) Definitions. The following 

definitions apply to this section:

Academic year means one complete 

school year at the same school, or two 

complete and consecutive half years at 

different schools, or two complete and 

consecutive half years from different school 

years at either the same school or different 
Subpart B – General Provisions

§682.216

Teacher loan forgiveness

117

schools. Half years exclude summer 

sessions and generally fall within a twelvemonth period. For schools that have a yearround program of instruction, a minimum 

of nine months is considered an academic 

year.

Educational service agency means a 

regional public multiservice agency 

authorized by State statute to develop, 

manage, and provide services or programs 

to local educational agencies, as defined in 

section 9101 of the Elementary and 

Secondary Education Act of 1965, as 

amended.

Elementary school means a public or 

nonprofit private school that provides 

elementary education as determined by 

State law or the Secretary if that school is 

not in a State.

Full-time means the standard used 

by a State in defining full-time employment 

as a teacher. For a borrower teaching in 

more than one school, the determination of

full-time is based on the combination of all 

qualifying employment.

Highly qualified means highly 

qualified as defined in section 9101 of the 

Elementary and Secondary Education Act of 

1965, as amended.

Secondary school means a public or 

nonprofit private school that provides 

secondary education as determined by 

State law or the Secretary if the school is 

not in a State.

Teacher means a person who 

provides direct classroom teaching or 

classroom-type teaching in a non-classroom 

setting, including Special Education 

teachers.

(c) Borrower eligibility. (1) A 

borrower who has been employed at an 

elementary or secondary school or forat an 

educational service agency as a full-time 

teacher for five consecutive complete 

academic years may obtain loan forgiveness 

under this program if the elementary or 

secondary school or educational service 

agency—

(i) Is in a school district that qualifies 

for funds under title I of the Elementary and 

Secondary Education Act of 1965, as 

amended;

(ii) Has been selected by the 

Secretary based on a determination that 

more than 30 percent of the school's or 

educational service agency's total 

enrollment is made up of children who 

qualify for services provided under title I; 

and

(iii) Is listed in the Annual Directory 

of Designated Low-Income Schools for 

Teacher Cancellation Benefits. If this 

directory is not available before May 1 of 

any year, the previous year's directory may 

be used. The Secretary considers all 

elementary and secondary schools 

operated by the Bureau of Indian Education 

(BIE) or operated on Indian reservations by 

Indian tribal groups under contract with the 

BIE to qualify as schools serving low-income 

students.

(2) The Secretary considers all 

elementary and secondary schools 

operated by the Bureau of Indian Education 

(BIE) or operated on Indian reservations by 
Subpart B – General Provisions

§682.216

Teacher loan forgiveness

118

Indian tribal groups under contract with the 

BIE to qualify as schools serving low-income 

students.

(2)(3) If the school or educational 

service agency at which the borrower is 

employed meets the requirements specified 

in paragraph (c)(1) of this section for at 

least one year of the borrower's five 

consecutive complete academic years of 

teaching and fails to meet those 

requirements in subsequent years, those 

subsequent years of teaching qualify for 

purposes of this section for that borrower.

(3)(4) In the case of a borrower 

whose five consecutive complete years of 

qualifying teaching service began before 

October 30, 2004, the borrower—

(i) May receive up to $5,000 of loan 

forgiveness if the borrower—

(A) Demonstrated knowledge and 

teaching skills in reading, writing, 

mathematics, and other areas of the 

elementary school curriculum, as certified 

by the chief administrative officer of the 

eligible elementary school or educational 

service agency where the borrower was 

employed; or

(B) Taught in a subject area that is 

relevant to the borrower's academic major 

as certified by the chief administrative 

officer of the eligible secondary school or 

educational service agency where the 

borrower was employed.

(ii) May receive up to $17,500 of 

loan forgiveness if the borrower—

(A) Taught mathematics or science 

on a full-time basis at an eligible secondary 

school, or taught mathematics or science to 

secondary school students on a full-time 

basis forat an eligible educational service 

agency, and was a highly qualified 

mathematics or science teacher; or

(B) Taught as a special education 

teacher on a full-time basis to children with 

disabilities at an eligible elementary or 

secondary school or for an educational 

service agency and was a highly qualified 

special education teacher whose special 

education training corresponded to the 

children's disabilities and who has 

demonstrated knowledge and teaching 

skills in the content areas of the elementary 

or secondary school curriculum.

(iii) Teaching service performed 

forat an eligible educational service agency 

may be counted toward the required five 

years of teaching only if the consecutive 

five-year period includes qualifying service 

at an eligible educational service agency 

performed after the 2007–2008 academic 

year.

(4)(5) In the case of a borrower 

whose five consecutive years of qualifying 

teaching service began on or after October 

30, 2004, the borrower—

(i) May receive up to $5,000 of loan 

forgiveness if the borrower taught full time 

at an eligible elementary or secondary 

school or for an educational service agency 

and was a highly qualified elementary or 

secondary school teacher.

(ii) May receive up to $17,500 of 

loan forgiveness if the borrower—
Subpart B – General Provisions

§682.216

Teacher loan forgiveness

119

(A) Taught mathematics or science 

on a full-time basis at an eligible secondary 

school, or taught mathematics or science on 

a full-time basis to secondary school 

students forat an eligible educational 

service agency, and was a highly qualified 

mathematics or science teacher; or

(B) Taught as a special education 

teacher on a full-time basis to children with 

disabilities at an eligible elementary or 

secondary school or for an educational 

service agency and was a highly qualified 

special education teacher whose special 

education training corresponded to the 

children's disabilities and who has 

demonstrated knowledge and teaching 

skills in the content areas of the elementary 

or secondary school curriculum.

(iii) Teaching service performed 

forat an eligible educational service agency 

may be counted toward the required five 

years of teaching only if the consecutive 

five-year period includes qualifying service 

at an eligible educational service agency 

performed after the 2007–2008 academic 

year.

(5)(6) To qualify for loan forgiveness 

as a highly qualified teacher, the teacher 

must have been a highly qualified teacher 

for all five years of eligible teaching service.

(6)(7) For teacher loan forgiveness 

applications received by the loan holder on 

or after July 1, 2006, a teacher in a private, 

non-profit elementary or secondary school 

who is exempt from State certification 

requirements (unless otherwise applicable 

under State law) may qualify for loan 

forgiveness under paragraphs (c)(3)(ii) or 

(c)(4) of this section if—

(i) The private school teacher is 

permitted to and does satisfy rigorous 

subject knowledge and skills tests by taking 

competency tests in applicable grade levels 

and subject areas;

(ii) The competency tests are 

recognized by 5 or more States for the 

purposes of fulfilling the highly qualified 

teacher requirements under section 9101 of 

the Elementary and Secondary Education 

Act of 1965; and

(iii) The private school teacher 

achieves a score on each test that equals or 

exceeds the average passing score for those 

5 states.

(7)(8) The academic year may be 

counted as one of the borrower's five 

consecutive complete academic years if the 

borrower completes at least one-half of the 

academic year and the borrower's employer 

considers the borrower to have fulfilled his 

or her contract requirements for the 

academic year for the purposes of salary 

increases, tenure, and retirement if the 

borrower is unable to complete an 

academic year due to—

(i) A return to postsecondary 

education, on at least a half-time basis, that 

is directly related to the performance of the 

service described in this section;

(ii) A condition that is covered under 

the Family and Medical Leave Act of 1993 

(FMLA) (29 U.S.C. 2601, et seq. ); or

(iii) A call or order to active duty 

status for more than 30 days as a member 

of a reserve component of the Armed 
Subpart B – General Provisions

§682.216

Teacher loan forgiveness

120

Forces named in section 10101 of title 10, 

United States Code.

(8)(9) A borrower's period of 

postsecondary education, qualifying FMLA 

condition, or military active duty as 

described in paragraph (c)(7) of this section, 

including the time necessary for the 

borrower to resume qualifying teaching no 

later than the beginning of the next 

regularly scheduled academic year, does 

not constitute a break in the required five 

consecutive years of qualifying teaching 

service.

(9)(10) A borrower who was 

employed as a teacher at more than one 

qualifying school, forat more than one 

qualifying educational service agency, or at 

a combination of both during an academic 

year and demonstrates that the combined 

teaching was the equivalent of full-time, as 

supported by the certification of one or 

more of the chief administrative officers of 

the schools or educational service agencies 

involved, is considered to have completed 

one academic year of qualifying teaching.

(10)(11) A borrower is not eligible 

for teacher loan forgiveness on a defaulted 

loan unless the borrower has made 

satisfactory repayment arrangements to reestablish title IV eligibility, as defined in 

§682.200.

(11)(12) A borrower may not receive 

loan forgiveness for the same qualifying 

teaching service under this section if the 

borrower receives a benefit for the same 

teaching service under—

(i) Subtitle D of title I of the National 

and Community Service Act of 1990;

(ii) 34 CFR 685.219; or

(iii) Section 428K of the Act.

(d) Forgiveness amount. (1) A 

qualified borrower is eligible for forgiveness 

of up to $5,000, or up to $17,500 if the 

borrower meets the requirements of 

paragraphs (c)(3)(ii) or (c)(4)(ii) of this 

section. The forgiveness amount is 

deducted from the aggregate amount of the 

borrower's subsidized or unsubsidized 

Federal Stafford or Federal Consolidation 

Loan obligation that is outstanding after the 

borrower completes his or her fifth 

consecutive complete academic year of 

teaching as described in paragraph (c) of 

this section. Only the outstanding portion of 

the consolidation loan that was used to 

repay an eligible subsidized or unsubsidized 

Federal Stafford Loan, an eligible Direct 

Subsidized Loan, or an eligible Direct 

Unsubsidized Loan qualifies for loan 

forgiveness under this section.

(2) A borrower may not receive 

more than a total of $5,000, or $17,500 if 

the borrower meets the requirements of 

paragraphs (c)(3)(ii) or (c)(4)(ii) of this 

section, in loan forgiveness for outstanding 

principal and accrued interest under both 

this section and under section 34 CFR 

685.217.

(3) The holder does not refund 

payments that were received from or on 

behalf of a borrower who qualifies for loan 

forgiveness under this section.

(e) Authorized forbearance during 

qualifying teaching service and forgiveness 

discharge processing. (1) A holder grants a 

forbearance—
Subpart B – General Provisions

§682.216

Teacher loan forgiveness

121

(i) Under §682.211(h)(2)(ii)(C) and 

(h)(3)(4)(iii), in annual increments for each 

of the years of qualifying teaching service, if 

the holder believes, at the time of the 

borrower's annual request, that the 

expected cancellation amount will satisfy 

the anticipated remaining outstanding 

balance on the loan at the time of the 

expected cancellation;

(ii) For a period not to exceed 60 

days while the holder is awaiting a 

completed teacher loan forgiveness 

application from the borrower; and

(iii) For the period beginning on the 

date the holder receives a completed loan 

forgiveness application to the date the 

holder receives either a denial of the 

request or the loan forgiveness discharge

amount from the guaranty agency, in 

accordance with paragraph (f) of this 

section.

(2) At the conclusion of a 

forbearance authorized under paragraph 

(e)(1) of this section, the holder must 

resume collection activities and may 

capitalize any interest accrued and not paid 

during the forbearance period in 

accordance with §682.202(b).

(3) Nothing in paragraph (e) of this 

section restricts holders from offering other 

forbearance options to borrowers who do 

not meet the requirements of paragraph 

(e)(1)(i) of this section.

(f) Application and processing. (1) A 

borrower, after completing the qualifying 

teaching service, requests loan forgiveness 

from the holder of the loan on a form 

approved by the Secretary.

(2)(i) The holder must file a request 

for payment with the guaranty agency on a 

teacher loan forgiveness discharge amount

no later than 60 days after the receipt, from 

the borrower, of a completed teacher loan 

forgiveness application.

(ii) When filing a request for 

payment on a teacher loan forgiveness 

discharge, the holder must provide the 

guaranty agency with the completed loan 

forgiveness application submitted by the 

borrower and any required supporting 

documentation.

(iii) If the holder files a request for 

payment later than 60 days after the receipt 

of the completed teacher loan forgiveness 

application form, interest that accrued on 

the discharged loan forgiveness amount 

after the expiration of the 60-day filing 

period is ineligible for reimbursement by 

the Secretary, and the holder must repay all 

interest and special allowance received on 

the discharged loan forgiveness amount for 

periods after the expiration of the 60-day 

filing period. The holder cannot collect from 

the borrower any interest that is not paid 

by the Secretary under this paragraph.

(3)(i) Within 45 days of receiving the 

holder's request for payment, the guaranty 

agency must determine if the borrower 

meets the eligibility requirements for loan 

forgiveness under this section and must 

notify the holder of its determination of the 

borrower's eligibility for loan forgiveness 

under this section.

(ii) If the guaranty agency approves 

the discharge loan forgiveness, it must, 

within the same 45-day period, pay the 

holder the amount of the loan forgiveness 
Subpart B – General Provisions

§682.216

Teacher loan forgiveness

122

discharge, up to $17,500, subject to 

paragraphs (c)(11), (d)(1), (d)(2) and 

(f)(2)(iii) of this section.

(4) After being notified by the 

guaranty agency of its determination of the 

eligibility of the borrower for the discharge

loan forgiveness, the holder must, within 30 

days, inform the borrower of the 

determination. If the loan forgiveness 

discharge is approved, the holder must also 

provide the borrower with information 

regarding any new repayment terms of 

remaining loan balances.

(5) Unless otherwise instructed by 

the borrower, the holder must apply the 

proceeds of the teacher forgiveness 

discharge first to any outstanding 

unsubsidized Federal Stafford loan 

balances, next to any outstanding 

subsidized Federal Stafford loan balances, 

then to any eligible outstanding Federal 

Consolidation loan balances.

(g) Claims for reimbursement from 

the Secretary on loans held by guaranty 

agencies. In the case of a teacher loan 

forgiveness discharge applied to a defaulted 

loan held by the guaranty agency, the 

Secretary pays the guaranty agency a 

percentage of the amount discharged

forgiven that is equal to the complement of 

the reinsurance percentage paid on the 

loan. The payment of up to $5,000, or up to 

$17,500, may also include interest that 

accrues on the discharged forgiveness

amount during the period from the date on 

which the guaranty agency received 

payment from the Secretary on a default 

claim to the date on which the guaranty 

agency determines that the borrower is 

eligible for the teacher loan forgiveness.

discharge.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1078–10)

[65 FR 65627, Nov. 1, 2000, as amended by 

66 FR 34763, June 29, 2001; 71 FR 45702, 

Aug. 9, 2006; 71 FR 64398, Nov. 1, 2006; 73 

FR 35495, June 23, 2008. Redesignated at 

73 FR 63249, Oct. 23, 2008; 74 FR 55995, 

Oct. 29, 2009]
Subpart C – Federal Payments of Interest and Special Allowance

§682.300

Payment of interest benefits on Stafford and Consolidation loans

123

Subpart C—Federal Payments of Interest 

and Special Allowance

§ 682.300 Payment of interest benefits on 

Stafford and Consolidation loans.

(a) General. The Secretary pays a 

lender, on behalf of a borrower, a portion 

of the interest on a subsidized Stafford loan 

and on all or a portion of a qualifying 

Consolidation loan that meets the 

requirements under §682.301. This 

payment is known as interest benefits.

(b) Covered interest. (1) The 

Secretary pays a lender the interest that 

accrues on an eligible Stafford loan—

(i) During all periods prior to the 

beginning of the repayment period, except 

as provided in paragraphs (b)(2) and (c) of 

this section.

(ii) During any period when the 

borrower has an authorized deferment, 

and, if applicable, a post-deferment grace 

period;

(iii) During the repayment period for 

loans described in paragraph (d)(2) of this 

section; and

(iv) During a period that does not 

exceed three consecutive years from the 

established repayment period start date on 

each loan under the income-based 

repayment plan and that excludes any 

period during which the borrower receives 

an economic hardship deferment, if the 

borrower's monthly payment amount under 

the plan is not sufficient to pay the accrued 

interest on the borrower's loan or on the 

qualifying portion of the borrower's 

Consolidation Loan.

(2) The Secretary's obligation to pay 

interest benefits on an otherwise eligible 

loan terminates on the earliest of—

(i) The date the borrower's loan is 

repaid;

(ii) The date the disbursement check 

is returned uncashed to the lender, or the 

120th day after the date of that 

disbursement, except as provided in 

paragraph (c)(4) of this section if—

(A) The check for the disbursement 

has not been cashed on or before that date; 

or

(B) The proceeds of the 

disbursement made by electronic funds 

transfer or master check in accordance with 

§682.207(b)(1)(ii) (B) and (C) have not been 

released from the account maintained by 

the school on or before that date;

(iii) The date of default by the 

borrower;

(iv) The date the lender receives 

payment of a claim for loss on the loan;

(v) The date the borrower's loan is 

discharged in bankruptcy;

(vi) The date the lender determines 

that the borrower has died or has become 

totally and permanently disabled;

(vii) The date the loan ceases to be 

guaranteed or ceases to be eligible for 

reinsurance under this part, with respect to 

that portion of the loan that ceases to be 

guaranteed or reinsured, regardless of 

whether the lender has filed a claim for loss 

on the loan with the guarantor;
Subpart C – Federal Payments of Interest and Special Allowance

§682.300

Payment of interest benefits on Stafford and Consolidation loans

124

(viii) The date the lender determines 

that the borrower is eligible for loan 

discharge under §682.402(d), (e), or (l);

(ix) The date on which the lender 

determines the loan is legally 

unenforceable based on the receipt of an 

identity theft report under §682.208(b)(3); 

or

(x) The date the borrower's payment 

under the income-based repayment plan is 

sufficient to pay the accrued interest on the 

borrower's loan or the qualifying portion of 

the borrower's Consolidation Loan.

(3) Section 682.412 sets forth 

circumstances under which a lender may be 

required to repay interest benefits received 

on a loan guaranteed by a guaranty agency.

(c) Interest not covered. The 

Secretary does not pay—

(1) Interest for which the borrower 

is not otherwise liable; or

(2) Interest paid on behalf of the 

borrower by a guaranty agency;.

(3) Interest that accrues on the first 

disbursement of a loan for any period that 

is earlier than—

(i) In the case of a subsidized 

Stafford loan disbursed by a check, 10 days 

prior to the first day of the period of 

enrollment for which the loan is intended 

or, if the loan is disbursed after the first day 

of the period of enrollment, 3 days after the 

disbursement date on the check;

(ii) In the case of a loan disbursed by 

electronic funds transfer or master check, 3 

days prior to the first day of the period of 

enrollment or, if the loan is disbursed after 

the first day of the period of enrollment, 3 

days after disbursement; or

(iii) In the case of a loan disbursed 

through an escrow agent, 3 days prior to 

the first day of the period of enrollment or, 

if the loan is disbursed after the first day of 

the period of enrollment, 3 days after 

disbursement.

(4) In the case of a loan disbursed on 

or after October 1, 1992, interest on a loan 

if—

(i) The disbursement check is 

returned uncashed to the lender or the 

lender is notified that the disbursement 

made by electronic funds transfer or master 

check will not be released from the 

restricted account maintained by the 

school; or

(ii) The check for the disbursement 

has not been negotiated before the 120th 

day after the date of disbursement or the 

disbursement made by electronic funds 

transfer or master check has not been 

released from the restricted account 

maintained by the school before that date.

(d) Rate. (1) Except as provided in 

paragraph (d)(2) of this section, the 

Secretary pays the lender at the actual 

interest rate on a loan provided that the 

actual interest rate does not exceed the 

applicable interest rate.

(2) For a loan disbursed prior to 

December 15, 1968, or subject to a binding 

commitment made prior to that date, the 

Secretary pays an amount during the 
Subpart C – Federal Payments of Interest and Special Allowance

§682.300

Payment of interest benefits on Stafford and Consolidation loans

125

repayment period equivalent to 3 percent 

per year of the unpaid principal amount of 

the loan.

(Authority: 20 U.S.C. 1078, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 

59 FR 25746, May 17, 1994; 59 FR 33352, 

June 28, 1994; 59 FR 61428, Nov. 30, 1994; 

64 FR 18978, Apr. 16, 1999; 64 FR 58959, 

Nov. 1, 1999; 66 FR 34763, June 29, 2001; 

71 FR 45703, Aug. 9, 2006; 72 FR 62002, 

Nov. 1, 2007; 73 FR 63252, Oct. 23, 2008]
Subpart C – Federal Payments of Interest and Special Allowance

§682.301

Eligibility of borrowers for interest benefits on Stafford and Consolidation loans

126

§ 682.301 Eligibility of borrowers for 

interest benefits on Stafford and 

Consolidation loans.

(a) General. (1) To qualify for 

benefits on a Stafford loan, a borrower 

must demonstrate financial need in 

accordance with Part F of the Act.

(2) The Secretary considers a 

member of a religious order, group, 

community, society, agency, or other 

organization who is pursuing a course of 

study at an institution of higher education 

to have no financial need if that 

organization—

(i) Has as its primary objective the 

promotion of ideals and beliefs regarding a 

Supreme Being;

(ii) Requires its members to forego 

monetary or other support substantially 

beyond the support it provides; and

(iii) (A) Directs the member to 

pursue the course of study; or

(B) Provides subsistence support to 

its members.

(3) A Consolidation loan borrower 

qualifies for interest benefits during 

authorized periods of deferment on the 

portion of the loan that does not represent 

HEAL loans if the loan application was 

received by the lender—

(i) On or after January 1, 1993 but 

prior to August 10, 1993;

(ii) On or after August 10, 1993, but 

prior to November 13, 1997 if the loan 

consolidates only subsidized Stafford loans; 

and

(iii) On or after November 13, 1997, 

for the portion of the loan that repaid 

subsidized FFEL loans and Direct Subsidized 

Loans.

(b) Application for interest benefits. 

To apply for interest benefits on a Stafford 

loan, the student, or the school at the 

direction of the student, must submit a 

statement to the lender pursuant to 

§682.603. The student must qualify for

interest benefits if the eligible institution 

has determined and documented the 

student's amount of need for a loan based 

on the student's estimated cost of 

attendance, estimated financial assistance, 

and expected family contribution as 

determined under part F of the Act.

(c) Use of loan proceeds to replace 

expected family contribution. A borrower 

may use the amount of a PLUS, 

unsubsidized Stafford loan, State sponsored 

loan, or private program loan obtained for a 

period of enrollment to replace the 

expected family contribution for that period 

of enrollment.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1078, 1082, 1087–1)

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9120, Feb. 19, 1993; 59 FR 33352, 

June 28, 1994; 64 FR 18978, Apr. 16, 1999; 

64 FR 58959, Nov. 1, 1999]
Subpart C – Federal Payments of Interest and Special Allowance

§682.302

Payment of special allowance on FFEL loans

127

§ 682.302 Payment of special allowance 

on FFEL loans.

(a) General . The Secretary pays a 

special allowance to a lender on an eligible 

FFEL loan. The special allowance is a 

percentage of the average unpaid principal 

balance of a loan, including capitalized 

interest, computed in accordance with 

paragraphs (c) and (f) of this section. Special 

allowance is also paid on the unpaid 

accrued interest of a loan covered by 

§682.215(b)(7) computed in the same 

manner as in paragraphs (c) and (f), as 

applicable, except for this purpose the 

applicable interest rate shall be deemed to 

be zero.

(b) Eligible loans. (1) Except for nonsubsidized Federal Stafford loans disbursed 

on or after October 1, 1981, for periods of 

enrollment beginning prior to October 1, 

1992, or as provided in paragraphs (b)(2), 

(b)(3), or (e)(1) of this section, FFEL loans 

that otherwise meet program requirements 

are eligible for special allowance payments.

(2) For a loan made under the 

Federal SLS or Federal PLUS Program on or 

after July 1, 1987 and prior to July 1, 1994, 

and for any Federal PLUS loan made on or 

after July 1, 1998 or on or after January 1, 

2000 for any period prior to April 1, 2006, 

or under §682.209(e) or (f), no special 

allowance is paid for any period for which 

the interest rate calculated prior to applying 

the interest rate maximum for that loan 

does not exceed—

(i) 12 percent in the case of a 

Federal SLS or PLUS loan made prior to 

October 1, 1992;

(ii) 11 percent in the case of a 

Federal SLS loan made on or after October 

1, 1992;

(iii) 10 percent in the case of a 

Federal PLUS loan made on or after October 

1, 1992; or

(iv) 9 percent in the case of a 

Federal PLUS loan made on or after July 1, 

1998.

(3) In the case of a subsidized 

Stafford loan disbursed on or after October 

1, 1992 and prior to July 1, 2010, the 

Secretary does not pay special allowance on 

a disbursement if—

(i) The disbursement check is 

returned uncashed to the lender or the 

lender is notified that the disbursement 

made by electronic funds transfer or master 

check will not be released from the 

restricted account maintained by the 

school; or

(ii) The check for the disbursement 

has not been negotiated before the 120th 

day after the date of disbursement or the 

disbursement made by electronic funds 

transfer or master check has not been 

released from the restricted account 

maintained by the school before that date.

(c) Rate. (1) Except as provided in 

paragraph (c)(2), (c)(3), or (e) of this 

section, the special allowance rate for an 

eligible loan during a 3-month period is 

calculated by—

(i) Determining the average of the 

bond equivalent rates of—
Subpart C – Federal Payments of Interest and Special Allowance

§682.302

Payment of special allowance on FFEL loans

128

(A) The quotes of the 3-month 

commercial paper (financial) rates in effect 

for each of the days in such quarter as 

reported by the Federal Reserve in 

Publication H–15 (or its successor) for such 

3-month period for a loan for which the first 

disbursement is made on or after January 1, 

2000; or

(B) The 91-day Treasury bills 

auctioned during the 3-month period for a 

loan for which the first disbursement is 

made prior to January 1, 2000;

(ii) Subtracting the applicable 

interest rate for that loan;

(iii) Adding—

(A)(1) 2.34 percent to the resulting 

percentage for a Federal Stafford loan for 

which the first disbursement is made on or 

after January 1, 2000;

(2) 2.64 percent to the resulting 

percentage for a Federal PLUS loan for 

which the first disbursement is made on or 

after January 1, 2000;

(3) 2.64 percent to the resulting 

percentage for a Federal Consolidation Loan 

that was made based on an application 

received by the lender on or after January 

1, 2000;

(4) 1.74 percent to the resulting 

percentage for a Federal Stafford loan for 

which the first disbursement is made on or 

after January 1, 2000 during the borrower's 

in-school, grace, and authorized period of 

deferment;

(5) 2.8 percent to the resulting 

percentage for a Federal Stafford loan for 

which the first disbursement is made on or 

after July 1, 1998 and prior to January 1, 

2000;

(6) 2.2 percent to the resulting 

percentage for a Federal Stafford loan for 

which the first disbursement is made on or 

after July 1, 1998 and prior to January 1, 

2000, during the borrower's in-school, 

grace, and authorized period of deferment;

(7) 2.5 percent to the resulting 

percentage for a Federal Stafford loan for 

which the first disbursement is made on or 

after July 1, 1995 and prior to July 1, 1998 

for interest that accrues during the 

borrower's in-school, grace, and authorized 

period of deferment;

(B) 3.1 percent to the resulting 

percentage for—

(1) A Federal Stafford Loan made on 

or after October 1, 1992 and prior to July 1, 

1998, except as provided in paragraph 

(c)(1)(iii)(A)( 7 ) of this section;

(2) A Federal SLS Loan made on or 

after October 1, 1992;

(3) A Federal PLUS Loan made on or 

after October 1, 1992 and prior to July 1, 

1998;

(4) A Federal PLUS Loan made on or 

after July 1, 1998 and prior to October 1, 

1998, except that no special allowance shall 

be paid any quarter unless the rate 

determined under §682.202(a)(2)(v)(A) 

exceeds 9 percent;

(5) A Federal PLUS loan made on or 

after October 1, 1998 and prior to January 

1, 2000, except that no special allowance 
Subpart C – Federal Payments of Interest and Special Allowance

§682.302

Payment of special allowance on FFEL loans

129

shall be paid during any quarter unless the 

rate determined under §682.202(a)(2)(v)(A) 

exceeds 9 percent;

(6) A Federal Consolidation Loan for 

which the application was received by the 

lender prior to January 1, 2000, except that 

no special allowance shall be paid during 

any quarter on a loan for which the 

application was received on or after 

October 1, 1998 unless the average of the 

bond equivalent rate of the 91-day Treasury 

bills auctioned during that quarter, plus 3.1 

percent, exceeds the rate determined 

under Section 682.202(a)(4)(iv);

(C) 3.25 percent to the resulting 

percentage, for a loan made on or after 

November 16, 1986, but prior to October 1, 

1992;

(D) 3.25 percent to the resulting 

percentage, for a loan made on or after 

October 17, 1986 but prior to November 16, 

1986, for a period of enrollment beginning 

on or after November 16, 1986;

(E) 3.5 percent to the resulting 

percentage, for a loan made prior to 

October 17, 1986, or a loan described in 

paragraph (c)(2) of this section; or

(F) 3.5 percent to the resulting 

percentage, for a loan made on or after 

October 17, 1986 but prior to November 16, 

1986, for a period of enrollment beginning 

prior to November 16, 1986;

(iv) Rounding the result upward to 

the nearest one-eighth of 1 percent, for a 

loan made prior to October 1, 1981; and

(v) Dividing the resulting percentage 

by 4.

(2) The special allowance rate 

determined under paragraph (c)(1)(iii)(E) of 

this section applies to loans made or 

purchased from funds obtained from the 

issuance of an obligation of the—

(i) Maine Educational Loan 

Marketing Corporation to the Student Loan 

Marketing Association pursuant to an 

agreement entered into on January 31, 

1984; or

(ii) South Carolina Student Loan 

Corporation to the South Carolina National 

Bank pursuant to an agreement entered 

into on July 30, 1986.

(3)(i) Subject to paragraphs (c)(3)(iii), 

(c)(3)(iv), and (e) of this section, the special 

allowance rate is that provided in paragraph 

(c)(3)(ii) of this section for a loan made or 

guaranteed on or after October 1, 1980 that 

was made or purchased with funds 

obtained by the holder from—

(A) The proceeds of tax-exempt 

obligations originally issued prior to 

October 1, 1993;

(B) Collections or payments by a 

guarantor on a loan that was made or 

purchased with funds obtained by the 

holder from obligations described in 

paragraph (c)(3)(i)(A) of this section;

(C) Interest benefits or special 

allowance payments on a loan that was 

made or purchased with funds obtained by 

the holder from obligations described in 

paragraph (c)(3)(i)(A) of this section;

(D) The sale of a loan that was made 

or purchased with funds obtained by the 
Subpart C – Federal Payments of Interest and Special Allowance

§682.302

Payment of special allowance on FFEL loans

130

holders from obligations described in 

paragraph (c)(3)(i)(A) of this section; or

(E) The investment of the proceeds 

of obligations described in paragraph 

(c)(3)(i)(A) of this section.

(ii) The special allowance rate for a 

loan described in paragraph (c)(3)(i) is onehalf of the rate calculated under paragraph 

(c)(1) of this section, except that in applying 

paragraph (c)(1)(iii), 3.5 percent is 

substituted for the percentages specified 

therein.

(iii) The special allowance rate 

applicable to loans described in paragraph 

(c)(3)(i) of this section that are made prior 

to October 1, 1992, may not be less than—

(A) 2.5 percent per year on eligible 

loans for which the applicable interest rate 

is 7 percent;

(B) 1.5 percent per year on eligible 

loans for which the applicable interest rate 

is 8 percent; or

(C) One-half of 1 percent per year on 

eligible loans for which the applicable rate 

is 9 percent.

(iv) The special allowance rate 

applicable to loans described in paragraph 

(c)(3)(i) of this section that are made on or 

after October 1, 1992, may not be less than 

9.5 percent minus the applicable interest

rate.

(4) Loans made or purchased with 

funds obtained by the holder from the 

issuance of tax-exempt obligations 

originally issued on or after October 1, 

1993, and loans made with funds derived 

from default reimbursement collections, 

interest, or other income related to eligible 

loans made or purchased with those taxexempt funds, do not qualify for the 

minimum special allowance rate specified in 

paragraph (c)(3)(iii) or (iv) of this section, 

and are not subject to the 50 percent 

limitation on the maximum rate otherwise 

applicable to loans made with tax-exempt 

funds.

(5) For purposes of paragraphs (c)(3) 

and (c)(4), a loan is purchased with funds 

described in those paragraphs when the 

loan is refinanced in consideration of those 

funds.

(d) Termination of special allowance 

payments on a loan. (1) The Secretary's 

obligation to pay special allowance on a 

loan terminates on the earliest of—

(i) The date a borrower's loan is 

repaid;

(ii) The date a borrower's loan check 

is returned uncashed to the lender;

(iii) The date a lender receives 

payment on a claim for loss on the loan;

(iv) The date a loan ceases to be 

guaranteed or ceases to be eligible for 

reinsurance under this part, with respect to 

that portion of the loan that ceases to be 

guaranteed or reinsured, regardless of 

whether the lender has filed a claim for loss 

on the loan with the guarantor;

(v) The 60th day after the 

borrower's default on the loan, unless the 

lender files a claim for loss on the loan with 

the guarantor together with all required 

documentation, on or before the 60th day;
Subpart C – Federal Payments of Interest and Special Allowance

§682.302

Payment of special allowance on FFEL loans

131

(vi) The 120th day after the date of 

disbursement, if—

(A) The loan check has not been 

cashed on or before that date; or

(B) tThe loan proceeds disbursed by 

electronic funds transfer or master check in 

accordance with §682.207(b)(1)(ii) (B) and 

(C) have not been released from the 

restricted account maintained by the school 

on or before that date;

(vii) The 30th day after the date the 

lender received a returned claim from the 

guaranty agency on a loan submitted by the 

deadline specified in (d)(1)(v) of this section 

for loss on the loan to the lender due solely 

to inadequate documentation unless the 

lender files a claim for loss on the loan with 

the guarantor, together with all required 

documentation, prior to the 30th day; or

(viii) The date on which the lender 

determines the loan is legally 

unenforceable based on the receipt of an 

identity theft report under §682.208(b)(3).

(2) In the case of a loan disbursed on 

or after October 1, 1992 and prior to July 1, 

2010, the Secretary does not pay special 

allowance on a loan if—

(i) The disbursement check is 

returned uncashed to the lender or the 

lender is notified that the disbursement 

made by electronic funds transfer or master 

check will not be released from the account 

maintained by the school; or

(ii) The check for the disbursement 

has not been negotiated before the 120th 

day after the date of disbursement or the 

disbursement made by electronic funds 

transfer or master check has not been 

released from the account maintained by 

the school before that date.

(3) Section 682.413 sets forth the 

circumstances under which a lender may be 

required to repay the special allowance 

received on a loan guaranteed by a 

guaranty agency.

(e) Limits on special allowance 

payments on loans made or purchased with 

funds derived from tax-exempt obligations 

—(1) General. (i) The Secretary pays a 

special allowance on a loan described in 

paragraph (c)(3) or (c)(4) of this section that 

is held by or on behalf of an Authority only 

if the loan meets the requirements of 

§682.800.section 438(e) of the Act.

(ii) The Secretary pays a special 

allowance at the rate prescribed in 

paragraph (c)(1) or (c)(3) of this section on a 

loan described in paragraph (c)(3)(i) of this 

section that is held by or on behalf of an 

Authority in accordance with paragraphs 

(e)(2) through (e)(5) of this section, as 

applicable. References to “loan” or “loans” 

in paragraphs (e)(2) through (e)(5) include 

only loans described in paragraph (c)(3)(i).

(2) Effect of Refinancing on Special 

Allowance Payments. Except as provided in 

paragraphs (e)(3) through (e)(5) of this 

section—

(i) The Secretary pays a special 

allowance at the rate prescribed in 

paragraph (c)(3) of this section to an

Authority that holds a legal or equitable 

interest in the loan that is pledged or 

otherwise transferred in consideration of—
Subpart C – Federal Payments of Interest and Special Allowance

§682.302

Payment of special allowance on FFEL loans

132

(A) Funds listed in paragraph (c)(3)(i) 

of this section;

(B) Proceeds of a tax-exempt 

refunding obligation that refinances a debt 

that—

(1) Was first incurred pursuant to a 

tax-exempt obligation originally issued prior 

to October 1, 1993;

(2) Has been financed continuously 

by tax-exempt obligation.

(ii) The Secretary pays a special 

allowance to an Authority that holds a legal 

or equitable interest in the loan that is 

pledged or otherwise transferred in 

consideration of funds other than those 

specified in paragraph (e)(2)(i) of this 

section either—

(A) At the rate prescribed in 

paragraph (c)(1) of this section, if_

(1) The prior tax-exempt obligation 

is retired; or

(2) The prior tax-exempt obligation 

is defeased by means of obligations that the 

Authority certifies in writing to the 

Secretary bears a yield that does not exceed 

the yield restrictions of section 148 of the 

Internal Revenue Code and the regulations 

thereunder, or

(B) At the rate prescribed in 

paragraph (c)(3) of this section.

(3) Loans affected by transactions or 

events after September 30, 2004. The 

Secretary pays a special allowance to an 

Authority at the rate prescribed in

paragraph (c)(1) of this section if, after 

September 30, 2004—

(i) The loan is refinanced with funds 

other than those listed in paragraph (e)(2)(i) 

of this section;

(ii) The loan is sold or transferred to 

any other holder; or

(iii)(A) The loan is financed by a taxexempt obligation included in the sources in 

paragraph (e)(2)(i), and

(B) That obligation matures, is 

refunded, is defeased, or is retired, 

whichever occurs earliest.

(4) Loans Affected by Transactions 

After February 7, 2006. Except as provided 

in paragraph (e)(5) or (f) of this section, the 

Secretary pays a special allowance at the 

rate prescribed in paragraph (c)(1) of this 

section on any loan—

(i) That was made or purchased on 

or after February 8, 2006, or

(ii) That was not earning, on 

February 8, 2006, a quarterly rate of special 

allowance determined under paragraph 

(c)(3) of this section.

(5) Loans affected by transactions 

after December 30, 2010. (i) The Secretary 

pays a special allowance to a holder 

described in paragraph (e)(5)(ii) of this 

section at the rate prescribed in paragraph 

(c)(3) of this section only on a loan—

(A) That was made or purchased 

prior to December 31, 2010, or

(B) That was earning, before 

December 31, 2010, a quarterly rate of 
Subpart C – Federal Payments of Interest and Special Allowance

§682.302

Payment of special allowance on FFEL loans

133

special allowance determined under 

paragraph (c)(3) of this section.

(ii) A holder for purposes of this 

paragraph is an entity that—

(A) On February 8, 2006 and during 

the quarter for which special allowance is 

determined under this paragraph—

(1) Is a unit of State or local 

government or a private nonprofit entity, 

and

(2) Is not owned or controlled by, or 

under common ownership or control by, a 

for-profit entity; and

(B) In the most recent quarterly 

special allowance payment prior to 

September 30, 2005, held, directly or 

through any subsidiary, affiliate, or trustee, 

a total unpaid balance of principal of 

$100,000,000 or less for which special 

allowance was determined and paid under 

paragraph (c)(3) of this section.

(f) Special allowance rates for loans 

made on or after October 1, 2007. With 

respect to any loan for which the first 

disbursement of principal is made on or 

after October 1, 2007, other than a loan 

described in paragraph (e)(5) of this section, 

the special allowance rate for an eligible 

loan made during a 3-month period is 

calculated according to the formulas 

described in paragraphs (f)(1) and (f)(2) of 

this section.

(1) Except as provided in paragraph 

(f)(2) of this section, the special allowance 

formula shall be computed by—

(i) Determining the average of the 

bond equivalent rates of the quotes of the 

3-month commercial paper (financial) rates 

in effect for each of the days in such quarter 

as reported by the Federal Reserve in 

Publication H–15 (or its successor) for such 

3-month period;

(ii) Subtracting the applicable 

interest rate for that loan;

(iii) Adding—

(A) 1.79 percent to the resulting 

percentage for a Federal Stafford loan;

(B) 1.19 percent to the resulting 

percentage for a Federal Stafford Loan 

during the borrower's in-school period, 

grace period and authorized period of 

deferment;

(C) 1.79 percent to the resulting 

percentage for a Federal PLUS loan; and

(D) 2.09 percent to the resulting 

percentage for a Federal Consolidation 

loan; and

(iv) Dividing the resulting percentage 

by 4.

(2) For loans held by an eligible notfor-profit holder as defined in paragraph 

(f)(3) of this section, the special allowance 

formula shall be computed by—

(i) Determining the average of the 

bond equivalent rates of the quotes of the 

3-month commercial paper (financial) rates 

in effect for each of the days in such quarter 

as reported by the Federal Reserve in 

Publication H–15 (or its successor) for such 

3-month period;
Subpart C – Federal Payments of Interest and Special Allowance

§682.302

Payment of special allowance on FFEL loans

134

(ii) Subtracting the applicable 

interest rate for that loan;

(iii) Adding—

(A) 1.94 percent to the resulting 

percentage for a Federal Stafford loan;

(B) 1.34 percent to the resulting 

percentage for a Federal Stafford Loan 

during the borrower's in-school period, 

grace period and authorized period of 

deferment;

(C) 1.94 percent to the resulting 

percentage for a Federal PLUS loan; and

(D) 2.24 percent to the resulting 

percentage for a Federal Consolidation 

loan; and

(iv) Dividing the resulting percentage 

by 4.

(3) Eligible Not-for-Profit Holder. (i) 

For purposes of this section, the term 

“eligible not-for-profit holder” means an 

eligible lender under section 435(d) of the 

Act (except an eligible institution) that 

requests special allowance payments from 

the Secretary and that is—

(A) A State, or a political subdivision, 

authority, agency, or other instrumentality 

thereof, including such entities that are 

eligible to issue bonds described in 26 CFR 

1.103–1, or section 144(b) of the Internal 

Revenue Code of 1986;

(B) An entity described in section 

150(d)(2) of the Internal Revenue Code of 

1986 that has not made the election 

described in section 150(d)(3) of that Code;

(C) An entity described in section 

501(c)(3) of the Internal Revenue Code of 

1986; or

(D) A trustee acting as an eligible 

lender on behalf of an entity that is not an 

eligible institution and that is a State or 

non-profit entity or a special purpose entity 

for a State or non-profit entity.

(ii) For purposes of paragraph (f)(3) 

of this section—

(A) The term “State or non-profit 

entity” means an entity described in 

paragraph (f)(3)(i)(A), (f)(3)(i)(B), or 

(f)(3)(i)(C) of this section, regardless of 

whether such entity is an eligible lender 

under section 435(d) of that Act.

(B) The term “special purpose 

entity” means an entity established for the 

limited purpose of financing the acquisition 

of loans from or at the direction of a State 

or non-profit entity, or servicing and 

collecting such loans, and that is—

(1) An entity established by such 

State or non-profit entity, or

(2) An entity established by an entity 

described in paragraph (f)(3)(ii)(B)(1) of this 

section.

(C) A special purpose entity is a 

“related special purpose entity” with 

respect to a State or non-profit entity if it 

holds any interest in loans acquired from or 

at the direction of that State or non-profit 

entity or from a special purpose entity 

established by that State or non-profit 

entity.
Subpart C – Federal Payments of Interest and Special Allowance

§682.302

Payment of special allowance on FFEL loans

135

(iii) An entity that otherwise 

qualifies under paragraph (f)(3)(i) of this 

section shall not be considered an eligible 

not-for-profit holder unless such entity—

(A) Was a State or non-profit entity 

and an eligible lender under section 435(d) 

of the Act, other than a school lender, and 

on or before September 27, 2007 had made 

or acquired a FFEL loan, unless the State 

waives this requirement under paragraph 

(f)(3)(iv) of this section; or

(B) Is acting as an eligible lender 

trustee on behalf of a State or non-profit 

entity that was the sole beneficial owner of 

a loan eligible for a special allowance 

payment on September 27, 2007.

(iv) Subject to the provisions of 

section 435(d)(1)(D) of the Act, a State may 

waive the requirement of paragraph 

(f)(3)(iii)(A) of this section to identify a new 

eligible not-for-profit holder pursuant to a 

written application filed in accordance with 

paragraph (f)(3)(x) of this section, for the 

purposes of carrying out a public purpose of 

the State, except that a State may not 

designate a trustee for this purpose.

(v) A State or non-profit entity, and a 

trustee to the extent acting on behalf of 

such an entity or its related special purpose 

entity, shall not be an eligible not-for-profit 

holder if the State or non-profit entity or its 

related special purpose entity is owned or 

controlled, in whole or in part, by a forprofit entity. For purposes of this 

paragraph, a for-profit entity has ownership 

and control of a State or non-profit entity, 

or its related special purpose entity, if—

(A) The for-profit entity is a member 

or shareholder of a State or non-profit 

entity or related special purpose entity that 

is a membership or stock corporation, and 

the for-profit entity has sufficient power to 

control the State or non-profit entity or its 

special purpose entity;

(B) The for-profit-entity employs or 

appoints individuals that together 

constitute a majority of the State, nonprofit, or special purpose entity's board of 

trustees or directors, or a majority of such 

board's audit committee, executive 

committee, or compensation committee; or

(C) For a State, non-profit, or special 

purpose entity that has no board of trustees 

or directors and associated committees of 

such, the for-profit entity is authorized by 

law, agreement, or otherwise to approve 

decisions by the entity regarding its audits, 

investments, hiring, retention, or 

compensation of officials, unless the 

Secretary determines that the particular 

authority to approve such decisions is not 

likely to affect the integrity of those 

decisions.

(vi) For purposes of paragraph (f)(3) 

of this section—

(A) A for-profit entity has sufficient 

power to control a State or non-profit entity 

or its related special purpose entity, if it 

possesses directly, or represents, either 

alone or together with other persons, under 

a voting trust, power of attorney, proxy, or 

similar agreement, one or more persons 

who hold, individually or in combination 

with the other person represented or the 

persons representing them, a sufficient 

voting percentage of the membership 
Subpart C – Federal Payments of Interest and Special Allowance

§682.302

Payment of special allowance on FFEL loans

136

interests or voting securities to direct or 

cause the direction of the management and 

policies of the State or non-profit entity or 

its related special purpose entity.

(B) An individual is deemed to be 

employed or appointed by a for-profit

entity if the for-profit entity employs a 

family member, as defined in §600.21(f), of 

that individual, unless the Secretary 

determines that the particular nature of the 

family member's employment is not likely 

to affect the integrity of decisions made by 

the board or committee member.

(C) “Beneficial owner” (including 

“beneficial ownership” and “owner of a 

beneficial interest”) means the entity that 

has those rights with respect to the loan or 

income from the loan that are the normal 

incidents of ownership, including the right 

to receive, possess, use, and sell or 

otherwise exercise control over the loan 

and the income from the loan, subject to 

any rights granted and limitations imposed 

in connection with or related to the 

granting of a security interest described in 

paragraph (f)(3)(ix) of this section, and 

subject to any limitations on such rights 

under the Act as a result of such entity not 

qualifying as an eligible lender or holder 

under the Act.

(D) “Sole owner” means the entity 

that has all the rights described in 

paragraph (f)(3)(vi)(C) of this section, which 

may be subject to the rights and limitations 

described in paragraph (f)(3)(vi)(C), to the 

exclusion of any other entity, with respect 

both to a loan and the income from a loan.

(vii)(A) No State or non-profit entity, 

and no trustee to the extent acting on 

behalf of such a State or non-profit entity or 

its related special purpose entity, shall be 

an eligible not-for-profit holder with respect 

to any loan or income from any loan on 

which payment is claimed at the rate 

established under paragraph (f)(2) of this 

section, unless such State or non-profit 

entity or its related special purpose entity is 

the sole owner of the beneficial interest in 

such loan and the income from such loan.

(B) A State or non-profit entity that 

had sole ownership of the beneficial 

interest in a loan and the income from such 

loan is considered to retain that sole 

ownership for purposes of paragraph 

(f)(3)(vii)(A) of this section if such entity 

transferred beneficial interest in the loan to 

its related special purpose entity and no 

party other than that State or non-profit 

entity or its related special purpose entity 

owns any beneficial interest or residual 

ownership interest in the loan or income 

from the loan.

(viii)(A) A trustee described in 

paragraph (f)(3)(i)(D) of this section shall 

not receive compensation as consideration 

for acting as an eligible lender on behalf of 

a State or non-profit entity or its related 

special purpose entity in excess of 

reasonable and customary fees paid for 

providing the particular service or services 

that the trustee undertakes to provide to 

such entity.

(B) Fees are reasonable and 

customary, for purposes of this paragraph 

(f)(3)(viii) of this section, if they do not 

exceed the amounts received by the trustee 

for similar services with regard to similar 

portfolios of loans of that State or non-
Subpart C – Federal Payments of Interest and Special Allowance

§682.302

Payment of special allowance on FFEL loans

137

profit entity or its related special purpose 

entity that are not eligible to receive special 

allowance at the rate established under 

paragraph (f)(2) of this section, or if they do 

not exceed an amount as determined by 

such other method requested by the State 

or non-profit entity that the Secretary 

considers reliable.

(C) Loans owned by the State or 

non-profit entity or a related special 

purpose entity for which the trustee 

receives fees in excess of the amount 

permitted by paragraph (f)(3)(viii) of this 

section cease to qualify for a special 

allowance payment at the rate prescribed 

under paragraph (f)(2) of this section.

(ix) For purposes of paragraph (f)(3) 

of this section, if a State or non-profit 

entity, its related special purpose entity, or 

a trustee acting on behalf of any of these 

entities, grants a security interest in, or 

otherwise pledges as collateral, a loan, or 

the income from a loan, to secure a debt 

obligation for which such State or nonprofit entity, or its related special purpose 

entity, is the issuer of that debt obligation, 

none of these entities shall, by such 

action—

(A) Be deemed to be owned or 

controlled, in whole or in part, by a forprofit entity; or

(B) Lose its status as the sole owner 

of a beneficial interest in a loan and the 

income from a loan.

(x) Not-for-Profit Holder Eligibility 

Determination. A State or non-profit entity 

that seeks to qualify as an eligible not-forprofit holder, either in its own right or 

through a trust agreement with an eligible 

lender trustee, must provide to the 

Secretary—

(A) A certification on the State or 

non-profit entity's letterhead signed by the 

State or non-profit entity's Chief Executive 

Officer (CEO) which—

(1) States the basis upon which the 

entity qualifies as a State or non-profit 

entity;

(2) Includes documentation 

establishing its status as a State or nonprofit entity;

(3) Includes the name and lender 

identification number(s) of the entities for

which designation is being certified;

(4) Includes the name of any related 

special purpose entities that hold any 

interest in any loan on which special 

allowance is claimed under paragraph 

(f)(2)of this section, describes the role of 

such entity with respect to the loans, and 

provides with respect to that entity the 

certifications and documentation described 

in paragraph (f)(3)(x)(A) and (B) of this 

section; and

(5) For an entity establishing status 

under section 150(d) of the Internal 

Revenue Code of 1986, includes copies of 

the requests of the State or political 

subdivision or subdivisions thereof or 

requirements described in section 150(d)(2) 

of the Internal Revenue Code and the CEO's 

additional certification that the entity has 

not elected under section 150(d)(3) of the 

Internal Revenue Code to cease its status as 

a qualified scholarship funding corporation.
Subpart C – Federal Payments of Interest and Special Allowance

§682.302

Payment of special allowance on FFEL loans

138

(B) A separately submitted 

certification or opinion by the State or nonprofit entity's external legal counsel or the 

office of the attorney general of the State, 

with supporting documentation that shows 

that the State or non-profit entity—

(1) Is constituted a State entity by 

operation of specific State law;

(2) Has been designated by the State 

or one or more political subdivisions of the 

State to serve as a qualified scholarship 

funding corporation under section 150(d) of 

the Internal Revenue Code, has not made 

the election described under section 

150(d)(3) of the Internal Revenue Code, and 

is incorporated under State law as a not-forprofit organization;

(3) Is incorporated under State law 

as a not-for-profit organization or is an 

entity described in section 503501(c)(3) of 

the Internal Revenue Code; or

(4) Has in effect a relationship with 

an eligible lender under which the lender is 

acting as trustee on behalf of the State or 

non-profit entity.

(xi) Annual Certification by Eligible 

Not-for-Profit Holder. A State or non-profit 

entity that seeks to retain its eligibility as an 

eligible not-for-profit holder, either in its 

own right or through a trust agreement 

with an eligible lender trustee, must 

annually provide to the Secretary—

(A) A certification on the State or 

non-profit entity's letterhead signed by the 

State or non-profit entity's Chief Executive 

Officer (CEO) which—

(1) Includes the name and lender 

identification number(s) of the entities for 

which designation is being recertified;

(2) States that the State or nonprofit entity has not altered its status as a 

State or non-profit entity since its prior 

certification to the Secretary, or, if it has 

altered its status, describes any such 

alterations; and

(3) States that the State or nonprofit entity continues to satisfy the 

requirements of an eligible not-for-profit 

holder, either in its own right or through a 

trust agreement with an eligible lender 

trustee; and

(B) A copy of its IRS Form 990, if 

applicable, and that of any related special 

purpose entity that holds an interest in 

loans on which it seeks to claim special 

allowance at the rate provided under 

paragraph (f)(2) of this section, at the same 

time these returns are filed with the 

Internal Revenue Service.

(xii) Not-for-Profit Holder Change of 

Status. Within 10 business days of 

becoming aware of the occurrence of a 

change that may result in a State or nonprofit entity that has been designated an 

eligible not-for-profit holder, either directly 

or through an eligible lender trustee, losing 

that eligibility, the State or non-profit entity 

must—

(A) Submit details of the change to 

the Secretary; and

(B) Cease billing for special 

allowance at the rate established under 

paragraph (f)(2) of this section for the 
Subpart C – Federal Payments of Interest and Special Allowance

§682.302

Payment of special allowance on FFEL loans

139

period from the date of the change that 

may result in it no longer being eligible for 

the rate established under paragraph (f)(2) 

of this section to the date of the Secretary's 

determination that such entity has not lost 

its eligibility as a result of such change; 

provided, however, that in the quarter 

following the Secretary's determination 

that such eligible not-for-profit holder has 

not lost its eligibility, the eligible not-forprofit holder may submit a billing for special 

allowance during the period from the date 

of the change to the date of the Secretary's 

determination equal to the difference 

between special allowance at the rate 

established under paragraph (f)(2) of this 

section and the amount it actually billed at 

the rate established under paragraph (f)(1) 

of this section.

(xiii) In the case of a loan for which 

the special allowance payment is calculated 

under paragraph (f)(2) of this section and 

that is sold by the eligible not-for-profit 

holder holding the loan to an entity that is 

not an eligible not-for-profit holder, the 

special allowance payment for such loan 

shall, beginning on the date of the sale, no 

longer be calculated under paragraph (f)(2) 

and shall be calculated under paragraph 

(f)(1) of this section instead.

(4) In the case of a loan for which 

the special allowance payment is calculated 

under paragraph (f)(2) of this section and 

that is sold by the eligible not-for-profit 

holder holding the loan to an entity that is 

not an eligible not-for-profit holder, the 

special allowance payment for such loan 

shall, beginning on the date of the sale, no 

longer be calculated under paragraph (f)(2) 

and shall be calculated under paragraph 

(f)(1) of this section instead.

(g) For purposes of this section—

(1) A tax-exempt obligation is an 

obligation the income of which is exempt 

from taxation under the Internal Revenue 

Code of 1986 (26 U.S.C.);

(2) The date on which an obligation 

is considered to be “originally issued” is 

determined under §682.302(f)(2)(i) or (ii), 

as applicable.

(i) An obligation issued to obtain 

funds to make loans, or to purchase a legal 

or equitable interest in loans, including by 

pledge as collateral for that obligation, is 

considered to be originally issued on the 

date issued.

(ii) A tax-exempt obligation that 

refunds, or is one of a series of tax-exempt 

refundings with respect to a tax-exempt 

obligation described in §682.302(f)(2)(i), is 

considered to be originally issued on the 

date on which the obligation described in 

§682.302(f)(2)(i) was issued.

(3) A loan is refinanced when an 

Authority that has pledged the loan as 

collateral for an obligation of that Authority 

retains an interest in the loan, but causes 

the loan to be released from the lien of that 

obligation and pledged as collateral for a 

different obligation of that Authority.

(4) References to an Authority 

include a successor entity that may not 

qualify as an Authority under §682.200(b).

(h) Calculation of special allowance 

payments for loans subject to the 
Subpart C – Federal Payments of Interest and Special Allowance

§682.302

Payment of special allowance on FFEL loans

140

Servicemembers Civil Relief Act (50 U.S.C. 

527, App. sec. 207). For FFEL Program loans 

first disbursed on or after July 1, 2008 that 

are subject to the interest rate limit under 

the Servicemembers Civil Relief Act, special 

allowance is calculated in accordance with 

paragraphs (c) and (f) of this section, except 

the applicable interest rate for this purpose 

shall be 6 percent.

[57 FR 60323, Dec. 18, 1992, as amended at 

59 FR 25746, May 17, 1994; 59 FR 33353, 

June 28, 1994; 59 FR 61428, Nov. 30, 1994; 

64 FR 18978, Apr. 16, 1999; 64 FR 58626, 

Oct. 29, 1999; 66 FR 34763, June 29, 2001; 

68 FR 75429, Dec. 31, 2003; 71 FR 45703, 

Aug. 9, 2006; 71 FR 64398, Nov. 1, 2006; 72 

FR 62002, Nov. 1, 2007; 73 FR 63252, Oct. 

23, 2008; 74 FR 55996, Oct. 29, 2009]
Subpart C – Federal Payments of Interest and Special Allowance

§682.303

[Reserved]

141

§ 682.303 [Reserved]
Subpart C – Federal Payments of Interest and Special Allowance

§682.304

Methods for computing interest benefits and special allowance

142

§ 682.304 Methods for computing 

interest benefits and special allowance.

(a) General. The Secretary pays a 

lender interest benefits and special 

allowance on eligible loans on a quarterly 

basis. These calendar quarters end on 

March 31, June 30, September 30, and 

December 31 of each year. A lender may 

use either the average daily balance 

method or the actual accrual method to 

determine the amount of interest benefits 

payable on a lender's loans. A lender shall 

use the average daily balance method to 

determine the balance on which the 

Secretary computes the amount of special 

allowance payable on its loans.

(b) Average daily balance method 

for interest benefits. (1) Under this method, 

the lender adds the unpaid principal 

balance outstanding on all loans qualifying 

for interest benefits at each actual interest 

rate for each day of the quarter, divides the 

sum by the number of days in the quarter, 

and rounds the result to the nearest whole 

dollar. The resulting figure is the average 

daily balance for qualified loans outstanding 

at each actual interest rate.

(2) The Secretary computes the 

interest benefits due on all qualified loans 

at each actual interest rate by multiplying 

the average daily balance thereof by the 

actual interest rate, multiplying this result 

by the number of days in the quarter, and 

then dividing this result by the actual 

number of days in the year.

(c) Actual accrual method for 

interest benefits. (1) Under this method, the 

lender computes the total unpaid principal 

balance outstanding on all qualified loans at 

each actual interest rate on each day of the 

quarter, multiplies this result by the actual 

interest rate, and divides this result by the 

actual number of days in the year, or, 

alternatively, 365.25 days. A lender who 

chooses to divide by 365.25 days must do 

so for four consecutive years.

(2) The interest benefits due for a 

quarter equal the sum of the daily interest 

benefits due, computed under paragraph 

(c)(1) of this section, for each day of the 

quarter.

(d) Average daily balance method 

for special allowance. (1) To compute the 

average daily balance outstanding for 

purposes of special allowance, the lender 

adds the unpaid principal balance 

outstanding on all qualified loans at each 

applicable interest rate for each day of the 

quarter, divides this sum by the number of 

days in the quarter, and rounds the result to 

the nearest whole dollar. The resulting 

figure is the average daily balance for the 

quarter for qualifying loans at each 

applicable interest rate.

(2) To compute the average daily 

balance of unpaid accrued interest for 

purposes of special allowance on loans 

covered by §682.215(b)(7), the lender adds 

the unpaid accrued interest on such loans 

for each eligible day of the quarter, divides 

this sum by the number of days in the 

quarter, and rounds the result to the 

nearest whole dollar. The resulting figure is 

the average daily balance for the quarter 

for qualifying loans at the applicable 

interest rate.

(3) The Secretary computes the 

special allowance payable to a lender based 
Subpart C – Federal Payments of Interest and Special Allowance

§682.304

Methods for computing interest benefits and special allowance

143

upon the average daily balance computed 

by the lender under paragraphs (d)(1) and 

(2) of this section.

(Authority: 20 U.S.C. 1082, 1087–1)

[57 FR 60323, Dec. 18, 1992, as amended at 

73 FR 63254, Oct. 23, 2008]
Subpart C – Federal Payments of Interest and Special Allowance

§682.305

Procedures for payment of interest benefits and special allowance and collection of origination and loan fees

144

§ 682.305 Procedures for payment of 

interest benefits and special allowance and 

collection of origination and loan fees.

(a) General. (1) If a lender owes 

origination fees or loan fees under 

paragraph (a) of this section, it must submit 

quarterly reports to the Secretary on a form 

provided or prescribed by the Secretary, 

even if the lender is not owed, or does not 

wish to receive, interest benefits or special 

allowance from the Secretary.

(2) The lender shall report, on the 

quarterly report required by paragraph 

(a)(1) of this section, the amount of 

origination fees it was authorized to collect 

and the amount of those fees refunded to 

borrowers during the quarter covered by 

the report.

(3)(i)(A) The Secretary reduces the 

amount of interest benefits and special 

allowance payable to the lender by—

(1) The amount of origination fees 

the lender was authorized to collect during 

the quarter under §682.202(c), whether or 

not the lender actually collected that 

amount; and

(2) The amount of lender fees 

payable under paragraph (a)(3)(ii) of this 

section; and

(3) The amount of excess interest, as 

calculated in accordance with paragraph (d) 

of this section.

(B) The Secretary increases the 

amount of interest benefits and special 

allowance payable to the lender by the 

amount of origination fees refunded to 

borrowers during the quarter under 

§682.202(c).

(ii)(A) For any FFEL loan made on or 

after October 1, 1993, a lender shall pay the 

Secretary a loan fee equal to 0.50% of the 

principal amount of the loan.

(B) For any FFEL loan made on or 

after October 1, 2007 and prior to July 1, 

2010, a lender shall pay the Secretary a loan 

fee equal to 1.0 percent of the principal 

amount of the loan.

(iii) The Secretary collects from an 

originating lender the amount of origination 

fees the originating lender was authorized 

to collect from borrowers during the 

quarter whether or not the originating 

lender actually collected those fees. The 

Secretary also collects the fees the 

originating lender is required to pay under 

paragraph (a)(3)(ii) of this section. 

Generally, the Secretary collects the fees 

from the originating lender by offsetting the 

amount of interest benefits and special 

allowance payable to the originating lender 

in a quarter, and, if necessary, the amount 

of interest benefits and special allowance 

payable in subsequent quarters may be 

offset until the total amount of fees has 

been recovered.

(iv) If the full amount of the fees 

cannot be collected within two quarters by 

reducing interest and special allowance 

payable to the originating lender, the 

Secretary may collect the unpaid amount 

directly from the originating lender.

(v) If the full amount of the fees 

cannot be collected within two quarters 

from the originating lender in accordance 
Subpart C – Federal Payments of Interest and Special Allowance

§682.305

Procedures for payment of interest benefits and special allowance and collection of origination and loan fees

145

with paragraphs (a)(3)(iii) and (iv) of this 

section and if the originating lender has 

transferred the loan to a subsequent 

holder, the Secretary may, following written 

notice, collect the unpaid amount from the 

holder by using the same steps described in 

paragraphs (a)(3)(iii) and (iv) of this section, 

with the term “holder” substituting for the 

term “originating lender”.

(4) If an originating lender sells or 

otherwise transfers a loan to a new holder, 

the originating lender remains liable to the 

Secretary for payment of the origination 

fees. The Secretary will not pay interest 

benefits or special allowance to the new 

holder or pay reinsurance to the guaranty 

agency until the origination fees are paid to 

the Secretary.

(b) Penalty interest. (1)(i) If the 

Secretary does not pay interest benefits or 

the special allowance within 30 days after 

the Secretary receives an accurate, timely, 

and complete request for payment from a 

lender, the Secretary pays the lender 

penalty interest.

(ii) The payment of interest benefits 

or special allowance is deemed to occur, for 

purposes of this paragraph, when the 

Secretary—

(A) Authorizes the Treasury 

Department to pay the lender;

(B) Credits the payment due the 

lender against a debt that the Secretary 

determines is owed the Secretary by the 

lender; or

(C) Authorizes the Treasury 

Department to pay the amount due by the 

lender to another Federal agency for credit 

against a debt that the Federal agency has 

determined the lender owes.

(2) Penalty interest is an amount 

that accrues daily on interest benefits and 

special allowance due to the lender. The 

penalty interest is computed by—

(i) Multiplying the daily interest rate 

applicable to loans on which payment for 

interest benefits was requested, by the 

amount of interest benefits due on those 

loans for each interest rate;

(ii) Multiplying the daily special 

allowance rate applicable to loans on which 

special allowance was requested by the 

amount of special allowance due on those 

loans for each interest rate and special 

allowance category;

(iii) Adding the results of paragraphs 

(b)(2)(i) and (ii) of this section to determine 

the gross penalty interest to be paid for 

each day that penalty interest is due;

(iv) Dividing the results of paragraph 

(b)(2)(iii) of this section by the gross 

amount of interest benefits and special 

allowance due to obtain the average 

penalty interest rate;

(v) Multiplying the rate obtained in 

paragraph (b)(2)(iv) of this section by the 

total amount of reduction to gross interest 

benefits and special allowance due (e.g., 

origination fees or other debts owed to the 

Federal Government);

(vi) Subtracting the amount 

calculated in paragraph (b)(2)(v) of this 

section from the amount calculated under 

paragraph (b)(2)(iii) of this section to obtain 
Subpart C – Federal Payments of Interest and Special Allowance

§682.305

Procedures for payment of interest benefits and special allowance and collection of origination and loan fees

146

the net amount of penalty interest due per 

day; and

(vii) Multiplying the amount 

calculated in paragraph (b)(2)(vi) of this 

section by the number of days calculated 

under paragraph (b)(3) of this section.

(3) The Secretary pays penalty 

interest for the period—

(i) Beginning on the later of—

(A) The 31st day after the final day 

of the quarter covered by the request for 

payment; or

(B) The 31st day after the Secretary's 

receipt of an accurate, timely, and complete 

request for payment from the lender; and

(ii) Ending on the day the Secretary 

pays the interest benefits and the special 

allowance at issue, in accordance with 

paragraph (b)(1)(ii) of this section.

(4) A request for interest benefits 

and special allowance is considered timely 

only if it is received by the Secretary within 

90 days following the end of the quarter to 

which the request pertains.

(5) A request for interest benefits 

and special allowance is not considered 

accurate and complete if it—

(i) Requests payments to which the 

lender is not entitled under §§682.300 

through 682.302;

(ii) Includes loans that the Secretary, 

in writing, has directed that the lender 

exclude from the request;

(iii) Does not contain all information 

required by the Secretary or contains 

conflicting information; or

(iv) Is not provided and certified on 

the form and in the manner prescribed by 

the Secretary.

(c) Independent audits. (1)(i) A 

lender originating or holding more than $5 

million in FFEL loans during its fiscal year 

must submit an independent annual 

compliance audit for that year, conducted 

by a qualified independent organization or 

person.

(ii) Notwithstanding the dollar 

volume of loans originated or held, a school 

lender under §682.601 or a lender serving 

as trustee on behalf of a school or a schoolaffiliated organization for the purpose of 

originating loans must submit an 

independent annual compliance audit for 

that year, conducted by a qualified 

independent organization or person.

(iii)(ii) The Secretary may, following 

written notice, suspend the payment of 

interest benefits and special allowance to a 

lender that does not submit its audit within 

the time period prescribed in paragraph 

(c)(2) of this section.

(2) The audit required under 

paragraph (c)(1) of this section must—

(i) Examine the lender's compliance 

with the Act and applicable regulations;

(ii) Examine the lender's financial 

management of its FFEL program activities;

(iii) Be conducted in accordance with 

the standards for audits issued by the 
Subpart C – Federal Payments of Interest and Special Allowance

§682.305

Procedures for payment of interest benefits and special allowance and collection of origination and loan fees

147

United States General Accounting Office's 

(GAO's) Government Auditing Standards. 

Procedures for audits are contained in an 

audit guide developed by and available 

from the Office of the Inspector General of 

the Department;

(iv) Be conducted at least annually 

and be submitted to the Secretary within six 

months of the end of the audit period. The 

initial audit must be of the lender's first 

fiscal year that begins after July 23, 1992, 

and must be submitted within six months of 

the end of the audit period. Each 

subsequent audit must cover the lender's 

activities for the period beginning no later 

than the end of the period covered by the 

preceding audit; and

(v) With regard to a lender that is a 

governmental entity or a nonprofit 

organization, the audit required by this 

paragraph must be conducted in 

accordance with 31 U.S.C. 7502 and 34 CFR 

§§74.26 and 80.26, as applicable;.

(vi) With regard to a school that 

makes or originates loans, the audit 

requirements are in 34 CFR §682.601(a)(7); 

and

(vii) With regard to a lender serving 

as a trustee for the purpose of originating 

loans for a school or school-affiliated 

organization, the audit must include a 

determination that—

(A) Except as provided in paragraph 

(c)(2)(vii)(B) of this section, the school used 

all proceeds from special allowance 

payments, interest subsidies received from 

the Department, and any proceeds from the 

sale or other disposition of the loans 

originated through the lender for needbased grant programs and that those funds 

supplemented, but did not supplant, other 

Federal or non-Federal funds otherwise 

available to be used to make need-based 

grants to its students; and

(B) The lender used no more than a 

reasonable portion of payments and 

proceeds from the loans for direct 

administrative expenses in accordance with 

§682.601(b), with all references to eligible 

school lender understood to mean a lender 

in its capacity as trustee on behalf of a 

school or school-affiliated organization for 

the purpose of originating loans.

(3) The Secretary may determine 

that a lender has met the requirements of 

paragraph (c) of this section if the lender 

has been audited in accordance with 31 

U.S.C. 7502 for other purposes, the lender 

submits the results of the audit to the 

Office of Inspector General, and the 

Secretary determines that the audit meets 

the requirements of this paragraph.

(d) Recovery of excess interest paid 

by the Secretary. (1) For any loan for which 

the first disbursement of principal is made 

on or after April 1, 2006, the Secretary 

collects the amount of excess interest paid 

to a lender on a quarterly basis when the 

applicable interest rate on a loan for each 

quarter exceeds the special allowance 

support level in paragraph (d)(2) of this 

section for the loan. Excess interest is 

calculated and recovered each quarter by 

subtracting the special allowance support 

level from the applicable interest rate, 

multiplying the result by the average daily 

principal balance of the loan (not including 
Subpart C – Federal Payments of Interest and Special Allowance

§682.305

Procedures for payment of interest benefits and special allowance and collection of origination and loan fees

148

unearned interest added to principal) 

during the quarter, and dividing by four.

(2) The term special allowance 

support level means a number expressed as 

a percentage equal to the sum of—

(i) The average of the bond 

equivalent rates of the quotes of the 3-

month commercial paper (financial) rates in 

effect for each of the days in such quarter 

as reported by the Federal Reserve in 

Publication H–15 (or its successor) for such 

3-month period; plus

(ii) 2.34 percent for a Federal 

Stafford loan in repayment;

(iii) 1.74 percent for a Federal 

Stafford loan during the in-school, grace, 

and deferment periods; or

(iv) 2.64 percent for a Federal PLUS 

or Consolidation Loan.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1077, 1078, 1078–1, 

1078–2, 1078–3, 1082, 1087–1)

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9119, Feb. 19, 1993; 59 FR 61428, 

Nov. 30, 1994; 60 FR 31411, June 15, 1995; 

64 FR 18978, Apr. 16, 1999; 64 FR 58627, 

Oct. 29, 1999; 71 FR 45705, Aug. 9, 2006; 71 

FR 64398, Nov. 1, 2006; 72 FR 62003, Nov. 

1, 2007; 74 FR 55996, Oct. 29, 2009]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.400

Agreements between a guaranty agency and the Secretary

149

Subpart D—Administration of the Federal 

Family Education Loan Programs by a 

Guaranty Agency

§ 682.400 Agreements between a 

guaranty agency and the Secretary.

(a) The Secretary enters into 

agreements with a guaranty agency whose 

loan guarantee program meets the 

requirements of this subpart. The 

agreements enable the guaranty agency to 

participate in the FFEL programs and to 

receive the various payments and benefits

related to that participation.

(b) There are four agreements:

(1) Basic program agreement. In 

order to participate in the FFEL programs, a 

guaranty agency must have a basic program 

agreement. Under this agreement—

(i) Borrowers whose Stafford and or

Consolidation loans that consolidate only 

subsidized Stafford loans are guaranteed by 

the agency may qualify for interest benefits 

that are paid to the lender on the 

borrower's behalf under 34 CFR 682.301; 

and

(ii) Lenders under the guaranty 

agency program may receive special 

allowance payments from the Secretary and 

have death, disability, bankruptcy, closed 

school and false certification discharge 

claims paid by the Secretary through the 

guaranty agency.

(2) Federal advances for claim 

payments agreement. A guaranty agency 

must have an agreement for Federal 

advances for claim payments to receive and 

use Federal advances to pay default claims.

(3) Reinsurance agreement. A 

guaranty agency must have a reinsurance 

agreement to receive reimbursement from 

the Secretary for its losses on default 

claims.

(4) Loan Rehabilitation Agreement. 

A guaranty agency must have an agreement 

for rehabilitating a loan for which the 

Secretary has made a reinsurance payment 

under section 428(c)(1) of the Act.

(c) The Secretary's execution of an 

agreement does not indicate acceptance of 

any current or past standards or procedures 

used by the agency.

(d) All of the agreements are subject 

to subsequent changes in the Act, in other 

applicable Federal statutes, and in 

regulations that apply to the FFEL programs.

(Authority: 20 U.S.C. 1072, 1078–1, 1078–2, 

1078–3, 1082, 1087, 1087–1)

[57 FR 60323, Dec. 18, 1992, as amended at 

59 FR 33353, June 28, 1994; 64 FR 18978, 

Apr. 16, 1999; 64 FR 58627, Oct. 29, 1999]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.401

Basic program agreement

150

§ 682.401 Basic program agreement.

(a) General. In order to participate in 

the FFEL programs, a guaranty agency shall 

enter into a basic agreement with the 

Secretary.

(b) Terms of agreement. In the basic 

agreement, the guaranty agency shall agree 

to ensure that its loan guarantee program 

meets the following requirements at all 

times:

(1) Aggregate loan limits. The 

aggregate guaranteed unpaid principal 

amount for all Stafford and SLS, loans made 

to a borrower may not exceed the amounts 

set forth in §682.204 (b), (e), and (g).

(2) Annual loan limits. (i) The annual 

loan maximum amount for a borrower that 

may be guaranteed for an academic year 

may not exceed the amounts set forth in 

§682.204 (a), (c), (d), (f), and (h).

(ii) A guaranty agency may make the 

loan amounts authorized under paragraph 

(b)(2)(i) of this section applicable for 

either—

(A) A period of not less than that 

attributable to the academic year, as 

defined in 34 CFR 668.3; or

(B) A period attributable to the 

academic year that is not less than the 

period specified in paragraph (b)(2)(ii)(A) of 

this section, in which the student earns the 

amount of credit in the student's program 

of study required by the student's school as 

the amount necessary for the student to 

advance in academic standing as normally 

measured on an academic year basis (for 

example, from freshman to sophomore or, 

in the case of schools using clock hours, 

completion of at least 900 clock hours).

(iii) The amount of a loan 

guaranteed may not exceed the amount set 

forth in §682.204(k).

(3) Duration of borrower eligibility. 

(i) A student borrower under the Stafford 

Loan Program or the PLUS Loan Program 

and a parent borrower under the PLUS 

Program are eligible to receive a 

guaranteed loan for any year of the 

student's study at a participating school.

(ii) Loans must be available to or on 

behalf of any student for at least six 

academic years of study.

(4)(1) Reinstatement of borrower 

eligibility. Except as provided in §668.35(b) 

for a borrower with a defaulted loan on 

which a judgment has been obtained and 

§668.35(i) for a borrower who fraudulently 

obtained title IV, HEA program assistance, 

reinstatement of Title IV eligibility for a 

borrower with a defaulted loan must be in 

accordance with this paragraph (b)(4)(1). 

For a borrower's loans held by a guaranty 

agency on which a reinsurance claim has 

been paid by the Secretary, the guaranty 

agency must afford a defaulted borrower, 

upon the borrower's request, renewed 

eligibility for Title IV assistance once the 

borrower has made satisfactory repayment 

arrangements as that term is defined in 

§682.200.

(i) For purposes of this section, the 

determination of reasonable and affordable 

must—
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.401

Basic program agreement

151

(A) Include consideration of the 

borrower's and spouse's disposable income 

and necessary expenses including, but not 

limited to, housing, utilities, food, medical 

costs, dependent care costs, work-related 

expenses and other Title IV repayment;

(B) Not be a required minimum 

payment amount, e.g. $50, if the agency 

determines that a smaller amount is 

reasonable and affordable based on the 

borrower's total financial circumstances. 

The agency must include documentation in 

the borrower's file of the basis for the 

determination, if the monthly reasonable 

and affordable payment established under 

this section is less than $50.00 or the 

monthly accrued interest on the loan, 

whichever is greater.

(C) Be based on the documentation 

provided by the borrower or other sources 

including, but not limited to—

(1) Evidence of current income (e.g. 

proof of welfare benefits, Social Security 

benefits, Supplemental Security Income, 

Workers' Compensation, child support, 

veterans' benefits, two most recent pay 

stubs, most recent copy of U.S. income tax 

return, State Department of Labor reports);

(2) Evidence of current expenses 

(e.g. a copy of the borrower's monthly 

household budget, on a form provided by 

the guaranty agency); and

(3) A statement of the unpaid 

balance on all FFEL loans held by other 

holders.

(ii) A borrower may request that the 

monthly payment amount be adjusted due 

to a change in the borrower's total financial 

circumstances upon providing the 

documentation specified in paragraph 

(b)(4)(i)(C) of this section.

(iii) A guaranty agency must provide 

the borrower with a written statement of 

the reasonable and affordable payment 

amount required for the reinstatement of 

the borrower's eligibility for Title IV student 

assistance, and provide the borrower with 

an opportunity to object to those terms.

(iv) A guaranty agency must provide 

the borrower with written information 

regarding the possibility of loan 

rehabilitation if the borrower makes three 

additional reasonable and affordable 

monthly payments after making payments 

to regain eligibility for Title IV assistance 

and the consequences of loan 

rehabilitation.

(v) A guaranty agency must inform 

the borrower that he or she may only 

obtain reinstatement of borrower eligibility 

under this section once.

(5) Borrower responsibilities. (i) The 

borrower must indicate his or her preferred 

lender on the promissory note or other 

written or electronic documentation 

submitted during the loan origination 

process if he or she has such a preference.

(ii) The borrower must give the 

lender, as part of the promissory note or 

application process for a parent PLUS 

loan—

(A) A statement, as described in 34 

CFR part 668, that the loan will be used for 

the cost of the student's attendance;
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.401

Basic program agreement

152

(B) A statement from the student 

authorizing the school to release 

information relevant to the student's 

eligibility to have a parent borrow on the 

student's behalf (e.g., the student's 

enrollment status, financial assistance, and 

employment records); and

(C) Information from the school 

providing the maximum amount that may 

be borrowed on behalf of the student.

(iii) The borrower shall give the 

lender, as part of the application process for 

a Consolidation loan—

(A) Information demonstrating that 

the borrower is eligible for the loan under 

§682.201(c); and

(B) A statement that the borrower 

does not currently have another application 

for a Consolidation loan pending.

(iv) The borrower shall promptly 

notify—

(A) The current holder or the 

guaranty agency of any change of name, 

address, student status to less than halftime, employer, or employer's address; and

(B) The school of any change in local 

address during enrollment.

(6) School eligibility —(i) General. A 

school that has a program participation 

agreement in effect with the Secretary

under §682.14(a) is eligible to participate in 

the program of the agency under 

reasonable criteria established by the 

guaranty agency, and approved by the 

Secretary, under paragraph (d)(2) of this 

section, except to the extent that—

(A) The school's eligibility is limited, 

suspended, or terminated by the Secretary 

under 34 CFR part 668 or by the guaranty 

agency under standards and procedures 

that are substantially the same as those in 

34 CFR part 668;

(B) The Secretary upholds the 

limitation, suspension, or termination of a 

school by a guaranty agency and extends 

that sanction to all guaranty agency 

programs under section 432(h)(3) of the Act 

or §682.713;

(C) The school is ineligible under 

section 435(a)(2) of the Act;

(D) There is a State constitutional 

prohibition affecting the school's eligibility;

(E) The school's programs consist of 

study solely by correspondence;

(F) The agency determines, subject 

to the agreement of the Secretary, that the 

school does not satisfy the standards of 

administrative capability and financial 

responsibility as defined in 34 CFR part 668;

(G) The school fails to make timely 

refunds to students as required in 

§682.607(c);

(H) The school has not satisfied, 

within 30 days of issuance, a final judgment 

obtained by a student seeking a refund;

(I) The school or an owner, director, 

or officer of the school is found guilty or 

liable in any criminal, civil, or administrative 

proceeding regarding the obtaining, 

maintenance, or disbursement of State or 

Federal student grant, loan, or work 

assistance funds; or
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.401

Basic program agreement

153

(J) The school or an owner, director, 

or officer of the school has unpaid financial 

liabilities involving the improper acquisition, 

expenditure, or refund of State or Federal 

student financial assistance funds.

(ii) Limitation by a guaranty agency 

of a school's participation. For purposes of 

this paragraph, a school that is subject to 

limitation of participation in the guaranty 

agency's program may be either a school 

that is applying to participate in the 

agency's program for the first time, or a 

school that is renewing its application to 

continue participation in the agency's 

program. A guaranty agency may limit the 

total number of loans or the volume of 

loans made to students attending a 

particular school, or otherwise establish 

appropriate limitations on the school's 

participation, if the agency makes a 

determination that the school does not 

satisfy—

(A) The standards of financial 

responsibility defined in 34 CFR 668.5; or

(B) The standards of administrative 

capability defined in 34 CFR 668.16.

(iii) Limitation, suspension, or 

termination of school eligibility. A guaranty 

agency may limit, suspend, or terminate the 

participation of an eligible school. If a 

guaranty agency limits, suspends, or 

terminates the participation of a school 

from the agency's program, the Secretary 

applies that limitation, suspension, or 

termination to all locations of the school.

(iv) Condition for guaranteeing loans 

for students attending a school. The 

guaranty agency may require the school to 

execute a participation agreement with the 

agency and to submit documentation that 

establishes the school's eligibility to 

participate in the agency's program.

(7)(2) Lender eligibility. (i) An eligible 

lender may participate in the program of 

the agency under reasonable criteria 

established by the guaranty agency except 

to the extent that—

(A) The lender's eligibility has been 

limited, suspended, or terminated by the 

Secretary under subpart G of this part or by 

the agency under standards and procedures 

that are substantially the same as those in 

subpart G of this part; or

(B) The lender is disqualified by the 

Secretary under sections 432(h)(1), 

432(h)(2), 435(d)(3), or 435(d)(5) of the Act 

or §682.712; or

(C) There is a State constitutional 

prohibition affecting the lender's eligibility.

(ii) The agency may not guarantee a 

loan made by a school lender that is not 

located in the geographical area that the 

agency serves.

(iii) The guaranty agency may refuse 

to guarantee loans made by a school on 

behalf of students not attending that 

school.

(iv) The guaranty agency may, in 

determining whether to enter into a 

guarantee agreement with a lender, 

consider whether the lender has had prior 

experience in a similar Federal, State, or 

private nonprofit student loan program and 

the amount and percentage of loans that 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.401

Basic program agreement

154

are currently delinquent or in default under 

that program.

(8) Out-of-State schools. The agency 

shall guarantee Stafford, SLS, and PLUS 

loans for students who are legal residents 

of any State served by the agency under 

§682.404(h)(2) but who attend schools out 

of that State and for parents who are legal 

residents of that State and are borrowing 

on behalf of students attending schools out 

of that State. In guaranteeing these loans, 

the agency may not impose any restrictions 

that it does not apply to borrowers who are 

legal residents of the State attending inState schools or to parent borrowers who 

are legal residents of the State and are 

borrowing for students attending in-State 

schools.

(9) Out-of-State residents. The 

agency shall guarantee Stafford, SLS, and 

PLUS loans for students who are not legal 

residents of any State served by the agency 

under §682.404(h)(2) but who attend 

schools in that State, and for parents who 

are not legal residents of that State and 

who are borrowing on behalf of students 

attending schools in that State. In 

guaranteeing these loans, the agency may 

not impose any restrictions that it does not 

apply to borrowers who are legal residents 

of the State attending in-State schools, or to 

parent borrowers who are legal residents of 

the State and who are borrowing for 

students attending in-State schools.

(10)(3) Insurance premiums and 

Federal default fees. (i) Except for a 

Consolidation Loan or refinanced SLS or 

PLUS loans SLS or PLUS loans refinanced 

under §682.209 (e) or (f), a guaranty 

agency:

(A) May charge the lender an 

insurance premium for Stafford, SLS, or 

PLUS loans it guarantees prior to July 1, 

2006; and

(B) Must collect, either from the 

lender or by payment from any other nonFederal source, a Federal default fee for any 

Stafford or PLUS loans it guarantees on or 

after July 1, 2006, to be deposited into the 

Federal Fund under §682.419.

(ii) The guaranty agency may not use 

the Federal default fee for incentive 

payments to lenders, and may only use the 

insurance premium or the Federal default 

fee for costs incurred in guaranteeing loans 

or in the administration of the agency's loan 

guarantee program, as specified in 

§682.410(a)(2) or §682.419(c).

(iii) If a lender charges the borrower 

an insurance premium or Federal default 

fee, the lender must deduct the charge 

proportionately from each disbursement of 

the borrower's loan proceeds.

(iv) The amount of the insurance 

premium or Federal default fee, as 

applicable—

(A) May not exceed 3 percent of the 

principal balance for a loan disbursed on or 

before June 30, 1994;

(B) May not exceed 1 percent of the 

principal balance for a loan disbursed on or 

after July 1, 1994;
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.401

Basic program agreement

155

(C) Shall be 1 percent of the 

principal balance of a loan guaranteed on or 

after July 1, 2006 and prior to July 1, 2010.

(v) If the circumstances specified in 

paragraph (vi) exist, the guaranty agency 

shall refund to the lender any insurance 

premium or Federal default fee paid by the 

lender.

(vi) The lender shall refund to the 

borrower by a credit against the borrower's 

loan balance the insurance premium or 

Federal default fee paid by the borrower on 

a loan under the following circumstances:

(A) The insurance premium or 

Federal default fee attributable to each 

disbursement of a loan must be refunded if 

the loan check is returned uncashed to the 

lender.

(B) The insurance premium or 

Federal default fee, or an appropriate 

prorated amount of the premium or fee, 

must be refunded by application to the 

borrower's loan balance if—

(1) The loan or a portion of the loan 

is returned by the school to the lender in 

order to comply with the Act or with 

applicable regulations;

(2) Within 120 days of 

disbursement, the loan or a portion of the 

loan is repaid or returned, unless—

(i) The borrower has no FFEL 

Program loans in repayment status and has 

requested, in writing, that the repaid or 

returned funds be used for a different 

purpose; or

(ii) The borrower has a FFEL Program 

loan in repayment status, in which case the 

payment is applied in accordance with 

§682.209(b) unless the borrower has 

requested, in writing, that the repaid or 

returned funds be applied as a cancellation 

of all or part of the loan;

(3) Within 120 days of 

disbursement, the loan check has not been 

negotiated; or

(4) Within 120 days of 

disbursement, the loan proceeds disbursed 

by electronic funds transfer or master check 

in accordance with §682.207(b)(1)(ii) (B) 

and (C) have not been released from the 

restricted account maintained by the 

school.

(11)(4) Inquiries. The agency must 

be able to receive and respond to written, 

electronic, and telephone inquiries.

(12) Administrative fee for 

Consolidation loans. The guaranty agency 

may charge a lender a fee, not to exceed 

$50, reasonably calculated to cover the 

agency's cost of increased or extended 

liability incurred in guaranteeing a 

Consolidation loan. The lender may not pass 

the fee on to the borrower. If it charges the 

fee, the agency must charge it for all loans 

made under the agency's Consolidation 

Loan program.

(13) Administrative fee for 

refinancing fixed-rate PLUS or SLS loans. The 

guaranty agency may require a lender to 

pay to the guaranty agency up to 50 

percent of the fee the lender charges a 

borrower under §682.202(e) for the 

purpose of defraying the agency's 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.401

Basic program agreement

156

administrative costs incident to the 

guarantee of a lender's reissuance of a 

fixed-rate PLUS or SLS loan at a variable 

interest rate. If it charges the fee, the 

agency must charge the same fee to all 

lenders that refinance under this paragraph.

(14)(5) Guaranty liability. The 

guaranty agency shall guarantee—

(i) 100 percent of the unpaid 

principal balance of each loan guaranteed 

for loans disbursed before October 1, 1993;

(ii) Not more than 98 percent of the 

unpaid principal balance of each loan 

guaranteed for loans first disbursed on or 

after October 1, 1993 and before July 1, 

2006; and

(iii) Not more than 97 percent of the 

unpaid principal balance of each loan 

guaranteed for loans first disbursed on or 

after July 1, 2006.

(15)(6) Guaranty agency verification 

of default data. A guaranty agency must 

meet the requirements and deadlines 

provided for it in subpart M and N of 34 CFR 

part 668 for the cohort default rate process.

(16)(7) Guaranty agency 

administration. In the case of a State loan 

guarantee program administered by a State 

government, the program must be 

administered by a single State agency, or by 

one or more private nonprofit institutions 

or organizations under the supervision of a 

single State agency. For this purpose, 

“supervision” includes, but is not limited to, 

setting policies and procedures, and having 

full responsibility for the operation of the 

program.

(17)(8) Loan assignment. (i) Except 

as provided in paragraph (b)(17)(8)(iii) of 

this section, the guaranty agency must 

allow a loan to be assigned only if the loan 

is fully disbursed and is assigned to—

(A) An eligible lender;

(B) A guaranty agency, in the case of 

a borrower's default, death, total and 

permanent disability, or filing of a 

bankruptcy petition, or for other 

circumstances approved by the Secretary, 

such as a loan made for attendance at a 

school that closed or a false certification 

claim;

(C) An educational institution, 

whether or not it is an eligible lender, in 

connection with the institution's repayment 

to the agency or to the Secretary of a 

guarantee or a reinsurance claim payment 

made on a loan that was ineligible for the 

payment;

(D) A Federal or State agency or an 

organization or corporation acting on behalf 

of such an agency and acting as a 

conservator, liquidator, or receiver of an 

eligible lender; or

(E) The Secretary.

(ii) For the purpose of this 

paragraph, “assigned” means any kind of 

transfer of an interest in the loan, including 

a pledge of such an interest as security.

(iii) The guaranty agency must allow 

a loan to be assigned under paragraph 

(b)(17)(8)(i) of this section, following the 

first disbursement of the loan if the 

assignment does not result in a change in 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.401

Basic program agreement

157

the identity of the party to whom payments 

must be made.

(18)(9) Transfer of guarantees. 

Except in the case of a transfer of guarantee 

requested by a borrower seeking a transfer 

to secure a single guarantor, the guaranty 

agency may transfer its guarantee 

obligation on a loan to another guaranty 

agency, only with the approval of the 

Secretary, the transferee agency, and the 

holder of the loan.

(19)(10) Standards and procedures. 

(i) The guaranty agency shall establish, 

disseminate to concerned parties, and 

enforce standards and procedures for—

(A) Ensuring that all lenders in its 

program meet the definition of “eligible 

lender” in section 435(d) of the Act and 

have a written lender agreement with the 

agency;

(B) School and lLender participation 

in its program;

(C) Limitation, suspension, 

termination of school and lender 

participation;

(D) Emergency action against a 

participating school or lender;

(E) The exercise of due diligence by 

lenders in making, servicing, and collecting 

loans; and

(F) The timely filing by lenders of 

default, death, disability, bankruptcy, closed 

school, false certification unpaid refunds, 

identity theft, and ineligible loan claims.

(ii) The guaranty agency shall ensure 

that its program and all participants in its 

program at all times meet the requirements 

of subparts B, C, D, and F of this part.

(20)(11) Monitoring student 

enrollment. The guaranty agency shall 

monitor the enrollment status of a FFEL 

program borrower or student on whose 

behalf a parent has borrowed that includes, 

at a minimum, reporting to the current 

holder of the loan within 35 days of any 

change in the student's enrollment status 

reported that triggers—

(i) The beginning of the borrower's 

grace period; or

(ii) The beginning or resumption of 

the borrower's immediate obligation to 

make scheduled payments.

(21)(12) Submission of interest and 

special allowance information. Upon the 

Secretary's request, the guaranty agency 

shall submit, or require its lenders to 

submit, information that the Secretary 

deems necessary for determining the 

amount of interest benefits and special 

allowance payable on the agency's 

guaranteed loans.

(22)(13) Submission of information 

for reports. The guaranty agency shall 

require lenders to submit to the agency the 

information necessary for the agency to 

complete the reports required by 

§682.414(b).

(23)(14) Guaranty agency transfer of 

information. (i) A guaranty agency from 

which another guaranty agency requests 

information regarding Stafford and SLS 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.401

Basic program agreement

158

loans made after January 1, 1987, to 

students who are residents of the State for 

which the requesting agency is the principal 

guaranty agency shall provide—

(A) The name and social security 

number of the student; and

(B) The annual loan amount and the 

cumulative amount borrowed by the 

student in loans under the Stafford and SLS 

programs guaranteed by the responding 

agency.

(ii) The reasonable costs incurred by 

an agency in fulfilling a request for 

information made under paragraph 

(b)(23)(14)(i) of this section must be paid by 

the guaranty agency making the request.

(24)(15) Information on defaults. 

The guaranty agency shall, upon the 

request of a school, furnish information 

with respect to students, including the 

names and addresses of such students, who 

were enrolled at that school and who are in 

default on the repayment of any loan 

guaranteed by that agency.

(25)(16) Information on loan sales or 

transfers. The guaranty agency must, upon 

the request of a school, furnish to the 

school last attended by the student, 

information with respect to the sale or 

transfer of a borrower's loan prior to the 

beginning of the repayment period, 

including—

(i) Notice of assignment;

(ii) The identity of the assignee;

(iii) The name and address of the 

party by which contact may be made with 

the holder concerning repayment of the 

loan; and

(iv) The telephone number of the 

assignee or, if the assignee uses a lender 

servicer, another appropriate number for 

borrower inquiries.

(26)(17) Third-party servicers. The 

guaranty agency may not enter into a 

contract with a third-party servicer that the 

Secretary has determined does not meet 

the financial and compliance standards 

under §682.416. The guaranty agency shall 

provide the Secretary with the name and 

address of any third-party servicer with 

which the agency enters into a contract 

and, upon request by the Secretary, a copy 

of that contract.

(27)(18) Consolidation of defaulted 

FFEL loans.

(i) A guaranty agency may charge 

collection costs in an amount not to exceed 

18.5 percent of the outstanding principal 

and interest on a defaulted FFEL Program 

loan that is paid off by a Federal Direct 

Consolidation loan.

(ii) Prior to October 1, 2006, when 

returning the proceeds from the 

consolidation of a defaulted loan to the 

Secretary, a guaranty agency may only 

retain the amount charged to the borrower 

pursuant to this paragraph.

(iii)(ii) On or after October 1, 2006, 

when returning proceeds to the Secretary 

from the consolidation of a defaulted loan, 

a guaranty agency that charged the 

borrower collection costs must remit an 

amount that equals the lesser of the actual 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.401

Basic program agreement

159

collection costs charged or 8.5 percent of 

the outstanding principal and interest of the 

loan.

(iv)(iii) On or after October 1, 2009, 

when returning proceeds to the Secretary 

from the consolidation of a defaulted loan 

that is paid off with excess consolidation 

proceeds as defined in paragraph (b)(27)(v) 

(18)(iv) of this section, a guaranty agency 

must remit the entire amount of collection 

costs repaid through the consolidation loan.

pursuant to paragraph (b)(27)(ii) of this 

section.

(viii)(iv) The term excess 

consolidation proceeds means, for any 

Federal fiscal year beginning on or after 

October 1, 2009, the amount of 

Consolidation Loan proceeds received for 

defaulted loans under the FFEL Program 

that exceed 45 percent of the agency's total 

collections on defaulted loans in that 

Federal fiscal year.

(28)(19) Change in agency's records 

system. The agency shall provide written 

notification to the Secretary at least 30 days 

prior to placing its new guarantees or 

converting the records relating to its 

existing guaranty portfolio to an 

information or computer system that is 

owned by, or otherwise under the control 

of, an entity that is different than the party 

that owns or controls the agency's existing 

information or computer system. If the 

agency is soliciting bids from third parties 

with respect to a proposed conversion, the 

agency shall provide written notice to the 

Secretary as soon as the solicitation begins. 

The notification described in this paragraph 

must include a concise description of the 

agency's conversion project and the actual 

or estimated cost of the project.

(29)(20) Plans to Reduce 

Consolidation of defaulted loans. A guaranty 

agency shall establish and submit to the 

Secretary for approval, procedures to 

ensure that consolidation loans are not an 

excessive proportion of the guaranty 

agency's recoveries on defaulted loans.

(c) Lender-of-last-resort. (1) The 

guaranty agency must ensure that it, or an 

eligible lender described in section 

435(d)(1)(D) of the Act, serves as a lenderof-last-resort in the State in which the 

guaranty agency is the designated guaranty 

agency. The guaranty agency or an eligible 

lender described in section 435(d)(1)(D) of 

the Act may arrange for a loan required to 

be made under paragraph (c)(2) of this 

section to be made by another eligible 

lender. As used in this paragraph, the term 

“designated guaranty agency” means the 

guaranty agency in the State for which the 

Secretary has signed a Basic Program 

Agreement under this section.

(2) The lender-of-last-resort must 

make subsidized Federal Stafford loans and 

unsubsidized Federal Stafford loans to any 

eligible student who—

(i) Qualifies for interest benefits 

pursuant to §682.301;

(ii) Qualifies for a combined loan 

amount of at least $200; and

(iii) Has been otherwise unable to 

obtain loans from another eligible lender 

for the same period of enrollment.
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.401

Basic program agreement

160

(3) The lender-of-last resort may 

make unsubsidized Federal Stafford and 

Federal PLUS loans to borrowers who have 

been otherwise unable to obtain those 

loans from another eligible lender.

(4) The guaranty agency must 

develop policies and operating procedures 

for its lender-of-last-resort program that 

provide for the accessibility of lender-oflast-resort loans. These policies and 

procedures must be submitted to the 

Secretary for approval as required under 

paragraph (d)(2) of this section. The policies 

and procedures for the agency's lender-oflast-resort program must ensure that—

(i) The guaranty agency will serve 

eligible students attending any eligible 

school;

(ii) The program establishes 

operating hours and methods of application 

designed to facilitate application by 

students; and

(iii) Information about the 

availability of loans under the program is 

made available to schools in the State;

(iv) Appropriate steps are taken to 

ensure that borrowers receiving loans 

under the program are appropriately 

counseled on their loan obligation;

(v) The guaranty agency will respond 

to a student within 60 days after the 

student submits an original complete 

application; and

(vi) Borrowers are not required to 

obtain more than two objections from 

eligible lenders prior to requesting 

assistance under the lender-of-last-resort 

program.

(5)(i) Upon request of the guaranty 

agency, the Secretary may advance Federal 

funds to the agency, on terms and 

conditions agreed to by the Secretary and 

the agency, to ensure the availability of loan 

capital for subsidized and unsubsidized 

Federal Stafford and Federal PLUS loans to 

borrowers who are otherwise unable to 

obtain those loans if the Secretary 

determines that—

(A) Eligible borrowers in a State who 

qualify for subsidized Federal Stafford loans 

are seeking and are unable to obtain 

subsidized Federal Stafford loans;

(B) The guaranty agency designated 

for that State has the capability for 

providing lender-of-last-resort loans in a 

timely manner, either directly or indirectly 

using a third party, in accordance with the 

guaranty agency's obligations under the 

Act, but cannot do so without advances 

provided by the Secretary; and

(C) It would be cost-effective to 

advance Federal funds to the agency.

(ii) If the Secretary determines that 

the designated guaranty agency does not 

have the capability to provide lender-oflast-resort loans, in accordance with 

paragraph (c)(5)(i) of this section, the 

Secretary may provide Federal funds to 

another guaranty agency, under terms and 

conditions agreed to by the Secretary and 

the agency, to make lender-of-last-resort 

loans in that State.
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.401

Basic program agreement

161

(d)(c) Review of forms and 

procedures. (1) The guaranty agency shall 

submit to the Secretary its write-off criteria 

and procedures. The agency may not use 

these materials until the Secretary approves 

them.

(2) The guaranty agency shall 

promptly submit to the Secretary its 

regulations, statements of procedures and 

standards, agreements, and other materials 

that substantially affect the operation of 

the agency's program, and any proposed 

changes to those materials. Except as 

provided in paragraph (d)(c)(1) of this 

section, the agency may use these materials 

unless and until the Secretary disapproves 

them.

(3) The guaranty agency must use 

common application forms, promissory 

notes, Master Promissory Notes (MPN), and 

other common forms approved by the 

Secretary. Each loan made under an MPN is 

enforceable in accordance with the terms of 

the MPN and is eligible for claim payment 

based on a true and exact copy of such 

MPN.

(4)(i) The Secretary authorizes the 

use of the multi-year feature of the MPN—

(A) For students and parents for 

attendance at four-year or 

graduate/professional schools; and

(B) For students and parents for 

attendance at other institutions meeting 

criteria or otherwise designated at the sole 

discretion of the Secretary.

(ii) The Secretary may prohibit use of 

the multi-year feature of the MPN at 

specific schools described under paragraph 

(4)(i) of this section under circumstances 

including, but not limited to, the school 

being subject to an emergency action or a 

limitation, suspension, or termination 

action, or not meeting other performance 

criteria determined by the Secretary.

(iii) A student or parent borrower 

who is borrowing funds for attendance at a 

school for which the multi-year feature of 

the MPN has not been authorized must 

complete a new promissory note for each 

academic year.

(iv) Each loan made under an MPN is 

enforceable in accordance with the terms of 

the MPN and is eligible for claim payment 

based on a true and exact copy of the MPN.

(v) A lender's ability to make 

additional loans under an MPN will 

automatically expire upon the earliest of—

(A) The date the lender receives 

written notification from the borrower 

requesting that the MPN no longer be used 

as the basis for additional loans;

(B) Twelve months after the date 

the borrower signed the MPN if no 

disbursements are issued by the lender 

under that MPN; or

(C) Ten years from the date the 

borrower signed the MPN or the date the 

lender receives the MPN. However, if a 

portion of a loan is made on or before 10 

years from the signature date, remaining 

disbursements of that loan may be made.

(vi) The lender and school must 

develop and document a confirmation 

process in accordance with guidelines 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.401

Basic program agreement

162

established by the Secretary for loans made 

under the multi-year feature of the MPN.

(5)(4) The guaranty agency must 

develop and implement appropriate 

procedures that provide for the granting of 

a student deferment as specified in 

§682.210(a)(6)(iv) and (c)(3) and require 

their lenders to use these procedures.

(6)(5) The guaranty agency shall 

ensure that all program materials meet the 

requirements of Federal and State law, 

including, but not limited to, the Act and 

the regulations in this part and part 668.

(e) Prohibited activities. (1) A 

guaranty agency may not, directly or 

through an agent or contractor—

(i) Except as provided in paragraph 

(e)(2) of this section, offer directly or 

indirectly from any fund or assets available 

to the guaranty agency, any premium, 

payment, stock or other securities, tuition 

payment or reimbursement, or other 

inducement to any prospective borrower of 

an FFEL loan, or to a school or schoolaffiliated organization or an employee of a 

school or school-affiliated organization, or 

any individual or entity, to secure 

applications for FFEL loans. This includes, 

but is not limited to—

(A) Payments or offerings of other 

benefits, including prizes or additional 

financial aid funds, to a prospective 

borrower in exchange for processing a loan 

using the agency's loan guarantee;

(B) Payments or other benefits, 

including prizes or additional financial aid 

funds under any Title IV or State or private 

program, to a school or school-affiliated 

organization based on the school's or 

organization's voluntary or coerced 

agreement to use the guaranty agency for 

processing loans, or to provide a specified 

volume of loans using the agency's loan 

guarantee;

(C) Payments or other benefits to a 

school or any school-affiliated organization, 

or to any individual in exchange for FFEL 

loan applications or application referrals, a 

specified volume or dollar amount of FFEL 

loans using the agency's loan guarantee, or 

the placement of a lender that uses the 

agency's loan guarantee on a school's list of 

recommended or suggested lenders;

(D) Payment of travel or 

entertainment expenses, including 

expenses for private hospitality suites, 

tickets to shows or sporting events, meals, 

alcoholic beverages, and any lodging, 

rental, transportation or other gratuities 

related to any activity sponsored by the 

guaranty agency or a lender participating in 

the agency's program, for school employees 

or employees of school-affiliated 

organizations;

(E) Philanthropic activities, including 

providing scholarships, grants, restricted 

gifts, or financial contributions in exchange 

for FFEL loan applications or application 

referrals, a specified volume or dollar 

amount of FFEL loans using the agency's 

loan guarantee, or the placement of a 

lender that uses the agency's loan 

guarantee on a school's list of 

recommended or suggested lenders; and

(F) Performance of, or payment to a 

third party to perform, any school function 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.401

Basic program agreement

163

required under title IV, except that the 

guaranty agency may provide entrance 

counseling as provided in §682.604(f) and 

exit counseling as provided in §682.604(g), 

and may provide services to participating 

foreign schools at the direction of the 

Secretary, as a third-party servicer.

(ii) Assess additional costs or deny 

benefits otherwise provided to schools and 

lenders participating in the agency's 

program on the basis of the lender's or 

school's failure to agree to participate in the 

agency's program, or to provide a specified 

volume of loan applications or loan volume 

to the agency's program or to place a lender 

that uses the agency's loan guarantee on a 

school's list of recommended or suggested 

lenders.

(iii) Offer, directly or indirectly, any 

premium, incentive payment, or other 

inducement to any lender, or any person 

acting as an agent, employee, or 

independent contractor of any lender or 

other guaranty agency to administer or 

market FFEL loans, other than unsubsidized 

Stafford loans or subsidized Stafford loans 

made under a guaranty agency's lender-oflast-resort program, in an effort to secure 

the guaranty agency as an insurer of FFEL 

loans. Examples of prohibited inducements 

include, but are not limited to—

(A) Compensating lenders or their 

representatives for the purpose of securing 

loan applications for guarantee;

(B) Performing functions normally 

performed by lenders without appropriate 

compensation;

(C) Providing equipment or supplies 

to lenders at below market cost or rental;

(D) Offering to pay a lender that 

does not hold loans guaranteed by the 

agency a fee for each application forwarded 

for the agency's guarantee;

(E) Providing or reimbursing travel 

or entertainment expenses;

(F) Providing or reimbursing tuition 

payments or expenses; and

(G) Offering prizes, or providing 

payments of stocks or other securities.

(iv) Mail or otherwise distribute 

unsolicited loan applications to students 

enrolled in a secondary school or a 

postsecondary institution, or to parents of 

those students, unless the potential 

borrower has previously received loans 

insured by the guaranty agency.

(v) Conduct fraudulent or misleading 

advertising concerning loan availability, 

terms or conditions.

(2) Notwithstanding paragraph 

(e)(1)(i), (ii), and (iii) of this section, a 

guaranty agency is not prohibited from 

providing—

(i) Technical assistance to a school 

that is comparable to the technical 

assistance provided by the Secretary to a 

school under the Direct Loan Program, as 

identified by the Secretary in a public 

announcement, such as a notice in 

theFederal Register;
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.401

Basic program agreement

164

(ii) Default aversion activities 

approved by the Secretary under section 

422(h)(4)(B) and 433A of the Act;

(iii) Student aid and financial-literacy 

related outreach activities, including inperson school-required entrance and exit 

counseling, as long as the name of the 

entity that developed and paid for any 

materials is provided to participants and the 

guaranty agency does not promote its 

student loan or other products; but a 

guaranty agency may promote benefits 

provided under other Federal or State 

programs administered by the guaranty 

agency;

(iv) Meals and refreshments that are 

reasonable in cost and provided in 

connection with guaranty agency provided 

training of program participants and 

elementary, secondary, and postsecondary 

school personnel and with workshops and 

forums customarily used by the agency to 

fulfill its responsibilities under the Act;

(v) Meals, refreshments and 

receptions that are reasonable in cost and 

scheduled in conjunction with training, 

meeting, or conference events if those 

meals, refreshments, or receptions are 

open to all training, meeting, or conference 

attendees;

(vi) Reimbursement of reasonable 

expenses incurred by school employees to 

participate in the activities of an agency's 

governing board, a standing official advisory 

committee, or in support of other official 

activities of the agency;

(vii) Toll-free telephone numbers for 

use by schools or others to obtain 

information about FFEL loans and free data 

transmission services for use by schools to 

electronically submit applicant loan 

processing information or student status 

confirmation data;

(viii) Payment of Federal default fees 

in accordance with the Act;

(ix) Items of nominal value to 

schools, school-affiliated organizations, and 

borrowers that are offered as a form of 

generalized marketing or advertising, or to 

create good will;

(x) Loan forgiveness programs for 

public service and other targeted purposes 

approved by the Secretary, provided the 

programs are not marketed to secure loan 

applications or loan guarantees; and

(xi) Other services as identified and 

approved by the Secretary through a public 

announcement, such as a notice in 

theFederal Register.

(3) For the purposes of this 

section—

(i) The term “school-affiliated 

organization” is defined in §682.200.

(ii) The term “applications” includes 

the FAFSA, FFEL loan master promissory 

notes, and FFEL consolidation loan 

application and promissory notes.

(iii) The term “other benefits” 

includes, but is not limited to, preferential 

rates for or access to a guaranty agency's 

products and services, information 

technology equipment or non-loan 

processing or non-financial aid related 

computer software at below market rental 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.401

Basic program agreement

165

or purchase cost, and the printing and 

distribution of college catalogs and other 

non-counseling or non-student financial aidrelated materials at reduced or not costs.

(iv) The terms “premium,” 

“incentive payment,” and “other 

inducement” do not include services 

directly related to the enhancement of the 

administration of the FFEL Program that the 

guaranty agency generally provides to 

lenders that participate in its program. 

However, the terms “premium,” “incentive 

payment,” and “inducement” do apply to 

other activities specifically intended to 

secure a lender's participation in the 

agency's program.

(f)(d) College Access Initiative. (1) A 

guaranty agency shall establish a plan to 

promote access to postsecondary education 

by—

(i) Providing the Secretary and the 

public with information on Internet web 

links and a comprehensive listing of 

postsecondary education opportunities, 

programs, publications and other services 

available in the State, or States for which 

the guaranty agency serves as the 

designated guaranty agency;

(ii) Promoting and publicizing 

information for students and traditionally 

underrepresented populations on college 

planning, career preparation, and paying for 

college in coordination with other entities 

that provide or distribute such information 

in the State, or States for which the 

guaranty agency serves as the designated 

guaranty agency;

(2) The activities required by this 

section may be funded from the guaranty 

agency's Operating Fund in accordance with 

§682.423(c)(1)(vii) or from funds remaining 

in restricted accounts established pursuant 

to section 422(h)(4) of the Act HEA.

(3) The guaranty agency shall ensure 

that the information required by this 

subsection is available to the public by 

November 5, 2006 and is—

(i) Free of charge; and

(ii) Available in print.

(g)(e)(1) A guaranty agency must 

work with schools that participate 

participated in its program to develop and 

make available high-quality educational 

materials and programs that provide 

training to students and their families in 

budgeting and financial management, 

including debt management and other 

aspects of financial literacy, such as the cost 

of using high-interest loans to pay for 

postsecondary education, and how 

budgeting and financial management relate 

to the title IV student loan programs.

(2) The materials and programs 

described in paragraph (g)(e)(1) of this 

section must be in formats that are simple 

and understandable to students and their 

families, and must be made available to 

students and their families by the guaranty 

agency before, during, and after a student's 

enrollment at an institution of higher 

education.

(3) A guaranty agency may provide 

similar programs and materials to an 

institution that participates only in the 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.401

Basic program agreement

166

William D. Ford Federal Direct Loan 

Program.

(4) A lender or loan servicer may 

also provide an institution with outreach 

and financial literacy information consistent 

with the requirements of paragraphs 

(g)(e)(1) and (2) of this section.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1078, 1078–1, 1078–2, 

1078–3, 1082)

[57 FR 60323, Dec. 18, 1992]

Editorial Note: For Federal Register 

citations affecting §682.401, see the List of 

CFR Sections Affected, which appears in the 

Finding Aids section of the printed volume 

and on GPO Access. 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

167

§ 682.402 Death, disability, closed school, 

false certification, unpaid refunds, and 

bankruptcy payments.

(a) General. (1) Rules governing the 

payment of claims based on filing for relief 

in bankruptcy, and discharge of loans due to 

death, total and permanent disability, 

attendance at a school that closes, false 

certification by a school of a borrower's 

eligibility for a loan, and unpaid refunds by 

a school are set forth in this section.

(2) If a Consolidation loan was 

obtained jointly by a married couple, the 

amount of the Consolidation loan that is 

discharged if one of the borrowers dies or 

becomes totally and permanently disabled 

is equal to the portion of the outstanding 

balance of the Consolidation loan, as of the 

date the borrower died or became totally 

and permanently disabled, attributable to 

any of that borrower's loans that would 

have been eligible for discharge.

(3) If a PLUS loan was obtained by 

two parents as co-makers, and only one of 

the borrowers dies, becomes totally and 

permanently disabled, has collection of his 

or her loan obligation stayed by a 

bankruptcy filing, or has that obligation 

discharged in bankruptcy, the other 

borrower remains obligated to repay the 

loan unless that borrower would qualify for 

discharge of the loan under these 

regulations.

(4) Except for a borrower's loan 

obligation discharged by the Secretary 

under the false certification discharge 

provision of paragraphs (e)(1)(ii) or (iii) of 

this section, a loan qualifies for payment 

under this section and as provided in 

paragraph (h)(1)(iv) of this section, only to 

the extent that the loan is legally 

enforceable under applicable law by the 

holder of the loan.

(5) For purposes of this section—

(i) The legal enforceability of a loan 

is conclusively determined on the basis of a 

ruling by a court or administrative tribunal 

of competent jurisdiction with respect to 

that loan, or a ruling with respect to 

another loan in a judgment that collaterally 

estops the holder from contesting the 

enforceability of the loan;

(ii) A loan is conclusively determined 

to be legally unenforceable to the extent 

that the guarantor determines, pursuant to 

an objection presented in a proceeding 

conducted in connection with consumer 

reporting agency credit bureau reporting, 

tax refund offset, wage garnishment, or in 

any other administrative proceeding, that 

the loan is not legally enforceable; and

(iii) If an objection has been raised 

by the borrower or another party about the 

legal enforceability of the loan and no 

determination has been made under 

paragraph (a)(5) (i) or (ii) of this section, the 

Secretary may authorize the payment of a 

claim under this section under conditions 

the Secretary considers appropriate. If the 

Secretary determines in that or any other 

case that a claim was paid under this 

section with respect to a loan that was not 

a legally enforceable obligation of the 

borrower, the recipient of that payment 

must refund that amount of the payment to 

the Secretary.
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

168

(b) Death. (1) If an individual 

borrower dies, or the student for whom a 

parent received a PLUS loan dies, the 

obligation of the borrower and any 

endorser to make any further payments on 

the loan is discharged.

(2) A discharge of a loan based on 

the death of the borrower (or student in the 

case of a PLUS loan) must be based on an 

original or certified copy of the death 

certificate, or an accurate and complete 

photocopy of the original or certified copy 

of the death certificate. Under exceptional 

circumstances and on a case-by-case basis, 

the chief executive officer of the guaranty 

agency may approve a discharge based 

upon other reliable documentation 

supporting the discharge request.

(3) After receiving reliable 

information indicating that the borrower (or 

student) has died, the lender must suspend 

any collection activity against the borrower 

and any endorser for up to 60 days and 

promptly request the documentation 

described in paragraph (b)(2) of this section. 

If additional time is required to obtain the 

documentation, the period of suspension of 

collection activity may be extended up to an 

additional 60 days. If the lender is not able 

to obtain an original or certified copy of the 

death certificate, or an accurate and 

complete photocopy of the original or 

certified copy of the death certificate or 

other documentation acceptable to the 

guaranty agency, under the provisions of 

paragraph (b)(2) of this section, during the 

period of suspension, the lender must 

resume collection activity from the point 

that it had been discontinued. The lender is 

deemed to have exercised forbearance as 

to repayment of the loan during the period 

when collection activity was suspended.

(4) Once the lender has determined 

under paragraph (b)(2) of this section that 

the borrower (or student) has died, the 

lender may not attempt to collect on the 

loan from the borrower's estate or from any 

endorser.

(5) The lender shall return to the 

sender any payments received from the 

estate or paid on behalf of the borrower 

after the date of the borrower's (or 

student's) death.

(6) In the case of a Federal 

Consolidation Loan that includes a Federal 

PLUS or Direct PLUS loan borrowed for a 

dependent who has died, the obligation of 

the borrower or any endorser to make any 

further payments on the portion of the 

outstanding balance of the Consolidation 

Loan attributable to the Federal PLUS or 

Direct PLUS loan is discharged as of the date 

of the dependent's death.

[NOTE: Paragraph (c) reflects 

changes made by final regulations published 

on November 1, 2012 (77 FR 66088).]

(c)(1) Total and permanent 

disability. (c)(1) (i) A borrower's loan is 

discharged if the borrower becomes totally 

and permanently disabled, as defined in 

§682.200(b), and satisfies the eligibility 

requirements in this section.

(ii) For a borrower who becomes 

totally and permanently disabled as 

described in paragraph (1) of the definition 

of that term in §682.200(b), the borrower's 

loan discharge application is processed in 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

169

accordance with paragraphs (c)(2) through 

(c)(8) of this section.

(iii) For a veteran who is totally and 

permanently disabled as described in 

paragraph (2) of the definition of that term 

in §682.200(b), the veteran's loan discharge 

application is processed in accordance with 

paragraph (c)(9) of this section.

(iv) For purposes of §682.402(c)--

(A) A borrower’s representative or a 

veteran’s representative is a member of the 

borrower’s family, the borrower’s attorney, 

or another individual authorized to act on 

behalf of the borrower in connection with 

the borrower’s total and permanent 

disability discharge application. References 

to a “borrower” or a “veteran” include, if 

applicable, the borrower’s representative or 

the veteran’s representative for purposes of 

applying for a total and permanent 

disability discharge, providing notifications 

or information to the Secretary, and 

receiving notifications from the Secretary; 

(B) References to “the lender” 

mean the guaranty agency if the guaranty 

agency is the holder of the loan at the time 

the borrower applies for a total and 

permanent disability discharge, except that 

the total and permanent disability discharge 

claim filing requirements applicable to a 

lender do not apply to the guaranty agency; 

and

(C) References to “the applicable 

guaranty agency” mean the guaranty 

agency that guarantees the loan.

(2) Discharge application process for 

a borrower who is totally and permanently 

disabled as described in paragraph (1) of 

the definition of that term in §682.200(b). 

(i) If the borrower notifies the lender that 

the borrower claims to be totally and 

permanently disabled as described in 

paragraph (1) of the definition of that term 

in §682.200(b), the lender must direct the 

borrower to notify the Secretary of the 

borrower’s intent to submit an application 

for total and permanent disability discharge 

and provide the borrower with the 

information needed for the borrower to 

notify the Secretary.

(ii) If the borrower notifies the 

Secretary of the borrower’s intent to apply 

for a total and permanent disability 

discharge, the Secretary--

(A) Provides the borrower with 

information needed for the borrower to 

apply for a total and permanent disability 

discharge;

(B) Identifies all title IV loans owed 

by the borrower and notifies the lenders of 

the borrower’s intent to apply for a total 

and permanent disability discharge;

(C) Directs the lenders to suspend 

efforts to collect from the borrower for a 

period not to exceed 120 days; and 

(D) Informs the borrower that the 

suspension of collection activity described 

in paragraph (c)(2)(ii)(C) of this section will 

end after 120 days and collection will 

resume on the loans if the borrower does 

not submit a total and permanent disability 

discharge application to the Secretary 

within that time; 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

170

(iii) If the borrower fails to submit 

an application for a total and permanent 

disability discharge to the Secretary within 

120 days, collection resumes on the 

borrower’s title IV loans, and the lender is 

deemed to have exercised forbearance of 

principal and interest from the date it 

suspended collection activity. The lender 

may capitalize, in accordance with 

§682.202(b), any interest accrued and not 

paid during that period, except that if the 

lender is a guaranty agency it may not 

capitalize accrued interest.

(iv) The borrower must submit to 

the Secretary an application for a total and 

permanent disability discharge on a form 

approved by the Secretary. The application 

must contain--

(A) A certification by a physician, 

who is a doctor of medicine or osteopathy 

legally authorized to practice in a State, that 

the borrower is totally and permanently 

disabled as described in paragraph (1) of 

the definition of that term in §682.200(b); 

or

(B) An SSA notice of award for 

Social Security Disability Insurance (SSDI) or 

Supplemental Security Income (SSI) benefits 

indicating that the borrower’s next 

scheduled disability review will be within 

five to seven years.

(v) The borrower must submit the 

application described in paragraph (c)(2)(iv) 

of this section to the Secretary within 90 

days of the date the physician certifies the 

application, if applicable. 

(vi) After the Secretary receives the 

application described in paragraph (c)(2)(iv) 

of this section, the Secretary notifies the 

holders of the borrower’s title IV loans, that 

the Secretary has received a total and 

permanent disability discharge application 

from the borrower. The holders of the 

loans must notify the applicable guaranty 

agencies that the total and permanent 

disability discharge application has been 

received.

(vii) If the application is incomplete, 

the Secretary notifies the borrower of the 

missing information and requests the 

missing information from the borrower or 

the physician who provided the 

certification, as appropriate. The Secretary 

does not make a determination of eligibility 

until the application is complete. 

(viii) The lender notification 

described in paragraph (c)(2)(vi) of this 

section directs the borrower’s loan holders 

to suspend collection activity or maintain 

the suspension of collection activity on the 

borrower’s title IV loans. 

(ix) After the Secretary receives the 

disability discharge application, the 

Secretary sends a notice to the borrower 

that--

(A) States that the application will 

be reviewed by the Secretary;

(B) Informs the borrower that the 

borrower’s lenders will suspend collection 

activity or maintain the suspension of 

collection activity on the borrower’s title IV 

loans while the Secretary reviews the 

borrower’s application for a discharge; and 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

171

(C) Explains the process for the 

Secretary’s review of total and permanent 

disability discharge applications.

(3) Secretary's review of total and 

permanent disability discharge application. 

(i) If, after reviewing the borrower's 

completed application, the Secretary 

determines that the physician’s certification 

or the SSA notice of award for SSDI or SSI 

benefits supports the conclusion that the 

borrower is totally and permanently 

disabled, as described in paragraph (1) of 

the definition of that term in §682.200(b), 

the borrower is considered totally and 

permanently disabled--

(A) As of the date the physician 

certified the borrower's application; or

(B) As of the date the Secretary 

received the SSA notice of award for SSDI or 

SSI benefits.

(ii) The Secretary may require the 

borrower to submit additional medical 

evidence if the Secretary determines that 

the borrower's application does not 

conclusively prove that the borrower is 

totally and permanently disabled as 

described in paragraph (1) of the definition 

of that term in §682.200(b). As part of the 

Secretary's review of the borrower's 

discharge application, the Secretary may 

require and arrange for an additional 

review of the borrower's condition by an 

independent physician at no expense to the 

borrower.

(iii) After determining that the 

borrower is totally and permanently 

disabled as described in paragraph (1) of 

the definition of that term in §682.200(b), 

the Secretary notifies the borrower and the 

borrower’s lenders that the application for 

a disability discharge has been approved. 

With this notification, the Secretary 

provides the date the physician certified the 

borrower’s loan discharge application or 

the date the Secretary received the SSA 

notice of award for SSDI or SSI benefits and 

directs each lender to submit a disability 

claim to the guaranty agency so the loan 

can be assigned to the Secretary. The 

Secretary returns any payment received by 

the Secretary after the date the physician 

certified the borrower’s loan discharge 

application or received the SSA notice of 

award for SSDI or SSI benefits to the person 

who made the payment.

(iv) After the loan is assigned, the 

Secretary discharges the borrower's 

obligation to make further payments on the 

loan and notifies the borrower and the 

lender that the loan has been discharged. 

The notification to the borrower explains 

the terms and conditions under which the 

borrower's obligation to repay the loan will 

be reinstated, as specified in paragraph 

(c)(6)(i) of this section.

(v) If the Secretary determines that 

the physician’s certification or SSA notice of 

award for SSDI or SSI benefits provided by 

the borrower does not support the 

conclusion that the borrower is totally and 

permanently disabled as described in 

paragraph (1) of the definition of that term 

in §682.200(b), the Secretary notifies the 

borrower and the lender that the 

application for a disability discharge has 

been denied. The notification includes--
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

172

(A) The reason or reasons for the 

denial;

(B) A statement that the loan is due 

and payable to the lender under the terms 

of the promissory note and that the loan 

will return to the status that would have 

existed had the total and permanent 

disability discharge application not been 

received;

(C) A statement that the lender will 

notify the borrower of the date the 

borrower must resume making payments 

on the loan; 

(D) An explanation that the 

borrower is not required to submit a new 

total and permanent disability discharge 

application if the borrower requests that 

the Secretary re-evaluate the application 

for discharge by providing, within 12 

months of the date of the notification, 

additional information that supports the 

borrower’s eligibility for discharge; and 

(E) An explanation that if the 

borrower does not request re-evaluation of 

the borrower’s prior discharge application 

within 12 months of the date of the 

notification, the borrower must submit a 

new total and permanent disability 

discharge application to the Secretary if the 

borrower wishes the Secretary to reevaluate the borrower’s eligibility for a total 

and permanent disability discharge. 

(vi) If the borrower requests reevaluation in accordance with paragraph 

(c)(3)(v)(D) of this section or submits a new 

total and permanent disability discharge 

application in accordance with paragraph 

(c)(3)(v)(E) of this section, the request must 

include new information regarding the 

borrower’s disabling condition that was not 

provided to the Secretary in connection 

with the prior application at the time the 

Secretary reviewed the borrower’s initial 

application for a total and permanent 

disability discharge.

(4) Treatment of disbursements 

made during the period from the date of the 

physician's certification or the date the 

Secretary received the SSA notice of award 

for SSDI or SSI benefits until the date of 

discharge. If a borrower received a title IV 

loan or TEACH Grant before the date the 

physician certified the borrower's discharge 

application or before the date the Secretary 

received the SSA notice of award for SSDI or 

SSI benefits and a disbursement of that loan 

or grant is made during the period from the 

date of the physician's certification or the 

Secretary’s receipt of the SSA notice of 

award for SSDI or SSI benefits until the 

date the Secretary grants a discharge under 

this section, the processing of the 

borrower's loan discharge request will be 

suspended until the borrower ensures that 

the full amount of the disbursement has 

been returned to the loan holder or to the 

Secretary, as applicable.

(5) Receipt of new title IV loans or 

TEACH Grants after the date of the 

physician’s certification or after the date the 

Secretary received the SSA notice of award 

for SSDI or SSI benefits. If a borrower 

receives a disbursement of a new title IV 

loan or receives a new TEACH Grant made 

on or after the date the physician certified 

the borrower’s discharge application or the 

date the Secretary received the SSA notice 

of award for SSDI or SSI benefits and before 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

173

the date the Secretary grants a discharge 

under this section, the Secretary denies the 

borrower’s discharge request and collection 

resumes on the borrower’s loans.

(6) Conditions for reinstatement of a 

loan after a total and permanent disability 

discharge. (i) The Secretary reinstates the 

borrower's obligation to repay a loan that 

was discharged in accordance with 

paragraph (c)(3)(iii) of this section if, within 

three years after the date the Secretary 

granted the discharge, the borrower--

(A) Has annual earnings from 

employment that exceed 100 percent of the 

poverty guideline for a family of two, as 

published annually by the United States 

Department of Health and Human Services 

pursuant to 42 U.S.C. 9902(2); 

(B) Receives a new TEACH Grant or 

a new loan under the Perkins or Direct Loan 

programs, except for a Direct Consolidation 

Loan that includes loans that were not 

discharged; or

(C) Fails to ensure that the full 

amount of any disbursement of a title IV 

loan or TEACH Grant received prior to the 

discharge date that is made is returned to 

the loan holder or to the Secretary, as 

applicable, within 120 days of the 

disbursement date; or

(D) Receives a notice from the SSA 

indicating that the borrower is no longer 

disabled or that the borrower’s continuing 

disability review will no longer be the fiveto seven-year period indicated in the SSA 

notice of award for SSDI or SSI benefits.

(ii) If the borrower's obligation to 

repay a loan is reinstated, the Secretary--

(A) Notifies the borrower that the 

borrower's obligation to repay the loan has 

been reinstated; 

(B) Returns the loan to the status 

that would have existed if the total and 

permanent disability discharge application 

had not been received; and

(C) Does not require the borrower 

to pay interest on the loan for the period 

from the date the loan was discharged until 

the date the borrower's obligation to repay 

the loan was reinstated.

(iii) The Secretary's notification 

under paragraph (c)(6)(ii)(A) of this section 

will include--

(A) The reason or reasons for the 

reinstatement;

(B) An explanation that the first 

payment due date on the loan following 

reinstatement will be no earlier than 60 

days after the date of the notification of 

reinstatement; and

(C) Information on how the 

borrower may contact the Secretary if the 

borrower has questions about the 

reinstatement or believes that the 

obligation to repay the loan was reinstated 

based on incorrect information.

(7) Borrower's responsibilities after 

a total and permanent disability discharge. 

During the three-year period described in 

paragraph (c)(6)(i) of this section, the 

borrower must--
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

174

(i) Promptly notify the Secretary of 

any changes in the borrower’s address or 

phone number;

(ii) Promptly notify the Secretary if 

the borrower's annual earnings from 

employment exceed the amount specified 

in paragraph (c)(6)(i)(A) of this section; 

(iii) Provide the Secretary, upon 

request, with documentation of the 

borrower's annual earnings from 

employment, on a form approved by the 

Secretary; or

(iv) Promptly notify the Secretary if 

the borrower receives a notice from the SSA 

indicating that the borrower is no longer 

disabled or that the borrower’s continuing 

disability review will no longer be the fiveto seven-year period indicated in the SSA 

notice of award for SSDI or SSI benefits.

(8) Lender and guaranty agency 

actions. (i) If the Secretary approves the 

borrower’s total and permanent disability 

discharge application--

(A) The lender must submit a 

disability claim to the guaranty agency, in 

accordance with paragraph (g)(1) of this 

section;

(B) If the claim satisfies the 

requirements of §§682.402(g)(1) and 

682.406, the guaranty agency must pay the 

claim submitted by the lender; 

(C) After receiving a claim payment 

from the guaranty agency, the lender must 

return to the sender any payments received 

by the lender after the date the physician 

certified the borrower’s loan discharge 

application or after the date the Secretary 

received the SSA notice of award for SSDI or 

SSI benefits as well as any payments 

received after claim payment from or on 

behalf of the borrower;

(D) The Secretary reimburses the 

guaranty agency for a disability claim paid 

to the lender after the agency pays the 

claim to the lender; and 

(E) The guaranty agency must assign 

the loan to the Secretary within 45 days of 

the date the guaranty agency pays the 

disability claim and receives the 

reimbursement payment, or within 45 days 

of the date the guaranty agency receives 

the notice described in paragraph (c)(3)(iii) 

of this section if a guaranty agency is the 

lender. 

(ii) If the Secretary does not 

approve the borrower’s total and 

permanent disability discharge request, the 

lender must resume collection of the loan 

and is deemed to have exercised 

forbearance of payment of both principal 

and interest from the date collection 

activity was suspended. The lender may 

capitalize, in accordance with §682.202(b), 

any interest accrued and not paid during 

that period, except if the lender is a 

guaranty agency it may not capitalize 

accrued interest.

(9) Discharge application process for 

veterans who are totally and permanently 

disabled as described in paragraph (2) of 

the definition of that term in §682.200(b). 

(i) General. If a veteran notifies the lender 

that the veteran claims to be totally and 

permanently disabled as described in 

paragraph (2) of the definition of that term 

in §682.200(b), the lender must direct the 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

175

veteran to notify the Secretary of the 

veteran’s intent to submit an application for 

a total and permanent disability discharge 

and provide the veteran with the 

information needed for the veteran to 

apply for a total and permanent disability 

discharge to the Secretary.

(ii) If the veteran notifies the 

Secretary of the veteran’s intent to apply 

for a total and permanent disability 

discharge, the Secretary--

(A) Provides the veteran with 

information needed for the veteran to 

apply for a total and permanent disability 

discharge;

(B) Identifies all title IV loans owed 

by the veteran and notifies the lenders of 

the veteran’s intent to apply for a total and 

permanent disability discharge;

(C) Directs the lenders to suspend 

efforts to collect from the veteran for a 

period not to exceed 120 days; and 

(D) Informs the veteran that the 

suspension of collection activity described 

in paragraph (c)(9)(ii)(C) of this section will 

end after 120 days and the lender will 

resume collection on the loans if the 

veteran does not submit a total and 

permanent disability discharge application 

to the Secretary within that time. 

(iii) If the veteran fails to submit an 

application for a total and permanent 

disability discharge to the Secretary within 

120 days, collection resumes on the 

veteran’s title IV loans and the lender is 

deemed to have exercised forbearance of 

principal and interest from the date it 

suspended collection activity. The lender 

may capitalize, in accordance with 

§682.202(b), any interest accrued and not 

paid during that period, except that if the 

lender is a guaranty agency it may not 

capitalize accrued interest.

(iv) The veteran must submit to the 

Secretary an application for a total and 

permanent disability discharge on a form 

approved by the Secretary.

(v) The application must be 

accompanied by documentation from the 

Department of Veterans Affairs showing 

that the Department of Veterans Affairs has 

determined that the veteran is 

unemployable due to a service-connected 

disability. The veteran will not be required 

to provide any additional documentation 

related to the veteran's disability.

(vi) After the Secretary receives the 

application and supporting documentation 

described in paragraphs (c)(9)(iv) and 

(c)(9)(v) of this section, the Secretary 

notifies the holders of the veteran’s title IV 

loans, that the Secretary has received a 

total and permanent disability discharge 

application from the veteran. The holders 

of the loans must notify the applicable 

guaranty agencies that the total and 

permanent disability discharge application 

has been received. 

(vii) If the application is incomplete, 

the Secretary notifies the veteran of the 

missing information and requests the 

missing information from the veteran or the 

veteran’s representative. The Secretary 

does not make a determination of eligibility 

until the application is complete.
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

176

(viii) The lender notification 

described in paragraph (c)(9)(vi) of this 

section directs the lenders to suspend 

collection activity or maintain the 

suspension of collection activity on the 

veteran’s title IV loans. 

(ix) After the Secretary receives the 

disability discharge application, the 

Secretary sends a notice to the veteran 

that--

(A) States that the application will 

be reviewed by the Secretary;

(B) Informs the veteran that the 

veteran’s lenders will suspend collection 

activity on the veteran’s title IV loans while 

the Secretary reviews the veteran’s 

application for a discharge; and 

(C) Explains the process for the 

Secretary’s review of total and permanent 

disability discharge applications.

(x) After making a determination 

that the veteran is totally and permanently 

disabled as described in paragraph (2) of 

the definition of that term in §682.200(b), 

the Secretary notifies the veteran and the 

veteran’s lenders that the application for a 

disability discharge has been approved. 

With this notification, the Secretary 

provides the effective date of the 

determination and directs each lender to 

submit a disability claim to the guaranty 

agency. 

(xi) If the Secretary determines,

based on a review of the documentation 

from the Department of Veterans Affairs, 

that the veteran is not totally and 

permanently disabled as described in 

paragraph (2) of the definition of that term 

in §682.200(b), the Secretary notifies the 

veteran and the lender that the application 

for a disability discharge has been denied. 

The notification includes--

(A) The reason or reasons for the 

denial;

(B) An explanation that the loan is 

due and payable to the lender under the 

terms of the promissory note and that the 

loan will return to the status it was in at the 

time the veteran applied for a total and 

permanent disability discharge;

(C) An explanation that the lender 

will notify the veteran of the date the 

veteran must resume making payments on 

the loan; 

(D) An explanation that the veteran 

is not required to submit a new total and 

permanent disability discharge application if 

the veteran requests that the Secretary reevaluate the application for discharge by 

providing, within 12 months of the date of 

the notification, additional documentation 

from the Department of Veterans Affairs 

that supports the veteran’s eligibility for 

discharge; and 

(E) Information on how the veteran 

may reapply for a total and permanent 

disability discharge in accordance with 

procedures described in paragraphs (c)(2) 

through (c)(8) of this section, if the 

documentation from the Department of 

Veterans Affairs does not indicate that the 

veteran is totally and permanently disabled 

as described in paragraph (2) of the 

definition of that term in §682.200(b), but 

indicates that the veteran may be totally 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

177

and permanently disabled as described in 

paragraph (1) of the definition of that term.

(xii)(A) If the Secretary approves the 

veteran’s total and permanent disability 

discharge application based on 

documentation from the Department of 

Veterans Affairs the lender must submit a 

disability claim to the guaranty agency, in 

accordance with paragraph (g)(1) of this 

section.

(B) If the claim meets the 

requirements of §§682.402(g)(1) and

682.406, the guaranty agency must pay the 

claim and discharge the loan.

(C) The Secretary reimburses the 

guaranty agency for a disability claim after 

the agency pays the claim to the lender.

(D) Upon receipt of the claim 

payment from the guaranty agency, the 

lender returns any payments received by 

the lender on or after the effective date of 

the determination by the Department of 

Veterans Affairs to the person who made 

the payments.

(E) If the Secretary does not 

approve the veteran’s total and permanent 

disability discharge application based on 

documentation from the Department of 

Veterans Affairs, the lender must resume 

collection and is deemed to have exercised 

forbearance of payment of both principal 

and interest from the date collection 

activity was suspended. The lender may 

capitalize, in accordance with §682.202(b), 

any interest accrued and not paid during 

that period, except that if the lender is a 

guaranty agency it may not capitalize 

accrued interest.

(d) Closed School--(1) General. (i) 

The Secretary reimburses the holder of a 

loan received by a borrower on or after 

January 1, 1986, and discharges the 

borrower's obligation with respect to the 

loan in accordance with the provisions of 

paragraph (d) of this section, if the 

borrower (or the student for whom a 

parent received a PLUS loan) could not 

complete the program of study for which 

the loan was intended because the school 

at which the borrower (or student) was 

enrolled, closed, or the borrower (or 

student) withdrew from the school not 

more than 90 120 days prior to the date the 

school closed. This 90-day period may be

extended The Secretary may extend the 

120-day period if the Secretary determines 

that exceptional circumstances related to a 

school's closing would justify an extension. 

Exceptional circumstances for this purpose 

may include, but are not limited to: the 

school’s loss of accreditation; the school’s 

discontinuation of the majority of its 

academic programs; action by the State to 

revoke the school’s license to operate or 

award academic credentials in the State; or 

a finding by a State or Federal government 

agency that the school violated State or 

Federal law; 

(ii) For purposes of the closed school 

discharge authorized by this section—

(A) A school's closure date is the 

date that the school ceases to provide 

educational instruction in all programs, as 

determined by the Secretary;

(B) The term “borrower” includes all 

endorsers on a loan; and
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

178

(C) A “school” means a school's main 

campus or any location or branch of the 

main campus, regardless of whether the 

school or its location or branch is 

considered eligible.

(2) Relief available pursuant to 

discharge. (i) Discharge under paragraph (d) 

of this section relieves the borrower of an 

existing or past obligation to repay the loan 

and any charges imposed or costs incurred 

by the holder with respect to the loan that 

the borrower is, or was otherwise obligated 

to pay.

(ii) A discharge of a loan under 

paragraph (d) of this section qualifies the 

borrower for reimbursement of amounts 

paid voluntarily or through enforced 

collection on a loan obligation discharged 

under paragraph (d) of this section.

(iii) A borrower who has defaulted 

on a loan discharged under paragraph (d) of 

this section is not regarded as in default on 

the loan after discharge, and is eligible to 

receive assistance under the Title IV, HEA 

programs.

(iv) A discharge of a loan under 

paragraph (d) of this section must be 

reported by the loan holder to all credit 

reporting agencies to which the holder 

previously reported the status of the loan, 

so as to delete all adverse credit history 

assigned to the loan.

(3) Borrower qualification for 

discharge. Except as provided in paragraph 

(d)(8) of this section, in order to qualify for 

a discharge of a loan under paragraph (d) of 

this section, a borrower must submit a 

written request and sworn statement to the 

holder of the loan. The statement need not 

be notarized, but must be made by the 

borrower under the penalty of perjury, and, 

in the statement, the borrower must 

state—

(i) Whether the student has made a 

claim with respect to the school's closing 

with any third party, such as the holder of a 

performance bond or a tuition recovery 

program, and if so, the amount of any 

payment received by the borrower (or 

student) or credited to the borrower's loan 

obligation;

(ii) That the borrower (or the 

student for whom a parent received a PLUS 

loan)—

(A) Received, on or after January 1, 

1986, the proceeds of any disbursement of 

a loan disbursed, in whole or in part, on or 

after January 1, 1986 to attend a school;

(B) Did not complete the 

educational program at that school because 

the school closed while the student was 

enrolled or on an approved leave of 

absence in accordance with §682.605(c), or 

the student withdrew from the school not 

more than 90 120 days before the school 

closed; and

(C) Did not complete the program of 

study through a teach-out at another school 

or by transferring academic credits or hours 

earned at the closed school to another 

school;

(iii) That the borrower agrees to 

provide, upon request by the Secretary or 

the Secretary's designee, other 

documentation reasonably available to the 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

179

borrower that demonstrates, to the 

satisfaction of the Secretary or the 

Secretary's designee, that the student 

meets the qualifications in paragraph (d) of 

this section; and

(iv) That the borrower agrees to 

cooperate with the Secretary or the 

Secretary's designee in enforcement actions 

in accordance with paragraph (d)(4) of this 

section, and to transfer any right to 

recovery against a third party in accordance 

with paragraph (d)(5) of this section.

(4) Cooperation by borrower in 

enforcement actions. (i) In any judicial or 

administrative proceeding brought by the 

Secretary or the Secretary's designee to 

recover for amounts discharged under 

paragraph (d) of this section or to take 

other enforcement action with respect to 

the conduct on which those claims were 

based, a borrower who requests or receives 

a discharge under paragraph (d) of this 

section must cooperate with the Secretary 

or the Secretary's designee. At the request 

of the Secretary or the Secretary's designee, 

and upon the Secretary's or the Secretary's 

designee's tendering to the borrower the 

fees and costs as are customarily provided 

in litigation to reimburse witnesses, the 

borrower shall—

(A) Provide testimony regarding any 

representation made by the borrower to 

support a request for discharge; and

(B) Produce any documentation 

reasonably available to the borrower with 

respect to those representations and any 

sworn statement required by the Secretary 

with respect to those representations and 

documents.

(ii) The Secretary revokes the 

discharge, or denies the request for 

discharge, of a borrower who—

(A) Fails to provide testimony, sworn 

statements, or documentation to support 

material representations made by the 

borrower to obtain the discharge; or

(B) Provides testimony, a sworn 

statement, or documentation that does not 

support the material representations made 

by the borrower to obtain the discharge.

(5) Transfer to the Secretary of 

borrower's right of recovery against third 

parties. (i) Upon discharge under paragraph 

(d) of this section, the borrower is deemed 

to have assigned to and relinquished in 

favor of the Secretary any right to a loan 

refund (up to the amount discharged) that 

the borrower (or student) may have by 

contract or applicable law with respect to 

the loan or the enrollment agreement for 

the program for which the loan was 

received, against the school, its principals, 

affiliates and their successors, its sureties, 

and any private fund, including the portion 

of a public fund that represents funds 

received from a private party.

(ii) The provisions of paragraph (d) 

of this section apply notwithstanding any 

provision of State law that would otherwise 

restrict transfer of such rights by the 

borrower (or student), limit or prevent a 

transferee from exercising those rights, or 

establish procedures or a scheme of 

distribution that would prejudice the 

Secretary's ability to recover on those 

rights.
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

180

(iii) Nothing in this section shall be 

construed as limiting or foreclosing the 

borrower's (or student's) right to pursue 

legal and equitable relief regarding disputes 

arising from matters otherwise unrelated to 

the loan discharged.

(6) Guaranty agency responsibilities 

—(i) Procedures applicable if a school closed 

on or after January 1, 1986, but prior to 

June 13, 1994. (A) If a borrower received a 

loan for attendance at a school with a 

closure date on or after January 1, 1986, 

but prior to June 13, 1994, the loan may be 

discharged in accordance with the 

procedures specified in paragraph (d)(6)(i) 

of this section.

(B) If a loan subject to paragraph (d) 

of this section was discharged in part in 

accordance with the Secretary's “Closed 

School Policy” as authorized by section IV of 

Bulletin 89–G–159, the guaranty agency 

shall initiate the discharge of the remaining 

balance of the loan not later than August 

13, 1994.

(C) A guaranty agency shall review 

its records and identify all schools that 

appear to have closed on or after January 1, 

1986 and prior to June 13, 1994, and shall 

identify the loans made to any borrower (or 

student) who appears to have been 

enrolled at the school on the school closure 

date or who withdrew not more than 90

120 days prior to the closure date.

(D) A guaranty agency shall notify 

the Secretary immediately if it determines 

that a school not previously known to have 

closed appears to have closed, and, within 

30 days of making that determination, 

notify all lenders participating in its 

program to suspend collection efforts 

against individuals with respect to loans 

made for attendance at the closed school, if 

the student to whom (or on whose behalf) a 

loan was made, appears to have been 

enrolled at the school on the closing date, 

or withdrew not more than 90 120 days 

prior to the date the school appears to have 

closed. Within 30 days after receiving 

confirmation of the date of a school's 

closure from the Secretary, the agency 

shall—

(1) Notify all lenders participating in 

its program to mail a discharge application 

explaining the procedures and eligibility 

criteria for obtaining a discharge and an 

explanation of the information that must be 

included in the sworn statement (which 

may be combined) to all borrowers who 

may be eligible for a closed school 

discharge; and

(2) Review the records of loans that 

it holds, identify the loans made to any 

borrower (or student) who appears to have 

been enrolled at the school on the school 

closure date or who withdrew not more 

than 90 120 days prior to the closure date,

and mail a discharge application and an 

explanation of the information that must be 

included in the sworn statement (which 

may be combined) to the borrower. The 

application shall inform the borrower of the 

procedures and eligibility criteria for 

obtaining a discharge.

(E) If a loan identified under 

paragraph (d)(6)(i)(D)( 2 ) of this section is 

held by the guaranty agency as a defaulted 

loan and the borrower's current address is 

known, the guaranty agency shall 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

181

immediately suspend any efforts to collect 

from the borrower on any loan received for 

the program of study for which the loan 

was made (but may continue to receive 

borrower payments), and notify the 

borrower that the agency will provide 

additional information about the 

procedures for requesting a discharge after 

the agency has received confirmation from 

the Secretary that the school had closed.

(F) If a loan identified under 

paragraph (d)(6)(i)(D)( 2 ) of this section is 

held by the guaranty agency as a defaulted 

loan and the borrower's current address is 

unknown, the agency shall, by June 13, 

1995, further refine the list of borrowers 

whose loans are potentially subject to 

discharge under paragraph (d) of this 

section by consulting with representatives 

of the closed school, the school's licensing 

agency, accrediting agency, and other 

appropriate parties. Upon learning the new 

address of a borrower who would still be 

considered potentially eligible for a 

discharge, the guaranty agency shall, within 

30 days after learning the borrower's new 

address, mail to the borrower a discharge 

application that meets the requirements of 

paragraph (d)(6)(i)(E) of this section.

(G) If the guaranty agency 

determines that a borrower identified in 

paragraph (d)(6)(i)(E) or (F) of this section 

has satisfied all of the conditions required 

for a discharge, the agency shall notify the 

borrower in writing of that determination 

within 30 days after making that 

determination.

(H) If the guaranty agency 

determines that a borrower identified in 

paragraph (d)(6)(i)(E) or (F) of this section 

does not qualify for a discharge, the agency 

shall notify the borrower in writing of that 

determination and the reasons for it within 

30 days after the date the agency—

(1) Made that determination based 

on information available to the guaranty 

agency;

(2) Was notified by the Secretary 

that the school had not closed;

(3) Was notified by the Secretary 

that the school had closed on a date that 

was more than 90 120 days after the 

borrower (or student) withdrew from the 

school;

(4) Was notified by the Secretary 

that the borrower (or student) was 

ineligible for a closed school discharge for 

other reasons; or

(5) Received the borrower's 

completed application and sworn 

statement.

(I) If a borrower described in 

paragraph (d)(6)(i)(E) or (F) of this section 

fails to submit the written request and 

sworn statement described in paragraph 

(d)(3) of this section within 60 days of being 

notified of that option, the guaranty agency 

shall resume collection and shall be deemed 

to have exercised forbearance of payment 

of principal and interest from the date it 

suspended collection activity. The agency 

may capitalize, in accordance with 

§682.202(b), any interest accrued and not 

paid during that period.

(J) A borrower's request for 

discharge may not be denied solely on the 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

182

basis of failing to meet any time limits set 

by the lender, guaranty agency, or the 

Secretary.

(ii) Procedures applicable if a school 

closed on or after June 13, 1994. (A) A 

guaranty agency shall notify the Secretary 

immediately whenever it becomes aware of 

reliable information indicating a school may 

have closed. The designated guaranty 

agency in the state in which the school is 

located shall promptly investigate whether 

the school has closed and, within 30 days 

after receiving information indicating that 

the school may have closed, report the 

results of its investigation to the Secretary 

concerning the date of the school's closure 

and whether a teach-out of the closed 

school's program was made available to 

students.

(B) If a guaranty agency determines 

that a school appears to have closed, it 

shall, within 30 days of making that 

determination, notify all lenders 

participating in its program to suspend 

collection efforts against individuals with 

respect to loans made for attendance at the 

closed school, if the student to whom (or on 

whose behalf) a loan was made, appears to 

have been enrolled at the school on the 

closing date, or withdrew not more than 90

120 days prior to the date the school 

appears to have closed. Within 30 days 

after receiving confirmation of the date of a 

school's closure from the Secretary, the 

agency shall—

(1) Notify all lenders participating in 

its program to mail a discharge application 

explaining the procedures and eligibility 

criteria for obtaining a discharge and an 

explanation of the information that must be 

included in the sworn statement (which 

may be combined) to all borrowers who 

may be eligible for a closed school 

discharge; and

(2) Review the records of loans that 

it holds, identify the loans made to any 

borrower (or student) who appears to have 

been enrolled at the school on the school 

closure date or who withdrew not more 

than 90 120 days prior to the closure date, 

and mail a discharge application and an 

explanation of the information that must be 

included in the sworn statement (which 

may be combined) to the borrower. The 

application shall inform the borrower of the 

procedures and eligibility criteria for 

obtaining a discharge.

(C) If a loan identified under 

paragraph (d)(6)(ii)(B)( 2 ) of this section is 

held by the guaranty agency as a defaulted 

loan and the borrower's current address is 

known, the guaranty agency shall 

immediately suspend any efforts to collect 

from the borrower on any loan received for 

the program of study for which the loan 

was made (but may continue to receive 

borrower payments), and notify the 

borrower that the agency will provide 

additional information about the 

procedures for requesting a discharge after 

the agency has received confirmation from 

the Secretary that the school had closed.

(D) If a loan identified under 

paragraph (d)(6)(ii)(B)( 2 ) of this section is 

held by the guaranty agency as a defaulted 

loan and the borrower's current address is 

unknown, the agency shall, within one year 

after identifying the borrower, attempt to 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

183

locate the borrower and further determine 

the borrower's potential eligibility for a 

discharge under paragraph (d) of this 

section by consulting with representatives 

of the closed school, the school's licensing 

agency, accrediting agency, and other 

appropriate parties. Upon learning the new 

address of a borrower who would still be 

considered potentially eligible for a 

discharge, the guaranty agency shall, within 

30 days after learning the borrower's new 

address, mail to the borrower a discharge 

application that meets the requirements of 

paragraph (d)(6)(ii)(B) of this section.

(E) If the guaranty agency 

determines that a borrower identified in 

paragraph (d)(6)(ii)(C) or (D) of this section 

has satisfied all of the conditions required 

for a discharge, the agency shall notify the 

borrower in writing of that determination 

within 30 days after making that 

determination.

(F) If the guaranty agency 

determines that a borrower identified in 

paragraph (d)(6)(ii)(C) or (D) of this section 

does not qualify for a discharge, the agency 

shall notify the borrower in writing of that 

determination and the reasons for it within 

30 days after the date the agency—

(1) Made that determination based 

on information available to the guaranty 

agency;

(2) Was notified by the Secretary 

that the school had not closed;

(3) Was notified by the Secretary 

that the school had closed on a date that 

was more than 90 120 days after the 

borrower (or student) withdrew from the 

school;

(4) Was notified by the Secretary 

that the borrower (or student) was 

ineligible for a closed school discharge for 

other reasons; or

(5) Received the borrower's 

completed application and sworn 

statement.

(G) Upon receipt of a closed school 

discharge claim filed by a lender, the agency 

shall review the borrower's request and 

supporting sworn statement in light of 

information available from the records of 

the agency and from other sources, 

including other guaranty agencies, state 

authorities, and cognizant accrediting 

associations, and shall take the following 

actions—

(1) If the agency determines that the 

borrower satisfies the requirements for 

discharge under paragraph (d) of this 

section, it shall pay the claim in accordance 

with §682.402(h) not later than 90 days 

after the agency received the claim; or

(2) If the agency determines that the 

borrower does not qualify for a discharge, 

the agency shall, not later than 90 days 

after the agency received the claim, return 

the claim to the lender with an explanation 

of the reasons for its determination.

(H) If a borrower fails to submit the 

written request and sworn statement 

described in paragraph (d)(3) of this section 

within 60 days of being notified of that 

option, the lender or guaranty agency shall 

resume collection and shall be deemed to 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

184

have exercised forbearance of payment of 

principal and interest from the date it 

suspended collection activity. The lender or 

guaranty agency may capitalize, in 

accordance with §682.202(b), any interest 

accrued and not paid during that period.

(I) A borrower's request for 

discharge may not be denied solely on the 

basis of failing to meet any time limits set 

by the lender, guaranty agency, or the 

Secretary.

(7) Lender responsibilities. (i) A 

lender shall comply with the requirements 

prescribed in paragraph (d) of this section. 

In the absence of specific instructions from 

a guaranty agency or the Secretary, if a 

lender receives information from a source it 

believes to be reliable indicating that an 

existing or former borrower may be eligible 

for a loan discharge under paragraph (d) of 

this section, the lender shall immediately 

notify the guaranty agency, and suspend 

any efforts to collect from the borrower on 

any loan received for the program of study 

for which the loan was made (but may 

continue to receive borrower payments).

(ii) If the borrower fails to submit 

the written request and sworn statement 

described in paragraph (d)(3) of this section 

within 60 days after being notified of that 

option, the lender shall resume collection 

and shall be deemed to have exercised 

forbearance of payment of principal and 

interest from the date the lender 

suspended collection activity. The lender 

may capitalize, in accordance with 

§682.202(b), any interest accrued and not 

paid during that period.

(iii) The lender shall file a closed 

school claim with the guaranty agency in 

accordance with §682.402(g) no later than 

60 days after the lender receives the 

borrower's written request and sworn 

statement described in paragraph (d)(3) of 

this section. If a lender receives a payment 

made by or on behalf of the borrower on 

the loan after the lender files a claim on the 

loan with the guaranty agency, the lender 

shall forward the payment to the guaranty 

agency within 30 days of its receipt. The 

lender shall assist the guaranty agency and 

the borrower in determining whether the 

borrower is eligible for discharge of the 

loan.

(iv) Within 30 days after receiving 

reimbursement from the guaranty agency 

for a closed school claim, the lender shall 

notify the borrower that the loan obligation 

has been discharged, and request that all 

consumer reporting agencies credit bureaus

to which it previously reported the status of 

the loan delete all adverse credit history 

assigned to the loan.

(v) Within 30 days after being 

notified by the guaranty agency that the 

borrower's request for a closed school 

discharge has been denied, the lender shall 

resume collection and notify the borrower 

of the reasons for the denial. The lender 

shall be deemed to have exercised 

forbearance of payment of principal and 

interest from the date the lender 

suspended collection activity, and may 

capitalize, in accordance with §682.202(b), 

any interest accrued and not paid during 

that period.
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

185

(8) Discharge without an application. 

A borrower's obligation to repay an FFEL 

Program loan may be discharged without an 

application from the borrower if the—

(i) Borrower received a discharge on 

a loan pursuant to 34 CFR 674.33(g) under 

the Federal Perkins Loan Program, or 34 

CFR 685.213 214 under the William D. Ford 

Federal Direct Loan Program; or

(ii) The Secretary or the guaranty 

agency, with the Secretary's permission, 

determines that the borrower qualifies for a 

discharge based on information in the 

Secretary or guaranty agency's possession.

(e) False certification by a school of 

a student's eligibility to borrow and 

unauthorized disbursements —(1) General. 

(i) The Secretary reimburses the holder of a 

loan received by a borrower on or after 

January 1, 1986, and discharges a current or 

former borrower's obligation with respect 

to the loan in accordance with the 

provisions of paragraph (e) of this section, if 

the borrower's (or the student for whom a 

parent received a PLUS loan) eligibility to 

receive the loan was falsely certified by an 

eligible school. On or after July 1, 2006, the 

Secretary reimburses the holder of a loan, 

and discharges a borrower's obligation with 

respect to the loan in accordance with the 

provisions of paragraph (e) of this section, if 

the borrower's eligibility to receive the loan 

was falsely certified as a result of a crime of 

identity theft. For purposes of a false 

certification discharge, the term “borrower” 

includes all endorsers on a loan. A student's 

or other individual's eligibility to borrow 

shall be considered to have been falsely 

certified by the school if the school—

(A) Certified the student's eligibility 

for a FFEL Program loan on the basis of 

ability to benefit from its training and the 

student did not meet the applicable 

requirements described in 34 CFR part 668 

and section 484(d) of the Act, as applicable 

and as described in paragraph (e)(13) of this 

section; or

(B) Signed the borrower's name 

without authorization by the borrower on 

the loan application or promissory note.

(C) Certified the eligibility of an 

individual for an FFEL Program loan as a 

result of the crime of identity theft 

committed against the individual, as that 

crime is defined in §682.402(e)(14).

(ii) The Secretary discharges the 

obligation of a borrower with respect to a 

loan disbursement for which the school, 

without the borrower's authorization, 

endorsed the borrower's loan check or 

authorization for electronic funds transfer, 

unless the student for whom the loan was 

made received the proceeds of the loan 

either by actual delivery of the loan funds 

or by a credit in the amount of the 

contested disbursement applied to charges 

owed to the school for that portion of the 

educational program completed by the 

student. However, the Secretary does not 

reimburse the lender with respect to any 

amount disbursed by means of a check 

bearing an unauthorized endorsement 

unless the school also executed the 

application or promissory note for that loan 

for the named borrower without that 

individual's consent.

(iii) If a loan was made as a result of 

the crime of identity theft that was 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

186

committed by an employee or agent of the 

lender, or if at the time the loan was made, 

an employee or agent of the lender knew of 

the identity theft of the individual named as 

the borrower—

(A) The Secretary does not pay 

reinsurance, and does not reimburse the 

holder, for any amount disbursed on the 

loan; and

(B) Any amounts received by a 

holder as interest benefits and special 

allowance payments with respect to the 

loan must be refunded to the Secretary, as 

provided in paragraphs (e)(8)(ii)(B)(4) and 

(e)(10)(ii)(D) of this section.

(2) Relief available pursuant to 

discharge. (i) Discharge under paragraph 

(e)(1)(i) of this section relieves the borrower 

of an existing or past obligation to repay the 

loan certified by the school, and any 

charges imposed or costs incurred by the 

holder with respect to the loan that the 

borrower is, or was, otherwise obligated to 

pay.

(ii) A discharge of a loan under 

paragraph (e) of this section qualifies the 

borrower for reimbursement of amounts 

paid voluntarily or through enforced 

collection on a loan obligation discharged 

under paragraph (e) of this section.

(iii) A borrower who has defaulted 

on a loan discharged under paragraph (e) of 

this section is not regarded as in default on 

the loan after discharge, and is eligible to 

receive assistance under the Title IV, HEA 

programs.

(iv) A discharge of a loan under 

paragraph (e) of this section is reported by 

the loan holder to all credit reporting 

agencies to which the holder previously 

reported the status of the loan, so as to 

delete all adverse or inaccurate credit 

history assigned to the loan.

(v) Discharge under paragraph 

(e)(1)(ii) of this section qualifies the 

borrower for relief only with respect to the 

amount of the disbursement discharged.

(3) Borrower qualification for 

discharge. Except as provided in paragraph 

(e)(14)(15) of this section, to qualify for a 

discharge of a loan under paragraph (e) of 

this section, the borrower must submit to 

the holder of the loan a written request and 

a sworn statement. The statement need not 

be notarized, but must be made by the 

borrower under penalty of perjury, and, in 

the statement, the borrower must—

(i) State whether the student has 

made a claim with respect to the school's 

false certification with any third party, such 

as the holder of a performance bond or a 

tuition recovery program, and if so, the 

amount of any payment received by the 

borrower (or student) or credited to the 

borrower's loan obligation;

(ii) In the case of a borrower 

requesting a discharge based on defective 

testing of the student's ability to benefit, 

state that the borrower (or the student for 

whom a parent received a PLUS loan)—

(A) Received, on or after January 1, 

1986, the proceeds of any disbursement of 

a loan disbursed, in whole or in part, on or 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

187

after January 1, 1986 to attend a school; 

and

(B) Was admitted to that school on 

the basis of ability to benefit from its 

training and did not meet the applicable 

requirements for admission on the basis of 

ability to benefit as described in paragraph 

(e)(13) of this section;

(iii) In the case of a borrower 

requesting a discharge because the school 

signed the borrower's name on the loan 

application or promissory note—

(A) State that the signature on either 

of those documents was not the signature 

of the borrower; and

(B) Provide five different specimens 

of his or her signature, two of which must 

be not earlier or later than one year before 

or after the date of the contested signature;

(iv) In the case of a borrower 

requesting a discharge because the school, 

without authorization of the borrower, 

endorsed the borrower's name on the loan 

check or signed the authorization for 

electronic funds transfer or master check, 

the borrower shall—

(A) Certify that he or she did not 

endorse the loan check or sign the 

authorization for electronic funds transfer 

or master check, or authorize the school to 

do so;

(B) Provide five different specimens 

of his or her signature, two of which must 

be not earlier or later than one year before 

or after the date of the contested signature; 

and

(C) State that the proceeds of the 

contested disbursement were not received 

either through actual delivery of the loan 

funds or by a credit in the amount of the 

contested disbursement applied to charges 

owed to the school for that portion of the 

educational program completed by the 

student;

(v) In the case of an individual who is 

requesting a discharge of a loan because 

the individual's eligibility was falsely 

certified as a result of a crime of identity 

theft committed against the individual—

(A) Certify that the individual did not 

sign the promissory note, or that any other 

means of identification used to obtain the 

loan was used without the authorization of 

the individual claiming relief;

(B) Certify that the individual did not 

receive or benefit from the proceeds of the 

loan with knowledge that the loan had been 

made without the authorization of the 

individual;

(C) Provide a copy of a local, State, 

or Federal court verdict or judgment that 

conclusively determines that the individual 

who is named as the borrower of the loan 

was the victim of a crime of identify identity

theft by a perpetrator named in the verdict 

or judgment;

(D) If the judicial determination of 

the crime does not expressly state that the 

loan was obtained as a result of the crime, 

provide—

(1) Authentic specimens of the 

signature of the individual, as provided in 

paragraph (e)(3)(iii)(B), or other means of 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

188

identification of the individual, as 

applicable, corresponding to the means of 

identification falsely used to obtain the 

loan; and

(2) A statement of facts that 

demonstrate, to the satisfaction of the 

Secretary, that eligibility for the loan in 

question was falsely certified as a result of 

the crime of identity theft committed 

against that individual.

(vi) That the borrower agrees to 

provide upon request by the Secretary or 

the Secretary's designee, other 

documentation reasonably available to the 

borrower, that demonstrates, to the 

satisfaction of the Secretary or the 

Secretary's designee, that the student 

meets the qualifications in paragraph (e) of 

this section; and

(vii) That the borrower agrees to 

cooperate with the Secretary or the 

Secretary's designee in enforcement actions 

in accordance with paragraph (e)(4) of this 

section, and to transfer any right to 

recovery against a third party in accordance 

with paragraph (e)(5) of this section.

(4) Cooperation by borrower in 

enforcement actions. (i) In any judicial or 

administrative proceeding brought by the 

Secretary or the Secretary's designee to 

recover for amounts discharged under 

paragraph (e) of this section or to take 

other enforcement action with respect to 

the conduct on which those claims were 

based, a borrower who requests or receives 

a discharge under paragraph (e) of this 

section must cooperate with the Secretary 

or the Secretary's designee. At the request 

of the Secretary or the Secretary's designee, 

and upon the Secretary's or the Secretary's 

designee's tendering to the borrower the 

fees and costs as are customarily provided 

in litigation to reimburse witnesses, the 

borrower shall—

(A) Provide testimony regarding any 

representation made by the borrower to 

support a request for discharge; and

(B) Produce any documentation 

reasonably available to the borrower with 

respect to those representations and any 

sworn statement required by the Secretary 

with respect to those representations and 

documents.

(ii) The Secretary revokes the 

discharge, or denies the request for 

discharge, of a borrower who—

(A) Fails to provide testimony, sworn 

statements, or documentation to support 

material representations made by the 

borrower to obtain the discharge; or

(B) Provides testimony, a sworn 

statement, or documentation that does not 

support the material representations made 

by the borrower to obtain the discharge.

(5) Transfer to the Secretary of 

borrower's right of recovery against third 

parties. (i) Upon discharge under paragraph 

(e) of this section, the borrower is deemed 

to have assigned to and relinquished in 

favor of the Secretary any right to a loan 

refund (up to the amount discharged) that 

the borrower (or student) may have by 

contract or applicable law with respect to 

the loan or the enrollment agreement for 

the program for which the loan was 

received, against the school, its principals, 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

189

affiliates and their successors, its sureties, 

and any private fund, including the portion 

of a public fund that represents funds 

received from a private party.

(ii) The provisions of paragraph (e) 

of this section apply notwithstanding any 

provision of state law that would otherwise 

restrict transfer of such rights by the 

borrower (or student), limit or prevent a 

transferee from exercising those rights, or 

establish procedures or a scheme of 

distribution that would prejudice the 

Secretary's ability to recover on those 

rights.

(iii) Nothing in this section shall be 

construed as limiting or foreclosing the 

borrower's (or student's) right to pursue 

legal and equitable relief regarding disputes 

arising from matters otherwise unrelated to 

the loan discharged.

(6) Guaranty agency 

responsibilities—general. (i) A guaranty 

agency shall notify the Secretary 

immediately whenever it becomes aware of 

reliable information indicating that a school 

may have falsely certified a student's 

eligibility or caused an unauthorized 

disbursement of loan proceeds, as 

described in paragraph (e)(3) of this section. 

The designated guaranty agency in the state 

in which the school is located shall promptly 

investigate whether the school has falsely 

certified a student's eligibility and, within 30 

days after receiving information indicating 

that the school may have done so, report 

the results of its preliminary investigation to 

the Secretary.

(ii) If the guaranty agency receives 

information it believes to be reliable 

indicating that a borrower whose loan is 

held by the agency may be eligible for a 

discharge under paragraph (e) of this 

section, the agency shall immediately 

suspend any efforts to collect from the 

borrower on any loan received for the 

program of study for which the loan was 

made (but may continue to receive 

borrower payments), and inform the 

borrower of the procedures for requesting 

a discharge.

(iii) If the borrower fails to submit 

the written request and sworn statement 

described in paragraph (e)(3) of this section 

within 60 days of being notified of that 

option, the guaranty agency shall resume 

collection and shall be deemed to have 

exercised forbearance of payment of 

principal and interest from the date it 

suspended collection activity. The agency 

may capitalize, in accordance with 

§682.202(b), any interest accrued and not 

paid during that period.

(iv) Upon receipt of a discharge 

claim filed by a lender or a request 

submitted by a borrower with respect to a 

loan held by the guaranty agency, the 

agency shall have up to 90 days to 

determine whether the discharge should be 

granted. The agency shall review the 

borrower's request and supporting sworn 

statement in light of information available 

from the records of the agency and from 

other sources, including other guaranty 

agencies, state authorities, and cognizant 

accrediting associations.

(v) A borrower's request for 

discharge and sworn statement may not be 

denied solely on the basis of failing to meet 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

190

any time limits set by the lender, the 

Secretary or the guaranty agency.

(7) Guaranty agency responsibilities 

with respect to a claim filed by a lender 

based on the borrower's assertion that he or 

she did not sign the loan application or the 

promissory note that he or she was a victim 

of the crime of identity theft, or that the 

school failed to test, or improperly tested, 

the student's ability to benefit. (i) The 

agency shall evaluate the borrower's 

request and consider relevant information 

it possesses and information available from 

other sources, and follow the procedures 

described in paragraph (e)(7) of this section.

(ii) If the agency determines that the 

borrower satisfies the requirements for 

discharge under paragraph (e) of this 

section, it shall, not later than 30 days after 

the agency makes that determination, pay 

the claim in accordance with §682.402(h) 

and—

(A) Notify the borrower that his or 

her liability with respect to the amount of 

the loan has been discharged, and that the 

lender has been informed of the actions 

required under paragraph (e)(7)(ii)(C) of this 

section;

(B) Refund to the borrower all 

amounts paid by the borrower to the lender 

or the agency with respect to the 

discharged loan amount, including any late 

fees or collection charges imposed by the 

lender or agency related to the discharged 

loan amount; and

(C) Notify the lender that the 

borrower's liability with respect to the 

amount of the loan has been discharged, 

and that the lender must—

(1) Immediately terminate any 

collection efforts against the borrower with 

respect to the discharged loan amount and 

any charges imposed or costs incurred by 

the lender related to the discharged loan 

amount that the borrower is, or was, 

otherwise obligated to pay; and

(2) Within 30 days, report to all 

credit reporting agencies to which the 

lender previously reported the status of the 

loan, so as to delete all adverse credit 

history assigned to the loan; and

(D) Within 30 days, demand 

payment in full from the perpetrator of the 

identity theft committed against the 

individual, and if payment is not received, 

pursue collection action thereafter against 

the perpetrator.

(iii) If the agency determines that 

the borrower does not qualify for a 

discharge, it shall, within 30 days after 

making that determination—

(A) Notify the lender that the 

borrower's liability on the loan is not 

discharged and that, depending on the 

borrower's decision under paragraph 

(e)(7)(iii)(B) of this section, the loan shall 

either be returned to the lender or paid as a 

default claim; and

(B) Notify the borrower that the 

borrower does not qualify for discharge, 

and state the reasons for that conclusion. 

The agency shall advise the borrower that 

he or she remains obligated to repay the 

loan and warn the borrower of the 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

191

consequences of default, and explain that 

the borrower will be considered to be in 

default on the loan unless the borrower 

submits a written statement to the agency 

within 30 days stating that the borrower—

(1) Acknowledges the debt and, if 

payments are due, will begin or resume 

making those payments to the lender; or

(2) Requests the Secretary to review 

the agency's decision.

(iv) Within 30 days after receiving 

the borrower's written statement described 

in paragraph (e)(7)(iii)(B)( 1 ) of this section, 

the agency shall return the claim file to the 

lender and notify the lender to resume 

collection efforts if payments are due.

(v) Within 30 days after receiving 

the borrower's request for review by the 

Secretary, the agency shall forward the 

claim file to the Secretary for his review and 

take the actions required under paragraph 

(e)(11) of this section.

(vi) The agency shall pay a default 

claim to the lender within 30 days after the 

borrower fails to return either of the 

written statements described in paragraph 

(e)(7)(iii)(B) of this section.

(8) Guaranty agency responsibilities 

with respect to a claim filed by a lender 

based only on the borrower's assertion that 

he or she did not sign the loan check or the 

authorization for the release of loan funds

via electronic funds transfer or master 

check. (i) The agency shall evaluate the 

borrower's request and consider relevant 

information it possesses and information 

available from other sources, and follow the 

procedures described in paragraph (e)(8) of 

this section.

(ii) If the agency determines that a 

borrower who asserts that he or she did not 

endorse the loan check satisfies the 

requirements for discharge under 

paragraph (e)(3)(iv) of this section, it shall, 

within 30 days after making that 

determination—

(A) Notify the borrower that his or 

her liability with respect to the amount of 

the contested disbursement of the loan has 

been discharged, and that the lender has 

been informed of the actions required 

under paragraph (e)(8)(ii)(B) of this section;

(B) Notify the lender that the 

borrower's liability with respect to the 

amount of the contested disbursement of 

the loan has been discharged, and that the 

lender must—

(1) Immediately terminate any 

collection efforts against the borrower with 

respect to the discharged loan amount and 

any charges imposed or costs incurred by 

the lender related to the discharged loan 

amount that the borrower is, or was, 

otherwise obligated to pay;

(2) Within 30 days, report to all 

credit reporting agencies to which the 

lender previously reported the status of the 

loan, so as to delete all adverse credit 

history assigned to the loan;

(3) Refund to the borrower, within 

30 days, all amounts paid by the borrower 

with respect to the loan disbursement that 

was discharged, including any charges 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

192

imposed or costs incurred by the lender 

related to the discharged loan amount; and

(4) Refund to the Secretary, within 

30 days, all interest benefits and special 

allowance payments received from the 

Secretary with respect to the loan 

disbursement that was discharged; and

(C) Transfer to the lender the 

borrower's written assignment of any rights 

the borrower may have against third parties 

with respect to a loan disbursement that 

was discharged because the borrower did 

not sign the loan check.

(iii) If the agency determines that a 

borrower who asserts that he or she did not 

sign the electronic funds transfer or master 

check authorization satisfies the 

requirements for discharge under 

paragraph (e)(3)(iv) of this section, it shall, 

within 30 days after making that 

determination, pay the claim in accordance 

with §682.402(h) and—

(A) Notify the borrower that his or 

her liability with respect to the amount of 

the contested disbursement of the loan has 

been discharged, and that the lender has 

been informed of the actions required 

under paragraph (e)(8)(iii)(C) of this section;

(B) Refund to the borrower all 

amounts paid by the borrower to the lender 

or the agency with respect to the 

discharged loan amount, including any late 

fees or collection charges imposed by the 

lender or agency related to the discharged 

loan amount; and

(C) Notify the lender that the 

borrower's liability with respect to the 

contested disbursement of the loan has 

been discharged, and that the lender 

must—

(1) Immediately terminate any 

collection efforts against the borrower with 

respect to the discharged loan amount and 

any charges imposed or costs incurred by 

the lender related to the discharged loan 

amount that the borrower is, or was, 

otherwise obligated to pay; and

(2) Within 30 days, report to all 

credit reporting agencies to which the 

lender previously reported the status of the 

loan, so as to delete all adverse credit 

history assigned to the loan.

(iv) If the agency determines that 

the borrower does not qualify for a 

discharge, it shall, within 30 days after 

making that determination—

(A) Notify the lender that the 

borrower's liability on the loan is not 

discharged and that, depending on the 

borrower's decision under paragraph 

(e)(8)(iv)(B) of this section, the loan shall 

either be returned to the lender or paid as a 

default claim; and

(B) Notify the borrower that the 

borrower does not qualify for discharge, 

and state the reasons for that conclusion. 

The agency shall advise the borrower that 

he or she remains obligated to repay the 

loan and warn the borrower of the 

consequences of default, and explain that 

the borrower will be considered to be in 

default on the loan unless the borrower 

submits a written statement to the agency 

within 30 days stating that the borrower—
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

193

(1) Acknowledges the debt and, if 

payments are due, will begin or resume 

making those payments to the lender; or

(2) Requests the Secretary to review 

the agency's decision.

(v) Within 30 days after receiving 

the borrower's written statement described 

in paragraph (e)(8)(iv)(B)( 1 ) of this section, 

the agency shall return the claim file to the 

lender and notify the lender to resume 

collection efforts if payments are due.

(vi) Within 30 days after receiving 

the borrower's request for review by the 

Secretary, the agency shall forward the 

claim file to the Secretary for his review and 

take the actions required under paragraph 

(e)(11) of this section.

(vii) The agency shall pay a default 

claim to the lender within 30 days after the 

borrower fails to return either of the 

written statements described in paragraph 

(e)(8)(iv)(B) of this section.

(9) Guaranty agency responsibilities 

in the case of a loan held by the agency for 

which a discharge request is submitted by a 

borrower based on the borrower's assertion 

that he or she did not sign the loan 

application or the promissory note, that he 

or she was a victim of the crime of identity 

theft, or that the school failed to test, or 

improperly tested, the student's ability to 

benefit. (i) The agency shall evaluate the 

borrower's request and consider relevant 

information it possesses and information 

available from other sources, and follow the 

procedures described in paragraph (e)(9) of 

this section.

(ii) If the agency determines that the 

borrower satisfies the requirements for 

discharge under paragraph (e)(3) of this 

section, it shall immediately terminate any 

collection efforts against the borrower with 

respect to the discharged loan amount and 

any charges imposed or costs incurred by 

the agency related to the discharged loan 

amount that the borrower is, or was 

otherwise obligated to pay and, not later 

than 30 days after the agency makes the 

determination that the borrower satisfies 

the requirements for discharge—

(A) Notify the borrower that his or 

her liability with respect to the amount of 

the loan has been discharged;

(B) Report to all credit reporting 

agencies to which the agency previously 

reported the status of the loan, so as to 

delete all adverse credit history assigned to 

the loan;

(C) Refund to the borrower all 

amounts paid by the borrower to the lender 

or the agency with respect to the 

discharged loan amount, including any late 

fees or collection charges imposed by the 

lender or agency related to the discharged 

loan amount; and

(D) Within 30 days, demand 

payment in full from the perpetrator of the 

identity theft committed against the 

individual, and if payment is not received, 

pursue collection action thereafter against 

the perpetrator.

(iii) If the agency determines that 

the borrower does not qualify for a 

discharge, it shall, within 30 days after 

making that determination, notify the 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

194

borrower that the borrower's liability with 

respect to the amount of the loan is not 

discharged, state the reasons for that 

conclusion, and if the borrower is not then 

making payments in accordance with a 

repayment arrangement with the agency on 

the loan, advise the borrower of the 

consequences of continued failure to reach 

such an arrangement, and that collection 

action will resume on the loan unless within 

30 days the borrower—

(A) Acknowledges the debt and, if 

payments are due, reaches a satisfactory 

arrangement to repay the loan or resumes 

making payments under such an 

arrangement to the agency; or

(B) Requests the Secretary to review 

the agency's decision.

(iv) Within 30 days after receiving 

the borrower's request for review by the 

Secretary, the agency shall forward the 

borrower's discharge request and all 

relevant documentation to the Secretary for 

his review and take the actions required 

under paragraph (e)(11) of this section.

(v) The agency shall resume 

collection action if within 30 days of giving 

notice of its determination the borrower 

fails to seek review by the Secretary or 

agree to repay the loan.

(10) Guaranty agency responsibilities 

in the case of a loan held by the agency for 

which a discharge request is submitted by a 

borrower based only on the borrower's 

assertion that he or she did not sign the 

loan check or the authorization for the 

release of loan proceeds via electronic funds 

transfer or master check. (i) The agency 

shall evaluate the borrower's request and 

consider relevant information it possesses 

and information available from other 

sources, and follow the procedures 

described in paragraph (e)(10) of this 

section.

(ii) If the agency determines that a 

borrower who asserts that he or she did not 

endorse the loan check satisfies the 

requirements for discharge under 

paragraph (e)(3)(iv) of this section, it shall 

refund to the Secretary the amount of 

reinsurance payment received with respect 

to the amount discharged on that loan less 

any repayments made by the lender under 

paragraph (e)(10)(ii)(D)( 2 ) of this section, 

and within 30 days after making that 

determination—

(A) Notify the borrower that his or 

her liability with respect to the amount of 

the contested disbursement of the loan has 

been discharged;

(B) Report to all credit reporting 

agencies to which the agency previously 

reported the status of the loan, so as to 

delete all adverse credit history assigned to 

the loan;

(C) Refund to the borrower all 

amounts paid by the borrower to the lender 

or the agency with respect to the 

discharged loan amount, including any late 

fees or collection charges imposed by the 

lender or agency related to the discharged 

loan amount;

(D) Notify the lender to whom a 

claim payment was made that the lender 

must refund to the Secretary, within 30 

days—
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

195

(1) All interest benefits and special 

allowance payments received from the 

Secretary with respect to the loan 

disbursement that was discharged; and

(2) The amount of the borrower's 

payments that were refunded to the 

borrower by the guaranty agency under 

paragraph (e)(10)(ii)(C) of this section that 

represent borrower payments previously 

paid to the lender with respect to the loan 

disbursement that was discharged;

(E) Notify the lender to whom a 

claim payment was made that the lender 

must, within 30 days, reimburse the agency 

for the amount of the loan that was 

discharged, minus the amount of borrower 

payments made to the lender that were 

refunded to the borrower by the guaranty 

agency under paragraph (e)(10)(ii)(C) of this 

section; and

(F) Transfer to the lender the 

borrower's written assignment of any rights 

the borrower may have against third parties 

with respect to the loan disbursement that 

was discharged.

(iii) In the case of a borrower who 

requests a discharge because he or she did 

not sign the electronic funds transfer or 

master check authorization, if the agency 

determines that the borrower meets the 

conditions for discharge, it shall 

immediately terminate any collection 

efforts against the borrower with respect to 

the discharged loan amount and any 

charges imposed or costs incurred by the 

agency related to the discharged loan 

amount that the borrower is, or was, 

otherwise obligated to pay, and within 30 

days after making that determination—

(A) Notify the borrower that his or 

her liability with respect to the amount of 

the contested disbursement of the loan has 

been discharged;

(B) Refund to the borrower all 

amounts paid by the borrower to the lender 

or the agency with respect to the 

discharged loan amount, including any late 

fees or collection charges imposed by the 

lender or agency related to the discharged 

loan amount; and

(C) Report to all credit reporting 

agencies to which the lender previously 

reported the status of the loan, so as to 

delete all adverse credit history assigned to 

the loan.

(iv) The agency shall take the actions 

required under paragraphs (e)(9) (iii) 

through (v) if the agency determines that 

the borrower does not qualify for a 

discharge.

(11) Guaranty agency responsibilities 

if a borrower requests a review by the 

Secretary. (i) Within 30 days after receiving 

the borrower's request for review under 

paragraph (e)(7)(iii)(B)( 2 ), (e)(8)(iv)(B)( 2 ), 

(e)(9)(iii)(B), or (e)(10)(iv) of this section, 

the agency shall forward the borrower's 

discharge request and all relevant 

documentation to the Secretary for his 

review.

(ii) The Secretary notifies the agency 

and the borrower of a determination on 

review. If the Secretary determines that the 

borrower is not eligible for a discharge 

under paragraph (e) of this section, within 

30 days after being so informed, the agency 

shall take the actions described in 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

196

paragraphs (e)(8) (iv) through (vii) or 

(e)(9)(iii) through (v) of this section, as 

applicable.

(iii) If the Secretary determines that 

the borrower meets the requirements for a 

discharge under paragraph (e) of this 

section, the agency shall, within 30 days 

after being so informed, take the actions 

required under paragraph (e)(7)(ii), 

(e)(8)(ii), (e)(8)(iii), (e)(9)(ii), (e)(10)(ii), or 

(e)(10)(iii) of this section, as applicable.

(12) Lender Responsibilities. (i) If the 

lender is notified by a guaranty agency or 

the Secretary, or receives information it 

believes to be reliable from another source 

indicating that a current or former 

borrower may be eligible for a discharge 

under paragraph (e) of this section, the 

lender shall immediately suspend any 

efforts to collect from the borrower on any 

loan received for the program of study for 

which the loan was made (but may 

continue to receive borrower payments) 

and, within 30 days of receiving the 

information or notification, inform the 

borrower of the procedures for requesting 

a discharge.

(ii) If the borrower fails to submit 

the written request and sworn statement 

described in paragraph (e)(3) of this section 

within 60 days of being notified of that 

option, the lender shall resume collection 

and shall be deemed to have exercised 

forbearance of payment of principal and 

interest from the date the lender 

suspended collection activity. The lender 

may capitalize, in accordance with 

§682.202(b), any interest accrued and not 

paid during that period.

(iii) The lender shall file a claim with 

the guaranty agency in accordance with 

§682.402(g) no later than 60 days after the 

lender receives the borrower's written 

request and sworn statement described in 

paragraph (e)(3) of this section. If a lender 

receives a payment made by or on behalf of 

the borrower on the loan after the lender 

files a claim on the loan with the guaranty 

agency, the lender shall forward the 

payment to the guaranty agency within 30 

days of its receipt. The lender shall assist 

the guaranty agency and the borrower in 

determining whether the borrower is 

eligible for discharge of the loan.

(iv) The lender shall comply with all 

instructions received from the Secretary or 

a guaranty agency with respect to loan 

discharges under paragraph (e) of this 

section.

(v) The lender shall review a claim 

that the borrower did not endorse and did 

not receive the proceeds of a loan check. 

The lender shall take the actions required 

under paragraphs (e)(8)(ii)(A) and (B) of this 

section if it determines that the borrower 

did not endorse the loan check, unless the 

lender secures persuasive evidence that the 

proceeds of the loan were received by the 

borrower or the student for whom the loan 

was made, as provided in paragraph 

(e)(1)(ii). If the lender determines that the 

loan check was properly endorsed or the 

proceeds were received by the borrower or 

student, the lender may consider the 

borrower's objection to repayment as a 

statement of intention not to repay the 

loan, and may file a claim with the guaranty 

agency for reimbursement on that ground, 

but shall not report the loan to consumer 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

197

reporting agencies credit bureaus as in 

default until the guaranty agency, or, as 

applicable, the Secretary, reviews the claim 

for relief. By filing such a claim, the lender 

shall be deemed to have agreed to the 

following—

(A) If the guarantor or the Secretary 

determines that the borrower endorsed the 

loan check or the proceeds of the loan were 

received by the borrower or the student, 

any failure to satisfy due diligence 

requirements by the lender prior to the 

filing of the claim that would have resulted 

in the loss of reinsurance on the loan in the 

event of default will be waived by the 

Secretary; and

(B) If the guarantor or the Secretary 

determines that the borrower did not 

endorse the loan check and that the 

proceeds of the loan were not received by 

the borrower or the student, the lender will 

comply with the requirements specified in 

paragraph (e)(8)(ii)(B) of this section.

(vi) Within 30 days after being 

notified by the guaranty agency that the 

borrower's request for a discharge has been 

denied, the lender shall notify the borrower 

of the reasons for the denial and, if 

payments are due, resume collection 

against the borrower. The lender shall be 

deemed to have exercised forbearance of 

payment of principal and interest from the 

date the lender suspended collection 

activity, and may capitalize, in accordance 

with §682.202(b), any interest accrued and 

not paid during that period.

(13) Requirements for certifying a 

borrower's eligibility for a loan. (i) For 

periods of enrollment beginning between 

July 1, 1987 and June 30, 1991, a student 

who had a general education diploma or 

received one before the scheduled 

completion of the program of instruction is 

deemed to have the ability to benefit from 

the training offered by the school.

(ii) A student not described in 

paragraph (e)(13)(i) of this section is 

considered to have the ability to benefit 

from training offered by the school if the 

student—

(A) For periods of enrollment 

beginning prior to July 1, 1987, was 

determined to have the ability to benefit 

from the school's training in accordance 

with the requirements of 34 CFR 668.6, as 

in existence at the time the determination 

was made;

(B) For periods of enrollment 

beginning between July 1, 1987 and June 

30, 1996, achieved a passing grade on a 

test—

(1) Approved by the Secretary, for 

periods of enrollment beginning on or after 

July 1, 1991, or by the accrediting agency 

for other periods; and

(2) Administered substantially in 

accordance with the requirements for use 

of the test;

(C) Successfully completed a 

program of developmental or remedial 

education provided by the school; or

(D) For periods of enrollment 

beginning on or after July 1, 1996 through 

June 30, 2000—
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

198

(1) Obtained, within 12 months 

before the date the student initially 

receives title IV, HEA program assistance, a 

passing score specified by the Secretary on 

an independently administered test in 

accordance with subpart J of 34 CFR part 

668; or

(2) Enrolled in an eligible institution 

that participates in a State process 

approved by the Secretary under subpart J 

of 34 CFR part 668.

(E) For periods of enrollment 

beginning on or after July 1, 2000—

(1) Met either of the conditions 

described in paragraph (e)(13)(ii)(D) of this 

section; or

(2) Was home schooled and met the 

requirements of 34 CFR 668.32(e)(4).

(iii) Notwithstanding paragraphs 

(e)(13)(i) and (ii) of this section, a student 

did not have the ability to benefit from 

training offered by the school if—

(A) The school certified the eligibility 

of the student for a FFEL Program loan; and

(B) At the time of certification, the 

student would not meet the requirements 

for employment (in the student's State of 

residence) in the occupation for which the 

training program supported by the loan was 

intended because of a physical or mental 

condition, age, or criminal record or other 

reason accepted by the Secretary.

(iv) Notwithstanding paragraphs 

(e)(13)(i) and (ii) of this section, a student 

has the ability to benefit from the training 

offered by the school if the student 

received a high school diploma or its 

recognized equivalent prior to enrollment 

at the school.

(14) Identity theft. (i) The 

unauthorized use of the identifying 

information of another individual that is 

punishable under 18 U.S.C. 1028, 1029, or 

1030, or substantially comparable State or 

local law.

(ii) Identifying information includes, 

but is not limited to—

(A) Name, Social Security number,

date of birth, official State or government 

issued driver's license or identification 

number, alien registration number, 

government passport number, and 

employer or taxpayer identification 

number;

(B) Unique biometric data, such as 

fingerprints, voiceprint, retina or iris image, 

or unique physical representation;

(C) Unique electronic identification 

number, address, or routing code; or

(D) Telecommunication identifying 

information or access device (as defined in 

18 U.S.C. 1029(e)).

(15) Discharge without an 

application. A borrower's obligation to 

repay all or a portion of an FFEL Program 

loan may be discharged without an 

application from the borrower if the 

Secretary, or the guaranty agency with the 

Secretary's permission, determines that the 

borrower qualifies for a discharge based on 

information in the Secretary or guaranty 

agency's possession.
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

199

(f) Bankruptcy —(1) General. If a 

borrower files a petition for relief under the 

Bankruptcy Code, the Secretary reimburses 

the holder of the loan for unpaid principal 

and interest on the loan in accordance with 

paragraphs (h) through (k) of this section.

(2) Suspension of collection activity. 

(i) If the lender is notified that a borrower 

has filed a petition for relief in bankruptcy, 

the lender must immediately suspend any 

collection efforts outside the bankruptcy 

proceeding against the borrower and—

(A) Must suspend any collection 

efforts against any co-maker or endorser if 

the borrower has filed for relief under 

Chapters 12 or 13 of the Bankruptcy Code; 

or

(B) May suspend any collection 

efforts against any co-maker or endorser if 

the borrower has filed for relief under 

Chapters 7 or 11 of the Bankruptcy Code.

(ii) If the lender is notified that a comaker or endorser has filed a petition for 

relief in bankruptcy, the lender must 

immediately suspend any collection efforts 

outside the bankruptcy proceeding against 

the co-maker or endorser and—

(A) Must suspend collection efforts 

against the borrower and any other parties 

to the note if the co-maker or endorser has 

filed for relief under Chapters 12 or 13 of 

the Bankruptcy Code; or

(B) May suspend any collection 

efforts against the borrower and any other 

parties to the note if the co-maker or 

endorser has filed for relief under Chapters 

7 or 11 of the Bankruptcy Code.

(3) Determination of filing. The 

lender must determine that a borrower has 

filed a petition for relief in bankruptcy on 

the basis of receiving a notice of the first 

meeting of creditors or other proof of filing 

provided by the debtor's attorney or the 

bankruptcy court.

(4) Proof of claim. (i) Except as 

provided in paragraph (f)(4)(ii) of this 

section, the holder of the loan shall file a 

proof of claim with the bankruptcy court 

within—

(A) 30 days after the holder receives 

a notice of first meeting of creditors unless, 

in the case of a proceeding under chapter 7, 

the notice states that the borrower has no 

assets; or

(B) 30 days after the holder receives 

a notice from the court stating that a 

chapter 7 no-asset case has been converted 

to an asset case.

(ii) A guaranty agency that is a state 

guaranty agency, and on that basis may 

assert immunity from suit in bankruptcy 

court, and that does not assign any loans 

affected by a bankruptcy filing to another 

guaranty agency—

(A) Is not required to file a proof of 

claim on a loan already held by the 

guaranty agency; and

(B) May direct lenders not to file 

proofs of claim on loans guaranteed by that 

agency.

(5) Filing of bankruptcy claim with 

the guaranty agency. (i) The lender shall file 

a bankruptcy claim on the loan with the 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

200

guaranty agency in accordance with 

paragraph (g) of this section, if—

(A) The borrower has filed a petition 

for relief under chapters 12 or 13 of the 

Bankruptcy Code; or

(B) The borrower has filed a petition 

for relief under chapters 7 or 11 of the 

Bankruptcy Code before October 8, 1998 

and the loan has been in repayment for 

more than seven years (exclusive of any 

applicable suspension of the repayment 

period) from the due date of the first 

payment until the date of the filing of the 

petition for relief; or

(C) The borrower has begun an 

action to have the loan obligation 

determined to be dischargeable on grounds 

of undue hardship.

(ii) In cases not described in 

paragraph (f)(5)(i) of this section, the lender 

shall continue to hold the loan 

notwithstanding the bankruptcy 

proceeding. Once the bankruptcy 

proceeding is completed or dismissed, the 

lender shall treat the loan as if the lender 

had exercised forbearance as to repayment 

of principal and interest accrued from the 

date of the borrower's filing of the 

bankruptcy petition until the date the 

lender is notified that the bankruptcy 

proceeding is completed or dismissed.

(g) Claim procedures for a loan held 

by a lender —(1) Documentation. A lender 

shall provide the guaranty agency with the 

following documentation when filing a 

death, disability, closed school, false 

certification, or bankruptcy claim:

(i) The original or a true and exact 

copy of the promissory note.

(ii) The loan application, if a 

separate loan application was provided to 

the lender.

(iii) In the case of a death claim, an 

original or certified death certificate, or 

other documentation supporting the 

discharge request that formed the basis for 

the determination of death.

(iv) In the case of a disability claim, a 

copy of the notification described in 

paragraph (c)(3)(iii) or (c)(9)(ix) of this 

section in which the Secretary notifies the 

lender that the borrower is totally and 

permanently disabled. [NOTE: This 

paragraph reflects changes made by final 

regulations published on November 1, 2012 

(77 FR 66088).]

(v) In the case of a bankruptcy 

claim—

(A) Evidence that a bankruptcy 

petition has been filed, all pertinent 

documents sent to or received from the 

bankruptcy court by the lender, and an 

assignment to the guaranty agency of any 

proof of claim filed by the lender regarding 

the loan; and

(B) A statement of any facts of which 

the lender is aware that may form the basis 

for an objection or exception to the 

discharge of the borrower's loan obligation 

in bankruptcy and all documents supporting

those facts.

(vi) In the case of a closed school 

claim, the documentation described in 

paragraph (d)(3) of this section, or any 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

201

other documentation as the Secretary may 

require;

(vii) In the case of a false 

certification claim, the documentation 

described in paragraph (e)(3) of this section.

(2) Filing deadlines. A lender shall 

file a death, disability, closed school, false 

certification, or bankruptcy claim within the 

following periods:

(i) Within 60 days of the date on 

which the lender determines that a 

borrower (or the student on whose behalf a 

parent obtained a PLUS loan) has died. 

[NOTE: This paragraph reflects changes 

made by final regulations published on 

November 1, 2012 (77 FR 66088).]

(ii) Within 60 days of the date the 

lender received notification from the 

Secretary that the borrower is totally and 

permanently disabled, in accordance with 

paragraphs (c)(3)(iii) or (c)(9)(ix) of this 

section. [NOTE: New paragraph (ii) was 

added) by final regulations published on 

November 1, 2012 (77 FR 66088).]

(iii) In the case of a closed school 

claim, the lender shall file a claim with the 

guaranty agency no later than 60 days after 

the borrower submits to the lender the 

written request and sworn statement 

described in paragraph (d)(3) of this section 

or after the lender is notified by the 

Secretary or the Secretary's designee or by 

the guaranty agency to do so. [NOTE: 

Original paragraph (ii) was redesignated (iii)

by final regulations published on November 

1, 2012 (77 FR 66088).]

(iv) In the case of a false certification 

claim, the lender shall file a claim with the 

guaranty agency no later than 60 days after 

the borrower submits to the lender the 

written request and sworn statement 

described in paragraph (e)(3) of this section 

or after the lender is notified by the 

Secretary or the Secretary's designee or by 

the guaranty agency to do so. [NOTE: 

Original paragraph (iii) was redesignated 

(iv) by final regulations published on 

November 1, 2012 (77 FR 66088).]

(v) A lender shall file a bankruptcy 

claim with the guaranty agency by the 

earlier of— [NOTE: Original paragraph (iv) 

was redesignated (v) by final regulations 

published on November 1, 2012 (77 FR 

66088).]

(A) 30 days after the date on which 

the lender receives notice of the first 

meeting of creditors or other information 

described in paragraph (f)(3) of this section; 

or

(B) 15 days after the lender is served 

with a complaint or motion to have the loan 

determined to be dischargeable on grounds 

of undue hardship, or, if the lender secures 

an extension of time within which an 

answer may be filed, 25 days before the 

expiration of that extended period, 

whichever is later.

(h) Payment of death, disability, 

closed school, false certification, and 

bankruptcy claims by the guaranty agency 

—(1) General. (i) Except as provided in 

paragraph (h)(1)(v) of this section, the 

guaranty agency shall review a death, 

disability, bankruptcy, closed school, or 

false certification claim promptly and shall 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

202

pay the lender on an approved claim the 

amount of loss in accordance with 

paragraphs (h)(2) and (h)(3) of this 

section—

(A) Not later than 45 days after the 

claim was filed by the lender for death, 

disability, and bankruptcy claims; and 

[NOTE: This paragraph reflects changes 

made by final regulations published on 

November 1, 2012 (77 FR 66088).]

(B) Not later than 90 days after the 

claim was filed by the lender for closed 

school or false certification claims. [NOTE: 

This paragraph reflects changes made by 

final regulations published on November 1, 

2012 (77 FR 66088).]

(ii) In the case of a bankruptcy claim, 

the guaranty agency shall, upon receipt of 

the claim from the lender, immediately take 

those actions required under paragraph (i) 

of this section to oppose the discharge of 

the loan by the bankruptcy court.

(iii) In the case of a closed school 

claim or a false certification claim based on 

the determination that the borrower did 

not sign the loan application, the 

promissory note, or the authorization for 

the electronic transfer of loan funds, or that 

the school failed to test, or improperly 

tested, the student's ability to benefit, the 

guaranty agency shall document its 

determination that the borrower is eligible 

for discharge under paragraphs (d) or (e) of 

this section and pay the borrower or the 

holder the amount determined under 

paragraph (h)(2) of this section.

(iv) In reviewing a claim under this 

section, the issue of confirmation of 

subsequent loans under an MPN will not be 

reviewed and a claim will not be denied 

based on the absence of any evidence 

relating to confirmation in a particular loan 

file. However, if a court rules that a loan is 

unenforceable solely because of the lack of 

evidence of the confirmation process or 

processes, insurance benefits must be 

repaid.

(v) In the case of a disability claim

based on a veteran’s discharge application 

processed in accordance with paragraph 

(c)(9) of this section, the guaranty agency 

must review the claim promptly and not 

later than 45 days after the claim was filed 

by the lender pay the claim or return the 

claim to the lender in accordance with 

paragraph (c)(9)(xi)(B) of this section. 

[NOTE: This paragraph reflects changes 

made by final regulations published on 

November 1, 2012 (77 FR 66088).]

(2)(i) The amount of loss payable—

(A) On a death or disability claim is 

equal to the sum of the remaining principal 

balance and interest accrued on the loan, 

collection costs incurred by the lender and 

applied to the borrower's account within 30 

days of the date those costs were actually 

incurred, and unpaid interest up to the date 

the lender should have filed the claim.

(B) On a bankruptcy claim is equal to 

the unpaid balance of principal and interest 

determined in accordance with paragraph 

(h)(3) of this section.

(ii) The amount of loss payable to a 

lender on a closed school claim or on a false 

certification claim is equal to the sum of the 

remaining principal balance and interest 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

203

accrued on the loan, collection costs 

incurred by the lender and applied to the 

borrower's account within 30 days of the 

date those costs were actually incurred, and 

unpaid interest determined in accordance 

with paragraph (h)(3) of this section.

(iii) In the case of a closed school or 

false certification claim filed by a lender on 

an outstanding loan owed by the borrower, 

on the same date that the agency pays a 

claim to the lender, the agency shall pay the 

borrower an amount equal to the amount 

paid on the loan by or on behalf of the 

borrower, less any school tuition refunds or 

payments received by the holder or the 

borrower from a tuition recovery fund, 

performance bond, or other third-party 

source.

(iv) In the case of a claim filed by a 

lender based on a request received from a 

borrower whose loan had been repaid in 

full by, or on behalf of the borrower to the 

lender, on the same date that the agency 

notifies the lender that the borrower is 

eligible for a closed school or false 

certification discharge, the agency shall pay 

the borrower an amount equal to the 

amount paid on the loan by or on behalf of 

the borrower, less any school tuition 

refunds or payments received by the holder 

or the borrower from a tuition recovery 

fund, performance bond, or other thirdparty source.

(v) In the case of a loan that has 

been included in a Consolidation Loan, the 

agency shall pay to the holder of the 

borrower's Consolidation Loan, an amount 

equal to—

(A) The amount paid on the loan by 

or on behalf of the borrower at the time the 

loan was paid through consolidation;

(B) The amount paid by the 

consolidating lender to the holder of the 

loan when it was repaid through 

consolidation; minus

(C) Any school tuition refunds or 

payments received by the holder or the 

borrower from a tuition recovery fund, 

performance bond, or other third-party 

source if those refunds or payments were—

(1) Received by the borrower or 

received by the holder and applied to the 

borrower's loan balance before the date the 

loan was repaid through consolidation; or

(2) Received by the borrower or 

received by the Consolidation Loan holder 

on or after the date the consolidating 

lender made a payment to the former 

holder to discharge the borrower's 

obligation to that former holder.

(3) Payment of interest. If the 

guarantee covers unpaid interest, the 

amount payable on an approved claim 

includes the unpaid interest that accrues 

during the following periods:

(i) During the period before the 

claim is filed, not to exceed the period 

provided for in paragraph (g)(2) of this 

section for filing the claim.

(ii) During a period not to exceed 30 

days following the receipt date by the 

lender of a claim returned by the guaranty 

agency for additional documentation 

necessary for the claim to be approved by 

the guaranty agency.
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

204

(iii) During the period required by 

the guaranty agency to approve the claim 

and to authorize payment or to return the 

claim to the lender for additional 

documentation not to exceed—

(A) 45 days for death, disability, or 

bankruptcy claims; or [NOTE: This 

paragraph reflects changes made by final 

regulations published on November 1, 2012 

(77 FR 66088).]

(B) 90 days for closed school or false 

certification claims. [NOTE: This paragraph 

reflects changes made by final regulations 

published on November 1, 2012 (77 FR 

66088).]

(i) Guaranty agency participation in 

bankruptcy proceedings —(1) Undue 

hardship claims. (i) In response to a petition 

filed prior to October 8, 1998 with regard to 

any bankruptcy proceeding by the borrower 

for discharge under 11 U.S.C. 523(a)(8) on 

the grounds of undue hardship, the 

guaranty agency must, on the basis of 

reasonably available information, 

determine whether the first payment on 

the loan was due more than 7 years 

(exclusive of any applicable suspension of 

the repayment period) before the filing of 

that petition and, if so, process the claim.

(ii) In all other cases, the guaranty 

agency must determine whether repayment 

under either the current repayment 

schedule or any adjusted schedule 

authorized under this part would impose an 

undue hardship on the borrower and his or 

her dependents.

(iii) If the guaranty agency 

determines that repayment would not 

constitute an undue hardship, the guaranty 

agency must then determine whether the 

expected costs of opposing the discharge 

petition would exceed one-third of the total 

amount owed on the loan, including 

principal, interest, late charges, and 

collection costs. If the guaranty agency has 

determined that the expected costs of 

opposing the discharge petition will exceed 

one-third of the total amount of the loan, it 

may, but is not required to, engage in the 

activities described in paragraph (i)(1)(iv) of 

this section.

(iv) The guaranty agency must use 

diligence and may assert any defense 

consistent with its status under applicable 

law to avoid discharge of the loan. Unless 

discharge would be more effectively 

opposed by not taking the following 

actions, the agency must—

(A) Oppose the borrower's petition 

for a determination of dischargeability; and

(B) If the borrower is in default on 

the loan, seek a judgment for the amount 

owed on the loan.

(v) In opposing a petition for a 

determination of dischargeability on the 

grounds of undue hardship, a guaranty 

agency may agree to discharge of a portion 

of the amount owed on a loan if it 

reasonably determines that the agreement 

is necessary in order to obtain a judgment 

on the remainder of the loan.

(2) Response by a guaranty agency 

to plans proposed under Chapters 11, 12, 

and 13. The guaranty agency shall take the 

following actions when a petition for relief 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

205

in bankruptcy under Chapters 11, 12, or 13 

is filed:

(i) The agency is not required to 

respond to a proposed plan that—

(A) Provides for repayment of the 

full outstanding balance of the loan;

(B) Makes no provision with regard 

to the loan or to general unsecured claims.

(ii) In any other case, the agency 

shall determine, based on a review of its 

own records and documents filed by the 

debtor in the bankruptcy proceeding—

(A) What part of the loan obligation 

will be discharged under the plan as 

proposed;

(B) Whether the plan itself or the 

classification of the loan under the plan 

meets the requirements of 11 U.S.C. 1129, 

1225, or 1325, as applicable; and

(C) Whether grounds exist under 11 

U.S.C. 1112, 1208, or 1307, as applicable, to 

move for conversion or dismissal of the 

case.

(iii) If the agency determines that 

grounds exist to challenge the proposed 

plan, the agency shall, as appropriate, 

object to the plan or move to dismiss the 

case, if—

(A) The costs of litigation of these 

actions are not reasonably expected to 

exceed one-third of the amount of the loan 

to be discharged under the plan; and

(B) With respect to an objection 

under 11 U.S.C. 1325, the additional 

amount that may be recovered under the 

plan if an objection is successful can 

reasonably be expected to equal or exceed 

the cost of litigating the objection.

(iv) The agency shall monitor the 

debtor's performance under a confirmed 

plan. If the debtor fails to make payments 

required under the plan or seeks but does 

not demonstrate entitlement to discharge 

under 11 U.S.C. 1328(b), the agency shall 

oppose any requested discharge or move to 

dismiss the case if the costs of litigation 

together with the costs incurred for 

objections to the plan are not reasonably 

expected to exceed one-third of the 

amount of the loan to be discharged under 

the plan.

(j) Mandatory purchase by a lender 

of a loan subject to a bankruptcy claim. (1) 

The lender shall repurchase from the 

guaranty agency a loan held by the agency 

pursuant to a bankruptcy claim paid to that 

lender, unless the guaranty agency sells the 

loan to another lender, promptly after the 

earliest of the following events:

(i) The entry of an order denying or 

revoking discharge or dismissing a 

proceeding under any chapter.

(ii) A ruling in a proceeding under 

chapter 7 or 11 that the loan is not 

dischargeable under 11 U.S.C. 523(a)(8) or 

other applicable law.

(iii) The entry of an order granting 

discharge under chapter 12 or 13, or 

confirming a plan of arrangement under 

chapter 11, unless the court determined 

that the loan is dischargeable under 11 

U.S.C. 523(a)(8) on grounds of undue 

hardship.
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

206

(2) The lender may capitalize all 

outstanding interest accrued on a loan 

purchased under paragraph (j) of this 

section to cover any periods of delinquency 

prior to the bankruptcy action through the 

date the lender purchases the loan and 

receives the supporting loan 

documentation from the guaranty agency.

(k) Claims for reimbursement from 

the Secretary on loans held by guarantee 

agencies. (1)(i) The Secretary reimburses 

the guaranty agency for its losses on 

bankruptcy claims paid to lenders after—

(A) A determination by the court 

that the loan is dischargeable under 11 

U.S.C. 523(a)(8) with respect to a 

proceeding initiated under chapter 7 or 

chapter 11; or

(B) With respect to any other loan, 

after the agency pays the claim to the 

lender.

(ii) The guaranty agency shall refund 

to the Secretary the full amount of 

reimbursement received from the Secretary 

on a loan that a lender repurchases under 

this section.

(2) The Secretary pays a death, 

disability, bankruptcy, closed school, or 

false certification claim in an amount 

determined under §682.402(k)(5) on a loan 

held by a guaranty agency after the agency 

has paid a default claim to the lender 

thereon and received payment under its 

reinsurance agreement. The Secretary 

reimburses the guaranty agency only if—

(i) The Secretary determines that the

borrower (or each of the co-makers of a

PLUS loan) has become totally and

permanently disabled since applying for the 

loan, or the guaranty agency determines 

that the borrower (or the student for whom 

a parent obtained a PLUS loan or each of 

the co-makers of a PLUS loan) has died, or 

has filed for relief in bankruptcy, in 

accordance with the procedures in 

paragraph (b), (c), or (f) of this section, or 

the student was unable to complete an 

educational program because the school 

closed, or the borrower’s eligibility to 

borrow (or the student’s eligibility in the 

case of a PLUS loan) was falsely certified by 

an eligible school. For purposes of this

paragraph, references to the ‘‘lender’’ and 

‘‘guaranty agency’’ in paragraphs (b)

through (f) of this section mean the

guaranty agency and the Secretary

respectively; [NOTE: This paragraph 

reflects changes made by final regulations 

published on November 1, 2012 (77 FR 

66088).]

(ii) In the case of a Stafford, SLS, or

PLUS loan, the Secretary determines that 

the borrower (or each of the co-makers of a 

PLUS loan) has become totally and 

permanently disabled since applying for the 

loan, the guaranty agency determines that 

the borrower (or the student for whom a 

parent obtained a PLUS loan, or each of the 

co-makers of a PLUS loan) has died, or has 

filed the petition for relief in bankruptcy

within 10 years of the date the borrower

entered repayment, exclusive of periods of 

deferment or periods of forbearance

granted by the lender that extended the 10-

year maximum repayment period, or the 

borrower (or the student for whom a 

parent received a PLUS loan) was unable to 

complete an educational program because 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

207

the school closed, or the borrower’s 

eligibility to borrow (or the student’s 

eligibility in the case of a PLUS loan) was 

falsely certified by an eligible school [NOTE: 

This paragraph reflects changes made by 

final regulations published on November 1, 

2012 (77 FR 66088).]

(iii) In the case of a Consolidation 

loan, the borrower (or one of the comakers) has died, is determined by the 

Secretary to be totally and permanently 

disabled under §682.402(c), or has filed the 

petition for relief in bankruptcy within the 

maximum repayment period described in 

§682.209(h)(2), exclusive of periods of 

deferment or periods of forbearance 

granted by the lender that extended the 

maximum repayment period; [NOTE: This 

paragraph reflects changes made by final 

regulations published on November 1, 2012 

(77 FR 66088).]

(iv) The guaranty agency has not 

written off the loan in accordance with the 

procedures established by the agency under 

§682.410(b)(6)(x), except for closed school 

and false certification discharges; and

(v) The guaranty agency has 

exercised due diligence in the collection of 

the loan in accordance with the procedures 

established by the agency under 

§682.410(b)(6)(x), until the borrower (or 

the student for whom a parent obtained a 

PLUS loan, or each of the co-makers of a 

PLUS loan) has died, or the borrower (or 

each of the co-makers of a PLUS loan) has 

become totally and permanently disabled 

or filed a Chapter 12 or Chapter 13 petition, 

or had the loan discharged in bankruptcy, or 

for closed school and false certification 

claims, the guaranty agency receives a 

request for discharge from the borrower or 

another party.

(3) [Reserved]

(4) Within 30 days of receiving 

reimbursement for a closed school or false 

certification claim, the guaranty agency 

shall pay—

(i) The borrower an amount equal to 

the amount paid on the loan by or on behalf 

of the borrower, less any school tuition 

refunds or payments received by the 

holder, guaranty agency, or the borrower 

from a tuition recovery fund, performance 

bond, or other third-party source; or

(ii) The amount determined under 

paragraph (h)(2)(iv) of this section to the 

holder of the borrower's Consolidation 

Loan.

(5) The Secretary pays the guaranty 

agency a percentage of the outstanding 

principal and interest that is equal to the 

complement of the reinsurance percentage 

paid on the loan. This interest includes 

interest that accrues during—

(i) For death or bankruptcy claims, 

the shorter of 60 days or the period from 

the date the guaranty agency determines 

that the borrower (or the student for whom 

a parent obtained a PLUS loan, or each of 

the co-makers of a PLUS loan) died, or filed 

a petition for relief in bankruptcy until the 

Secretary authorizes payment;

(ii) For disability claims, the shorter 

of 60 days or the period from the date the 

Secretary makes a determination that the 

borrower became totally and permanently 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

208

disabled until the Secretary authorizes 

payment; or [NOTE: This paragraph reflects 

changes made by final regulations published 

on November 1, 2012 (77 FR 66088).]

(iii) For closed school or false 

certification claims, the period from the 

date on which the guaranty agency received 

payment from the Secretary on a default 

claim to the date on which the Secretary 

authorizes payment of the closed school or 

false certification claim.

(l) Unpaid refund discharge —(1) 

Unpaid refunds in closed school situations. 

In the case of a school that has closed, the 

Secretary reimburses the guarantor of a 

loan and discharges a former or current 

borrower's (and any endorser's) obligation 

to repay that portion of an FFEL Program 

loan (disbursed, in whole or in part on or 

after January 1, 1986) equal to the refund 

that should have been made by the school 

under applicable Federal law and 

regulations, including this section. Any 

accrued interest and other charges (late 

charges, collection costs, origination fees, 

and insurance premiums or Federal default 

fees) associated with the unpaid refund are 

also discharged.

(2) Unpaid refunds in open school 

situations. In the case of a school that is 

open, the guarantor discharges a former or 

current borrower's (and any endorser's) 

obligation to repay that portion of an FFEL 

loan (disbursed, in whole or in part, on or 

after January 1, 1986) equal to the amount 

of the refund that should have been made 

by the school under applicable Federal law 

and regulations, including this section, if—

(i) The borrower (or the student on 

whose behalf a parent borrowed) is not 

attending the school that owes the refund; 

and

(ii) The guarantor receives 

documentation regarding the refund and 

the borrower and guarantor have been 

unable to resolve the unpaid refund within 

120 days from the date the guarantor 

receives a complete application in 

accordance with paragraph (l)(4) of this 

section. Any accrued interest and other 

charges (late charges, collection costs, 

origination fees, and insurance premiums or 

Federal default fees) associated with the 

amount of the unpaid refund amount are 

also discharged.

(3) Relief to borrower (and any 

endorser) following discharge. (i) If a 

borrower receives a discharge of a portion 

of a loan under this section, the borrower is 

reimbursed for any amounts paid in excess 

of the remaining balance of the loan 

(including accrued interest, late charges, 

collection costs, origination fees, and 

insurance premiums or Federal default fees) 

owed by the borrower at the time of 

discharge.

(ii) The holder of the loan reports 

the discharge of a portion of a loan under 

this section to all credit reporting agencies 

to which the holder of the loan previously 

reported the status of the loan.

(4) Borrower qualification for 

discharge. To receive a discharge of a 

portion of a loan under this section, a 

borrower must submit a written application 

to the holder or guaranty agency except as 

provided in paragraph (l)(5)(iv) of this 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

209

section. The application requests the 

information required to calculate the 

amount of the discharge and requires the 

borrower to sign a statement swearing to 

the accuracy of the information in the 

application. The statement need not be 

notarized but must be made by the 

borrower under penalty of perjury. In the 

statement, the borrower must—

(i) State that the borrower (or the 

student on whose behalf a parent 

borrowed)—

(A) Received the proceeds of a loan, 

in whole or in part, on or after January 1, 

1986 to attend a school;

(B) Did not attend, withdrew, or was 

terminated from the school within a 

timeframe that entitled the borrower to a 

refund; and

(C) Did not receive the benefit of a 

refund to which the borrower was entitled 

either from the school or from a third party, 

such as a holder of a performance bond or a 

tuition recovery program.

(ii) State whether the borrower has 

any other application for discharge pending 

for this loan; and

(iii) State that the borrower—

(A) Agrees to provide upon request 

by the Secretary or the Secretary's designee 

other documentation reasonably available 

to the borrower that demonstrates that the 

borrower meets the qualifications for an 

unpaid refund discharge under this section; 

and

(B) Agrees to cooperate with the 

Secretary or the Secretary's designee in 

enforcement actions in accordance with 

paragraph (e) of this section and to transfer 

any right to recovery against a third party to 

the Secretary in accordance with paragraph 

(d) of this section.

(5) Unpaid refund discharge 

procedures. (i) Except for the requirements 

of paragraph (l)(5)(iv) of this section related 

to an open school, if the holder or guaranty 

agency learns that a school did not pay a 

refund of loan proceeds owed under 

applicable law and regulations, the holder 

or the guaranty agency sends the borrower 

a discharge application and an explanation 

of the qualifications and procedures for 

obtaining a discharge. The holder of the 

loan also promptly suspends any efforts to 

collect from the borrower on any affected 

loan.

(ii) If the borrower returns the 

application, specified in paragraph (l)(4) of 

this section, the holder or the guaranty 

agency must review the application to 

determine whether the application appears 

to be complete. In the case of a loan held by 

a lender, once the lender determines that 

the application appears complete, it must 

provide the application and all pertinent 

information to the guaranty agency 

including, if available, the borrower's last 

date of attendance. If the borrower returns 

the application within 60 days, the lender 

must extend the period during which efforts 

to collect on the affected loan are 

suspended to the date the lender receives 

either a denial of the request or the unpaid 

refund amount from the guaranty agency. 

At the conclusion of the period during 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

210

which the collection activity was 

suspended, the lender may capitalize any 

interest accrued and not paid during that 

period in accordance with §682.202(b).

(iii) If the borrower fails to return 

the application within 60 days, the holder of 

the loan resumes collection efforts and 

grants forbearance of principal and interest 

for the period during which the collection 

activity was suspended. The holder may 

capitalize any interest accrued and not paid 

during that period in accordance with 

§682.202(b).

(iv) The guaranty agency may, with 

the approval of the Secretary, discharge a 

portion of a loan under this section without 

an application if the guaranty agency 

determines, based on information in the 

guaranty agency's possession, that the 

borrower qualifies for a discharge.

(v) If the holder of the loan or the 

guaranty agency determines that the 

information contained in its files conflicts 

with the information provided by the 

borrower, the guaranty agency must use 

the most reliable information available to it 

to determine eligibility for and the 

appropriate payment of the refund amount.

(vi) If the holder of the loan is the 

guaranty agency and the agency determines 

that the borrower qualifies for a discharge 

of an unpaid refund, the guaranty agency 

must suspend any efforts to collect on the 

affected loan and, within 30 days of its 

determination, discharge the appropriate 

amount and inform the borrower of its 

determination. Absent documentation of 

the exact amount of refund due the 

borrower, the guaranty agency must 

calculate the amount of the unpaid refund 

using the unpaid refund calculation defined 

in paragraph (o) of this section.

(vii) If the guaranty agency 

determines that a borrower does not 

qualify for an unpaid refund discharge, (or, 

if the holder is the lender and is informed 

by the guarantor that the borrower does 

not qualify for a discharge)—

(A) Within 30 days of the guarantor's 

determination, the agency must notify the 

borrower in writing of the reason for the 

determination and of the borrower's right 

to request a review of the agency's 

determination. The guaranty agency must 

make a determination within 30 days of the 

borrower's submission of additional 

documentation supporting the borrower's 

eligibility that was not considered in any 

prior determination. During the review 

period, collection activities must be 

suspended; and

(B) The holder must resume 

collection if the determination remains 

unchanged and grant forbearance of 

principal and interest for any period during 

which collection activity was suspended 

under this section. The holder may 

capitalize any interest accrued and not paid 

during these periods in accordance with 

§682.202(b).

(viii) If the guaranty agency 

determines that a current or former 

borrower at an open school may be eligible 

for a discharge under this section, the 

guaranty agency must notify the lender and 

the school of the unpaid refund allegation. 

The notice to the school must include all 

pertinent facts available to the guaranty 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

211

agency regarding the alleged unpaid refund. 

The school must, no later than 60 days after 

receiving the notice, provide the guaranty 

agency with documentation demonstrating, 

to the satisfaction of the guarantor, that the 

alleged unpaid refund was either paid or 

not required to be paid.

(ix) In the case of a school that does 

not make a refund or provide sufficient 

documentation demonstrating the refund 

was either paid or was not required, within 

60 days of its receipt of the allegation 

notice from the guaranty agency, relief is 

provided to the borrower (and any 

endorser) if the guaranty agency 

determines the relief is appropriate. The 

agency must forward documentation of the 

school's failure to pay the unpaid refund to 

the Secretary.

(m) Unpaid refund discharge 

procedures for a loan held by a lender. In 

the case of an unpaid refund discharge 

request, the lender must provide the 

guaranty agency with documentation 

related to the borrower's qualification for 

discharge as specified in paragraph (l)(4) of 

this section.

(n) Payment of an unpaid refund 

discharge request by a guaranty agency —

(1) General. The guaranty agency must 

review an unpaid refund discharge request 

promptly and must pay the lender the 

amount of loss as defined in paragraphs 

(l)(1) and (l)(2) of this section, related to the 

unpaid refund not later than 45 days after a 

properly filed request is made.

(2) Determination of the unpaid 

refund discharge amount to the lender. The 

amount of loss payable to a lender on an 

unpaid refund includes that portion of an 

FFEL Program loan equal to the amount of 

the refund required under applicable 

Federal law and regulations, including this 

section, and including any accrued interest 

and other charges (late charges, collection 

costs, origination fees, and insurance 

premiums or Federal default fees) 

associated with the unpaid refund.

(o)(1) Determination of amount 

eligible for discharge. The guaranty agency 

determines the amount eligible for 

discharge based on information showing 

the refund amount or by applying the 

appropriate refund formula to information 

that the borrower provides or that is 

otherwise available to the guaranty agency. 

For purposes of this section, all unpaid 

refunds are considered to be attributed to 

loan proceeds.

(2) If the information in paragraph 

(o)(1) of this section is not available, the 

guaranty agency uses the following 

formulas to determine the amount eligible 

for discharge:

(i) In the case of a student who fails 

to attend or whose withdrawal or 

termination date is before October 7, 2000 

and who completes less than 60 percent of 

the loan period, the guaranty agency 

discharges the lesser of the institutional 

charges unearned or the loan amount. The 

guaranty agency determines the amount of 

the institutional charges unearned by—

(A) Calculating the ratio of the 

amount of time in the loan period after the 

student's last day of attendance to the 

actual length of the loan period; and
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

212

(B) Multiplying the resulting factor 

by the institutional charges assessed the 

student for the loan period.

(ii) In the case of a student who fails 

to attend or whose withdrawal or 

termination date is on or after October 7, 

2000 and who completes less than 60 

percent of the loan period, the guaranty 

agency discharges the loan amount 

unearned. The guaranty agency determines 

the loan amount unearned by—

(A) Calculating the ratio of the 

amount of time remaining in the loan 

period after the student's last day of 

attendance to the actual length of the loan 

period; and

(B) Multiplying the resulting factor 

by the total amount of title IV grants and 

loans received by the student, or if 

unknown, the loan amount.

(iii) In the case of a student who 

completes 60 percent or more of the loan 

period, the guaranty agency does not 

discharge any amount because a student 

who completes 60 percent or more of the 

loan period is not entitled to a refund.

(p) Requests for reimbursement 

from the Secretary on loans held by 

guaranty agencies. The Secretary 

reimburses the guaranty agency for its 

losses on unpaid refund request payments 

to lenders or borrowers in an amount that 

is equal to the amount specified in 

paragraph (n)(2) of this section.

(q) Payments received after the 

guaranty agency's payment of an unpaid 

refund request. (1) The holder must 

promptly return to the sender any payment 

on a fully discharged loan, received after 

the guaranty agency pays an unpaid refund 

request unless the sender is required to pay 

(as in the case of a tuition recovery fund) in 

which case, the payment amount must be 

forwarded to the Secretary. At the same 

time that the holder returns the payment, it 

must notify the borrower that there is no 

obligation to repay a loan fully discharged.

(2) If the holder has returned a 

payment to the borrower, or the borrower's 

representative, with the notice described in 

paragraph (q)(1) of this section, and the 

borrower (or representative) continues to 

send payments to the holder, the holder 

must remit all of those payments to the 

Secretary.

(3) If the loan has not been fully 

discharged, payments must be applied to 

the remaining debt.

(r) Payments received after the 

Secretary's payment of a death, disability, 

closed school, false certification, or 

bankruptcy claim (1) If the guaranty agency 

receives any payments from or on behalf of 

the borrower on or attributable to a loan 

that has been discharged in bankruptcy on 

which the Secretary previously paid a 

bankruptcy claim, the guaranty agency 

must return 100 percent of these payments 

to the sender. The guaranty agency must 

promptly return, to the sender, any 

payment on a cancelled or discharged loan 

made by the sender and received after the 

Secretary pays a closed school or false 

certification claim. At the same time that 

the agency returns the payment, it must 

notify the borrower that there is no 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

213

obligation to repay a loan discharged on the 

basis of death, bankruptcy, false 

certification, or closing of the school.

(2). If the guaranty agency receives 

any payments from or on behalf of the

borrower on or attributable to a loan that

has been assigned to the Secretary based

on the determination that the borrower is 

eligible for a total and permanent disability 

discharge, the guaranty agency must 

promptly return these payments to the 

sender. At the same time that the agency 

returns the payments, it must notify the 

borrower that there is no obligation to 

make payments on the loan after it has 

been discharged due to a total and 

permanent disability, unless the loan is 

reinstated in accordance with paragraph (c) 

of this section, or the Secretary directs the

borrower otherwise. [NOTE: This 

paragraph reflects changes made by final 

regulations published on November 1, 2012 

(77 FR 66088).]

(3) When the Secretary discharges 

the loan, the Secretary returns to the 

sender any payments received by the 

Secretary on the loan after the date the 

borrower became totally and permanently

disabled. [NOTE: This paragraph reflects 

changes made by final regulations published 

on November 1, 2012 (77 FR 66088).]

(4) The guaranty agency shall remit 

to the Secretary all payments received from 

a tuition recovery fund, performance bond, 

or other third party with respect to a loan 

on which the Secretary previously paid a 

closed school or false certification claim.

(5) If the guaranty agency has 

returned a payment to the borrower, or the 

borrower's representative, with the notice 

described in paragraphs (r)(1) or (r)(2) of 

this section, and the borrower (or 

representative) continues to send payments 

to the guaranty agency, the agency must 

remit all of those payments to the 

Secretary.

(s) Applicable suspension of the 

repayment period. For purposes of this 

section and 11 U.S.C. 523(a)(8)(A) with 

respect to loans guaranteed under the FFEL 

Program, an applicable suspension of the 

repayment period—

(1) Includes any period during which 

the lender does not require the borrower to 

make a payment on the loan.

(2) Begins on the date on which the 

borrower qualifies for the requested 

deferment as provided in §682.210(a)(5) or 

the lender grants the requested 

forbearance;

(3) Closes on the later of the date on 

which—

(i) The condition for which the 

requested deferment or forbearance was 

received ends; or

(ii) The lender receives notice of the 

end of the condition for which the 

requested deferment or forbearance was 

received, if the condition ended earlier than 

represented by the borrower at the time of 

the request and the borrower did not notify 

timely the lender of the date on which the 

condition actually ended;

(4) Includes the period between the 

end of the borrower's grace period and the 

first payment due date established by the 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.402

Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments

214

lender in the case of a borrower who 

entered repayment without the knowledge 

of the lender;

(5) Includes the period between the 

filing of the petition for relief and the date 

on which the proceeding is completed or 

dismissed, unless payments have been 

made during that period in amounts 

sufficient to meet the amount owed under 

the repayment schedule in effect when the 

petition was filed.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1070g, 1078, 1078–1, 

1078–2, 1078–3, 1082, 1087)

[57 FR 60323, Dec. 18, 1992]

Editorial Note: For Federal Register 

citations affecting §682.402, see the List of 

CFR Sections Affected, which appears in the 

Finding Aids section of the printed volume 

and on GPO Access. 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.403

Federal advances for claim payments

215

§ 682.403 Federal advances for claim 

payments.

(a) The Secretary makes an advance 

to a guaranty agency that has a reinsurance 

agreement. The advance may be used only 

to pay guarantee claims. The Secretary 

makes an advance to—

(1) A State guaranty agency; or

(2) 1 or more private nonprofit 

guarantee agencies in a State if, during a 

fiscal year—

(i) The State does not have a 

guaranty agency program;

(ii) The Secretary consults the chief 

executive officer of the State and finds it 

unlikely that the State will have a program 

for that year; and

(iii) Each private nonprofit guaranty 

agency—

(A) Agrees to establish at least 1 

office in the State with sufficient staff to 

handle written and telephone inquiries 

from students, eligible lenders, and other 

persons in the State;

(B) Agrees to encourage maximum 

commercial lender participation within the 

State and to conduct periodic visits to at 

least the major lenders within the State;

(C) Agrees that the benefit of its 

loan guarantees will not be denied to 

students because of their choice of schools 

or lack of need; and

(D) Certifies that it is not an 

institution of higher education and that it 

does not have any substantial affiliation 

with an institution of higher education.

(b) A guaranty agency shall apply to 

the Secretary in order to receive an initial 

advance.

(c)(1) An advance may be made to a 

new guaranty agency for each of five 

consecutive calendar years. A new agency is 

an agency that entered into a basic 

agreement on or after October 12, 1976, or 

that was not actively carrying on a loan 

guarantee program on or before October 

12, 1976.

(2)(i) A guaranty agency may request 

that the initial advance be made on a 

specified date. The Secretary pays 

subsequent advances on the same day that 

the initial advance was made for each of the 

four succeeding calendar years.

(ii) An additional advance may be 

made to a private nonprofit guaranty 

agency only if the agency continues to 

qualify under paragraph (a) of this section.

(d) The Secretary makes an advance 

to a guaranty agency—

(1) On terms and conditions 

specified in an agreement between the 

Secretary and the guaranty agency;

(2) To ensure that the agency will 

fulfill its lender-of-last resort obligation; and

(3) To meet the agency's immediate 

cash needs and to ensure the uninterrupted 

payment of claims when the Secretary has 

terminated the agency's agreement and 

assumed its functions.
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.403

Federal advances for claim payments

216

(e) In the case of a private nonprofit 

guaranty agency, the repayment of 

advances is determined separately for each 

State for which the agency has received in 

advance under this section, in accordance 

with section 422(c)(4) of the Act.

(f) A guaranty agency shall return 

advances provided under this section in 

accordance with the provisions of section 

422 of the Act.

(Authority: 20 U.S.C. 1072, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 

64 FR 18980, Apr. 16, 1999]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.404

Federal reinsurance agreement

217

§ 682.404 Federal reinsurance agreement.

(a) General. (1) The Secretary may 

enter into a reinsurance agreement with a 

guaranty agency that has a basic program 

agreement. Except as provided in paragraph 

(b) of this section, under a reinsurance 

agreement, the Secretary reimburses the 

guaranty agency for—

(i) 95 percent of its losses on default 

claim payments to lenders on loans for 

which the first disbursement is made on or 

after October 1, 1998;

(ii) 98 percent of its losses on default 

claim payments to lenders for loans for 

which the first disbursement is made on or 

after October 1, 1993, and before October 

1, 1998; or

(iii) 100 percent of its losses on 

default claim payments to lenders—

(A) For loans for which the first 

disbursement is made prior to October 1, 

1993;

(B) For loans made under an 

approved lender-of-last-resort program;

(C) For loans transferred under a 

plan approved by the Secretary from an 

insolvent guaranty agency or a guaranty 

agency that withdraws its participation in 

the FFEL Program;

(D) For loans that meet the 

definition of exempt claims in paragraph 

(a)(2)(iii) of this section;

(E) For a guaranty agency that 

entered into a basic program agreement 

under section 428(b) of the Act after 

September 30, 1976, or was not actively 

carrying on a loan guarantee program 

covered by a basic program agreement on 

October 1, 1976 for five consecutive fiscal 

years beginning with the first year of its 

operation.

(2) For purposes of this section—

(i) Losses means the amount of 

unpaid principal and accrued interest the 

agency paid on a default claim filed by a 

lender on a reinsured loan, minus payments 

made by or on behalf of the borrower after 

default but before the Secretary reimburses 

the agency;

(ii) Default aversion assistance 

means the activities of a guaranty agency 

that are designed to prevent a default by a 

borrower who is at least 60 days delinquent 

and that are directly related to providing 

collection assistance to the lender.

(iii) Exempt claims means claims 

with respect to loans for which it is 

determined that the borrower (or student 

on whose behalf a parent has borrowed), 

without the lender's or the institution's 

knowledge at the time the loan was made, 

provided false or erroneous information or 

took actions that caused the borrower or 

the student to be ineligible for all of a 

portion of the loan or for interest benefits 

on the loan.

(3) A guaranty agency's loss on a 

loan that was outstanding when a 

reinsurance agreement was executed is 

covered by the reinsurance agreement only 

if the default on the loan occurs after the 

effective date of the agreement.
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.404

Federal reinsurance agreement

218

(4) If a lender has requested default 

aversion assistance as described in 

paragraph (a)(2)(ii) of this section, the 

agency must, upon request of the school at 

which the borrower received the loan, 

notify the school of the lender's request. 

The guaranty agency may not charge the 

school or the school's agent for providing 

this notification and must accept a blanket 

request from the school to be notified 

whenever any of the school's current or 

former students are the subject of a default 

aversion assistance request. The agency 

must notify schools annually of the option 

to make this blanket request.

(b) Reduction in reinsurance rate. (1) 

If the total of reinsurance claims paid by the 

Secretary to a guaranty agency during any 

fiscal year reaches 5 percent of the amount 

of loans in repayment at the end of the 

preceding fiscal year, the Secretary's 

reinsurance payment on a default claim 

subsequently paid by the guaranty agency 

during that fiscal year equals—

(i) 90 percent of its losses on default 

claim payments to lenders on loans for 

which the first disbursement is made before 

October 1, 1993 or transferred under a plan 

approved by the Secretary from an 

insolvent guaranty agency or a guaranty 

agency that withdraws its participation in 

the FFEL Program;

(ii) 88 percent of its losses on default 

claim payments to lenders on loans for 

which the first disbursement is made on or 

after October 1, 1993, and before October 

1, 1998; or

(iii) 85 percent of its losses on 

default claim payments to lenders on loans 

for which the first disbursement is made on 

or after October 1, 1998.

(2) If the total of reinsurance claims 

paid by the Secretary to a guaranty agency 

during any fiscal year reaches 9 percent of 

the amount of loans in repayment at the 

end of the preceding fiscal year, the 

Secretary's reinsurance payment on a 

default claim subsequently paid by the 

guaranty agency during that fiscal year 

equals—

(i) 80 percent of its losses on default 

claim payments to lenders on loans for 

which the first disbursement is made before 

October 1, 1993 or transferred under a plan 

approved by the Secretary from an 

insolvent guaranty agency or a guaranty 

agency that withdraws its participation in 

the FFEL Program;

(ii) 78 percent of its losses on default 

claim payments to lenders on loans for 

which the first disbursement is made on or 

after October 1, 1993, and before October 

1, 1998; or

(iii) 75 percent of its losses on 

default claim payments to lenders on loans 

for which the first disbursement is made on 

or after October 1, 1998.

(3) For purposes of this section, the 

total of reinsurance claims paid by the 

Secretary to a guaranty agency during any 

fiscal year does not include amounts paid 

on claims by the guaranty agency—

(i) On loans considered in default 

under §682.412(e);

(ii) Under a policy established by the 

agency that addresses instances in which, 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.404

Federal reinsurance agreement

219

for a non-school originated loan, a lender 

learns that the school terminated its 

teaching activities while a student was 

enrolled during the academic period 

covered by the loan; is consistent with 

§682.509(a)(1); or

(iii) That were filed by lenders at the 

direction of the Secretary; or

(iv) On loans made under a guaranty 

agency's approved lender-of-last-resort 

program.

(4) For purposes of this section, 

amount of loans in repayment means—

(i) The sum of—

(A) The original principal amount of 

all loans guaranteed by the agency; and

(B) The original principal amount of 

any loans on which the guarantee was 

transferred to the agency from another 

agency;

(ii) Minus the original principal 

amount of all loans on which—

(A) The loan guarantee was 

canceled;

(B) The loan guarantee was 

transferred to another agency;

(C) The borrower has not yet 

reached the repayment period;

(D) Payment in full has been made 

by the borrower;

(E) The borrower was in deferment 

status at the time repayment was 

scheduled to begin and remains in 

deferment status;

(F) Reinsurance coverage has been 

lost and cannot be regained; and

(G) The agency paid claims, 

excluding the amount of those claims—

(1) Paid under §682.412(e);

(2) Paid under a policy established 

by the agency that addresses the condition

identified in paragraph (3)(ii) of this section

is consistent with §682.509(a)(1); or

(3) Paid at the direction of the 

Secretary.

(c) Submission of reinsurance rate 

base data. The guaranty agency shall 

submit to the Secretary the quarterly report 

required by the Secretary for the previous 

quarter ending September 30 containing 

complete and accurate data in order for the 

Secretary to calculate the amount of loans 

in repayment at the end of the preceding 

fiscal year. The Secretary does not pay a 

reinsurance claim to the guaranty agency 

after the date the quarterly report is due 

until the guaranty agency submits a 

complete and accurate report.

(d) Reinsurance fee. (1) Except for 

loans that were refinanced pursuant to 

section 428B(e)(2) and (3) of the Act, made 

under §682.209(e), (f) and (h), and all loans 

guaranteed on or after October 1, 1993, a 

guaranty agency shall pay to the Secretary 

during each fiscal year in quarterly 

installments a reinsurance fee equal to—

(i) 0.25 percent of the total principal 

amount of the Stafford, SLS, and PLUS loans 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.404

Federal reinsurance agreement

220

on which guarantees were issued by that 

agency during that fiscal year; or

(ii) 0.5 percent of the total principal 

amount of the Stafford, SLS, and PLUS loans 

on which guarantees were issued by that 

agency during that fiscal year if the agency's 

reinsurance claims paid reach the amount 

described in paragraph (b)(1) of this section 

at any time during that fiscal year.

(2) The agency that is the original 

guarantor of a loan shall pay the 

reinsurance fee to the Secretary even if the 

guaranty agency transfers its guarantee 

obligation on the loan to another guaranty 

agency.

(3) The guaranty agency shall pay 

the reinsurance fee required by paragraph 

(d)(1) of this section due the Secretary for 

each calendar quarter ending March 31, 

June 30, September 30, and December 31, 

within 90 days after the end of the 

applicable quarter or within 30 days after 

receiving written notice from the Secretary 

that the fees are due, whichever is earlier.

(e) Initiation or extension of 

agreements. In deciding whether to enter 

into or extend a reinsurance agreement, or, 

if an agreement has been terminated, 

whether to enter into a new agreement, the 

Secretary considers the adequacy of—

(1) Efforts by the guaranty agency 

and the lenders to which it provides 

guarantees to collect outstanding loans as 

required by §682.410(b) (6) or (7), and 

§682.411;

(2) Efforts by the guaranty agency to 

make FFEL loans available to all eligible 

borrowers; and

(3) Other relevant aspects of the 

guaranty agency's program operations.

(f) Application of borrower 

payments. A payment made to a guaranty 

agency by a borrower on a defaulted loan 

must be applied first to the collection costs 

incurred to collect that amount and then to 

other incidental charges, such as late 

charges, then to accrued interest and then 

to principal.

(g) Share of borrower payments 

returned to the Secretary. (1) After an 

agency pays a default claim to a holder 

using assets of the Federal Fund, the agency 

must pay to the Secretary the portion of 

payments received on those defaulted 

loans remaining after—

(i) The agency deposits into the 

Federal Fund the amount of those 

payments equal to the applicable 

complement of the reinsurance percentage 

that was in effect at the time the claim was 

paid; and

(ii) The agency has deducted an 

amount equal to—

(A) 30 percent of borrower 

payments received before October 1, 1993;

(B) 27 percent of borrower 

payments received on or after October 1, 

1993, and before October 1, 1998;

(C) 24 percent of borrower 

payments received on or after October 1, 

1998, and before October 1, 2003; and
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.404

Federal reinsurance agreement

221

(D) 23 percent of borrower 

payments received on or after October 1, 

2003.

(E) 16 percent of borrower 

payments received on or after October 1, 

2007.

(2) Unless the Secretary approves 

otherwise, the guaranty agency must pay to

the Secretary the Secretary's share of 

borrower payments within 45 days of its 

receipt of the payments.

(h) Nondiscrimination. (1) A 

guaranty agency may not engage in any 

pattern or practice that results in a denial of 

a borrower's access to FFEL loans because 

of the borrower's race, sex, color, religion, 

national origin, age, handicapped status, 

income, attendance at a particular 

participating school within any State served 

by the guaranty agency, length of the 

borrower's educational program, or the 

borrower's academic year in school.

(2) For purposes of this section a 

guaranty agency is deemed to be serving a 

State if it guarantees a loan that is—

(i) Made by a lender located in a 

State not served by the agency;

(ii) Made to a borrower who is a 

resident of a State not served by the 

agency; and

(iii) Made for attendance at a school 

located in the State.

(i)(h) Account maintenance fee. A 

guaranty agency is paid an account 

maintenance fee based on the original 

principal amount of outstanding FFEL 

Program loans insured by the agency. For 

fiscal years 1999 and 2000, the fee is 0.12 

percent of the original principal amount of 

outstanding loans. For fiscal years 2000 

through 2007, the fee is 0.10 percent of the 

original principal amount of outstanding 

loans. After fiscal year 2007, the fee is 0.06 

percent of the original principal amount of 

outstanding loans.

(j)(i) Loan processing and issuance 

fee. A guaranty agency is paid a loan 

processing and issuance fee based on the 

principal amount of FFEL Program loans 

originated during a fiscal year that are 

insured by the agency. The fee is paid 

quarterly. No payment is made for loans for 

which the disbursement checks have not 

been cashed or for which electronic funds 

transfers have not been completed. For 

fiscal years 1999 through 2003, the fee is 

0.65 percent of the principal amount of 

loans originated. Beginning October 1, 

2003, the fee is 0.40 percent.

(k)(j) Default aversion fee —(1) 

General. If a guaranty agency performs 

default aversion activities on a delinquent

loan in response to a lender's request for 

default aversion assistance on that loan, the 

agency receives a default aversion fee. The 

fee may not be paid more than once on any 

loan. The lender's request for assistance 

must be submitted to the guaranty agency 

no earlier than the 60th day and no later 

than the 120th day of the borrower's 

delinquency. A guaranty agency may not 

restrict a lender's choice of the date during 

this period on which the lender submits a 

request for default aversion assistance.
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.404

Federal reinsurance agreement

222

(2) Amount of fees transferred. No 

more frequently than monthly, a guaranty 

agency may transfer default aversion fees 

from the Federal Fund to its Operating 

Fund. The amount of the fees that may be 

transferred is equal to—

(i) One percent of the unpaid 

principal and accrued interest owed on 

loans that were submitted by lenders to the 

agency for default aversion assistance; 

minus

(ii) One percent of the unpaid 

principal and accrued interest owed by 

borrowers on default claims that—

(A) Were paid by the agency for the 

same time period for which the agency 

transferred default aversion fees from its 

Federal Fund; and

(B) For which default aversion fees 

have been received by the agency.

(3) Calculation of fee. (i) For 

purposes of calculating the one percent 

default aversion fee described in paragraph 

(k)(j)(2)(i) of this section, the agency must 

use the total unpaid principal and accrued 

interest owed by the borrower as of the 

date the default aversion assistance request 

is submitted by the lender.

(ii) For purposes of paragraph 

(k)(j)(2)(ii) of this section, the agency must 

use the total unpaid principal and accrued 

interest owed by the borrower as of the 

date the agency paid the default claim.

(4) Prohibition against conflicts. If a 

guaranty agency contracts with an outside 

entity to perform any default aversion 

activities, that outside entity may not—

(i) Hold or service the loan; or

(ii) Perform collection activities on 

the loan in the event of default within 3 

years of the claim payment date.

(l)(k) Other terms. The reinsurance 

agreement contains other terms and 

conditions that the Secretary finds 

necessary to—

(1) Promote the purposes of the 

FFEL programs and to protect the United 

States from unreasonable risks of loss;

(2) Ensure proper and efficient 

administration of the loan guarantee 

program; and

(3) Ensure that due diligence will be 

exercised in the collection of loans.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1078, 1078–1, 1078–2, 

1078–3, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9119, Feb. 19, 1993; 59 FR 25746, 

May 17, 1994; 59 FR 61429, Nov. 30, 1994; 

60 FR 31411, June 15, 1995; 61 FR 60486, 

Nov. 27, 1996; 64 FR 18980, Apr. 16, 1999; 

64 FR 58628, Oct. 29, 1999; 71 FR 45707, 

Aug. 9, 2006; 72 FR 62006, Nov. 1, 2007]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.405

Loan rehabilitation agreement

223

§ 682.405 Loan rehabilitation agreement.

(a) General. (1) A guaranty agency 

that has a basic program agreement must 

enter into a loan rehabilitation agreement 

with the Secretary. The guaranty agency 

must establish a loan rehabilitation 

program for all borrowers with an 

enforceable promissory note for the 

purpose of rehabilitating defaulted loans, 

except for loans for which a judgment has 

been obtained, loans on which a default 

claim was filed under §682.412, and loans 

on 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, so that the loan 

may be purchased, if practicable, by an 

eligible lender and removed from default 

status.

(2) A loan is considered to be 

rehabilitated only after—

(i) The borrower has made and the 

guaranty agency has received nine of the 

ten qualifying payments required under a 

monthly repayment agreement.

(A) A qualifying payment is --Each of 

which payments is—

(1) Made voluntarily;

(2) In the full amount required; and

(3) Received within 20 days of the 

due date for the payment, and

(B) All nine payments are received 

within a 10-month period that begins with 

the month in which the first required due 

date falls and ends with the ninth 

consecutive calendar month following that 

month, and

(ii) The loan has been sold to an 

eligible lender.

(3)(i) 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 guaranty agency must continue 

collecting the loan by administrative wage 

garnishment until the borrower makes five 

qualifying monthly payments under the 

rehabilitation agreement. After the 

borrower makes the fifth qualifying 

monthly payment, the guaranty agency 

must, unless otherwise directed by the 

borrower, suspend collecting the loan by 

administrative wage garnishment.

(ii) A borrower may only obtain the 

benefit of a suspension of administrative 

wage garnishment while also attempting to 

rehabilitate a defaulted loan once.

(3)(4) After the loan has been 

rehabilitated, the borrower regains all 

benefits of the program, including any 

remaining deferment eligibility under 

section 428(b)(1)(M) of the Act, from the 

date of the rehabilitation. Effective for any 

loan that is rehabilitated on or after August 

14, 2008, the borrower cannot rehabilitate 

the loan again if the loan returns to default 

status following the rehabilitation.

(b) Terms of agreement. In the loan 

rehabilitation agreement, the guaranty 

agency agrees to ensure that its loan 

rehabilitation program meets the following 

requirements at all times:
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.405

Loan rehabilitation agreement

224

(1) A borrower may request 

rehabilitation of the borrower's defaulted 

loan held by the guaranty agency. In order 

to be eligible for rehabilitation of the loan, 

the borrower must voluntarily make at least 

nine 9 of the ten 10 payments required 

under a monthly repayment agreement.

(i) Each of which payment is—

(A) Made voluntarily,;

(B) In the full amount required, and;

(C) Received within 20 days of the 

due date for the payment,; and

(D) Reasonable and affordable.

(ii) All nine payments are received 

within a ten-month period that begins with 

the month in which the first required due 

date falls and ends with the ninth 

consecutive calendar month following that 

month.

(iii) For the purposes of this section, 

the determination of borrower’s reasonable 

and affordable payment amount, as 

determined by the guaranty agency or its 

agents, is based solely on information 

provided on a form approved by the 

Secretary and, if requested, supporting 

documentation from the borrower and 

other sources, and considers-- must —

(A) Include a consideration of tThe 

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 Worker’s Compensation. Spousal 

income is not considered if the spouse does 

not contribute to the borrower’s household 

income. and reasonable and necessary 

expenses including, but not limited to, 

housing, utilities, food, medical costs, workrelated expenses, dependent care costs and 

other Title IV repayment;

(B) Family size as defined in 

§682.215(a)(3); andNot be a required 

minimum payment amount, e.g. $50, if the 

agency determines that a smaller amount is 

reasonable and affordable based on the 

borrower's total financial circumstances. 

The agency must include documentation in 

the borrower's file of the basis for the 

determination if the monthly reasonable 

and affordable payment established under 

this section is less than $50 or the monthly 

accrued interest on the loan, whichever is 

greater. However, $50 may not be the 

minimum payment for a borrower if the 

agency determines that a smaller amount is 

reasonable and affordable; and

(C) Be based on the documentation 

provided by the borrower or other sources 

including, but not be limited to—

(1) Evidence of current income (e.g., 

proof of welfare benefits, Social Security 

benefits, child support, veterans' benefits, 

Supplemental Security Income, Workmen's 

Compensation, two most recent pay stubs, 

most recent copy of U.S. income tax return, 

State Department of Labor reports);

(2) Evidence of current expenses 

(e.g., a copy of the borrower's monthly 

household budget, on a form provided by 

the guaranty agency); and
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.405

Loan rehabilitation agreement

225

(3) A statement of the unpaid 

balance on all FFEL loans held by other 

holders.

(C) Reasonable and necessary 

expenses, which include –

(1) Food;

(2) Housing;

(3) Utilities;

(4) Basic communication expenses;

(5) Necessary medical and dental 

costs;

(6) Necessary insurance costs;

(7) Transportation costs;

(8) Dependent care and other workrelated expenses;

(9) Legally required child and 

spousal support;

(10) Other title IV and non-title IV 

student loan payments; and

(11) Other expenses approved by 

the Secretary.

(iv) The reasonable and affordable 

payment amount must not be –

(A) A required minimum loan 

payment amount (e.g., $50) if the agency 

determines that a smaller amount is 

reasonable and affordable;

(B) A percentage of the borrower’s 

total loan balance; or

(C) Based on other criteria 

unrelated to the borrower’s total financial 

circumstances.

(v) Within 15 business days of its 

determination of the borrower’s reasonable 

and affordable payment amount, the 

guaranty agency must provide the borrower 

with a written rehabilitation agreement 

which includes 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, and an 

explanation of any other terms and 

conditions applicable to the required series 

of payments that must be made before the 

borrower’s account can be considered for 

repurchase by an eligible lender (i.e., 

rehabilitated). The agency may not impose 

any other conditions unrelated to the 

amount or timing of the rehabilitation 

payments in the rehabilitation agreement. 

The written agreement must inform the 

borrower of –

(A) The effects of having the loans 

rehabilitated (e.g., removal of the record of 

default from the borrower’s credit history 

and return to normal repayment); and 

(B) The amount of any collection 

costs to be added to the unpaid principal of 

the loan when the loan is sold to an eligible 

lender, which may not exceed 18.5 percent 

of the unpaid principal and accrued interest 

on the loan at the time of the sale.

(vi) If the borrower objects to the 

monthly payment amount determined 

under paragraph (b)(1)(iii) of this section, 

the guaranty agency must recalculate the 

payment amount. The guaranty agency 

must follow the monthly payment 

calculation rules in §682.215(b)(1) to 

determine a borrower’s recalculated 

reasonable and affordable payment 

amount, except that if the recalculated 

amount under §682.215(b)(1) is less than 

$5, the borrower’s recalculated monthly 

rehabilitation payment is $5. The guaranty 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.405

Loan rehabilitation agreement

226

agency must provide the borrower with a 

new written rehabilitation agreement 

confirming the borrower’s recalculated 

reasonable and affordable payment amount 

within the timeframe specified in paragraph 

(b)(1)(v) of this section.

(vii) If the borrower objects to the 

monthly payment amount determined 

under paragraph (b)(1)(iii) of this section, 

but does not provide the documentation 

required to calculate a monthly payment 

amount under §682.215(b)(1), no 

rehabilitation agreement exists between 

the borrower and the guaranty agency, and 

the rehabilitation does not proceed.

(iv)(viii) The agency must include any 

payment made under §682.401(b)(4)(1) in 

determining whether the 9nine out of 10 

ten payments required under paragraph 

(b)(1) of this section have been made.

(v)(ix) 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 

(b)(1)(iii)(C) of this section.

(x) During the rehabilitation period, 

the guaranty agency must 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.

(vi) A guaranty agency must provide 

the borrower with a written statement 

confirming the borrower's reasonable and 

affordable payment amount, as determined 

by the agency, and explaining any other 

terms and conditions applicable to the 

required series of payments that must be 

made before a borrower's account can be 

considered for repurchase by an eligible 

lender. The statement must inform 

borrowers of the effects of having their 

loans rehabilitated (e.g. , credit clearing, 

possibility of increased monthly payments). 

The statement must inform the borrower of 

the amount of the collection costs to be 

added to the unpaid principal at the time of 

the sale. The collection costs may not 

exceed 18.5 percent of the unpaid principal 

and accrued interest at the time of the sale.

(vii) A guaranty agency must provide 

the borrower with an opportunity to object 

to terms of the rehabilitation of the 

borrower's defaulted loan.

(2) For the purposes of this section, 

payment in the full amount required means 

payment of an amount that is reasonable 

and affordable, based on the borrower's 

total financial circumstances, as agreed to 

by the borrower and the agency. Voluntary 

payments are those made directly by the 

borrower and do not include payments 

obtained by Federal offset, garnishment, 

income or asset execution, or after a 

judgment has been entered on a loan. A 

guaranty agency must attempt to secure a 

lender to purchase the loan at the end of 

the 9- or 10-month payment period as 

applicable.

(3) Upon the sale of a rehabilitated 

loan to an eligible lender—

(i) The guaranty agency must, within 

45 days of the sale—

(A) Provide notice to the prior 

holder of such sale, and

(B) Request that any consumer 

reporting agency to which the default was 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.405

Loan rehabilitation agreement

227

reported remove the record of default from 

the borrower's credit history.

(ii) The prior holder of the loan 

must, within 30 days of receiving the 

notification from the guaranty agency, 

request that any consumer reporting 

agency to which the default claim payment 

or other equivalent record was reported 

remove such record from the borrower's 

credit history.

(4) An eligible lender purchasing a 

rehabilitated loan must establish a 

repayment schedule that meets the same 

requirements that are applicable to other 

FFEL Program loans of the same loan type 

as the rehabilitated loan and must permit 

the borrower to choose any statutorily 

available repayment plan for that loan type. 

The lender must treat the first payment 

made under the nine payments as the first 

payment under the applicable maximum 

repayment term, as defined under 

§682.209(a) or (h). For Consolidation loans, 

the maximum repayment term is based on 

the balance outstanding at the time of loan 

rehabilitation.

(c) A guaranty agency must make 

available financial and economic education 

materials, including debt management 

information, to any borrower who has 

rehabilitated a defaulted loan in accordance 

with paragraph (a)(2) of this section.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1078–6)

[59 FR 33355, June 28, 1994, as amended at 

60 FR 30788, June 12, 1995; 64 FR 18980, 

Apr. 16, 1999; 64 FR 58965, Nov. 1, 1999; 

66 FR 34764, June 29, 2001; 67 FR 67080, 

Nov. 1, 2002; 68 FR 75429, Dec. 31, 2003; 

71 FR 45707, Aug. 9, 2006; 71 FR 64398, 

Nov. 1, 2006; 73 FR 63254, Oct. 23, 2008; 

74 FR 56000, Oct. 29, 2009]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.406

Conditions for claim payments from the Federal Fund and for reinsurance coverage

228

§ 682.406 Conditions for claim payments 

from the Federal Fund and for reinsurance 

coverage.

(a) A guaranty agency may make a 

claim payment from the Federal Fund and 

receive a reinsurance payment on a loan 

only if—

(1) The lender exercised due 

diligence in making, disbursing, and 

servicing the loan as prescribed by the rules 

of the agency;

(2) With respect to the reinsurance 

payment on the portion of a loan 

represented by a single disbursement of 

loan proceeds—

(i) The check for the disbursement 

was cashed within 120 days after 

disbursement; or

(ii) The proceeds of the 

disbursement made by electronic funds 

transfer or master check in accordance with 

§682.207(b)(1)(ii) (B) and (C) have been 

released from the restricted account 

maintained by the school within 120 days 

after disbursement;

(3) The lender provided an accurate 

collection history and an accurate payment 

history to the guaranty agency with the 

default claim filed on the loan showing that 

the lender exercised due diligence in 

collecting the loan through collection 

efforts meeting the requirements of 

§682.411, including collection efforts 

against each endorser;

(4) The loan was in default before 

the agency paid a default claim filed 

thereon;

(5) The lender filed a default claim 

thereon with the guaranty agency within 90 

days of default;

(6) The lender resubmitted a 

properly documented default claim to the 

guaranty agency not later than 60 days 

from the date the agency had returned that 

claim due solely to inadequate 

documentation, except that interest 

accruing beyond the 30th day after the date 

the guaranty agency returned the claim is 

not reinsured unless the lender files a claim 

for loss on the loan with the guarantor 

together with all required documentation, 

prior to the 30th day;

(7) The lender satisfied all conditions 

of guarantee coverage set by the agency, 

unless the agency reinstated guarantee 

coverage on the loan following the lender's 

failure to satisfy such a condition pursuant 

to written policies and procedures 

established by the agency;

(8) The agency paid or returned to 

the lender for additional documentation a 

default claim thereon filed by the lender 

within 90 days of the date the lender filed 

the claim or, if applicable, the additional 

documentation, except that interest 

accruing beyond the 60th day after the date 

the lender originally filed the claim is not 

reinsured;

(9) The agency submitted a request 

for the payment on a form required by the 

Secretary no later than 30 days following 

payment of a default claim to the lender;

(10) The loan was legally 

enforceable by the lender when the agency 

paid a claim on the loan to the lender;
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.406

Conditions for claim payments from the Federal Fund and for reinsurance coverage

229

(11) The agency exercised due 

diligence in collection of the loan in 

accordance with §682.410(b)(6);

(12) The agency and lender, if 

applicable, complied with all other Federal 

requirements with respect to the loan 

including—

(i) Payment of origination fees;

(ii) For Consolidation loans 

disbursed on or after October 1, 1993, and 

prior to October 1, 1998, payment on a 

monthly basis, of an interest payment 

rebate fee calculated on an annual basis 

and equal to 1.05 percent of the unpaid 

principal and accrued interest on the loan;

(iii) For Consolidation loans for 

which the application was received by the 

lender on or after October 1, 1998 and prior 

to February 1, 1999, payment on a monthly 

basis, of an interest payment rebate fee 

calculated on an annual basis and equal to 

0.62 percent of the unpaid principal and 

accrued interest on the loan;

(iv) For Consolidation loans 

disbursed on or after February 1, 1999 and 

prior to July 1, 2010, payment of an interest 

payment rebate fee in accordance with 

paragraph (a)(12)(ii) of this section; and

(v) Compliance with all default 

aversion assistance requirements in 

§682.404(a)(2)(ii).

(13) The agency assigns the loan to 

the Secretary, if so directed, in accordance 

with the requirements of §682.409; and

(14) The guaranty agency certifies to 

the Secretary that diligent attempts have 

been made by the lender and the guaranty 

agency under §682.411(h) to locate the 

borrower through the use of effective skiptracing techniques, including contact with 

the schools the student attended.

(b) Notwithstanding paragraph (a) of 

this section, the Secretary may waive his 

right to refuse to make or require 

repayment of a reinsurance payment if, in 

the Secretary's judgment, the best interests 

of the United States so require. The 

Secretary's waiver policy for violations of 

paragraph (a)(3) or (a)(5) of this section is 

set forth in appendix D to this part.

(c) In evaluating a claim for 

insurance or reinsurance, the issue of 

confirmation of subsequent loans under an 

MPN will not be reviewed and a claim will 

not be denied based on the absence of any 

evidence relating to confirmation in a 

particular loan file. However, if a court rules 

that a loan is unenforceable solely because 

of the lack of evidence of a confirmation 

process or processes, insurance and 

reinsurance benefits must be repaid.

(d) A guaranty agency may not make 

a claim payment from the Federal Fund or 

receive a reinsurance payment on a loan if 

the agency determines or is notified by the 

Secretary that the lender offered or 

provided an improper inducement as 

described in paragraph (5)(i) of the 

definition of lender in §682.200(b).

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1078, 1078–1, 1078–2, 

1078–3, 1082)
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.406

Conditions for claim payments from the Federal Fund and for reinsurance coverage

230

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9119, Feb. 19, 1993; 59 FR 25746, 

May 17, 1994; 59 FR 33356, June 28, 1994; 

59 FR 61429, Nov. 30, 1994; 61 FR 60486, 

Nov. 27, 1996; 64 FR 18980, Apr. 16, 1999; 

64 FR 58629, Oct. 29, 1999; 64 FR 58963, 

Nov. 1, 1999; 65 FR 65620, Nov. 1, 2000; 66 

FR 34764, June 29, 2001; 71 FR 45708, Aug. 

9, 2006; 72 FR 62006, Nov. 1, 2007]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.407

Discharge of student loan indebtedness for survivors of victims of the September 11, 2001, attacks

231

§ 682.407 Discharge of student loan 

indebtedness for survivors of victims of the 

September 11, 2001, attacks.

(a) Definition of terms. As used in 

this section—

(1) Eligible public servant means an 

individual who—

(i) Served as a police officer, 

firefighter, other safety or rescue 

personnel, or as a member of the Armed 

Forces; and

(ii)(A) Died due to injuries suffered 

in the terrorist attacks on September 11, 

2001; or

(B) Became permanently and totally 

disabled due to injuries suffered in the 

terrorist attacks on September 11, 2001.

(2) Eligible victim means an 

individual who died due to injuries suffered 

in the terrorist attacks on September 11, 

2001 or became permanently and totally 

disabled due to injuries suffered in the 

terrorist attacks on September 11, 2001.

(3) Eligible parent means the parent 

of an eligible victim if—

(i) The parent owes a FFEL PLUS 

Loan incurred on behalf of an eligible 

victim; or

(ii) The parent owes a FFEL 

Consolidation Loan that was used to repay a 

FFEL or Direct Loan PLUS Loan incurred on 

behalf of an eligible victim.

(4) Died due to injuries suffered in 

the terrorist attacks on September 11, 2001 

means the individual was present at the 

World Trade Center in New York City, New 

York, at the Pentagon in Virginia, or at the 

Shanksville, Pennsylvania site at the time of 

or in the immediate aftermath of the 

terrorist-related aircraft crashes on 

September 11, 2001, and the individual died 

as a direct result of these crashes.

(5) Became permanently and totally 

disabled due to injuries suffered in the 

terrorist attacks on September 11, 2001 

means the individual was present at the 

World Trade Center in New York City, New 

York, at the Pentagon in Virginia, or at the 

Shanksville, Pennsylvania site at the time of 

or in the immediate aftermath of the 

terrorist-related aircraft crashes on 

September 11, 2001 and the individual 

became permanently and totally disabled as 

a direct result of these crashes.

(i) An individual is considered 

permanently and totally disabled if—

(A) The disability is the result of a 

physical injury to the individual that was 

treated by a medical professional within 72 

hours of the injury having been sustained or 

within 72 hours of the rescue;

(B) The physical injury that caused 

the disability is verified by 

contemporaneous medical records created 

by or at the direction of the medical 

professional who provided the medical 

care; and

(C) The individual is unable to work 

and earn money due to the disability and 

the disability is expected to continue 

indefinitely or result in death.
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.407

Discharge of student loan indebtedness for survivors of victims of the September 11, 2001, attacks

232

(ii) If the injuries suffered due to the 

terrorist-related aircraft crashes did not 

make the individual permanently and 

totally disabled at the time of or in the

immediate aftermath of the attacks, the 

individual may be considered to be 

permanently and totally disabled for 

purposes of this section if the individual's 

medical condition has deteriorated to the 

extent that the individual is permanently 

and totally disabled.

(6) Immediate aftermath means, 

except in the case of an eligible public 

servant, the period of time from the aircraft 

crashes until 12 hours after the crashes. 

With respect to eligible public servants, the 

immediate aftermath includes the period of

time from the aircraft crashes until 96 hours 

after the crashes.

(7) Present at the World Trade 

Center in New York City, New York, at the 

Pentagon in Virginia, or at the Shanksville, 

Pennsylvania site means physically present 

at the time of the terrorist-related aircraft 

crashes or in the immediate aftermath—

(i) In the buildings portions of the 

buildings that were destroyed as a result of 

the terrorist-related aircraft crashes;

(ii) In any area contiguous to the 

crash site that was sufficiently close to the 

site that there was a demonstrable risk of 

physical harm resulting from the impact of 

the aircraft or any subsequent fire, 

explosions, or building collapses. Generally, 

this includes the immediate area in which 

the impact occurred, fire occurred, portions 

of buildings fell, or debris fell upon and 

injured persons; or

(iii) On board American Airlines 

flights 11 or 77 or United Airlines flights 93 

or 175 on September 11, 2001.

(b) September 11 survivors 

discharge. (1) The obligation of a borrower 

and any endorser to make any further 

payments on an eligible FFEL Program Loan 

is discharged if the borrower was, at the 

time of the terrorist attacks on September 

11, 2001, and currently is, the spouse of an 

eligible public servant, unless the eligible 

public servant has died. If the eligible public 

servant has died, the borrower must have 

been the spouse of the eligible public 

servant at the time of the terrorist attacks 

on September 11, 2001 and until the date 

the eligible public servant died.

(2) The obligation of a borrower to 

make any further payments towards the 

portion of a joint FFEL Consolidation Loan 

incurred on behalf of an eligible victim is 

discharged if the borrower was, at the time 

of the terrorist attacks on September 11, 

2001, and currently is, the spouse of an 

eligible victim, unless the eligible victim has 

died. If the eligible victim has died, the 

borrower must have been the spouse of the 

eligible victim at the time of the terrorist 

attacks on September 11, 2001 and until 

the date the eligible victim died.

(3) If the borrower is an eligible 

parent—

(i) The obligation of a borrower and 

any endorser to make any further payments 

on a FFEL PLUS Loan incurred on behalf of 

an eligible victim is discharged.

(ii) The obligation of the borrower to 

make any further payments towards the 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.407

Discharge of student loan indebtedness for survivors of victims of the September 11, 2001, attacks

233

portion of a FFEL Consolidation Loan that 

repaid a FFEL or Direct Loan PLUS Loan 

incurred on behalf of an eligible victim is 

discharged.

(4) The parent of an eligible public 

servant may qualify for a discharge of a 

FFEL PLUS loan incurred on behalf of the 

eligible public servant, or the portion of a 

FFEL Consolidation Loan that repaid a FFEL 

or Direct PLUS Loan incurred on behalf of 

the eligible public servant, under the 

procedures, eligibility criteria, and 

documentation requirements described in 

this section for an eligible parent applying 

for a discharge of a loan incurred on behalf 

of an eligible victim.

(c) Applying for discharge. (1) In 

accordance with the procedures in 

paragraphs (c)(2) through (c)(13) of this 

section, a discharge may be granted on—

(i) A FFEL Program Loan owed by the 

spouse of an eligible public servant;

(ii) A FFEL PLUS Loan incurred on 

behalf of an eligible victim;

(iii) The portion of a FFEL 

Consolidation Loan that repaid a PLUS loan 

incurred on behalf of an eligible victim; and

(iv) The portion of a joint 

Consolidation Loan incurred on behalf of an 

eligible victim.

(2) After being notified by the 

borrower that the borrower claims to 

qualify for a discharge under this section, 

the lender shall suspend collection activity 

on the borrower's eligible FFEL Program 

Loan and promptly request that the 

borrower submit a request for discharge on 

a form approved by the Secretary.

(3) If the lender determines that the 

borrower does not qualify for a discharge 

under this section, or the lender does not 

receive the completed discharge request 

form from the borrower within 60 days of 

the borrower notifying the lender that the 

borrower claims to qualify for a discharge, 

the lender shall resume collection and shall 

be deemed to have exercised forbearance 

of payment of both principal and interest 

from the date the lender was notified by 

the borrower. The lender must notify the 

borrower that the application for the 

discharge has been denied, provide the 

basis for the denial, and inform the 

borrower that the lender will resume 

collection on the loan. The lender may 

capitalize, in accordance with §682.202(b), 

any interest accrued and not paid during 

this period.

(4) If the lender determines that the 

borrower qualifies for a discharge under 

this section, the lender shall provide the 

guaranty agency with the following 

documentation—

(i) The loan application, if a separate 

loan application was provided to the lender; 

and

(ii) The completed discharge form, 

and all accompanying documentation 

supporting the discharge request that 

formed the basis for the determination that 

the borrower qualifies for a discharge.

(5) The lender must file a discharge 

claim within 60 days of the date on which 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.407

Discharge of student loan indebtedness for survivors of victims of the September 11, 2001, attacks

234

the lender determines that the borrower 

qualifies for a discharge.

(6) The guaranty agency must 

review a discharge claim under this section 

promptly.

(7) If the guaranty agency 

determines that the borrower does not 

qualify for a discharge under this section, 

the guaranty agency must return the claim 

to the lender with an explanation of the 

basis for the agency's denial of the claim. 

Upon receipt of the returned claim, the 

lender must notify the borrower that the 

application for the discharge has been 

denied, provide the basis for the denial, and 

inform the borrower that the lender will 

resume collection on the loan. The lender is 

deemed to have exercised forbearance of 

both principal and interest from the date 

collection activity was suspended until the 

next payment due date. The lender may 

capitalize, in accordance with §682.202(b), 

any interest accrued and not paid during 

this period.

(8) If the guaranty agency 

determines that the borrower qualifies for a 

discharge, the guaranty agency pays the 

lender on an approved claim the amount of 

loss required under paragraph (c)(9) of this 

section. The guaranty agency shall pay the 

claim not later than 90 days after the claim 

was filed by the lender.

(9) The amount of loss payable on a 

discharge claim is—

(i) An amount equal to the sum of 

the remaining principal balance and interest 

accrued on the loan, unpaid collection costs 

incurred by the lender and applied to the 

borrower's account within 30 days of the 

date those costs were actually incurred, and 

unpaid interest up to the date the lender 

should have filed the claim; or

(ii) In the case of a partial discharge 

of a Consolidation Loan, the amount 

specified in paragraph (c)(9)(i) of this 

section for the portion of the Consolidation 

Loan incurred on behalf of the eligible 

victim.

(10) The amount payable on an 

approved claim includes the unpaid interest 

that accrues during the following periods:

(i) During the period before the 

claim is filed, not to exceed 60 days from 

the date the lender determines that the

borrower qualifies for a discharge under 

this section.

(ii) During a period not to exceed 30 

days following the date the lender receives 

a claim returned by the guaranty agency for 

additional documentation necessary for the 

claim to be approved by the guaranty 

agency.

(iii) During the period required by 

the guaranty agency to approve the claim 

and to authorize payment or to return the 

claim to the lender for additional 

documentation, not to exceed 90 days.

(11) After being notified that the 

guaranty agency has paid a discharge claim, 

the lender shall notify the borrower that 

the loan has been discharged or, in the case 

of a partial discharge of a Consolidation 

Loan, partially discharged. Except in the 

case of a partial discharge of a 

Consolidation Loan, the lender shall return 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.407

Discharge of student loan indebtedness for survivors of victims of the September 11, 2001, attacks

235

to the sender any payments received by the 

lender after the date the guaranty agency 

paid the discharge claim.

(12) The Secretary reimburses the 

guaranty agency for a discharge claim paid 

to the lender under this section after the 

agency pays the lender. Any failure by the 

lender to satisfy due diligence requirements 

prior to the filing of the claim that would 

have resulted in the loss of reinsurance on 

the loan in the event of default are waived 

by the Secretary, provided the loan was 

held by an eligible loan holder at all times.

(13) Except in the case of a partial 

discharge of a Consolidation Loan, the 

guaranty agency shall promptly return to 

the sender any payment on a discharged 

loan made by the sender and received after 

the Secretary pays a discharge claim. At the 

same time that the agency returns the 

payment it shall notify the borrower that 

the loan has been discharged and that there 

is no further obligation to repay the loan.

(14) A FFEL Program Loan owed by 

an eligible public servant or an eligible 

victim may be discharged under the 

procedures in §682.402 for a discharge 

based on the death or total and permanent 

disability of the eligible public servant or 

eligible victim.

(d) Documentation that an eligible 

public servant or eligible victim died due to 

injuries suffered in the terrorist attacks on 

September 11, 2001. (1) Documentation 

that an eligible public servant died due to 

injuries suffered in the terrorist attacks on 

September 11, 2001 must include—

(i) A certification from an authorized 

official that the individual was a member of 

the Armed Forces, or was employed as a 

police officer, firefighter, or other safety or 

rescue personnel, and was present at the 

World Trade Center in New York City, New 

York, at the Pentagon in Virginia, or at the 

Shanksville, Pennsylvania site at the time of 

the terrorist-related aircraft crashes or in 

the immediate aftermath of these crashes; 

and

(ii) The inclusion of the individual on 

an official list of the individuals who died in 

the terrorist attacks on September 11, 

2001.

(2) If the individual is not included 

on an official list of the individuals who died 

in the terrorist attacks on September 11, 

2001, the borrower must provide—

(i) The certification described in 

paragraph (d)(1)(i) of this section;

(ii) An original or certified copy of 

the individual's death certificate; and

(iii) A certification from a physician 

or a medical examiner that the individual 

died due to injuries suffered in the terrorist 

attacks on September 11, 2001.

(3) If the individual owed a FFEL 

Program Loan, a Direct Loan, or a Perkins 

Loan at the time of the terrorist attacks, 

documentation that the individual's loans 

were discharged by the lender, the 

Secretary, or the institution due to death 

may be substituted for the original or 

certified copy of a death certificate.

(4) Documentation that an eligible 

victim died due to injuries suffered in the 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.407

Discharge of student loan indebtedness for survivors of victims of the September 11, 2001, attacks

236

terrorist attacks on September 11, 2001 is 

the inclusion of the individual on an official 

list of the individuals who died in the 

terrorist attacks on September 11, 2001.

(5) If the eligible victim is not 

included on an official list of the individuals 

who died in the terrorist attacks on 

September 11, 2001, the borrower must 

provide—

(i) The documentation described in 

paragraphs (d)(2)(ii) or (d)(3), and (d)(2)(iii) 

of this section; and

(ii) A certification signed by the 

borrower that the eligible victim was 

present at the World Trade Center in New 

York City, New York, at the Pentagon in 

Virginia, or at the Shanksville, Pennsylvania 

site at the time of the terrorist-related 

aircraft crashes or in the immediate 

aftermath of these crashes.

(6) If the borrower is the spouse of 

an eligible public servant, and has been 

granted a discharge on a Perkins Loan, a 

Direct Loan, or a FFEL Program Loan held by 

another FFEL lender because the eligible 

public servant died due to injuries suffered 

in the terrorist attacks on September 11, 

2001, documentation of the discharge may 

be used as an alternative to the 

documentation in paragraphs (d)(1) through 

(d)(3) of this section.

(7) If the borrower is the spouse or 

parent of an eligible victim, and has been 

granted a discharge on a Direct Loan or on a 

FFEL Program Loan held by another FFEL 

lender because the eligible victim died due 

to injuries suffered in the terrorist attacks 

on September 11, 2001, documentation of 

the discharge may be used as an alternative 

to the documentation in paragraphs (d)(4) 

and (d)(5) of this section.

(8) Under exceptional circumstances 

and on a case-by-case basis, the 

determination that an eligible public 

servant or an eligible victim died due to 

injuries suffered in the terrorist attacks on 

September 11, 2001 may be based on other 

reliable documentation approved by the 

chief executive officer of the guaranty 

agency.

(e) Documentation that an eligible 

public servant or eligible victim became 

permanently and totally disabled due to 

injuries suffered in the terrorist attacks on 

September 11, 2001. (1) Documentation 

that an eligible public servant became 

permanently and totally disabled due to 

injuries suffered in the terrorist attacks on 

September 11, 2001 must include—

(i) A certification from an authorized 

official that the individual was a member of 

the Armed Forces or was employed as a 

police officer, firefighter or other safety or 

rescue personnel, and was present at the 

World Trade Center in New York City, New 

York, at the Pentagon in Virginia, or at the 

Shanksville, Pennsylvania site at the time of 

the terrorist-related aircraft crashes or in 

the immediate aftermath of these crashes;

(ii) Copies of contemporaneous 

medical records created by or at the 

direction of a medical professional who 

provided medical care to the individual 

within 24 72 hours of the injury having been 

sustained or within 24 hours of the rescue; 

and
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.407

Discharge of student loan indebtedness for survivors of victims of the September 11, 2001, attacks

237

(iii) A certification by a physician, 

who is a doctor of medicine or osteopathy 

and legally authorized to practice in a state, 

that the individual became permanently 

and totally disabled due to injuries suffered 

in the terrorist attacks on September 11, 

2001.

(2) Documentation that an eligible 

victim became permanently and totally 

disabled due to injuries suffered in the 

terrorist attacks on September 11, 2001 

must include—

(i) The documentation described in 

paragraphs (e)(1)(ii) and (e)(1)(iii) of this 

section; and

(ii) A certification signed by the 

borrower that the eligible victim was 

present at the World Trade Center in New 

York City, New York, at the Pentagon in 

Virginia, or at the Shanksville, Pennsylvania 

site at the time of the terrorist-related 

aircraft crashes or in the immediate 

aftermath of these crashes.

(3) If the borrower is the spouse of 

an eligible public servant, and has been 

granted a discharge on a Perkins Loan, a 

Direct Loan, or a FFEL Program Loan held by 

another FFEL lender because the eligible 

public servant became permanently and 

totally disabled due to injuries suffered in 

the terrorist attacks on September 11, 

2001, documentation of the discharge may 

be used as an alternative to the 

documentation in paragraph (e)(1) of this 

section.

(4) If the borrower is the spouse or 

parent of an eligible victim, and has been 

granted a discharge on a Direct Loan or on a 

FFEL Program Loan held by another FFEL 

lender because the eligible victim became 

permanently and totally disabled due to 

injuries suffered in the terrorist attacks on 

September 11, 2001, documentation of the 

discharge may be used as an alternative to 

the documentation in paragraph (e)(2) of 

this section.

(f) Additional information. (1) A 

lender or guaranty agency may require the 

borrower to submit additional information 

that the lender or guaranty agency deems 

necessary to determine the borrower's 

eligibility for a discharge under this section.

(2) To establish that the eligible 

public servant or eligible victim was present 

at the World Trade Center in New York City, 

New York, at the Pentagon in Virginia, or at 

the Shanksville, Pennsylvania site, such 

additional information may include but is 

not limited to—

(i) Records of employment;

(ii) Contemporaneous records of a 

federal, state, city, or local government 

agency;

(iii) An affidavit or declaration of the 

eligible public servant's or eligible victim's 

employer; and

(iv) A sworn statement (or an 

unsworn statement complying with 28 

U.S.C. 1746) regarding the presence of the 

eligible public servant or eligible victim at 

the site.

(3) To establish that the disability of 

the eligible public servant or eligible victim 

is due to injuries suffered in the terrorist 

attacks on September 11, 2001, such 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.407

Discharge of student loan indebtedness for survivors of victims of the September 11, 2001, attacks

238

additional information may include but is 

not limited to—

(i) Contemporaneous medical 

records of hospitals, clinics, physicians, or 

other licensed medical personnel;

(ii) Registries maintained by federal, 

state, or local governments; or

(iii) Records of all continuing medical 

treatment.

(4) To establish the borrower's 

relationship to the eligible public servant or 

eligible victim, such additional information 

may include but is not limited to—

(i) Copies of relevant legal records 

including court orders, letters of 

testamentary or similar documentation;

(ii) Copies of wills, trusts, or other 

testamentary documents; or

(iii) Copies of approved joint 

Consolidation Loan applications or 

approved FFEL or Direct Loan PLUS loan 

applications.

(g) Limitations on discharge. (1) Only 

outstanding Federal SLS Loans, Federal 

Stafford Loans, Federal PLUS Loans, and 

Federal Consolidation Loans for which 

amounts were owed on September 11, 

2001, or outstanding Federal Consolidation 

Loans incurred to pay off loan amounts that 

were owed on September 11, 2001, are 

eligible for discharge under this section.

(2)(i) Eligibility for a discharge under 

this section does not qualify a borrower for 

a refund of any payments made on the 

borrower's loan prior to the date the loan 

was discharged.

(ii) A borrower may apply for a 

partial discharge of a joint Consolidation 

loan due to death or total and permanent 

disability under the procedures in 

§682.402(b) or (c). If the borrower is 

granted a partial discharge under the 

procedures in §682.402(b) or (c) the 

borrower may qualify for a refund of 

payments in accordance with 

§682.402(b)(5) or §682.402(c)(1)(i).

(iii) A borrower may apply for a 

discharge of a PLUS loan due to the death of 

the student for whom the borrower 

received the PLUS loan under the 

procedures in §682.402(b). If a borrower is 

granted a discharge under the procedures 

in §682.402(b), the borrower may qualify 

for a refund of payments in accordance 

with §682.402(b)(5).

(3) A determination by a lender or a 

guaranty agency that an eligible public 

servant or an eligible victim became 

permanently and totally disabled due to 

injuries suffered in the terrorist attacks on 

September 11, 2001 for purposes of this 

section does not qualify the eligible public 

servant or the eligible victim for a discharge 

based on a total and permanent disability 

under §682.402.

(4) The spouse of an eligible public 

servant or eligible victim may not receive a 

discharge under this section if the eligible 

public servant or eligible victim has been 

identified as a participant or conspirator in 

the terrorist-related aircraft crashes on 

September 11, 2001. An eligible parent may 

not receive a discharge on a FFEL PLUS Loan 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.407

Discharge of student loan indebtedness for survivors of victims of the September 11, 2001, attacks

239

or on a Consolidation Loan that was used to 

repay a FFEL or Direct Loan PLUS Loan 

incurred on behalf of an individual who has 

been identified as a participant or 

conspirator in the terrorist-related aircraft 

crashes on September 11, 2001.

[71 FR 78080, Dec. 28, 2006, as amended at 

72 FR 55053, Sept. 28, 2007]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.408

Loan disbursement through an escrow agent

240

§ 682.408 Loan disbursement through an 

escrow agent.

(a) General. (1) A guaranty agency or 

an eligible lender may act as an escrow 

agent for the purpose of receiving Stafford 

and PLUS loan proceeds disbursed by an 

eligible lender other than a school, State 

lender, or a State agency or instrumentality, 

and transmitting those proceeds to the 

borrower's school if the lender and the 

escrow agent have entered into a written 

agreement for this purpose.

(2) The agreement must provide 

that—

(i) The lender may make payments 

into an escrow account that is administered 

by the escrow agent in accordance with the 

requirements of paragraph (c) of this 

section and §682.207(b)(1)(iv);

(ii) The lender shall promptly notify 

the borrower's school when funds are 

escrowed for the borrower; and

(iii) The escrow agent is authorized 

to—

(A) Transmit the proceeds according 

to the note evidencing the loan;

(B) Commingle the proceeds of the 

loans paid to it pursuant to an escrow 

agreement;

(C) Invest the loan proceeds only in 

obligations of the Federal Government or 

obligations that are insured or guaranteed 

by the Federal Government; and

(D) Retain for its own use interest or 

other earnings on those investments.

(b) Disbursement by the lender. 

Subject to §682.207(b)(1)(iii), the lender 

may disburse the loan proceeds to the 

escrow agent using any method agreed to 

by the escrow agent and the lender.

(c) Transmittal of FFEL loan proceeds

by an escrow agent. The escrow agent shall 

transmit Stafford and PLUS loan proceeds 

received from a lender under this section to 

a school in accordance with the 

requirements of §682.207(b)(1)(ii) and (iv), 

or Stafford Loan proceeds to a borrower in 

accordance with the requirements of 

§682.207(b)(1)(i) and (ii), not later than 10 

days after the agent receives the funds 

from the lender.

(d) Return of untransmitted 

proceeds. The escrow agent shall return any 

untransmitted proceeds of a loan to the 

lender within 15 working days after 

receiving information indicating that the 

student has not enrolled, or has ceased to 

be enrolled on at least a half-time basis, for 

the period of enrollment for which the loan 

was intended.

(Authority: 20 U.S.C. 1078, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 

64 FR 18980, Apr. 16, 1999; 71 FR 45708, 

Aug. 9, 2006; 71 FR 64399, Nov. 1, 2006]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.409

Mandatory assignment by guaranty agencies of defaulted loans to the Secretary

241

§ 682.409 Mandatory assignment by 

guaranty agencies of defaulted loans to the 

Secretary.

(a)(1) If the Secretary determines 

that action is necessary to protect the 

Federal fiscal interest, the Secretary directs 

a guaranty agency to promptly assign to the 

Secretary any loans held by the agency on 

which the agency has received payment 

under §682.402(f), 682.402(k), or 682.404. 

The collection of unpaid loans owed by 

Federal employees by Federal salary offset 

is, among other things, deemed to be in the 

Federal fiscal interest. Unless the Secretary 

notifies an agency, in writing, that other 

loans must be assigned to the Secretary, an 

agency must assign any loan that meets all 

of the following criteria as of April 15 of 

each year:

(i) The unpaid principal balance is at 

least $100.

(ii) For each of the two fiscal years 

following the fiscal year in which these 

regulations are effective, the loan, and any 

other loans held by the agency for that 

borrower, have been held by the agency for 

at least four years; for any subsequent fiscal 

year such loan must have been held by the 

agency for at least five years.

(iii) A payment has not been 

received on the loan in the last year.

(iv) A judgment has not been 

entered on the loan against the borrower.

(2) If the agency fails to meet a fiscal 

year recovery rate standard under 

paragraph (a)(2)(ii) of this section for a loan 

type, and the Secretary determines that 

additional assignments are necessary to 

protect the Federal fiscal interest, the 

Secretary may require the agency to assign 

in addition to those loans described in 

paragraph (a)(1) of this section, loans in 

amounts needed to satisfy the 

requirements of paragraph (a)(2)(iii) or 

(a)(3)(i) of this section.

(i) Calculation of fiscal year loan type 

recovery rate. A fiscal year loan type 

recovery rate for an agency is determined 

by dividing the amount collected on 

defaulted loans, including collections by 

Federal Income Tax Refund Offset, for each 

loan program (i.e., the Stafford, PLUS, SLS, 

and Consolidation loan programs) by the 

agency for loans of that program (including 

payments received by the agency on loans 

under §682.401(b)(4)(1) and §682.409 and 

the amounts of any loans purchased from 

the guaranty agency by an eligible lender) 

during the most recent fiscal year for which 

data are available by the total of principal 

and interest owed to an agency on 

defaulted loans for each loan program at 

the beginning of the same fiscal year, less 

accounts permanently assigned to the 

Secretary through the most recent fiscal 

year.

(ii) Fiscal year loan type recovery 

rates standards. (A) If, in each of the two 

fiscal years following the fiscal year in which 

these regulations are effective, the fiscal 

year loan type recovery rate for a loan 

program for an agency is below 80 percent 

of the average recovery rate of all active 

guaranty agencies in each of the same two 

fiscal years for that program type, and the 

Secretary determines that additional 

assignments are necessary to protect the 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.409

Mandatory assignment by guaranty agencies of defaulted loans to the Secretary

242

Federal fiscal interest, the Secretary may 

require the agency to make additional 

assignments in accordance with paragraph 

(a)(2)(iii) of this section.

(B) In any subsequent fiscal year the 

loan type recovery rate standard for a loan 

program must be 90 percent of the average 

recovery rate of all active guaranty 

agencies.

(iii) Non-achievement of loan type 

recovery rate standards. 

(A) Unless the Secretary determines 

under paragraph (a)(2)(iv) of this section 

that protection of the Federal fiscal interest 

requires that a lesser amount be assigned, 

upon notice from the Secretary, an agency 

with a fiscal year loan type recovery rate 

described in paragraph (a)(2)(ii) of this 

section must promptly assign to the 

Secretary a sufficient amount of defaulted 

loans, in addition to loans to be assigned in 

accordance with paragraph (a)(1) of this 

section, to cause the fiscal year loan type 

recovery rate of the agency that fiscal year 

to equal or exceed the average rate of all 

agencies described in paragraph (a)(2)(ii) of 

this section when recalculated to exclude 

from the denominator of the agency's fiscal 

year loan type recovery rate the amount of 

these additional loans.

(B) The Secretary, in consultation 

with the guaranty agency, may require the 

amount of loans to be assigned under 

paragraph (a)(2) of this section to include 

particular categories of loans that share 

characteristics that make the performance 

of the agency fall below the appropriate 

percentage of the loan type recovery rate 

as described in paragraph (a)(2)(ii) of this 

section.

(iv) Calculation of loan type recovery 

rate standards. The Secretary, within 30 

days after the date for submission of the 

second quarterly report from all agencies, 

makes available to all agencies a mid-year 

report, showing the recovery rate for each 

agency and the average recovery rate of all 

active guaranty agencies for each loan type. 

In addition, the Secretary, within 120 days 

after the beginning of each fiscal year, 

makes available a final report showing 

those rates and the average rate for each 

loan type for the preceding fiscal year.

(3)(i) Determination that the 

protection of the Federal fiscal interest 

requires assignments. Upon petition by an 

agency submitted within 45 days of the 

notice required by paragraph (a)(2)(iii)(A) of 

this section, the Secretary may determine 

that protection of the Federal fiscal interest 

does not require assignment of all loans 

described in paragraph (a)(1) of this section 

or of loans in the full amount described in 

paragraph (a)(2)(iii) of this section only after 

review of the agency's petition. In making 

this determination, the Secretary considers 

all relevant information available to him 

(including any information and 

documentation obtained by the Secretary in 

reviews of the agency or submitted to the 

Secretary by the agency) as follows:

(A) For each of the two fiscal years 

following the fiscal year in which these 

regulations are effective, the Secretary 

considers information presented by an 

agency with a fiscal year loan type recovery 

rate above the average rate of all active 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.409

Mandatory assignment by guaranty agencies of defaulted loans to the Secretary

243

agencies to demonstrate that the 

protection of the Federal fiscal interest will 

be served if any amounts of loans of the 

loan type required to be assigned to the 

Secretary under paragraph (a)(1) of this 

section are retained by that agency. For any 

subsequent fiscal year, the Secretary 

considers information presented by an 

agency with a fiscal year recovery rate 10 

percent above the average rate of all active 

agencies.

(B) The Secretary considers 

information presented by an agency that is 

required to assign loans under paragraph 

(a)(2) of this section to demonstrate that 

the protection of the Federal fiscal interest 

will be served if the agency demonstrates 

that its compliance with §682.401(b)(4)(1)

and §682.405 has reduced substantially its 

fiscal year loan type recovery rate or rates 

or if the agency is not required to assign 

amounts of loans that would otherwise 

have to be assigned.

(C) The information provided by an 

agency pursuant to paragraphs (a)(3)(i)(A) 

and (B) of this section may include, but is 

not limited to the following:

(1) The fiscal year loan type recovery 

rate within such school sectors as the 

Secretary may designate for the agency,

and for all agencies.

(2) The fiscal year loan type recovery 

rate for loans for the agency and for all 

agencies categorized by age of the loans as 

the Secretary may determine.

(3) The performance of the agency, 

and all agencies, in default aversion.

(4) The agency's performance on 

judgment enforcement.

(5) The existence and use of any 

state or guaranty agency-specific collection 

tools.

(6) The agency's level of compliance 

with §§682.409 and 682.410(b)(6).

(7) Other factors that may affect 

loan repayment such as State or regional 

unemployment and natural disasters.

(ii) Denial of an agency's petition. If 

the Secretary does not accept the agency's 

petition, the Secretary provides, in writing, 

to the agency the Secretary's reasons for 

concluding that the Federal fiscal interest is 

best protected by requiring the assignment.

(b)(1) A guaranty agency that assigns 

a defaulted loan to the Secretary under this 

section thereby releases all rights and title 

to that loan. The Secretary does not pay the 

guaranty agency any compensation for a 

loan assigned under this section.

(2) The guaranty agency does not 

share in any amounts received by the 

Secretary on a loan assigned under this 

section, regardless of the reinsurance 

percentage paid on the loan or the agency's 

previous collection costs.

(c)(1) A guaranty agency must assign 

a loan to the Secretary under this section at 

the time, in the manner, and with the 

information and documentation that the 

Secretary requires. The agency must submit 

this information and documentation in the 

form (including magnetic media) and 

format specified by the Secretary.
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.409

Mandatory assignment by guaranty agencies of defaulted loans to the Secretary

244

(2) The guaranty agency must 

execute an assignment to the United States 

of America of all right, title, and interest in 

the promissory note or judgment 

evidencing a loan assigned under this 

section. If more than one loan is made 

under an MPN, the assignment of the note 

only applies to the loan or loans being 

assigned to the Secretary.

(3) If the agency does not provide 

the required information and 

documentation in the form and format 

required by the Secretary, the Secretary 

may, at his option—

(i) Allow the agency to revise the 

agency's submission to include the required 

information and documentation in the 

specified form and format;

(ii) In the case of an improperly 

formatted computer tape, reformat the 

tape and assess the cost of the activity 

against the agency;

(iii) Reorganize the material 

submitted and assess the cost of that 

activity against the agency; or

(iv) Obtain from other agency 

records and add to the agency's submission 

any information from the original 

submission, and assess the cost of that 

activity against the agency.

(4) For each loan assigned, the 

agency shall submit to the Secretary the 

following documents associated for each 

loan, assembled in the order listed below:

(i) The original or a true and exact 

copy of the promissory note.

(ii) Any documentation of a 

judgment entered on the loan.

(iii) A written assignment of the loan 

or judgment, unless this assignment is 

affixed to the promissory note.

(iv) The loan application, if a 

separate application was provided to the 

lender.

(v) A payment history for the loan, 

as described in §682.414(a)(1)(ii)(C).

(vi) A collection history for the loan, 

as described in §682.414(a)(1)(ii)(D).

(vii) The record of the lender's 

disbursement of Stafford and PLUS loan 

funds to the school for delivery to the 

borrower.

(viii) If the MPN or promissory note 

was signed electronically, the name and 

location of the entity in possession of the 

original electronic MPN or promissory note.

(5) The agency may submit copies of 

required documents in lieu of originals.

(6) The Secretary may accept the 

assignment of a loan without all of the 

documents listed in paragraph (c)(4) of this 

section. If directed to do so, the agency 

must retain these documents for 

submission to the Secretary at some future 

date.

(d)(1) If the Secretary determines 

that the agency has not submitted a 

document or record required by paragraph 

(c) of this section, and the Secretary decides 

to allow the agency an additional 

opportunity to submit the omitted 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.409

Mandatory assignment by guaranty agencies of defaulted loans to the Secretary

245

document under paragraph (c)(3)(i) of this 

section, the Secretary notifies the agency 

and provides a reasonable period of time 

for the agency to submit the omitted record 

or document.

(2) If the omitted document is not 

submitted within the time specified by the 

Secretary, the Secretary determines 

whether that omission impairs the 

Secretary's ability to collect the loan.

(3) If the Secretary determines that 

the ability to collect the loan has been 

impaired under paragraph (d)(2) of this 

section, the Secretary assesses the agency 

the amount paid to the agency under the 

reinsurance agreement and accrued 

interest at the rate applicable to the 

borrower under §682.410(b)(3).

(4) The Secretary reassigns to the 

agency that portion of the loan determined 

to be unenforceable by the Department.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1078, 1078–1, 1078–2, 

1078–3, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9120, Feb. 19, 1993; 59 FR 33356, 

June 28, 1994; 60 FR 30788, June 12, 1995; 

64 FR 18980, Apr. 16, 1999; 64 FR 58630, 

Oct. 29, 1999; 64 FR 58963, Nov. 1, 1999; 

72 FR 62006, Nov. 1, 2007]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

246

§ 682.410 Fiscal, administrative, and 

enforcement requirements.

(a) Fiscal requirements —(1) Reserve 

fund assets. A guaranty agency shall 

establish and maintain a reserve fund to be 

used solely for its activities as a guaranty 

agency under the FFEL Program (“guaranty 

activities”). The guaranty agency shall credit 

to the reserve fund—

(i) The total amount of insurance 

premiums and Federal default fees 

collected;

(ii) Funds received from a State for 

the agency's guaranty activities, including 

matching funds under section 422(a) of the 

Act;

(iii) Federal advances obtained 

under sections 422(a) and (c) of the Act;

(iv) Federal payments for default, 

bankruptcy, death, disability, closed 

schools, and false certification claims;

(v) Supplemental preclaims 

assistance payments;

(vi) Transitional support payments 

received under section 458(a) of the Act;

(vii) Funds collected by the guaranty 

agency on FFEL Program loans on which a 

claim has been paid;

(viii) Investment earnings on the 

reserve fund; and

(ix) Other funds received by the 

guaranty agency from any source for the 

agency's guaranty activities.

(2) Uses of reserve fund assets. A 

guaranty agency may not use the assets of 

the reserve fund established under 

paragraph (a)(1) of this section to pay costs 

prohibited under §682.418, but shall use 

the assets of the reserve fund to pay only—

(i) Insurance claims;

(ii) Costs that are reasonable, as 

defined under §682.410(a)(11)(iii), and that 

are ordinary and necessary for the agency 

to fulfill its responsibilities under the HEA, 

including costs of collecting loans, providing 

preclaims default aversion assistance, 

monitoring enrollment and repayment 

status, and carrying out any other guaranty 

activities. Those costs must be—

(A) Allocable to the FFEL Program;

(B) Not higher than the agency 

would incur under established policies, 

regulations, and procedures that apply to 

any comparable non-Federal activities of 

the guaranty agency;

(C) Not included as a cost or used to 

meet cost sharing or matching 

requirements of any other federally 

supported activity, except as specifically 

provided by Federal law;

(D) Net of all applicable credits; and

(E) Documented in accordance with 

applicable legal and accounting standards;

(iii) The Secretary's equitable share 

of collections;

(iv) Federal advances and other 

funds owed to the Secretary;

(v) Reinsurance fees;
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

247

(vi) Insurance premiums and Federal 

default fees related to cancelled loans;

(vii) Borrower refunds, including 

those arising out of student or other 

borrower claims and defenses;

(viii) (A) The repayment, on or after 

December 29, 1993, of amounts credited 

under paragraphs (a)(1)(ii) or (a)(1)(ix) of

this section, if the agency provides the 

Secretary 30 days prior notice of the 

repayment and demonstrates that—

(1) These amounts were originally 

received by the agency under appropriate 

contemporaneous documentation 

specifying that receipt was on a temporary 

basis only;

(2) The objective for which these 

amounts were originally received by the 

agency has been fully achieved; and

(3) Repayment of these amounts 

would not cause the agency to fail to 

comply with the minimum reserve levels 

provided by paragraph (a)(10) of this 

section, except that the Secretary may, for 

good cause, provide written permission for 

a payment that meets the other 

requirements of this paragraph (a)(2)(ix)(A).

(B) The repayment, prior to 

December 29, 1993, of amounts credited 

under paragraphs (a)(1)(ii) or (a)(1)(ix) of 

this section, if the agency demonstrates 

that—

(1) These amounts were originally 

received by the agency under appropriate 

contemporaneous documentation that 

receipt was on a temporary basis only; and

(2) The objective for which these 

amounts were originally received by the 

agency has been fully achieved.

(ix) Any other costs or payments 

ordinary and necessary to perform 

functions directly related to the agency's 

responsibilities under the HEA and for their 

proper and efficient administration;

(x) Notwithstanding any other 

provision of this section, any other payment 

that was allowed by law or regulation at the 

time it was made, if the agency acted in 

good faith when it made the payment or 

the agency would otherwise be unfairly 

prejudiced by the nonallowability of the 

payment at a later time; and

(xi) Any other amounts authorized 

or directed by the Secretary.

(3) Accounting basis. Except as 

approved by the Secretary, a guaranty 

agency shall credit the items listed in 

paragraph (a)(1) of this section to its 

reserve fund upon their receipt, without 

any deferral for accounting purposes, and 

shall deduct the items listed in paragraph 

(a)(2) of this section from its reserve fund 

upon their payment, without any accrual for 

accounting purposes.

(4) Accounting records. (i) The 

accounting records of a guaranty agency 

must reflect the correct amount of sources 

and uses of funds under paragraph (a) of 

this section.

(ii) A guaranty agency may reverse 

prior credits to its reserve fund if—
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

248

(A) The agency gives the Secretary 

prior notice setting forth a detailed 

justification for the action;

(B) The Secretary determines that 

such credits were made erroneously and in 

good faith; and

(C) The Secretary determines that 

the action would not unfairly prejudice 

other parties.

(iii) A guaranty agency shall correct 

any other errors in its accounting or 

reporting as soon as practicable after the 

errors become known to the agency.

(iv) If a general reconstruction of a 

guaranty agency's historical accounting 

records is necessary to make a change 

under paragraphs (a)(4)(ii) and (a)(4)(iii) of 

this section or any other retroactive change 

to its accounting records, the agency may 

make this reconstruction only upon prior 

approval by the Secretary and without any 

deduction from its reserve fund for the cost 

of the reconstruction.

(5) Investments. The guaranty 

agency shall exercise the level of care 

required of a fiduciary charged with the 

duty of investing the money of others when 

it invests the assets of the reserve fund 

described in paragraph (a)(1) of this section. 

It may invest these assets only in low-risk 

securities, such as obligations issued or 

guaranteed by the United States or a State.

(6) Development of assets. (i) If the 

guaranty agency uses in a substantial way 

for purposes other than the agency's 

guaranty activities any funds required to be 

credited to the reserve fund under 

paragraph (a)(1) of this section or any 

assets derived from the reserve fund to 

develop an asset of any kind and does not 

in good faith allocate a portion of the cost 

of developing and maintaining the 

developed asset to funds other than the 

reserve fund, the Secretary may require the 

agency to—

(A) Correct this allocation under 

paragraph (a)(4)(iii) of this section; or

(B) Correct the recorded ownership 

of the asset under paragraph (a)(4)(iii) of 

this section so that—

(1) If, in a transaction with an 

unrelated third party, the agency sells or 

otherwise derives revenue from uses of the 

asset that are unrelated to the agency's 

guaranty activities, the agency promptly 

shall deposit into the reserve fund 

described in paragraph (a)(1) of this section 

a percentage of the sale proceeds or 

revenue equal to the fair percentage of the 

total development cost of the asset paid 

with the reserve fund monies or provided 

by assets derived from the reserve fund; or

(2) If the agency otherwise converts 

the asset, in whole or in part, to a use 

unrelated to its guaranty activities, the 

agency promptly shall deposit into the 

reserve fund described in paragraph (a)(1) 

of this section a fair percentage of the fair 

market value or, in the case of a temporary 

conversion, the rental value of the portion 

of the asset employed for the unrelated 

use.

(ii) If the agency uses funds or assets 

described in paragraph (a)(6)(i) of this 

section in the manner described in that 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

249

paragraph and makes a cost and 

maintenance allocation erroneously and in 

good faith, it shall correct the allocation 

under paragraph (a)(4)(iii) of this section.

(7) Third-party claims. If the 

guaranty agency has any claim against any 

other party to recover funds or other assets 

for the reserve fund, the claim is the 

property of the United States.

(8) Related-party transactions. All 

transactions between a guaranty agency 

and a related organization or other person 

that involve funds required to be credited 

to the agency's reserve fund under 

paragraph (a)(1) of this section or assets 

derived from the reserve fund must be on 

terms that are not less advantageous to the 

reserve fund than would have been 

negotiated on an arm's-length basis by 

unrelated parties.

(9) Scope of definition. The 

provisions of this §682.410(a) define 

reserve funds and assets for purposes of 

sections 422 and 428 of the Act. These 

provisions do not, however, affect the 

Secretary's authority to use all funds and 

assets of the agency pursuant to section 

428(c)(9)(F)(vi) of the Act.

(10) Minimum reserve fund level. 

The guaranty agency must maintain a 

current minimum reserve level of not less 

than—

(i) .5 percent of the amount of loans 

outstanding, for the fiscal year of the 

agency that begins in calendar year 1993;

(ii) .7 percent of the amount of loans 

outstanding, for the fiscal year of the 

agency that begins in calendar year 1994;

(iii) .9 percent of the amount of 

loans outstanding, for the fiscal year of the 

agency that begins in calendar year 1995; 

and

(iv) 1.1 percent of the amount of 

loans outstanding, for each fiscal year of the 

agency that begins on or after January 1, 

1996.

(11) Definitions. For purposes of this 

section—

(i) Reserve fund level means—

(A) The total of reserve fund assets 

as defined in paragraph (a)(1) of this 

section;

(B) Minus the total amount of the 

reserve fund assets used in accordance with 

paragraphs (a)(2) and (a)(3) of this section; 

and

(ii) Amount of loans outstanding 

means—

(A) The sum of—

(1) The original principal amount of 

all loans guaranteed by the agency; and

(2) The original principal amount of 

any loans on which the guarantee was 

transferred to the agency from another 

guarantor, excluding loan guarantees 

transferred to another agency pursuant to a 

plan of the Secretary in response to the 

insolvency of the agency;
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

250

(B) Minus the original principal 

amount of all loans on which—

(1) The loan guarantee was 

cancelled;

(2) The loan guarantee was 

transferred to another agency;

(3) Payment in full has been made 

by the borrower;

(4) Reinsurance coverage has been 

lost and cannot be regained; and

(5) The agency paid claims.

(iii) Reasonable cost means a cost 

that, in its nature and amount, does not 

exceed that which would be incurred by a 

prudent person under the circumstances 

prevailing at the time the decision was 

made to incur the cost. The burden of proof 

is upon the guaranty agency, as a fiduciary 

under its agreements with the Secretary, to 

establish that costs are reasonable. In 

determining reasonableness of a given cost, 

consideration must be given to—

(A) Whether the cost is of a type 

generally recognized as ordinary and 

necessary for the proper and efficient 

performance and administration of the 

guaranty agency's responsibilities under the 

HEA;

(B) The restraints or requirements 

imposed by factors such as sound business 

practices, arms-length bargaining, Federal, 

State, and other laws and regulations, and 

the terms and conditions of the guaranty 

agency's agreements with the Secretary; 

and

(C) Market prices of comparable 

goods or services.

(b) Administrative requirements —

(1) Independent audits. The guaranty 

agency shall arrange for an independent 

financial and compliance audit of the 

agency's FFEL program as follows:

(i) With regard to a guaranty agency 

that is an agency of a State government, an 

audit must be conducted in accordance 

with 31 U.S.C. 7502 and 34 CFR part 80, 

appendix G.

(ii) With regard to a guaranty agency 

that is a nonprofit organization, an audit 

must be conducted in accordance with 

OMB Circular A–133, Audits of Institutions 

of Higher Education and Other Nonprofit 

Organizations and 34 CFR 74.61(h)(3). If a 

nonprofit guaranty agency meets the 

criteria in Circular A–133 to have a program 

specific audit, and chooses that option, the 

program specific audit must meet the 

following requirements:

(A) The audit must examine the 

agency's compliance with the Act, 

applicable regulations, and agreements 

entered into under this part.

(B) The audit must examine the 

agency's financial management of its FFEL 

program activities.

(C) The audit must be conducted in 

accordance with the standards for audits 

issued by the United States General 

Accounting Office's (GAO) Government 

Auditing Standards. Procedures for audits 

are contained in an audit guide developed 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

251

by, and available from, the Office of the 

Inspector General of the Department.

(D) The audit must be conducted 

annually and must be submitted to the 

Secretary within six months of the end of 

the audit period. The first audit must cover 

the agency's activities for a period that 

includes July 23, 1992, unless the agency is 

currently submitting audits on a biennial 

basis, and the second year of its biennial 

cycle starts on or before July 23, 1992.

Under these circumstances, the agency 

shall submit a biennial audit that includes 

July 23, 1992 and submit its next audit as an 

annual audit.

(2) Collection charges. Whether or 

not provided for in the borrower's 

promissory note and subject to any 

limitation on the amount of those costs in 

that note, the guaranty agency shall charge 

a borrower an amount equal to reasonable 

costs incurred by the agency in collecting a 

loan on which the agency has paid a default 

or bankruptcy claim. These costs may 

include, but are not limited to, all attorney's 

fees, collection agency charges, and court 

costs. Except as provided in 

§§682.401(b)(27)(18)(i) and 

682.405(b)(1)(iv), the amount charged a 

borrower must equal the lesser of—

(i) The amount the same borrower 

would be charged for the cost of collection 

under the formula in 34 CFR 30.60; or

(ii) The amount the same borrower 

would be charged for the cost of collection 

if the loan was held by the U.S. Department 

of Education.

(3) Interest charged by guaranty 

agencies. The guaranty agency shall charge 

the borrower interest on the amount owed 

by the borrower after the capitalization 

required under paragraph (b)(4) of this 

section has occurred at a rate that is the 

greater of—

(i) The rate established by the terms 

of the borrower's original promissory note;

(ii) In the case of a loan for which a 

judgment has been obtained, the rate 

provided for by State law.

(4) Capitalization of unpaid interest. 

The guaranty agency shall capitalize any 

unpaid interest due the lender from the 

borrower at the time the agency pays a 

default claim to the lender.

(5) Reports to consumer reporting 

agencies. (i) After the completion of the 

procedures in paragraph (b)(5)(ii) of this 

section, the guaranty agency shall, after it 

has paid a default claim, report promptly, 

but not less than sixty days after 

completion of the procedures in paragraph 

(b)(6)(v)(ii) of this section, and on a regular 

basis, to all nationwide consumer reporting 

agencies—

(A) The total amount of loans made 

to the borrower and the remaining balance 

of those loans;

(B) The date of default;

(C) Information concerning 

collection of the loan, including the 

repayment status of the loan;

(D) Any changes or corrections in 

the information reported by the agency 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

252

that result from information received after 

the initial report; and

(E) The date the loan is fully repaid 

by or on behalf of the borrower or 

discharged by reason of the borrower's 

death, bankruptcy, total and permanent 

disability, or closed school or false 

certification.

(ii) The guaranty agency, after it 

pays a default claim on a loan but before it 

reports the default to a consumer reporting 

agency or assesses collection costs against a 

borrower, shall, within the timeframe 

specified in paragraph (b)(6)(ii) of this 

section, provide the borrower with—

(A) Written notice that meets the 

requirements of paragraph (b)(5)(vi) of this 

section regarding the proposed actions;

(B) An opportunity to inspect and 

copy agency records pertaining to the loan 

obligation;

(C) An opportunity for an 

administrative review of the legal 

enforceability or past-due status of the loan 

obligation; and

(D) An opportunity to enter into a 

repayment agreement on terms satisfactory 

to the agency.

(iii) The procedures set forth in 34 

CFR 30.20–30.33 (administrative offset) 

satisfy the requirements of paragraph 

(b)(5)(ii) of this section.

(iv)(A) In response to a request 

submitted by a borrower, after the 

deadlines established under agency rules, 

for access to records, an administrative 

review, or for an opportunity to enter into a 

repayment agreement, the agency shall 

provide the requested relief but may 

continue reporting the debt to consumer 

reporting agencies until it determines that 

the borrower has demonstrated that the 

loan obligation is not legally enforceable or 

that alternative repayment arrangements 

satisfactory to the agency have been made 

with the borrower.

(B) The deadline established by the 

agency for requesting administrative review 

under paragraph (b)(5)(ii)(C) of this section 

must allow the borrower at least 60 days 

from the date the notice described in 

paragraph (b)(5)(ii)(A) of this section is sent 

to request that review.

(v) An agency may not permit an 

employee, official, or agent to conduct the 

administrative review required under this 

paragraph if that individual is—

(A) Employed in an organizational 

component of the agency or its agent that is 

charged with collection of loan obligations; 

or

(B) Compensated on the basis of 

collections on loan obligations.

(vi) The notice sent by the agency 

under paragraph (b)(5)(ii)(A) of this section 

must—

(A) Advise the borrower that the 

agency has paid a default claim filed by the 

lender and has taken assignment of the 

loan;

(B) Identify the lender that made the 

loan and the school for attendance at which 

the loan was made;
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

253

(C) State the outstanding principal, 

accrued interest, and any other charges 

then owing on the loan;

(D) Demand that the borrower 

immediately begin repayment of the loan;

(E) Explain the rate of interest that 

will accrue on the loan, that all costs

incurred to collect the loan will be charged 

to the borrower, the authority for assessing 

these costs, and the manner in which the 

agency will calculate the amount of these 

costs;

(F) Notify the borrower that the 

agency will report the default to all 

nationwide consumer reporting agencies to 

the detriment of the borrower's credit 

rating;

(G) Explain the opportunities 

available to the borrower under agency 

rules to request access to the agency's 

records on the loan, to request an 

administrative review of the legal 

enforceability or past-due status of the 

loan, and to reach an agreement on 

repayment terms satisfactory to the agency 

to prevent the agency from reporting the 

loan as defaulted to consumer reporting 

agencies and provide deadlines and method 

for requesting this relief;

(H) Unless the agency uses a 

separate notice to advise the borrower 

regarding other proposed enforcement 

actions, describe specifically any other 

enforcement action, such as offset against 

Federal or state income tax refunds or wage

garnishment that the agency intends to use 

to collect the debt, and explain the 

procedures available to the borrower prior 

to those other enforcement actions for 

access to records, for an administrative 

review, or for agreement to alternative 

repayment terms;

(I) Describe the grounds on which 

the borrower may object that the loan 

obligation as stated in the notice is not a 

legally enforceable debt owed by the 

borrower;

(J) Describe any appeal rights 

available to the borrower from an adverse 

decision on administrative review of the 

loan obligation;

(K) Describe any right to judicial 

review of an adverse decision by the agency 

regarding the legal enforceability or pastdue status of the loan obligation;

(L) Describe the collection actions 

that the agency may take in the future if 

those presently proposed do not result in 

repayment of the loan obligation, including 

the filing of a lawsuit against the borrower 

by the agency and assignment of the loan to 

the Secretary for the filing of a lawsuit 

against the borrower by the Federal 

Government; and

(M) Inform the borrower of the 

options that are available to the borrower 

to remove the loan from default, including 

an explanation of the fees and conditions 

associated with each option.

(vii) As part of the guaranty agency's 

response to a borrower who appeals an 

adverse decision resulting from the 

agency's administrative review of the loan 

obligation, the agency must provide the 

borrower with information on the 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

254

availability of the Student Loan 

Ombudsman's office.

(6) Collection efforts on defaulted 

loans. (i) A guaranty agency must engage in 

reasonable and documented collection 

activities on a loan on which it pays a 

default claim filed by a lender. For a nonpaying borrower, the agency must perform 

at least one activity every 180 days to 

collect the debt, locate the borrower (if 

necessary), or determine if the borrower 

has the means to repay the debt.

(ii) Within 45 days after paying a 

lender's default claim, the agency must 

send a notice to the borrower that contains 

the information described in paragraph 

(b)(5)(ii) of this section. During this time 

period, the agency also must notify the 

borrower, either in the notice containing 

the information described in paragraph 

(b)(5)(ii) of this section, or in a separate 

notice, that if he or she does not make 

repayment arrangements acceptable to the 

agency, the agency will promptly initiate 

procedures to collect the debt. The agency's 

notification to the borrower must state that 

the agency may administratively garnish the 

borrower's wages, file a civil suit to compel 

repayment, offset the borrower's State and 

Federal income tax refunds and other 

payments made by the Federal Government 

to the borrower, assign the loan to the 

Secretary in accordance with §682.409, and 

take other lawful collection means to 

collect the debt, at the discretion of the 

agency. The agency's notification must 

include a statement that borrowers may 

have certain legal rights in the collection of 

debts, and that borrowers may wish to 

contact counselors or lawyers regarding 

those rights.

(iii) Within a reasonable time after 

all of the information described in 

paragraph (b)(6)(ii) of this section has been 

sent, the agency must send at least one 

notice informing the borrower that the 

default has been reported to all nationwide 

consumer reporting agencies and that the 

borrower's credit rating may thereby have 

been damaged.

(iv) The agency must send a notice 

informing the borrower of the options that 

are available to remove the loan from 

default, including an explanation of the fees 

and conditions associated with each option. 

This notice must be sent within a 

reasonable time after the end of the period 

for requesting an administrative review as 

specified in paragraph (b)(5)(iv)(B) of this 

section or, if the borrower has requested an 

administrative review, within a reasonable 

time following the conclusion of the 

administrative review.

(v) A guaranty agency must attempt 

an annual Federal offset against all eligible 

borrowers. If an agency initiates 

proceedings to offset a borrower's State or 

Federal income tax refunds and other 

payments made by the Federal Government 

to the borrower, it may not initiate those 

proceedings sooner than 60 days after 

sending the notice described in paragraph 

(b)(5)(ii)(A) of this section.

(vi) A guaranty agency must initiate 

administrative wage garnishment 

proceedings against all eligible borrowers, 

except as provided in paragraph (b)(6)(vii) 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

255

of this section, by following the procedures 

described in paragraph (b)(9) of this section.

(vii) A guaranty agency may file a 

civil suit against a borrower to compel 

repayment only if the borrower has no 

wages that can be garnished under 

paragraph (b)(9) of this section, or the 

agency determines that the borrower has 

sufficient attachable assets or income that 

is not subject to administrative wage 

garnishment that can be used to repay the 

debt, and the use of litigation would be 

more effective in collection of the debt.

(7) Special conditions for agency 

payment of a claim. (i) A guaranty agency 

may adopt a policy under which it pays a 

claim to a lender on a loan under the 

conditions condition described in 

§682.509(a)(1)404(b)(3)(ii).

(ii) Upon the payment of a claim 

under a policy described in paragraph 

(b)(7)(i) of this section, the guaranty agency 

shall—

(A) Perform the loan servicing 

functions required of a lender under 

§682.208, except that the agency is not 

required to follow the consumer reporting 

agency credit bureau reporting 

requirements of that section;

(B) Perform the functions of the 

lender during the repayment period of the 

loan, as required under §682.209;

(C) If the borrower is delinquent in 

repaying the loan at the time the agency 

pays a claim thereon to the lender or 

becomes delinquent while the agency holds 

the loan, exercise due diligence in 

accordance with §682.411 in attempting to 

collect the loan from the borrower and any 

endorser or co-maker; and

(D) After the date of default on the 

loan, if any, comply with paragraph (b)(6) of 

this section with respect to collection 

activities on the loan, with the date of 

default treated as the claim payment date 

for purposes of those paragraphs.

(8) Preemption of State law. The 

provisions of paragraphs (b)(2), (5), and (6) 

of this section preempt any State law, 

including State statutes, regulations, or

rules, that would conflict with or hinder 

satisfaction of the requirements of these 

provisions.

(9) Administrative Garnishment. (i) If 

a guaranty agency decides to garnish the 

disposable pay of a borrower who is not 

making payments on a loan held by the 

agency, on which the Secretary has paid a 

reinsurance claim, it shall do so in 

accordance with the following procedures:

(A) The employer shall deduct and 

pay to the agency from a borrower's wages 

an amount that does not exceed the lesser 

of 15 percent of the borrower's disposable 

pay for each pay period or the amount 

permitted by 15 U.S.C. 1673, unless the 

borrower provides the agency with written 

consent to deduct a greater amount. For 

this purpose, the term “disposable pay” 

means that part of the borrower's 

compensation from an employer remaining 

after the deduction of any amounts 

required by law to be withheld.

(B)(A) At least 30 days before the 

initiation of garnishment proceedings, the 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

256

guaranty agency mustshall mail to the 

borrower's last known address, a written 

notice as described in paragraph (b)(9)(i)(B) 

of this section. of the nature and amount of 

the debt, the intention of the agency to 

initiate proceedings to collect the debt 

through deductions from pay, and an 

explanation of the borrower's rights.

(B) The notice must describe –

(1) The nature and amount of the 

debt;

(2) The intention of the agency to 

collect the debt through deductions from 

disposable pay;

(3) An explanation of the 

borrower’s rights;

(4) The deadlines by which a 

borrower must exercise those rights; and

(5) The consequences of failure to 

exercise those rights in a timely manner.

(C) The guaranty agency must shall

offer the borrower an opportunity to 

inspect and copy agency records related to 

the debt.

(D) The guaranty agency shall must

offer the borrower an opportunity to enter 

into a written repayment agreement with 

the agency under terms agreeable to the 

agency.

(E) (1) The guaranty agency must 

shall offer the borrower an opportunity for 

a hearing in accordance with paragraph 

(b)(9)(i)(F) through (J) of this section and 

other guidance provided by the Secretary,

for any objection regarding concerning the 

existence, or the amount, or enforceability 

of the debt, and, any objection that 

withholding from the borrower’s disposable 

pay in the amount or at the rate proposed 

in the notice would cause financial hardship 

to the borrower. in the case of a borrower 

whose proposed repayment schedule under 

the garnishment order is established other 

than by a written agreement under 

paragraph (b)(9)(i)(D) of this section, the 

terms of the repayment schedule.

(2) The borrower must request a 

hearing in writing. At the borrower’s option, 

the hearing may be oral or written. The 

time and location of the hearing is 

established by the guaranty agency. An oral 

hearing may, at the borrower’s option, be 

conducted either in-person or by telephone 

conference. The agency notifies the 

borrower of the process for arranging the 

time and location of an oral hearing. All 

telephonic charges are the responsibility of 

the agency. All travel expenses incurred by 

the borrower in connection with an inperson oral hearing are the responsibility of 

the borrower.

(F) (1) If the borrower submits a 

written request for a hearing on the 

existence, amount, or enforceability of the 

debt --

(i) The guaranty agency must 

provide evidence of the existence of the 

debt. If the agency provides evidence of 

the existence of the debt, the borrower 

must prove by the preponderance of the 

evidence that no debt exists, the debt is not 

enforceable under applicable law, the 

amount the guaranty agency claims the 

borrower owes is incorrect, including that 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

257

any amount of collection costs assessed to 

the borrower exceeds the limits established 

under §682.410(b)(2), or the debt is not 

delinquent; and

(ii) The borrower may raise any of 

the objections described in paragraph 

(b)(9)(i)(F)(1)(i) of this section not raised in 

the written request, but must do so before 

a hearing is completed. For purposes of this 

paragraph, a hearing is completed when the 

record is closed and the hearing official 

notifies the parties that no additional 

evidence or objections will be accepted.

(2) If the borrower submits a 

written request for a hearing on an 

objection that withholding the amount or 

rate that the agency proposed in its notice 

would cause financial hardship to the 

borrower and the borrower’s spouse and 

dependents -- The guaranty agency shall 

sue any employer for any amount that the 

employer, after receipt of the garnishment 

notice provided by the agency under 

paragraph (b)(9)(i)(H) of this section, fails to 

withhold from wages owed and payable to 

an employee under the employer's normal 

pay and disbursement cycle.

(i) The borrower bears the burden 

of proving the claim of financial hardship by 

a preponderance of the credible evidence 

by providing credible documentation that 

the amount of wages proposed in the 

notice would leave the borrower unable to 

meet basic living expenses of the borrower, 

the borrower’s spouse, and the borrower’s 

dependents. The documentation must 

show the amount of the costs incurred for 

basic living expenses and the income 

available from any source to meet those 

expenses;

(ii) The borrower’s claim of financial 

hardship must be evaluated by comparing 

the amounts that the borrower proves are 

being incurred for basic living expenses 

against the amounts spent for basic living 

expenses by families of the same size and 

similar income to the borrower’s. For the 

purposes of this section, the standards 

published by the Internal Revenue Service 

under 26 U.S.C. 7122(c)(2) (the National 

Standards) establish the average amounts 

spent for basic living expenses for families 

of the same size as, and with family 

incomes comparable to, the borrower’s 

family; 

(iii) The amount that the borrower 

proves is incurred for a type of basic living 

expense is considered to be reasonable to 

the extent that the amount does not exceed 

the amount spent for that expense by 

families of the same size and similar income 

according to the National Standards. If the 

borrower claims an amount for any basic 

living expense that exceeds the amount in 

the National Standards, the borrower must 

prove that the amount claimed is 

reasonable and necessary; 

(iv) If the borrower’s objection to 

the rate or amount proposed in the notice 

is upheld in part, the garnishment may be 

ordered at a lesser rate or amount, that is 

determined will allow the borrower to meet 

basic living expenses proven to be 

reasonable and necessary. If this financial 

hardship determination is made after a 

garnishment order is already in effect, the 

guaranty agency must notify the borrower’s 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

258

employer of any change required by the 

determination in the amount to be withheld 

or the rate of withholding under that order; 

and

(v) A determination by a hearing 

official that financial hardship would result 

from garnishment is effective for a period 

not longer than six months after the date of 

the finding. After this period, the guaranty 

agency may require the borrower to submit 

current information regarding the 

borrower’s family income and living 

expenses. If the borrower fails to submit 

current information within 30 days of this 

request, or the guaranty agency concludes 

from a review of the available evidence that 

garnishment should now begin or the rate 

or the amount of an outstanding 

withholding should be increased, the

guaranty agency must notify the borrower 

and provide the borrower with an 

opportunity to contest the determination 

and obtain a hearing on the objection under 

the procedures in paragraph (b)(9)(i) of this 

section. 

(G) The guaranty agency may not 

garnish the wages of a borrower whom it 

knows has been involuntarily separated 

from employment until the borrower has 

been reemployed continuously for at least 

12 months.

(H) Unless the guaranty agency 

receives information that the agency 

believes justifies a delay or cancellation of 

the withholding order, it shall send a 

withholding order to the employer within 

20 days after the borrower fails to make a 

timely request for a hearing, or, if a timely 

request for a hearing is made by the 

borrower, within 20 days after a final 

decision is made by the agency to proceed 

with garnishment.

(I) The notice given to the employer 

under paragraph (b)(9)(i)(H) of this section 

must contain only the information as may 

be necessary for the employer to comply 

with the withholding order.

(J) The guaranty agency shall provide 

a hearing, which, at the borrower's option, 

may be oral or written, if the borrower 

submits a written request for a hearing on 

the existence or amount of the debt or the 

terms of the repayment schedule. The time 

and location of the hearing shall be 

established by the agency. An oral hearing 

may, at the borrower's option, be 

conducted either in-person or by telephone 

conference. All telephonic charges must be 

the responsibility of the guaranty agency.

(K) (G)If the borrower's written 

request for a hearing is received by the 

guaranty agency on or before the 1530th 

day following the date borrower's receipt

of the notice described in paragraph 

(b)(9)(i)(B) of this section, the guaranty 

agency may not issue a withholding order 

until the borrower has been provided the 

requested hearing and a decision has been 

rendered. For purposes of this paragraph, in 

the absence of evidence to the contrary, a 

borrower shall be considered to have 

received the notice described in paragraph 

(b)(9)(i)(B) of this section 5 days after it was 

mailed by the agency. The guaranty agency 

mustshall provide a hearing to the borrower 

in sufficient time to permit a decision, in 

accordance with the procedures that the 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

259

agency may prescribe, to be rendered 

within 60 days.

(L)(H) If the borrower's written 

request for a hearing is received by the 

guaranty agency after the 15 30th day 

following the date of the notice borrower's 

receipt of the notice described in paragraph 

(b)(9)(i)(B) of this section, the guaranty 

agency shall must provide a hearing to the 

borrower in sufficient time that a decision, 

in accordance with the procedures that the 

agency may prescribe, may be rendered 

within 60 days, but may not delay issuance 

of a withholding order unless the agency 

determines that the delay in filing the 

request was caused by factors over which 

the borrower had no control, or the agency 

receives information that the agency 

believes justifies a delay or cancellation of 

the withholding order. If a decision is not 

rendered within 60 days following receipt of 

a borrower’s written request for a hearing, 

the guaranty agency must suspend the 

order beginning on the 61st day after the 

hearing request was received until a 

hearing is provided and a decision is 

rendered. For purposes of this paragraph, in 

the absence of evidence to the contrary, a 

borrower shall be considered to have 

received the notice described in paragraph 

(b)(9)(i)(B) of this section 5 days after it was 

mailed by the agency.

(M)(I) The hearing official appointed 

by the agency to conduct the hearing may 

be any qualified individual, including an 

administrative law judge,. not under the

Under no circumstance may the hearing 

official be under the supervision or control 

of the head of the guaranty agency or . of a 

third-party servicer or collection contractor 

employed by the agency. Payment of 

compensation by the guaranty agency, 

third-party servicer, or collection contractor 

employed by the agency to the hearing 

official for service as a hearing official does

not constitute impermissible supervision or 

control under this paragraph. The guaranty 

agency must ensure that, except as needed 

to arrange the type of hearing requested by 

the borrower and the time, place, and 

manner of conducting an oral hearing, all 

oral communications with any 

representative of the guaranty agency or 

with the borrower are made within the 

hearing of the other party, and that copies 

of any written communication with either 

party are promptly provided to the other 

party.

(N) (J)The hearing official must shall

conduct any hearing as an informal 

proceeding, require witnesses in an oral 

hearing to testify under oath or affirmation, 

and maintain a summary record of any 

hearing. The hearing official must issue a 

final written decision at the earliest 

practicable date, but not later than 60 days 

after the guaranty agency's receipt of the 

borrower's hearing request. However

(1) The borrower may request an 

extension of that deadline for a reasonable 

period, as determined by the hearing 

official, for the purpose of submitting 

additional evidence; and

(2) The agency may request, and the 

hearing official must grant, a reasonable 

extension of time sufficient to enable the 

guaranty agency to evaluate and respond to 

any such additional evidence or any 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

260

objections raised pursuant to paragraph 

(b)(9)(i)(F)(1)(ii) of this section.

(K) An employer served with a 

garnishment order from the guaranty 

agency with respect to a borrower whose 

wages are not then subject to a withholding 

order of any kind must deduct and pay to 

the agency from a borrower’s disposable 

pay an amount that does not exceed the 

smallest of --

(1) The amount specified in the 

guaranty agency order;

(2) The amount permitted by section 

488A(a)(1) of the Act, which is, 15 percent 

of the borrower’s disposable pay; or

(3) The amount permitted by 15 

U.S.C. 1673(a)(2), which is, the amount by 

which the borrower’s disposable pay 

exceeds 30 times the minimum wage.

(L) If a borrower’s pay is subject to 

more than one garnishment order--

(1) Unless other Federal law requires 

a different priority, the employer must pay 

the agency the amount calculated under 

paragraph (b)(9)(i)(K) of this section before 

the employer complies with any later 

garnishment orders, except a family 

support withholding order;

(2) If an employer is withholding 

from a borrower’s pay based on a 

garnishment order served on the employer 

before the guaranty agency’s order, or if a 

withholding order for family support is 

served on an employer at any time, the 

employer must comply with the agency’s 

garnishment order by withholding an 

amount that is the lesser of --

(i) The amount specified in the 

guaranty agency order; or

(ii) The amount calculated under

paragraph (b)(9)(i)(L)(3) of this section less 

the amount or amounts withheld under the 

garnishment order or orders that have 

priority over the agency’s order; and

(3) The cumulative withholding for 

all garnishment orders issued by guaranty 

agencies may not exceed, for an individual 

borrower, the amount permitted by 15 

U.S.C. 1673, which is the lesser of 25 

percent of the borrower’s disposable pay or 

the amount by which the borrower’s 

disposable pay exceeds 30 times the 

minimum wage. If a borrower owes debts 

to one or more guaranty agencies, each 

agency may issue a garnishment order to 

enforce each of those debts, but no single 

agency may order a total amount exceeding 

15 percent of the disposable pay of a 

borrower to be withheld. The employer 

must honor these orders as provided in 

paragraphs (b)(9)(i)(L)(1) and (2) of this 

section.

(M) Notwithstanding paragraphs 

(b)(9)(i)(K) and (L) of this section, an 

employer may withhold and pay a greater 

amount than required under the order if 

the borrower gives the employer written 

consent.

(N) A borrower may, at any time, 

raise an objection to the amount or the rate 

of withholding specified in the guaranty 

agency’s order to the borrower’s employer 

on the ground of financial hardship. 

However, the guaranty agency is not 

required to consider such an objection and 

provide the borrower with a hearing until at 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

261

least six months after the agency issued the 

most recent garnishment order, either one 

for which the borrower did not request a 

hearing or one that was issued after a 

hardship-related hearing determination. 

The agency may provide a hearing in 

extraordinary circumstances earlier than six 

months if the borrower‘s request for review 

shows that the borrower’s financial 

circumstances have substantially changed 

after the garnishment notice because of an 

event such as injury, divorce, or 

catastrophic illness. 

(O) As specified in section 488A(a)(8) 

of the HEA, the borrower may seek judicial 

relief, including punitive damages, if the 

employer discharges, refuses to employ, or 

takes disciplinary action against the 

borrower due to the issuance of a 

withholding order.

(O) A garnishment order is effective 

until the guaranty agency rescinds the order 

or the agency has fully recovered the 

amounts owed by the borrower, including 

interest, late fees, and collections costs. If

an employer is unable to honor a 

garnishment order because the amount 

available for garnishment is insufficient to 

pay any portion of the amount stated in the 

order, the employer must notify the agency 

and comply with the order when sufficient 

disposable pay is available. Upon full 

recovery of the debt, the agency must send 

the borrower’s employer notification to 

stop wage withholding. 

(P) The guaranty agency must sue 

any employer for any amount that the 

employer, after receipt of the withholding 

order provided by the agency under 

paragraph (b)(9)(i)(R) of this section, fails to 

withhold from wages owed and payable to 

an employee under the employer’s normal 

pay and disbursement cycle. 

(Q) The guaranty agency may not 

garnish the wages of a borrower whom it 

knows has been involuntarily separated 

from employment until the borrower has 

been reemployed continuously for at least 

12 months. The borrower has the burden 

of informing the guaranty agency of the 

circumstances surrounding the borrower’s 

involuntary separation from employment.

(R) Unless the guaranty agency 

receives information that the agency 

believes justifies a delay or cancellation of 

the withholding order, it must send a 

withholding order to the employer within 

20 days after the borrower fails to make a 

timely request for a hearing, or, if a timely 

request for a hearing is made by the 

borrower, within 20 days after a final 

decision is made by the agency to proceed 

with garnishment.

(S) The notice given to the employer 

under paragraph (b)(9)(i)(R) of this section 

must contain only the information as may 

be necessary for the employer to comply 

with the withholding order and to ensure 

proper credit for payments received. At a 

minimum, the notice given to the employer 

includes the borrower’s name, address, and 

Social Security Number, as well as 

instructions for withholding and 

information as to where the employer must 

send payments.

(T)(1) A guaranty agency may use a 

third-party servicer or collection contractor 

to perform administrative activities 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

262

associated with administrative wage 

garnishment, but may not allow such a 

party to conduct required hearings or to 

determine that a withholding order is to be 

issued. Subject to the limitations of 

paragraphs (b)(9)(i)(T)(2) and (3) of this 

section, administrative activities associated 

with administrative wage garnishment may 

include but are not limited to --

(i) Identifying to the agency suitable 

candidates for wage garnishment pursuant 

to agency standards;

(ii) Obtaining employment 

information for the purposes of 

garnishment;

(iii) Sending candidates selected for 

garnishment by the agency notices 

prescribed by the agency;

(iv) Negotiating alternative 

repayment arrangements with borrowers;

(v) Responding to inquiries from 

notified borrowers;

(vi) Receiving garnishment 

payments on behalf of the agency;

(vii) Arranging for the retention of 

hearing officials and for the conduct of 

hearings on behalf of the agency;

(viii) Providing information to 

borrowers or hearing officials on the 

process or conduct of hearings; and

(ix) Sending garnishment orders and 

other communications to employers on 

behalf of the agency.

(2) Only an authorized official of the 

agency may determine that an individual 

withholding order is to be issued. The 

guarantor must record the official’s 

determination for each order it issues, 

including any order which it causes to be 

prepared or mailed by a third-party servicer 

or collection contractor. The guarantor 

must evidence the official’s approval, either 

by including the official’s signature on the 

order or, if the agency uses a form of 

withholding order that does not provide for 

execution by signature, by retaining in the 

agency’s records the identity of the 

approving official, the date of the approval, 

the amount or rate of the order, the name 

and address of the employer to whom the 

order was issued, and the debt for which 

the order was issued.

(3) The withholding order must 

identify the guaranty agency as the holder 

of the debt, as the issuer of the order, and 

as the sole party legally authorized to issue 

the withholding order. If a guaranty agency 

uses a third-party servicer or collection 

contractor to prepare and mail a 

withholding order that includes the name of 

the servicer or contractor that prepared or 

mailed the order, the guaranty agency 

must also ensure that the order contains no 

captions or representations that the 

servicer or contractor is the party that 

issued, or was empowered by Federal law 

or by the agency to issue, the withholding 

order.

(U) As specified in section 488A(a)(8) 

of the Act, the borrower may seek judicial 

relief, including punitive damages, if the 

employer discharges, refuses to employ, or 

takes disciplinary action against the 

borrower due to the issuance of a 

withholding order.
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

263

(ii) For purposes of paragraph (b)(9) 

of this section --

(A) References to “the borrower”

“Borrower” in this paragraph includes all 

endorsers on a loan.

(B) “Day” means calendar day;

(C) “Disposable pay” means that 

part of a borrower’s compensation for 

personal services, whether or not 

denominated as wages from an employer, 

that remains after the deduction of health 

insurance premiums and any amounts 

required by law to be withheld, and 

includes, but is not limited to, salary, 

bonuses, commissions, or vacation pay. 

“Amounts required by law to be withheld” 

include amounts for deductions such as 

Social Security taxes and withholding taxes, 

but do not include any amount withheld 

under a court order or other withholding 

order. All references to an amount of 

disposable pay refer to disposable pay 

calculated for a single week;

(D) “Employer” means a person or 

entity that employs the services of another 

and that pays the latter’s wages or salary 

and includes, but is not limited to, State and 

local governments, but does not include an 

agency of the Federal Government;

(E) “Financial hardship” means an 

inability to meet basic living expenses for 

goods and services necessary for the 

survival of the borrower and the borrower’s 

spouse and dependents;

(F) “Garnishment” means the 

process of withholding amounts from an 

employee’s disposable pay and paying 

those amounts to a creditor in satisfaction 

of a withholding order; and

(G) “Withholding order” means any 

order for withholding or garnishment of pay 

issued by the guaranty agency and may also 

be referred to as “wage garnishment order” 

or “garnishment order.”

(10) Conflicts of interest. (i) A 

guaranty agency shall maintain and enforce 

written standards of conduct governing the 

performance of its employees, officers, 

directors, trustees, and agents engaged in 

the selection, award, and administration of 

contracts or agreements. The standards of 

conduct must, at a minimum, require 

disclosure of financial or other interests and 

must mandate disinterested decisionmaking. The standards must provide for 

appropriate disciplinary actions to be 

applied for violations of the standards by 

employees, officers, directors, trustees, or 

agents of the guaranty agency, and must 

include provisions to—

(A) Prohibit any employee, officer, 

director, trustee, or agent from 

participating in the selection, award, or 

decision-making related to the 

administration of a contract or agreement 

supported by the reserve fund described in 

paragraph (a) of this section, if that 

participation would create a conflict of 

interest. Such a conflict would arise if the 

employee, officer, director, trustee, or 

agent, or any member of his or her 

immediate family, his or her partner, or an 

organization that employs or is about to 

employ any of those parties has a financial 

or ownership interest in the organization 

selected for an award or would benefit 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

264

from the decision made in the 

administration of the contract or 

agreement. The prohibitions described in 

this paragraph do not apply to employees 

of a State agency covered by codes of 

conduct established under State law;

(B) Ensure sufficient separation of 

responsibility and authority between its 

lender claims processing as a guaranty 

agency and its lending or loan servicing 

activities, or both, within the guaranty 

agency or between that agency and one or 

more affiliates, including independence in 

direct reporting requirements and such 

management and systems controls as may 

be necessary to demonstrate, in the 

independent audit required under 

§682.410(b)(1), that claims filed by another 

arm of the guaranty agency or by an 

affiliate of that agency receive no more 

favorable treatment than that accorded the 

claims filed by a lender or servicer that is 

not an affiliate or part of the guaranty 

agency; and

(C) Prohibit the employees, officers, 

directors, trustees, and agents of the 

guaranty agency, his or her partner, or any 

member of his or her immediate family, 

from soliciting or accepting gratuities, 

favors, or anything of monetary value from 

contractors or parties to agreements, 

except that nominal and unsolicited 

gratuities, favors, or items may be 

accepted.

(ii) Guaranty agency restructuring. If 

the Secretary determines that action is 

necessary to protect the Federal fiscal 

interest because of an agency's failure to 

meet the requirements of 

§682.410(b)(10)(i), the Secretary may 

require the agency to comply with any 

additional measures that the Secretary 

believes are appropriate, including the total 

divestiture of the agency's non-FFEL 

functions and the agency's interests in any 

affiliated organization.

(c) Enforcement requirements. A 

guaranty agency shall take such measures 

and establish such controls as are necessary 

to ensure its vigorous enforcement of all 

Federal, State, and guaranty agency 

requirements, including agreements, 

applicable to its loan guarantee program, 

including, at a minimum, the following:

(1) Conducting comprehensive 

biennial on-site program reviews, using 

statistically valid techniques to calculate 

liabilities to the Secretary that each review 

indicates may exist, of at least—

(i)(A) Each participating lender 

whose dollar volume of FFEL loans made or

held by the lender and guaranteed by the 

agency in the preceding year—

(1) Equaled or exceeded two 

percent of the total of all loans guaranteed 

in that year by the agency;

(2) Was one of the ten largest 

lenders whose loans were guaranteed in 

that year by the agency; or

(3) Equaled or exceeded $10 million 

in the most recent fiscal year;

(B) Each lender described in section 

435(d)(1)(D) or (J) of the Act that is located 

in any State in which the agency is the 

principal guarantor, and, at the option of 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

265

each guaranty agency, the Student Loan 

Marketing Association; and

(C) Each participating school that 

participated in the guaranty agency’s 

program, located in a State for which the 

guaranty agency is the principal guaranty 

agency, that has a cohort default rate, as 

described in subpart M of 34 CFR part 668, 

that includes FFEL Program loans, for either 

of the 2 immediately preceding fiscal years, 

as defined in 34 CFR 668.182, that exceeds

20 percent, unless the school is under a 

mandate from the Secretary under subpart 

M of 34 CFR part 668 to take specific 

default reduction measures or if the total 

dollar amount of loans entering repayment 

in each fiscal year on which the cohort 

default rate of over 20 percent is based 

does not exceed $100,000; or

(ii) The schools and lenders selected 

by the agency as an alternative to the 

reviews required by paragraphs (c)(1)(i)(A)–

(C) of this section if the Secretary approves 

the agency's proposed alternative selection 

methodology.

(2) Demanding prompt repayment 

by the responsible parties to lenders, 

borrowers, the agency, or the Secretary, as 

appropriate, of all funds found in those 

reviews to be owed by the participants with 

regard to loans guaranteed by the agency, 

whether or not the agency holds the loans, 

and monitoring the implementation by 

participants of corrective actions, including 

these repayments, required by the agency 

as a result of those reviews.

(3) Referring to the Secretary for 

further enforcement action any case in 

which repayment of funds to the Secretary 

is not made in full within 60 days of the 

date of the agency's written demand to the 

school, lender, or other party for payment, 

together with all supporting 

documentation, any correspondence, and 

any other documentation submitted by that 

party regarding the repayment.

(4) Adopting procedures for 

identifying fraudulent loan applications.

(5)(4) Undertaking or arranging with 

State or local law enforcement agencies for 

the prompt and thorough investigation of 

all allegations and indications of criminal or 

other programmatic misconduct by its 

program participants, including violations of 

Federal law or regulations.

(6)(5) Promptly referring to 

appropriate State and local regulatory 

agencies and to nationally recognized 

accrediting agencies and associations for 

investigation information received by the 

guaranty agency that may affect the 

retention or renewal of the license or 

accreditation of a program participant.

(7)(6) Promptly reporting all of the 

allegations and indications of misconduct 

having a substantial basis in fact, and the 

scope, progress, and results of the agency's 

investigations thereof to the Secretary.

(8)(7) Referring appropriate cases to 

State or local authorities for criminal 

prosecution or civil litigation.

(9)(8) Promptly notifying the 

Secretary of—

(i) Any action it takes affecting the 

FFEL program eligibility of a participating 

lender or title IV eligibility of a school;
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.410

Fiscal, administrative, and enforcement requirements

266

(ii) Information it receives regarding 

an action affecting the FFEL program 

eligibility of a participating lender or title IV 

eligibility of a school taken by a nationally 

recognized accrediting agency, association, 

or a State licensing agency;

(iii) Any judicial or administrative 

proceeding relating to the enforceability of 

FFEL loans guaranteed by the agency or in 

which tuition obligations of a school's 

students are directly at issue, other than a 

proceeding relating to a single borrower or 

student; and

(iv) Any petition for relief in 

bankruptcy, application for receivership, or 

corporate dissolution proceeding brought 

by or against a school that participated in its 

loan guarantee program or a lender 

participating in its loan guarantee program.

(10)(9) Cooperating with all program 

reviews, investigations, and audits 

conducted by the Secretary relating to the 

agency's loan guarantee program.

(11)(10) Taking prompt action to 

protect the rights of borrowers and the 

Federal fiscal interest respecting loans that 

the agency has guaranteed when the 

agency learns that a participating school 

that participated in the FFEL Program or a 

holder of loans participating in the program 

is experiencing problems that threaten the 

solvency of the school or holder, 

including—

(i) Conducting on-site program 

reviews;

(ii) Providing training and technical 

assistance, if appropriate;

(iii) Filing a proof of claim with a 

bankruptcy court for recovery of any funds 

due the agency and any refunds due to 

borrowers on FFEL loans that it has 

guaranteed when the agency learns that a 

school has filed a bankruptcy petition;

(iv) Promptly notifying the Secretary 

that the agency has determined that a 

school or holder of loans is experiencing 

potential solvency problems; and

(v) Promptly notifying the Secretary 

of the results of any actions taken by the 

agency to protect Federal funds involving 

such a school or holder.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1078, 1078–1, 1078–2, 

1078–3, 1080a, 1082, 1087, 1091a, and 

1099)

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9119, Feb. 19, 1993; 59 FR 22487, 

Apr. 29, 1994; 59 FR 25747, May 17, 1994; 

59 FR 35625, July 13, 1994; 59 FR 60691, 

Nov. 25, 1994; 61 FR 60436, 60486, Nov. 27, 

1996; 64 FR 18981, Apr. 16, 1999; 64 FR 

58630, Oct. 29, 1999; 64 FR 58965, Nov. 1, 

1999; 65 FR 65621, 65650, Nov. 1, 2000; 66 

FR 34764, June 29, 2001; 68 FR 75429, Dec. 

31, 2003; 71 FR 45708, Aug. 9, 2006; 74 FR 

56000, Oct. 29, 2009]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.411

Lender due diligence in collecting guaranty agency loans

267

§ 682.411 Lender due diligence in 

collecting guaranty agency loans.

(a) General. In the event of 

delinquency on an FFEL Program loan, the 

lender must engage in at least the 

collection efforts described in paragraphs 

(c) through (n) of this section, except that in 

the case of a loan made to a borrower who 

is incarcerated, residing outside a State, 

Mexico, or Canada, or whose telephone 

number is unknown, the lender may send a 

forceful collection letter instead of each 

telephone effort required by this section.

(b) Delinquency. (1) For purposes of 

this section, delinquency on a loan begins 

on the first day after the due date of the 

first missed payment that is not later made. 

The due date of the first payment is 

established by the lender but must occur by 

the deadlines specified in §682.209(a) or, if 

the lender first learns after the fact that the 

borrower has entered the repayment 

period, no later than 75 days after the day 

the lender so learns, except as provided in 

§682.209(a)(2)(v) and (a)(3)(ii)(E). If a 

payment is made late, the first day of 

delinquency is the day after the due date of 

the next missed payment that is not later 

made. A payment that is within five dollars 

of the amount normally required to 

advance the due date may nevertheless 

advance the due date if the lender's 

procedures allow for that advancement.

(2) At no point during the periods 

specified in paragraphs (c), (d), and (e) of 

this section may the lender permit the 

occurrence of a gap in collection activity, as 

defined in paragraph (j) of this section, of 

more than 45 days (60 days in the case of a 

transfer).

(3) As part of one of the collection 

activities provided for in this section, the 

lender must provide the borrower with 

information on the availability of the 

Student Loan Ombudsman's office.

(c) 1–15 days delinquent. Except in 

the case in which a loan is brought into this 

period by a payment on the loan, expiration 

of an authorized deferment or forbearance 

period, or the lender's receipt from the 

drawee of a dishonored check submitted as 

a payment on the loan, the lender during 

this period must send at least one written 

notice or collection letter to the borrower 

informing the borrower of the delinquency 

and urging the borrower to make payments 

sufficient to eliminate the delinquency. The 

notice or collection letter sent during this 

period must include, at a minimum, a 

lender or servicer contact, a telephone 

number, and a prominent statement 

informing the borrower that assistance may 

be available if he or she is experiencing 

difficulty in making a scheduled repayment.

(d) 16–180 days delinquent (16–240 

days delinquent for a loan repayable in 

installments less frequently than monthly). 

(1) Unless exempted under paragraph (d)(4) 

of this section, during this period the lender 

must engage in at least four diligent efforts 

to contact the borrower by telephone and 

send at least four collection letters urging 

the borrower to make the required 

payments on the loan. At least one of the 

diligent efforts to contact the borrower by 

telephone must occur on or before, and 

another one must occur after, the 90th day 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.411

Lender due diligence in collecting guaranty agency loans

268

of delinquency. Collection letters sent 

during this period must include, at a 

minimum, information for the borrower 

regarding deferment, forbearance, incomesensitive repayment, income-based 

repayment and loan consolidation, and 

other available options to avoid default.

(2) At least two of the collection 

letters required under paragraph (d)(1) of 

this section must warn the borrower that, if 

the loan is not paid, the lender will assign 

the loan to the guaranty agency that, in 

turn, will report the default to each 

nationwide consumer reporting agency all 

national credit bureaus, and that the agency 

may institute proceedings to offset the 

borrower's State and Federal income tax 

refunds and other payments made by the 

Federal Government to the borrower or to 

garnish the borrower's wages, or to assign

the loan to the Federal Government for 

litigation against the borrower.

(3) Following the lender's receipt of 

a payment on the loan or a correct address 

for the borrower, the lender's receipt from 

the drawee of a dishonored check received 

as a payment on the loan, the lender's 

receipt of a correct telephone number for 

the borrower, or the expiration of an 

authorized deferment or forbearance 

period, the lender is required to engage in 

only—

(i) Two diligent efforts to contact the 

borrower by telephone during this period, if 

the loan is less than 91 days delinquent 

(121 days delinquent for a loan repayable in 

installments less frequently than monthly) 

upon receipt of the payment, correct 

address, correct telephone number, or 

returned check, or expiration of the 

deferment or forbearance; or

(ii) One diligent effort to contact the 

borrower by telephone during this period if 

the loan is 91–120 days delinquent (121–

180 days delinquent for a loan repayable in 

installments less frequently than monthly) 

upon receipt of the payment, correct 

address, correct telephone number, or 

returned check, or expiration of the 

deferment or forbearance.

(4) A lender need not attempt to 

contact by telephone any borrower who is 

more than 120 days delinquent (180 days 

delinquent for a loan repayable in 

installments less frequent than monthly) 

following the lender's receipt of—

(i) A payment on the loan;

(ii) A correct address or correct 

telephone number for the borrower;

(iii) A dishonored check received 

from the drawee as a payment on the loan; 

or

(iv) The expiration of an authorized 

deferment or forbearance.

(e) 181–270 days delinquent (241–

330 days delinquent for a loan repayable in 

installments less frequently than monthly). 

During this period the lender must engage 

in efforts to urge the borrower to make the 

required payments on the loan. These 

efforts must, at a minimum, provide 

information to the borrower regarding 

options to avoid default and the 

consequences of defaulting on the loan.
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.411

Lender due diligence in collecting guaranty agency loans

269

(f) Final demand. On or after the 

241st day of delinquency (the 301st day for 

loans payable in less frequent installments 

than monthly) the lender must send a final 

demand letter to the borrower requiring 

repayment of the loan in full and notifying 

the borrower that a default will be reported 

to each nationwide consumer reporting 

agency a national credit bureau. The lender 

must allow the borrower at least 30 days 

after the date the letter is mailed to 

respond to the final demand letter and to 

bring the loan out of default before filing a 

default claim on the loan.

(g) Collection procedures when 

borrower's telephone number is not 

available. Upon completion of a diligent but 

unsuccessful effort to ascertain the correct 

telephone number of a borrower as 

required by paragraph (m) of this section, 

the lender is excused from any further 

efforts to contact the borrower by 

telephone, unless the borrower's number is 

obtained before the 211th day of 

delinquency (the 271st day for loans 

repayable in installments less frequently 

than monthly).

(h) Skip-tracing. (1) Unless the letter 

specified under paragraph (f) of this section 

has already been sent, within 10 days of its 

receipt of information indicating that it 

does not know the borrower's current 

address, the lender must begin to diligently 

attempt to locate the borrower through the 

use of effective commercial skip-tracing 

techniques. These efforts must include, but 

are not limited to, sending a letter to or 

making a diligent effort to contact each 

endorser, relative, reference, individual, 

and entity, identified in the borrower's loan 

file, including the schools the student 

attended. For this purpose, a lender's 

contact with a school official who might 

reasonably be expected to know the 

borrower's address may be with someone 

other than the financial aid administrator, 

and may be in writing or by phone calls. 

These efforts must be completed by the 

date of default with no gap of more than 45 

days between attempts to contact those 

individuals or entities.

(2) Upon receipt of information 

indicating that it does not know the 

borrower's current address, the lender 

must discontinue the collection efforts 

described in paragraphs (c) through (f) of 

this section.

(3) If the lender is unable to 

ascertain the borrower's current address 

despite its performance of the activities 

described in paragraph (h)(1) of this section, 

the lender is excused thereafter from 

performance of the collection activities 

described in paragraphs (c) through (f) and 

(l)(1) through (l)(3) and (l)(5) of this section 

unless it receives communication indicating 

the borrower's address before the 241st 

day of delinquency (the 301st day for loans 

payable in less frequent installments than 

monthly).

(4) The activities specified by 

paragraph (m)(1)(i) or (ii) of this section 

(with references to the “borrower” 

understood to mean endorser, reference, 

relative, individual, or entity as appropriate) 

meet the requirement that the lender make 

a diligent effort to contact each individual 

identified in the borrower's loan file.
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.411

Lender due diligence in collecting guaranty agency loans

270

(i) Default aversion assistance. Not 

earlier than the 60th day and no later than 

the 120th day of delinquency, a lender must 

request default aversion assistance from 

the guaranty agency that guarantees the 

loan.

(j) Gap in collection activity. For 

purposes of this section, the term gap in 

collection activity means, with respect to a 

loan, any period—

(1) Beginning on the date that is the 

day after—

(i) The due date of a payment unless 

the lender does not know the borrower's 

address on that date;

(ii) The day on which the lender 

receives a payment on a loan that remains 

delinquent notwithstanding the payment;

(iii) The day on which the lender 

receives the correct address for a 

delinquent borrower;

(iv) The day on which the lender 

completes a collection activity;

(v) The day on which the lender 

receives a dishonored check submitted as a 

payment on the loan;

(vi) The expiration of an authorized 

deferment or forbearance period on a 

delinquent loan; or

(vii) The day the lender receives 

information indicating it does not know the 

borrower's current address; and

(2) Ending on the date of the earliest 

of—

(i) The day on which the lender 

receives the first subsequent payment or 

completed deferment request or 

forbearance agreement;

(ii) The day on which the lender 

begins the first subsequent collection 

activity;

(iii) The day on which the lender 

receives written communication from the 

borrower relating to his or her account; or

(iv) Default.

(k) Transfer. For purposes of this 

section, the term transfer with respect to a 

loan means any action, including, but not 

limited to, the sale of the loan, that results 

in a change in the system used to monitor 

or conduct collection activity on a loan from 

one system to another.

(l) Collection activity. For purposes 

of this section, the term collection activity 

with respect to a loan means—

(1) Mailing or otherwise transmitting 

to the borrower at an address that the 

lender reasonably believes to be the 

borrower's current address a collection 

letter or final demand letter that satisfies 

the timing and content requirements of 

paragraph (c), (d), (e), or (f) of this section;

(2) Making an attempt to contact 

the borrower by telephone to urge the 

borrower to begin or resume repayment;

(3) Conducting skip-tracing efforts, 

in accordance with paragraph (h)(1) or 

(m)(1)(iii) of this section, to locate a 

borrower whose correct address or 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.411

Lender due diligence in collecting guaranty agency loans

271

telephone number is unknown to the 

lender;

(4) Mailing or otherwise transmitting 

to the guaranty agency a request for default 

aversion assistance available from the 

agency on the loan at the time the request 

is transmitted; or

(5) Any telephone discussion or 

personal contact with the borrower so long 

as the borrower is apprised of the account's 

past-due status.

(m) Diligent effort for telephone 

contact. (1) For purposes of this section, the 

term diligent effort with respect to 

telephone contact means—

(i) A successful effort to contact the 

borrower by telephone;

(ii) At least two unsuccessful 

attempts to contact the borrower by 

telephone at a number that the lender 

reasonably believes to be the borrower's 

correct telephone number; or

(iii) An unsuccessful effort to 

ascertain the correct telephone number of 

a borrower, including, but not limited to, a 

directory assistance inquiry as to the 

borrower's telephone number, and sending 

a letter to or making a diligent effort to 

contact each reference, relative, and 

individual identified in the most recent loan 

application or most recent school 

certification for that borrower held by the 

lender. The lender may contact a school 

official other than the financial aid 

administrator who reasonably may be 

expected to know the borrower's address 

or telephone number.

(2) If the lender is unable to 

ascertain the borrower's correct telephone 

number despite its performance of the 

activities described in paragraph (m)(1)(iii) 

of this section, the lender is excused 

thereafter from attempting to contact the 

borrower by telephone unless it receives a 

communication indicating the borrower's 

current telephone number before the 211th 

day of delinquency (the 271st day for loans

repayable in installments less frequently 

than monthly).

(3) The activities specified by 

paragraph (m)(1) (i) or (ii) of this section 

(with references to “the borrower” 

understood to mean endorser, reference, 

relative, or individual as appropriate), meet 

the requirement that the lender make a 

diligent effort to contact each endorser or 

each reference, relative, or individual 

identified on the borrower's most recent 

loan application or most recent school 

certification.

(n) Due diligence for endorsers. (1) 

Before filing a default claim on a loan with 

an endorser, the lender must—

(i) Make a diligent effort to contact 

the endorser by telephone; and

(ii) Send the endorser on the loan 

two letters advising the endorser of the 

delinquent status of the loan and urging the 

endorser to make the required payments 

on the loan with at least one letter 

containing the information described in 

paragraph (d)(2) of this section (with 

references to “the borrower” understood to 

mean the endorser).
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.411

Lender due diligence in collecting guaranty agency loans

272

(2) On or after the 241st day of 

delinquency (the 301st day for loans 

payable in less frequent installments than 

monthly) the lender must send a final 

demand letter to the endorser requiring 

repayment of the loan in full and notifying 

the endorser that a default will be reported 

to each nationwide consumer reporting 

agency a national credit bureau. The lender 

must allow the endorser at least 30 days 

after the date the letter is mailed to 

respond to the final demand letter and to 

bring the loan out of default before filing a 

default claim on the loan.

(3) Unless the letter specified under 

paragraph (n)(2) of this section has already 

been sent, upon receipt of information 

indicating that it does not know the 

endorser's current address or telephone 

number, the lender must diligently attempt

to locate the endorser through the use of 

effective commercial skip-tracing 

techniques. This effort must include an 

inquiry to directory assistance.

(o) Preemption . The provisions of 

this section—

(1) Preempt any State law, including 

State statutes, regulations, or rules, that 

would conflict with or hinder satisfaction of 

the requirements or frustrate the purposes 

of this section; and

(2) Do not preempt provisions of the 

Fair Credit Reporting Act that provide relief 

to a borrower while the lender determines 

the legal enforceability of a loan when the 

lender receives a valid identity theft report 

or notification from a consumer reporting 

agency credit bureau that information 

furnished is a result of an alleged identity 

theft as defined in §682.402(e)(14).

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1078, 1078–1, 1078–2, 

1078–3, 1080a, 1082, 1087)

[64 FR 58630, Oct. 29, 1999, as amended at 

64 FR 58965, Nov. 1, 1999; 72 FR 62006, 

Nov. 1, 2007; 73 FR 63254, Oct. 23, 2008]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.412

Consequences of the failure of a borrower or student to establish eligibility

273

§ 682.412 Consequences of the failure of 

a borrower or student to establish 

eligibility.

(a) The lender shall immediately 

send to the borrower a final demand letter 

meeting the requirements of §682.411(f) 

when it learns and can substantiate that the 

borrower or the student on whose behalf a 

parent has borrowed, without the lender or 

school's knowledge at the time the loan was 

made, provided false or erroneous 

information or took actions that caused the 

student or borrower—

(1) To be ineligible for all or a 

portion of a loan made under this part;

(2) To receive a Stafford loan subject 

to payment of Federal interest benefits as 

provided under §682.301 for which he or 

she was ineligible; or

(3) To receive loan proceeds for a 

period of enrollment from which he or she 

has withdrawn or been expelled prior to the 

first day of classes or during which he or she 

failed to attend school and has not paid 

those funds to the school or repaid them to 

the lender.

(b) The lender shall neither bill the 

Secretary for nor be entitled to interest 

benefits on a loan after it learns that one of 

the conditions described in paragraph (a) of 

this section exists with respect to the loan.

(c) In the final demand letter 

transmitted under paragraph (a) of this 

section, the lender shall demand that within 

30 days from the date the letter is mailed 

the borrower repay in full any principal 

amount for which the borrower is ineligible 

and any accrued interest, including interest 

and all special allowance paid by the 

Secretary.

(d) If the borrower repays the 

amounts described in paragraph (c) of this

section within the 30-day period, the lender 

shall—

(1) On its next quarterly interest 

billing submitted under §682.305, refund to 

the Secretary the interest benefits and 

special allowance repaid by the borrower 

and all other interest benefits and special

allowance previously paid by the Secretary 

on the ineligible portion of the loan; and

(2) Treat that payment of the 

principal amount of the ineligible portion of 

the loan as a prepayment of principal.

(e) If a borrower fails to comply with 

the terms of a final demand letter described 

in paragraph (a) of this section, the lender 

shall treat the entire loan as in default, 

and—

(1) With its next quarterly interest 

billing submitted under §682.305, refund to 

the Secretary the amount of the interest 

benefits received from the Secretary on the 

ineligible portion of the loan, whether or 

not repaid by the borrower; and

(2) Within the time specified in 

§682.406(a)(5), file a default claim thereon 

with the guaranty agency for the entire 

unpaid balance of principal and accrued 

interest.

(Approved by the Office of Management 

and Budget under control number 1840–

0538) 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.412

Consequences of the failure of a borrower or student to establish eligibility

274

(Authority: 20 U.S.C. 1077, 1078, 1078–1, 

1078–2, 1078–3, 1082, 1087–1)

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9120, Feb. 19, 1993; 60 FR 61757, 

Dec. 1, 1995; 64 FR 58632, Oct. 29, 1999]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.413

Remedial actions

275

§ 682.413 Remedial actions.

(a)(1) The Secretary requires a 

lender and its third-party servicer 

administering any aspect of the FFEL 

programs under a contract with the lender 

to repay interest benefits and special 

allowance or other compensation received

on a loan guaranteed by a guaranty agency, 

pursuant to paragraph (a)(2) of this 

section—

(i) For any period beginning on the 

date of a failure by the lender or servicer, 

with respect to the loan, to comply with any 

of the requirements set forth in 

§682.406(a)(1)–(a)(6), (a)(9), and (a)(12);

(ii) For any period beginning on the 

date of a failure by the lender or servicer, 

with respect to the loan, to meet a 

condition of guarantee coverage 

established by the guaranty agency, to the 

date, if any, on which the guaranty agency 

reinstated the guarantee coverage pursuant 

to policies and procedures established by 

the agency;

(iii) For any period in which the 

lender or servicer, with respect to the loan, 

violates the requirements of subpart C of 

this part; and

(iv) For any period beginning on the 

day after the Secretary's obligation to pay 

special allowance on the loan terminates 

under §682.302(d).

(2) For purposes of this section, a 

lender and any applicable third-party 

servicer shall be considered jointly and 

severally liable for the repayment of any 

interest benefits and special allowance paid 

as a result of a violation of applicable 

requirements by the servicer in 

administering the lender's FFEL programs.

(3) For purposes of paragraph (a)(2) 

of this section, the relevant third-party 

servicer shall repay any outstanding 

liabilities under paragraph (a)(2) of this 

section only if—

(i) The Secretary has determined 

that the servicer is jointly and severally 

liable for the liabilities; and

(ii) (A) The lender has not repaid in 

full the amount of the liability within 30 

days from the date the lender receives 

notice from the Secretary of the liability;

(B) The lender has not made other 

satisfactory arrangements to pay the 

amount of the liability within 30 days from 

the date the lender receives notice from the 

Secretary of the liability; or

(C) The Secretary is unable to collect 

the liability from the lender by offsetting 

the lender's bill to the Secretary for interest 

benefits or special allowance, if—

(1) The bill is submitted after the 30 

day period specified in paragraph 

(a)(3)(ii)(A) of this section has passed; and

(2) The lender has not paid, or made 

satisfactory arrangements to pay, the 

liability.

(b)(1) The Secretary requires a 

guaranty agency to repay reinsurance 

payments received on a loan if the lender, 

third-party servicer, if applicable, or the 

agency failed to meet the requirements of 

§682.406(a).
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.413

Remedial actions

276

(2) The Secretary may require a 

guaranty agency to repay reinsurance 

payments received on a loan or to assign 

FFEL loans to the Department if the agency 

fails to meet the requirements of §682.410.

(c)(1) In addition to requiring 

repayment of reinsurance payments 

pursuant to paragraph (b) of this section, 

the Secretary may take one or more of the 

following remedial actions against a 

guaranty agency or third-party servicer 

administering any aspect of the FFEL 

programs under a contract with the 

guaranty agency, that makes an incomplete 

or incorrect statement in connection with 

any agreement entered into under this part 

or violates any applicable Federal 

requirement:

(i) Require the agency to return 

payments made by the Secretary to the 

agency.

(ii) Withhold payments to the 

agency.

(iii) Limit the terms and conditions of 

the agency's continued participation in the 

FFEL programs.

(iv) Suspend or terminate 

agreements with the agency.

(v) Impose a fine on the agency or 

servicer. For purposes of assessing a fine on 

a third-party servicer, a repeated 

mechanical systemic unintentional error 

shall be counted as one violation, unless the 

servicer has been cited for a similar 

violation previously and had failed to make 

the appropriate corrections to the system.

(vi) Require repayment from the 

agency and servicer pursuant to paragraph 

(c)(2) of this section, of interest, special 

allowance, and reinsurance paid on 

Consolidation loan amounts attributed to 

Consolidation loans for which the required 

lender verification certification required 

under §682.206(f)(1) is not available.

(vii) Require repayment from the 

agency or servicer, pursuant to paragraph 

(c)(2) of this section, of any related 

payments that the Secretary became 

obligated to make to others as a result of an 

incomplete or incorrect statement or a 

violation of an applicable Federal 

requirement.

(2) For purposes of this section, a 

guaranty agency and any applicable thirdparty servicer shall be considered jointly 

and severally liable for the repayment of 

any interest benefits, special allowance, 

reinsurance paid, or other compensation on 

Consolidation loan amounts attributed to 

Consolidation loans as specified in 

§682.413(c)(1)(vi) as a result of a violation 

by the servicer administering any aspect of 

the FFEL programs under a contract with 

that guaranty agency.

(3) For purposes of paragraph (c)(2) 

of this section, the relevant third-party 

servicer shall repay any outstanding 

liabilities under paragraph (c)(2) of this 

section only if—

(i) The Secretary has determined 

that the servicer is jointly and severally 

liable for the liabilities; and

(ii) (A) The guaranty agency has not 

repaid in full the amount of the liability 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.413

Remedial actions

277

within 30 days from the date the guaranty 

agency receives notice from the Secretary 

of the liability;

(B) The guaranty agency has not 

made other satisfactory arrangements to 

pay the amount of the liability within 30 

days from the date the guaranty agency 

receives notice from the Secretary of the 

liability; or

(C) The Secretary is unable to collect 

the liability from the guaranty agency by 

offsetting the guaranty agency's first 

reinsurance claim to the Secretary, if—

(1) The claim is submitted after the 

30-day period specified in paragraph 

(c)(3)(ii)(A) of this section has passed; and

(2) The guaranty agency has not 

paid, or made satisfactory arrangements to 

pay, the liability.

(d)(1) The Secretary follows the 

procedures described in 34 CFR part 668, 

subpart G, applicable to fine proceedings 

against schools, in imposing a fine against a 

lender, guaranty agency, or third-party 

servicer. References to “the institution” in 

those regulations shall be understood to 

mean the lender, guaranty agency, or thirdparty servicer, as applicable, for this 

purpose.

(2) The Secretary also follows the 

provisions of section 432(g) of the Act in 

imposing a fine against a guaranty agency 

or lender.

(e)(1)(i) The Secretary's decision to 

require repayment of funds, withhold 

funds, or to limit or suspend a lender, 

guaranty agency, or third party servicer 

from participation in the FFEL Program or to 

terminate a lender or third party from 

participation in the FFEL Program does not 

become final until the Secretary provides 

the lender, agency, or servicer with written 

notice of the intended action and an 

opportunity to be heard. The hearing is at a 

time and in a manner the Secretary 

determines to be appropriate to the 

resolution of the issues on which the 

lender, agency, or servicer requests the 

hearing.

(ii) The Secretary's decision to 

terminate a guaranty agency's participation 

in the FFEL Program after September 24, 

1998 does not become final until the 

Secretary provides the agency with written 

notice of the intended action and provides 

an opportunity for a hearing on the record.

(2)(i) The Secretary may withhold 

payments from an agency or suspend an 

agreement with an agency prior to giving 

notice and an opportunity to be heard if the 

Secretary finds that emergency action is 

necessary to prevent substantial harm to 

Federal interests.

(ii) The Secretary follows the notice 

and show cause procedures described in 

§682.704 applicable to emergency actions 

against lenders in taking an emergency 

action against a guaranty agency.

(3) The Secretary follows the 

procedures in 34 CFR 30.20–30.32 in 

collecting a debt by offset against payments 

otherwise due a guaranty agency or lender.

(f) Notwithstanding paragraphs (a)–

(e) of this section, the Secretary may waive 

the right to require repayment of funds by a 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.413

Remedial actions

278

lender or agency if in the Secretary's 

judgment the best interests of the United 

States so require. The Secretary's waiver 

policy for violations of §682.406(a)(3) or 

(a)(5) is set forth in appendix D to this part.

(g) The Secretary's final decision to 

require repayment of funds or to take other 

remedial action, other than a fine, against a 

lender or guaranty agency under this 

section is conclusive and binding on the 

lender or agency.

(h) In any action to require 

repayment of funds or to withhold funds 

from a guaranty agency, or to limit, 

suspend, or terminate a guaranty agency 

based on a violation of section 428(b)(3) of 

the Act, §682.401(e), if the Secretary finds 

that the guaranty agency provided or 

offered the prohibited payments or 

activities listed in §682.401(e)(1), the 

Secretary applies a rebuttable presumption 

that the payments or activities were offered 

or provided to secure applications for FFEL 

loans or to secure FFEL loan volume. To 

reverse the presumption, the guaranty 

agency must present evidence that the 

activities or payments were provided for a 

reason unrelated to securing applications 

for FFEL loans or securing FFEL loan volume.

Note to §682.413: A decision by the 

Secretary under this section is subject to 

judicial review under 5 U.S.C. 706 and 41 

U.S.C. 321–322.

(Authority: 20 U.S.C. 1078, 1078–1, 1078–2, 

1078–3, 1082, 1087–1, 1097)

[57 FR 60323, Dec. 18, 1992, as amended at 

59 FR 22454, Apr. 29, 1994; 59 FR 61190, 

Nov. 29, 1994; 61 FR 60487, Nov. 27, 1996; 

64 FR 18981, Apr. 16, 1999; 64 FR 58632, 

Oct. 29, 1999; 72 FR 62006, Nov. 1, 2007]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.414

Records, reports, and inspection requirements for guaranty agency programs

279

§ 682.414 Records, reports, and 

inspection requirements for guaranty 

agency programs.

(a) Records. (1)(i) The guaranty 

agency shall maintain current, complete, 

and accurate records of each loan that it 

holds, including, but not limited to, the 

records described in paragraph (a)(1)(ii) of 

this section. The records must be 

maintained in a system that allows ready 

identification of each loan's current status, 

updated at least once every 10 business 

days. Any reference to a guaranty agency 

under this section includes a third-party 

servicer that administers any aspect of the 

FFEL programs under a contract with the 

guaranty agency, if applicable.

(ii) The agency shall maintain—

(A) All documentation supporting 

the claim filed by the lender;

(B) Notices of changes in a 

borrower's address;

(C) A payment history showing the 

date and amount of each payment received 

from or on behalf of the borrower by the 

guaranty agency, and the amount of each 

payment that was attributed to principal, 

accrued interest, and collection costs and 

other charges, such as late charges;

(D) A collection history showing the 

date and subject of each communication 

between the agency and the borrower or 

endorser relating to collection of a 

defaulted loan, each communication 

between the agency and a consumer 

reporting agency credit bureau regarding 

the loan, each effort to locate a borrower 

whose address was unknown at any time, 

and each request by the lender for default 

aversion assistance on the loan;

(E) Documentation regarding any 

wage garnishment actions initiated by the 

agency on the loan;

(F) Documentation of any matters 

relating to the collection of the loan by taxrefund offset; and

(G) Any additional records that are 

necessary to document its right to receive 

or retain payments made by the Secretary 

under this part and the accuracy of reports 

it submits to the Secretary.

(2) A guaranty agency must retain 

the records required for each loan for not 

less than 3 years following the date the loan 

is repaid in full by the borrower, or for not 

less than 5 years following the date the 

agency receives payment in full from any 

other source. However, in particular cases, 

the Secretary may require the retention of 

records beyond these minimum periods.

(3) A guaranty agency shall retain a 

copy of the audit report required under 

§682.410(b) for not less than five years 

after the report is issued.

(4)(i) The guaranty agency shall 

require a participating lender to maintain 

current, complete, and accurate records of 

each loan that it holds, including, but not 

limited to, the records described in 

paragraph (a)(4)(ii) of this section. The 

records must be maintained in a system 

that allows ready identification of each 

loan's current status.

(ii) The lender shall keep—
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.414

Records, reports, and inspection requirements for guaranty agency programs

280

(A) A copy of the loan application if a 

separate application was provided to the 

lender;

(B) A copy of the signed promissory 

note;

(C) The repayment schedule;

(D) A record of each disbursement 

of loan proceeds;

(E) Notices of changes in a 

borrower's address and status as at least a 

half-time student;

(F) Evidence of the borrower's 

eligibility for a deferment;

(G) The documents required for the 

exercise of forbearance;

(H) Documentation of the 

assignment of the loan;

(I) A payment history showing the 

date and amount of each payment received 

from or on behalf of the borrower, and the 

amount of each payment that was 

attributed to principal, interest, late 

charges, and other costs;

(J) A collection history showing the 

date and subject of each communication 

between the lender and the borrower or 

endorser relating to collection of a 

delinquent loan, each communication other 

than regular reports by the lender showing 

that an account is current, between the 

lender and a consumer reporting agency 

credit bureau regarding the loan, each 

effort to locate a borrower whose address 

is unknown at any time, and each request 

by the lender for default aversion assistance 

on the loan;

(K) Documentation of any MPN 

confirmation process or processes; and

(L) Any additional records that are 

necessary to document the validity of a 

claim against the guarantee or the accuracy 

of reports submitted under this part.

(iii) Except as provided in paragraph 

(a)(4)(iv) of this section, a lender must 

retain the records required for each loan for 

not less than 3 years following the date the 

loan is repaid in full by the borrower, or for 

not less than five years following the date 

the lender receives payment in full from any 

other source. However, in particular cases, 

the Secretary or the guaranty agency may 

require the retention of records beyond this 

minimum period.

(iv) A lender shall retain a copy of 

the audit report required under §682.305(c) 

for not less than five years after the report 

is issued.

(5)(i) A guaranty agency or lender 

may store the records specified in 

paragraphs (a)(4)(ii)(C)–(L) of this section in 

accordance with 34 CFR 668.24(d)(3)(i) 

through (iv).

(ii) If a promissory note was signed 

electronically, the guaranty agency or 

lender must store it electronically and it 

must be retrievable in a coherent format.

(iii) A lender or guaranty agency 

holding a promissory note must retain the 

original or a true and exact copy of the 

promissory note until the loan is paid in full 

or assigned to the Secretary. When a loan is 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.414

Records, reports, and inspection requirements for guaranty agency programs

281

paid in full by the borrower, the lender or 

guaranty agency must return either the 

original or a true and exact copy of the note 

to the borrower or notify the borrower that 

the loan is paid in full, and retain a copy for 

the prescribed period.

(iv) If a lender made a loan based on 

an electronically signed MPN, the holder of 

the original electronically signed MPN must 

retain that original MPN for at least 3 years 

after all the loans made on the MPN have 

been satisfied.

(6)(i) Upon the Secretary's request 

with respect to a particular loan or loans 

assigned to the Secretary and evidenced by 

an electronically signed promissory note, 

the guaranty agency and the lender that 

created the original electronically signed 

promissory note must cooperate with the 

Secretary in all activities necessary to 

enforce the loan or loans. The guaranty 

agency or lender must provide—

(A) An affidavit or certification 

regarding the creation and maintenance of 

the electronic records of the loan or loans in 

a form appropriate to ensure admissibility 

of the loan records in a legal proceeding. 

This affidavit or certification may be 

executed in a single record for multiple 

loans provided that this record is reliably 

associated with the specific loans to which 

it pertains; and

(B) Testimony by an authorized 

official or employee of the guaranty agency 

or lender, if necessary to ensure admission 

of the electronic records of the loan or 

loans in the litigation or legal proceeding to 

enforce the loan or loans.

(ii) The affidavit or certification 

described in paragraph (a)(6)(i)(A) of this 

section must include, if requested by the 

Secretary—

(A) A description of the steps 

followed by a borrower to execute the 

promissory note (such as a flow chart);

(B) A copy of each screen as it would 

have appeared to the borrower of the loan 

or loans the Secretary is enforcing when the 

borrower signed the note electronically;

(C) A description of the field edits 

and other security measures used to ensure 

integrity of the data submitted to the 

originator electronically;

(D) A description of how the 

executed promissory note has been 

preserved to ensure that is it has not been 

altered after it was executed;

(E) Documentation supporting the 

lender's authentication and electronic 

signature process; and

(F) All other documentary and 

technical evidence requested by the 

Secretary to support the validity or the 

authenticity of the electronically signed 

promissory note.

(iii) The Secretary may request a 

record, affidavit, certification or evidence 

under paragraph (a)(6) of this section as 

needed to resolve any factual dispute 

involving a loan that has been assigned to 

the Secretary including, but not limited to, a 

factual dispute raised in connection with 

litigation or any other legal proceeding, or 

as needed in connection with loans 

assigned to the Secretary that are included 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.414

Records, reports, and inspection requirements for guaranty agency programs

282

in a Title IV program audit sample, or for 

other similar purposes. The guaranty 

agency must respond to any request from 

the Secretary within 10 business days.

(iv) As long as any loan made to a 

borrower under a MPN created by the 

lender is not satisfied, the holder of the 

original electronically signed promissory 

note is responsible for ensuring that all 

parties entitled to access to the electronic 

loan record, including the guaranty agency 

and the Secretary, have full and complete 

access to the electronic record.

(b) Reports. A guaranty agency shall 

accurately complete and submit to the 

Secretary the following reports:

(1) A report concerning the status of 

the agency's reserve fund and the operation 

of the agency's loan guarantee program at 

the time and in the manner that the 

Secretary may reasonably require. The 

Secretary does not pay the agency any 

funds, the amount of which are determined 

by reference to data in the report, until a 

complete and accurate report is received.

(2) Annually, for each State in which 

it operates, a report of the total guaranteed 

loan volume, default volume, and default 

rate for each of the following categories of 

originating lenders on all loans guaranteed 

after December 31, 1980:

(i) Schools.

(ii)(i) State or private nonprofit 

lenders.

(iii)(ii) Commercial financial 

institutions (banks, savings and loan 

associations, and credit unions).

(iv)(iii) All other types of lenders.

(3) By July 1 of each year, a report 

on—

(i) Its eligibility criteria for schools 

and lenders;

(ii) Its procedures for the limitation, 

suspension, and termination of schools and

lenders;

(iii) Any actions taken in the 

preceding 12 months to limit, suspend, or 

terminate the participation of a school or 

lender in the agency's program; and

(iv) The steps the agency has taken 

to ensure its compliance with §682.410(c), 

including the identity of any law 

enforcement agency with which the agency 

has made arrangements for that purpose.

(4) A report to the Secretary of the 

borrower's enrollment and loan status 

information, or any Title IV loan-related 

data required by the Secretary, by the 

deadline date established by the Secretary.

(5) Any other information 

concerning its loan insurance program 

requested by the Secretary.

(c) Inspection requirements. (1) For 

purposes of examination of records, 

references to an institution in 34 CFR 

668.24(f) (1) through (3) shall mean a 

guaranty agency or its agent.

(2) A guaranty agency shall require 

in its agreement with a lender or in its 

published rules or procedures that the 

lender or its agent give the Secretary or the 

Secretary's designee and the guaranty 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.414

Records, reports, and inspection requirements for guaranty agency programs

283

agency access to the lender's records for 

inspection and copying in order to verify the 

accuracy of the information provided by the 

lender pursuant to §682.401(b)(21)(12) and 

(22)(13), and the right of the lender to 

receive or retain payments made under this 

part, or to permit the Secretary or the 

agency to enforce any right acquired by the 

Secretary or the agency under this part.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1078, 1078–1, 1078–2, 

1078–3, 1082, 1087)

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9120, Feb. 19, 1993; 59 FR 22455, 

22489, Apr. 29, 1994; 59 FR 33358, June 28, 

1994; 59 FR 34964, July 7, 1994; 61 FR 

60493, Nov. 27, 1996; 64 FR 58632, Oct. 29, 

1999; 64 FR 58963, Nov. 1, 1999; 65 FR 

65621, Nov. 1, 2000; 66 FR 34764, June 29, 

2001; 67 FR 67080, Nov. 1, 2002; 72 FR 

62007, Nov. 1, 2007]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.415

[Reserved]

284

§ 682.415 [Reserved]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.416

Requirements for third-party servicers and lenders contracting with third-party servicers

285

§ 682.416 Requirements for third-party 

servicers and lenders contracting with 

third-party servicers.

(a) Standards for administrative 

capability. A third-party servicer is 

considered administratively responsible if 

it—

(1) Provides the services and 

administrative resources necessary to fulfill 

its contract with a lender or guaranty 

agency, and conducts all of its contractual 

obligations that apply to the FFEL programs 

in accordance with FFEL programs 

regulations;

(2) Has business systems including 

combined automated and manual systems, 

that are capable of meeting the 

requirements of part B of Title IV of the Act 

and with the FFEL programs regulations; 

and

(3) Has adequate personnel who are 

knowledgeable about the FFEL programs.

(b) Standards of financial 

responsibility. The Secretary applies the 

provisions of 34 CFR 668.15(b) (1)–(4) and 

(6)–(9) to determine that a third-party 

servicer is financially responsible under this 

part. References to “the institution” in 

those provisions shall be understood to 

mean the third-party servicer, for this 

purpose.

(c) Special review of third-party 

servicer. (1) The Secretary may review a 

third-party servicer to determine that it 

meets the administrative capability and 

financial responsibility standards in this 

section.

(2) In response to a request from the 

Secretary, the servicer shall provide 

evidence to demonstrate that it meets the 

administrative capability and financial 

responsibility standards in this section.

(3) The servicer may also provide 

evidence of why administrative action is 

unwarranted if it is unable to demonstrate 

that it meets the standards of this section.

(4) Based on the review of the 

materials provided by the servicer, the 

Secretary determines if the servicer meets 

the standards in this part. If the servicer 

does not, the Secretary may initiate an 

administrative proceeding under subpart G.

(d) Past performance of third-party 

servicer or persons affiliated with servicer. 

Notwithstanding paragraphs (b) and (c) of 

this section, a third-party servicer is not 

financially responsible if—

(1)(i) The servicer; its owner, 

majority shareholder, or chief executive 

officer; any person employed by the 

servicer in a capacity that involves the 

administration of a Title IV, HEA program or 

the receipt of Title IV, HEA program funds; 

any person, entity, or officer or employee of 

an entity with which the servicer contracts 

where that person, entity, or officer or 

employee of the entity acts in a capacity 

that involves the administration of a Title 

IV, HEA program or the receipt of Title IV, 

HEA program funds has been convicted of, 

or has pled nolo contendere or guilty to, a 

crime involving the acquisition, use, or 

expenditure of Federal, State, or local 

government funds, or has been 

administratively or judicially determined to 

have committed fraud or any other material 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.416

Requirements for third-party servicers and lenders contracting with third-party servicers

286

violation of law involving such funds, 

unless—

(A) The funds that were fraudulently 

obtained, or criminally acquired, used, or 

expended have been repaid to the United 

States, and any related financial penalty has 

been paid;

(B) The persons who were convicted 

of, or pled nolo contendere or guilty to, a 

crime involving the acquisition, use, or 

expenditure of the funds are no longer 

incarcerated for that crime; and

(C) At least five years have elapsed 

from the date of the conviction, nolo 

contendere plea, guilty plea, or 

administrative or judicial determination; or

(ii) The servicer, or any principal or 

affiliate of the servicer (as those terms are 

defined in 34 CFR part 85), is—

(A) Debarred or suspended under 

Executive Order (E.O.) 12549 (3 CFR, 1986 

Comp., p. 189) or the Federal Acquisition 

Regulations (FAR), 48 CFR part 9, subpart 

9.4; or

(B) Engaging in any activity that is a 

cause under 34 CFR 85.700 or 85.800 for 

debarment or suspension under E.O. 12549 

(3 CFR, 1986 Comp., p. 189) or the FAR, 48 

CFR part 9, subpart 9.4; and

(2) Upon learning of a conviction, 

plea, or administrative or judicial 

determination described in paragraph (d)(1) 

of this section, the servicer does not 

promptly remove the person, agency, or 

organization from any involvement in the 

administration of the servicer's 

participation in Title title IV, HEA programs, 

including, as applicable, the removal or 

elimination of any substantial control, as 

determined under 34 CFR 668.15, over the 

servicer.

(e) Independent audits. (1) A thirdparty servicer shall arrange for an 

independent audit of its administration of 

the FFELP loan portfolio unless—

(i) The servicer contracts with only 

one lender or guaranty agency; and

(ii) The audit of that lender's or 

guaranty agency's FFEL programs involves 

every aspect of the servicer's administration 

of those FFEL programs.

(2) The audit must—

(i) Examine the servicer's 

compliance with the Act and applicable 

regulations;

(ii) Examine the servicer's financial 

management of its FFEL program activities;

(iii) Be conducted in accordance with 

the standards for audits issued by the 

United States General Accounting Office's 

(GAO's) Standards for Audit of 

Governmental Organizations, Programs, 

Activities, and Functions. (This publication is 

available from the Superintendent of 

Documents, U.S. Government Printing 

Office, Washington, DC 20402.) Procedures 

for audits are contained in an audit guide 

developed by and available from the Office 

of Inspector General of the Department of 

Education; and

(iv) Except for the initial audit, be 

conducted at least annually and be 

submitted to the Secretary within six 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.416

Requirements for third-party servicers and lenders contracting with third-party servicers

287

months of the end of the audit period. The 

initial audit must be an annual audit of the 

servicer's first full fiscal year beginning on 

or after July 1, 1994, and include any period 

from the beginning of the first full fiscal 

year. The audit report must be submitted to 

the Secretary within six months of the end 

of the audit period. Each subsequent audit 

must cover the servicer's activities for the 

one-year period beginning no later than the 

end of the period covered by the preceding 

audit.

(3) With regard to a third-party 

servicer that is a governmental entity, the 

audit required by this paragraph must be 

conducted in accordance with 31 U.S.C. 

7502 and 34 CFR part 80, appendix G.

(4) With regard to a third-party 

servicer that is a nonprofit organization, the 

audit required by this paragraph must be 

conducted in accordance with Office of 

Management and Budget (OMB) Circular A–

133, “Audit of Institutions of Higher 

Education and Other Nonprofit 

Institutions,” as incorporated in 34 CFR 

74.61(h)(3).

(f) Contract responsibilities. A lender 

that participates in the FFEL programs may 

not enter into a contract with a third-party 

servicer that the Secretary has determined 

does not meet the requirements of this 

section. The lender must provide the 

Secretary with the name and address of any 

third-party servicer with which the lender 

enters into a contract and, upon request by 

the Secretary, a copy of that contract. A 

third-party servicer that is under contract 

with a lender to perform any activity for 

which the records in §682.414(a)(4)(ii) are 

relevant to perform the services for which 

the servicer has contracted shall maintain 

current, complete, and accurate records 

pertaining to each loan that the servicer is 

under contract to administer on behalf of 

the lender. The records must be maintained 

in a system that allows ready identification 

of each loan's current status.

(Approved by the Office of Management 

and Budget under control number 1840–

0537) 

(Authority: 20 U.S.C. 1078, 1078–1, 1078–2, 

1078–3, 1082; E.O. 12549 (3 CFR, 1986 

Comp., p. 189), 12689 (3 CFR, 1989 Comp., 

p. 235))

[57 FR 60323, Dec. 18, 1992, as amended at 

59 FR 22455, Apr. 29, 1994; 59 FR 34964, 

July 7, 1994; 66 FR 34764, June 29, 2001; 68 

FR 66615, Nov. 26, 2003]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.417

Determination of Federal funds or assets to be returned

288

§ 682.417 Determination of Federal funds 

or assets to be returned.

(a) General. The procedures 

described in this section apply to a 

determination by the Secretary that—

(1) A guaranty agency must return 

to the Secretary a portion of its Federal 

Fund that the Secretary has determined is 

unnecessary to pay the program expenses 

and contingent liabilities of the agency; and

(2) A guaranty agency must require 

the return to the agency or the Secretary of 

Federal funds or assets within the meaning 

of section 422(g)(1) of the Act held by or 

under the control of any other entity that 

the Secretary determines are necessary to 

pay the program expenses and contingent 

liabilities of the agency or that are required 

for the orderly termination of the guaranty 

agency's operations and the liquidation of 

its assets.

(b) Return of unnecessary Federal 

funds. (1) The Secretary may initiate a 

process to recover unnecessary Federal 

funds under paragraph (a)(1) of this section 

if the Secretary determines that a guaranty 

agency's Federal Fund ratio under 

§682.410(a)(10) for each of the two 

preceding Federal fiscal years exceeded 2.0 

percent.

(2) If the Secretary initiates a 

process to recover unnecessary Federal 

funds, the Secretary requires the return of a 

portion of the Federal funds that the 

Secretary determines will permit the agency 

to—

(i) Have a Federal Fund ratio of at 

least 2.0 percent under §682.410(a)(10) at 

the time of the determination; and

(ii) Meet the minimum Federal Fund 

requirements under §682.410(a)(10) and 

retain sufficient additional Federal funds to 

perform its responsibilities as a guaranty 

agency during the current Federal fiscal 

year and the four succeeding Federal fiscal 

years.

(3)(i) The Secretary makes a 

determination of the amount of Federal 

funds needed by the guaranty agency under 

paragraph (b)(2) of this section on the basis 

of financial projections for the period 

described in that paragraph. If the agency 

provides projections for a period longer 

than the period referred to in that 

paragraph, the Secretary may consider 

those projections.

(ii) The Secretary may require a 

guaranty agency to provide financial 

projections in a form and on the basis of 

assumptions prescribed by the Secretary. If 

the Secretary requests the agency to 

provide financial projections, the agency 

must provide the projections within 60 days 

of the Secretary's request. If the agency 

does not provide the projections within the 

specified time period, the Secretary 

determines the amount of Federal funds 

needed by the agency on the basis of other 

information.

(c) Notice. (1) The Secretary or an 

authorized Departmental official begins a 

proceeding to order a guaranty agency to 

return a portion of its Federal funds, or to 

direct the return of Federal funds or assets 

subject to return, by sending the guaranty 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.417

Determination of Federal funds or assets to be returned

289

agency a notice by certified mail, return 

receipt requested.

(2) The notice—

(i) Informs the guaranty agency of 

the Secretary's determination that Federal 

funds or assets must be returned;

(ii) Describes the basis for the 

Secretary's determination and contains 

sufficient information to allow the guaranty 

agency to prepare and present an appeal;

(iii) States the date by which the 

return of Federal funds or assets must be 

completed;

(iv) Describes the process for 

appealing the determination, including the 

time for filing an appeal and the procedure 

for doing so; and

(v) Identifies any actions that the 

guaranty agency must take to ensure that 

the Federal funds or assets that are the 

subject of the notice are maintained and 

protected against use, expenditure, 

transfer, or other disbursement after the 

date of the Secretary's determination, and 

the basis for requiring those actions. The 

actions may include, but are not limited to, 

directing the agency to place the Federal 

funds in an escrow account. If the Secretary 

has directed the guaranty agency to require 

the return of Federal funds or assets held 

by or under the control of another entity, 

the guaranty agency must ensure that the 

agency's claims to those funds or assets and 

the collectability of the agency's claims will 

not be compromised or jeopardized during 

an appeal. The guaranty agency must also 

comply with all other applicable regulations 

relating to the use of Federal funds and 

assets.

(d) Appeal. (1) A guaranty agency 

may appeal the Secretary's determination 

that Federal funds or assets must be 

returned by filing a written notice of appeal 

within 20 days of the date of the guaranty 

agency's receipt of the notice of the 

Secretary's determination. If the agency 

files a notice of appeal, the requirement 

that the return of Federal funds or assets be 

completed by a particular date is suspended 

pending completion of the appeal process. 

If the agency does not file a notice of appeal 

within the period specified in this 

paragraph, the Secretary's determination is 

final.

(2) A guaranty agency must submit 

the information described in paragraph 

(d)(4) of this section within 45 days of the 

date of the guaranty agency's receipt of the 

notice of the Secretary's determination 

unless the Secretary agrees to extend the 

period at the agency's request. If the 

agency does not submit that information 

within the prescribed period, the 

Secretary's determination is final.

(3) A guaranty agency's appeal of a 

determination that Federal funds or assets 

must be returned is considered and decided 

by a Departmental official other than the 

official who issued the determination or a 

subordinate of that official.

(4) In an appeal of the Secretary's 

determination, the guaranty agency must—

(i) State the reasons the guaranty 

agency believes the Federal funds or assets 

need not be returned;
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.417

Determination of Federal funds or assets to be returned

290

(ii) Identify any evidence on which 

the guaranty agency bases its position that 

Federal funds or assets need not be 

returned;

(iii) Include copies of the documents 

that contain this evidence;

(iv) Include any arguments that the 

guaranty agency believes support its 

position that Federal funds or assets need 

not be returned; and

(v) Identify the steps taken by the 

guaranty agency to comply with the 

requirements referred to in paragraph 

(c)(2)(v) of this section.

(5)(i) In its appeal, the guaranty 

agency may request the opportunity to 

make an oral argument to the deciding 

official for the purpose of clarifying any 

issues raised by the appeal. The deciding 

official provides this opportunity promptly 

after the expiration of the period referred 

to in paragraph (d)(2) of this section.

(ii) The agency may not submit new 

evidence at or after the oral argument 

unless the deciding official determines 

otherwise. A transcript of the oral argument 

is made a part of the record of the appeal 

and is promptly provided to the agency.

(6) The guaranty agency has the 

burden of production and the burden of 

persuading the deciding official that the 

Secretary's determination should be 

modified or withdrawn.

(e) Third-party participation. (1) If 

the Secretary issues a determination under 

paragraph (a)(1) of this section, the 

Secretary promptly publishes a notice in the 

Federal Register announcing the portion of 

the Federal Fund to be returned by the 

agency and providing interested persons an 

opportunity to submit written information 

relating to the determination within 30 days 

after the date of publication. The Secretary 

publishes the notice no earlier than five 

days after the agency receives a copy of the 

determination.

(2) If the guaranty agency to which 

the determination relates files a notice of 

appeal of the determination, the deciding 

official may consider any information 

submitted in response to the Federal 

Register notice. All information submitted 

by a third party is available for inspection 

and copying at the offices of the 

Department of Education in Washington, 

D.C., during normal business hours.

(f) Adverse information. If the 

deciding official considers information in 

addition to the evidence described in the 

notice of the Secretary's determination that 

is adverse to the guaranty agency's position 

on appeal, the deciding official informs the 

agency and provides it a reasonable 

opportunity to respond to the information 

without regard to the period referred to in

paragraph (d)(2) of this section.

(g) Decision. (1) The deciding official 

issues a written decision on the guaranty 

agency's appeal within 45 days of the date 

on which the information described in 

paragraphs (d)(4) and (d)(5)(ii) of this 

section is received, or the oral argument 

referred to in paragraph (d)(5) of this 

section is held, whichever is later. The 

deciding official mails the decision to the 

guaranty agency by certified mail, return 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.417

Determination of Federal funds or assets to be returned

291

receipt requested. The decision of the 

deciding official becomes the final decision 

of the Secretary 30 days after the deciding 

official issues it. In the case of a 

determination that a guaranty agency must 

return Federal funds, if the deciding official 

does not issue a decision within the 

prescribed period, the agency is no longer 

required to take the actions described in 

paragraph (c)(2)(v) of this section.

(2) A guaranty agency may not seek 

judicial review of the Secretary's 

determination to require the return of 

Federal funds or assets until the deciding 

official issues a decision.

(3) The deciding official's written 

decision includes the basis for the decision. 

The deciding official bases the decision only 

on evidence described in the notice of the 

Secretary's determination and on 

information properly submitted and 

considered by the deciding official under 

this section. The deciding official is bound 

by all applicable statutes and regulations 

and may neither waive them nor rule them 

invalid.

(h) Collection of Federal funds or 

assets. (1) If the deciding official's final 

decision requires the guaranty agency to 

return Federal funds, or requires the 

guaranty agency to require the return of 

Federal funds or assets to the agency or to 

the Secretary, the decision states a new 

date for compliance with the decision. The 

new date is no earlier than the date on 

which the decision becomes the final 

decision of the Secretary.

(2) If the guaranty agency fails to 

comply with the decision, the Secretary 

may recover the Federal funds from any 

funds due the agency from the Department 

without any further notice or procedure 

and may take any other action permitted or 

authorized by law to compel compliance.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

[64 FR 58632, Oct. 29, 1999]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.418

Prohibited uses of the assets of the Operating Fund during periods in which the Operating Fund 

contains transferred funds owed to the Federal Fund

292

§ 682.418 Prohibited uses of the assets of 

the Operating Fund during periods in 

which the Operating Fund contains 

transferred funds owed to the Federal 

Fund.

(a) General. (1) During periods in 

which the Operating Fund contains 

transferred funds owed to the Federal 

Fund, a guaranty agency may not use the 

assets of the Operating Fund to pay costs 

prohibited under paragraph (b) of this 

section and may not use the assets of the 

Operating Fund to pay for goods, property, 

or services provided by an affiliated 

organization unless the agency applies and 

demonstrates to the Secretary, and receives 

the Secretary's approval, that the payment 

would be in the Federal fiscal interest and 

would not exceed the affiliated 

organization's actual and reasonable cost of 

providing those goods, property, or 

services.

(2) All guaranty agency contracts 

with respect to its Operating Fund or assets 

must include a provision stating that the 

contract is terminable by the Secretary 

upon 30 days notice to the contracting 

parties if the Secretary determines that the 

contract includes an impermissible transfer 

of the Operating Fund or assets or is 

otherwise inconsistent with the terms and 

purposes of section 422 of the HEA.

(b) Prohibited uses of Operating 

Fund assets. A guaranty agency may use the 

assets of the Operating Fund established 

under §682.410(a)(1) only as prescribed in 

§682.410(a)(2). Uses of the Operating Fund 

that are not allowable under §682.410(a)(2) 

include, but are not limited to—

(1) Compensation for personnel 

services, including wages, salaries, pension 

plan costs, post-retirement health benefits, 

employee life insurance, unemployment 

benefit plans, severance pay, costs of leave, 

and other benefits, to the extent that total 

compensation to an employee, officer, 

director, trustee, or agent of the guaranty 

agency is not reasonable for the services 

rendered. Compensation is considered 

reasonable to the extent that it is 

comparable to that paid in the labor market 

in which the guaranty agency competes for 

the kind of employees involved. Costs that 

are otherwise unallowable may not be 

considered allowable solely on the basis 

that they constitute personnel 

compensation. In no case may the 

Operating Fund be used to pay any 

compensation, whether calculated on an 

hourly basis or otherwise, that would be 

proportionately greater than 118.05 

percent of the total salary paid (as 

calculated on an hourly basis) under section 

5312 of title 5, United States Code (relating 

to Level I of the Executive Schedule).

(2) Contributions and donations, 

including cash, property, and services, by 

the guaranty agency to others, regardless of 

the recipient or purpose, unless pursuant to 

written authorization from the Secretary;

(3) Entertainment, including 

amusement, diversion, hospitality suites, 

and social activities, and any costs 

associated with those activities, such as 

tickets to shows or sports events, meals, 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.418

Prohibited uses of the assets of the Operating Fund during periods in which the Operating Fund 

contains transferred funds owed to the Federal Fund

293

alcoholic beverages, lodging, rentals, 

transportation, and gratuities;

(4) Fines, penalties, damages, and 

other settlements resulting from violations 

or alleged violations of the guaranty 

agency's failure to comply with Federal, 

State, or local laws and regulations that are 

unrelated to the FFEL Program, unless 

specifically approved by the Secretary. This 

prohibition does not apply if a non-criminal 

violation or alleged violation has been 

assessed against the guaranty agency, the 

payment does not reimburse an agency 

employee, and the payment does not 

exceed $1,000, or if it occurred as a result 

of compliance with specific requirements of 

the FFEL Program or in accordance with 

written instructions from the Secretary. The 

use of the Operating Fund in any other case 

must be requested by the agency and 

specifically approved in advance by the 

Secretary;

(5) Legal expenses for prosecution of 

claims against the Federal Government, 

unless the guaranty agency substantially 

prevails on those claims. In that event, the 

Secretary approves the reimbursement of 

reasonable legal expenses incurred by the 

guaranty agency;

(6) Lobbying activities, as defined in 

section 501(h) of the Internal Revenue 

Code, including dues to membership 

organizations to the extent that those dues 

are used for lobbying;

(7) Major expenditures, including 

those for land, buildings, equipment, or 

information systems, whether singly or as a 

related group of expenditures, that exceed 

5 percent of the guaranty agency's 

Operating Fund balance at the time the 

expenditures are made, unless the agency 

has provided written notice of the intended 

expenditure to the Secretary 30 days before 

the agency makes or commits itself to the 

expenditure. For those expenditures 

involving the purchase of an asset, the term 

“major expenditure” applies to costs such 

as the cost of purchasing the asset and 

making improvements to it, the cost to put 

it in place, the net invoice price of the asset, 

ancillary charges, such as taxes, duty, 

protective in-transit insurance, freight, and 

installation costs, and the costs of any 

modifications, attachments, accessories, or 

auxiliary apparatus necessary to make the 

asset usable for the purpose for which it 

was acquired, whether the expenditures are 

classified as capital or operating expenses;

(8) Public relations, and all 

associated costs, paid directly or through a 

third party, to the extent that those costs 

are used to promote or maintain a 

favorable image of the guaranty agency. 

The term “public relations” does not include 

any activity that is ordinary and necessary 

for the fulfillment of the agency's FFEL 

guaranty responsibilities under the HEA, 

including appropriate and reasonable 

advertising designed specifically to 

communicate with the public and program 

participants for the purpose of facilitating 

the agency's ability to fulfill its FFEL 

guaranty responsibilities under the HEA. 

Ordinary and necessary public relations 

activities include training of program 

participants and secondary school 

personnel and customer service functions 

that disseminate FFEL-related information 
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.418

Prohibited uses of the assets of the Operating Fund during periods in which the Operating Fund 

contains transferred funds owed to the Federal Fund

294

and materials to schools, loan holders, 

prospective loan applicants, and their 

parents. In providing that training at 

workshops, conferences, or other ordinary 

and necessary forums customarily used by 

the agency to fulfill its responsibilities under 

the HEA, the agency may provide light 

meals and refreshments of a reasonable 

nature and amount to the participants;

(9) Relocation of employees in 

excess of an employee's actual or 

reasonably estimated expenses or for 

purposes that do not benefit the 

administration of the guaranty agency's 

FFEL program. Except as approved by the 

Secretary, reimbursement must be in 

accordance with an established written 

policy; and

(10) Travel expenses that are not in 

accordance with a written policy approved 

by the Secretary or a State policy. If the 

guaranty agency does not have such a 

policy, it may not use the assets of the 

Operating Fund to pay for travel expenses 

that exceed those allowed for lodging and 

subsistence under subchapter I of Chapter 

57 of title 5, United States Code, or in 

excess of commercial airfare costs for 

standard coach airfare, unless those 

accommodations would require circuitous 

routing, travel during unreasonable hours, 

excessively prolonged travel, would result in 

increased cost that would offset 

transportation savings, or would offer 

accommodations not reasonably adequate 

for the medical needs of the traveler.

(c) Cost allocation. Each guaranty 

agency that shares costs with any other 

program, agency, or organization shall 

develop a cost allocation plan consistent 

with the requirements described in OMB 

Circular A–87 and maintain the plan and 

related supporting documentation for 

audit. A guaranty agency is required to 

submit its cost allocation plans for the 

Secretary's approval if it is specifically 

requested to do so by the Secretary.

(Approved by the Office of Management 

and Budget under control number 1840–

0726) 

(Authority: 20 U.S.C. 1078)

[61 FR 60437, Nov. 27, 1996, as amended at 

62 FR 13539, Mar. 21, 1997; 64 FR 58634, 

Oct. 29, 1999]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.419

Guaranty agency Federal Fund

295

§ 682.419 Guaranty agency Federal Fund.

(a) Establishment and control. A 

guaranty agency must establish and 

maintain a Federal Student Loan Reserve 

Fund (referred to as the “Federal Fund”) to 

be used only as permitted under paragraph 

(c) of this section. The assets of the Federal 

Fund and the earnings on those assets are, 

at all times, the property of the United 

States. The guaranty agency must exercise 

the level of care required of a fiduciary 

charged with the duty of protecting, 

investing, and administering the money of 

others.

(b) Deposits. The agency must 

deposit into the Federal Fund—

(1) All funds, securities, and other 

liquid assets of the reserve fund that 

existed under §682.410;

(2) The total amount of insurance 

premiums or Federal default fees collected;

(3) Federal payments for default, 

bankruptcy, death, disability, closed school, 

false certification, and other claims;

(4) Federal payments for 

supplemental preclaims assistance activities 

performed before October 1, 1998;

(5) 70 percent of administrative cost 

allowances received on or after October 1, 

1998 for loans upon which insurance was 

issued before October 1, 1998;

(6) All funds received by the 

guaranty agency from any source on FFEL 

Program loans on which a claim has been 

paid, within 48 hours of receipt of those 

funds, minus the portion the agency is 

authorized to deposit in its Operating Fund;

(7) Investment earnings on the 

Federal Fund;

(8) Revenue derived from the 

Federal portion of a nonliquid asset, in 

accordance with §682.420; and

(9) Other funds received by the 

guaranty agency from any source that are 

specifically designated for deposit in the 

Federal Fund.

(c) Uses. A guaranty agency may use 

the assets of the Federal Fund only—

(1) To pay insurance claims;

(2) To transfer default aversion fees 

to the agency's Operating Fund;

(3) To transfer account maintenance 

fees to the agency's Operating Fund, if 

directed by the Secretary;

(4) To refund payments made by or 

on behalf of a borrower on a loan that has 

been discharged in accordance with 

§682.402;

(5) To pay the Secretary's share of 

borrower payments, in accordance with 

§682.404(g);

(6) For transfers to the agency's 

Operating Fund, pursuant to section 422A(f) 

of the Act§682.421;

(7) To refund insurance premiums or 

Federal default fees related to loans 

cancelled or refunded, in whole or in part;
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.419

Guaranty agency Federal Fund

296

(8) To return to the Secretary 

portions of the Federal Fund required to be 

returned by the Act; and

(9) For any other purpose authorized 

by the Secretary.

(d) Prohibition against prepayment. 

A guaranty agency may not prepay 

obligations of the Federal Fund unless it 

demonstrates, to the satisfaction of the 

Secretary, that the prepayment is in the 

best interests of the United States.

(e) Minimum Federal Fund level. The 

guaranty agency must maintain a minimum 

Federal Fund level equal to at least 0.25 

percent of its insured original principal 

amount of loans outstanding.

(f) Definitions. For purposes of this 

section—

(1) Federal Fund level means the 

total of Federal Fund assets identified in 

paragraph (b) of this section plus the 

amount of funds transferred from the 

Federal Fund that are in the Operating 

Fund, using an accrual basis of accounting.

(2) Original principal amount of 

loans outstanding means —

(i) The sum of—

(A) The original principal amount of 

all loans guaranteed by the agency; and

(B) The original principal amount of 

any loans on which the guarantee was 

transferred to the agency from another 

guarantor, excluding loan guarantees 

transferred to another agency pursuant to a 

plan of the Secretary in response to the 

insolvency of the agency;

(ii) Minus the original principal 

amount of all loans on which—

(A) The loan guarantee was 

cancelled;

(B) The loan guarantee was 

transferred to another agency;

(C) Payment in full has been made 

by the borrower;

(D) Reinsurance coverage has been 

lost and cannot be regained; and

(E) The agency paid claims.

(Authority: 20 U.S.C. 1072–1)

[64 FR 58634, Oct. 29, 1999, as amended at 

71 FR 45708, Aug. 9, 2006]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.420

Federal nonliquid assets

297

§ 682.420 Federal nonliquid assets.

(a) General. The Federal portion of a 

nonliquid asset developed or purchased in 

whole or in part with Federal reserve funds, 

regardless of who held or controlled the 

Federal reserve funds or assets, is the 

property of the United States. The 

ownership of that asset must be prorated 

based on the percentage of the asset 

developed or purchased with Federal 

reserve funds. In maintaining and using the 

Federal portion of a nonliquid asset under 

this section, the guaranty agency must 

exercise the level of care required of a 

fiduciary charged with protecting, investing, 

and administering the property of others.

(b) Treatment of revenue derived 

from a nonliquid Federal asset. If a guaranty 

agency derives revenue from the Federal 

portion of a nonliquid asset, including its 

sale or lease, the agency must promptly 

deposit the percentage of the net revenue

received into the Federal Fund equal to the 

percentage of the asset owned by the 

United States.

(c) Guaranty agency use of the 

Federal portion of a nonliquid asset. (1)(i) If 

a guaranty agency uses the Federal portion 

of a nonliquid asset in the performance of 

its guaranty activities (other than an 

intangible or intellectual property asset or a 

tangible asset of nominal value), the agency 

must promptly deposit into the Federal 

Fund an amount representing the net fair 

value of the use of the asset.

(ii) If a guaranty agency uses the 

Federal portion of a nonliquid asset for 

purposes other than the performance of its 

guaranty activities, the agency must 

promptly deposit into the Federal Fund an 

amount representing the net fair value of 

the use of the asset.

(2) Payments to the Federal Fund 

required by paragraph (c)(1) of this section 

must be made not less frequently than 

quarterly.

(Authority: 20 U.S.C. 1072–1)

[64 FR 58634, Oct. 29, 1999]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.421

Funds transferred from the Federal Fund to the Operating Fund by a guaranty agency

298

§ 682.421 Funds transferred from the 

Federal Fund to the Operating Fund by a 

guaranty agency.

(a) General. In accordance with this 

section, a guaranty agency may request the 

Secretary's permission to transfer a limited 

amount of funds from the Federal Fund to 

the Operating Fund. Upon receiving the 

Secretary's approval, the agency may 

transfer the requested funds at any time 

within 6 months following the date 

specified by the Secretary. If the Secretary 

has not approved or disapproved the 

agency's request within 30 days after 

receiving it, the agency may transfer the 

requested funds at any time within the 6-

month period beginning on the 31st day 

after the Secretary received the agency's 

request. The transferred funds may be used 

only as permitted by §§682.410(a)(2) and 

682.418.

(b) Transferring the principal 

balance of the Federal Fund —(1) Amount 

that may be transferred. Upon receiving the 

Secretary's approval, an agency may 

transfer an amount up to the equivalent of 

180 days of cash expenses for purposes 

allowed by §§682.410(a)(2) and 682.418 

(not including claim payments) for normal 

operating expenses to be deposited into the 

agency's Operating Fund. The amount 

transferred and outstanding at any time 

during the first 3 years after establishing 

the Operating Fund may not exceed the 

lesser of 180 days cash expenses for 

purposes allowed by §§682.410(a)(2) and 

682.418 (not including claim payments), or 

45 percent of the balance in the Federal 

reserve fund that existed under §682.410 as 

of September 30, 1998.

(2) Requirements for requesting a 

transfer. A guaranty agency that wishes to 

transfer principal from the Federal Fund 

must provide the Secretary with a proposed 

repayment schedule and evidence that it 

can repay the transfer according to its 

proposed schedule. The agency must 

provide the Secretary with the following:

(i) A request for the transfer that 

specifies the desired amount, the date the 

funds will be needed, and the agency's 

proposed terms of repayment;

(ii) A projected revenue and expense 

statement, to be updated annually during 

the repayment period, that demonstrates 

that the agency will be able to repay the 

transferred amount within the repayment 

period requested by the agency; and

(iii) Certifications by the agency that 

during the period while the transferred 

funds are outstanding—

(A) Sufficient funds will remain in 

the Federal Fund to pay lender claims 

during the period the transferred funds are 

outstanding;

(B) The agency will be able to meet 

the reserve recall requirements of section 

422 of the Act;

(C) The agency will be able to meet 

the statutory minimum reserve level of 0.25 

percent, as mandated by section 428(c)(9) 

of the Act; and

(D) No legal prohibition exists that 

would prevent the agency from obtaining or 

repaying the transferred funds.
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.421

Funds transferred from the Federal Fund to the Operating Fund by a guaranty agency

299

(c) Transferring interest earned on 

the Federal Fund —(1) Amount that may be 

transferred. The Secretary may permit an 

agency that owes the Federal Fund the 

maximum amount allowable under 

paragraph (b) of this section to transfer the 

interest income earned on the Federal Fund 

during the 3-year period following October 

7, 1998. The combined amount of 

transferred interest and the amount of 

principal transferred under paragraph (b) of 

this section may exceed 180 days cash 

expenses for purposes allowed by 

§§682.410(a)(2) and 682.418 (not including 

claim payments), but may not exceed 45 

percent of the balance in the Federal 

reserve fund that existed under §682.410 as 

of September 30, 1998.

(2) Requirements for requesting a 

transfer. To be allowed to transfer the 

interest income, in addition to the items in 

paragraph (b)(2) of this section, the agency 

must demonstrate to the Secretary that the 

cash flow in the Operating Fund will be

negative if the agency is not authorized to 

transfer the interest, and, by transferring 

the interest, the agency will substantially 

improve its financial circumstances.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1072–1)

[64 FR 58635, Oct. 29, 1999]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.422

Guaranty agency repayment of funds transferred from the Federal Fund

300

§ 682.422 Guaranty agency repayment of 

funds transferred from the Federal Fund.

(a) General. A guaranty agency must 

begin repayment of money transferred 

from the Federal Fund not later than the 

start of the 4th year after the agency 

establishes its Operating Fund. All amounts 

transferred must be repaid not later than 

five years after the date the Operating Fund 

is established.

(b) Extension for repaying the 

interest transferred —(1) General. The 

Secretary may extend the period for 

repayment of interest transferred from the 

Federal Fund from two years to five years if 

the Secretary determines that the cash flow 

of the Operating Fund will be negative if the 

transferred interest had to be repaid earlier 

or the repayment of the interest would 

substantially diminish the financial 

circumstances of the agency.

(2) Agency eligibility for an 

extension. To receive an extension, the 

agency must demonstrate that it will be 

able to repay all transferred funds by the 

end of the 8th year following the date of 

establishment of the Operating Fund and 

that the agency will be financially sound 

upon the completion of repayment.

(3) Repayment of interest earned on 

transferred funds. If the Secretary extends 

the period for repayment of interest 

transferred from the Federal Fund for a 

guaranty agency, the agency must repay the 

amount of interest during the 6th, 7th, and 

8th years following the establishment of the 

Operating Fund. In addition to repaying the 

amount of interest, the guaranty agency 

must also pay to the Secretary any income 

earned after the 5th year from the 

investment of the transferred amount. In 

determining the amount of income earned 

on the transferred amount, the Secretary 

uses the average investment income earned 

on the agency's Operating Fund.

(c) Consequences if a guaranty 

agency fails to repay transfers from the 

Federal Fund. If a guaranty agency fails to 

make a scheduled repayment to the Federal 

Fund, the agency may not receive any other 

Federal funds until it becomes current in 

making all scheduled payments, unless the 

Secretary waives this restriction.

(Authority: 20 U.S.C. 1072–1)

[64 FR 58635, Oct. 29, 1999]
Subpart D – Administration of the Federal Family Education Loan Programs by a Guaranty Agency

§682.423

Guaranty agency Operating Fund

301

§ 682.423 Guaranty agency Operating 

Fund.

(a) Establishment and control. A 

guaranty agency must establish and 

maintain an Operating Fund in an account 

separate from the Federal Fund. Except for 

funds that may have been transferred from 

the Federal Fund, the Operating Fund is 

considered the property of the guaranty 

agency. During periods in which the 

Operating Fund contains funds transferred 

from the Federal Fund, the Operating Fund 

may be used only as permitted by 

§§682.410(a)(2) and 682.418.

(b) Deposits. The guaranty agency 

must deposit into the Operating Fund—

(1) Amounts authorized by the 

Secretary to be transferred from the 

Federal Fund;

(2) Account maintenance fees;

(3) Loan processing and issuance 

fees;

(4) Default aversion fees;

(5) 30 percent of administrative cost 

allowances received on or after October 1, 

1998 for loans upon which insurance was 

issued before October 1, 1998;

(6) The portion of the amounts 

collected on defaulted loans that remains 

after the Secretary's share of collections has 

been paid and the complement of the 

reinsurance percentage has been deposited 

into the Federal Fund;

(7) The agency's share of the payoff 

amounts received from the consolidation or 

rehabilitation of defaulted loans; and

(8) Other receipts as authorized by 

the Secretary.

(c) Uses. A guaranty agency may use 

the Operating Fund for—

(1) Guaranty agency-related 

activities, including—

(i) Application processing;

(ii) Loan disbursement;

(iii) Enrollment and repayment 

status management;

(iv) Default aversion activities;

(v) Default collection activities;

(vi) School and lender training;

(vii) Financial aid awareness and 

related outreach activities; and

(viii) Compliance monitoring; and

(2) Other student financial aidrelated activities for the benefit of students, 

as selected by the guaranty agency.

(Authority: 20 U.S.C. 1072–2)

[64 FR 58635, Oct. 29, 1999]
Subpart E – Federal Guaranteed Student Loan Programs

§682.500

Circumstances under which loans may be guaranteed by the Secretary

302

Subpart E [Reserved]

Federal Guaranteed Student Loan 

Programs

§ 682.500 Circumstances under which 

loans may be guaranteed by the Secretary.

(a) The Secretary may guarantee 

all—

(1) FISL, Federal SLS, and Federal 

PLUS loans made by lenders located in a 

State in which no State or private nonprofit 

guaranty agency has in effect an agreement 

with the Secretary under §682.401 to serve 

as guarantor in that State;

(2) Federal Consolidation loans 

made by the Student Loan Marketing 

Association and Federal Consolidation loans 

made by any other lender that has applied 

for and been denied guarantee coverage on 

Consolidation loans by the guaranty agency 

that guarantees the largest dollar volume of 

FFEL loans made by the lender; and

(3) FISL, Federal SLS, Federal PLUS, 

and Federal Consolidation loans made by 

lenders located in a State in which a 

guaranty agency program is operating but is 

not reasonably accessible to students who 

meet the agency's residency requirements.

(b) The Secretary may guarantee 

FISL, Federal SLS, Federal PLUS and Federal 

Consolidation loans made by a lender 

located in a State where a guaranty agency 

operates a program that is reasonably 

accessible to students who meet the 

residency requirements of that program 

only for—

(1) A student who does not meet the 

agency's residency requirements;

(2) A lender who is not able to 

obtain a guarantee from the guaranty 

agency for at least 80 percent of the loans 

the lender intends to make over a 12-

month period because of the agency's 

residency requirements;

(3) With the approval of the 

guaranty agency, a student who has 

previously received from the same lender a 

FISL loan that has not been repaid; or

(4) All students at a school located in 

the State if the Secretary finds that—

(i) No single guaranty agency 

program is reasonably accessible to 

students at that school as compared to 

students at other schools during a 

comparable period of time; and

(ii) Guaranteeing loans made in the 

State to students attending that school 

would significantly increase the access of 

students at that school to FFEL Program 

loans. The Secretary may guarantee loans 

made to those students by a lender in that 

State if—

(A) The guaranty agency does not 

recognize the school as being eligible, but 

the school is eligible under the FISL 

program; or

(B) A majority of the persons 

enrolled at the school meet the conditions 

of student eligibility for FISL loans but are 

not recognized as eligible under the 

guaranty agency program.
Subpart E – Federal Guaranteed Student Loan Programs

§682.500

Circumstances under which loans may be guaranteed by the Secretary

303

(c) For purposes of paragraph (b) of 

this section, a lender is considered to be 

located in the same State as a school if the 

lender—

(1) Has an origination relationship 

with the school;

(2) Has a majority of its voting stock 

held by the school; or

(3) Has common ownership or 

management with the school and more 

than 50 percent of the loans made by that 

lender are made to students at that school.

(d) As a condition for guaranteeing 

loans under the Federal FFEL programs, the 

Secretary may require the lender to submit 

evidence of circumstances that would 

justify loan guarantees under the provisions 

of this section.

(e) With regard to a school lender 

that has entered into an agreement with 

the Secretary under §682.600, the Secretary 

denies loan guarantees on the basis of this 

section only if the Secretary first 

determines that all eligible students at that 

school who make a conscientious effort to 

obtain a loan from another lender will find a 

loan to be reasonably available. For 

purposes of this paragraph, the 

determination of loan availability is based 

on studies and surveys that the Secretary 

considers satisfactory.

(Authority: 20 U.S.C. 1071, 1073, 1078–1, 

1078–2, 1078–3, 1082)
Subpart E – Federal Guaranteed Student Loan Programs

§682.501

Extent of Federal guarantee under the Federal GSL programs

304

§ 682.501 Extent of Federal guarantee 

under the Federal GSL programs.

(a) General. Except as provided in 

paragraph (b) of this section, the Secretary's 

guarantee liability on any Federal GSL loan 

is 100 percent of the unpaid principal 

balance and, to the extent permitted under 

§682.512, accrued interest.

(b) Special provisions for State 

lenders. (1) Except as described in 

paragraph (b)(2) of this section, the 

Secretary's guarantee liability is less than 

100 percent under the following conditions:

(i) If the total of default claims under 

the Federal GSL programs paid by the 

Secretary to a State lender during any fiscal 

year reaches five percent of the amount of 

the Federal GSL loans in repayment at the 

end of the preceding fiscal year, the 

Secretary's guarantee liability on a claim 

subsequently paid during that fiscal year is 

90 percent of the amount of the unpaid 

principal balance plus accrued interest.

(ii) If the total of default claims 

under the Federal GSL programs paid by the 

Secretary to a State lender during any fiscal 

year reaches nine percent of the amount of 

the Federal GSL loans in repayment at the 

end of the preceding fiscal year, the 

Secretary's guarantee liability on a claim 

subsequently paid during that fiscal year is 

80 percent of the amount of the unpaid 

principal balance plus accrued interest.

(iii) For purposes of this paragraph, 

the total default claims paid by the 

Secretary during any fiscal year do not 

include paid claims filed by the lender 

under the provisions of §682.412(e) or 

§682.509.

(2) The potential reduction in 

guarantee liability does not apply to a State 

lender during the first Federal fiscal year of 

its operation as a Federal GSL Program 

lender and during each of the four 

succeeding fiscal years.

(3) For the purposes of this section, 

the term “amount of the Federal GSL loans 

in repayment” means the original principal 

amount of all loans guaranteed by the 

Secretary less—

(i) The original principal amount of 

loans on which—

(A) Under the FISL program, the 

borrower has not yet reached the 

repayment period;

(B) Payment in full has been made 

by the borrower;

(C) The borrower was in deferment 

status at the time repayment of principal 

was scheduled to begin and remains in 

deferment status; or

(D) The Secretary has paid a claim 

filed under section 437 of the Act; and

(ii) The amount paid by the 

Secretary for default claims on loans, 

exclusive of paid claims filed by the lender 

under §682.412(e) or §682.509.

(4) For the purposes of this 

paragraph, payments by the Secretary on a 

loan that the original lender assigned to a 

subsequent holder are considered 

payments made to the original lender.
Subpart E – Federal Guaranteed Student Loan Programs

§682.501

Extent of Federal guarantee under the Federal GSL programs

305

(5) State lenders shall consolidate 

Federal GSL loans for the purpose of 

calculating the amount of the Secretary's 

guarantee liability under this section.

(Authority: 20 U.S.C. 1077, 1078–1, 1078–2, 

1078–3, 1082)
Subpart E – Federal Guaranteed Student Loan Programs

§682.502

The application to be a lender

306

§ 682.502 The application to be a lender.

(a) To be considered for 

participation in the Federal GSL programs, a 

lender shall submit an application to the 

Secretary.

(b) In determining whether to enter 

into a guarantee agreement with an 

applicant, and, if so, what the terms of the 

agreement will be, the Secretary 

considers—

(1) Whether the applicant meets the 

definition of an “eligible lender” in section 

435(d) of the Act and the definition of 

“lender” in §682.200;

(2) Whether the applicant is capable 

of complying with the regulations in this 

part as they apply to lenders;

(3) Whether the applicant is capable 

of implementing adequate procedures for 

making, servicing, and collecting loans;

(4) Whether the applicant has had 

prior experience with a similar Federal, 

State, or private nonprofit student loan 

program, and the amount and percentage 

of loans that are currently delinquent or in 

default under that program;

(5) The financial resources of the 

applicant; and

(6) In the case of a school that is 

seeking approval as a lender, its 

accreditation status.

(c) The Secretary may require an 

applicant to submit sufficient materials with 

its application so that the Secretary may 

fairly evaluate it in accordance with the 

criteria in this section.

(d)(1) If the Secretary decides not to 

approve the application for a guarantee 

agreement, the Secretary's response 

includes the reason for the decision.

(2) The Secretary provides the 

lender an opportunity for the lender to 

meet with a designated Department official 

if the lender wishes to appeal the 

Secretary's decision.

(3) However, the Secretary need not 

explain the reasons for the denial or grant 

the lender an opportunity to appeal if the 

lender submits its application within six 

months of a previous denial.

(Authority: 30 U.S.C. 1078–1, 1078–2, 

1078–3, 1079, 1082)
Subpart E – Federal Guaranteed Student Loan Programs

§682.503

The guarantee agreement

307

§ 682.503 The guarantee agreement.

(a)(1) To participate in the Federal 

GSL programs, a lender must have a 

guarantee agreement with the Secretary. 

The Secretary does not guarantee a loan 

unless it is covered by such an agreement.

(2) In general, under a guarantee 

agreement the lender agrees to comply 

with all laws, regulations, and other 

requirements applicable to its participation 

as a lender in the Federal GSL programs. In 

return, the Secretary agrees to guarantee 

each eligible Federal GSL loan held by the 

lender against the borrower's default, 

death, total and permanent disability, or 

bankruptcy.

(3) The Secretary may include in an 

agreement a limit on the duration of the 

agreement and the number or amount of 

Federal GSL loans the lender may make or 

hold.

(b)(1) Except as otherwise approved 

by the Secretary, a guarantee agreement 

with a school lender limits the Federal GSL 

loans made by that school lender that will 

be covered by the Federal guarantee to 

those loans made to students, or to parents 

borrowing on behalf of students, who are—

(i) In attendance at that school;

(ii) In attendance at other schools 

under the same ownership as that school; 

or

(iii) Employees or dependents of 

employees, or whose parents are 

employees, of that school lender or other 

schools under the same ownership, under 

circumstances the Secretary considers 

appropriate for loan guarantees.

(2) The Secretary may on a schoolby-school basis impose limits under 

paragraph (b)(1)(iii) of this section on a 

school lender that makes loans to students 

or to parents of students in attendance at 

other schools under the same ownership, or 

to employees, or to dependents or parents 

of employees, of those other schools.

(Authority: 20 U.S.C. 1078–1, 1078–2, 

1078–3, 1079, 1082)
Subpart E – Federal Guaranteed Student Loan Programs

§682.504

Issuance of Federal Loan guarantees

308

§ 682.504 Issuance of Federal loan 

guarantees.

(a) A lender having a guarantee 

agreement shall submit an application to 

the Secretary for a Federal loan guarantee 

on each intended loan that the lender 

determines to be eligible for a guarantee. 

The application must be on a form 

prescribed by the Secretary. The Secretary 

notifies the lender whether the loan will be 

guaranteed and of the amount of the 

guarantee. No disbursement on a loan 

made prior to the Secretary's approval of 

that loan is covered by the guarantee.

(b) The Secretary issues a guarantee 

on a Federal GSL loan in reliance on the 

implied representations of the lender that 

all requirements for the initial eligibility of 

the loan for guarantee coverage have been 

met. As described in §682.513, the 

continuance of the guarantee is conditioned 

upon compliance by all holders of the loan 

with the regulations in this part.

(Authority: 20 U.S.C., 1078–1, 1078–2, 

1078–3, 1079, 1082)
Subpart E – Federal Guaranteed Student Loan Programs

§682.505

Insurance premium

309

§ 682.505 Insurance premium.

(a) General. The Secretary charges 

the lender an insurance premium for each 

Federal GSL Program loan that is 

guaranteed, except that no insurance 

premium is charged on a Federal 

Consolidation loan, or on a Federal SLS or 

Federal PLUS loan made under §682.209(f).

(b) Rate. The rate of the insurance 

premium is one-fourth of one percent per 

year of the loan principal, excluding interest 

or other charges that may have been added 

to the principal.

(c) FISL loans—insurance premium 

calculation. (1) The insurance premium for 

FISL loans is calculated by—

(i) Counting the number of months 

beginning with the month following the 

month in which each disbursement on the 

loan is to be made and ending 12 months 

after the borrower's anticipated graduation 

from the school for attendance at which the 

loan is sought;

(ii) Dividing one-fourth of one 

percent of the principal amount of the loan 

by 12; and

(iii) Multiplying the result obtained 

in paragraph (c)(1)(i) of this section by that 

obtained in paragraph (c)(1)(ii) of this 

section.

(2) If the lender disburses the loan in 

multiple installments, the insurance 

premium is calculated for each 

disbursement from the month following the 

month that the disbursement is made.

(d) Federal PLUS and SLS Loans—

insurance premium calculation. The 

insurance premium for a Federal PLUS or 

SLS loan is calculated by—

(1) Using the projected repayment 

period as a base;

(2) Amortizing the loan in equal 

monthly installments over the repayment 

period;

(3) Determining one-fourth of one 

percent of each monthly declining principal 

balance; and

(4) Computing the total of monthly 

amounts calculated under paragraph (d)(3) 

of this section.

(e) Collection from lenders. (1) The 

Secretary may bill the lender for the 

insurance premium or may require the 

lender to pay the insurance premium to the 

Secretary at the time of disbursement of 

the loan. At the Secretary's discretion, the 

Secretary may alternatively collect the 

insurance premium by offsetting it against 

amounts payable by the Secretary to the 

lender.

(2) The Secretary's guarantee on a 

loan ceases to be effective if the lender fails 

to pay the insurance premium within 60 

days of the date payment is due. However, 

the Secretary may excuse late payment of 

an insurance premium and reinstate the 

guarantee coverage on a loan if the 

Secretary is satisfied that at the time the 

premium is paid—

(i) The loan is not in default and the 

borrower is not delinquent in making 

installment payments; or
Subpart E – Federal Guaranteed Student Loan Programs

§682.505

Insurance premium

310

(ii) The loan is in default, or the 

borrower is delinquent, under 

circumstances where the borrower has 

entered the repayment period without the 

lender's knowledge.

(f) Collection from borrowers. The 

lender may pass along the cost of the 

insurance premium to the borrower. If it 

does so, the insurance premium must be 

deducted from each disbursement of the 

loan in an amount proportionate to that 

disbursement's contribution to the 

premium amount.

(g) Refund provisions. The insurance 

premium is not refundable by the Secretary 

and need not be refunded by the lender to 

the borrower, even if the borrower prepays, 

defaults, dies, becomes totally and 

permanently disabled, or files a petition in 

bankruptcy.

(Authority: 20 U.S.C. 1077, 1078–1, 1078–2, 

1078–3, 1079, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 

64 FR 18981, Apr. 16, 1999; 68 FR 75429, 

Dec. 31, 2003]
Subpart E – Federal Guaranteed Student Loan Programs

§682.506

Limitations on maximum loan amounts

311

§ 682.506 Limitations on maximum loan 

amounts.

(a) The Secretary does not 

guarantee a FISL, Federal SLS, or Federal 

PLUS loan in an amount that would—

(1) Result in an annual loan amount 

in excess of the student's estimated cost of 

attendance for the period of enrollment for 

which the loan is intended less—

(i) The student's estimated financial 

assistance; and

(ii) The student's expected family 

contribution for that period, in the case of a 

FISL loan; or

(2) Result in an annual or aggregate 

loan amount in excess of the permissible 

annual and aggregate loan limits described 

in §682.204.

(b) The Secretary does not 

guarantee a Federal Consolidation loan in 

an amount greater than that required to 

discharge loans eligible for consolidation 

under §682.100(a)(4).

(Authority: 20 U.S.C. 1075, 1077, 1078–1, 

1078–2, 1079, 1082, 1089)
Subpart E – Federal Guaranteed Student Loan Programs

§682.507

Due diligence in collecting a loan

312

§ 682.507 Due diligence in collecting a 

loan.

(a) General. (1) Except as provided in 

paragraph (a)(4) of this section, a lender 

shall exercise due diligence in the collection 

of a loan with respect to both a borrower 

and an authorized endorser. In order to 

exercise due diligence, a lender shall 

implement the procedures described in this 

section if a borrower fails to make an

installment payment when due.

(2) If two borrowers are liable for 

repayment of a Federal PLUS or Federal 

Consolidation loan as co-makers, the lender 

must follow these procedures with respect 

to both borrowers.

(3) For purposes of this section, the 

borrower's delinquency begins on the day 

after the due date of an installment 

payment not paid when due, except that if 

the borrower entered the repayment 

period without the lender's knowledge, the 

delinquency begins 30 days after the day 

the lender receives notice that the 

borrower has entered the repayment 

period.

(4) In lieu of the procedures 

described in this section, a lender may use 

the due diligence procedures in §682.411 in 

collecting a Federal GSL loan.

(b) Initial delinquency. If a borrower 

is delinquent in making a payment, the 

lender shall remind the borrower within 10 

working days of the date the payment was 

due by means of a letter, notice, telephone 

call, or personal contact. If payments do not 

begin or resume, the lender shall attempt 

to contact the borrower—

(1) At last six more times at regular 

intervals during the remainder of the sixmonth period that started on the date of 

delinquency for loans repayable in monthly 

installments; or

(2) At least eight more times during 

the remainder of the eight-month period 

that started on the date of delinquency for 

loans repayable in installments less 

frequent than monthly.

(c) Skip-tracing assistance. (1) If a 

lender does not know the borrower's 

current address, the lender promptly shall 

attempt to locate the borrower through 

normal commercial collection activities, 

including contacting all individuals and 

entities named in the borrower's loan 

application. If these efforts are 

unsuccessful, the lender promptly shall 

attempt to learn the borrower's current 

address through use of the Department's 

skip-tracing assistance.

(2) If the lender does not know the 

borrower's address when a borrower is first 

delinquent in making a payment, but 

subsequently obtains the borrower's 

address prior to the date on which the loan 

goes into default, the lender shall attempt 

to contact the borrower in accordance with 

paragraph (b) of this section, with the first 

contact occurring within 15 days of the date 

the lender obtained knowledge of the 

borrower's address, and shall attempt to 

contact the borrower at least once during 

each succeeding 30-day period until default.

(d) Preclaims assistance. When the 

borrower is 60 days delinquent in making a 

payment, the lender shall request preclaims 

assistance from the Department of 
Subpart E – Federal Guaranteed Student Loan Programs

§682.507

Due diligence in collecting a loan

313

Education. This preclaims assistance 

consists of sending a series of letters to the 

borrower, urging the borrower to contact 

the lender and begin or resume payments.

(e) Final demand letter. A lender 

shall send a final demand letter to the 

borrower at least 30 days before the lender 

files a default claim. The lender shall allow 

the borrower at least 30 days to respond to 

the final demand letter. However, a lender 

need not send a final demand letter to a 

borrower whose address is unknown to the 

lender.

(f) Litigation. (1) If a loan is in 

default and the lender determines that the 

borrower or an endorser has the ability to 

repay the loan, the lender may bring suit 

against the borrower or the endorser to 

recover the amount of the unpaid principal 

and interest, together with reasonable 

attorneys' fees, late charges, and court 

costs.

(2) Prior to bringing suit the lender 

shall—

(i) Obtain the Secretary's approval; 

and

(ii) Notify the borrower or endorser 

in writing that it has received the 

Secretary's approval to bring suit on the 

loan, and that unless the borrower or 

endorser makes payments sufficient to 

bring the account out of default the lender 

will seek a judgment under which the 

borrower or endorser will be liable for 

payment of late charges, attorneys' fees, 

collection agency charges, court costs, and 

other reasonable collection costs in 

addition to the unpaid principal and interest 

on the loan. The lender shall mail the notice 

to the borrower or endorser by certified 

mail, return receipt requested.

(3) The lender may bring suit if the 

borrower or endorser does not make 

payments sufficient to bring the account 

out of default within 10 days following the 

date of delivery of the notice described in 

paragraph (f)(2)(ii) of this section to the 

borrower or endorser indicated on the 

receipt.

(4) A lender may first apply the 

proceeds of any judgment against its 

attorneys' fees, court costs, collection 

agency charges, and other reasonable 

collection costs, whether or not the 

judgment provides for these fees and costs.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1078–1, 1078–2, 

1078–3, 1079, 1080, 1081, 1082, 1085)

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9119, Feb. 19, 1993; 59 FR 33358, 

June 28, 1994; 64 FR 18981, Apr. 16, 1999; 

64 FR 58965, Nov. 1, 1999]
Subpart E – Federal Guaranteed Student Loan Programs

§682.508

Assignment of a loan

314

§ 682.508 Assignment of a loan.

(a) General. A Federal GSL loan may 

not be assigned except to another eligible 

lender. For the purpose of this paragraph, 

“assigned” means any kind of transfer of an 

interest in the loan, including a pledge of 

such an interest as security.

(b)(1) Procedure. If the assignment 

of a FISL Program loan is to result in a 

change in the identity of the party to whom 

the borrower must send subsequent 

payments, the assignor and the assignee of 

the loan shall, no later than 45 days from 

the date the assignee acquires a legally 

enforceable right to receive payment from 

the borrower on the assigned loan, provide 

separate notices to the borrower of—

(i) The assignment;

(ii) The identity of the assignee;

(iii) The name and address of the 

party to whom subsequent payments must 

be sent; and

(iv) The telephone numbers of both 

the assignor and the assignee.

(2) The assignor and assignee shall 

provide the notice required by paragraph 

(b)(1) of this section separately. Each notice 

must indicate that a corresponding notice 

will be sent by the other party to the 

assignment.

(c) The Secretary's approval. The 

approval of the Secretary is required prior 

to the assignment of a note to an eligible 

lender that has not entered into a contract 

of insurance with the Secretary under 

§682.503.

(d) Warranty. (1) Nothing in this 

section precludes the buyer of a loan from 

obtaining a warranty from the seller 

covering certain future reductions by the 

Secretary in computing the amount of 

guaranteed loss, if any, on a claim filed on 

the loan.

(2) The warranty may cover only 

reductions that are attributable to an act or 

failure to act of the seller or other previous 

holder.

(3) The warranty may not cover 

matters the buyer is responsible for under 

the regulations in this part.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1078–1, 1078–2, 

1078–3, 1079, 1080, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9120, Feb. 19, 1993; 64 FR 58965, 

Nov. 1, 1999]
Subpart E – Federal Guaranteed Student Loan Programs

§682.509

Special conditions for filing a claim

315

§ 682.509 Special conditions for filing a 

claim.

(a) A lender shall cease collection 

activity on a loan and file a claim with the 

Secretary within the time specified in 

§682.511(e)(3), if—

(1) In the case of a loan that was not 

made or originated by the school, the 

lender learns that while the student was 

enrolled at the school the school 

terminated its teaching activities for that 

student during the academic period 

covered by the loan; or

(2) The Secretary directs that the 

claim be filed.

(b) A lender may not as a result of a 

claim filed with the Secretary under this 

section report a borrower's loan as in 

default to any credit bureau or other third 

party.

(Authority: 20 U.S.C. 1078–1, 1078–2, 

1078–3, 1079, 1080, 1082)
Subpart E – Federal Guaranteed Student Loan Programs

§682.510

Determination of the borrower’s death, total and permanent disability, or bankruptcy

316

§ 682.510 Determination of the 

borrower's death, total and permanent 

disability, or bankruptcy.

(a) The procedures in §682.402(a)–

(d) for determining whether a borrower has 

died, become totally and permanently 

disabled, or filed a bankruptcy petition 

apply to the Federal GSL programs.

(b) For purposes of this section, 

references to the “guaranty agency” in 

§682.402(d)(5) shall be understood to refer 

to the Secretary.

(Authority: 20 U.S.C. 1078–1, 1078–2, 

1078–3, 1082, 1087)
Subpart E – Federal Guaranteed Student Loan Programs

§682.511

Procedures for filing a claim

317

§ 682.511 Procedures for filing a claim.

(a) Filing a claim application. (1) A 

lender may file a claim against the 

Secretary's guarantee on a Federal GSL loan 

for any of the following reasons:

(i) The loan is in default, as defined 

in §682.200.

(ii) Any of the conditions exist for 

filing a claim without collection efforts, as 

set forth in §682.412(e)(2) or §682.509.

(iii) The borrower has died, become 

totally and permanently disabled, or filed a 

bankruptcy petition, as determined by the 

lender in accordance with §682.510.

(2) If a Federal PLUS loan was 

obtained by two eligible parents as comakers, or a Federal Consolidation loan was 

obtained jointly by a married couple, the 

reason for filing a claim must hold true for 

both applicants, or each applicant must 

have satisfied a claimable criterion at the 

time of the request for discharge of the 

loan.

(3) A lender may file a claim against

the Secretary's guarantee only on a form 

provided by the Secretary. The lender shall 

attach to the claim all documents required 

by the Secretary. If the lender fails to do so, 

the Secretary denies the claim.

(b) Documentation required for 

claims. (1) The Secretary requires a lender 

to submit the following documentation with 

all claims:

(i) The original promissory note.

(ii) The loan application.

(iii) The repayment instrument.

(iv) A payment history, as described 

in §682.414(a)(3)(ii)(I).

(v) A collection history, as described 

in §682.414(a)(3)(ii)(J).

(vi) A copy of the final demand letter 

if required by §682.507(e).

(vii) The original or a copy of all 

correspondence addressed to, from, or on 

behalf of the borrower that is relevant to 

the loan, whether that correspondence 

involved the original lender, a subsequent 

holder, or a servicing agent.

(viii) If applicable, evidence of the 

lender's requests to the Department for 

skip-tracing assistance under §682.507(c) 

and for preclaims assistance under 

§682.507(d).

(ix) Any additional documentation 

that the Secretary determines is relevant to 

a claim.

(2) The documentation 

requirements for death, total and 

permanent disability, or bankruptcy claims 

in §682.402(g)(1) apply to the Federal GSL 

programs. For purposes of this section, 

references to the “guaranty agency” in 

§682.402(e)(1) mean the Secretary.

(c) Assignment of note. The 

Secretary's payment of a claim is contingent 

upon receipt from the lender of an 

assignment to the United States of America 

of all rights, title, and interest of the lender 

in the note underlying the claim.
Subpart E – Federal Guaranteed Student Loan Programs

§682.511

Procedures for filing a claim

318

(d) Bankruptcy subsequent to 

default. If the lender files a default claim on 

a loan and subsequently receives a notice of 

the first meeting of creditors in the 

proceeding of the borrower in bankruptcy, 

the lender shall promptly forward that 

notice to the Department of Education. 

Under these circumstances the lender shall 

not file a proof of claim with the bankruptcy 

court.

(e) Claim filing deadlines. To obtain 

payment of a claim, a lender shall comply 

with the following deadlines:

(1) Default claims. Unless the lender 

has already filed suit against the borrower 

in accordance with §682.507(f), it shall file a 

default claim on a loan with the Secretary 

within 90 days after a default has occurred 

on the loan. For a claim filed by a lender 

pursuant to §682.412(e)(2), as directed in 

§682.208(f)(2), the lender shall file a claim 

within 90 days following transmission of the 

final demand letter sent pursuant to 

§682.411(e) if the borrower failed to 

comply with the terms of the letter within 

30 days of the transmission.

(2) Death, total and permanent 

disability, or bankruptcy claims. The claim 

filing deadlines in §682.402(e)(2) apply to 

the Federal GSL programs. For purposes of 

this section, references to the “guaranty 

agency” in §682.402(e)(2) mean the 

Secretary.

(3) Special condition claims. In the 

case of a special condition claim filed 

pursuant to §682.509, the lender shall file a 

claim with the Secretary within 45 days of 

the date the lender determines that the 

conditions set forth in §682.509(a)(1) exist, 

or the date the Secretary directs that the 

claim be filed pursuant to §682.509(a)(2).

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1078–1, 1078–2, 

1078–3, 1080, 1082, 1087)

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9119, Feb. 19, 1993; 59 FR 33358, 

June 28, 1994; 64 FR 18981, Apr. 16, 1999; 

64 FR 58965, Nov. 1, 1999]
Subpart E – Federal Guaranteed Student Loan Programs

§682.512

Determination of amount payable on a claim

319

§ 682.512 Determination of amount 

payable on a claim.

(a) Default claims —(1) Amount 

payable. The amount of loss to be paid on a 

default claim depends upon the date the 

Secretary received the application for a 

guarantee commitment on the loan. If the 

application was received—

(i) Prior to July 1, 1972, or from 

August 19, 1972 through February 28, 1973, 

the amount payable on a valid claim is 

equal to the unpaid balance of the original 

principal loan amount disbursed; or

(ii) From July 1 through August 18, 

1972, or after February 28, 1973, the 

amount payable on a valid claim is equal to 

the unpaid balance of the principal and 

interest in accordance with paragraph (a)(2) 

of this section. The unpaid principal amount 

of the loan may include capitalized interest 

to the extent authorized by §682.202(b).

(2) Payment of interest. If the 

guarantee covers unpaid interest, the 

payment of a valid claim covers the unpaid 

interest that accrues during the following 

periods:

(i) During the period before the 

claim is filed, not to exceed the period 

provided for in §682.511(e) for filing the 

claim.

(ii) During a period not to exceed 30 

days following the return of the claim to the 

lender by the Secretary for additional 

documentation necessary for the claim to 

be approved by the Secretary.

(iii) During the period, after the 

claim is filed, that is required by the 

Secretary to approve the claim and to 

authorize payment or to return the claim to 

the lender for additional documentation.

(3) Recovery of outstanding debts. 

The Secretary may reduce the amount of 

loss due to the lender on a claim by the 

amount the Secretary determines is owed 

to the Secretary by the lender.

(b) Death, total and permanent 

disability, or bankruptcy claims. (1) In the 

case of a death or disability claim, the 

amount to be paid on a valid claim—

(i) Is equal to the unpaid balance of 

the original principal loan amount disbursed 

if the loan was disbursed prior to December 

15, 1968; or

(ii) Is calculated in accordance with 

§682.402(h)(2) and (h)(3) if the loan was 

disbursed after December 14, 1968.

(2) In the case of a bankruptcy claim, 

the amount of loss is calculated in 

accordance with §682.402(f)(2) and (f)(3).

(3) For purposes of this section, 

references to the “guaranty agency” in 

§682.402(f)(3) mean the Secretary.

(c) Special rules for a loan acquired 

by assignment. If a claim is filed by a lender 

that obtained a loan by assignment, that 

lender is not entitled to any payment under 

this section greater than that to which a 

previous holder would have been entitled. 

For example, the Secretary deducts from 

the claim any amounts that are attributable 

to payments made by the borrower to a 

prior holder of the loan before the 

borrower received proper notice of the 

assignment of the loan.
Subpart E – Federal Guaranteed Student Loan Programs

§682.512

Determination of amount payable on a claim

320

(Authority: 20 U.S.C. 1078–1, 1078–2, 

1078–3, 1080, 1082, 1087) [57 FR 60323, 

Dec. 18, 1992, as amended at 64 FR 18981, 

Apr. 16, 1999]
Subpart E – Federal Guaranteed Student Loan Programs

§682.513

Factors affecting coverage of a loan under the loan guarantee

321

§ 682.513 Factors affecting coverage of a 

loan under the loan guarantee.

(a)(1) In determining whether to 

approve for payment a claim against the 

Secretary's guarantee, the Secretary 

considers matters affecting the 

enforceability of the loan obligation and 

whether the loan was made and 

administered in accordance with the Act 

and applicable regulations.

(2) The Secretary deducts from a 

claim any amount that is not a legally 

enforceable obligation of the borrower, 

except to the extent that the defense of 

infancy applies.

(3) Except as provided in §682.509, 

the Secretary does not pay a claim unless—

(i) All holders of the loan have 

complied with the requirements of this 

part, including, but not limited to, those 

concerning due diligence in the making, 

servicing, and collecting of a loan;

(ii) The current holder has complied 

with the deadlines for filing a claim 

established in §682.511(e); and

(iii) The current holder complies 

with the requirements for submitting 

documents with a claim as established in 

§682.511(b).

(b) Except as provided in §682.509, 

the Secretary does not pay a death, 

disability, or bankruptcy claim for a loan 

after a default claim for that loan has been 

disapproved by the Secretary or if it would 

not be payable as a default claim by the 

Secretary.

(c) The Secretary's determination of 

the amount of loss payable on a default 

claim under this part, once final, is 

conclusive and binding on the lender that 

filed the claim.

Note: A determination of the Secretary 

under this section is subject to judicial 

review under 5 U.S.C. 706 and 41 U.S.C. 

321–322.

(Authority: 20 U.S.C. 1078–1, 1078–2, 

1078–3, 1079, 1080, 1082)
Subpart E – Federal Guaranteed Student Loan Programs

§682.514

Procedures for receipt or retention of payments where the lender has violated program requirements 

for Federal GSL loans

322

§ 682.514 Procedures for receipt or 

retention of payments where the lender 

has violated program requirements for 

Federal GSL loans.

(a) The Secretary may waive the 

right to recover or refuse to make an 

interest benefits, special allowance, or 

claim payment, or may permit a lender to 

cure certain defects in a specified manner 

if, in the Secretary's judgment, the best 

interests of the United States so require.

(b) To receive payment on a default 

claim or to resume eligibility to receive 

interest benefits and special allowance on a 

loan as to which a lender has committed a 

violation of the requirements of this part 

regarding due diligence in collection or 

timely filing of claims, the lender shall meet 

the conditions described in appendix C to 

this part.

(Authority: 20 U.S.C. 1078–1, 1078–2, 

1078–3, 1080, 1082)
Subpart E – Federal Guaranteed Student Loan Programs

§682.515

Records, reports, and inspection requirements for Federal GSL program lenders

323

§ 682.515 Records, reports, and 

inspection requirements for Federal GSL 

program lenders.

(a) Records. (1) A lender shall 

maintain current, complete, and accurate 

records of each loan that it holds, including, 

but not limited to, the records described in 

§682.414(a)(3)(ii). The records must be 

maintained in a system that allows ready 

identification of each loan's current status.

(2) A lender shall retain the records 

required for each loan for not less than five 

years following the date the loan is repaid 

in full by the borrower or the lender is 

reimbursed on a claim. However, in 

particular cases the Secretary may require 

the retention of records beyond this 

minimum period.

(3)(i) The lender may store the 

records specified in §682.414(a)(3)(ii)(C)–(K) 

on microfilm, optical disk, or other machine 

readable format.

(ii) The holder of the promissory 

note shall retain the original note and 

repayment instrument until the loan is fully 

repaid. At that time the holder shall return 

the original note and repayment instrument 

to the borrower and retain copies for the 

prescribed period.

(iii) The lender shall retain the 

original or a copy of the loan application.

(b) Reports. A lender shall submit 

reports to the Secretary at the time and in 

the manner that the Secretary reasonably 

may require.

(c) Inspections. Upon request, a 

lender or its agent shall cooperate with the 

Secretary, the Department's Office of the 

Inspector General, and the Comptroller 

General of the United States, or their 

authorized representatives, in the conduct 

of audits, investigations, and program 

reviews. This cooperation must include—

(1) Providing timely access for 

examination and copying to the records 

(including computerized records) required 

by applicable regulations and to any other 

pertinent books, documents, papers, 

computer programs, and records; and

(2) Providing reasonable access to 

lender personnel associated with the 

lender's administration of the Title IV, HEA 

programs for the purpose of obtaining 

relevant information. In providing 

reasonable access, the institution may 

not—

(i) Refuse to supply any relevant 

information;

(ii) Refuse to permit interviews with 

those personnel that do not include the 

presence of representatives of the lender's 

management; and

(iii) Refuse to permit personnel 

interviews with those personnel that are 

not recorded by the lender.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1077, 1078–1, 1078–2, 

1078–3, 1079, 1080, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9120, Feb. 19, 1993; 64 FR 58965, 

Nov. 1, 1999]
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.600

[Reserved]

324

Subpart F – Requirements, Standards, and 

Payments for Participating Schools That 

Participated in the FFEL Program

§ 682.600 [Reserved]
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.601

Rules for a school that makes or originates loans

325

§ 682.601 Rules for a school that makes or 

originates loans.

(a) General. To make or originate 

loans under the FFEL program, a school—

(1) Must employ at least one person 

whose full-time responsibilities are limited 

to the administration of programs of 

financial aid for students attending the 

school;

(2) Must not be a home study 

school;

(3) Must not—

(i) Make a loan to any 

undergraduate student;

(ii) Make a loan other than a Federal 

Stafford loan to a graduate or professional 

student; or

(iii) Make a loan to a borrower who 

is not enrolled at that school;

(4) Must award any contract for 

financing, servicing, or administration of 

FFEL loans on a competitive basis;

(5) Must offer loans that carry an 

origination fee or an interest rate, or both, 

that are less than the fee or rate authorized 

under the provisions of the Act;

(6) Must not have a cohort default 

rate, as calculated under subpart M of 34 

CFR part 668, greater than 10 percent;

(7) Must, for any fiscal year 

beginning on or after July 1, 2006 in which 

the school engages in activities as an 

eligible lender, submit an annual 

compliance audit that satisfies the following 

requirements:

(i) With regard to a school that is a 

governmental entity or a nonprofit 

organization, the audit must be conducted 

in accordance with §682.305(c)(2)(v) and 

chapter 75 of title 31, United States Code, 

and in addition, during years when the 

student financial aid cluster (as defined in 

Office of Management and Budget Circular 

A–133, Appendix B, Compliance 

Supplement) is not audited as a “Major 

Program” (as defined under 31 U.S.C. 7501) 

must, without regard to the amount of

loans made, include in such audit the 

school's lending activities as a Major 

Program.

(ii) With regard to a school that is 

not a governmental entity or a nonprofit 

organization, the audit must be conducted 

annually in accordance with 

§682.305(c)(2)(i) through (iii);

(iii) With regard to any school, the 

audit must include a determination that—

(A) Except as provided in paragraphs 

(a)(8) and (b) of this section, the school 

used all payments and proceeds from the 

loans for need-based grant programs;

(B) The school met the requirements 

of paragraph (c) of this section in making 

the need-based grants; and

(C) The school used no more than a 

reasonable portion of payments and 

proceeds from the loans for direct 

administrative expenses.

(8) Must use any proceeds from 

special allowance payments and interest 
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.601

Rules for a school that makes or originates loans

326

payments from borrowers, interest subsidy 

payments, and any proceeds from the sale 

or other disposition of loans (exclusive of 

return of principal, any financing costs 

incurred by the school to acquire funds to 

make the loans, and the cost of charging 

origination fees or interest rates at less than 

the fees or rates authorized under the HEA) 

for need-based grants; and

(9) Must have met the requirements 

to be an eligible lender as of February 7, 

2006, and must have made one or more 

FFEL program loans on or before April 1, 

2006.

(b) An eligible school lender may use 

a portion of the proceeds described in 

paragraph (a)(8) of this section for 

reasonable and direct administrative 

expenses. Reasonable and direct 

administrative expenses are those that are 

incurred by the school and are directly 

related to the school's performance of 

actions required of the school under the Act 

or the regulations in this part. Reasonable 

and direct administrative expenses do not 

include financing and similar costs such as 

costs paid by the school to obtain funding 

to make FFEL loans, the cost of paying 

Federal default fees on behalf of borrowers, 

or the cost of providing origination fees or 

interest rates at less than the fee or rate 

authorized under the provisions of the Act.

(c) An eligible school lender must 

ensure that the proceeds described in 

paragraph (a)(8) of this section are used to 

supplement, and not to supplant, nonFederal funds that would otherwise be used 

for need-based grant programs.

(Authority: 20 U.S.C. 1077, 1078–1, 1078–2, 

1078–3, 1082, 1085)

[71 FR 45708, Aug. 9, 2006, as amended at 

71 FR 64399, Nov. 1, 2006; 74 FR 56000, 

Oct. 29, 2009]
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.602

Rules for a school or school-affiliated organization that makes or originates loans through an eligible lender trustee

327

§ 682.602 Rules for a school or schoolaffiliated organization that makes or 

originates loans through an eligible lender 

trustee.

(a) A school or school-affiliated 

organization may not contract with an 

eligible lender to serve as trustee for the 

school or school-affiliated organization 

unless—

(1) The school or school-affiliated 

organization originated and continues or 

renews a contract made on or before 

September 30, 2006 with the eligible 

lender; and

(2) The eligible lender held at least 

one loan in trust on behalf of the school or 

school-affiliated organization on September 

30, 2006.

(b) As of January 1, 2007, and for 

loans first disbursed on or after that date 

under a lender trustee arrangement that 

continues in effect after September 30, 

2006—

(1) A school in a trustee 

arrangement or affiliated with an 

organization involved in a trustee 

arrangement to originate loans must 

comply with the requirements of 

§682.601(a), except for paragraphs (a)(4), 

(a)(7), and (a)(9) of that section; and

(2) A school-affiliated organization 

involved in a trustee arrangement to make 

loans must comply with the requirements 

of §682.601(a) except for paragraphs (a)(1), 

(a)(2), (a)(3), (a)(4), (a)(6), (a)(7), and (a)(9) 

of that section.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1082, 1085)

[72 FR 62007, Nov. 1, 2007]
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.603

Certification by a participating school in connection with a loan application

328

§ 682.603 Certification by a participating

school that participated in the FFEL 

Program in connection with a loan 

application.

(a) A school shall certify that the 

information it provides in connection with a 

loan application about the borrower and, in 

the case of a parent borrower, the student 

for whom the loan is intended, is complete 

and accurate. Except as provided in 34 CFR 

part 668, subpart E, a school may rely in 

good faith upon statements made by the 

borrower and, in the case of a parent 

borrower of a PLUS loan, the student and 

the parent borrower.

(b) The information to be provided 

by the school about the borrower pertains 

to—

(1) The borrower's eligibility for a 

loan, as determined in accordance with 

§682.201 and §682.204;

(2) For a subsidized Stafford loan, 

the student's eligibility for interest benefits 

as determined in accordance with 

§682.301; and

(3) The schedule for disbursement of 

the loan proceeds, which must reflect the 

delivery of the loan proceeds as set forth in 

section 428G of the Act§682.604(c).

(c) Except as provided in paragraph 

(e f) of this section, in certifying a loan, a 

school must certify a loan for the lesser of 

the borrower's request or the loan limits 

determined under §682.204.

(d) Before certifying a PLUS loan 

application for a graduate or professional 

student borrower, the school must 

determine the borrower's eligibility for a 

Stafford loan. If the borrower is eligible for 

a Stafford loan but has not requested the 

maximum Stafford loan amount for which 

the borrower is eligible, the school must—

(1) Notify the graduate or 

professional student borrower of the 

maximum Stafford loan amount that he or 

she is eligible to receive and provide the 

borrower with a comparison of—

(i) The maximum interest rate for a 

Stafford loan and the maximum interest 

rate for a PLUS loan;

(ii) Periods when interest accrues on 

a Stafford loan and periods when interest 

accrues on a PLUS loan; and

(iii) The point at which a Stafford 

loan enters repayment and the point at 

which a PLUS loan enters repayment; and

(2) Give the graduate or professional 

student borrower the opportunity to 

request the maximum Stafford loan amount 

for which the borrower is eligible.

(e) A school may not certify a 

Stafford or PLUS loan, or a combination of 

loans, for a loan amount that—

(1) The school has reason to know 

would result in the borrower exceeding the 

annual or maximum loan amounts in 

§682.204; or

(2) Exceeds the student's estimated 

cost of attendance for the period of 

enrollment, less—

(i) The student's estimated financial 

assistance for that period; and
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.603

Certification by a participating school in connection with a loan application

329

(ii) In the case of a Subsidized 

Stafford loan, the borrower's expected 

family contribution for that period.

(f)(1)(i) The minimum period of 

enrollment for which a school may certify a 

loan application is—

(A) At a school that measures 

academic progress in credit hours and uses 

a semester, trimester, or quarter system, or 

has terms that are substantially equal in 

length with no term less than nine weeks in 

length, a single term (e.g., a semester or 

quarter); or

(B) Except as provided in paragraphs 

(f)(1)(ii) or (iii) of this section, at a school 

that measures academic progress in clock 

hours, or measures academic progress in 

credit hours but does not use a semester, 

trimester, or quarter system and does not 

have terms that are substantially equal in 

length with no term less than nine weeks in 

length, the lesser of—

(1) The length of the student's 

program (or the remaining portion of that 

program if the student has less than the full 

program remaining) at the school; or

(2) The academic year as defined by 

the school in accordance with 34 CFR 668.3.

(ii) For a student who transfers into 

a school with credit or clock hours from 

another school, and the prior school 

certified or originated a loan for a period of 

enrollment that overlaps the period of 

enrollment at the new school, the new 

school may certify a loan for the remaining 

portion of the program or academic year. In 

this case the school may certify a loan for 

an amount that does not exceed the 

remaining balance of the student's annual 

loan limit.

(iii) For a student who completes a 

program at a school, where the student's 

last loan to complete that program had 

been for less than an academic year, and 

the student then begins a new program at 

the same school, the school may certify a 

loan for the remainder of the academic 

year. In this case the school may certify a 

loan for an amount that does not exceed 

the remaining balance of the student's 

annual loan limit at the loan level 

associated with the new program.

(2) May not, for first-time 

borrowers, assign through award packaging 

or other methods, a borrower's loan to a 

particular lender;

(3) May refuse to certify a Stafford 

or PLUS loan or may reduce the borrower's 

determination of need for the loan if the 

reason for that action is documented and 

provided to the borrower in writing, 

provided that—

(i) The determination is made on a 

case-by-case basis; and

(ii) The documentation supporting 

the determination is retained in the 

student's file; and

(4) May not, under paragraph (f)(1), 

(2), and (3) of this section, engage in any 

pattern or practice that results in a denial of 

a borrower's access to FFEL loans because 

of the borrower's race, sex, color, religion, 

national origin, age, handicapped status, 
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.603

Certification by a participating school in connection with a loan application

330

income, or selection of a particular lender 

or guaranty agency.

[NOTE: Proposed revised (g) contains text 

from current (h)(2), with minor changes.]

(g) The maximum period for which a 

school may certify a loan application is—

(1) Generally an academic year, as 

defined by 34 CFR 668.3, except that a 

guaranty agency may allow a school to use 

a longer period of time, corresponding to 

the period to which the agency applies the 

annual loan limits; or

(2) For a defaulted borrower who 

has regained eligibility under 

§682.401(b)(1), the academic year in which 

the borrower regained eligibility.

[NOTE: The proposed regulations 

move the provisions in current (g) to (i).]

(1) If a school measures academic 

progress in an educational program in 

credit hours and uses either standard terms 

(semesters, trimesters, or quarters) or 

nonstandard terms that are substantially 

equal in length, and each term is at least 

nine weeks of instructional time in length, a 

student is considered to have completed an 

academic year and progresses to the next 

annual loan limit when the academic year 

calendar period has elapsed.

(2) If a school measures academic 

progress in an educational program in 

credit hours and uses nonstandard terms 

that are not substantially equal in length or 

each term is not at least nine weeks of 

instructional time in length, or measures 

academic progress in credit hours and does 

not have academic terms, a student is 

considered to have completed an academic 

year and progresses to the next annual loan 

limit at the later of—

(i) The student's completion of the 

weeks of instructional time in the student's 

academic year; or

(ii) The date, as determined by the 

school, that the student has successfully 

completed the academic coursework in the 

student's academic year.

(3) If a school measures academic 

progress in an educational program in clock 

hours, a student is considered to have 

completed an academic year and 

progresses to the next annual loan limit at 

the later of—

(i) The student's completion of the 

weeks of instructional time in the student's 

academic year; or

(ii) The date, as determined by the 

school, that the student has successfully 

completed the clock hours in the student's 

academic year.

(4) For purposes of this section, 

terms in a loan period are substantially 

equal in length if no term in the loan period 

is more than two weeks of instructional 

time longer than any other term in that loan 

period.

[NOTE: Proposed revised (h) deletes 

provisions that are duplicated in current (f).]

(h)(1) The minimum period of 

enrollment for which a school may certify a 

loan application is—
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.603

Certification by a participating school in connection with a loan application

331

(i) At a school that measures 

academic progress in credit hours and uses 

a semester, trimester, or quarter system, a 

single academic term (e.g., a semester or 

quarter); or

(ii) At a school that measures 

academic progress in clock hours, or 

measures academic progress in credit hours 

but does not use a semester, trimester, or 

quarter system, the lesser of—

(A) The length of the student's 

program at the school; or

(B) The academic year as defined by 

the school in accordance with 34 CFR 668.3.

(2) The maximum period for which a 

school may certify a loan application is—

(i) Generally an academic year, as 

defined by 34 CFR 668.3, except that a 

guaranty agency may allow a school to use 

a longer period of time, corresponding to 

the period to which the agency applies the 

annual loan limits under §682.401(b)(2)(ii); 

or

(ii) For a defaulted borrower who 

has regained eligibility under 

§682.401(b)(4), the academic year in which 

the borrower regained eligibility.

(3) In certifying a Stafford or 

SLSUnsubsidized Stafford loan amount in 

accordance with §682.204—

(i)(1) A program of study must be 

considered at least one full academic year 

if—

(A)(i) The number of weeks of 

instruction instructional time is at least 30 

weeks; and

(B)(ii) The number of clock hours is 

at least 900, the number of semester or 

trimester hours is at least 24, or the number 

of quarter hours is at least 36.;

(ii)(2) A program of study must be 

considered two-thirds (2/3) of an academic 

year if—

(A)(i) The number of weeks of 

instruction instructional time is at least 20 

weeks; and

(B)(ii) The number of clock hours is 

at least 600, the number of semester or 

trimester hours is at least 16, or the number 

of quarter hours is at least 24.;

(iii)(3) A program of study must be 

considered one-third (1/3) of an academic 

year if—

(A)(i) The number of weeks of 

instruction time is at least 10 weeks; and

(B)(ii) The number of clock hours is 

at least 300, the number of semester or 

trimester hours is at least 8, or the number 

of quarter hours is at least 12.; and

(4) In prorating a loan amount for a 

student enrolled in a program of study with 

less than a full academic year remaining, 

the school need not recalculate the amount 

of the loan if the number of hours for which 

an eligible student is enrolled changes after 

the school certifies the loan.

[NOTE: Proposed revised (i) contains 

provisions that are in current (g).]
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.603

Certification by a participating school in connection with a loan application

332

(i)(1) If a school measures academic 

progress in an educational program in 

credit hours and uses either standard terms 

(semesters, trimesters, or quarters) or 

nonstandard terms that are substantially 

equal in length, and each term is at least 

nine weeks of instructional time in length, a 

student is considered to have completed an 

academic year and progresses to the next 

annual loan limit when the academic year 

calendar period has elapsed.

(2) If a school measures academic 

progress in an educational program in 

credit hours and uses nonstandard terms 

that are not substantially equal in length or 

each term is not at least nine weeks of 

instructional time in length, or measures 

academic progress in credit hours and does 

not have academic terms, a student is 

considered to have completed an academic 

year and progresses to the next annual loan 

limit at the later of—

(i) The student's completion of the 

weeks of instructional time in the student's 

academic year; or

(ii) The date, as determined by the 

school, that the student has successfully 

completed the academic coursework in the 

student's academic year.

(3) If a school measures academic 

progress in an educational program in clock 

hours, a student is considered to have 

completed an academic year and 

progresses to the next annual loan limit at 

the later of—

(i) The student's completion of the 

weeks of instructional time in the student's 

academic year; or

(ii) The date, as determined by the 

school, that the student has successfully 

completed the clock hours in the student's 

academic year.

(4) For purposes of this section, 

terms in a loan period are substantially 

equal in length if no term in the loan period 

is more than two weeks of instructional 

time longer than any other term in that loan 

period.

[NOTE: The proposed regulations 

move the provisions in current (i) to (j), with 

minor changes.]

(1) A school must cease certifying 

loans based on the exceptions in 

§682.604(c)(5)(i) and §682.604(c)(8)(i) no 

later than—

(i) 30 days after the date the school 

receives notification from the Secretary of 

an FFEL cohort default rate, calculated 

under subpart M of 34 CFR part 668, that 

causes the school to no longer meet the 

qualifications outlined in those paragraphs; 

or

(ii) October 1, 2002.

(2) A school must cease certifying 

loans based on the exceptions in 

§682.604(c)(5)(ii) and §682.604(c)(8)(ii) no 

later than 30 days after the date the school 

receives notification from the Secretary of 

an FFEL cohort default rate, calculated 

under subpart M of 34 CFR part 668, that 

causes the school to no longer meet the 

qualifications outlined in those paragraphs.

(j)(1) A school must cease certifying 

loans based on the exceptions in section 

428G(a)(3) of the Act no later than—
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.603

Certification by a participating school in connection with a loan application

333

(i) 30 days after the date the school 

receives notification from the Secretary of 

an FFEL cohort default rate, calculated 

under subpart M of 34 CFR part 668, that 

causes the school to no longer meet the 

qualifications outlined in those paragraphs; 

or

(ii) October 1, 2002.

(2) A school must cease certifying 

loans based on the exceptions in section 

428G(a)(3) of the Act no later than 30 days 

after the date the school receives 

notification from the Secretary of an FFEL 

cohort default rate, calculated under 

subpart M of 34 CFR part 668, that causes 

the school to no longer meet the 

qualifications outlined in those paragraphs.

[NOTE: The proposed regulations 

move the provisions in the first of the two 

current paragraphs that are both 

designated as (j) to new paragraph (k).]

(k) A school may not assess the 

borrower, or the student in the case of a 

parent PLUS loan, a fee for the completion 

or certification of any FFEL Program form or 

information or for providing any 

information necessary for a student or 

parent to receive a loan under part B of the 

Act or any benefits associated with such a 

loan.

[NOTE: The proposed regulations

revise the second of the two current 

paragraphs that are both designated as (j) 

and redesignate the paragraph as (l).]

(j)(l) Requesting loan proceeds.

Pursuant to paragraph (b)(3) of the section, 

a school may not request the disbursement 

by the lender for loan proceeds earlier than 

the period specified in §34 CFR 668.167.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1077, 1078, 1078–1, 

1078–2, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9120, Feb. 19, 1993; 59 FR 33358, 

June 28, 1994; 59 FR 61722, Dec. 1, 1994; 

60 FR 61757, Dec. 1, 1995; 61 FR 60609, 

Nov. 29, 1996; 64 FR 18981, Apr. 16, 1999; 

64 FR 58963, Nov. 1, 1999; 65 FR 65650, 

Nov. 1, 2000; 66 FR 34764, June 29, 2001; 

67 FR 67080, Nov. 1, 2002; 68 FR 75429, 

Dec. 31, 2003; 71 FR 45709, Aug. 9, 2006; 

72 FR 62007, 62031, Nov. 1, 2007]

Editorial Note: At 72 FR 62031, Nov. 1, 

2007, §682.603 was amended by 

redesignating paragraph (i) as paragraph (j), 

although there already exists a paragraph 

(j). 
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.604

Processing the borrower’s loan proceeds and counseling borrowers

334

§ 682.604 Required eExit Processing the 

borrower's loan proceeds and counseling 

for borrowers.

(a) General. (1) This section 

establishes rules governing a school's 

processing of a borrower's Stafford or PLUS 

loan proceeds, and for counseling 

borrowers. The school shall also comply 

with any rules for processing a loan 

contained in 34 CFR part 668.

(2) Prior to a school delivering or 

crediting an FFEL loan account by EFT or 

master check, the school must provide the 

student or parent borrower with the notice 

as described under §668.165.

(3) Except as provided in §668.167, 

if the school is placed under the 

reimbursement payment method, a school 

shall not disburse a loan.

(b) [Reserved]Releasing loan 

proceeds. (1)(i) Except as provided in 

§682.207(b)(1)(v)(C)(1) and (D), the 

proceeds of a Stafford or PLUS loan 

disbursed using electronic transfer of funds 

must be sent directly to the school by the 

lender.

(ii) Upon notification by a lender 

under §682.207(b)(2)(iv) that it has 

disbursed a loan directly to a borrower as 

provided under §682.207(b)(1)(v)(C)(1) and 

(D), the institution must immediately notify 

the lender if the student is no longer eligible 

to receive the disbursement.

(2)(i) Except in the case of a late 

disbursement under paragraph (e) of this 

section or as provided in paragraph 

(b)(2)(iii) or (iv) of this section, a school may 

release the proceeds of any disbursement 

of a loan only to a student, or a parent in 

the case of a PLUS loan, if the school 

determines the student has continuously 

maintained eligibility in accordance with the 

provisions of §682.201 from the beginning 

of the loan period for which the loan was 

intended.

(ii) [Reserved]

(iii) If, after the proceeds of the first 

disbursement are transmitted to the 

student, the student becomes ineligible due 

solely to the school's loss of eligibility to 

participate in the Title IV programs, the 

school may transmit the proceeds of the 

second or subsequent disbursement to the 

borrower as permitted by §668.26.

(iv) If, prior to the transmittal of the 

proceeds of a disbursement to the student, 

the student temporarily ceases to be 

enrolled on at least a half-time basis, the 

school may transmit the proceeds of that 

disbursement and any subsequent 

disbursement to the student if the school 

subsequently determines and documents in 

the student's file—

(A) That the student has resumed 

enrollment on at least a half-time basis;

(B) The student's revised cost of 

attendance; and

(C) That the student continues to 

qualify for the entire amount of the loan, 

notwithstanding any reduction in the 

student's cost of attendance caused by the 

student's temporary cessation of 

enrollment on at least a half-time basis.
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.604

Processing the borrower’s loan proceeds and counseling borrowers

335

(c) Processing of the loan proceeds 

by the school. (1) Except as provided in 

paragraph (c)(3) of this section, if a school 

receives a borrower's loan proceeds, it shall 

hold the funds until the student has 

registered for classes for the period of 

enrollment for which the loan is intended 

and then follow the procedures in 

paragraph (c) (2) of this section.

(2)(i) Except as provided in 

§682.207(b)(1)(v)(C)( 1 ) and (D), after the 

student has registered, if the loan proceeds 

are disbursed by means of a check that 

requires the endorsement of the student 

only, the school shall deliver the check to 

the student, subject to paragraph (d)(2) of 

this section, within 30 days of the school's 

receipt of the check.

(ii) If the loan proceeds are 

disbursed by means of a check that requires 

the endorsement of both the borrower and 

the school, the school shall—

(A) In the case of the initial 

disbursement on a loan, endorse the check 

on its own behalf, and, after the student 

has registered, deliver it to the student 

subject to paragraph (d)(2) of this section, 

within 30 days of the school's receipt of the 

check; or

(B) Obtain the borrower's 

endorsement on the check, endorse the 

check on its own behalf and, after the 

student has registered, credit the student's 

account, in accordance with paragraph 

(d)(1) of this section, and deliver the 

remaining loan proceeds to the student, as 

specified in §668.164(e).

(3) If the loan proceeds are 

disbursed by electronic funds transfer to an 

account of the school in accordance with 

§682.207(b)(1)(ii)(B), or by master check in 

accordance with §682.207(b)(1)(ii)(C), the 

school must, unless authorization was 

provided in the loan application or MPN, 

obtain the student's, or in the case of 

parent a PLUS loan, the parent borrower's 

written authorization for the release of the 

initial and any subsequent disbursement of 

each FFEL loan to be made, and after the 

student has registered either—

(i) Deliver the proceeds to the 

student or parent borrower as specified in 

§668.164; or

(ii) Credit the student's account in 

accordance with paragraph (d)(1) of this 

section and §668.164, notify the student or 

parent borrower in writing that it has so 

credited that account, and deliver to the 

student or parent borrower the remaining 

loan proceeds not later than the timeframe 

specified in 668.164.

(4) A school may not credit a 

student's account or release the proceeds 

of a loan to a student who is on a leave of 

absence, as described in §668.22(d).

(5) A school may not release the first 

installment of a Stafford loan for 

endorsement to a student who is enrolled 

in the first year of an undergraduate 

program of study and who has not 

previously received a Stafford, SLS, Direct 

Subsidized, or Direct Unsubsidized loan 

until 30 days after the first day of the 

student's program of study unless—
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.604

Processing the borrower’s loan proceeds and counseling borrowers

336

(i) Except as provided in paragraph 

(c)(5)(ii) of this section, the school in which 

the student is enrolled has a cohort default 

rate, calculated under subpart M of 34 CFR 

part 668, of less than 10 percent for each of 

the three most recent fiscal years for which 

data are available; or

(ii) For loans first disbursed on or 

after October 1, 2011, the school in which 

the student is enrolled has a cohort default 

rate, calculated under either subpart M or 

subpart N of 34 CFR part 668 of less than 15 

percent for each of the three most recent 

fiscal years for which data are available; or

(iii) The school is an eligible home 

institution certifying a loan to cover the 

student's cost of attendance in a study 

abroad program and has a cohort default 

rate, calculated under either subpart M or 

subpart N of 34 CFR part 668, of less than 5 

percent for the single most recent fiscal 

year for which data are available.

(6) Unless the provision of 

§682.207(d) applies—

(i) If a loan period is more than one 

payment period, the school must deliver 

loan proceeds at least once in each 

payment period; and

(ii) If a loan period is one payment 

period, the school must make at least two 

deliveries of loan proceeds during that 

payment period.

(A) For a loan certified under 

§682.603(f)(1)(i)(A), the school may not 

make the second delivery until the calendar 

midpoint between the first and last 

scheduled days of class of the loan period; 

or

(B) For a loan certified under 

§682.603(f)(1)(i)(B), the school may not 

make the second delivery until the student 

successfully completes half of the number 

of credit hours or clock hours and half of 

the number of weeks of instructional time 

in the payment period.

(7) The school must deliver loan 

proceeds in substantially equal installments, 

and no installment may exceed one-half of 

the loan.

(8) Notwithstanding the 

requirements of paragraphs (c)(6) through 

(c)(9) of this section, a school is not 

required to deliver loan proceeds in more 

than one installment if—

(i)(A) The student's loan period is 

not more than one semester, one trimester, 

one quarter, or, for non term-based schools 

or schools with non-standard terms, 4 

months; and

(B)(1) Except as provided in 

paragraph (c)(8)(i)(B)( 2 ) of this section, the 

school in which the student is enrolled has a 

cohort default rate, calculated under 

subpart M of 34 CFR part 668, of less than 

10 percent for each of the three most 

recent fiscal years for which data are 

available; or

(2) For loan disbursements made on 

or after October 1, 2011, the school in 

which the student is enrolled has a cohort 

default rate, calculated under either 

subpart M or subpart N of 34 CFR part 668 

of less than 15 percent for each of the three 
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.604

Processing the borrower’s loan proceeds and counseling borrowers

337

most recent fiscal years for which data are 

available; or

(ii) The school is an eligible home 

institution certifying a loan to cover the 

student's cost of attendance in a study 

abroad program and has a cohort default 

rate, calculated under subpart M or subpart 

N of 34 CFR part 668, of less than 5 percent 

for the single most recent fiscal year for 

which data are available.

(9) A school may deliver loan 

proceeds in accordance with paragraphs 

(c)(5) and (c)(10) of this section, if the

school certified the loan prior to the 

deadline as provided for in §682.603(h).

(d) Applying the loan proceeds. (1)(i) 

For purposes of paragraphs (c)(2)(ii)(B) and 

(c)(3)(ii) of this section, a school may not 

credit a registered student's account earlier 

than the period specified in §668.164.

(ii)(A) The school may credit a 

registered student's account with only 

those loan proceeds covering costs 

specified in §668.164.

(B) The school, as a fiduciary for the 

benefit of the guaranty agency, the 

Secretary, and the student, may hold any 

additional loan proceeds that the student 

requests in writing that the school retain in 

order to assist the student in managing his 

or her loan funds for the remainder of the 

academic year. The school shall maintain 

these funds, as provided in §668.165(b)(5).

(2) For purposes of paragraphs 

(c)(2)(i), (c)(2)(ii) and (c)(3) of this section, a 

school may not deliver loan proceeds 

earlier than the timeframe specified in 

§668.164.

(3) If a student does not begin 

attendance in the period of enrollment—

(i) Disbursed loan proceeds must be 

handled in accordance with 34 CFR 668.21; 

and

(ii) Undelivered loan funds held by 

the school must be handled in accordance 

with 34 CFR 668.167.

(e) Processing a late disbursement. 

(1) A school may process a late 

disbursement received from a lender under 

§682.207(f) in accordance with §668.164(g).

(2) If the total amount of the late 

disbursement and all prior disbursements is 

greater than that portion of the borrower's 

educational charges, the school shall return 

the balance of the borrower's loan 

proceeds to the lender with a notice 

certifying—

(i) The beginning and ending dates 

of the period during which the borrower 

was enrolled at the school as an eligible 

student during the loan period or payment

period; and

(ii) The borrower's corrected 

financial need for the loan for that period of 

enrollment or payment period.

(f) Entrance counseling . (1) A school 

must ensure that entrance counseling is 

conducted with each Stafford loan 

borrower prior to its release of the first 

disbursement, unless the student borrower 

has received a prior Federal Stafford, 
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.604

Processing the borrower’s loan proceeds and counseling borrowers

338

Federal SLS, or Direct subsidized or 

unsubsidized loan.

(2) A school must ensure that 

entrance counseling is conducted with each 

graduate or professional student PLUS loan 

borrower prior to its release of the first 

disbursement, unless the student has 

received a prior Federal PLUS loan or Direct 

PLUS loan.

(3) Entrance counseling for Stafford 

and graduate or professional student PLUS 

Loan borrowers must provide 

comprehensive information on the terms 

and conditions of the loan and on the 

responsibilities of the borrower with 

respect to the loan. This information may 

be provided to the borrower—

(i) During an entrance counseling 

session conducted in person;

(ii) On a separate written form 

provided to the borrower that the borrower 

signs and returns to the school; or

(iii) Online or by interactive 

electronic means, with the borrower 

acknowledging receipt of the information.

(4) If entrance counseling is 

conducted online or through interactive 

electronic means, the school must take 

reasonable steps to ensure that each 

student borrower receives the counseling 

materials, and participates in and 

completes the entrance counseling, which 

may include completion of any interactive 

program that tests the borrower's 

understanding of the terms and conditions 

of the borrower's loans.

(5) A school must ensure that an 

individual with expertise in the title IV 

programs is reasonably available shortly 

after the counseling to answer the student 

borrower's questions regarding those 

programs. As an alternative, prior to 

releasing the proceeds of a loan, in the case 

of a student borrower enrolled in a 

correspondence program or a student 

borrower enrolled in a study-abroad 

program that the home institution approves 

for credit, the counseling may be provided 

through written materials.

(6) Entrance counseling for Stafford 

Loan borrowers must—

(i) Explain the use of a Master 

Promissory Note;

(ii) Emphasize to the student 

borrower the seriousness and importance 

of the repayment obligation the student 

borrower is assuming;

(iii) Describe the likely consequences 

of default, including adverse credit reports, 

delinquent debt collection procedures 

under Federal law, and litigation;

(iv) In the case of a student 

borrower (other than a loan made or 

originated by the school), emphasize that 

the student borrower is obligated to repay 

the full amount of the loan even if the 

student borrower does not complete the 

program, does not complete the program 

within the regular time for program 

completion, is unable to obtain 

employment upon completion, or is 

otherwise dissatisfied with or does not 

receive the educational or other services 
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.604

Processing the borrower’s loan proceeds and counseling borrowers

339

that the student borrower purchased from 

the school;

(v) Inform the student borrower of 

sample monthly repayment amounts based 

on—

(A) A range of student levels of 

indebtedness of Stafford loan borrowers, or 

student borrowers with Stafford and PLUS 

loans, depending on the types of loans the 

borrower has obtained; or

(B) The average indebtedness of 

other borrowers in the same program at the 

same school as the borrower;

(vi) To the extent practicable, 

explain the effect of accepting the loan to 

be disbursed on the eligibility of the 

borrower for other forms of student 

financial assistance;

(vii) Provide information on how 

interest accrues and is capitalized during 

periods when the interest is not paid by 

either the borrower or the Secretary;

(viii) Inform the borrower of the 

option to pay the interest on an 

unsubsidized Stafford Loan while the 

borrower is in school;

(ix) Explain the definition of halftime enrollment at the school, during 

regular terms and summer school, if 

applicable, and the consequences of not 

maintaining half-time enrollment;

(x) Explain the importance of 

contacting the appropriate offices at the 

school if the borrower withdraws prior to 

completing the borrower's program of 

study so that the school can provide exit 

counseling, including information regarding 

the borrower's repayment options and loan 

consolidation;

(xi) Provide information on the 

National Student Loan Data System and 

how the borrower can access the 

borrower's records; and

(xii) Provide the name of and 

contact information for the individual the 

borrower may contact if the borrower has 

any questions about the borrower's rights 

and responsibilities or the terms and 

conditions of the loan.

(7) Entrance counseling for graduate 

or professional student PLUS Loan 

borrowers must—

(i) Inform the student borrower of 

sample monthly repayment amounts based 

on—

(A) A range of student levels of 

indebtedness of graduate or professional 

student PLUS loan borrowers, or student 

borrowers with Stafford and PLUS loans, 

depending on the types of loans the 

borrower has obtained; or

(B) The average indebtedness of 

other borrowers in the same program at the 

same school as the borrower;

(ii) Inform the borrower of the 

option to pay interest on a PLUS Loan while 

the borrower is in school;

(iii) For a graduate or professional 

student PLUS Loan borrower who has 

received a prior FFEL Stafford, or Direct 

subsidized or unsubsidized loan, provide 

the information specified 
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.604

Processing the borrower’s loan proceeds and counseling borrowers

340

in§682.603(d)(1)(i) through §682.603(d)(iii); 

and

(iv) For a graduate or professional 

student PLUS Loan borrower who has not 

received a prior FFEL Stafford, or Direct 

subsidized or unsubsidized loan, provide 

the information specified in paragraph

(f)(6)(i) through (f)(6)(xii) of this section.

(8) A school must maintain 

documentation substantiating the school's 

compliance with this section for each 

student borrower.

(g)(a) Exit counseling. (1) A school 

must ensure that exit counseling is 

conducted with each Stafford loan 

borrower and graduate or professional 

student PLUS Loan borrower either in 

person, by audiovisual presentation, or by 

interactive electronic means. In each case, 

the school must ensure that this counseling 

is conducted shortly before the student 

borrower ceases at least half-time study at 

the school, and that an individual with 

expertise in the title IV programs is 

reasonably available shortly after the 

counseling to answer the student 

borrower's questions. As an alternative, in 

the case of a student borrower enrolled in a 

correspondence program or a study-abroad 

program that the home institution approves 

for credit, written counseling materials may 

be provided by mail within 30 days after the 

student borrower completes the program. If 

a student borrower withdraws from school 

without the school's prior knowledge or 

fails to complete an exit counseling session 

as required, the school must ensure that 

exit counseling is provided through either 

interactive electronic means or by mailing 

written counseling materials to the student 

borrower at the student borrower's last 

known address, or by sending written 

counseling materials by e-mail to an e-mail 

address provided by the student borrower

within 30 days after learning that the 

student borrower has withdrawn from 

school or failed to complete the exit 

counseling as required.

(2) The exit counseling must—

(i) Inform the student borrower of 

the average anticipated monthly repayment 

amount based on the student borrower's 

indebtedness or on the average 

indebtedness of student borrowers who 

have obtained Stafford loans, PLUS Loans, 

or student borrowers who have obtained 

both Stafford and PLUS loans, depending on 

the types of loans the student borrower has 

obtained, for attendance at the same 

school or in the same program of study at 

the same school;

(ii) Review for the student borrower 

available repayment plan options, including 

standard, graduated, extended, income 

sensitive and income-based repayment 

plans, including a description of the 

different features of each plan and sample 

information showing the average 

anticipated monthly payments, and the 

difference in interest paid and total 

payments under each plan;

(iii) Explain to the borrower the 

options to prepay each loan, to pay each 

loan on a shorter schedule, and to change 

repayment plans;
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.604

Processing the borrower’s loan proceeds and counseling borrowers

341

(iv) Provide information on the 

effects of loan consolidation including, at a 

minimum—

(A) The effects of consolidation on 

total interest to be paid, fees to be paid, 

and length of repayment;

(B) The effects of consolidation on a 

borrower's underlying loan benefits, 

including grace periods, loan forgiveness, 

cancellation, and deferment opportunities;

(C) The options of the borrower to 

prepay the loan and to change repayment 

plans; and

(D) That borrower benefit programs 

may vary among different lenders;

(v) Include debt-management 

strategies that are designed to facilitate 

repayment;

(vi) Include the matters described in 

paragraph (f)(6)(i), (f)(6)(ii), and (f)(6)(iv) of 

this section;

(vi) Explain to the borrower the use 

of a Master Promissory Note;

(vii) Emphasize to the student 

borrower the seriousness and importance 

of the repayment obligation the borrower 

has assumed;

(viii) Emphasize to the student 

borrower that the full amount of the loan 

(other than a loan made or originated by 

the school) must be repaid in full even if the 

student borrower does not complete the 

program, does not complete the program 

within the regular time for program 

completion, is unable to obtain 

employment upon completion, or is 

otherwise dissatisfied with or does not 

receive the educational or other services 

that the student borrower purchased from

the school;

(vii)(ix) Describe the likely 

consequences of default, including adverse 

credit reports, delinquent debt collection 

procedures under Federal law, and 

litigation;

(viii)(x) Provide—

(A) A general description of the 

terms and conditions under which a 

borrower may obtain full or partial 

forgiveness or discharge of principal and 

interest, defer repayment of principal or 

interest, or be granted forbearance on a 

title IV loan, including forgiveness benefits 

or discharge benefits available to a FFEL

borrower who consolidates his or her loan 

into the Direct Loan program; and

(B) A copy, either in print or by 

electronic means, of the information the 

Secretary makes available pursuant to 

section 485(d) of the HEA;

(ix)(xi) Require the student borrower 

to provide current information concerning 

name, address, social security number, 

references, and driver's license number and 

State of issuance, as well as the student 

borrower's expected permanent address, 

the address of the student borrower's next 

of kin, and the name and address of the 

student borrower's expected employer (if 

known). The school must ensure that this 

information is provided to the guaranty 

agency or agencies listed in the student 
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.604

Processing the borrower’s loan proceeds and counseling borrowers

342

borrower's records within 60 days after the 

student borrower provides the information;

(x)(xii) Review for the student 

borrower information on the availability of 

the Student Loan Ombudsman's office;

(xi)(xiii) Inform the student borrower 

of the availability of title IV loan information 

in the National Student Loan Data System 

(NSLDS) and how NSLDS can be used to 

obtain title IV loan status information; and

(xii)(xiv) A general description of the 

types of tax benefits that may be available 

to borrowers.

(3) If exit counseling is conducted by 

electronic interactive means, the school 

must take reasonable steps to ensure that 

each student borrower receives the 

counseling materials, and participates in 

and completes the counseling.

(4) The school must maintain 

documentation substantiating the school's 

compliance with this section for each 

student borrower.

(5)(i) For students who have 

received both FFEL Program and Direct Loan 

Program loans for attendance at a school, 

the school’s compliance with the exit 

counseling requirements in 34 CFR 

685.304(b) satisfies the requirements of this 

section if the school ensures that the exit 

counseling also provides the borrower with 

the information described in paragraph

(a)(2)(i) and (a)(2)(ii) of this section.

(ii) A student’s completion of 

electronic interactive exit counseling 

offered by the Secretary satisfies the 

requirements of this section, and for 

students who have also received Direct 

Loan Program loans for attendance at the 

school, the requirements of 34 CFR 

685.304(b).

(h) Treatment of excess loan 

proceeds. Except as provided under 

paragraph (i) of this section if, before the 

delivery of any Stafford, SLS or PLUS loan 

disbursement, the school learns that the 

borrower will receive or has received 

financial aid for the period of enrollment for 

which the loan was made that exceeds the 

amount of assistance for which the student 

is eligible, the school shall reduce or 

eliminate the overaward by either—

(1) Using the student's SLS, PLUS, 

nonsubsidized or unsubsidized Stafford, or 

State-sponsored or private loan to cover the

expected family contribution, if not already 

done;

(2)(i) Returning the entire 

undelivered disbursement to the lender or 

escrow agent; and

(ii) Providing the lender with a 

written statement—

(A) Describing the reason for the 

return of the funds, if any;

(B) Setting forth the student's 

revised financial need; and

(C) Directing the lender to redisburse a revised amount and, if necessary, 

revise subsequent disbursements to 

eliminate the overaward; or

(3) Returning to the lender any 

portion of the disbursement for which the 

student is ineligible and providing the 
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.604

Processing the borrower’s loan proceeds and counseling borrowers

343

lender with a written statement explaining

the return of the funds.

(i) For purposes of paragraph (h) of 

this section, funds obtained from any 

Federal College Work-Study employment 

that do not exceed the borrower's financial 

need by more than $300 may not be 

considered as excess loan proceeds.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1077, 1078, 1078–1, 

1082, 1085, 1092, 1094)

[57 FR 60323, Dec. 18, 1992]

Editorial Note: For Federal Register 

citations affecting §682.604, see the List of 

CFR Sections Affected, which appears in the 

Finding Aids section of the printed volume 

and on GPO Access. 
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.605

Determining the date of a student’s withdrawal

344

§ 682.605 Determining the date of a 

student's withdrawal.

(a) Except in the case of a student 

who does not return for the next scheduled 

term following a summer break, which 

includes any summer term or terms in 

which classes are offered but students are 

not generally required to attend, a school 

must follow the procedures in §668.22(b) or 

(c), as applicable, for determining the 

student's date of withdrawal. In the case of 

a student who does not return from a 

summer break, the school must follow the 

procedures in §668.22(b) or (c), as 

applicable, except that the school shall 

determine the student's withdrawal date no 

later than 30 days after the first day of the 

next scheduled term.

(b) The school must use the 

withdrawal date determined under 

§668.22(b) or (c), as applicable for the 

purpose of reporting to the lender and the 

Secretary the date that the student has 

withdrawn from the school.

(c) For the purpose of a school's 

reporting to a lender and the Secretary, a 

student's withdrawal date is the month, day 

and year of the withdrawal date.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

[60 FR 61757, Dec. 1, 1995, as amended at 

64 FR 58965, 59043, Nov. 1, 1999]
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.606

[Reserved]

345

§ 682.606 [Reserved]
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.607

Payment of a refund or a return of title IV, HEA program funds to a lender upon a student’s withdrawal

346

§ 682.607 Payment of a refund or a return 

of title IV, HEA program funds to a lender 

upon a student's withdrawal.

(a) General. By applying for a FFEL 

loan, a borrower authorizes the school to 

pay directly to the lender that portion of a 

refund or return of title IV, HEA program 

funds from the school that is allocable to 

the loan upon the borrower's withdrawal. A 

school—

(1) Must pay that portion of the 

student's refund or return of title IV, HEA 

program funds that is allocable to a FFEL 

loan to—

(i) The original lender; or

(ii) A subsequent holder, if the loan 

has been transferred and the school knows 

the new holder's identity; and

(2) Must provide simultaneous 

written notice to the borrower if the school 

makes a payment of a refund or a return of 

title IV, HEA program funds to a lender on 

behalf of that student.

(b) Allocation of a refund or returned 

title IV, HEA program funds. In determining 

the portion of a refund or the return of title 

IV, HEA program funds upon a student's 

withdrawal for an academic period that is 

allocable to a FFEL loan received by the 

borrower for that academic period, the 

school must follow the procedures 

established in part 668 for allocating a 

refund or return of title IV, HEA program 

funds.

(c) Timely payment. A school must 

pay a refund or a return of title IV, HEA 

program funds that is due in accordance 

with the timeframe in §668.22(j).

(Authority: 20 U.S.C. 1077, 1078, 1078–1, 

1078–2, 1082, 1094)

[64 FR 59043, Nov. 1, 1999]
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.608

Termination of a school’s lending eligibility

347

§ 682.608 Termination of a school's 

lending eligibility.

(a) General. The Secretary may 

terminate a school's eligibility to make 

loans under this part if the school reaches 

the 15 percent limit on loan defaults 

described in paragraph (b) of this section.

(b) The 15 percent limit. (1) The 

Secretary may terminate a school's 

eligibility to make loans if at the end of each 

of the 2 most recent consecutive Federal 

fiscal years for which data are available, the 

total amount of loans described in 

paragraph (b)(1)(i) of this section is equal to 

or greater than 15 percent of the total 

amount of loans described in paragraph 

(b)(1)(ii) of this section as follows:

(i) The original principal amount of 

all loans the school has ever made that 

went into default during that period.

(ii) The original principal amount of 

all loans the school has ever made, 

including loans in deferment status that—

(A) Were in repayment status at the 

beginning of that period; or

(B) Entered repayment status during 

that period.

(2) In making the determination 

under this section, the Secretary considers 

the status of all FFEL loans made by the 

school whether the loans are held by the 

school or by a subsequent holder.

(c) Exception based on hardship. The 

Secretary does not terminate a school's 

lending eligibility under paragraphs (a) and 

(b) of this section if the Secretary 

determines that the termination would 

result in a hardship for the school or its 

students. The Secretary makes this 

determination if the school shows that—

(1) Termination is not justified in 

light of recent improvements the school has 

made in its collection capabilities that will 

reduce the school's loan default rate 

significantly within the next year. Examples 

of these improvements include—

(i) Adopting more efficient collection 

procedures; or

(ii) Employing increased collection 

staff; or

(2) Termination would cause a 

substantial hardship to the school's current 

or prospective students or their parents 

based on—

(i) The extent to which the school 

provides, and expects to continue to 

provide educational opportunities to 

economically disadvantaged students as 

measured by the percentage of students 

enrolled at the school who—

(A) Are in families that fall within the 

“low-income family” category used by the 

Bureau of the Census;

(B) Would not be able to enroll or 

continue their enrollment at that school 

without a loan from the school; and

(C) Would not be able to obtain a 

comparable education at another school;

(ii) The extent to which the school 

offers educational programs that—
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.608

Termination of a school’s lending eligibility

348

(A) Are unique in the geographical 

area that the school serves; and

(B) Would not be available to some 

students if they or their parents could not 

obtain loans from the school; and

(iii) The quality of improvements the 

school has made in its—

(A) Management of student financial 

assistance programs; and

(B) Conformance with sound 

business practices.

(d) Termination procedures. (1) The 

Secretary notifies the school of the 

proposed termination of its lending 

eligibility and provides an opportunity for a 

hearing before the Secretary terminates the 

school under this section.

(2) The Secretary or his designee 

begins a termination action by sending a 

notice to the school. The notice is sent by 

certified mail with return receipt requested. 

The notice—

(i) Informs the school of the intent 

to terminate the school's lending eligibility 

because of the school's default experience;

(ii) Specifies the proposed date the 

termination becomes effective; and

(iii) Informs the school that it has 15 

days to—

(A) Submit any written material it 

wants considered in determining whether 

its lending eligibility should be terminated 

under paragraphs (a) and (b) of this section, 

including written material in support of a 

hardship exception under paragraph (c) of 

this section; or

(B) Request an oral hearing to show 

why the school's lending eligibility should 

not be terminated.

(3) If the school does not request an 

oral hearing but submits written material, 

the Secretary or the designated official 

considers that material and notifies the 

school as to whether the termination action 

will be taken.

(4) The Secretary or the designated 

official (presiding officer) schedules the 

date and place of a hearing for a school that 

has requested an oral hearing. The date of 

the hearing is at least 15 days from the date 

of receipt of the request. A presiding 

officer—

(i) Conducts the hearing;

(ii) Considers all written material 

presented before the hearing and any other 

material presented during the hearing; and

(iii) Determines if termination of the 

school's lending eligibility is warranted.

(5) The decision of the designated 

official is subject to review by the Secretary.

(e) Effects of termination. A school 

that has its lending eligibility terminated 

under this section may not—

(1) Make further loans under this 

part until it has entered into a new 

guarantee agreement with the Secretary; or

(2) Enter into a new guarantee 

agreement with the Secretary until at least 
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.608

Termination of a school’s lending eligibility

349

one year after the school's lending eligibility 

has been terminated under this section.

(f) Schools under the same 

ownership. If a school makes loans to 

students or parents of students in 

attendance at other schools under the same 

ownership, the Secretary may make the 

determination required by this section by—

(1) Treating all of the schools as one 

school; or

(2) Treating each school on an 

individual basis.

(Authority: 20 U.S.C. 1077, 1078, 1078–1, 

1078–2, 1082, 1085)
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.609

Remedial actions

350

§682.609 Remedial actions.

(a) The Secretary may require a 

school to repay funds paid to other program 

participants by the Secretary. The Secretary 

also may require a school to purchase from 

the holder of a FFEL loan that portion of the 

loan that is unenforceable, that the 

borrower was ineligible to receive, or for 

which the borrower was ineligible to 

receive interest benefits contrary to the 

school's certification, and to make 

arrangements acceptable to the Secretary 

for reimbursement of the amounts the 

Secretary will be obligated to pay to 

program participants respecting that loan in 

the future. The repayment of funds and 

purchase of loans may be required if the 

Secretary determines that the payment to 

program participants, the unenforceability 

of the loan, or the disbursement of loan 

amounts for which the borrower was 

ineligible or for which the borrower was 

ineligible for interest benefits, resulted in 

whole or in part from—

(1) The school's violation of a 

Federal statute or regulation; or

(2) The school's negligent or willful 

false certification.

(b) In requiring a school to repay 

funds to the Secretary or to another party 

or to purchase loans from a holder in 

connection with an audit or program 

review, the Secretary follows the 

procedures described in 34 CFR part 668, 

subpart H.

(c) Notwithstanding paragraph (a) of 

this section, the Secretary may waive the 

right to require repayment of funds or 

repurchase of loans by a school if, in the 

Secretary's judgment, the best interest of 

the United States so requires.

(d) The Secretary may impose a fine 

or take an emergency action against a 

school or limit, suspend, or terminate a 

school’s participation in the FFEL programs, 

in accordance with 34 CFR part 668, subpart 

G.

(e) A school shall comply with any 

emergency action, limitation, suspension, 

or termination imposed by a guaranty 

agency in accordance with the agency's 

standards and procedures. A school shall 

repay funds to the Secretary or other party 

or purchase loans from a holder if a 

guaranty agency determines that the school 

improperly received or retained the funds 

in violation of a Federal law or regulation or 

a guaranty agency rule or regulation.

(Authority: 20 U.S.C. 1077, 1078 , 1078–1, 

1078–2, 1082, 1094)
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.610

Administrative and fiscal requirements for participating schools

351

§ 682.610 Administrative and fiscal 

requirements for participating schools that 

participated.

(a) General. Each school shall—

(1) Establish and maintain proper 

administrative and fiscal procedures and all 

necessary records as set forth in the 

regulations in this part and in 34 CFR part 

668;

(2) Follow the record retention and 

examination provisions in this part and in 

34 CFR 668.24; and

(3) Submit all reports required by 

this part and 34 CFR part 668 to the 

Secretary.

(b) Loan record requirements. In 

addition to records required by 34 CFR part 

668, for each Stafford, SLS, or PLUS loan 

received by or on behalf of its students, a 

school must maintain—

(1) A copy of the loan certification or 

data electronically submitted to the lender, 

that includes the amount of the loan and 

the period of enrollment for which the loan 

was intended;

(2) The cost of attendance, 

estimated financial assistance, and 

estimated family contribution used to 

calculate the loan amount;

(3) For loans delivered to the school 

by check, the date the school endorsed 

each loan check, if required;

(4) The date or dates of delivery of 

the loan proceeds by the school to the 

student or to the parent borrower;

(5) For loans delivered by electronic 

funds transfer or master check, a copy of 

the borrower's required written 

authorization, if it was not provided in the 

loan application or MPNrequired under 

§682.604(c)(3), if applicable, to deliver the 

initial and subsequent disbursements of 

each FFEL pProgram loan; and

(6) Documentation of any MPN 

confirmation process or processes the 

school may have used.

(c) Student status confirmation 

reports. A school shall—

(1) Upon receipt of a student status 

confirmation report form from the 

Secretary or a similar student status 

confirmation report form from any guaranty 

agency, complete and return that report 

within 30 days of receipt to the Secretary or 

the guaranty agency, as appropriate; and

(2) Unless it expects to submit its 

next student status confirmation report to 

the Secretary or the guaranty agency within 

the next 60 days, notify the guaranty 

agency or lender within 30 days—

(i) If it discovers that a Stafford, SLS, 

or PLUS loan has been made to or on behalf 

of a student who enrolled at that school, 

but who has ceased to be enrolled on at 

least a half-time basis;

(ii) If it discovers that a Stafford, SLS, 

or PLUS loan has been made to or on behalf 

of a student who has been accepted for 

enrollment at that school, but who failed to 

enroll on at least a half-time basis for the 

period for which the loan was intended;
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.610

Administrative and fiscal requirements for participating schools

352

(iii) If it discovers that a Stafford, 

SLS, or PLUS loan has been made to or on 

behalf of a full-time student who has 

ceased to be enrolled on a full-time basis; 

or

(iv) If it discovers that a student who 

is enrolled and who has received a Stafford 

or SLS loan has changed his or her 

permanent address.

(c) Enrollment reporting process. (1) 

Upon receipt of an enrollment report from 

the Secretary, a school must update all 

information included in the report and 

return the report to the Secretary --

(i) In the manner and format 

prescribed by the Secretary; and 

(ii) Within the timeframe specified 

by the Secretary.

(2) Unless it expects to submit its 

next updated enrollment report to the 

Secretary within the next 60 days, a school 

must notify the Secretary within 30 days 

after the date that the school discovers that 

--

(i) A loan under title IV of the ACT 

was made to or on behalf of a student who 

was enrolled or accepted for enrollment at 

the school, and the student has ceased to 

be enrolled on at least a half-time basis or 

failed to enroll on at least a half-time basis 

for the period for which the loan was 

intended; or

(ii) A student who is enrolled at the 

school and who received a loan under title 

IV of the Act has changed his or her 

permanent address.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1078, 1078–1, 1078–2, 

1082, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9119, Feb. 19, 1993; 61 FR 60493, 

Nov. 27, 1996; 64 FR 58965, Nov. 1, 1999; 

66 FR 34764, June 29, 2001]
Subpart F – Requirements, Standards, and Payments for Participating Schools

§682.611

[Reserved]

353

§ 682.611 [Reserved]
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.700

Purpose and scope

354

Subpart G—Limitation, Suspension, or 

Termination of Lender or Third-party 

Servicer Eligibility and Disqualification of 

Lenders and Schools

§ 682.700 Purpose and scope.

(a) This subpart governs the 

limitation, suspension, or termination by 

the Secretary of the eligibility of an 

otherwise eligible lender to participate in 

the FFEL programs or the eligibility of a 

third-party servicer to enter into a contract 

with an eligible lender to administer any 

aspect of the lender's FFEL programs. The 

regulations in this subpart apply to a lender 

or third-party servicer that violates any 

statutory provision governing the FFEL 

programs or any regulations, special 

arrangements, agreements, or limitations 

entered into under the authority of statutes 

applicable to Title IV of the HEA prescribed 

under the FFEL programs. These regulations 

apply to lenders that participate only in a 

guaranty agency program, lenders that 

participate in the FFEL programs, and thirdparty servicers that administer aspects of a 

lender's FFELP portfolio. These regulations 

also govern the Secretary's disqualification 

of a lender or school from participation in 

the FFEL programs under section 432(h)(2) 

and (h)(3) of the Act.

(b) This subpart does not apply—

(1)(i) To a determination that an 

organization fails to meet the definition of 

“eligible lender” in section 435(d)(1) of the 

Act or the definition of “lender” in 

§682.200, for any reason other than a 

violation of the prohibitions in section 

435(d)(5) of the Act; or

(ii) To a determination that an 

organization fails to meet the standards in 

§682.416; or

(2) To a school's loss of lending 

eligibility under §682.608; or

(3)(2) To an administrative action by 

the Department of Education based on any 

alleged violation of—

(i) The Family Educational Rights and 

Privacy Act of 1974 (section 438 of the 

General Education Provisions Act), which is 

governed by 34 CFR part 99;

(ii) Title VI of the Civil Rights Act of 

1964, which is governed by 34 CFR parts 

100 and 101;

(iii) Section 504 of the Rehabilitation 

Act of 1973 (relating to discrimination on 

the basis of handicap), which is governed by 

34 CFR part 104; or

(iv) Title IX of the Education 

Amendments of 1972 (relating to sex 

discrimination), which is governed by 34 

CFR part 106.

(c) This subpart does not supplant 

any rights or remedies that the Secretary 

may have against participating lenders or 

schools under other authorities.

(Authority: 20 U.S.C. 1080, 1082, 1085, 

1094)

[57 FR 60323, Dec. 18, 1992, as amended at 

59 FR 22456, Apr. 29, 1994]
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.701

Definitions of terms used in this subpart

355

§ 682.701 Definitions of terms used in this 

subpart.

The following definitions apply to 

terms used in this subpart:

Designated Departmental Official: 

An official of the Department of Education 

to whom the Secretary has delegated the 

responsibility for initiating and pursuing 

disqualification or limitation, suspension, or 

termination proceedings.

Disqualification: The removal of a 

lender's or school's eligibility for an 

indefinite period of time by the Secretary 

on review of limitation, suspension, or 

termination action taken against the lender 

or school by a guaranty agency.

Limitation. The continuation of a 

lender's or third-party servicer's eligibility 

subject to compliance with special 

conditions established by agreement with 

the Secretary or a guaranty agency, as 

applicable, or imposed as the result of a 

limitation or termination proceeding.

Suspension. The removal of a 

lender's eligibility, or a third-party servicer's 

eligibility to contract with a lender or 

guaranty agency, for a specified period of 

time or until the lender or servicer fulfills 

certain requirements.

Termination. (1) The removal of a 

lender's eligibility for an indefinite period of 

time—

(i) By a guaranty agency; or

(ii) By the Secretary, based on an 

action taken by the Secretary, or a 

designated Departmental official under 

§682.706; or

(2) The removal of a third-party 

servicer's eligibility to contract with a lender 

or guaranty agency for an indefinite period 

of time by the Secretary based on an action 

taken by the Secretary, or a designated 

Departmental official under §682.706.

(Authority: 20 U.S.C. 1080, 1082, 1085, 

1094)

[57 FR 60323, Dec. 18, 1992, as amended at 

59 FR 22457, Apr. 29, 1994]
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.702

Effect on participation

356

§ 682.702 Effect on participation.

(a) Limitation, suspension, or 

termination proceedings by the Secretary 

do not affect a lender's responsibilities or 

rights to benefits and claim payments that 

are based on the lender's prior participation 

in the program, except as provided in 

paragraph (d) of this section and in 

§682.709.

(b) A limitation imposes on a 

lender—

(1) A limit on the number or total 

amount of loans that a lender may make,

purchase, or hold under the FFEL programs;

or

(2) A limit on the number or total 

amount of loans a lender may make to, or 

on behalf of, students at a particular school 

under the FFEL programs; or

(3)(2) Other reasonable 

requirements or conditions, including those 

described in §682.709.

(c) A limitation imposes on a thirdparty servicer—

(1) A limit on the number of loans or 

accounts or total amount of loans that the 

servicer may service;

(2) A limit on the number of loans or 

accounts or total amount of loans that the 

servicer is administering under its contract 

with a lender or guaranty agency; or

(3) Other reasonable requirements 

or conditions, including those described in 

§682.709.

(d) After the date the termination of 

a lender's eligibility becomes effective, the 

Secretary does not guarantee new loans 

made by that lender or pay interest 

benefits, special allowance, or reinsurance 

on new loans guaranteed by a guaranty 

agency after that date. The Secretary may 

also prohibit the lender from making 

further disbursements on a loan for which a 

guarantee commitment has already been 

issued.

(Authority: 20 U.S.C. 1080, 1082, 1085, 

1094)

[57 FR 60323, Dec. 18, 1992, as amended at 

59 FR 22457, Apr. 29, 1994]
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.703

Informal compliance procedure

357

§ 682.703 Informal compliance 

procedure.

(a) The Secretary may use the 

informal compliance procedure in 

paragraph (b) of this section if the Secretary 

receives a complaint or other reliable 

information indicating that a lender or 

third-party servicer may be in violation of 

applicable laws, regulations, special 

arrangements, agreements, or limitations 

entered into under the authority of statutes 

applicable to Title IV of the HEA.

(b) Under the informal compliance 

procedure, the Secretary gives the lender or 

servicer a reasonable opportunity to—

(1) Respond to the complaint or 

information; and

(2) Show that the violation has been 

corrected or submit an acceptable plan for 

correcting the violation and preventing its 

recurrence.

(c) The Secretary does not delay 

limitation, suspension, or termination 

procedures during the informal compliance 

procedure if—

(1) The delay would harm the FFEL 

programs; or

(2) The informal compliance 

procedure will not result in correction of 

the alleged violation.

(Authority: 20 U.S.C. 1080, 1082, 1085, 

1094)

[57 FR 60323, Dec. 18, 1992, as amended at 

59 FR 22457, Apr. 29, 1994]
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.704

Emergency action

358

§ 682.704 Emergency action.

(a) The Secretary, or a designated 

Departmental official, may take emergency 

action to stop the issuance of guarantee 

commitments by the Secretary and 

guarantee agencies and to withhold 

payment of interest benefits and special

allowance to a lender if the Secretary—

(1) Receives reliable information 

that the lender or a third-party servicer with 

which the lender contracts is in violation of 

applicable laws, regulations, special 

arrangements, agreements, or limitations 

entered into under the authority of statutes 

applicable to Title IV of the HEA pertaining 

to the lender's portfolio of loans;

(2) Determines that immediate 

action is necessary to prevent the likelihood 

of substantial losses by the Federal 

Government, parent borrowers, or 

students; and

(3) Determines that the likelihood of 

loss exceeds the importance of following 

the procedures for limitation, suspension, 

or termination.

(b) The Secretary begins an 

emergency action by notifying the lender or 

third-party servicer, by certified mail, return 

receipt requested, of the action and the 

basis for the action.

(c) The action becomes effective on 

the date the notice is mailed to the lender 

or third-party servicer.

(d)(1) An emergency action does not 

exceed 30 days unless a limitation, 

suspension, or termination proceeding is 

begun before that time expires.

(2) If a limitation, suspension, or 

termination proceeding is begun before the 

expiration of the 30-day period—

(i) The emergency action may be 

extended until completion of the 

proceeding, including any appeal to the 

Secretary; and

(ii) Upon the written request of the 

lender or third-party servicer, the Secretary 

may provide the lender or servicer with an 

opportunity to demonstrate that the 

emergency action is unwarranted.

(Authority: 20 U.S.C. 1080, 1082, 1085, 

1094)

[57 FR 60323, Dec. 18, 1992, as amended at 

59 FR 22457, Apr. 29, 1994]
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.705

Suspension proceedings

359

§ 682.705 Suspension proceedings.

(a) Scope. (1) A suspension by the 

Secretary removes a lender's eligibility 

under the FFEL programs or a third-party 

servicer's ability to enter into contracts with 

eligible lenders, and the Secretary does not 

guarantee or reinsure a new loan made by 

the lender or new loan serviced by the 

servicer during a period not to exceed 60 

days from the date the suspension becomes 

effective, unless—

(i) The lender or servicer and the 

Secretary agree to an extension of the 

suspension period, if the lender or thirdparty servicer has not requested a hearing; 

or

(ii) The Secretary begins a limitation 

or a termination proceeding.

(2) If the Secretary begins a 

limitation or a termination proceeding 

before the suspension period ends, the 

Secretary may extend the suspension 

period until the completion of that 

proceeding, including any appeal to the 

Secretary.

(b) Notice. (1) The Secretary, or a 

designated Departmental official, begins a 

suspension proceeding by sending the 

lender or servicer a notice by certified mail 

with return receipt requested.

(2) The notice—

(i) Informs the lender or servicer of 

the Secretary's intent to suspend the 

lender's or servicer's eligibility for a period 

not to exceed 60 days;

(ii) Describes the consequences of a 

suspension;

(iii) Identifies the alleged violations 

on which the proposed suspension is based;

(iv) States the proposed date the 

suspension becomes effective, which is at 

least 20 days after the date of mailing of the 

notice;

(v) Informs the lender or servicer 

that the suspension will not take effect on 

the proposed date, except as provided in 

paragraph (c)(9) of this section, if the 

Secretary receives at least five days prior to 

that date a request for an oral hearing or 

written material showing why the 

suspension should not take effect; and

(vi) Asks the lender or servicer to 

correct voluntarily any alleged violations.

(c) In any action to suspend a lender 

based on a violation of the prohibitions in 

section 435(d)(5) of the Act, if the 

Secretary, the designated Department 

official, or hearing official finds that the 

lender provided or offered the payments or 

activities listed in paragraph (5)(i) of the 

definition of lender in §682.200(b), the 

Secretary or the official applies a rebuttable 

presumption that the payments or activities 

were offered or provided to secure 

applications for FFEL loans or to secure FFEL 

loan volume. To reverse the presumption, 

the lender must present evidence that the 

activities or payments were provided for a 

reason unrelated to securing applications 

for FFEL loans or securing FFEL loan volume.
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.705

Suspension proceedings

360

(Authority: 20 U.S.C. 1080, 1082, 1085, 

1094)

[59 FR 22457, Apr. 29, 1994, as amended at 

60 FR 33058, June 26, 1995; 66 FR 34764, 

June 29, 2001; 68 FR 66615, Nov. 26, 2003; 

72 FR 62009, Nov. 1, 2007]
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.706

Limitation or termination proceedings

361

§ 682.706 Limitation or termination 

proceedings.

(a) Notice. (1) The Secretary, or a 

designated Departmental official, begins a 

limitation or termination proceeding, 

whether a suspension proceeding has 

begun, by sending the lender or third-party 

servicer a notice by certified mail with 

return receipt requested.

(2) The notice—

(i) Informs the lender or servicer of 

the Secretary's intent to limit or terminate 

the lender's or servicer's eligibility;

(ii) Describes the consequences of a 

limitation or termination;

(iii) Identifies the alleged violations 

on which the proposed limitation or 

termination is based;

(iv) States the limits which may be 

imposed, in the case of a limitation 

proceeding;

(v) States the proposed date the 

limitation or termination becomes effective, 

which is at least 20 days after the date of 

mailing of the notice;

(vi) Informs the lender or servicer 

that the limitation or termination will not 

take effect on the proposed date if the 

Secretary receives, at least five days prior to 

that date, a request for an oral hearing or 

written material showing why the limitation 

or termination should not take effect;

(vii) Asks the lender or servicer to 

correct voluntarily any alleged violations; 

and

(viii) Notifies the lender or servicer 

that the Secretary may collect any amount 

owed by means of offset against amounts 

owed to the lender by the Department and 

other Federal agencies.

(b) Hearing. (1) If the lender or 

servicer does not request an oral hearing 

but submits written material, the Secretary, 

or a designated Departmental official, 

considers the material and—

(i) Dismisses the proposed limitation 

or termination; or

(ii) Notifies the lender or servicer of 

the date the limitation or termination 

becomes effective.

(2) If the lender or servicer requests 

a hearing within the time specified in 

paragraph (a)(2)(vi) of this section, the 

Secretary schedules the date and place of 

the hearing. The date is at least 15 days 

after receipt of the request from the lender 

or servicer. No proposed limitation or 

termination takes effect until a hearing is 

held.

(3) The hearing is conducted by a 

presiding officer who—

(i) Ensures that a written record of 

the hearing is made;

(ii) Considers relevant written 

material presented before the hearing and 

other relevant evidence presented during 

the hearing; and
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.706

Limitation or termination proceedings

362

(iii) Issues an initial decision, based 

on findings of fact and conclusions of law, 

that may limit or terminate the lender's or 

servicer's eligibility if the presiding officer is 

persuaded that the limitation or 

termination is warranted by the evidence.

(4) The formal rules of evidence do 

not apply, and no discovery, as provided in 

the Federal Rules of Civil Procedure (28 

U.S.C. appendix), is required.

(5) The presiding officer shall base 

findings of fact only on evidence presented 

at or before the hearing and matters given 

official notice.

(6) If a termination action is brought 

against a lender or third-party servicer and 

the presiding officer concludes that a 

limitation is more appropriate, the 

presiding officer may issue a decision 

imposing one or more limitations on a 

lender or third-party servicer rather than 

terminating the lender's or servicer's 

eligibility.

(7) In a termination action against a 

lender or third-party servicer based on a 

debarment under Executive Order 12549 or 

under the Federal Acquisition Regulation 

(FAR), 48 CFR part 9, subpart 9.4 that does 

not meet the standards described in 34 CFR 

85.201(c), the presiding official finds that 

the debarment constitutes prima facie 

evidence that cause for debarment and 

termination under this subpart exists.

(8) The initial decision of the 

presiding officer is mailed to the lender or 

servicer.

(9) Any time schedule specified in 

this section may be shortened with the 

approval of the presiding officer and the 

consent of the lender or servicer and the 

Secretary or designated Departmental 

official.

(10) The presiding officer's initial 

decision automatically becomes the 

Secretary's final decision 20 days after it is 

issued and received by both parties unless 

the lender, servicer, or designated 

Departmental official appeals the decision 

to the Secretary within this period.

(c) Notwithstanding the other 

provisions of this section, if a lender or a 

lender's owner or officer or third-party 

servicer or servicer's owner or officer, 

respectively, is convicted of or pled nolo 

contendere or guilty to a crime involving the 

unlawful acquisition, use, or expenditure of 

FFEL program funds, that conviction or 

guilty plea is grounds for terminating the 

lender's or servicer's eligibility, respectively, 

to participate in the FFEL programs.

(d) In any action to limit or 

terminate a lender's eligibility based on a 

violation of the prohibitions in section 

435(d)(5) of the Act, if the Secretary, the 

designated Department official or hearing 

official finds that the lender provided or 

offered the payments or activities described 

in paragraph (5)(i) of the definition of lender 

in §682.200(b), the Secretary or the official 

applies a rebuttable presumption that the 

payments or activities were offered or 

provided to secure applications for FFEL 

loans. To reverse the presumption, the 

lender must present evidence that the 
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.706

Limitation or termination proceedings

363

activities or payments were provided for a 

reason unrelated to securing applications 

for FFEL loans or securing FFEL loan volume.

(Authority: 20 U.S.C. 1080, 1082, 1085, 

1094)

[59 FR 22458, Apr. 29, 1994, as amended at 

60 FR 33058, June 25, 1995; 72 FR 62009, 

Nov. 1, 2007]
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.707

Appeals in a limitation or termination proceedings

364

§ 682.707 Appeals in a limitation or 

termination proceeding.

(a) If the lender, third-party servicer, 

or designated Departmental official appeals 

the initial decision of the presiding officer in 

accordance with §682.706(b)(10)—

(1) An appeal is made to the 

Secretary by submitting to the Secretary 

and the opposing party within 15 days of 

the date of the appealing party's receipt of 

the presiding officer's decision, a brief or 

other written material explaining why the 

decision of the presiding officer should be 

overturned or modified; and

(2) The opposing party shall submit 

its brief or other written material to the 

Secretary and the appealing party within 15 

days of its receipt of the brief or written 

material of the appealing party.

(b) The Secretary issues a final 

decision affirming, modifying, or reversing 

the initial decision, including a statement of 

the reasons for the Secretary's decision.

(c) Any party submitting material to 

the Secretary shall provide a copy to each 

party that participates in the hearing.

(d) If the presiding officer's initial 

decision would limit or terminate the 

lender's or servicer's eligibility, it does not 

take effect pending the appeal unless the 

Secretary determines that a stay of the date 

it becomes effective would seriously and 

adversely affect the FFEL programs or 

student or parent borrowers.

(Authority: 20 U.S.C. 1080, 1082, 1085, 

1094)

[57 FR 60323, Dec. 18, 1992, as amended at 

59 FR 22458, Apr. 29, 1994; 66 FR 34765, 

June 29, 2001]
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.708

Evidence of mailing and receipt dates

365

§ 682.708 Evidence of mailing and receipt 

dates.

(a) All mailing dates and receipt 

dates referred to in this subpart must be 

substantiated by the original receipts from 

the U.S. Postal Service.

(b) If a lender or third-party servicer 

refuses to accept a notice mailed under this 

subpart, the Secretary considers the notice 

as being received on the date that the 

lender or servicer refuses to accept the 

notice.

(Authority: 20 U.S.C. 1080, 1082, 1085, 

1094)

[57 FR 60323, Dec. 18, 1992, as amended at 

59 FR 22459, Apr. 29, 1994]
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.709

Reimbursements, refunds, and offsets

366

§ 682.709 Reimbursements, refunds, and 

offsets.

(a) As part of a limitation or 

termination proceeding, the Secretary, or a 

designated Departmental official, may 

require a lender or third-party servicer to 

take reasonable corrective action to remedy 

a violation of applicable laws, regulations, 

special arrangements, agreements, or 

limitations entered into under the authority 

of statutes applicable to Title IV of the HEA.

(b) The corrective action may 

include payment to the Secretary or 

recipients designated by the Secretary of 

any funds, and any interest thereon, that 

the lender, or, in the case of a third-party 

servicer, the servicer or the lender that has 

a contract with a third-party servicer, 

improperly received, withheld, disbursed, 

or caused to be disbursed. A third-party 

servicer may be held liable up to the 

amounts specified in §682.413(a)(2).

(c) If a final decision requires a 

lender, a lender that has a contract with a 

third-party servicer, or a third-party servicer 

to reimburse or make any payment to the 

Secretary, the Secretary may, without 

further notice or opportunity for a hearing, 

proceed to offset or arrange for another 

Federal agency to offset the amount due 

against any interest benefits, special 

allowance, or other payments due to the 

lender, the lender that has a contract with 

the third-party servicer, or the third-party 

servicer. A third-party servicer may be held 

liable up to the amounts specified in 

§682.413(a)(2).

(d) In any action under this part 

based on a violation of the prohibitions in 

section 435(d)(5) of the Act, if the 

Secretary, the designated Department 

official, or the hearing official finds that the 

lender provided or offered the payments or 

activities described in paragraph (5)(i) of the 

definition of “lender” in §682.200(b), the 

Secretary or the official applies a rebuttable 

presumption that the payments or activities 

were offered or provided to secure 

applications for FFEL loans. To reverse the 

presumption, the lender must present 

evidence that the activities or payments 

were provided for a reason unrelated to 

securing applications for FFEL loans or 

securing FFEL loan volume. 

(Authority: 20 U.S.C. 1080, 1082, 1094)

[59 FR 22459, Apr. 29, 1994]
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.710

Removal of limitation

367

§ 682.710 Removal of limitation.

(a) A lender or third-party servicer 

may request removal of a limitation 

imposed by the Secretary in accordance 

with the regulations in this subpart at any 

time more than 12 months after the date 

the limitation becomes effective.

(b) The request must be in writing 

and must show that the lender or servicer 

has corrected any violations on which the 

limitation was based.

(c) Within 60 days after receiving the 

request, the Secretary—

(1) Grants the request;

(2) Denies the request; or

(3) Grants the request subject to 

other limitations.

(d)(1) If the Secretary denies the 

request or establishes other limitations, the 

lender or servicer, upon request, is given an 

opportunity to show why all limitations 

should be removed.

(2) A lender or third-party servicer 

may continue to participate in the FFEL 

programs, subject to any limitation imposed 

by the Secretary under paragraph (c)(3) of 

this section, pending a decision by the 

Secretary on a request under paragraph 

(d)(1) of this section.

(Authority: 20 U.S.C. 1080, 1082, 1085, 

1094)

[57 FR 60323, Dec. 18, 1992, as amended at 

59 FR 22459, Apr. 29, 1994]
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.711

Reinstatement after termination

368

§ 682.711 Reinstatement after 

termination.

(a) A lender or third-party servicer 

whose eligibility has been terminated by 

the Secretary in accordance with the 

procedures of this subpart may request 

reinstatement of its eligibility after the later 

of—

(1) Eighteen months from the 

effective date of the termination; or

(2) The expiration of the period of 

debarment under Executive Order 12459 or 

the Federal Acquisition Regulation (FAR), 48 

CFR part 9, subpart 9.4.

(b) The request must be in writing 

and must show that—

(1) The lender or servicer has 

corrected any violations on which the 

termination was based; and

(2) The lender or servicer meets all 

requirements for eligibility.

(c) A school lender whose eligibility 

as a participating school has been 

terminated under 34 CFR part 668 may not 

be considered for reinstatement as a lender 

until it is reinstated as a participating 

school. However, the school may request 

reinstatement as both a school and a lender 

at the same time.

(d)(c) Within 60 days after receiving 

a request for reinstatement, the 

Secretary—

(1) Grants the request;

(2) Denies the request; or

(3) Grants the request subject to 

limitations.

(e)(d)(1) If the Secretary denies the 

lender's or servicer's request or allows 

reinstatement subject to limitations, the 

lender or servicer, upon request, is given an 

opportunity to show why its eligibility 

should be reinstated and all limitations 

removed.

(2) A lender or third-party servicer 

whose eligibility to participate in the FFEL 

programs is reinstated subject to limitations 

imposed by the Secretary pursuant to 

paragraph (d)(c)(3) of this section, may 

participate in those programs, subject to 

those limitations, pending a decision by the 

Secretary on a request under paragraph 

(e)(d)(1) of this section.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1080, 1082, 1085, 

1094)

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9119, Feb. 19, 1993; 59 FR 22459, 

Apr. 29, 1994; 59 FR 34964, July 7, 1994; 60 

FR 33058, June 26, 1995; 64 FR 58965, Nov. 

1, 1999]
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.712

Disqualification review of limitation, suspension, and termination actions taken by guarantee agencies against lenders

369

§682.712 Disqualification review of 

limitation, suspension, and termination 

actions taken by guarantee agencies 

against lenders.

(a) The Secretary reviews a 

limitation, suspension, or termination 

action taken by a guaranty agency against a 

lender participating in the FFEL programs to 

determine if national disqualification is 

appropriate. Upon completion of the 

Secretary's review, the Secretary notifies 

the guaranty agency and the lender of the 

Secretary's decision by mail.

(b) The Secretary disqualifies a 

lender from participation in the FFEL 

programs if—

(1) The lender waives review by the 

Secretary; or

(2) The Secretary conducts the 

review and determines that the limitation, 

suspension, or termination was imposed in 

accordance with section 428(b)(1)(U) of the 

Act.

(c)(1) Disqualification by the 

Secretary continues until the Secretary is 

satisfied that—

(i) The lender has corrected the 

failure that led to the limitation, 

suspension, or termination; and

(ii) There are reasonable assurances 

that the lender will comply with the 

requirements of the FFEL programs in the 

future.

(2) Revocation of disqualification by 

the Secretary does not remove any 

limitation, suspension, or termination 

imposed by the agency whose action 

resulted in the disqualification.

(d) A guaranty agency shall refer a 

limitation, suspension, or termination 

action that it takes against a lender to the 

Secretary within 30 days of its final decision 

to limit, suspend, or terminate the lender's 

eligibility to participate in the agency's 

program.

(e) The Secretary reviews an 

agency's limitation, suspension, or 

termination of a lender's eligibility only 

when the guaranty agency's action is final, 

e.g., the lender is not entitled to any further 

appeals within the guaranty agency. A 

subsequent court challenge to an agency's 

action does not by itself affect the timing of 

the Secretary's review.

(f) The guaranty agency's notice to 

the Secretary regarding a termination 

action must include a certified copy of the 

administrative record compiled by the 

agency with regard to the action. The 

record must include certified copies of the 

following documents:

(1) The guaranty agency's letter 

initiating the action.

(2) The lender's response.

(3) The transcript of the agency's 

hearing.

(4) The decision of the agency's 

hearing officer.
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.712

Disqualification review of limitation, suspension, and termination actions taken by guarantee agencies against lenders

370

(5) The decision of the agency on 

appeal from the hearing officer's decision, if 

any.

(6) The regulations and written 

procedures of the agency under which the 

action was taken.

(7) The audit or lender review report 

or documented basis that led to the action.

(8) All other documents relevant to 

the action.

(g) The guaranty agency's referral 

notice to the Secretary regarding a 

limitation or suspension action must 

include—

(1) The documents described in 

paragraph (f) of this section; and

(2) Documents describing and 

substantiating the existence of one or more 

of the circumstances described in 

paragraph (j)(i) of this section.

(h)(1) Within 60 days of the 

Secretary's receipt of a referral notice 

described in paragraph (f) or (g) of this 

section, the Secretary makes an initial 

assessment, based on the agency's record, 

as to whether the agency's action appears 

to comply with section 428(b)(1)(U) of the 

Act.

(2) In the case of a referral notice 

described in paragraph (g) of this section, 

the Secretary also determines whether one 

or more of the circumstances described in 

paragraph (j)(i) of this section exist.

(3) If the Secretary concludes that 

the agency's action appears to comply with 

section 428(b)(1)(U) of the Act and, if 

applicable, one or more of the 

circumstances described in paragraph (j)(i)

of this section exist, the Secretary notifies 

the lender that the Secretary will review the 

guaranty agency's action to determine 

whether to disqualify the lender from 

further participation in the FFEL programs 

and affords the lender an opportunity—

(i) To waive the review and be 

disqualified immediately; or

(ii) To request a review.

(i) The Secretary's review of the 

guaranty agency's action is limited to 

whether the agency action was taken in 

accordance with procedures that were 

substantially the same as procedures 

applicable to the limitation, suspension, or 

termination of eligibility of a lender under 

the FISL Program (34 CFR part 682, subpart 

G).

(j)(i) In the case of an action by an 

agency that limits or suspends a lender's 

eligibility to participate in the agency's 

program, the agency shall provide the 

Secretary with a referral as described in 

paragraph (g) of this section only if—

(1) The lender has not corrected the 

violation. A violation is corrected if, among 

other things, the lender has satisfied fully all 

liabilities incurred by the lender as a result 

of the violation, including its liability to the 

Secretary, or the lender has arranged to 

satisfy those liabilities in a manner 

acceptable to the parties to whom the 

liabilities are owed;
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.712

Disqualification review of limitation, suspension, and termination actions taken by guarantee agencies against lenders

371

(2) The lender has not provided 

satisfactory assurances to the agency of 

future compliance with program 

requirements; or

(3) The guaranty agency determines 

that special circumstances warrant 

disqualification of the lender from the FFEL 

programs for a significant period, 

notwithstanding the agency's decision not 

to terminate the lender's eligibility to 

participate in the agency's program.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9119, Feb. 19, 1993; 64 FR 58965, 

Nov. 1, 1999]
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.713

Disqualification review of limitation, suspension, and termination actions taken by guarantee agencies against a school

372

§ 682.713 Disqualification review of 

limitation, suspension, and termination 

actions taken by guarantee agencies 

against a school.

(a) The Secretary reviews a 

limitation, suspension, or termination 

action taken by a guaranty agency against a 

school participating in the FFEL programs to 

determine if national disqualification is 

appropriate. Upon completion of the 

Secretary's review, the Secretary notifies 

the guaranty agency and the school of his 

decision by mail.

(b) The Secretary disqualifies a 

school from participation in the FFEL 

programs if—

(1) The school waives review by the 

Secretary; or

(2) The Secretary conducts the 

review and determines that the limitation, 

suspension, or termination was imposed in 

accordance with section 428(b)(1)(T) of the 

Act.

(c)(1) Disqualification by the 

Secretary continues until the Secretary is 

satisfied that—

(i) The school has corrected the 

failure that led to the limitation, 

suspension, or termination; and

(ii) There are reasonable assurances 

that the school will comply with the 

requirements of the FFEL programs in the 

future.

(2) Revocation of disqualification by 

the Secretary does not remove any 

limitation, suspension, or termination 

imposed by the agency whose action 

resulted in the disqualification.

(d) A guaranty agency shall refer a 

limitation, suspension, or termination 

action that it takes against a school to the 

Secretary within 30 days of its final decision 

to limit, suspend, or terminate the school's 

eligibility to participate in the agency's 

program.

(e) The Secretary reviews an 

agency's limitation, suspension, or 

termination of a school's eligibility only 

when the guaranty agency's action is final, 

i.e., the institution is not entitled to any 

further appeals within the guaranty agency. 

A subsequent court challenge to an 

agency's action does not by itself affect the 

timing of the Secretary's review.

(f) The guaranty agency's notice to 

the Secretary regarding a termination 

action must include a certified copy of the 

administrative record compiled by the 

agency with regard to the action. The 

record must include certified copies of the 

following documents:

(1) The guaranty agency's letter 

initiating the action.

(2) The school's response.

(3) The transcript of the agency's 

hearing.

(4) The decision of the agency's 

hearing officer.
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.713

Disqualification review of limitation, suspension, and termination actions taken by guarantee agencies against a school

373

(5) The decision of the agency on 

appeal from the hearing officer's decision, if 

any.

(6) The regulations and written 

procedures of the agency under which the 

action was taken.

(7) The audit or program review 

report or documented basis that led to the 

action.

(8) All other documents relevant to 

the action.

(g) The guaranty agency's referral 

notice to the Secretary regarding a 

limitation or suspension action must 

include—

(1) The documents described in 

paragraph (f) of this section; and

(2) Documents describing and 

substantiating the existence of one or more 

of the circumstances described in 

paragraph (j) of this section.

(h)(1) Within 60 days of the 

Secretary's receipt of a referral notice 

described in paragraph (f) or (g) of this 

section, the Secretary makes an initial 

assessment, based on the agency's record, 

as to whether the agency's action appears 

to comply with section 428(b)(1)(T) of the 

Act.

(2) In the case of a referral notice 

described in paragraph (g) of this section, 

the Secretary also determines whether one 

or more of the circumstances described in 

paragraph (j) of this section exist.

(3) If the Secretary concludes that 

the agency's action appears to comply with 

section 428(b)(1)(T) of the Act, and, if 

applicable, one or more of the 

circumstances described in paragraph (j) of 

this section exist, the Secretary notifies the 

school that the Secretary will review the 

guaranty agency's action to determine 

whether to disqualify the school from 

further participation in the FFEL programs 

and gives the school an opportunity within 

30 days from the date the notice is 

mailed—

(i) To waive the review and be 

disqualified immediately; or

(ii) To request a review.

(i) The Secretary's review of the 

guaranty agency's action is limited to—

(1) A review of the written record of 

the agency's proceedings; and

(2) Whether the agency action was 

taken in accordance with procedures that 

were substantially the same as procedures 

established by the Secretary in 34 CFR part 

668, subpart G.

(j) In the case of an action by an 

agency that limits or suspends a school's 

eligibility to participate in the agency's 

program, the agency shall provide the 

Secretary with a referral as described in 

paragraph (g) of this section only if—

(1) The school has not corrected the 

violation. A violation is corrected if, among 

other things, the school has fully satisfied all 

liabilities incurred by the school as a result 

of the violation, including its liability to the 
Subpart G – Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.713

Disqualification review of limitation, suspension, and termination actions taken by guarantee agencies against a school

374

Secretary, or the school has arranged to 

satisfy those liabilities in a manner 

acceptable to the parties to whom the 

liabilities are owed;

(2) The school has not provided 

assurances satisfactory to the agency of 

future compliance with program 

requirements; or

(3) The guaranty agency determines 

that special circumstances warrant 

disqualification of the school from the FFEL 

programs for a significant period, 

notwithstanding the agency's decision not 

to terminate the school's eligibility to 

participate in the agency's program.

(Approved by the Office of Management 

and Budget under control number 1845–

0020) 

(Authority: 20 U.S.C. 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 

58 FR 9119, Feb. 19, 1993; 64 FR 58965, 

Nov. 1, 1999]
Subpart H – Special Allowance Payments on Loans Made or Purchased With Proceeds of Tax Exempt 

Obligations

§682.800

Prohibition against discrimination as a condition for receiving special allowance payments

375

Subpart H [Reserved]—Special Allowance 

Payments on Loans Made or Purchased 

With Proceeds of Tax-Exempt Obligations

§ 682.800 Prohibition against 

discrimination as a condition for receiving 

special allowance payments.

(a) For an Authority to receive 

special allowance payments on loans made 

or acquired with the proceeds of a taxexempt obligation, the Authority or its 

agent may not engage in any pattern or 

practice that results in a denial of a 

borrower's access to loans under the FFEL 

programs because of the borrower's race, 

sex, color, religion, national origin, age, 

disability status, income, attendance at a 

particular institution within the area served 

by the Authority, length of the borrower's 

education program, or the borrower's 

academic year in school.

(b) The Secretary considers an 

Authority that makes or acquires loans 

guaranteed by an agency or organization 

that discriminates on one or more grounds 

listed in paragraph (a) of this section to 

have adopted a practice of denying access 

to loans on that ground unless the 

Authority makes provision for loan 

guarantees from other sources necessary to 

serve the borrowers excluded by that 

discriminatory policy.

(Authority: 20 U.S.C. 1082, 1087–1)

[57 FR 60323, Dec. 18, 1992. Redesignated 

and amended at 64 FR 58636, Oct. 29, 

1999]
Appendixes A-B to Part 682

[Reserved]

376

Appendixes A–B to Part 682 [Reserved]
Appendix C to Part 682

Procedure for Curing Violations of the Due Diligence in Collection and Timely Filing of Claims 

Requirements Applicable to FISLP and Federal PLUS Program Loans and for Repayment of Interest and 

Special Allowance Overbillings [Bulletin L-77a]

377

Appendix C to Part 682—[Reserved]Procedures 

for Curing Violations of the Due Diligence in 

Collection and Timely Filing of Claims 

Requirements Applicable to FISLP and Federal 

PLUS Program Loans and for Repayment of 

Interest and Special Allowance Overbillings 

[Bulletin L–77a]

Note: The following is a reprint of Bulletin 

L–77a, issued on January 7, 1983, with 

minor modifications made to reflect 

changes in the program regulations since 

that date. All references to “the date of this 

bulletin” refer to that date. All references 

made to the Federal Insured Student Loan 

Program (FISLP) shall be understood to 

include the Federal PLUS Program. The 

bulletin includes references to the 120- and 

180-day default periods that used to apply 

to FFELP and PLUS Program loans. Public 

Law 99–272 established new default 

periods of 180 and 240 days (as set out in 

34 CFR 682.200 of these regulations) for all 

new loans and many existing ones. 

Although the discussion in this appendix C 

refers to the 120- and 180-day default 

periods, it is equally applicable to the new 

180- and 240-day default periods.

Introduction

This bulletin prescribes procedures for 

lenders to use (1) to cure violations of the 

requirements for due diligence in collection 

(“due diligence”) and timely filing of claims 

under the Federal Insured Student Loan 

Program (FISLP), and (2) to repay interest 

and special allowance overbillings made on 

loans evidencing such violations. See 34 CFR 

682.507, 682.511.1 These procedures allow 

for the reinstatement of a lender's eligibility 

for interest and special allowance and claim 

payments on loans evidencing such 

violations, under specified circumstances. 

These procedures apply to loans for which 

the first day of the 120-day or 180-day 

default period occurred on or after October 

21, 1979 (the effective date of the 

September 17, 1979 regulations), whether 

or not the loans have previously been 

submitted as claims to the Secretary.

The due diligence and timely filing 

requirements governing the FISLP were 

established in response to requests from 

some lenders for more detailed regulatory 

guidance on the proper handling of FISLP 

loans. Despite the promulgation of these 

provisions, a number of lenders have failed 

to exercise the requisite care in their 

treatment of these loans, thereby 

increasing the risk of default thereon and, 

in many cases, prejudicing the Secretary's 

ability to collect from the borrowers. At the 

time the current due diligence and timely 

filing rules were issued, the Secretary 

anticipated that violations of these rules 

would be so infrequent as to permit 

requests for cures to be handled 

individually. However, the unexpectedly 

high incidence of violations of these rules 

has made continued case-by-case 

treatment of all cure requests 

administratively unmanageable. After 

carefully considering the views of lenders 

and other program participants, the 

Secretary has decided to exercise his 

authority under 20 U.S.C. 1082(a)(5), (6), 

and institute uniform procedures by which 

lenders with loans involving violations of 

the due diligence or timely filing 

requirements may cure these violations.
Appendix C to Part 682

Procedure for Curing Violations of the Due Diligence in Collection and Timely Filing of Claims 

Requirements Applicable to FISLP and Federal PLUS Program Loans and for Repayment of Interest and 

Special Allowance Overbillings [Bulletin L-77a]

378

Due Diligence

Collection activity is required to begin 

immediately upon delinquency by the 

borrower in honoring the repayment 

obligation. This holds true whether or not 

the borrower received a repayment 

schedule or signed a repayment agreement. 

Under 34 CFR 682.200, default on a FISLP 

loan occurs when a borrower fails to make a 

payment when due, provided this failure 

persists for 120 days for loans payable in 

monthly installments, or for 180 days for 

loans payable in less frequent installments. 

If, however, the lender has added the 

optional provision to the promissory note 

requiring the borrower to execute a 

repayment agreement not later than 120 

days prior to the expiration of the grace 

period, the loan entered repayment prior to 

September 4, 1985 (see 50 FR 35970), the 

lender sends the agreement to the 

borrower 150 days or more before the end 

of the grace period, and the agreement is 

not executed before the end of the grace 

period, default occurs at that time. One 

exception to this rule is as follows: If the 

holder of the loan is not the lender that 

made the loan, the holder may choose to 

forego enforcement of the optional 120-day 

provision in the note.

The 120/180 day default period applies 

regardless of whether payments were 

missed consecutively or intermittently. For 

example, if the borrower, on a loan payable 

in monthly installments, makes his January 

1st payment on time, his February 1st 

payment two months late (April 1st), his 

March 1st payment three months late (June 

1st), and makes no further payments, the 

default period begins on February 1st, with 

the first delinquency, and ends on August 

1st, when the April 1st payment becomes 

120 days past due. The lender must treat 

the payment made on April 1st as the 

February 1st payment, since the February 

1st payment had not been made prior to 

that time. Similarly, the lender must treat 

the payment made on June 1st as the 

March 1st payment, since the March 

payment had not been made prior to that 

time.

Note: Lenders are strongly encouraged to 

exercise forbearance, prior to default, for 

the benefit of borrowers who have missed 

payments intermittently but have otherwise 

indicated willingness to repay their loans. 

See 34 CFR 682.211. The forbearance 

process helps to reduce the incidence of 

default, and serves to emphasize for the 

borrower the importance of compliance 

with the repayment obligation.

Timely Filing

The 90-day filing period applicable to 

FISLP default claims is set forth in 34 CFR 

682.511(e) (1) and (3). The 90-day filing 

period begins at the end of the 120/180 day 

default period. The lender must file a 

default claim on a loan in default by the end 

of the filing period, unless the borrower 

brings the account current before the end 

of the filing period. In such a case, the 

lender may choose not to file a claim on the 

loan at that time.

In addition, for any loan less than 210 

days delinquent on the date of this bulletin, 

the lender need not file a claim on that loan 

before the 210th day of delinquency (120-
Appendix C to Part 682

Procedure for Curing Violations of the Due Diligence in Collection and Timely Filing of Claims 

Requirements Applicable to FISLP and Federal PLUS Program Loans and for Repayment of Interest and 

Special Allowance Overbillings [Bulletin L-77a]

379

day default period plus 90-day filing period) 

if the borrower brings the account less than 

120 days delinquent before such 210th day. 

Thus, in the above example, if the borrower 

makes the April 1st payment on August 

2nd, the 90-day filing period continues to 

run from August 1st, unless the loan was 

less than 210 days delinquent on the date 

of this bulletin. If the loan was less than 210 

days delinquent on the date of this bulletin, 

then the August 2nd payment makes the 

loan 91 days delinquent, and the lender 

may, but need not file a default claim on 

the loan at that time. If, however, that loan 

again becomes 120 days delinquent, the 

lender must file a default claim within 90 

days thereafter (unless the loan is again 

brought to less than 120 days delinquent 

prior to the end of that 90 day period). In 

other words, for any loan less than 210 days 

delinquent on the date of this bulletin, the 

Secretary will permit a lender to treat 

payments made during the filing period as 

“curing” the default if such payments are 

sufficient to make the loan less than 120 

days delinquent.

If a lender fails to comply with either 

the due diligence or timely filing 

requirements, the affected loan ceases to 

be insured; that is, the lender loses its right 

to receive interest benefits, special 

allowance and claim payments thereon. 

Some examples of violations of the due 

diligence requirements are set out in 

section I.C. below.

I. Cure Procedures

A. Definitions

The following definitions apply to terms 

used throughout Section I of this bulletin.

Full payment means payment by the 

borrower, or another person (other than 

the lender) on the borrower's behalf, in an 

amount at least as great as the monthly 

payment amount required under the 

existing terms of the loan, exclusive of any 

forbearance agreement in force at the time 

of the default. (For example, if the original 

repayment schedule or agreement called 

for payments of $30 per month, but a 

forbearance agreement was in effect at the 

time of default that allowed the borrower 

to pay $15 per month for a specified time, 

and the borrower defaulted in making the 

reduced payments, a “full payment” would 

be $30, or two $15 payments in accordance 

with original repayment schedule or 

agreement.)

Reinstatement with respect to insurance 

coverage means the reinstatement of the 

lender's right to receive default, death, 

disability, or bankruptcy claim payments for 

the unpaid principal balance of the loan and 

for unpaid interest accruing on the loan 

after the date of reinstatement. Upon 

reinstatement of insurance, the borrower 

regains the right to receive forbearance or 

deferments, as appropriate. For purposes of 

this bulletin, “reinstatement” with respect 

to insurance on a loan does not include 

reinstatement of the lender's right to 

receive interest and special allowance 

payments on that loan. Reinstatement of 

the lender's right to receive interest and 

special allowance payments is addressed in 

section I.B.1, below.
Appendix C to Part 682

Procedure for Curing Violations of the Due Diligence in Collection and Timely Filing of Claims 

Requirements Applicable to FISLP and Federal PLUS Program Loans and for Repayment of Interest and 

Special Allowance Overbillings [Bulletin L-77a]

380

B. General

1. Resumption of Interest and Special 

Allowance Billing on Loans Involving Due 

Diligence or Timely Filing Violations. For any 

loan on which a cure is attempted under 

this bulletin, the lender may resume billing 

for interest and special allowance on the 

loan only for periods following the earlier of 

(1) its receipt of the equivalent of three full 

payments thereon, after the date of this 

bulletin or the date of the violation, 

whichever is later, or (2) receipt by the 

borrower of an authorized deferment, after 

reinstatement of insurance coverage.

2. Reservation of the Secretary's Right to 

Strict Enforcement. While this bulletin 

allows cures to be attempted for particular 

violations in specified ways, the Secretary 

retains the option of refusing to permit or 

recognize cures in cases where, in the 

Secretary's judgment, a lender has 

committed an excessive number of severe 

violations of the due diligence or timely 

filing rules, and in cases where the best 

interests of the program otherwise require 

strict enforcement of these requirements. 

More generally, this bulletin states the 

Secretary's general policy and is not 

intended to limit in any way the authority 

and discretion afforded the Secretary by 

statute or regulations.

3. Applicability of the Cure Procedures to 

Particular Classes of Loans. The cure 

procedures outlined in this bulletin apply 

only to a loan for which the first day of the 

120/180 day default period that ended with 

default by the borrower occurred on or 

after October 21, 1979, and which involve 

violations only of the due diligence and/or 

timely filing requirements.

The cure procedures applicable to loans 

involving due diligence violations also apply 

to loans involving violations of both the 

timely filing and due diligence 

requirements.

4. Excusal of Certain Due Diligence 

Violations. A lender whose claim was 

previously denied solely for violation of the 

timely filing rule, and who is permitted to 

cure that violation under the procedures set 

out in this bulletin, will not be required to 

utilize the procedures for curing due 

diligence violations, or to repay interest and 

special allowance improperly received from 

the Secretary as a result of a due diligence 

violation for periods prior to the timely 

filing violation. This applies even if, upon 

submission of the “cured” claim, the 

Secretary discovers that evidence of due 

diligence violations appeared in the file of 

the previously rejected claim.

The Secretary will also excuse a due 

diligence violation by a lender if the account 

was brought current by the borrower (or 

another, other than the lender, on the 

borrower's behalf) prior to the 120th/180th 

day of the delinquency period during which 

the violation occurred.

5. Treatment of Accrued Interest on 

“Cured” Claims—a. Due Diligence 

Violations. For any default claim involving 

“cured” violations of the due diligence 

rules, the Secretary will not reimburse the 

lender for any unpaid interest accruing after 

the first day of the 120/180 day period that 
Appendix C to Part 682

Procedure for Curing Violations of the Due Diligence in Collection and Timely Filing of Claims 

Requirements Applicable to FISLP and Federal PLUS Program Loans and for Repayment of Interest and 

Special Allowance Overbillings [Bulletin L-77a]

381

culminated in default, and prior to the date 

of reinstatement of insurance coverage.

For any loan involving “cured” due 

diligence violations, the lender may 

capitalize unpaid interest accruing on the 

loan from the commencement of the 

120/180 day default period to the date of 

the reinstatement of insurance coverage. 

See sections I.C. and D. below. However, if 

the lender later files a claim on that loan, 

the lender must deduct this capitalized 

interest from the amount of the claim. This 

deduction must be reflected in column 15 

on the ED Form 1207, Lender's Application 

for Insurance Claim on Federal Insured

Student Loan, filed with the claim 

evidencing the cure.

b. Timely Filing Violations. For any 

default claim involving “cured” violations of 

the timely filing rules, the Secretary will not 

reimburse the lender for unpaid interest 

accruing after the end of the 120/180 day 

default period that culminated in default, 

and prior to the date of reinstatement of 

insurance coverage.

For any default claim involving a “cured” 

timely filing violation, if insurance coverage 

is later reinstated, the lender may capitalize 

unpaid interest accruing on the loan from 

the commencement of the original 120/180 

day default period to the date of the 

reinstatement of insurance coverage. See 

sections I.C. and D. below. However, if the 

lender later files a claim, on that loan, the 

lender must deduct this capitalized interest 

from the amount of the claim, except that 

the lender need not deduct from the claim 

unpaid interest that accrued on the loan 

during the original 120/180 day default 

period. This deduction must be reflected in 

Column 15 of the ED Form 1207, Lender's 

Application for Insurance Claim on Federal 

Insured Student Loan, filed with the claim 

evidencing the cure.

Some timely filing cures will not 

reinstate insurance coverage. For treatment 

of accrued interest in such cases, see 

Section I.D.1.c.

6. Documents to be Submitted with 

“Cured” Claims. The Secretary requests that 

any lender submitting a claim on a loan 

involving “cured” violations identify the 

claim as such with a note in the claim file 

stapled to the new ED Form 1207.

For all “cured” claims, the lender must 

submit:

• For loans on which a claim was 

previously rejected, all documents sent by 

the regional office with the original claim 

(when the claim was rejected and returned 

to the lender), including without limitation, 

the original ED Form 1207 and all 

documents showing the reason(s) for the 

original rejection;

• All documents ordinarily required in 

connection with the submission of a default 

claim, including, without limitation, the 

promissory note, which must bear a valid 

assignment to the United States of America;

• A new ED Form 1207; and

• All documents showing that the lender 

has complied with the applicable cure 

procedures and requirements.
Appendix C to Part 682

Procedure for Curing Violations of the Due Diligence in Collection and Timely Filing of Claims 

Requirements Applicable to FISLP and Federal PLUS Program Loans and for Repayment of Interest and 

Special Allowance Overbillings [Bulletin L-77a]

382

C. Cures for Violations of the Due 

Diligence in Collection Requirements (34 

CFR 682.507)

A violation of the due diligence in 

collection rules occurs when a lender fails 

to meet requirements found in 34 CFR 

682.507. For example, a violation occurs if 

the lender fails to:

• Remind the borrower of the date a 

missed payment was due within 15 days of 

delinquency;

• Attempt to contact the borrower and 

any endorser at least 3 times at regular 

intervals during the rest of the 120/180 day 

default period;

• Request preclaims assistance from the 

Department of Education;

• Request skip-tracing assistance from 

the Secretary, if required, or

• Send a final demand letter to the 

borrower exercising the option to 

accelerate the due date for the outstanding 

balance of the loan, unless the lender does 

not know the borrower's address as of the 

90th day of delinquency.

1. Reinstatement of Insurance Coverage. 

In the case of a due diligence violation, the 

lender may utilize either of the two 

procedures described below for obtaining 

reinstatement of insurance coverage on the 

loan. After the date of this bulletin, or after 

the date of the violation, whichever is later:

(a) The lender obtains a new repayment 

agreement signed by the borrower which 

complies with the ten and fifteen year 

repayment limitations set out in 34 CFR 

682.209(a)(7); or

(b) The lender obtains 3 full payments. If 

the borrower later defaults, the lender 

must submit evidence of these payments 

(e.g., copies of the checks) with the claim.

2. Borrower's Deemed Current As of 

Date of Cure. On the date the lender 

receives a signed copy of the new 

repayment agreement, or receives the third 

(curing) payment, insurance coverage on 

the loan is reinstated, and the borrower 

shall be deemed by the lender to be current 

in repaying the loan and entitled to all 

rights and benefits available to FISLP 

borrowers. If the borrower later becomes 

delinquent in repayment, the lender shall 

follow the collection procedures set out in 

34 CFR 682.507, and the timely filing 

requirements set out in 34 CFR 682.511.

D. Cures for Violations of the Timely 

Filing Requirements (34 CFR 682.511)

1. Default Claims.—a. Reinstatement of 

Insurance Coverage. In order to obtain 

reinstatement of insurance coverage on a 

loan in the case of a timely filing violation, 

the lender must first locate the borrower 

after the date of this bulletin, or after the 

date of the violation, whichever is later (see 

section I.D.1.d. for description of acceptable 

evidence of location). Then, the lender must 

send to the borrower, at the address at 

which the borrower was located, (i) a new 

repayment agreement, to be signed by the 

borrower, which complies with the ten and 

fifteen year repayment limitations set out in 

34 CFR 682.209(a)(7), along with (ii) a 

collection letter indicating in strong terms 
Appendix C to Part 682

Procedure for Curing Violations of the Due Diligence in Collection and Timely Filing of Claims 

Requirements Applicable to FISLP and Federal PLUS Program Loans and for Repayment of Interest and 

Special Allowance Overbillings [Bulletin L-77a]

383

the seriousness of the borrower's 

delinquency and its potential effect on his 

or her credit rating if repayment is not 

commenced or resumed.

If, within 30 days after the lender sends 

these items, the borrower fails to make a 

full payment or to sign and return the new 

repayment agreement, the lender shall, 

within 5 working days thereafter, send the 

borrower a copy of the attached “48 hour” 

collection letter, on the lender's letterhead. 

(See attachment A.)

b. Borrower Deemed Current Under 

Certain Circumstances. If, within 45 days 

after the lender sends the new repayment 

agreement to the borrower for signature, 

the borrower makes a full payment or signs 

and returns the new repayment agreement, 

insurance coverage on the loan is 

reinstated. The borrower shall be deemed 

by the lender to be current in repaying the 

loan and entitled to all rights and benefits 

available to FISLP borrowers. If the 

borrower later becomes delinquent in 

repayment, the lender shall follow the 

collection steps in 34 CFR 682.507 and the 

timely filing requirements in 34 CFR 

682.511.

c. Borrower Deemed in Default Under 

Certain Circumstances. If the borrower does 

not make a full payment, or sign and return 

the new repayment agreement, within 45 

days after the lender sends the new 

repayment agreement, the lender shall 

deem the borrower to be in default. The 

lender shall then file a default claim on the 

loan accompanied by acceptable evidence 

of location (see I.D.I.d below), within 30 

days after the end of such 45-day period. 

Although insurance coverage is not 

reinstated on loans involving these 

circumstances, the Secretary will honor 

default claims submitted in accordance with 

this paragraph on the outstanding principal 

balance of such loans, and on unpaid 

interest accruing on the loan during the 

120/180 day default period.

d. Acceptable Evidence of Location. Only 

the following documentation is acceptable 

as evidence that the lender has located the 

borrower:

(i) Postal receipt signed by the borrower 

not more than 25 days prior to the date on 

which the lender sent the new repayment 

agreement, indicating acceptance of 

correspondence from the lender by the 

borrower at the address shown on the 

receipt; or 

(ii) A completed “Certification of 

Borrower Location” form (Attachment B).

2. Death, Disability, and Bankruptcy 

Claims. Lenders may immediately resubmit 

any death or disability claim which was 

rejected solely for failure to meet the 60 

day timely filing requirements (see 34 CFR 

685.511(e)(2)). However, the Secretary will 

not pay any such claim if, before the date 

the lender determined that the borrower 

died or was totally and permanently 

disabled, the lender had violated the due 

diligence or timely filing requirements 

applicable to default claims with respect to 

that loan. Interest that accrued on the loan 

after the expiration of the 60-day filing 

period remains uninsured by the Secretary, 

and the lender must repay all interest and 
Appendix C to Part 682

Procedure for Curing Violations of the Due Diligence in Collection and Timely Filing of Claims 

Requirements Applicable to FISLP and Federal PLUS Program Loans and for Repayment of Interest and 

Special Allowance Overbillings [Bulletin L-77a]

384

special allowance received on the loan for 

periods after the expiration of the 60-day 

filing period.

The Secretary has determined that, in 

the vast majority of cases, the failure of a 

lender to comply with the timely filing 

requirement applicable to bankruptcy 

claims causes irreparable harm to the 

Secretary's ability to contest the discharge 

of the loan by the court, or to otherwise 

collect from the borrower. Therefore, the 

Secretary has decided not to permit cures 

for violations of the timely filing 

requirement applicable to bankruptcy 

claims, except when the lender can 

demonstrate that the bankruptcy action has 

concluded and that the loan has not been 

discharged in bankruptcy. In that case, the 

lender shall treat the loan as in default. The 

Secretary will honor a default claim later 

filed on such a loan only if the lender has 

met the cure requirements in section I.C. 

above for due diligence violations.

II. Repayment of Interest and Special 

Allowance on Loans Evidencing Violations of 

the Due Diligence or Timely Filing 

Requirements

A. General Rule

It has always been the Secretary's 

interpretation of the FISLP statute and 

regulations that a lender's right to receive 

interest and special allowance payments on 

a FISLP loan terminates immediately 

following the lender's violation of the due 

diligence or timely filing requirements. This 

applies whether or not the lender has filed 

a claim on the loan. In other words, lenders 

may receive interest and special allowance 

only on loans which are insured by the 

Secretary. Since these violations result in 

the termination of insurance, they also 

result in the termination of FISLP benefits.

B. Cessation of Billing on Loans 

Evidencing Violations of the Due Diligence 

or Timely Filing Requirements

Any lender currently billing the 

Secretary for interest and special allowance 

on a loan that the lender knows involves a 

due diligence or timely filing violation must 

cease doing so immediately. However, 

lenders are not required at this time to 

review their loan portfolios for due 

diligence and timely filing violations.

C. Determination of Amounts of Interest 

and Special Allowance That Must Be Repaid

1. Due Diligence Violations. In the case 

of due diligence violations, it is often 

difficult to ascertain the precise date on 

which a violation occurred. For the 

administrative ease of the Secretary and 

lenders, the Secretary has decided to waive 

his right to recoup interest and special 

allowance payments made to a lender for 

periods between the date of a due diligence 

violation and the end of the 120/180 day 

default period. However, any lender that 

has received interest or special allowance 

payments from the Secretary for periods 

after the end of the 120/180 day default 

period on a loan that the lender knows 

involves a due diligence violation must 

promptly repay those amounts.

2. Timely Filing Violations. In the case of 

timely filing violations, the lender loses its 

right to receive interest and special 
Appendix C to Part 682

Procedure for Curing Violations of the Due Diligence in Collection and Timely Filing of Claims 

Requirements Applicable to FISLP and Federal PLUS Program Loans and for Repayment of Interest and 

Special Allowance Overbillings [Bulletin L-77a]

385

allowance payments as of the expiration of 

the applicable timely filing period. 

Therefore, any lender that has received 

interest or special allowance payments 

from the Secretary for periods following the 

end of the applicable timely filing period on 

a loan that the lender knows involves a 

timely filing violation must repay those 

amounts.

3. Situations in Which a Lender May 

Have Received Interest Benefits for Periods 

During Which a Loan was Uninsured. 

Because most due diligence violations, and 

timely filing violations, occur after 

termination of the grace period, interest 

payments are ordinarily not affected by 

such violations. However, there are three 

types of situations in which a lender may 

have received interest payments from the 

Secretary to which it was not entitled due 

to a due diligence or timely filing violation.

a. Promissory notes that include a 

requirement that the borrower sign a 

repayment agreement no later than 120 

days prior to the expiration of the grace 

period. In such cases, a due diligence 

violation may occur during the grace period, 

when the lender may otherwise have been

eligible to receive interest benefits. 

However, the lender need not repay that 

interest to the Secretary. See II.C.1. above.

b. Deferment Periods. A due diligence 

violation may occur prior to a deferment 

period when the lender would otherwise 

have been eligible to receive interest 

benefits.

c. Loans Made Prior to December 15, 

1968. A loan disbursed prior to December 

15, 1968, and which qualified for payment 

of Federal interest benefits at the time the 

loan was disbursed, qualifies for payment of 

a 3 percent interest subsidy on the unpaid 

principal balance during the entire 

repayment period, provided the loan 

remains insured. In the case of such a loan, 

a due diligence or timely filing violation 

terminates the lender's eligibility for the 3 

percent payments.

D. Procedures for Repayment of Federal 

Interest Benefits and Special Allowance 

Received by a Lender for Periods During 

Which a Loan Was Uninsured

A lender must make the repayments of 

interest and/or special allowance discussed 

in II.C. above, by way of an adjustment 

during the two quarters immediately 

following the discovery of the violation. 

These adjustments must be reported on the 

normal Lender's Interest and Special 

Allowance Request and Report (ED Form 

799). Lenders are requested not to send a 

check with the adjustment; the overpaid 

amount will be deducted by the Secretary 

from the lender's next regular interest and 

special allowance payment. For five years 

after any loan for which an adjustment is 

made is repaid in full, the lender shall retain 

a record of the basis for the adjustment 

showing the amount(s) of the overbilling(s), 

and the date it used for cessation of 

interest or special allowance eligibility in 

calculating the overbilled amount. See 34 

CFR 682.515(a)(2).

Attachments.

1 All references to the program 

regulations are to part 682 of title 34 of the 
Appendix C to Part 682

Procedure for Curing Violations of the Due Diligence in Collection and Timely Filing of Claims 

Requirements Applicable to FISLP and Federal PLUS Program Loans and for Repayment of Interest and 

Special Allowance Overbillings [Bulletin L-77a]

386

Code of Federal Regulations (34 CFR part 

682).

Attachment A

NOTICE

Date

TO:

Social Security 

Number

You have been previously notified that you 

are severely delinquent in repaying your 

Federal Family Education Loan. This notice 

is our final effort to remedy this 

delinquency. You must contact us at 

__________________ within

48 HOURS

Failure to act upon this notice will result in 

transfer of your account to the Federal 

Government.

Official of Lender

Title

Attachment B

Certification of Borrower Location

As an employee or agent of

Name and Address of 

Lender____________

I hereby certify as follows:

1. On (Date), I spoke with or received 

written communication from (copy 

attached):

(Circle a or b)

(a) the borrower on the loan underlying 

the default claim, or

(b) a parent, spouse, or sibling of the 

borrower.
Appendix C to Part 682

Procedure for Curing Violations of the Due Diligence in Collection and Timely Filing of Claims 

Requirements Applicable to FISLP and Federal PLUS Program Loans and for Repayment of Interest and 

Special Allowance Overbillings [Bulletin L-77a]

387

2. The borrower, parent, spouse, or 

sibling represented to me that the 

borrower's address and telephone number 

are—

___________________________

Address and Telephone Number

3. Within 15 days thereafter, this 

institution sent the borrower a new 

repayment agreement along with a 

collection letter of the type described in 

section I.D.1.a.ii of Bulletin L–77a, dated 

January 7, 1983, to the address set out in 2, 

above.

4. (Applicable only if 1(b), above, is 

used.) The letter and agreement referenced 

in 3, above, has not been returned 

undelivered.

____________________

Name of Borrower

____________________

Borrower's SSN

____________________

Signature of Employee or Agent

____________________

Typed Name of Employee or Agent

____________________

Title of Employee or Agent

____________________

Date

____________________

Lender Identification Number
Appendix D to Part 682

Policy for Waiving the Secretary's Right To Recover or Refuse To Pay Interest Benefits, Special 

Allowance, and Reinsurance on Stafford, Plus, Supplemental Loans for Students, and 

Consolidation Program Loans Involving Lenders' Violations of Federal Regulations Pertaining 

to Due Diligence in Collection or Timely Filing of Claims [Bulletin 88–G–138]

388

Appendix D to Part 682—Policy for 

Waiving the Secretary's Right To Recover 

or Refuse To Pay Interest Benefits, Special 

Allowance, and Reinsurance on Stafford, 

Plus, Supplemental Loans for Students, and 

Consolidation Program Loans Involving 

Lenders' Violations of Federal Regulations 

Pertaining to Due Diligence in Collection or 

Timely Filing of Claims [Bulletin 88–G–138]

Note: The following is a reprint of 

Bulletin 88–G–138, issued on March 11, 

1988, with modifications made to reflect 

changes in the program regulations. For a 

loan that has lost reinsurance prior to 

December 1, 1992, this policy applies only 

through November 30, 1995. For a loan that 

loses reinsurance on or after December 1, 

1992, this policy applies until 3 years after 

the default claim filing deadline. For the 

purpose of determining the 3-year deadline, 

reinsurance is lost on the later of (a) 3 years 

from the last date the claim could have 

been filed for claim payment with the 

guaranty agency for a claim that was not 

filed; or (b) 3 years from the date the 

guaranty agency rejected the claim, for a 

claim that was filed. These deadlines are 

extended by periods during which collection

activities are suspended due to the filing of 

a bankruptcy petition.

Introduction

(1) This letter sets forth the 

circumstances under which the Secretary, 

pursuant to sections 432(a)(5) and (6) of the 

Higher Education Act of 1965 and 34 CFR 

682.406(b) and 682.413(f), will waive 

certain of the Secretary's rights and claims 

with respect to Stafford Loans, PLUS, 

Supplemental Loans for Students (SLS), and 

Consolidation Program loans made under a 

guaranty agency program that involve 

violations of Federal regulations pertaining 

to due diligence in collection or timely filing. 

(These programs are collectively referred to 

in this letter as the FFEL Program.) This 

policy applies to due diligence violations on 

loans for which the first day of delinquency 

occurred on or after March 10, 1987 (the 

effective date of the November 10, 1986 

due diligence regulations) and to timely 

filing violations occurring on or after 

December 26, 1986, whether or not the 

affected loans have been submitted as 

claims to the guaranty agency.

(2) The Secretary has been 

implementing a variety of regulatory and 

administrative actions to minimize defaults 

in the FFEL Program. As a part of this effort, 

the Secretary published final regulations on 

November 10, 1986, requiring lenders and 

guaranty agencies to undertake specific due 

diligence activities to collect delinquent and 

defaulted loans, and establishing deadlines 

for the filing of claims by lenders with 

guaranty agencies. In recognition of the 

time required for agencies and lenders to 

modify their internal procedures, the 

Secretary delayed for four months the date 

by which lenders were required to comply 

with the new due diligence requirements. 

Thus, §682.411 of the regulations, which 

established minimum due diligence 

procedures that a lender must follow in 

order for a guaranty agency to receive 

reinsurance on a loan, became effective for 

loans for which the first day of delinquency 
Appendix D to Part 682

Policy for Waiving the Secretary's Right To Recover or Refuse To Pay Interest Benefits, Special 

Allowance, and Reinsurance on Stafford, Plus, Supplemental Loans for Students, and 

Consolidation Program Loans Involving Lenders' Violations of Federal Regulations Pertaining 

to Due Diligence in Collection or Timely Filing of Claims [Bulletin 88–G–138]

389

occurred on or after March 10, 1987. The 

regulations make clear that compliance 

with these minimum requirements, and 

with the new timely filing deadlines, is a 

condition for an agency's receiving or 

retaining reinsurance payments made by 

the Secretary on a loan. See 34 CFR 

682.406(a)(3), (a)(5), (a)(6), and 682.413(b). 

The regulations also specify that a lender 

must comply with §682.411 and with the 

applicable filing deadline as a condition for 

its right to receive or retain interest 

benefits and special allowance on a loan for 

certain periods. See 34 CFR 

682.300(b)(2)(vii), 682.302(d)(1)(iv), 

682.413(a)(1).

(3) The Department has received 

inquiries regarding the procedures by which 

a lender may cure a violation of §682.411 

regarding diligent loan collection, or of the 

90-day deadline for the filing of default 

claims found in §682.406(a)(3) and (a)(5), in 

order to reinstate the agency's right to 

reinsurance and the lender's right to 

interest benefits and special allowance. 

Preliminarily, please note that, absent an 

exercise of the Secretary's waiver authority, 

a guaranty agency may not receive or retain 

reinsurance payments on a loan on which 

the lender has violated the Federal due 

diligence or timely filing requirements, even 

if the lender has followed a cure procedure 

established by the agency. Under 

§§682.406(b) and 682.413(f), the 

Secretary—not the guaranty agency—

decides whether to reinstate reinsurance 

coverage on a loan involving such a 

violation or any other violation of Federal 

regulations. A lender's violation of a 

guaranty agency's requirement that affects 

the agency's guarantee coverage also 

affects reinsurance coverage. See 

§§682.406(a)(7) and 682.413(b). As 

§§682.406(a)(7) and 682.413(b) make clear, 

a guaranty agency's cure procedures are 

relevant to reinsurance coverage only 

insofar as they allow for cure of violations 

of requirements established by the agency 

affecting the loan insurance it provides to 

lenders. In addition, all those requirements 

must be submitted to the Secretary for 

review and approval under 34 CFR 

682.401(d)(c).

(4) References throughout this letter 

to “due diligence and timely filing” rules, 

requirements, and violations should be 

understood to mean only the Federal rules 

cited above, unless the context clearly 

requires otherwise.

A. Scope

This letter outlines the Secretary's 

waiver policy regarding certain violations of 

Federal due diligence or timely filing 

requirements on a loan insured by a 

guaranty agency. Unless your agency 

receives notification to the contrary, or the 

lender's violation involves fraud or other 

intentional misconduct, you may treat as 

reinsured any otherwise reinsured loan 

involving such a violation that has been 

cured in accordance with this letter.

B. Duty of a Guaranty Agency To 

Enforce Its Standards

As noted above, a lender's violation 

of a guaranty agency's requirement that 
Appendix D to Part 682

Policy for Waiving the Secretary's Right To Recover or Refuse To Pay Interest Benefits, Special 

Allowance, and Reinsurance on Stafford, Plus, Supplemental Loans for Students, and 

Consolidation Program Loans Involving Lenders' Violations of Federal Regulations Pertaining 

to Due Diligence in Collection or Timely Filing of Claims [Bulletin 88–G–138]

390

affects the agency's guarantee coverage 

also affects reinsurance coverage. Thus, as a 

general rule, an agency that fails to enforce 

such a requirement and pays a default claim 

involving a violation is not eligible to receive 

reinsurance on the underlying loan. 

However, in light of the waiver policy 

outlined below, which provides more 

stringent cure procedures for violations 

occurring on or after May 1, 1988 than for 

pre-May 1, 1988 violations, some guaranty 

agencies with more stringent policies than 

the policy outlined below for the pre-May 1 

violations have indicated that they wish to 

relax their own policies for violations of 

agency rules during that period. While the 

Secretary does not encourage any agency to 

do so, the Secretary will permit an agency 

to take either of the following approaches 

to its enforcement of its own due diligence 

and timely filing rules for violations 

occurring before May 1, 1988.

(1) The agency may continue to 

enforce its rules, even if they result in the 

denial of guarantee coverage by the agency 

on otherwise reinsurable loans; or

(2) The agency may decline to 

enforce its rules as to any loan that would 

be reinsured under the retrospective waiver 

policy outlined below. In other words, for 

violations of a guaranty agency's due 

diligence and timely filing rules occurring 

before May 1, 1988, a guaranty agency is 

authorized, but not required, to 

retroactively revise its own due diligence 

and timely filing standards to treat as 

guaranteed any loan amount that is 

reinsured under the retrospective 

enforcement policy outlined in section I.C.1. 

However, for any violation of an agency's 

due diligence or timely filing rules occurring 

on or after May 1, 1988, the agency must 

resume enforcing those rules in accordance 

with their terms, in order to receive 

reinsurance payments on the underlying 

loan. For these post-April 30 violations, and 

for any other violation of an agency's rule 

affecting its guarantee coverage, the 

Secretary will treat as reinsured all loans on 

which the agency has engaged in, and 

documented, a case-by-case exercise of 

reasonable discretion allowing for 

guarantee coverage to be continued or 

reinstated notwithstanding the violation. 

But any agency that otherwise fails, or 

refuses, to enforce such a rule does so 

without the benefit of reinsurance coverage 

on the affected loans, and the lenders 

continue to be ineligible for interest 

benefits and special allowance thereon.

C. Due Diligence

Under 34 CFR 682.200, default on a 

FFEL Program loan occurs when a borrower 

fails to make a payment when due, 

provided this failure persists for 270 days 

for loans payable in monthly installments, 

or for 330 days for loans payable in less 

frequent installments. The 270/330-day 

default period applies regardless of 

whether payments were missed 

consecutively or intermittently. For 

example, if the borrower, on a loan payable 

in monthly installments, makes his January 

1st payment on time, his February 1st 

payment two months late (April 1st), his 

March 1st payment 3 months late (June 
Appendix D to Part 682

Policy for Waiving the Secretary's Right To Recover or Refuse To Pay Interest Benefits, Special 

Allowance, and Reinsurance on Stafford, Plus, Supplemental Loans for Students, and 

Consolidation Program Loans Involving Lenders' Violations of Federal Regulations Pertaining 

to Due Diligence in Collection or Timely Filing of Claims [Bulletin 88–G–138]

391

1st), and makes no further payments, the 

delinquency period begins on February 2nd, 

with the first delinquency, and default 

occurs on December 27th, when the April 

payment becomes 270 days past due. The 

lender must treat the payment made on 

April 1st as the February 1st payment, since 

the February 1st payment had not been 

made prior to that time. Similarly, the 

lender must treat the payment made on 

June 1st as the March 1st payment, since 

the March payment had not been made 

prior to that time.

Note: Lenders are strongly 

encouraged to exercise forbearance, prior 

to default, for the benefit of borrowers who 

have missed payments intermittently but 

have otherwise indicated willingness to 

repay their loans. See 34 CFR 682.211. The 

forbearance process helps to reduce the 

incidence of default, and serves to 

emphasize for the borrower the importance 

of compliance with the repayment 

obligation.

D. Timely Filing

(1) The 90-day filing period 

applicable to FFEL Program default claims is 

described in 34 CFR 682.406(a)(5). The 90-

day filing period begins at the end of the 

270/330-day default period. The lender 

ordinarily must file a default claim on a loan 

in default by the end of the filing period. 

However, the lender may, but need not, file 

a claim on that loan before the 360th day of 

delinquency (270-day default period plus 

90-day filing period) if the borrower brings 

the account less than 270 days delinquent 

before the 360th day. Thus, in the above 

example, if the borrower makes the April 

1st payment on December 28th, that 

payment makes the loan 241 days 

delinquent, and the lender may, but need 

not, file a default claim on the loan at that 

time. If, however, the loan again becomes 

270 days delinquent, the lender must file a 

default claim within 90 days thereafter 

(unless the loan is again brought to less 

than 270 days delinquent prior to the end 

of that 90-day period). In other words, the 

Secretary will permit a lender to treat 

payments made during the filing period as 

curing the default if those payments are 

sufficient to make the loan less than 270 

days delinquent.

(2) Section I of this letter outlines 

the Secretary's waiver policy for due 

diligence and timely filing violations. As 

noted above, to the extent that it results in 

the imposition of a lesser sanction than that 

available to the Secretary by statute or 

regulation, this policy reflects the exercise 

of the Secretary's authority to waive the 

Secretary's rights and claims in this area. 

Section II discusses the issue of the due 

date of the first payment on a loan and the 

application of the waiver policy to that 

issue. Section III provides guidance on 

several issues related to due diligence and 

timely filing as to which clarification has 

been requested by some program 

participants.

I. Waiver Policy

A. Definitions
Appendix D to Part 682

Policy for Waiving the Secretary's Right To Recover or Refuse To Pay Interest Benefits, Special 

Allowance, and Reinsurance on Stafford, Plus, Supplemental Loans for Students, and 

Consolidation Program Loans Involving Lenders' Violations of Federal Regulations Pertaining 

to Due Diligence in Collection or Timely Filing of Claims [Bulletin 88–G–138]

392

The following definitions apply to 

terms used throughout this letter:

Full payment means payment by the 

borrower, or another person (other than 

the lender) on the borrower's behalf, in an 

amount at least as great as the monthly 

payment amount required under the 

existing terms of the loan, exclusive of any 

forbearance agreement in force at the time 

of the default. (For example, if the original 

repayment schedule or agreement called 

for payments of $50 per month, but a 

forbearance agreement was in effect at the 

time of default that allowed the borrower 

to pay $25 per month for a specified time, 

and the borrower defaulted in making the 

reduced payments, a full payment would be 

$50, or two $25 payments in accordance 

with the original repayment schedule or 

agreement.) In the case of a payment made 

by cash, money order, or other means that 

do not identify the payor that is received by 

a lender after the date of this letter, that 

payment may constitute a full payment only 

if a senior officer of the lender or servicing 

agent certifies that the payment was not 

made by or on behalf of the lender or 

servicing agent.

Earliest unexcused violation means:

(a) In cases when reinsurance is lost 

due to a failure to timely establish a first 

payment due date, the earliest unexcused 

violation would be the 46th day after the 

date the first payment due date should 

have been established.

(b) In cases when reinsurance is lost 

due to a gap of 46 days, the earliest 

unexcused violation date would be the 46th 

day following the last collection activity.

(c) In cases when reinsurance is lost 

due to three or more due diligence 

violations of 6 days or more, the earliest 

unexcused violation would be the day after 

the date of default.

(d) In cases when reinsurance is lost 

due to a timely filing violation, the earliest 

unexcused violation would be the day after 

the filing deadline.

Reinstatement with respect to 

reinsurance coverage means the 

reinstatement of the guaranty agency's 

right to receive reinsurance payments on 

the loan after the date of reinstatement. 

Upon reinstatement of reinsurance, the 

borrower regains the right to receive 

forbearance or deferments, as appropriate. 

Reinstatement with respect to reinsurance 

on a loan also includes reinstatement of the 

lender's right to receive interest and special 

allowance payments on that loan.

Gap in collection activity on a loan 

means:

(a) The period between the initial 

delinquency and the first collection activity;

(b) The period between collection 

activities (a request for preclaims assistance 

is considered a collection activity);

(c) The period between the last 

collection activity and default; or
Appendix D to Part 682

Policy for Waiving the Secretary's Right To Recover or Refuse To Pay Interest Benefits, Special 

Allowance, and Reinsurance on Stafford, Plus, Supplemental Loans for Students, and 

Consolidation Program Loans Involving Lenders' Violations of Federal Regulations Pertaining 

to Due Diligence in Collection or Timely Filing of Claims [Bulletin 88–G–138]

393

(d) The period between the date a 

lender discovers a borrower has “skipped” 

and the lender's first skip-tracing activity.

Note: The concept of “gap” is used 

herein simply as one measure of collection

activity. This definition applies to loans 

subject to the FFEL and PLUS programs 

regulations published on or after November 

10, 1986. For those loans, not all gaps are 

violations of the due diligence rules.

Violation with respect to the due 

diligence requirements in §682.411 means 

the failure to timely complete a required 

diligent phone contact effort, the failure to 

timely send a required letter (including a 

request for preclaims assistance), or the 

failure to timely engage in a required skiptracing activity. If during the delinquency 

period a gap of more than 45 days occurs 

(more than 60 days for loans with a 

transfer), the lender must satisfy the 

requirement outlined in I.D.1. for 

reinsurance to be reinstated. The day after 

the 45-day gap (or 60 for loans with a 

transfer) will be considered the date that 

the violation occurred.

Transfer means any action, 

including, but not limited to, the sale of the 

loan, that results in a change in the system 

used to monitor or conduct collection 

activity on a loan from one system to 

another.

B. General 

1. Resumption of Interest and 

Special Allowance Billing on Loans Involving 

Due Diligence or Timely Filing Violations. For 

any loan on which a cure is required under 

this letter in order for the agency to receive 

any reinsurance payment, the lender may 

resume billing for interest and special 

allowance on the loan only for periods 

following its completion of the required 

cure procedure.

2. Reservation of the Secretary's 

Right to Strict Enforcement. While this letter 

describes the Secretary's general waiver 

policy, the Secretary retains the option of 

refusing to permit or recognize cures, or of 

insisting on strict enforcement of the 

remedies established by statute or 

regulation, in cases where, in the 

Secretary's judgment, a lender has 

committed an excessive number of severe 

violations of due diligence or timely filing 

rules and in cases where the best interests 

of the United States otherwise require strict 

enforcement. More generally, this bulletin 

states the Secretary's general policy and is 

not intended to limit in any way the 

authority and discretion afforded the 

Secretary by statute or regulation.

3. Interest, Special Allowance, and 

Reinsurance Repayment Required as a 

Condition for Exercise of the Secretary's 

Waiver Authority. The Secretary's waiver of 

the right to recover or refuse to pay 

reinsurance, interest benefits, or special 

allowance payments, and recognition of 

cures for due diligence and timely filing 

violations, are conditioned on the following:

a. The guaranty agency and lender 

must ensure that the lender repays all 

interest benefits and special allowance 
Appendix D to Part 682

Policy for Waiving the Secretary's Right To Recover or Refuse To Pay Interest Benefits, Special 

Allowance, and Reinsurance on Stafford, Plus, Supplemental Loans for Students, and 

Consolidation Program Loans Involving Lenders' Violations of Federal Regulations Pertaining 

to Due Diligence in Collection or Timely Filing of Claims [Bulletin 88–G–138]

394

received on loans involving violations 

occurring prior to May 1, 1988, for which 

the lender is ineligible under the waiver 

policy for the “retrospective period” 

described in section I.C.1., or under the 

waiver policy for timely filing violations 

described in section I.E.1., by an adjustment 

to one of the next three quarterly billings 

for interest benefits and special allowance 

submitted by the lender in a timely manner 

after May 1, 1988. The guaranty agency's 

responsibility in this regard is satisfied by 

receipt of a certification from the lender 

that this repayment has been made in full.

b. The guaranty agency, on or before 

October 1, 1988, must repay all reinsurance 

received on loans involving violations 

occurring prior to May 1, 1988, for which 

the agency is ineligible under the waiver 

policy for the “retrospective period” 

described in section I.C.1., or under the 

waiver policy for timely filing violations 

described in section I.E.1. Pending 

completion of the repayment described 

above, a lender or guaranty agency may 

submit billings to the Secretary on loans 

that are eligible for reinsurance under the 

waiver policy in this letter until it learns that 

repayment in full will not be made, or until 

the deadline for a repayment has passed 

without it being made, whichever is earlier. 

Of course, a lender or guaranty agency is 

prohibited from billing the Secretary for 

program payments on any loan amount that 

is not eligible for reinsurance under the 

waiver policy outlined in this letter. In 

addition to the repayments required above, 

any amounts received in the future in 

violation of this prohibition must 

immediately be repaid to the Secretary.

4. Applicability of the Waiver Policy 

to Particular Classes of Loans. The policy 

outlined in this letter applies only to a loan 

for which the first day of the 180/240-day 

or 270/330-day default period (as 

applicable) that ended with default by the 

borrower occurred on or after March 10, 

1987, or, in the case of a timely filing 

violation, December 26, 1986, and that 

involves violations only of the due diligence 

or timely filing requirements or both. For a 

loan that has lost reinsurance prior to 

December 1, 1992, this policy applies only 

through November 30, 1995. For a loan that 

loses reinsurance on or after December 1, 

1992, this policy applies until 3 years after 

the default claim filing deadline.

5. Excuse of Certain Due Diligence 

Violations. Except as noted in section II, if a 

loan has due diligence violations but was 

later cured and brought current, those 

violations will not be considered in 

determining whether a loan was serviced in 

accordance with 34 CFR 682.411. 

Guarantors must review the due diligence 

for the 180/240 or 270/330-day period (as 

applicable) prior to the default date 

ensuring the due date of the first payment 

not later made is the correct payment due 

date for the borrower.

6. Excuse of Timely Filing Violations 

Due to Performance of a Guaranty Agency's 

Cure Procedures. If, prior to May 1, 1988, 

and prior to the filing deadline, a lender 

commenced the performance of collection 
Appendix D to Part 682

Policy for Waiving the Secretary's Right To Recover or Refuse To Pay Interest Benefits, Special 

Allowance, and Reinsurance on Stafford, Plus, Supplemental Loans for Students, and 

Consolidation Program Loans Involving Lenders' Violations of Federal Regulations Pertaining 

to Due Diligence in Collection or Timely Filing of Claims [Bulletin 88–G–138]

395

activities specifically required by the 

guaranty agency to cure a due diligence 

violation on a loan, the Secretary will 

excuse the lender's timely filing violation if 

the lender completes the additional 

activities within the time period permitted 

by the guaranty agency and files a default 

claim on the loan not more than 45 days 

after completing the additional activities.

7. Treatment of Accrued Interest on 

“Cured” Claims. For any loan involving any 

violation of the due diligence or timely filing 

rules for which a “cure” is required under 

section I.C. or I.E., for the agency to receive 

a reinsurance payment, the Secretary will 

not reimburse the guaranty agency for any 

unpaid interest accruing after the date of 

the earliest unexcused violation occurring 

after the last payment received before the 

cure is accomplished, and prior to the date 

of reinstatement of reinsurance coverage. 

The lender may capitalize unpaid interest 

accruing on the loan from the date of the 

earliest unexcused violation to the date of 

the reinstatement of reinsurance coverage. 

However, if the agency later files a claim for 

reinsurance on that loan, the agency must 

deduct this capitalized interest from the 

amount of the claim. Some cures will not 

reinstate coverage. For treatment of 

accrued interest in those cases, see section 

I.E.1.c.

C. Waiver Policy for Violations of the 

Federal Due Diligence in Collection 

Requirements (34 CFR 682.411)

A violation of the due diligence in 

collection rules occurs when a lender fails 

to meet the requirements found in 34 CFR 

682.411. However, if a lender makes all 

required calls and sends all required letters 

during any of the delinquency periods 

described in that section, the lender is 

considered to be in compliance with that 

section for that period, even if the letters 

were sent before the calls were made. The 

special provisions for transfers apply 

whenever the violation(s) and, if applicable, 

the gap, were due to a transfer, as defined 

in section I.A.

1. Retrospective Period. For one or 

more due diligence violations occurring 

during the period March 10, 1987–April 30, 

1988—

a. There will be no reduction or 

recovery by the Secretary of payments to 

the lender or guaranty agency if no gap of 

46 days or more (61 days or more for a 

transfer) exists.

b. If a gap of 46–60 days (61–75 days 

for a transfer) exists, principal will be 

reinsured, but accrued interest, interest 

benefits, and special allowance otherwise 

payable by the Secretary for the 

delinquency period are limited to amounts 

accruing through the date of default.

c. If a gap of 61 days or more (76 

days or more for a transfer) exists, the 

borrower must be located after the gap, 

either by the agency or the lender, in order 

for reinsurance on the loan to be 

reinstated. ( See section I.E.1.d., for a 

description of acceptable evidence of 

location.) In addition, if the loan is held by 

the lender or after March 15, 1988, the 
Appendix D to Part 682

Policy for Waiving the Secretary's Right To Recover or Refuse To Pay Interest Benefits, Special 

Allowance, and Reinsurance on Stafford, Plus, Supplemental Loans for Students, and 

Consolidation Program Loans Involving Lenders' Violations of Federal Regulations Pertaining 

to Due Diligence in Collection or Timely Filing of Claims [Bulletin 88–G–138]

396

lender must follow the steps described in 

section I.E.1., or receive a full payment or a 

new signed repayment agreement, in order 

for the loan to again be eligible for 

reinsurance. The lender must repay all 

interest benefits and special allowance 

received for the period beginning with its 

earliest unexcused violation, occurring after 

the last payment received before the cure is 

accomplished, and ending with the date, if 

any, that reinsurance on the loan is 

reinstated.

2. Prospective Period. For due 

diligence violations occurring on or after

May 1, 1988 based on due dates prior to 

October 6, 1998—

a. There will be no reduction or 

recovery by the Secretary of payments to 

the lender or guaranty agency if there is no 

violation of Federal requirements of 6 days 

or more (21 days or more for a transfer.)

b. If there exist not more than two 

violations of 6 days or more each (21 days 

or more for a transfer), and no gap of 46 

days or more (61 days or more for a 

transfer) exists, principal will be reinsured, 

but accrued interest, interest benefits, and 

special allowance otherwise payable by the 

Secretary for the delinquency period will be 

limited to amounts accruing through the 

date of default. However, the lender must 

complete all required activities before the 

claim filing deadline, except that a 

preclaims assistance request must be made 

before the 240th day of delinquency. If the 

lender fails to make this request by the 

240th day, the Secretary will not pay any 

accrued interest, interest benefits, and 

special allowance for the most recent 180 

days prior to default. If the lender fails to 

complete any other required activity before 

the claim filing deadline, accrued interest, 

interest benefits, and special allowance 

otherwise payable by the Secretary for the 

delinquency period will be limited to 

amounts accruing through the 90th day 

before default.

c. If there exist three violations of 6 

days or more each (21 days or more for a 

transfer) and no gap of 46 days or more (61 

days or more for a transfer), the lender 

must satisfy the requirements outlined in 

I.E.1., or receive a full payment or a new 

signed repayment agreement in order for 

reinsurance on the loan to be reinstated. 

The Secretary does not pay any interest 

benefits or special allowance for the period 

beginning with the lender's earliest 

unexcused violation occurring after the last 

payment received before the cure is 

accomplished, and ending with the date, if 

any, that reinsurance on the loan is 

reinstated.

d. If there exist more than three 

violations of 6 days or more each (21 days 

or more for a transfer) of any type, or a gap 

of 46 days (61 days for a transfer) or more 

and at least one violation, the lender must 

satisfy the requirement outlined in section 

I.D.1., for reinsurance on the loan to be 

reinstated. The Secretary does not pay any 

interest benefits or special allowance for 

the period beginning with the lender's 

earliest unexcused violation occurring after 

the last payment received before the cure is 
Appendix D to Part 682

Policy for Waiving the Secretary's Right To Recover or Refuse To Pay Interest Benefits, Special 

Allowance, and Reinsurance on Stafford, Plus, Supplemental Loans for Students, and 

Consolidation Program Loans Involving Lenders' Violations of Federal Regulations Pertaining 

to Due Diligence in Collection or Timely Filing of Claims [Bulletin 88–G–138]

397

accomplished, and ending with the date, if 

any, that reinsurance on the loan is 

reinstated.

3. Post 1998 Amendments. For due 

diligence violations based on due dates on 

or after October 6, 1998—

a. There will be no reduction or 

recovery by the Secretary of payments to 

the lender or guaranty agency if there is no 

violation of Federal requirements of 6 days 

or more (21 days or more for a transfer).

b. If there exist not more than two 

violations of 6 days or more each (21 days 

or more for a transfer), and no gap of 46 

days or more (61 days or more for a 

transfer) exists, principal will be reinsured, 

but accrued interest, interest benefits, and 

special allowance otherwise payable by the 

Secretary for the delinquency period will be 

limited to amounts accruing through the 

date of default. However, the lender must 

complete all required activities before the 

claim filing deadline, except that a default 

aversion assistance request must be made 

before the 330th day of delinquency. If the 

lender fails to make this request by the 

330th day, the Secretary will not pay any 

accrued interest, interest benefits, and 

special allowance for the most recent 270 

days prior to default. If the lender fails to 

complete any other required activity before 

the claim filing deadline, accrued interest, 

interest benefits, and special allowance 

otherwise payable by the Secretary for the 

delinquency period will be limited to 

amounts accruing through the 90th day 

before default.

c. If there exist three violations of 6 

days or more each (21 days or more for a 

transfer) and no gap of 46 days or more (61 

days or more for a transfer), the lender 

must satisfy the requirements outlined in 

I.E.1. or receive a full payment or a new 

signed repayment agreement in order for 

reinsurance on the loan to be reinstated. 

The Secretary does not pay any interest 

benefits or special allowance for the period 

beginning with the lender's earliest 

unexcused violation occurring after the last 

payment received before the cure is 

accomplished, and ending with the date, if 

any, that reinsurance on the loan is 

reinstated.

d. If there exist more than three 

violations of 6 days or more each (21 days 

or more for a transfer) of any type, or a gap 

of 46 days (61 days for a transfer) or more 

and at least one violation, the lender must 

satisfy the requirement outlined in section 

I.D.1. for reinsurance on the loan to be 

reinstated. The Secretary does not pay any 

interest benefits or special allowance for 

the period beginning with the lender's 

earliest unexcused violation occurring after 

the last payment received before the cure is 

accomplished and ending with the date, if 

any, that reinsurance on the loan is 

reinstated.

D. Reinstatement of Reinsurance 

Coverage for Certain Egregious Due 

Diligence Violations. 

1. Cures. In the case of a loan 

involving violations described in section 

I.C.2.d. or I.C.3.d., the lender may utilize 
Appendix D to Part 682

Policy for Waiving the Secretary's Right To Recover or Refuse To Pay Interest Benefits, Special 

Allowance, and Reinsurance on Stafford, Plus, Supplemental Loans for Students, and 

Consolidation Program Loans Involving Lenders' Violations of Federal Regulations Pertaining 

to Due Diligence in Collection or Timely Filing of Claims [Bulletin 88–G–138]

398

either of the two procedures described in 

section I.D.1.a or I.D.1.b. for obtaining 

reinstatement of reinsurance coverage on 

the loan.

a. After the violations occur, the 

lender obtains a new repayment agreement 

signed by the borrower. The repayment 

agreement must comply with the 

repayment period limitations set out in 34 

CFR 682.209(a)(8) and 682.209(h)(2); or

b. After the violations occur, the 

lender obtains one full payment. If the 

borrower later defaults, the guaranty 

agency must obtain evidence of this 

payment (e.g., a copy of the check) from 

the lender.

2. Borrower Deemed Current as of 

Date of Cure. On the date the lender 

receives a new signed repayment 

agreement or the curing payment under 

section I.D.1., reinsurance coverage on the 

loan is reinstated, and the borrower must 

be deemed by the lender to be current in 

repaying the loan and entitled to all rights 

and benefits available to borrowers who are 

not in default. The lender must then follow 

the collection and timely filing 

requirements applicable to the loan.

E. Cures for Timely Filing Violations 

and Certain Due Diligence Violations 

1. Default Claims. 

a. Reinstatement of Insurance 

Coverage. Except as noted in section I.B.6., 

in order to obtain reinstatement of 

reinsurance coverage on a loan in the case 

of a timely filing violation, a due diligence 

violation described in section I.C.2.c. or 

I.C.3.c., or a due diligence violation 

described in section I.C.1.c. where the 

lender holds the loan on or after March 15, 

1988, the lender must first locate the 

borrower after the gap, or after the date of 

the last violation, as applicable. ( See 

section I.E.1.d. for description of acceptable 

evidence of location.) Within 15 days 

thereafter, the lender must send to the 

borrower, at the address at which the 

borrower was located, (i) a new repayment 

agreement, to be signed by the borrower, 

that complies with the ten-year repayment 

limitations in 34 CFR 682.209(a)(7), along 

with (ii) a collection letter indicating in 

strong terms the seriousness of the 

borrower's delinquency and its potential 

effect on his or her credit rating if 

repayment is not commenced or resumed. 

If, within 15 days after the lender sends 

these items, the borrower fails to make a 

full payment or to sign and return the new 

repayment agreement, the lender must, 

within 5 days thereafter, diligently attempt 

to contact the borrower by telephone. 

Within 5–10 days after completing these 

efforts, the lender must again diligently 

attempt to contact the borrower by 

telephone. Finally, within 5–10 days after 

completing these efforts, the lender must 

send a forceful collection letter indicating 

that the entire unpaid balance of the loan is 

due and payable, and that, unless the 

borrower immediately contacts the lender 

to arrange repayment, the lender will be 

filing a default claim with the guaranty 

agency.
Appendix D to Part 682

Policy for Waiving the Secretary's Right To Recover or Refuse To Pay Interest Benefits, Special 

Allowance, and Reinsurance on Stafford, Plus, Supplemental Loans for Students, and 

Consolidation Program Loans Involving Lenders' Violations of Federal Regulations Pertaining 

to Due Diligence in Collection or Timely Filing of Claims [Bulletin 88–G–138]

399

b. Borrower Deemed Current Under 

Certain Circumstances. If, at any time on or 

before the 30th day after the lender 

completes the additional collection efforts 

described in section I.E.1.a., or the 270th 

day of delinquency, whichever is later, the 

lender receives a full payment or a new 

signed repayment agreement, reinsurance 

coverage on the loan is reinstated on the 

date the lender receives the full payment or 

new agreement. The borrower must be 

deemed by the lender to be current in 

repaying the loan and entitled to all rights 

and benefits available to borrowers who are 

not in default. In the case of a timely filing 

violation on a loan for which the borrower 

is deemed current under this paragraph, 

the lender is ineligible to receive interest 

benefits and special allowance accruing 

from the date of the violation to the date of 

reinstatement of reinsurance coverage on 

the loan.

c. Borrower Deemed in Default 

Under Certain Circumstances. If the 

borrower does not make a full payment, or 

sign and return the new repayment 

agreement, on or before the 30th day after 

the lender completes the additional 

collection efforts described in section 

I.E.1.a., or the 270th day of delinquency, 

whichever is later, the lender must deem 

the borrower to be in default. The lender 

must then file a default claim on the loan, 

accompanied by acceptable evidence of 

location ( see section I.E.1.d.), within 30 

days after the end of the 30-day period. 

Reinsurance coverage, and therefore the 

lender's right to receive interest benefits 

and special allowance, is not reinstated on a 

loan involving these circumstances. 

However, the Secretary will honor 

reinsurance claims submitted in accordance 

with this paragraph on the outstanding 

principal balance of those loans, on unpaid 

interest as provided in section I.B.7., and for 

reimbursement of eligible supplemental 

preclaims assistance costs. In the case of a 

timely filing violation on a loan for which 

the borrower is deemed in default under 

this paragraph, the lender is ineligible to 

receive interest benefits and special 

allowance accruing from the date of the 

violation.

d. Acceptable Evidence of Location. 

Only the following documentation is 

acceptable as evidence that the lender has 

located the borrower:

(1) A postal receipt signed by the 

borrower not more than 15 days prior to 

the date on which the lender sent the new 

repayment agreement, indicating 

acceptance of correspondence from the 

lender by the borrower at the address 

shown on the receipt; or

(2) Documentation submitted by the 

lender showing—

(i) The name, identification number, 

and address of the lender;

(ii) The name and Social Security 

number of the borrower; and

(iii) A signed certification by an 

employee or agent of the lender, that—
Appendix D to Part 682

Policy for Waiving the Secretary's Right To Recover or Refuse To Pay Interest Benefits, Special 

Allowance, and Reinsurance on Stafford, Plus, Supplemental Loans for Students, and 

Consolidation Program Loans Involving Lenders' Violations of Federal Regulations Pertaining 

to Due Diligence in Collection or Timely Filing of Claims [Bulletin 88–G–138]

400

(A) On a specified date, he or she 

spoke with or received written 

communication (attached to the 

certification) from the borrower on the loan 

underlying the default claim, or a parent, 

spouse, sibling, roommate, or neighbor of 

the borrower;

(B) The address and, if available, 

telephone number of the borrower were 

provided to the lender in the telephone or 

written communication; and

(C) In the case of a borrower whose 

address or telephone number was provided 

to the lender by someone other than the 

borrower, the new repayment agreement 

and the letter sent by the lender pursuant 

to section I.E.1.a., had not been returned 

undelivered as of 20 days after the date 

those items were sent, for due diligence 

violations described in section I.C.1.c. 

where the lender holds the loan on the date 

of this letter, and as of the date the lender 

filed a default claim on the cured loan, for 

all other violations.

2. Death, Disability, and Bankruptcy 

Claims. The Secretary will honor a death or 

disability claim on an otherwise eligible loan 

notwithstanding the lender's failure to 

meet the 60-day timely filing requirement ( 

See 34 CFR 682.402(g)(2)(i)). However, the 

Secretary will not reimburse the guaranty 

agency if, before the date the lender 

determined that the borrower died or was 

totally and permanently disabled, the 

lender had violated the Federal due 

diligence or timely filing requirements 

applicable to that loan, except in 

accordance with the waiver policy 

described above. Interest that accrued on 

the loan after the expiration of the 60-day 

filing period remains ineligible for 

reimbursement by the Secretary, and the 

lender must repay all interest and special 

allowance received on the loan for periods 

after the expiration of the 60-day filing 

period. The Secretary has determined that, 

in the vast majority of cases, the failure of a 

lender to comply with the timely filing 

requirement applicable to bankruptcy 

claims (§682.402(g)(2)(iv)) causes 

irreparable harm to the guaranty agency's 

ability to contest the discharge of the loan 

by the court, or to otherwise collect from 

the borrower. Therefore, the Secretary has 

decided not to excuse violations of the 

timely filing requirement applicable to 

bankruptcy claims, except when the lender 

can demonstrate that the bankruptcy action 

has concluded and that the loan has not 

been discharged in bankruptcy or, if 

previously discharged, has been the subject 

of a reversal of the discharge. In that case, 

the lender must return the borrower to the 

appropriate status that existed prior to the 

filing of the bankruptcy claim unless the 

status has changed due solely to passage of 

time. In the latter case, the lender must 

place the borrower in the status that would 

exist had no bankruptcy claim been filed. If 

the borrower is delinquent after the loan is 

determined nondischargeable, the lender 

should grant administrative forbearance to 

bring the borrower's account current as 

provided in §682.211(f)(4) and 

§682.402(f)(5)(ii) and (f)(6). The Secretary 

will not reimburse the guaranty agency for 
Appendix D to Part 682

Policy for Waiving the Secretary's Right To Recover or Refuse To Pay Interest Benefits, Special 

Allowance, and Reinsurance on Stafford, Plus, Supplemental Loans for Students, and 

Consolidation Program Loans Involving Lenders' Violations of Federal Regulations Pertaining 

to Due Diligence in Collection or Timely Filing of Claims [Bulletin 88–G–138]

401

interest for the period beginning on the 

filing deadline for the bankruptcy claim and 

ending on the date the loan becomes 

eligible again for reinsurance. Reinsurance 

is reinstated on the date the bankruptcy 

action concludes and the loan is not 

discharged or on the date a previous 

discharge is reversed.

II. Due Date of First Payment. 

Section 682.411(b)(1) refers to the “due 

date of the first missed payment not later 

made” as one way to determine the first 

day of delinquency on a loan. Section 

682.209(a)(3) states that, generally, the 

repayment period on an FFEL Program loan 

begins some number of months after the 

month in which the borrower ceases at 

least half-time study. Where the borrower 

enters the repayment period with the 

lender's knowledge, the first payment due 

date may be set by the lender, provided it 

falls within a reasonable time after the first 

day of the month in which the repayment 

period begins. In this situation, the 

Secretary generally permits a lender to 

allow the borrower up to 45 days from the 

first day of repayment to make the first 

payment (unless the lender establishes the 

first day of repayment under 

§682.209(a)(3)(ii)(E)).

1. In cases where the lender learns 

that the borrower has entered the 

repayment period after the fact, current 

§682.411 treats the 30th day after the 

lender receives this information as the first 

day of delinquency. In the course of 

discussion with lenders, the Secretary has 

learned that many lenders have not been 

using the 30th day after receipt of notice 

that the repayment period has begun (“the 

notice”) as the first payment due date. In 

recognition of this apparently widespread 

practice, the Secretary has decided that, 

both retrospectively and prospectively, a 

lender should be allowed to establish a first 

payment due date within 60 days after 

receipt of the notice, to capitalize interest 

accruing up to the first payment due date, 

and to exercise forbearance with respect to 

the period during which the borrower was 

in the repayment period but made no 

payment. In effect, this means that, if the 

lender sends the borrower a coupon book, 

billing notice, or other correspondence 

establishing a new first payment due date, 

on or before the 60th day after receipt of 

the notice, the lender is deemed to have 

exercised forbearance up to the new first 

payment due date. The new first payment 

due date must fall no later than 75 days 

after receipt of the notice (unless the lender 

establishes the first day of repayment under 

§682.209(a)(3)(ii)(E)). In keeping with the 5-

day tolerance permitted under section 

I.C.2.a., for the “prospective period,” or 

section I.C.3.a., for the “post 1998 

amendment period,” a lender that sends 

the above-described material on or before 

the 65th day after receipt of the notice will 

be held harmless. However, a lender that 

does so on the 66th day will have failed by 

more than 5 days to send both of the 

collection letters required by §682.411(c) to 

be sent within the first 30 days of 

delinquency and will thus have committed 

two violations of more than five days of 

that rule.
Appendix D to Part 682

Policy for Waiving the Secretary's Right To Recover or Refuse To Pay Interest Benefits, Special 

Allowance, and Reinsurance on Stafford, Plus, Supplemental Loans for Students, and 

Consolidation Program Loans Involving Lenders' Violations of Federal Regulations Pertaining 

to Due Diligence in Collection or Timely Filing of Claims [Bulletin 88–G–138]

402

2. If the lender fails to send the 

material establishing a new first payment 

due date on or before the 65th day after 

receipt of the notice, it may thereafter send 

material establishing a new first payment 

due date falling not more than 45 days after 

the materials are sent and will be deemed 

to have exercised forbearance up to the 

new first payment due date. However, all 

violations and gaps occurring prior to the 

date on which the material is sent are 

subject to the waiver policies described in 

section I for violations falling in either the 

retrospective or prospective periods. This is 

an exception to the general policy set forth 

in section I.B.5., that only violations 

occurring during the most recent 180 or 270 

days (as applicable) of the delinquency 

period on a loan are relevant to the 

Secretary's examination of due diligence.

Please Note: References to the 

“65th day after receipt of the notice” and 

“66th day” in the preceding paragraphs 

should be amended to read “95th day” and 

“96th day” respectively for lenders subject 

to §682.209(a)(3)(ii)(E).

III. Questions and Answers 

The waiver policy outlined in this 

letter was developed after extensive 

discussion and consultation with 

participating lenders and guaranty agencies. 

In the course of these discussions, lenders 

and agencies raised a number of questions 

regarding the due diligence rules as applied 

to various circumstances. The Secretary's 

responses to these questions follow.

Note: The answer to questions 1 and 

4 are applicable only to loans subject to 

§682.411 of the FFEL and PLUS program 

regulations published on or after November 

10, 1986.

1. Q: Section 682.411 of the 

program regulations requires the lender to 

make “diligent efforts to contact the 

borrower by telephone” during each 30-day 

period of delinquency beginning after the 

30th day of delinquency. What must a 

lender do to comply with this requirement?

A: Generally speaking, one actual 

telephone contact with the borrower, or 

two attempts to make such contact on 

different days and at different times, will 

satisfy the “diligent efforts” requirement for 

any of the 30-day delinquency periods 

described in the rule. However, the 

“diligent efforts” requirement is intended to 

be a flexible one, requiring the lender to act 

on information it receives in the course of 

attempting telephone contact regarding the 

borrower's actual telephone number, the 

best time to call to reach the borrower, etc. 

For instance, if the lender is told during its 

second telephone contact attempt that the 

borrower can be reached at another 

number or at a different time of day, the 

lender must then attempt to reach the 

borrower by telephone at that number or 

that time of day.

2. Q: What must a lender do when it 

receives conflicting information regarding 

the date a borrower ceased at least halftime study?
Appendix D to Part 682

Policy for Waiving the Secretary's Right To Recover or Refuse To Pay Interest Benefits, Special 

Allowance, and Reinsurance on Stafford, Plus, Supplemental Loans for Students, and 

Consolidation Program Loans Involving Lenders' Violations of Federal Regulations Pertaining 

to Due Diligence in Collection or Timely Filing of Claims [Bulletin 88–G–138]

403

A: A lender must promptly attempt 

to reconcile conflicting information 

regarding a borrower's in-school status by 

making inquiries of appropriate parties, 

including the borrower's school. Pending 

reconciliation, the lender may rely on the 

most recent credible information it has.

3. Q: If a loan is transferred from 

one lender to another, is the transferee 

held responsible for information regarding 

the borrower's status that is received by the 

transferor but is not passed on to the 

transferee?

A: No. A lender is responsible only 

for information received by its agents and 

employees. However, if the transferee has 

reason to believe that the transferor has 

received additional information regarding 

the loan, the transferee must make a 

reasonable inquiry of the transferor as to 

the nature and substance of that 

information.

4. Q: What are a lender's due 

diligence responsibilities where a check 

received on a loan is dishonored by the 

bank on which it was drawn?

A: Upon receiving notice that a 

check has been dishonored, the lender 

must treat the payment as having never 

been made for purposes of determining the 

number of days that the borrower is 

delinquent at that time. The lender must 

then begin (or resume) attempting 

collection on the loan in accordance with 

§682.411, commencing with the first 30-day 

delinquency period described in §682.411 

that begins after the 30-day delinquency 

period in which the notice of dishonor is 

received. The same result occurs when the 

lender successfully obtains a delinquent 

borrower's correct address through skiptracing, or when a delinquent borrower 

leaves deferment or forbearance status.

[64 FR 58636, Oct. 29, 1999, as amended at 

66 FR 34765, June 29, 2001]