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Issue Paper #11

Proposed Regulatory Language

Loans Group

Issue: Repeal of Unnecessary FFEL Program Regulations

Statutory Cite: HEA Part B

Summary of Issue:

The proposed regulatory language removes provisions from 34 CFR 682 that are no longer 

needed as a result of the Health Care and Reconciliation Act of 2010 and makes technical and 

conforming changes. 

Change:

See “Proposed Regulatory Language for Issue Paper 11, Loans Group.”
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PROPOSED REGULATORY LANGUAGE FOR 

ISSUE PAPER 11, LOANS GROUP

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 used their own funds 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 encourageds 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 encourageds 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 

provideds for making loans to graduate and 

professional students on or after July 1, 

2006 through June 30, 2010.

(4) The Federal Consolidation Loan 

Program (Consolidation Loan Program), 

which encourageds 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 through June 30, 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—

(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;
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(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 wereare

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 wereare authorized, 

under limited circumstances, to operate in 

States in which a guaranty agency program 

didoes 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]

§ 682.101 Participation in the FFEL 

programs.

(a) Eligible banks, savings and loan 

associations, credit unions, pension funds, 

insurance companies, schools, and State 

and private nonprofit agencies mademay 

make 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

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 certain 

requirements, including enrollment at a 

participating school, may borrowed under 

the Stafford Loan 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 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 borrowed under 

the Consolidation Loan Program prior to 

July 1, 2010. The PLUS Program also 

provideds for making loans to graduate and 

professional students on or after July 1, 

2006 through June 30, 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]

§ 682.102 Obtaining and Rrepaying a 

loan.
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(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.

(ae) 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.

(2) 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 
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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) 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) 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) 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) Deferment of repayment. Repayment 

of principal on a FFEL program loan may be 

deferred under the circumstances described 

in §682.210.

(7) 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]

§ 682.103 [Reserved]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.
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(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. 1071 to 1087–2)

[57 FR 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.

(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 Work-Study (FWS) Program

Full-time student

Graduate and 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
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Correspondence course

Credit hour

Educational program

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 purchasing 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 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 
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of a Consolidation loan, or to a borrower, a 

school, or an escrow agent by issuance of 

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 
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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) 

(Restored Entitlement Program for 

Survivors, also known as “Quayle benefits”);
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(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 

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.
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11

(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 

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 
MEETING 2

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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 school-affiliated 

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 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; 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—

(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 
MEETING 2

FEBRUARY 13-17, 2012

13

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 

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.
MEETING 2

FEBRUARY 13-17, 2012

14

(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).

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 as defined in 

15 U.S.C. 1681a.

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.

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 
MEETING 2

FEBRUARY 13-17, 2012

15

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 Williams D Ford Direct Loan 

Program §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.

(2) For purposes of consolidating a 

defaulted loan under the Direct 

Consolidation Loan Program34 CFR 

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

consecutive, on-time voluntary full monthly 

payments on a defaulted loan.

(3) 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 
MEETING 2

FEBRUARY 13-17, 2012

16

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 days of the 

scheduled due date. [SEE ALSO ISSUE PAPER 

#17 FOR ADDITIONAL NEW PARAGRAPH (4)]

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 schoolaffiliated 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 

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 

Formatted: Highlight
MEETING 2

FEBRUARY 13-17, 2012

17

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. 

§ 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 
MEETING 2

FEBRUARY 13-17, 2012

18

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 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 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 

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 or Direct Loan, other than a Federal 
MEETING 2

FEBRUARY 13-17, 2012

19

Consolidation Loan or Direct 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.

(b) Student PLUS borrower. A graduate 

or professional student who is enrolled or 

accepted for enrollment on at least a halftime 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 
MEETING 2

FEBRUARY 13-17, 2012

20

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. The credit report must be secured 

within a timeframe that would ensure the 

most accurate, current representation of 

the 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 
MEETING 2

FEBRUARY 13-17, 2012

21

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;

(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 
MEETING 2

FEBRUARY 13-17, 2012

22

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]

§ 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 wasis signed, hasd 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 wasis

signed, hasd no outstanding balance on any 

FFEL Program loan, and the first 

disbursement wasis 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.
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23

(iii) For a Stafford loan for which the 

first disbursement wasis made before 

October 1, 1992—

(A) If the borrower, on the date the 

promissory note wasis signed, hasd no 

outstanding balance on a Stafford loan but 

hads 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 wasis

signed, hasd 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 wasis made on or after 

October 1, 1992, but before December 20, 

1993, if the borrower, on the date the 

promissory note evidencing the loan wasis

signed, hasd no outstanding balance on a 

Stafford loan but hasd 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 wasis made on or after 

December 20, 1993 and prior to July 1, 

1994, if the borrower, on the date the 

promissory note wasis signed, hasd no 

outstanding balance on a Stafford loan but 

hasd 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 wasis made on or after 

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

period of enrollment that includeds or 

beganins 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 wasis made on or after 

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

interest rate is a variable rate, applicable to 
MEETING 2

FEBRUARY 13-17, 2012

24

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 wasis 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 wasis 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.

(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 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 wasis 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.
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FEBRUARY 13-17, 2012

25

(v) For a loan for which the first 

disbursement wasis 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.

(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 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—
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FEBRUARY 13-17, 2012

26

(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.

(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 
MEETING 2

FEBRUARY 13-17, 2012

27

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 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 
MEETING 2

FEBRUARY 13-17, 2012

28

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 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) 

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.
MEETING 2

FEBRUARY 13-17, 2012

29

(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.

(b) Capitalization. (1) A lender may add 

accrued interest and unpaid insurance 

premiums 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 
MEETING 2

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30

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 

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) 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
MEETING 2

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31

(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 or attend school in 

that state the same origination fee.

(5) Shall charge a borrower an 

origination fee on a PLUS loan of 3 percent 

of the principal amount of the loan;

(6) Shall deduct a pro rata portion of the 

fee (if charged) from each disbursement; 

and

(7) Shall 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 
MEETING 2

FEBRUARY 13-17, 2012

32

the return of origination fees, as described 

in paragraph (c)(7) of this section.

(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.

(fe) 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)(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.

(gf) 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 

(gf)(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).

(hg) 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]

§ 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)
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33

§ 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

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 
MEETING 2

FEBRUARY 13-17, 2012

34

the 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 

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 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 
MEETING 2

FEBRUARY 13-17, 2012

35

program may not borrow an amount for 

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 who qualifies for additional 

Unsubsidized Stafford Loan funds under 

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 

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 

Subsidized Stafford/Ford Loan Program, 

plus—

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

least a full academic year in length.

(B) 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

(C) 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—
MEETING 2

FEBRUARY 13-17, 2012

36

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

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—

Number of semester, trimester, quarter, or 
MEETING 2

FEBRUARY 13-17, 2012

37

clock hours enrolled

Number of semester, trimester, quarter, or 

clock hours in academic year

or

Number of weeks 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.
MEETING 2

FEBRUARY 13-17, 2012

38

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

after July 1, 2007, $7,000, for 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 

undergraduate education that is less than 
MEETING 2

FEBRUARY 13-17, 2012

39

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 two-thirds 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 

remainder measured in semester, 

trimester, quarter, or clock hours bears to 

one academic year.
MEETING 2

FEBRUARY 13-17, 2012

40

(g) 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) 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) Minimum loan interval. The annual 

loan limits applicable to a student apply to 

the length of the school's academic year.

(j) 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) 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) 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) 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), (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, 

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]
MEETING 2

FEBRUARY 13-17, 2012

41

§ 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;
MEETING 2

FEBRUARY 13-17, 2012

42

(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 

borrower with a separate written 

statement, using simple and 
MEETING 2

FEBRUARY 13-17, 2012

43

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.

(ac) Repayment information — (1) 

Disclosures at or prior to repayment . The 

lender must disclose the information 

described in paragraph (c)(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;

(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 
MEETING 2

FEBRUARY 13-17, 2012

44

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)(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

(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 . [SEE 

ALSO ISSUE PAPER # 3 FOR NEW 

LANGUAGE]The lender shall provide a 

Formatted: Highlight
MEETING 2

FEBRUARY 13-17, 2012

45

borrower who has notified the lender that 

he or she is having difficulty making 

payments with—

(i) A description of the repayment plans 

available to the borrower, and how the 

borrower may request a change in 

repayment plan;

(ii) A description of the requirements for 

obtaining forbearance on the loan and any 

costs associated with forbearance; and

(iii) A description of the options 

available to the borrower to avoid default 

and any fees or costs associated with those 

options.

(5) Required disclosures for borrowers 

who are 60-days delinquent in making 

payments on a loan .[SEE ALSO ISSUE PAPER 

#3 FOR NEW LANGUAGE] (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 

days of the date the borrower becomes 60 

days delinquent, unless the lender has sent 

such a notice within the previous 120 days.

(bd) 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)(2)(viii) of this section if the lender, 

instead of that disclosure, provides the 

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.

(ce) Borrower may not be charged for 

disclosures. The lender must provide the

information required by this section at no 

cost to the borrower.

(df) 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 

Formatted: Highlight
MEETING 2

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46

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.

(eh) Notice of availability of incomesensitive 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, incomebased 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 (he)(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 

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 half-time, 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;
MEETING 2

FEBRUARY 13-17, 2012

47

(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.

(fj) 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]

§ 682.206 [Reserved]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.
MEETING 2

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48

(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 legallyenforceable 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 

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)

Formatted: Indent: First line: 0.25"
MEETING 2

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49

[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]

§ 682.207 [Reserved]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 
MEETING 2

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50

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—

(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—
MEETING 2

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51

(1) The guaranty agency accessing the 

Department's Postsecondary Education 

Participants System (PEPS) Database (or any 

successor system) and confirming that the 

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, e-mail 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 study-abroad 

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 study-abroad 

program, of—

(A) The name and social security 

number of the student;

(B) The type of loan;
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52

(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 one-half 

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) 

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

1, 1078–2, 1078–3, 1079, 1080, 1082, 1085)

[57 FR 60323, Dec. 18, 1992]

Formatted: Indent: First line: 0.25"
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53

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.

§ 682.208 Due diligence in servicing a 

loan.

(a) The loan servicing process includes 

reporting to nationnationwide alconsumer 

reporting agencies credit bureaus, 

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 each nationwide 

consumer reporting agency one national 

credit bureau—

(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 each

nationwide consumer reporting agency 

national credit bureau 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.
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54

(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 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 incomesensitive 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.
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55

(3) For purposes of this paragraph, the 

term “assigned” is defined in 

§682.401(b)(17)(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) 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 

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-
MEETING 2

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56

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]

§ 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 
MEETING 2

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57

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.

(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)(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 
MEETING 2

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58

interest rate that changes annually, the 

lender may establish a repayment schedule 

that—

(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 income-sensitive 

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, income-sensitive, 

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 income-sensitive, 

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) within 

the time period specified by the lender.

(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

(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—
MEETING 2

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59

(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 income-sensitive 

repayment schedule would result in a loan 

not being repaid within the maximum 

repayment term; and

(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 
MEETING 2

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60

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 

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 
MEETING 2

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61

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 borrower's 

making such prepayments while in an inschool, 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.

(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—
MEETING 2

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62

(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

(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 
MEETING 2

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63

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.

(he) 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.

(3) For the purpose of paragraph (he)(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)(2) of this 
MEETING 2

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64

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) 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)(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) 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—

(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 
MEETING 2

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65

Finding Aids section of the printed volume 

and on GPO Access. 

§ 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 (postdeferment 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 postdeferment 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 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.
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66

(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 postdeferment 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 

(cb)(54) of this section, engaged in full-time 

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 

States and is pursuing a course of study at a 

school not located in a State; Comment [AU1]: PAM: The last part of this was 

from an earlier definition of “school” that we 

overhauled.
MEETING 2

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67

(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 (e) 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 all Stafford and SLS borrowers 

who are not new borrowers on or after July 

1, 1993, and for parent PLUS borrowers 

with loans made before August 15, 1983.

borrower of a Stafford or SLS loan, and for a 

parent borrower of a PLUS loan 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) 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 ofr

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) of this 

section).

(3) For new a borrower of a Stafford or 

SLS borrowers on or after July 1, 1987 but 

before July 1, 1993.

Deferment is authorized, in accordance 

with paragraph (o) of this section, if the 

borrower 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, 

deferment is authorized during a period of 

up to six months during which the borrower 

is—

(i) (A) Pregnant;

(B) Caring for his or her newborn child; 

or
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68

(C) Caring for a child immediately 

following the placement of the child with 

the borrower before or immediately 

following adoption; and

(ii) Not attending a school or gainfully 

employed.

(4) For anew Stafford or SLS borrowers 

on or after July 1, 1987, “new borrower,” as 

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

deferment 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 new Stafford or SLS borrowers 

on or after July 1, 1987 and before July 1, 

1993.

a new borrower, as defined in 

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

Stafford or SLS loan, dDeferment 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, 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);

(ii) Up to three years of service 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.

(iii) 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

(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, in 

accordance with paragraph (r) of this 

section. Full-time employment involves at 

least 30 hours of work a week and it 

expected to last at least 3 months.

(6) For new a parent borrower of a PLUS 

borrowers on or after July 1, 1987 and 

before July 1, 1993.loan,

D deferment 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)–(iii) and (b)(4) of this section.

(7) For purposes of paragraph (b)(3), 

(b)(4), (b)(5), and (b)(6) 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—
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69

(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.

(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 
MEETING 2

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70

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 full-time 

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, 

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.
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71

(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 

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 full-time 

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 
MEETING 2

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72

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 

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.
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73

(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 fulltime 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—

(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 
MEETING 2

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74

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) 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—

(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) 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) 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;
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75

(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 

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) 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 
MEETING 2

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76

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 

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 
MEETING 2

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77

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.

(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;
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78

(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 

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) 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.
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79

(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 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)(viiv) 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)(viiv) 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 
MEETING 2

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80

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, 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.
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81

(t) Military service deferments. (1) A 

borrower who receives a FFEL Program loan 

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 

lender may grant a borrower a military 
MEETING 2

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82

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 half-time basis, 

during the 13-month deferment period, the 

deferment expires at the time the borrower 

returns to enrolled student status, on at 

least a half-time basis.
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(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 postmilitary 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 postmilitary 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. 

§ 682.211 Forbearance.

(a)(1) The Secretary encourages a 

lender to grant forbearance for the benefit 
MEETING 2

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84

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) 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) 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 lender 

and the borrower or endorser agree to the 

terms orally, the lender must notify the 

borrower or endorser of the terms within 

30 days of that agreement.

(d) 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 signed 

agreement to repay the debt. [SEE ALSO 

ISSUE PAPER #6 FOR NEW LANGUAGE]

(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

Formatted: Highlight
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85

(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 

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—[SEE ALSO ISSUE 

PAPER # 5 FOR NEW LANGUAGE]

(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)(1110) or (i)(2) 

of this section;

(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 

Formatted: Highlight

Formatted: Highlight
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86

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 

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.

(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
MEETING 2

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87

(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, 

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; [SEE ALSO ISSUE 

PAPER #4 FOR NEW LANGUAGE]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 §682.2156; 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.

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88

(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 §682.215(c); and

(B) Certify the borrower's intent to 

satisfy the requirements of §682.215(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 

should resume. The lender's notification 

shall state that the borrower or endorser—
MEETING 2

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89

(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 income-sensitive 

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. 

§ 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:
MEETING 2

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90

(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 

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 
MEETING 2

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91

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]

§ 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]

§ 682.214 [Reserved]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]

§682.215 Income-based repayment plan.

[SEE ALSO ISSUE PAPER #2 FOR NEW 

LANGUAGE]

(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 

Formatted: Indent: First line: 0.25"

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92

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 

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 
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93

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 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 

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 an incomebased 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 an income-based 

repayment plan, the loan holder must, 

unless the borrower requests otherwise, 

require that all eligible loans owed by the 

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 threeyear 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 
MEETING 2

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94

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 an 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 an 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 an income-based 

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 

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 may require 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 on the borrower's 

eligible loans that were outstanding at the 

time the borrower began repayment on the 

loans with that holder under the incomebased 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) The time remaining under the 

maximum ten-year repayment period for 

the amount of the borrower's loans that 

were outstanding at the time the borrower 

discontinued paying under the incomebased repayment plan; or
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95

(ii) For a Consolidation Loan, the 

applicable repayment period remaining 

specified in §682.209(h)(2) for the total 

amount of that loan and the balance of 

other student loans that was outstanding at 

the time the borrower discontinued paying 

under the income-based repayment plan.

(e) Eligibility documentation and 

verification. (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)(A) Provide written consent to the 

disclosure of AGI and other tax return 

information by the Internal Revenue Service 

to the loan holder. The borrower provides 

consent by signing a consent form and 

returning it to the loan holder;

(B) 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, the loan holder may use other 

documentation provided by the borrower 

to verify income; and

(ii) 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) The loan holder designates the 

repayment option described in paragraph 

(d)(1) of this section for any borrower who 

selects the income-based repayment plan 

but—

(i) Fails to renew the required written 

consent for income verification; or

(ii) Withdraws consent and does not 

select another repayment plan.

(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 under paragraph (b)(1) of this 

section. Monthly payments of $0.00 qualify 

as reduced monthly payments as provided 

in paragraph (b)(1)(ii) 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;

(iv) Made monthly payments under the 

FFEL standard repayment plan described in 

§682.209(a)(6)(vi) based on a 10-year 

repayment period for the amount of the 

borrower's loans that were outstanding at 

the time the borrower first selected the 

income-based repayment plan; or

(v) Received an economic hardship 

deferment on eligible FFEL loans.
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96

(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 a 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 incomebased 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;

(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 (f)(1) after 

qualifying for the income-based repayment 

plan.

(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) A borrower repaying a defaulted 

loan is not considered to be repaying under 

a qualifying repayment plan for the purpose 

of loan forgiveness, and any payments 

made on a defaulted loan are not counted 

toward the 25-year forgiveness period.

(g) Loan forgiveness processing and 

payment. (1) No later than 60 days after the 

loan holder determines that a borrower 

qualifies for loan forgiveness under 

paragraph (f) of this section, the loan holder 

must request payment from the guaranty 

agency.

(2) If the loan holder requests payment 

from the guaranty agency later than the 
MEETING 2

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97

period specified in paragraph (g)(1) 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.

(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.

(ii) If the guaranty agency approves the 

loan forgiveness, it must, within the same 

45-day period required under paragraph 

(g)(3)(i) of this section, pay the holder the 

amount of the forgiveness.

(4) 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, inform the 

borrower of the determination and, if 

appropriate, that the borrower's repayment 

obligation on the loans for which incomebased forgiveness was requested is 

satisfied. The lender must also provide the 

borrower with information on the required 

handling of the forgiveness amount.

(5)(i) The holder must apply the 

proceeds of the income-based repayment 

loan forgiveness amount to satisfy the 

outstanding balance on those loans for 

which income-based forgiveness was 

requested; 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.

(6) 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).

(7) 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.

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

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

74 FR 55995, Oct. 29, 2009]

§ 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 
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98

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 

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 
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99

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 fulltime 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) 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) 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 
MEETING 2

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100

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) 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—

(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) To qualify for loan forgiveness as a 

highly qualified teacher, the teacher must 
MEETING 2

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101

have been a highly qualified teacher for all 

five years of eligible teaching service.

(6) 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) 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 Forces 

named in section 10101 of title 10, United 

States Code.

(8) 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) 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) A borrower is not eligible for 

teacher loan forgiveness on a defaulted 

loan unless the borrower has made 

satisfactory repayment arrangements to re-
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102

establish title IV eligibility, as defined in 

§682.200.

(11) 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 discharge 

processing. (1) A holder grants a 

forbearance—

(i) Under §682.211(h)(2)(ii)(C) and 

(h)(3)(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 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).
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(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 forgiveness discharge 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 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 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.

(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, it must, within the same 45-day 

period, pay the holder the amount of the 

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, the 

holder must, within 30 days, inform the 

borrower of the determination. If the 

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 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 
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accrues on the discharged 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.

(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;
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(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;

(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;

(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 
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106

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 

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]

§ 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, 
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107

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]

§ 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

Formatted: Highlight
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108

(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—

(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;
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109

(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 

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;
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110

(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 

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 one-half 

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 tax-exempt 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 
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111

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;

(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) 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 

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.

(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—
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112

(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—

(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 taxexempt 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—
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113

(A) That was made or purchased prior to 

December 31, 2010, or

(B) That was earning, before December 

31, 2010, a quarterly rate of 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 not-forprofit 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 
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114

Publication H–15 (or its successor) for such 

3-month period;

(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.

(iii) An entity that otherwise qualifies 

under paragraph (f)(3)(i) of this section shall 
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115

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 notfor-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 

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.
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116

(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), 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-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.
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117

(C) Loans owned by the State or nonprofit 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 nonprofit 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 non-profit 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.

(B) A separately submitted certification 

or opinion by the State or non-profit 

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;
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118

(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 5013(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 Notfor-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 nonprofit 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 non-profit 

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 non-profit 

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 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-forprofit holder has not lost its eligibility, the 

eligible not-for-profit 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 
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119

(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 

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]
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120

§ 682.303 [Reserved]

§ 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 
MEETING 2

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121

for qualifying loans at the applicable 

interest rate.

(3) The Secretary computes the special 

allowance payable to a lender based 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]

§ 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 
MEETING 2

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122

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 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;
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(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 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) 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;
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124

(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 

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, 
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125

multiplying the result by the average daily 

principal balance of the loan (not including 

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.

(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 

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; 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.
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126

(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]

§ 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.
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127

(ii) Loans must be available to or on 

behalf of any student for at least six 

academic years of study.

(41) 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)(41). 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 [SEE ALSO ISSUE PAPER #8 FOR NEW 

LANGUAGE]—

(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 

Formatted: Highlight
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128

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;

(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 half-time, 

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;
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129

(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

(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.

(72) 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), 
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130

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 

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.

(103) Insurance premiums and Federal 

default fees. (i) Except for a Consolidation 

Loan or 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 non-Federal 

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 
MEETING 2

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131

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;

(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.

(114) 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 
MEETING 2

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132

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 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.

(145) 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.

(156) 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.

(167) 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.

(178) Loan assignment. (i) Except as 

provided in paragraph (b)(17)(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.
MEETING 2

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133

(iii) The guaranty agency must allow a 

loan to be assigned under paragraph 

(b)(17)(i) of this section, following the first 

disbursement of the loan if the assignment 

does not result in a change in the identity of 

the party to whom payments must be 

made.

(189) 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.

(1910) 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.

(2011) 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 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.

(2112) 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.

(2213) 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).

(2314) Guaranty agency transfer of 

information. (i) A guaranty agency from 

which another guaranty agency requests 
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134

information regarding Stafford and SLS 

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)(i) of this 

section must be paid by the guaranty 

agency making the request.

(2415) 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.

(2516) 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.

(2617) 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.

(2718) 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 

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) 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 collection 

costs charged or 8.5 percent of the 
MEETING 2

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135

outstanding principal and interest of the 

loan.

(iv)(i) 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)(2718)(vii) of this 

section, a guaranty agency must remit the 

entire amount of collection costs repaid 

through the consolidation loan pursuant to 

paragraph (b)(1827)(ii) of this section.

(vii) 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.

(2819) 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.

(2920) 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.

(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.
MEETING 2

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136

(4) The guaranty agency must develop 

policies and operating procedures for its 

lender-of-last-resort program that provide 

for the accessibility of lender-of-last-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-of-last-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-of-lastresort 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.

(dc) 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 
MEETING 2

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137

agency's program, and any proposed 

changes to those materials. Except as 

provided in paragraph (dc)(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 established by 

the Secretary for loans made under the 

multi-year feature of the MPN.

(54) 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.

(65) The guaranty agency shall ensure 

that all program materials meet the 

requirements of Federal and State law, 
MEETING 2

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138

including, but not limited to, the Act and 

the regulations in this part and part 668.

(ed) Permissible activities. (1) A 

guaranty agency may, either directly or 

through an agent or contractor, provide -

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 

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 

Formatted: Font: Italic
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139

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, aA guaranty 

agency mayis 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;

(iii) Default aversion services activities

for FFEL program borrowers approved by 

the Secretary under section 422(h)(4)(B) 

and 433A of the Act;

(iiiii) Student aid and financial-literacy 

related outreach servicesactivities, 

including in-person 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.; butA a

guaranty agency may promote benefits 

provided under other Federal or State 

programs administered by the guaranty 

agency;
MEETING 2

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140

(iviii) 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;

(viv) 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;

(viv) 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;

(viivi) Toll-free telephone numbers for 

use by schools or others to obtain 

information about FFEL State and Federal 

student financial assistance loans and free 

data transmission services for use by 

schools to electronically submit applicant 

loan processing FFEL borrower information 

or student enrollmentstatus confirmation

data;

(viii) Payment of Federal default fees in 

accordance with the Act;

(ixvii) 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

(xviii) 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.

(32) 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 nonfinancial aid related computer software at 

below market rental or purchase cost, and 

the printing and distribution of college 

catalogs and other non-counseling or nonstudent financial aid-related 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 
MEETING 2

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141

lender's participation in the agency's 

program.

(fe) 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 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.

(gf)(1) A guaranty agency must work 

with schools that participate 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)(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 

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 (gf)(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 
MEETING 2

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142

Finding Aids section of the printed volume 

and on GPO Access. 

§ 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 
MEETING 2

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143

must refund that amount of the payment to 

the Secretary.

(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.

(c)(1) Total and permanent disability.[ 

SEE ISSUE PAPERS #13, 14, AND 15 FOR 

NEW LANGUAGE]

(d) Closed school —[SEE ALSO ISSUE 

PAPER #16 FOR NEW LANGUAGE](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 

Formatted: Highlight

Formatted: Highlight
MEETING 2

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144

enrolled, closed, or the borrower (or 

student) withdrew from the school not 

more than 90 days prior to the date the 

school closed. This 90-day period may be 

extended if the Secretary determines that 

exceptional circumstances related to a 

school's closing would justify an extension.

(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

(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 
MEETING 2

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145

with §682.605(c), or the student withdrew 

from the school not more than 90 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 

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.
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146

(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.

(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 

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 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 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 
MEETING 2

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147

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 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 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.
MEETING 2

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148

(J) 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.

(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 

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 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 locate 

the borrower and further determine the 

borrower's potential eligibility for a 
MEETING 2

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149

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 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 

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.
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150

(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.

(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 under the William D. Ford 

Federal Direct Loan Program; or

(ii) The Secretary or the guaranty 

agency, with the Secretary's permission, 
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151

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 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 
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152

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) 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 

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
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153

(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 identifty 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 

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 
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154

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, 

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.
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155

(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 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 
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156

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 

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.
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157

(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 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 
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158

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—

(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 
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159

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 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 
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160

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—

(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;
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(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 

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 
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162

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 

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.
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163

(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—

(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.
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164

(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.

(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, 
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165

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 

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 certification of disability 

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

(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 
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166

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 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, or the 

lender determines that the borrower is 

totally and permanently disabled.

(ii) 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.

(iii) 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.

(iv) A lender shall file a bankruptcy claim 

with the guaranty agency by the earlier of—

(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 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 and 

bankruptcy claims; and

(B) Not later than 90 days after the 

claim was filed by the lender for disability, 

closed school, or false certification claims.
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167

(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 request processed 

in accordance with §682.402(c)(8), the 

guaranty agency shall—

(A) Review the claim promptly and not 

later than 45 days after the claim was filed 

by the lender submit the veteran's 

discharge application and supporting 

documentation to the Secretary or return 

the claim to the lender in accordance with 

§682.402(c)(8)(ii)(D) or (E), as applicable; 

and

(B) Not later than 45 days after receiving 

notification from the Secretary of the 

veteran's eligibility or ineligibility for 

discharge, pay the claim or return the claim 

to the lender in accordance with 

§682.402(c)(8)(ii)(F) or (G), as applicable.

(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 

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 
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168

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.

(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 or bankruptcy 

claims; or

(B) 90 days for disability, closed school, 

or false certification claims.

(i) Guaranty agency participation in 

bankruptcy proceedings —(1) Undue 

hardship claims. (i) In response to a petition 
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169

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 

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
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170

(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.

(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 
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171

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 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 the 

borrower (or each of the co-makers of a 

PLUS loan) has become totally and 

permanently disabled since applying for the 

loan, or has filed for relief in bankruptcy, in 

accordance with the procedures in 

paragraphs (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;

(ii) In the case of a Stafford, SLS, or PLUS 

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 the 

borrower (or each of the co-makers of a 

PLUS loan) has become totally and 

permanently disabled since applying for the 

loan, 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 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;

(iii) In the case of a Consolidation loan, 

the borrower (or one of the co-makers) has 

died, is determined 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;

(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 
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172

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 

guaranty agency makes a preliminary 

determination that the borrower became 

totally and permanently disabled until the 

Secretary authorizes payment; or

(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) 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 
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173

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) 

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) 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 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.
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(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 

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)—
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175

(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 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) 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 
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176

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

(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 
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177

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 

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 for 

determination of eligibility for a total and 

permanent disability discharge, the 

guaranty agency must forward those 

payments to the Secretary for crediting to 

the borrower's account. At the same time 

that the agency forwards the payments, it 

must notify the borrower that there is no 

obligation to make payments on the loan 

while it is conditionally discharged prior to a 

final determination of eligibility for a total 

and permanent disability discharge, unless 

the Secretary directs the borrower 

otherwise.

(3) When the Secretary makes a final 

determination to discharge the loan, the 

Secretary returns to the sender any 

payments received on the loan after the 

date the borrower became totally and 

permanently disabled.

(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;
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178

(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 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. 

§ 682.403 [Reserved]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

Formatted: Level 5, Indent: First line: 0"
MEETING 2

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179

(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.

(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]

§ 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;

Formatted: Level 5
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180

(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.

(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 
MEETING 2

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181

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 is consistent with 

§682.509(a)(1); or

(iii) That were filed by lenders at the 

direction of the Secretary;

(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;
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182

(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 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 

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 

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
MEETING 2

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183

(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

(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) 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 
MEETING 2

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184

original principal amount of outstanding 

loans.

(j) 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) 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.

(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)(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)(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) Other terms. The reinsurance 

agreement contains other terms and 

conditions that the Secretary finds 

necessary to—
MEETING 2

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185

(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]

§ 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 payments required under a monthly 

repayment agreement.

(A) Each of which payments is—

(1) Made voluntarily; [SEE ALSO ISSUE 

PAPER #9 FOR NEW LANGUAGE]

(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) 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 

Formatted: Highlight
MEETING 2

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186

rehabilitation program meets the following 

requirements at all times:

(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 of the ten 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

(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 reasonable and affordable 

by the guaranty agency or its agents must—

[SEE ALSO ISSUE PAPER #8 FOR NEW 

LANGUAGE]

(A) Include a consideration of the 

borrower's and spouse's disposable income 

and reasonable and necessary expenses 

including, but not limited to, housing, 

utilities, food, medical costs, work-related 

expenses, dependent care costs 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 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

(3) A statement of the unpaid balance 

on all FFEL loans held by other holders.

(iv) The agency must include any 

payment made under §682.401(b)(4) in 

determining whether the nine out of ten 

payments required under paragraph (b)(1) 

of this section have been made.

(v) 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.

Formatted: Highlight
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187

(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 

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.
MEETING 2

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188

(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]

§ 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 
MEETING 2

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189

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;

(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 
MEETING 2

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190

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)

[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]

§ 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 
MEETING 2

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191

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.

(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 
MEETING 2

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192

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 

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—
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193

(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 

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.
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194

(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 

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.
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(4) Documentation that an eligible 

victim died due to injuries suffered in the 

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 hours of the 

injury having been sustained or within 24 

hours of the rescue; and

(iii) A certification by a physician, who is 

a doctor of medicine or osteopathy and 
MEETING 2

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196

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 

additional information may include but is 

not limited to—
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197

(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 

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.
MEETING 2

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198

[71 FR 78080, Dec. 28, 2006, as amended at 

72 FR 55053, Sept. 28, 2007]

§ 682.408 [Reserved]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]

§ 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 

Formatted: Level 5, Indent: First line: 0"

Formatted: Level 5
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199

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) 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 

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.
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200

(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 

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.
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201

(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) 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.

(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 
MEETING 2

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202

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 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 
MEETING 2

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203

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]

§ 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 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 
MEETING 2

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204

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;

(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 
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205

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—

(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
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(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 

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 
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207

guarantor, excluding loan guarantees 

transferred to another agency pursuant to a 

plan of the Secretary in response to the 

insolvency of the agency;

(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 
MEETING 2

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208

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) 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) 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 that 

result from information received after the 

initial report; and
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209

(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 pastdue 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;

(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;
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210

(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 pastdue 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 

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 
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211

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) 

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.
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(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 described in §682.509(a)(1).

(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.[SEE 

ALSO ISSUE PAPER #25 FOR NEW 

LANGUAGE] (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) At least 30 days before the initiation 

of garnishment proceedings, the guaranty 

agency shall mail to the borrower's last 

known address, a written notice 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.

(C) The guaranty agency shall offer the 

borrower an opportunity to inspect and 

copy agency records related to the debt.

(D) The guaranty agency shall offer the 

borrower an opportunity to enter into a 

written repayment agreement with the 

agency under terms agreeable to the 

agency.

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(E) The guaranty agency shall offer the 

borrower an opportunity for a hearing in 

accordance with paragraph (b)(9)(i)(J) of 

this section concerning the existence or the 

amount of the debt and, 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.

(F) 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.

(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) If the borrower's written request is 

received by the guaranty agency on or 

before the 15th day following the 

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. 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 shall 

provide a hearing to the borrower in 

sufficient time to permit a decision, in 

accordance with the procedures that the 

agency may prescribe, to be rendered 

within 60 days.

(L) If the borrower's written request is 

received by the guaranty agency after the 

15th day following the borrower's receipt of 

the notice described in paragraph 

(b)(9)(i)(B) of this section, the guaranty 

agency shall provide a hearing to the 

borrower in sufficient time that a decision, 
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214

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. 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) The hearing official appointed by 

the agency to conduct the hearing may be 

any qualified individual, including an 

administrative law judge, not under the 

supervision or control of the head of the 

guaranty agency.

(N) The hearing official shall 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.

(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.

(ii) References to “the borrower” in this 

paragraph include all endorsers on a loan.

(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 

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 
MEETING 2

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215

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 

each guaranty agency, the Student Loan 

Marketing Association; and

(C) Each participating school, located in 

a State for which the guaranty agency is the 

principal guaranty agency, that has a cohort 

default rate that includes FFEL program 

loans, as described in subpart M or N of 34 

CFR part 668, for either of the 2 

immediately preceding fiscal years, as 

defined in 34 CFR 668.182, that exceeds 

either 20 percent [subpart M] or 30 percent

[subpart N], unless the school is under a 

mandate from the Secretary under subpart 

M or N of 34 CFR part 668 to take specific 

default reduction measures or if the total 
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216

dollar amount of loans entering repayment 

in each fiscal year on which the cohort 

default rate of over 20 percent or 30 

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)(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.

(54) 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.

(65) 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.

(76) 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.

(87) Referring appropriate cases to State 

or local authorities for criminal prosecution 

or civil litigation.

(98) Promptly notifying the Secretary 

of—

(i) Any action it takes affecting the FFEL 

program eligibility of a participating lender 

or title IV eligibility of school;

(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
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217

(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) Cooperating with all program 

reviews, investigations, and audits 

conducted by the Secretary relating to the 

agency's loan guarantee program.

(11) 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]

§ 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 
MEETING 2

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218

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 

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.
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(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.

(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 
MEETING 2

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220

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.

(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;
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(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 

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 
MEETING 2

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222

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).

(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
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223

(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]

§ 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 
MEETING 2

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224

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) 

(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]

§ 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 
MEETING 2

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225

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).

(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 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 
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226

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 

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.
MEETING 2

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227

(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 

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 §682.401(e) as it existed prior 

to July 1, 2013, if the Secretary finds that 

the guaranty agency provided or offered 

the payments or activities listed in 

§682.401(e)(1) as it existed prior to July 1, 

2013, 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]

§ 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;
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228

(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—

(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 
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229

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 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 
MEETING 2

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230

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 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 

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 
MEETING 2

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231

originating lenders on all loans guaranteed 

after December 31, 1980:

(i) Schools.

(ii) State or private nonprofit lenders.

(iii) Commercial financial institutions 

(banks, savings and loan associations, and 

credit unions); and .

(iiiv) 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 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) and (22), 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]

§ 682.415 [Reserved]

§ 682.416 Requirements for third-party 

servicers and lenders contracting with 

third-party servicers.
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232

(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 

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 
MEETING 2

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233

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 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 third-party 

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 

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 
MEETING 2

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234

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]

§ 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 
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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 

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 
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236

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;

(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.
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237

(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 

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 
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238

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]

§ 682.418 [Reserved] 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 

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239

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, 

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 
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240

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 

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]

§ 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.
MEETING 2

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241

(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 §682.421;

(7) To refund insurance premiums or 

Federal default fees related to loans 

cancelled or refunded, in whole or in part;

(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—
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242

(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]

§ 682.420 [Reserved]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 

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243

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]

§ 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;
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244

(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.

(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]

§ 682.422 [Reserved] 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.

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(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]

§ 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 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;
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(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 aid-related 

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 [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 

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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.

(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)

§ 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 

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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.

(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)

§ 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;

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(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)

§ 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 school-by-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)

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§ 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)

§ 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

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(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

(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]

§ 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).

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(Authority: 20 U.S.C. 1075, 1077, 1078–1, 

1078–2, 1079, 1082, 1089)

§ 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 six-month 

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 

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payment, the lender shall request preclaims 

assistance from the Department of 

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]

§ 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 

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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]

§ 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)

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§ 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)

§ 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 co-makers, 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.

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(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.

(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]

§ 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 

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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.

(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]

§ 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 

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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)

§ 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)

§ 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 

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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 That 

Participated

§ 682.600 [Reserved]

§ 682.601 [Reserved]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;

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(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 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 needbased 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.
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261

(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]

§ 682.602 [Reserved]Rules for a school or 

school-affiliated 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 schoolaffiliated 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 schoolaffiliated 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]

§ 682.603 Certification by a participating 

school in connection with a loan 

application.

(a) A school shall certify that the 

information it provides in connection with a 

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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 

§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

(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—
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263

(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 caseby-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, 

income, or selection of a particular lender 

or guaranty agency.

(2 g) The maximum period for which a 

school may certify a loan application is—

(i1) 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 
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264

annual loan limits under §682.401(b)(2)(ii); 

or

(ii2) For a defaulted borrower who has 

regained eligibility under §682.401(b)(4), 

the academic year in which the borrower 

regained eligibility.

(3h) In certifying a Stafford or 

Unsubsidized Stafford SLS loan amount in 

accordance with §682.204—

(i1) A program of study must be 

considered at least one full academic year 

if—

(Ai) The number of weeks of 

instructional time is at least 30 weeks; and

(Bii) 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.

(ii2) A program of study must be 

considered two-thirds2/3 of an academic 

year if—

(Ai) The number of weeks of 

instructional time is at least 20 weeks; and

(Bii) 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.

(iii3) A program of study must be 

considered one-third1/3of an academic 

year if—

(Ai) The number of weeks of instruction 

time is at least 10 weeks; and

(Bii) 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.

(4i) 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.

(gi)(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 
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265

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.

(h)(1) The minimum period of 

enrollment for which a school may certify a 

loan application is—

(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 SLS loan 

amount in accordance with §682.204—

(i) A program of study must be 

considered at least one full academic year 

if—

(A) The number of weeks of instruction 

time is at least 30 weeks; and

(B) 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) A program of study must be 

considered two-thirds2/3of an academic 

year if—

(A) The number of weeks of instruction 

time is at least 20 weeks; and

(B) 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.
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(iii) A program of study must be 

considered one-third1/3of an academic 

year if—

(A) The number of weeks of instruction 

time is at least 10 weeks; and

(B) 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.

(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.

(ij)(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.

(jk) 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.

(jl) 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 §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). 

§ 682.604 Required Exit Processing the 

borrower's loan proceeds and counseling 

for borrowers.
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267

(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) 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.

(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 
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268

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—

(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 
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269

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 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).
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270

(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, 

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;
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271

(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 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;
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272

(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 half-time 

enrollment at the school, during regular 

terms and summer school, if applicable, and 

the consequences of not maintaining halftime 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 

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.

(ga) 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 
MEETING 2

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273

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;

(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;
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274

(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;

(ixvii) Describe the likely consequences 

of default, including adverse credit reports, 

delinquent debt collection procedures 

under Federal law, and litigation;

(xviii) 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;

(xiix) 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 

borrower's records within 60 days after the 

student borrower provides the information;

(xii) Review for the student borrower 

information on the availability of the 

Student Loan Ombudsman's office;

(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

(xivi) 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 §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 (a)(2)(i) and (ii).
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275

(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 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 re-disburse 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 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. 

§ 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 
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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 the date that the student has 

withdrawn from the school.

(c) For the purpose of a school's 

reporting to a lender, 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]

§ 682.606 [Reserved]

§ 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]

§ 682.608 [Reserved]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 
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277

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—

(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
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278

(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 

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.
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279

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

1, 1078–2, 1082, 1085)

§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)

§ 682.610 Administrative and fiscal 

requirements for participating schools.

(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

Formatted: Indent: First line: 0.25"
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280

(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 program loan; and

(6) Documentation of any MPN 

confirmation process or processes the 

school may have used.

(c) Student status confirmation 

reports.[SEE ALSO ISSUE PAPER #18 FOR 

NEW LANGUAGE] 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;

(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.

(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) Formatted: Highlight
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281

[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]

§ 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.

(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 third-party 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;

(2) To a school's loss of lending eligibility 

under §682.608; or

(23) 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)
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282

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

59 FR 22456, Apr. 29, 1994]

§ 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]

§ 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

(32) Other reasonable requirements or 

conditions, including those described in 

§682.709.
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283

(c) A limitation imposes on a third-party 

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]

§ 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]

§ 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—
MEETING 2

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284

(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]

§ 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 
MEETING 2

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285

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.

(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]

§ 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;
MEETING 2

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286

(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

(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 
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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 

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]

§ 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.
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(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]

§ 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]

§ 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).

(Authority: 20 U.S.C. 1080, 1082, 1094)

[59 FR 22459, Apr. 29, 1994]
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289

§ 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]

§ 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.

(cd) Within 60 days after receiving a 

request for reinstatement, the Secretary—

(1) Grants the request;

(2) Denies the request; or
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290

(3) Grants the request subject to 

limitations.

(de)(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 (dc)(3) of this section, may 

participate in those programs, subject to 

those limitations, pending a decision by the 

Secretary on a request under paragraph 

(ed)(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]

§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.
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291

(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.

(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) 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) 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) 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 
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292

termination of eligibility of a lender under 

the FISL Program (34 CFR part 682, subpart 

G).

(ji) 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;

(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]

§ 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.

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(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.

(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
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294

(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 

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.

(a) For an Authority to receive special 

allowance payments on loans made or 

acquired with the proceeds of a tax-exempt 

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 

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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]

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, 682.511.1These 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 

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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.

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 
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297

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-

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 
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298

the lender's right to receive interest and 

special allowance payments is addressed in 

section I.B.1, below.

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 

culminated in default, and prior to the date 

of reinstatement of insurance coverage.
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299

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.

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 
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300

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 

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, 
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301

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 

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 
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302

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 

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 
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303

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 

Code of Federal Regulations (34 CFR part 

682).

Attachment A

NOTICE

Date

TO:

Social Security 

Number
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304

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.

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
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____________________

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]

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 
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306

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 

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).

(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 
MEETING 2

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307

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 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 
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308

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 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

The following definitions apply to terms 

used throughout this letter:
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309

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

(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.
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310

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 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 
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311

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 

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. 
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312

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 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 
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313

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 

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.
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314

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 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 
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315

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.

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.
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316

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—

(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 
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317

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 

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 
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318

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.

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?
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319

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 skip-tracing, 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]