cation of the borrower is unknown) and proof 
that contact was made with the borrower (when 
the location is known). The Secretary shall 
make the determination required to carry out 
the provisions of this subparagraph not later 
than 90 days after the notification by the insur-
ance beneficiary and shall make payment in full 
on the amount of the beneficiary’s loss pending 
completion of the due diligence investigation. 
(B) CONVERSION
BY
CANCELLATION.— 
Upon default by the student borrower on any 
Federal student loan described in section 
104(2)(B), the Secretary may, within 90 days 
after such default— 
(i) determine the amount of the loss 
on such loan; and 
(ii) notify the borrower of the conver-
sion of the obligation on the loan to the ob-
ligation to repay a direct IDEA loan. 
(2) AMOUNT OF THE LOSS.—The ‘‘amount of 
the loss’’ on any loan shall be deemed to be an 
amount equal to the sum— 
(A) the unpaid balance of the principal 
amount and accrued interest, including interest 
accruing during the period from the date of the 
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default to the date on which payment is author-
ized by the Secretary under paragraph (1)(A) 
or notice is sent under paragraph (1)(B), ex-
cept that such period shall not exceed 180 days; 
and 
(B) unpaid penalties and costs of collection 
incurred on the loan prior to the date of the de-
fault. 
(3) EFFECT OF PAYMENT OF LOSS.—Upon pay-
ment of the amount of the loss pursuant to para-
graph (1)(A), the United States shall be subrogated 
for all of the rights of the holder of the obligation 
upon the Federal student loan and shall be entitled 
to an assignment of the note or other evidence of the 
loan. 
(4) FORBEARANCE NOT PRECLUDED.—Nothing 
in this section or in this title shall be construed to 
preclude any forbearance for the benefit of the stu-
dent borrower which may be agreed upon by the par-
ties to a student loan described in section 104(2)(A) 
and approved by the Secretary, or to preclude for-
bearance by the Secretary in the enforcement of the 
obligation after conversion under paragraph (1). Any 
forbearance which is approved by the Secretary 
under this paragraph with respect to the repayment 
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of a loan, including a forbearance during default, 
shall not be considered as indicating that a holder 
of a Federal student loan has failed to exercise rea-
sonable care and due diligence in the collection of 
the loan. 
(5) CONVERSION.—Any loan which is repaid or 
cancelled by the Secretary under paragraph (1) 
shall, after the date of such repayment or cancella-
tion, be treated as a direct IDEA loan for purposes 
of collection under section 6307 of the Internal Rev-
enue Code of 1986. 
(c) NOTICE TO SECRETARY OF THE TREASURY.— 
The Secretary shall notify the Secretary of the Treasury 
of the loans that are converted to direct IDEA loans under 
this section. Such notice shall contain— 
(1) the name, address, and taxpayer identifica-
tion number of the borrower; 
(2) the amount owed by the borrower on any 
loan or loans that are converted under this section 
to an obligation under a direct IDEA loan; 
(3) such other information as the Secretary and 
the Secretary of the Treasury may require. 
SEC. 104. DEFINITIONS. 
As used in this title: 
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(1) SECRETARY.—The term ‘‘Secretary’’ means 
the Secretary of Education. 
(2) FEDERAL
STUDENT
LOANS.—The term 
‘‘Federal student loans’’ means— 
(A) any loan made under part B of title IV 
of the Higher Education Act of 1965 (20 
U.S.C. 1071 et seq.), other than a loan made 
under section 428B of such Act to the parent 
of a dependent student; and 
(B) any loan made under part D of such 
title, other than a Federal Direct Plus Loan to 
the parent of a dependent student. 
(3) ELIGIBLE
LENDER.—The term ‘‘eligible 
lender’’ has the meaning provided by section 435(b) 
of such Act (20 U.S.C. 1085(d)). 
(4) ELIGIBLE
STUDENT.—The term ‘‘eligible 
student’’ means any student that is an eligible stu-
dent under section 484 of such Act (20 U.S.C. 
1091). 
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