Source: http://cdm16804.contentdm.oclc.org/cdm/ref/collection/ACICS01/id/2248/
Timestamp: 2020-03-29 04:01:07
Document Index: 229433576

Matched Legal Cases: ['§ 177', '§ 177', '§ 177', '§ 177', '§ 177', '§ 177', '§ 177', '§ 177']

4.S871
ments or violating applicable statutory or regulatory provisions. These provi-sions are intended to assure the rights of the parties to the agreement by pro-viding for the various contingencies.
3. Paragraphs (a) (1) (i) and (ii) of 5 177.33, Payment of Federal interest benefits, have i een revised to reflect both the academic year and aggregate loan maximums to individual borrowers au-thorized by th ; Education Amendments of 1972.
4. Section 177.33(a) (1) (v) has been modified to specify when the repayment period must begin in the case of a cor-respondence student. This provision is identical to a provision that was adopted with respect to the Federal I tsured Stu-dent Loan Program in 1975. The Com-missioner's concern in this area stems primarily from the fact that he pays Federal interest benefits on behalf of elig :jle students until the repayment pe-riod begins, and also from the fact that default may be more likely if a borrower stops pursuing i is correspondence course on a timely basis.
5. Section 177.33(a) (1) (xii) requires that under a guarantee agency program, a lender must disburse the loan pro-ceeds in accordance with the proposed provisions for the Federal Insured Stu-dent Loan Program (in sections 177.57 (d), Disbursement to the student bor-rower through a . ec ucational institution by a lender whii h is not an educational institution, and section 177.57(e), Dis-bursement directly to the borrower by a lender which is an educational institu-tion). These provisions are intended to prevent a borrower who is not enrolled in school from using loan proceeds for non-edi cational expenses. The provisions she old thereby prevent defaults as well as demands on the Commissioner for in-terest benefits and special allowance payments under circumstances not con-templated by the statute.
6. Section 177.33(a) (1) (xv), which re-lates to deferment of repayment of prin-cipal, has been updated pursuant to 42 U.S.C. 5055(e) to eliminate the reference to full-time volunteers under Title VIII of the Economic Opportunity Act of 1964 (VISTA volunteers) and to substitute a reference to full-time volunteers under Title I of the Domestic Volunteer Service Act of 1973.
7. A new provision, 5 177.33(a)(1) (xvi), has been added to provide that the amount of a loan may not exceed the student's cost of education for the period of the loan less other aid that has been awarded to the student. While this has been the practice normally followed in the administration of the Guaranteed Student Loan Program, this provision has not previously been included in program regulations. The basis for thé provision is that a guaranteed loan is intended only to cover the borrower's educational exp >nses.
8. New § 177.33(b) (3) has been added to specify that a guarantee agency shall permit notes representing loans made under its program to be transferred or assigned, including assignment as secu-rity, only to an eligible lender (as defined
in § 177.11(e)), the Student Loan Mar-keting Association, or in cases of the bor-rower s default, death, or total and permanent disability, to the guarantee agency. This requirement parallels the restriction as to holders of Federally in-sured loans and is included because it would appear consistent with both the best reading of the law and the best ad-ministration of the program to exclude other parties from holding guaranteed loans. It should be noted that the Com-missioner will pay interest benefits and special allowances only to the "holder" of a loan, as that term is defined in 5 177.11 (k).
9. Section 177.35(b), dealing with Fed-eral reinsurance of loans made under guarantee agency programs, has been modified to specify that, in considering whether to enter into a reinsurance agreement with a guarantee agency, the Commissioner may review aspects of the iuarantee agency's operations as to which the Commissioner determines that there is a Federal interest.
10. Section 177.35(c)(1), dealing with guarantee agency reinsurance agree-ments, has been modified to require that the guarantee agency shall ensure that due diligence as described in § 177.59 is followed by its lenders in the making, servicing and collection of loans, unless the guarantee agency has established its own s;>ecific standards for due diligence. The regulation also requires the guaran-tee agency to follow these standards of due diligence in the collecting of de-faulted loans which it holds (including resort to litigation as appropriate) after payment of default claims to a lender. The purpose of these requirements is to ensure that a guarantee agency and its lenders are following prudent lending and collecting practices which will have the effect of keeping defaults to a mini-mum. The regulation further specifies that ,he execution of a reinsurance agreement with the Commissioner shall not be construed by the guarantee agency as indicating the Commissioner's accept-ance of any procedures that the guaran-tee agency currently employs or pre-viously has employed.
It should be emphasized that a guar-antee agency is not required to adopt the identical due diligence standards estab-lished for purposes of the Federal In-sured Student Loan Program. Provided, however, That the guarantee agency has established its own specific standards for due diligence. In cases where the guaran-tee agency has not previously established written standards for due diligence to be followed by its participating lenders, and where the guarantee agency does not wish to adopt the standards established for purposes of the Federal Insured Stu-dent Loan Program, it must now estab-lish written standards to be distributed to its own lenders through regulation or some other vehicle. Guarantee agencies are encouraged to review the due dili-gence standards established for the Fed-eral program in the development of their own standards.
11. Section 177.35(c)(2) requires that a guar an'«e agency assure the Commis-
sioner as part of a reinsurance claim that the terms of the underlying loan com-ply with all Federal requirements, that all reasonable efforts by the lender (or the Student Loan Marketing Associa-tion) and the guarantee agency have been made to collect the loan, and that the loan is in default as define ! in § 177.11(b).
This provision is similar to th€ re-quirement currently embodied in the guarantee agencies' agreements wit) the Commissioner.
12. Section 177.35(c) (4) describes the formula for payment by a guarantee agency to the Commissioner of m nies collected on defaulted loans after the Commissioner has reimbursed the guar-antee agency under the reinsurance provisions of the program. The out-standing reinsurance agreements lave specified that 80 percent of any pay. lent made by the borrower shall be pa; i to •the Commissioner, without deductioi for attorney's fees or other collection Costs. The basis for this preclusion of deduc-tions was language on page 66 of House Report No. 1919, September 25, 1968, the Conference Report which led to the Higher Education Amendments of 1968 (Pub. L. 90-575).
It is now proposed to modify this for-mula by providing that the guarantee agency may, prior to computing the amount of a payment due the Commis-sioner, deduct an amount collected from a borrower which is attributable to at-torney's fees incurred in obtaining a judgment against the borrower, provided that the amount deducted may not ex-ceed any provision in the judgment for attorney's fees (or, if no provision is made, 25 percent of the judgment), and that any partial payments made by the borrower as a result of such a judgment may not be allocated to attorney's fees in a greater proportion than a full pay-ment could be so allocated. While this proposed revision is not consistent with the statement of Congressional views found in the aforementioned 1968 Con-ference Report, the Commissioner be-lieves that, in light of subsequent Con-gressional concern about the cost to the United States of paying reinsurance i laims, there will be no objection by the c ongress to this proposed amendment to the regulations, which will hopefully lead to increased collection efforts on the part of guarantee agencies.
13. New i 177.35(c) (5) requires guar-antee agencies to submit to the Commis-sioner the portion of payments from de-faulted student borrowers which are due the Commissioner within sixty days of the receipt of such payments. This pro-posed revision is necessary as some guar-antee agencies have not repaid the Com-missioner on a timely basis.
14. Section 177.35(c) (6) specifies that, if the borrower dies or beeomes totally and permanently disabled, neither the lender nor guarantee agency is required to attempt to collect the amount of the loan. (Loans made prior to December 15, 1968 are, however, not subject to dis-charge by the Commissioner under I 177.24.) The same provision would au-
FEDERAL REGISTER, V O L 41, NO. 215—FRIDAY, NOVEMBER 5, 1976
Transcript PROPOSED RULES 4.S871 ments or violating applicable statutory or regulatory provisions. These provi-sions are intended to assure the rights of the parties to the agreement by pro-viding for the various contingencies. 3. Paragraphs (a) (1) (i) and (ii) of 5 177.33, Payment of Federal interest benefits, have i een revised to reflect both the academic year and aggregate loan maximums to individual borrowers au-thorized by th ; Education Amendments of 1972. 4. Section 177.33(a) (1) (v) has been modified to specify when the repayment period must begin in the case of a cor-respondence student. This provision is identical to a provision that was adopted with respect to the Federal I tsured Stu-dent Loan Program in 1975. The Com-missioner's concern in this area stems primarily from the fact that he pays Federal interest benefits on behalf of elig :jle students until the repayment pe-riod begins, and also from the fact that default may be more likely if a borrower stops pursuing i is correspondence course on a timely basis. 5. Section 177.33(a) (1) (xii) requires that under a guarantee agency program, a lender must disburse the loan pro-ceeds in accordance with the proposed provisions for the Federal Insured Stu-dent Loan Program (in sections 177.57 (d), Disbursement to the student bor-rower through a . ec ucational institution by a lender whii h is not an educational institution, and section 177.57(e), Dis-bursement directly to the borrower by a lender which is an educational institu-tion). These provisions are intended to prevent a borrower who is not enrolled in school from using loan proceeds for non-edi cational expenses. The provisions she old thereby prevent defaults as well as demands on the Commissioner for in-terest benefits and special allowance payments under circumstances not con-templated by the statute. 6. Section 177.33(a) (1) (xv), which re-lates to deferment of repayment of prin-cipal, has been updated pursuant to 42 U.S.C. 5055(e) to eliminate the reference to full-time volunteers under Title VIII of the Economic Opportunity Act of 1964 (VISTA volunteers) and to substitute a reference to full-time volunteers under Title I of the Domestic Volunteer Service Act of 1973. 7. A new provision, 5 177.33(a)(1) (xvi), has been added to provide that the amount of a loan may not exceed the student's cost of education for the period of the loan less other aid that has been awarded to the student. While this has been the practice normally followed in the administration of the Guaranteed Student Loan Program, this provision has not previously been included in program regulations. The basis for thé provision is that a guaranteed loan is intended only to cover the borrower's educational exp >nses. 8. New § 177.33(b) (3) has been added to specify that a guarantee agency shall permit notes representing loans made under its program to be transferred or assigned, including assignment as secu-rity, only to an eligible lender (as defined in § 177.11(e)), the Student Loan Mar-keting Association, or in cases of the bor-rower s default, death, or total and permanent disability, to the guarantee agency. This requirement parallels the restriction as to holders of Federally in-sured loans and is included because it would appear consistent with both the best reading of the law and the best ad-ministration of the program to exclude other parties from holding guaranteed loans. It should be noted that the Com-missioner will pay interest benefits and special allowances only to the "holder" of a loan, as that term is defined in 5 177.11 (k). 9. Section 177.35(b), dealing with Fed-eral reinsurance of loans made under guarantee agency programs, has been modified to specify that, in considering whether to enter into a reinsurance agreement with a guarantee agency, the Commissioner may review aspects of the iuarantee agency's operations as to which the Commissioner determines that there is a Federal interest. 10. Section 177.35(c)(1), dealing with guarantee agency reinsurance agree-ments, has been modified to require that the guarantee agency shall ensure that due diligence as described in § 177.59 is followed by its lenders in the making, servicing and collection of loans, unless the guarantee agency has established its own s;>ecific standards for due diligence. The regulation also requires the guaran-tee agency to follow these standards of due diligence in the collecting of de-faulted loans which it holds (including resort to litigation as appropriate) after payment of default claims to a lender. The purpose of these requirements is to ensure that a guarantee agency and its lenders are following prudent lending and collecting practices which will have the effect of keeping defaults to a mini-mum. The regulation further specifies that ,he execution of a reinsurance agreement with the Commissioner shall not be construed by the guarantee agency as indicating the Commissioner's accept-ance of any procedures that the guaran-tee agency currently employs or pre-viously has employed. It should be emphasized that a guar-antee agency is not required to adopt the identical due diligence standards estab-lished for purposes of the Federal In-sured Student Loan Program. Provided, however, That the guarantee agency has established its own specific standards for due diligence. In cases where the guaran-tee agency has not previously established written standards for due diligence to be followed by its participating lenders, and where the guarantee agency does not wish to adopt the standards established for purposes of the Federal Insured Stu-dent Loan Program, it must now estab-lish written standards to be distributed to its own lenders through regulation or some other vehicle. Guarantee agencies are encouraged to review the due dili-gence standards established for the Fed-eral program in the development of their own standards. 11. Section 177.35(c)(2) requires that a guar an'«e agency assure the Commis- sioner as part of a reinsurance claim that the terms of the underlying loan com-ply with all Federal requirements, that all reasonable efforts by the lender (or the Student Loan Marketing Associa-tion) and the guarantee agency have been made to collect the loan, and that the loan is in default as define ! in § 177.11(b). This provision is similar to th€ re-quirement currently embodied in the guarantee agencies' agreements wit) the Commissioner. 12. Section 177.35(c) (4) describes the formula for payment by a guarantee agency to the Commissioner of m nies collected on defaulted loans after the Commissioner has reimbursed the guar-antee agency under the reinsurance provisions of the program. The out-standing reinsurance agreements lave specified that 80 percent of any pay. lent made by the borrower shall be pa; i to •the Commissioner, without deductioi for attorney's fees or other collection Costs. The basis for this preclusion of deduc-tions was language on page 66 of House Report No. 1919, September 25, 1968, the Conference Report which led to the Higher Education Amendments of 1968 (Pub. L. 90-575). It is now proposed to modify this for-mula by providing that the guarantee agency may, prior to computing the amount of a payment due the Commis-sioner, deduct an amount collected from a borrower which is attributable to at-torney's fees incurred in obtaining a judgment against the borrower, provided that the amount deducted may not ex-ceed any provision in the judgment for attorney's fees (or, if no provision is made, 25 percent of the judgment), and that any partial payments made by the borrower as a result of such a judgment may not be allocated to attorney's fees in a greater proportion than a full pay-ment could be so allocated. While this proposed revision is not consistent with the statement of Congressional views found in the aforementioned 1968 Con-ference Report, the Commissioner be-lieves that, in light of subsequent Con-gressional concern about the cost to the United States of paying reinsurance i laims, there will be no objection by the c ongress to this proposed amendment to the regulations, which will hopefully lead to increased collection efforts on the part of guarantee agencies. 13. New i 177.35(c) (5) requires guar-antee agencies to submit to the Commis-sioner the portion of payments from de-faulted student borrowers which are due the Commissioner within sixty days of the receipt of such payments. This pro-posed revision is necessary as some guar-antee agencies have not repaid the Com-missioner on a timely basis. 14. Section 177.35(c) (6) specifies that, if the borrower dies or beeomes totally and permanently disabled, neither the lender nor guarantee agency is required to attempt to collect the amount of the loan. (Loans made prior to December 15, 1968 are, however, not subject to dis-charge by the Commissioner under I 177.24.) The same provision would au- FEDERAL REGISTER, V O L 41, NO. 215—FRIDAY, NOVEMBER 5, 1976