An Act to establish a system of loan insurance and a supplementary system of direct loans, to assist students to attend postsecondary business, trade, technical, and other vocational schools
PL 89-287 (H.R.7743), enacted 10/22/1965

79 STAT. ] 
PUBLIC LAW 89-287-OCT. 22, 1965 
1037 
Public Law 89-287 
A N A C T 
October 22, 1965 
To establish a system of loan insuirance and a supplementary system of direct 
LJ—: 
i— 
loans, to assist students to attend post-secondary business, trade, technical, 
and other vocational schools. 
Be it enacted hy the Senate and House of Representatives 
of the 
United States of America in Congress assemhled^ That this Act may . National voca-
be cited as the "National Vocational Student Loan Insurance Act of Loan instance 
1965". 
^^^ °^ 1965. 
STATEMENT OF PURPOSE AND APPROPRIATIONS AUTHORIZED 
SEC. 2. (a) The purpose of this Act is to enable the Commissioner 
(1) to encourage States and nonprofit private institutions and orga-
nizations to establish adequate loan insurance programs for students 
in eligible institutions (as defined in section 17), (2) to provide a 
Federal program of student loan insurance for students who do not 
have reasonable access to a State or private nonprofit program of 
student loan insurance covered by an agreement under section 9(b), 
and (3) to pay a portion of the interest on loans to qualified students 
which are insured under this Act or under a program of a State or 
of a nonprofit private institution or organization which meets the 
requirements of section 9(a) (1) (A). 
(b) For the purpose of carrying out this Act— 
(1) there are authorized to be af)propriated to the vocational 
student loan insurance fund (established by section 13) (A) the 
sum of $250,000, and (B) such further sums, if any, as may 
become necessary for the adequacy of the vocational student 
loan insurance fund, 
(2) there are authorized to be appropriated, for payments 
under section 9 with respect to interest on insured loans, such 
sums for the fiscal year ending June 30,1966, and succeeding fiscal 
years, as may be required therefor, and 
(3) there are authorized to be appropriated the sum of $1,875,-
000 for making advances pursuant to section 3 for the reserve 
funds of State and nonprofit private student loan insurance 
programs. 
Sums appropriated under clauses (1) and (2) of this subsection shall 
remain available until expended, and sums appropriated under clause 
(3) of this subsection shall remain available for advances under sec-
tion 3 until the close of the fiscal year ending June 30,1968. 
ADVANCES FOR RESERVE FUNDS OF STATE AND NONPROFIT PRIVATE LOAN 
INSURANCE PROGRAMS 
SEC. 3. (a) (1) From the sums appropriated pursuant to clause (3) 
of section 2(b), the Commissioner is authorized to make advances to 
any State with which he has made an a^eem^nt pursuant to section 
9(D) for the purpose of helping to establish or strengthen the reserve 
fund of the student loan insurance program covered by that agreement. 
If for any of the fiscal years ending June 30, 1966, June 30, 1967, or 
June 30,1968, a State does not have a student loan insurance program 
covered by an agreement pursuant to section 9(b), and the Com-
missioner determines after consultation with the chief executive officer 
of that State that there is no reasonable likelihood that the State will 
have such a student loan insurance program for such year, the Com-
missioner may make advances for such year for the same purpose to 
one or more nonprofit private institutions or organizations with which 
he has made an agreement pursuant to section 9(b) in order to enable 
1038 
PUBLIC LAW 89-287-OCT. 22, 1965 
[79 STAT. 
students in that State to participate in a program of student loan 
insurance covered by such an agreement. 
The Commissioner niay 
make advances under this subsection both to a State program with 
which he has such an agreement and to one or more nonprofit private 
institutions or organizations with which he has such an agreement 
in that State if he determines that such advances are necessary in 
order that students in each eligible institution have access through 
such institution to a student loan insurance program which meets the 
requirements of section 9(b) (1). 
(2) Advances pursuant to this subsection shall be upon such terms 
and conditions (including conditions relating to the time or times of 
payment) consistent with the requirements of section 9(b) as the 
Commissioner determines will best carry out the purposes of this 
section. Advances made by the Commissioner under this subsection 
shall be repaid within such period as the Commissioner may deem to 
be appropriate in each case m the light of the maturity and solvency 
of the reserve fund for which the advance was made. 
(b) The total of the advances to any State pursuant to subsection 
(a) may not exceed an amount which bears the same ratio to 2% per 
centum of $75,000,000 as the population of that State aged eighteen 
to twenty-two, inclusive, bears to the total population of all the States 
aged eighteen to twenty-two, inclusive. 
If the amount so determined 
for any State, however, is less than $10,000, it shall be increased to 
$10,000 and the total of the increases thereby required shall be derived 
by proportionately reducing (but not below $10,000) the amount so 
determined for each of the remaining States. Advances to nonprofit 
grivate institutions and organizations pursuant to subsection (a.) may 
e in such amounts as the Commissioner determines will best achieve 
the purposes for which they are made, except that the sum of (1) 
advances to such institutions and organizations for the benefit of 
students in any State plus (2) the amounts advanced to such State, 
may not exceed the maximum amount which may be advanced to that 
State pursuant to the first two sentences of this subsection. 
For the 
purposes of this subsection, the population aged eighteen to twenty-
two, inclusive, of each State and of all the States shall be determined 
by the Commissioner on the basis of the most satisfactory data avail-
able to him. 
EFFECT OF ADEQUATE NON-FEDERAL PROGRAMS 
SEC. 4. The Commissioner shall not issue certificates of insurance 
under section 11 to lenders in a State if he determines that every 
eligible institution has reasonable access in that State to a State or 
private nonprofit student loan insurance program which is covered 
by an agreement under section 9 (b). 
SCOPE AND DURATION OF LOAN INSURANCE PROGRAM 
SEC. 5. (a) The total principal amount of new loans made and 
installments paid pursuant to lines of credit (as defined in section 17) 
to students covered by insurance under this Act shall not exceed 
$75,000,000 in the fiscal year ending June 30,1966, and in each of the 
two succeeding fiscal years. Thereafter, insurance pursuant to this 
part may be granted only for loans made (or for loan installments 
paid pursuant to lines of credit) to enable students, who have obtained 
prior loans insured under this Act, to continue or complete their 
educational programs; but no insurance may be granted for any loan 
made or installment paid after June 30,1972. 
79 STAT. ] 
PUBUC LAW 89-287-OCT. 22, 1965 
1039 
(b) The Commissioner may, if he finds it necessary to do so in order 
to assure an equitable distribution of the benefits of this Act, assign, 
within the maximum amounts specified in subsection (a), insurance 
?
uotas applicable to eligible lenders, or to States or areas, and may 
rom time to time reassign unused portions of these quotas. 
LIMITATIONS ON INDIVIDUAL. LOANS AND ON INSURANCE 
SEC. 6, (a) No loan or loans by one or more eligible lenders in excess 
of $1,000 in the aggregate to any student in any academic year or its 
equivalent shall be covered by insurance under this Act. 
The aggre-
gate insured unpaid principal amount of all such insured loans made 
to any student shall not at any time exceed $2,000. The annual 
insurable limit per student shall not be deemed to be exceeded by a 
line of credit under which actual payments by the lender to the 
borrower will not be made in any year in excess of the annual limit. 
(b) The insurance liability on any loan insured under this Act 
shall be 100 per centum of the unpaid balance of the principal amount 
of the loan. Such insurance liability shall not include liability for 
interest whether or not that interest has been added to the principal 
amount of the loan. 
SOURCES OF FUNDS 
SEC. 7. Loans made by eligible lenders in accordance with this Act 
shall be insurable whether made from funds fully owned by the 
lender or from funds held by the lender in a trust or similar capacity 
and available for such loans. 
ELIGIBILITY OF STUDENT BORROWERS AND TERMS OF STUDENT LOANS 
SEC. 8. (a) A loan by an eligible lender shall be insurable under 
the provisions of this Act only if— 
(1) made to a student who (A) has been accepted for enroll-
ment at an eligible institution or, m the case of a student already 
attending such institution, is in good standing there as determined 
by the institution, and (B) is carrying at least one-half of the 
normal full-time workload as determined by the institution, and 
(C^ has provided the lender with a statement of the institution 
which sets forth a schedule of the tuition and fees applicable to 
that student and its estimate of the cost of board and room for 
such a student; and 
(2) evidenced by a note or other written agreement which— 
(A) is made without security and without endorsement, 
except that if the borrower is a minor and such note or other 
written agreement executed by him would not, under the 
applicable law, create a binding obligation, endorsement 
may be required, 
(B) provides for repayment (except as provided in sub-
section (c)) of the principal amount of the loan in install-
ments over a period of not less than three years (unless 
sooner repaid) nor more than six years beginning not earlier 
than nine months nor later than one year after the date on 
which the student ceases to carry at an eligible institution 
at least one-half the normal full-time academic workload as 
determined by the institution in accordance with regulations 
of the Commissioner, except (i) as provided in clause (C) 
below, (ii) that the period of the loan may not exceed nine 
years from the execution of the note or written agreement 
1040 
PUBLIC LAW 89-287-OCT. 22, 1965 
[79 STAT. 
evidencing it and (iii) the note or other written instrument 
may contain such provisions relating to repayment in the 
event of default in the payment of interest or in the payment 
of the cost of insurance premiums, or other default by the 
borrower, as may be authorized by regulations of the Com-
missioner in effect at the time the loan is made, 
(C) provides that periodic installments of principal need 
not be paid, but interest shall accrue and be paid, during any 
period (i) during which the borrower is pursuing a full-time 
course of study at an institution of higher education or at 
a comparable institution outside the States approved for this 
purpose by the Commissioner, (ii) not in excess of three 
years, during which the borrower is a member of the Armed 
Forces of the United States, or (iii) not in excess of three 
years during which the borrower is in service as a volunteer 
22 use 2
5
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1 
under the Peace Corps Act, and any such period shall not 
note. 
be included in determining the six-year period or the nine-
year period provided in clause (B) above, 
(D) provides for interest on the unpaid principal balance 
of the loan at a yearly rate, not exceeding the applicable 
maximum rate prescribed and defined by the Secretary 
(within the limits set forth in subsection (b)) on a national, 
regional, or other appropriate basis, which interest shall be 
payable in installments over the period of the loan except 
that, if provided in the note or other written agreement, 
any interest payable by the student may be deferred until 
not later than the date upon which repayment of the first 
installment of principal falls due, in which case interest 
that has so accrued during that period may be added on that 
date to the principal (but without thereby increasing the 
insurance liability under this Act), 
(E) provides that the lender will not collect or attempt 
to collect from the borrower any portion of the interest on 
the note which is payable by the Commissioner under this 
Act, 
(F) entitles the student borrower to accelerate without 
penalty repayment of the whole or any part of the loan, and 
(G) contains such other terms and conditions, consistent 
with the provisions of this Act and with the regulations 
issued by the Commissioner pursuant to this Act, as may be 
agreed upon by the parties to such loan, including, if agreed 
upon, a provision requiring the borrower to pay to the lender, 
in addition to principal and interest, amounts equal to the 
insurance premiums payable by the lender to the Commis-
sioner with respect to such loan. 
(b) No maximum rate of interest prescribed and defined by the 
Secretary for the purposes of clause (2) (D) of subsection (a) may 
exceed 6 per centum per annum on the unpaid principal balance of 
the loan, except that under circumstances which threaten to impede 
the carrying out of the purposes of this Act, one or more of such 
maximum rates of interest may be as high as 7 per centum per annum 
on the unpaid principal balance of the loan. 
(c) The total of the payments by a borrower during any year of 
any repayment period with respect to the aggregate amount of all 
loans to that borrower which are insured under this Act shall not be 
less than $360 or the balance of all such loans (together with interest 
thereon), whichever amount is less. 
79 STAT. ] 
PUBLIC LAW 89-287-0 CT. 22, 1965 
1041 
FEDERAL PAYMENTS TO REDUCE STUDENT INTEREST COSTS 
SEC. 9. (a)(1) Each student who has received a loan— 
^ A) which is insured under this Act; 
(B) which was made for study at an eligible institution under 
a State student loan program (meeting criteria prescribed by the 
Commissioner), and which was contracted for, and paid to the 
student, within the period specified by paragraph (4); or 
(C) which is insured under a program of a State or of a non-
profit private institution or organization, which was contracted 
for, and paid to the student, within the period specified in para-
graph (4), and which— 
(i) in the case of a loan insured prior to July 1,1967, was 
made by an eligible lender and is insured under a program 
which meets the requirements of subparagraph (E) of sub-
section (b) (1) and provides that repayment of such loan 
shall be in installments beginning not earlier than sixty days 
after the student ceases to pursue a course of study (as de-
scribed in subparagraph (D) of subsection (b)(1)) at an 
eligible institution, or 
(ii) in the case of a loan insured after June 30, 1967, 
is insured under a program covered by an agreement made 
pursuant to subsection (b), 
and whose adjusted family income is less than $15,000 at the time of 
execution of the note or written agreement evidencing such loan, 
shall be entitled to have paid on his behalf and for his account to the 
holder of the loan, over the period of the loan, a portion of the interest 
on the loan. 
For the purposes of this paragraph, the adjusted family 
income of a student shall be determined pursuant to regulations of the 
Commissioner in effect at the time of the execution of the note or 
written agreement evidencing the loan. 
Such regulations shall pro-
vide for taking into account such factors, including family size, as 
the Commissioner deems appropriate. 
(2) The portion of the interest on a loan which a student is entitled 
to have paid on his behalf and for his account to the holder of the 
loan pursuant to paragraph (1) shall be equal to the total amount 
of the interest on the unpaid principal amount of the loan which 
accrues prior to the beginning of the repayment period of the loan, 
and 3 per centum per annum of the unpaid principal amount of the 
loan (excluding interest which has been added to principal) there-
after ; but such portion of the interest on a loan shall not exceed, for 
any period, the amount of the interest on that loan which is payable 
by the student after taking into consideration the amount of any 
interest on that loan which the student is entitled to have paid on his 
behalf for that period under any State or private loan insurance 
program. 
In the absence of fraud by the lender, that determination 
shall be final so far as the obligation of the Commissioner to pay a 
portion of the interest on a loan is concerned. 
The holder of a loan 
with respect to which payments are required to be made under this 
section shall be deemed to have a contractual right, as against the 
United States, to receive from the Commissioner the portion of interest 
which has been so determined. 
The Commissioner shall pay this 
portion of the interest to the holder of the loan on behalf of and for 
the account of the borrower at such times as may be specified in 
regulations in force when the applicable agreement entered into 
pursuant to subsection (b) was made, or if the loan was made by a 
State or is insured under a program which is not covered by such an 
agreement, at such times as may be specified in regulations in force 
at the time the loan was paid to the student. 
1042 
PUBLIC LAW 89-287-OC T. 22, 1965 
[79 STAT. 
(3) Each holder of a loan with respect to which payments of inter-
est are required to be made by the Commissioner shall submit to the 
Commissioner, at such time or times and in such manner as he may 
prescribe, statements containing such information as may be required 
by or pursuant to regulation for the purpose of enabling the Com-
missioner to determine the amount of the payment which he must 
make with respect to that loan. 
(4) The period referred to in subparagraphs (B) and (C) of 
paragraph (1) of this subsection shall begin on the date of enactment 
of this Act and end on June 30, 1968, except that, in the case of a 
loan made or insured under a student loan or loan insurance pro-
gram, to enable a student who has obtained a prior loan made or 
insured under such program to continue his educational program, 
such period shall end on June 30,1972. 
(5) No payment may be made under this section with respect to the 
interest on a loan made from a student loan fund established under 
II stg^^- ^^l^• 
title I I of the National Defense Education Act of 1958. 
429. 
(b) (1) Any State or any nonprofit private institution or organi-
zation may enter into an agreement with the Commissioner for the 
purpose of entitling students who receive loans which are insured 
under a student loan insurance program of that State, institution, or 
organization to have made on their behalf payments equal to those 
provided for in subsection (a) if the Commissioner determines that 
the student loan insurance program— 
(A) authorizes the insurance of not less than $1,000 in loans 
to any individual student in any academic year or its equivalent 
(as determined under regulations of the Commissioner); 
(B) authorizes the insurance of loans to any individual stu-
dent for at least two academic years of study or their equivalent 
(as determined under regulations of the Commissioner); 
(C) provides that (i) the student borrower shall be entitled to 
accelerate without penalty the whole or any part of an insured 
loan, (ii) the period of any insured loan may not exceed nine years 
from the date of execution of the note or other written evidence 
of the loan, and (iii) the note or other written evidence of any loan 
may contain such provisions relating to repayment in the event 
of default by the borrower as may be authorized by regulations 
of the Commissioner in effect at the time such note or written 
evidence was executed; 
(D) subject to subparagraph (C), provides that, where the 
total of the insured loans to any student which are held by any 
one person exceeds $1,000, repayment of such loans shall be in 
installments over a period of not less than three years nor more 
than six years beginning not earlier than nine months nor later 
than one year after the student ceases to pursue a full-time course 
of study lat an eligible institution, except that if the program 
provides for the insurance of loans f|Or part-time study at eligible 
institutions the program shall provide that such repayment period 
shall begin not earlier than nine months nor later than one year 
after the student ceases to carry at an eligible institution at least 
one-half the normal full-time academic workload as determined 
by the institution; 
(E) authorizes interest on the unpaid balance of the loan at 
a yearly rate not in excess of 6 per centum per annum on the 
unpaid principal balance of the loan (exclusive of any premium 
for insurance which may be passed on to the borrower) ; 
(F) insures not less than 90 per centum of the unpaid principal 
of loans insured under the program; 
records. 
79 STAT. ] 
PUBLIC LAW 89-287-OCT. 22, 1965 
1043 
(G) does not provide for collection of an excessive insurance 
premium; 
(H) provides that the benefits of the loan insurance program 
will not be denied any student because of his family income or 
lack of need if his adjusted family income at the time the note or 
written agreement is executed is less than $15,000 (as determined 
pursuant to the regulations of the Commissioner prescribed under 
section 9(a) (1)) ; 
(I) provides that a student may obtain insurance under the 
program for a loan for any year of study at an eligible institu-
tion; and 
(J) in the case of a State program, provides that such State 
program is administered by a single State agency, or by one or 
more nonprofit private institutions or organizations under the 
supervision of a single State agency. 
(2) Such an agreement shall— 
(A) provide that the holder of any such loan will be required 
to submit to the Commissioner, at such time or times and in such 
manner as he may prescribe, statements containing such informa-
tion as may be required by or pursuant to regulation for the 
purpose of enabling the Commissioner to determine the amount 
of the payment which he must make with respect to that loan; 
(B) include such other provisions as may be necessary to pro-
tect the financial interest of the United States and promote the 
purposes of this Act and as are agreed to by the Commissioner and 
the State or private organization or institution; and 
(C) provide for making such reports in such form and con- 
Reports and 
taining such information as the Commissioner may reasonably 
require to carry out his function under this Act and for keeping 
such records and for affording such access thereto as the Com-
missioner may find necessary to assure the correctness and veri-
fication of such reports. 
DIRECT LOANS 
SEC. 10. (a) The Commissioner may make a direct loan to any 
student who would be eligible for an insured loan under this Act if 
(1) in the particular area in which the student resides loans which 
are insurable under this Act are not available at the rate of interest 
prescribed by the Secretary pursuant to section 8(a) (2) (D) for such 
area, or (2) the particular student has been unable to obtain an insured 
loan at a rate of interest which does not exceed such rate prescribed 
by the Secretary. 
(b) Loans made under this section shall bear interest at the rate 
prescribed by the Secretary under section 8(a) (2) (D) for the area 
where the student resides, and shall be made on such other terms and 
conditions as the Commissioner shall prescribe, which shall conform 
as nearlj^ as practicable to the terms and conditions of loans insured 
under this Act. 
(c) There is authorized to be appropriated the sum of $1,000,000 
for the fiscal year ending June 30,1966 and for each of the four suc-
ceeding fiscal years to carry out this section. 
CEKTTFICATES OF INSURANCE—^EFFECTIVE DATE OF INSURANCE 
SEC. 11. (a) (1) If, upon application by an eligible lender, made 
upon such form, containmg such information, and supported by such 
evidence as the Commissioner may require, and otherwise in conform-
ity with this section, the Commissioner finds that the applicant has 
made a loan to an eligible student which is insurable under the provir 
1044 
PUBLIC LAW 89-287-OCT. 22, 1965 
[79 STAT. 
sions of this Act, he may issue to the applicant a certificate of insurance 
covering the loan and setting forth the amount and terms of the 
insurance. 
Certificates o
f 
^2) lusurauce evidenced by a certificate of insurance pursuant to 
"EffT^^ive date, subsectlou (a) (1) shall become effective upon the date of issuance of 
the certificate, except that the Commissioner is authorized, in accord-
ance with regulations, to issue commitments with respect to proposed 
loans, or with respect to lines (or proposed lines) of credit, submitted 
by eligible lenders, and in that event, upon compliance with subsection 
(a) (1) by the lender, the certificate of insurance may be issued effec-
tive as of the date when any loan, or any payment by the lender 
pursuant to a line of credit, to be covered by such insurance was made. 
Such insurance shall cease to be effective upon sixty days' default by 
the lender in the payment of any installment of the premiums payable 
pursuant to subsection (c). 
(3) An application submitted pursuant to subsection (a) (1) shall 
contain (A) an agreement by the applicant to pay, in accordance with 
regulations, the premiums fixed by the Commissioner pursuant to 
subsection (c), and (B) an agreement by the applicant that if the 
loan is covered by insurance the applicant will submit such supple-
mentary reports and statements during the effective period of the loan 
agreement, upon such forms, at such times, and containing such 
information as the Commissioner may prescribe by or pursuant to 
regulation. 
Comprehensive 
(j^) (;[) jjj j^g^ ^f requiring a separate insurance application and 
issuing a separate certificate of insurance for each student loan made 
by an eligible lender as provided in subseotion (a), the Commissioner 
may, in accordance with regulations consistent with section 5, issue 
to any eligible lender applying therefor a certificate of comprehensive 
insurance coverage which shall, without further action by the Com-
missioner, insure all insurable loans made by that lender, on or after 
the date of the certificate and before a specified cutoff date, within 
the limits of an aggregate maximum amount stated in the certificate. 
Such regulations may provide for conditioning such insurance, with 
respect to any loan, upon compliance by the lender with such require-
ments (to be stated or incorporated by reference in the certificate) 
as in the Commissioner's judgment will best achieve the purpose of 
this subsection while protecting the financial interest of the United 
States and promoting the objectives of this Act, including (but not 
limited to) provisions as to the reporting of such loans and informa-
tion relevant thereto to the Commissioner and as tO' the payment of 
initial and other premiums and the effect of default therein, and 
including provision for confirmation by the Commissioner from time 
to time (through endorsement of the certificate) of the coverage of 
specific new loans by such certificate, which confirmation shall be 
incontestable by the Commissioner in the absence of fraud or mis-
representation of fact or patent error. 
(2) If the holder of a certificate of comprehensive insurance issued 
under this subsection grants to a student a line of credit extending 
beyond the cutoff date specified in that certificate, loans or payments 
thereon made by the holder after that date pursuant to the line of 
credit shall not be deemed to be included in the coverage of that 
certificate except as may be specifically provided therein; but, subject 
to the limitations of section 5, the Cormnissioner may, in accordance 
with regulations, make commitments to insure such future loans or 
payments, and such commitments may be honored either as provided 
m subsection (a) or by inclusion of such insurance in comprehensive 
coverage under this subsection for the period or periods in which 
such future loans or payments are made. 
Consolidated 
loans. 
79 STAT. ] 
PUBLIC LAW 89-287-OCT. 22, 1965 
1045 
(c) The Commissioner shall, pursuant to regulations, charge for 
premium 
insurance on each loan under this Act a premium in an amount not '
^ ^'•^^^• 
to exceed one-fourth of 1 per centum per year of the unpaid principal 
amount of such loan (excluding interest added to principal), payable 
in advance, at such time and in such manner as may be prescribed 
by the Commissioner. 
Such regulations may provide that such 
premium shall not be payable, or if paid shall be refundable, with 
respect to any period after default in the payment of principal or 
interest or after the borrower has died or become totally and perma-
nently disabled, if (1) notice of such default or other event has been 
duly given, and (2) request for payment of the loss insured against 
has been made or the Commissioner has made such payment on his 
own motion pursuant to section 12(a). 
(d) The rights of an eligible lender arising under insurance evi-
denced by a certificate of insurance issuied to it under this section may 
be assigned as security by such lender 'only to another eligible lender, 
and subject to regulation by the Commissioner. 
(e) The consolidation of the obligations of two or more insured 
loans obtained by a student borrower in any fiscal year into a single 
obligation evidenced by a single instrument of indebtedness shall 
not affect the insurance by the United States. 
If the loans thus 
consolidated are covered by separate certificates of insurance issued 
under subsection (a), the Commissioner may upon surrender of the 
original certificates issue a new certificate of insurance in accordance 
with that subsection upon the consolidated obligation; if they are 
covered by a single comprehensive certificate issued under subsection 
(b), the Commissioner may amend that certificate accordingly. 
PROCEDURE ON DEFAULT, DEATH, OR DISABILITY OF STUDENT 
SEC. 12. (a) Upon default by the student borrower on any loan 
covered by insurance pursuant to this Act, or upon the death of the 
student borrower or a finding by the insurance beneficiary that the 
borrower has become totally and permanently disabled (as determined 
in accordance with regulations established by the Commissioner) 
before the loan has been repaid in full, and prior to the commence-
ment of suit or other enforcement proceeding upon security for that 
loan, the insurance beneficiary shall promptly notify the Commissioner, 
and the Commissioner shall if requested (at that time or after further 
collection efforts) by the beneficiary, or may on his own motion, if the 
insurance is still in effect, pay to the beneficiary the amount of the loss 
sustained by the insured upon that loan as soon as that amount has 
been determined. The "amount of the loss" on any loan shall, for the 
purposes of this subsection and subsection (b), be deemed to be an 
amount equal to the unpaid balance of the principal amount of the 
loan. 
(b) Upon payment by the Commissioner of the insured portion of 
the loss pursuant to subsection (a), the United States shall be sub-
rogated to all of the rights of the holder of the obligation upon the 
insured loan and shall be entitled to an assignment of the note or 
other evidence of the insured loan by the insurance beneficiary. 
If 
the net recovery made by the Commissioner on a loan after deduction 
of the cost of that recovery (including reasonable administrative costs) 
exceeds the amount of the loss, the excess shall be paid over to the 
insured. 
(c) Nothing in this section or in this Act shall be construed to 
preclude any forbearance for the benefit of the student borrower which 
may be agreed upon by the parties to the insured loan and approved 
by the Commissioner, or to preclude forbearance by the Commissioner 
1046 
PUBLIC LAW 89-287-OCT. 22, 1965 
[79 STAT. 
"Insurance 
beneficiary." 
"Default." 
in the enforcement of the insured obliga-tion after payment on that 
insurance, or to require collection of the amount of any loan by the 
insurance beneficiary or by the Commissioner from the estate of a 
deceased borrower or from a borrower found by the insurance bene-
ficiary to have become permanently and totally disabled. 
(d) Nothing in this section or in this Act shall be construed to 
excuse the holder of a loan from exercising reasonable care and dili-
gence in the making and collection of loans under the provisions of 
this Act. 
If the Commissioner, after reasonable notice and opportu-
nity for hearing to an eligible lender, finds that it has substantially 
failed to exercise such care and diligence or to make the reports and 
statements required under section 9(a) (3) and section 11(a) (3), or to 
pay the required insurance premiums, he shall disqualify that lender 
for further insurance on loans granted pursuant to this Act until 
he is satisfied that its failure has ceased and finds that there is reason-
able assurance that the lender will in the future exercise necessary 
care and diligence or comply with such requirements, as the case may 
be. 
(e) As used in this section— 
(1) the term "insurance beneficiary" means the insured or its 
authorized assignee in accordance with section 11(d); and 
(2) the term "default" includes only such defaults as have 
existed for (A) one hundred and twenty days in the case of a 
loan which is repayable in monthly installments, or (B) one hun-
dred and eighty days in the case of a loan which is repayable in 
less frequent installments. 
Insufficient 
moneys. 
INSURANCE FUND 
SEC. 13. (a) There is hereby established a vocational student loan 
insurance fund (hereinafter in this section called the "fund") which 
shall be available without fiscal year limitation to the Commissioner 
for making payments in connection with the default of loans insured 
under this Act. All amounts received by the Commissioner as pre-
mium charges for insurance and as receipts, earnings, or proceeds 
derived from any claim or other assets acquired by the Commissioner in 
connection with his operations under this Act, and any other moneys, 
property, or assets derived by the Commissioner from his operations 
m connection with this section, shall be deposited in the fund. 
All 
payments in connection with the default of loans insured under this 
Act shall be paid from the fimd. 
Moneys in the fund not needed for 
current operations under this section may be invested in bonds or other 
obligations guaranteed as to principal and interest by the United 
States. 
(b) If at any time the moneys in the fund are insufficient to make 
payments in connection with the default of any loan insured under 
this Act, the Commissioner is authorized to issue to the Secretary of 
the Treasury notes or other obligations in such forms and denomina-
tions, bearing such maturities, and subject to such terms and con-
ditions as may be prescribed by the Commissioner with the approval 
of the Secretary of the Treasury. 
Such notes pr other obligations 
shall bear interest at a rate determined by the Secretary of the Treas-
ury, taking into consideration the current average market yield on 
outstanding marketable obligations of the United States of comparable 
maturities during the month preceding the issuance of the notes or 
other obligations. The Secretary of the Treasury is authorized and 
directed to purchase any notes and other obligations issued hereunder 
and for that purpose he is authorized to use as a public debt trans-
action the proceeds from the sale of any securities issued under the 
79 STAT. ] 
PUBLIC LAW 89-287-OCT. 22, 1965 
1047 
Second Liberty Bond Act, as amended, and the purposes for which 
^^ ^
*
^
*
- ^ss. 
securities may be issued under that Act, as amended, are extended to 
include any purchases of such notes and obligations. 
The Secretary 
of the Treasury may at any time sell any of the notes or other obliga-
tions acquired by him under this subsection. 
All redemptions, pur-
chases, and sales by the Secretary of the Treasury of such notes or 
other obligations shall be treated as public debt transactions of the 
United States. 
Sums borrowed under this subsection shall be 
deposited in the fund and redemption of such notes and obligations 
shall be made by the Commissioner from such fund. 
LEGAL POWERS AND RESPONSIBILITIES 
SEC. 14. (a) In the performance of, and with respect to, the 
functions, powers, and duties vested in him by this Act, the Commis-
sioner may— 
(1) prescribe such regulations as may be necessary to carry 
out the purposes of this Act; 
(2) sue and be sued in any court of record of a State having 
general jurisdiction or in any district court of the United States, 
and such district courts shall have jurisdiction of civil actions 
arising under this Act with out regard to the amount in contro-
versy, and any action instituted under this subsection by or 
against the Commissioner shall survive notwithstanding any 
change in the person occupying the office of Commissioner or 
any vacancy in that office; but no attachment, injunction, gar-
nishment, or other similar process, mesne or final, shall be issued 
against the Commissioner or property under his control, and 
nothing herein shall be construed to except litigation arising out 
of activities under this Act from the application of sections 
507(b) and 2679 of title 28 of the United States Code and of 
^^ stat. 910, 
section 367 of the Kevised Statutes (5 U.S.C. 316); 
Ht: ^^ ^'^'^ 
(3) include in any contract for insurance such terms, condi-
tions, and covenants relating to repayment of principal and pay-
ment of interest, relating to his obligations and rights and to 
those of eligible lenders, and borrowers in case of default, and 
relating to such other matters as the Commissioner determines 
to be necessary to assure that the purposes of this Act will be 
achieved; and any term, condition, and covenant made pursuant 
to this clause or any other provisions of this Act may be modified 
by the Commissioner if he determines that modification is neces-
sary to protect the financial interest of the United States; 
(4) subject to the specific limitations in this Act, consent to 
the modification, with respect to rate of interest, time of pay-
ment of any installment of principal and interest or any portion 
thereof, or any other provision or any note or other instrument 
evidencing a loan which has been insured under this Act; 
(5) enforce, pay, or compromise, any claim on, or arising 
because of, any such insurance; and 
(6) enforce, pay, compromise, waive, or release any right, title, 
claim, lien, or demand, however acquired, including any equity 
or any right or redemption. 
(b) The Commissioner shall, with respect to the financial opera-
tions arising by reason of this Act— 
(1) prepare annually and submit a budget program as pro- ram''^*ub-^'° 
vided for wholly owned Government corporations by the Gov- mTs^ion" 
emment Corporation Control Act; and 
59 stat. 597. 
(2) maintain with respect to insurance under this Act an 
31 use 841 
integral set of accounts, which shall be audited annually by the "Vudit. 
31 use 850. 
pensation. 
1048 
PUBLIC LAW 89-287-OCT. 22, 1965 
[79 STAT. 
General Accounting OiRce in accordance with principles and 
procedures applicable to commercial corporate transactions, as 
provided by section 105 of the Government Corporation Control 
59 stat^- ^59^9. 
Act, except that the transactions of the Commissioner, including 
^1 T
T
o
r
^ acn 
^^^ Settlement of insurance claims and of claims for payments 
pursuant to section 9
^
, and transactions related thereto and 
vouchers approved by the Commissioner in connection with such 
transactions, shall be final and conclusive upon all accounting 
and other officers of the Government. 
ADVISORY COUNCIL ON INSURED LOANS TO VOCATIONAL STUDENTS 
SEC. 15. (a) The Secretary shall establish in the Office of Education 
an Advisory Council on Insured Loans to Vocational Students, con-
sisting of the Commissioner, who shall be Chairman, and eight mem-
bers appointed, without regard to the civil service laws, by the 
Secretary. 
The membership of the Council shall include persons 
representing State loan insurance programs, private nonprofit loan 
insurance programs, financial and credit institutions, and eligible in-
stitutions. 
(b) The Advisory Council shall advise the Commissioner in the 
preparation of general regulations and with respect to policy m'atters 
arising in the administration of this Act, including policies and 
procedures governing the making of advances under section 3, the 
Federal payments to reduce student interest costs under section 9 
and the making of loans under section 10. 
e^^s^Hnr'''°™" 
(^) Members of the Advisory Council, while attending meetings 
or conferences of such Council, or otherwise engaged in the business 
of such Council, shall be entitled to receive compensation at a rate 
fixed by the Secretary, but noit exceeding $100 per diem, including 
travel time, and while so serving on the business of the Advisory 
Council away from their homes or regular places of business, they 
may be allowed travel expenses, including per diem in lieu of sub-
sistence, as authorized by section 5 of the Administrative Expenses Act 
60 Stat. 808: 
of 1946 (5 U.S.C. 73l)-2), for persons in the Government service 
employed intermittently. 
PARTICIPATION BY FEDERAL CREDIT UNIONS IN FEDERAL, STATE, AND PRI-
VATE STUDENT LOAN INSURANCE PROGRAMS 
SEC. 16. Notwithstanding any other provision of law. Federal credit 
unions shall, pursuant to regulations of the Director of the Bureau 
of Federal Credit Unions, have power to make insured loans up to 5 
per centum of their assets, to student members in accordance with 
the provisions of this Act or in accordance with the provisions of 
any State or nonprofit private student loan insurance program with 
respect to which there is in effect an agreement with the Commissioner 
under section 9(b). 
DEFINITIONS 
SEC. 17. As used in this Act— 
(a) The term "eligible institution" means a business or trade school, 
or technical institution or other technical or vocational school, in any 
State, which (1) admits as regular students only persons who have 
completed or left elementary or secondary school and who have the 
ability to benefit from the training offered by such institution; (2) 
is legally authorized to provide, and provides within that State, a pro-
t
ram of postsecondary vocational or technical education designed to 
t individuals for useful employment in recognized occupations; (3) 
has been in existence for two years or has been specially accredited by 
75 Stat. 339, 340. 
79 STAT. ] 
PUBLIC LAW 89-287-OCT. 22, 1965 
1049 
the Commissioner as an institution meeting the other requirements of 
this subsection; and (4) is accredited (A) by a nationally recognized 
accrediting agency or association listed by the Commissioner pursuant 
to this clause, (B) if the Commissioner determines that there is no 
nationally recognized accrediting agency or association qualified to 
accredit schools of a particular category, by a State agency listed by 
the Commissioner pursuant to this clause, and (C) if the Commissioner 
determines there is no nationally recognized or State agency or associa-
tion qualified to accredit schools of a particular category, by an 
advisory committee appointed by him and composed of persons 
specially qualified to evaluate training provided by schools of that 
category, which committee shall prescribe the standards of content, 
scope, and quality which must be met by those schools in order for loans 
to students attending them to be insurable under this Act and shall 
also determine whether particular schools meet those standards. 
For 
the purpose of this subsection, the Commissioner shall publish a list 
of nationally recognized accrediting agencies or associations and State 
agencies which he determines to be reliable authority as to the quality 
of education or training afforded. 
(b) The term "eligiole lender" means an eligible institution, an 
agency or instrumentality of a State, or a financial or credit institution 
(mcluding an insurance company) which is subject tp examination 
and supervision by an agency of the United States or of any State. 
(c) The term "line of credit" means an arrangement or agreement 
between the lender and the borrower whereby a loan is paid out by 
the lender to the borrower in annual installments, or whereby the 
lender agrees to make, in addition to the initial loan, additional loans 
in subsequent years. 
(d) The term "State" includes, in addition to the several States of 
the Union, the Commonwealth of Puerto Kico, the District of Colum-
bia, Guam, American Samoa, the Virgin Islands, and the Trust Ter-
ritory of the Pacific Islands. 
(e) The term "Secretary" means the Secretary of Health, Educa-
tion, and Welfare. 
(i) The term 
"Commissioner" 
means the 
Commissioner 
of 
Education. 
Approved October 22, 1965. 
49-850 0-66—69