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34 CFR 682

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                                               34 CFR 682
                          Integrated Regulations Incorporating
                              Program Integrity Final Rules
                    (published in October 29, 2010 Federal Register)
                                          and
                               Foreign School Final Rules
                   (published in November 1, 2010 Federal Register)

           Developed by the NCHELP Program Regulations Committee
                          Updated: December 6, 2010



                                   Base document:
                           GPO Compilation through July 1, 2010
Regs Committee (RC) Editorial Notes:
1. 682.210(s)(6): The cites references (s)(6)(vi) needs to be changed to (s)(6)(iv).
2. 682.210(u)(5): The word “military” needs to be changed to “post-military”.
3. 682.211(h)(2)(ii)(C): The reference to 682.215 needs to be changed to 682.216.
4. 682.211(h)(2)(iii): Does not cover National Guard members that are called to Federal active duty where that
   active duty does not fall under a war, a military operation as defined in 10 U.S.C. 101(a)(13), nor a national
   emergency declared by the President due to a terrorist attack.
5. 682.211(h)(4)(iii): Both references to 682.215 should be 682.216.
6. 682.302(a): The removal of the “,” after the words “capitalized interest” should be retained. Otherwise, the
   next phrase modifies “capitalized interest” instead of “average principal balance.”
7. 682.404 (c): The first letter in the words “quarterly” and “guaranty” have been transposed. The text should
   read, “…quarterly report is due until the guaranty agency…”.
Content


                                                                               TITLE 34—EDUCATION

                    CHAPTER VI—OFFICE OF POSTSECONDARY EDUCATION, DEPARTMENT OF EDUCATION
                                        PART 682—FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM
                                                           Table of Contents

Subpart A—Purpose and Scope ..................................................................................................................................................................5
   §682.100 The Federal Family Education Loan programs. ......................................................................................................................5
   §682.101 Participation in the FFEL programs. ........................................................................................................................................5
   §682.102 Obtaining and repaying a loan. ................................................................................................................................................5
   §682.103 Applicability of subparts. .........................................................................................................................................................6
Subpart B—General Provisions ...................................................................................................................................................................6
   §682.200 Definitions. ................................................................................................................................................................................6
   §682.201 Eligible borrowers. ..................................................................................................................................................................11
   §682.202 Permissible charges by lenders to borrowers. .....................................................................................................................12
   §682.203 Responsible parties. ...............................................................................................................................................................16
   §682.204 Maximum loan amounts. ........................................................................................................................................................16
   §682.205 Disclosure requirements for lenders. ....................................................................................................................................20
   §682.206 Due diligence in making a loan. .............................................................................................................................................22
   §682.207 Due diligence in disbursing a loan. .......................................................................................................................................23
   §682.208 Due diligence in servicing a loan. ..........................................................................................................................................25
   §682.209 Repayment of a loan. ..............................................................................................................................................................26
   §682.210 Deferment. ...............................................................................................................................................................................29
   §682.211 Forbearance. ...........................................................................................................................................................................36
   §682.212 Prohibited transactions. .........................................................................................................................................................39
   §682.213 Prohibition against the use of the Rule of 78s. .....................................................................................................................39
   §682.214 Compliance with equal credit opportunity requirements. ....................................................................................................39
   §682.215 Income-based repayment plan. ..............................................................................................................................................39
   §682.216 Teacher loan forgiveness program. .......................................................................................................................................42
Subpart C—Federal Payments of Interest and Special Allowance ..........................................................................................................44
   §682.300 Payment of interest benefits on Stafford and Consolidation loans. ....................................................................................44
   §682.301 Eligibility of borrowers for interest benefits on Stafford and Consolidation loans. ...........................................................45
   §682.302 Payment of special allowance on FFEL loans.......................................................................................................................45
   §682.303 [Reserved] ...............................................................................................................................................................................50
   §682.304 Methods of computing interest benefits and special allowance. .........................................................................................50
   §682.305 Procedures for payment of interest benefits and special allowance and collection of origination and loan fees. ..........51
Subpart D—Administration of the Federal Family Education Loan Programs by a Guaranty Agency .................................................52
   §682.400 Agreements between a guaranty agency and the Secretary. ...............................................................................................52
   §682.401 Basic program agreement. .....................................................................................................................................................53
   §682.402 Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments......................................59
   §682.403 Federal advances for claim payments. ..................................................................................................................................75
   §682.404 Federal reinsurance agreement. ............................................................................................................................................76
   §682.405 Loan rehabilitation agreement. ..............................................................................................................................................78
   §682.406 Conditions for claim payments from the Federal Fund and for reinsurance coverage. .....................................................79
   §682.407 Discharge of student loan indebtedness for survivors of victims of the September 11, 2001, attacks.............................80
   §682.408 Loan disbursement through an escrow agent. .....................................................................................................................83
   §682.409 Mandatory assignment by guaranty agencies of defaulted loans to the Secretary. ...........................................................83
   §682.410 Fiscal, administrative, and enforcement requirements. .......................................................................................................85
   §682.411 Lender due diligence in collecting guaranty agency loans. .................................................................................................90
   §682.412 Consequences of the failure of a borrower or student to establish eligibility. ...................................................................92
   §682.413 Remedial actions. ...................................................................................................................................................................93
   §682.414 Records, reports, and inspection requirements for guaranty agency programs................................................................94
   §682.415 [Removed and Reserved] .......................................................................................................................................................96
Content


    §682.416 Requirements for third-party servicers and lenders contracting with third-party servicers. .............................................96
    §682.417 Determination of Federal funds or assets to be returned.....................................................................................................97
    §682.418 Prohibited uses of the assets of the Operating Fund during periods in which the Operating Fund contains transferred
    funds owed to the Federal Fund. ...........................................................................................................................................................98
    §682.419 Guaranty agency Federal Fund. .............................................................................................................................................99
    §682.420 Federal nonliquid assets. .....................................................................................................................................................100
    §682.421 Funds transferred from the Federal Fund to the Operating Fund by a guaranty agency. ................................................ 100
    §682.422 Guaranty agency repayment of funds transferred from the Federal Fund. .......................................................................101
    §682.423 Guaranty agency Operating Fund. .......................................................................................................................................101
Subpart E—Federal Guaranteed Student Loan Programs .....................................................................................................................101
    §682.500 Circumstances under which loans may be guaranteed by the Secretary. ........................................................................101
    §682.501 Extent of Federal guarantee under the Federal GSL programs. ........................................................................................102
    §682.502 The application to be a lender. .............................................................................................................................................102
    §682.503 The guarantee agreement.....................................................................................................................................................102
    §682.504 Issuance of Federal loan guarantees...................................................................................................................................103
    §682.505 Insurance premium. ..............................................................................................................................................................103
    §682.506 Limitations on maximum loan amounts. .............................................................................................................................103
    §682.507 Due diligence in collecting a loan. .......................................................................................................................................103
    §682.508 Assignment of a loan. ...........................................................................................................................................................104
    §682.509 Special conditions for filing a claim. ...................................................................................................................................104
    §682.510 Determination of the borrower's death, total and permanent disability, or bankruptcy. ..................................................105
    §682.511 Procedures for filing a claim. ...............................................................................................................................................105
    §682.512 Determination of amount payable on a claim......................................................................................................................105
    §682.513 Factors affecting coverage of a loan under the loan guarantee. .......................................................................................106
    §682.514 Procedures for receipt or retention of payments where the lender has violated program requirements for Federal GSL
    loans. .....................................................................................................................................................................................................106
    §682.515 Records, reports, and inspection requirements for Federal GSL program lenders. ........................................................106
Subpart F—Requirements, Standards, and Payments for Participating Schools................................................................................. 106
    §682.600 [Reserved] ............................................................................................................................................................................112
    §682.601 Rules for a school that makes or originates loans. ............................................................................................................106
    §682.602 Rules for a school or school-affiliated organization that makes or originates loans through an eligible lender trustee.
    ...............................................................................................................................................................................................................107
    §682.603 Certification by a participating school in connection with a loan application. .................................................................107
    §682.604 Processing the borrower's loan proceeds and counseling borrowers..............................................................................109
    §682.605 Determining the date of a student's withdrawal..................................................................................................................112
    §682.607 Payment of a refund or a return of title IV, HEA program funds to a lender upon a student's withdrawal. .................... 112
    §682.608 Termination of a school's lending eligibility. ......................................................................................................................112
    §682.609 Remedial actions. .................................................................................................................................................................113
    §682.610 Administrative and fiscal requirements for participating schools.....................................................................................113
    §682.611 Foreign schools. [Reserved] ................................................................................................................................................114
Subpart G—Limitation, Suspension, or Termination of Lender or Third-party Servicer Eligibility and Disqualification of Lenders
and Schools ..............................................................................................................................................................................................114
    §682.700 Purpose and scope. ..............................................................................................................................................................114
    §682.701 Definitions of terms used in this subpart. ...........................................................................................................................114
    §682.702 Effect on participation. .........................................................................................................................................................115
    §682.703 Informal compliance procedure. ..........................................................................................................................................115
    §682.704 Emergency action. ................................................................................................................................................................115
    §682.705 Suspension proceedings......................................................................................................................................................115
    §682.706 Limitation or termination proceedings. ...............................................................................................................................116
    §682.707 Appeals in a limitation or termination proceeding..............................................................................................................116
    §682.708 Evidence of mailing and receipt dates.................................................................................................................................117
    §682.709 Reimbursements, refunds, and offsets. ..............................................................................................................................117
    §682.710 Removal of limitation. ...........................................................................................................................................................117
    §682.711 Reinstatement after termination. .........................................................................................................................................117
Content


    §682.712 Disqualification review of limitation, suspension, and termination actions taken by guarantee agencies against
    lenders. .................................................................................................................................................................................................117
    §682.713 Disqualification review of limitation, suspension, and termination actions taken by guarantee agencies against a
    school....................................................................................................................................................................................................118
Subpart H—Special Allowance Payments on Loans Made or Purchased With Proceeds of Tax-Exempt Obligations ......................119
    §682.800 Prohibition against discrimination as a condition for receiving special allowance payments. ....................................... 119
Appendices A-B to Part 682 [Reserved] ..................................................................................................................................................119
Appendix C to Part 682–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].....................................................................................................................................................................119
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]
...................................................................................................................................................................................................................126



                               Authority: 20 U.S.C. 1070g, 1071 to 1087-2, unless otherwise noted.
                               Source: 57 FR 60323, Dec. 18, 1992, unless otherwise noted.
34 CFR 682.100


                                            (b)(1) Except for the loans guaranteed        students may borrow under the PLUS
TITLE 34—EDUCATION                          directly by the Secretary described in        Program. Borrowers with outstanding
DEPARTMENT OF EDUCATION                     paragraph (b)(2) of this section, a           Stafford, SLS, FISL, Perkins, HPSL,
PART 682—FEDERAL FAMILY                     guaranty agency guarantees a lender           HEAL, ALAS, PLUS, or Nursing
EDUCATION LOAN (FFEL)                       against losses due to default by the          Student Loan Program loans may
PROGRAM                                     borrower on a FFEL loan. If the               borrow under the Consolidation Loan
Subpart A—Purpose and Scope                 guaranty agency meets certain Federal         Program. The PLUS Program also
                                            requirements, the guaranty agency is          provides for making loans to graduate
§682.100 The Federal Family                 reimbursed by the Secretary for all or        and professional students on or after
Education Loan programs.                    part of the amount of default claims it       July 1, 2006.
(a) This part governs the following four    pays to lenders.                              (Authority: 20 U.S.C. 1071 to 1087-2)
programs collectively referred to in        (2)(i) The Secretary guarantees lenders       [57 FR 60323, Dec. 18, 1992, as amended at
these regulations as “the Federal           against losses—                               59 FR 61215, Nov. 29, 1994; 64 FR 18975,
Family Education Loan (FFEL)                                                              Apr. 16, 1999; 66 FR 34762, June 29, 2001;
programs,” in which lenders use their       (A) Within the Stafford Loan Program,         71 FR 45698, Aug. 9, 2006; 71 FR 64397,
own funds to make loans to enable a         on loans made under Federal Insured           Nov. 1, 2006]
student or his or her parents to pay the    Student Loan (FISL) Program;
                                                                                          §682.102 Obtaining and repaying a
costs of the student's attendance at        (B) Within the PLUS Program, on loans         loan.
postsecondary schools:                      made under the Federal PLUS
                                                                                          (a) Stafford loan application. Generally,
(1) The Federal Stafford Loan (Stafford)    Program;
                                                                                          to obtain a Stafford loan a student
Program, which encourages making            (C) Within the SLS Program, on loans          requests a loan by completing the Free
loans to undergraduate, graduate, and       made under the Federal SLS Program            Application for Federal Student Aid
professional students.                      as in effect for periods of enrollment        (FAFSA), and contacting the school,
(2) The Federal Supplemental Loans          that began prior to July 1, 1994; and         lender or guarantor. The school
for Students (SLS) Program, as in           (D) Within the Consolidation Loan             determines and certifies the student's
effect for periods of enrollment that       Program, on loans made under the              eligibility for the loan. Prior to loan
began prior to July 1, 1994, which          Federal Consolidation Loan Program.           disbursement, the lender obtains a loan
encouraged making loans to graduate,                                                      guarantee from a guaranty agency or
professional, independent                   (ii) The loan programs listed in              the Secretary and the student
undergraduate, and certain dependent        paragraph (b)(2)(i) of this section           completes a promissory note, unless
undergraduate students.                     collectively are referred to in these         the student has previously completed a
                                            regulations as the “Federal Guaranteed        Master Promissory Note (MPN) that the
(3) The Federal PLUS (PLUS)                 Student Loan (GSL) programs.”                 lender may use for the new loan.
Program, which encourages making
loans to parents of dependent               (iii) The Federal GSL programs are            (b) [Reserved]
undergraduate students. Before              authorized to operate in States not
                                            served by a guaranty agency program.          (c) PLUS loan application. (1) For a
October 17, 1986, the PLUS Program                                                        parent to obtain a PLUS loan, the
also provided for making loans to           In addition, the FISL and Federal SLS
                                            (as in effect for periods of enrollment       parent completes an application and
graduate, professional, and                                                               submits it to the school for certification.
independent undergraduate students.         that began prior to July 1, 1994)
                                            programs are authorized, under limited        After the school certifies the application,
Before July 1, 1993, the PLUS Program                                                     the application is submitted to a
also provided for making loans to           circumstances, to operate in States in
                                            which a guaranty agency program does          participating lender. If the lender
parents of dependent graduate                                                             decides to make the loan, the lender
students. The PLUS Program also             not serve all eligible students.
                                                                                          obtains a loan guarantee from a
provides for making loans to graduate       (Authority: 20 U.S.C. 1701 to 1087-2)         guaranty agency or the Secretary. Prior
and professional students on or after                                                     to loan disbursement, the parent
                                            [57 FR 60323, Dec. 18, 1992, as amended at
July 1, 2006.                                                                             completes a PLUS MPN, unless the
                                            59 FR 33348, June 28, 1994; 59 FR 61215,
(4) The Federal Consolidation Loan          Nov. 29, 1994; 64 FR 18974, 18975, Apr. 16,   parent has previously completed a
Program (Consolidation Loan                 1999; 64 FR 58952, Nov. 1, 1999; 66 FR        PLUS MPN that the lender may use for
Program), which encourages making           34762, June 29, 2001; 71 FR 45698, Aug. 9,    the new loan.
                                            2006]
loans to borrowers for the purpose of                                                     (2) For a graduate or professional
consolidating loans: under the Federal      §682.101 Participation in the FFEL
                                                                                          student to obtain a PLUS loan, the
Insured Student Loan (FISL), Stafford       programs.
                                                                                          student applies for a PLUS Loan by
loan, SLS, ALAS (as in effect before        (a) Eligible banks, savings and loan          completing a Free Application for
October 17, 1986), PLUS, Perkins Loan       associations, credit unions, pension          Federal Student Aid (FAFSA) and
programs, the Health Professions            funds, insurance companies, schools,          contacting the school, lender or
Student Loan (HPSL) including Loans         and State and private nonprofit               guarantor. The school determines and
for Disadvantaged Students (LDS)            agencies may make loans.                      certifies the student's eligibility for the
Program authorized by subpart II of part                                                  PLUS loan. After the school certifies the
A of Title VII of the Public Health         (b) Institutions of higher education,
                                            including most colleges, universities,        application, the application is submitted
Services Act, Health Education                                                            to a participating lender. If the lender
Assistance Loans (HEAL) authorized by       graduate and professional schools, and
                                            many vocational, technical schools may        decides to make the loan, the lender
subpart I of Part A of Title VII of the                                                   obtains a loan guarantee from a
Health Services Act, Nursing Student        participate as schools, enabling an
                                            eligible student or his or her parents to     guaranty agency or the Secretary. Prior
Loan Program loans authorized by                                                          to loan disbursement, the student
subpart II of part B of title VIII of the   obtain a loan to pay for the student's
                                            cost of education.                            completes a PLUS MPN, unless the
Public Health Service Act, and existing                                                   student has previously completed a
loans obtained under the Consolidation      (c) Students who meet certain                 PLUS MPN that the lender may use for
Loan Program, and William D. Ford           requirements, including enrollment at a       the new loan.
Direct Loan (Direct Loan) program           participating school, may borrow under
loans, if the application for the           the Stafford Loan and, for periods of         (d) Consolidation loan application.
consolidation loan was received on or       enrollment that began prior to July 1,        Generally, to obtain a Consolidation
after November 13, 1997.                    1994, the SLS program. Parents of             loan, a borrower completes an
                                            eligible dependent undergraduate              application and submits it to a lender
34 CFR 682.102


participating in the Consolidation Loan       PLUS loan is due from the borrower           Federal Consolidation Loan Program
Program. If the lender decides to make        within 60 days after the loan is fully
                                                                                           Federal Pell Grant Program
the loan, the lender obtains a loan           disbursed.
guarantee from a guaranty agency or                                                        Federal Perkins Loan Program
                                              (5) Consolidation loan repayment.
the Secretary.                                Generally, the repayment period for a        Federal PLUS Program
(e) Repaying a loan (1) General.              Consolidation loan begins on the day         Federal Work-Study (FWS) Program
Generally, the borrower is obligated to       the loan is disbursed. The first payment
repay the full amount of the loan, late       of principal and interest on a               Full-time student
fees, collection costs chargeable to the      Consolidation loan is due from the           Graduate and professional student
borrower, and any interest not payable        borrower within 60 days after the
by the Secretary. The borrower's              borrower's liability on all loans being      Half-time student
obligation to repay is cancelled if the       consolidated has been discharged.            Independent student
borrower dies, becomes totally and            (6) Deferment of repayment.                  Leveraging Educational Assistance
permanently disabled, or has that             Repayment of principal on a FFEL             Partnership (LEAP) Program
obligation discharged in bankruptcy. A        program loan may be deferred under
parent borrower's obligation to repay a                                                    National of the United States (Referred
                                              the circumstances described in Sec.
PLUS loan is cancelled if the student,                                                     to as U.S. Citizen or National in 34 CFR
                                              682.210.
on whose behalf the parent borrowed,                                                       668.2)
dies. The borrower's or student's             (7) Default. If a borrower defaults on a
                                                                                           National Science and Mathematics
obligation to repay all or a portion of his   loan, the guarantor reimburses the
                                                                                           Access to Retain Talent Grant (National
or her loan may be cancelled if the           lender for the amount of its loss. The
student is unable to complete his or her      guarantor then collects the amount           SMART Grant) Program
program of study because the school           owed from the borrower.                      Payment period
closed or the borrower's or student's
eligibility to borrow was falsely certified   (Approved by the Office of Management and    Supplemental Educational Opportunity
by the school. The obligation to repay        Budget under control number 1845-0020)       Grant (SEOG) Program
all or a portion of a loan may be             (Authority: 20 U.S.C. 1071 to 1087-2)        Supplemental Loans for Students (SLS)
forgiven for Stafford loan borrowers          [57 FR 60323, Dec. 18, 1992, as amended at   Program
who enter certain areas of the teaching       59 FR 25744, May 17, 1994; 59 FR 33348,      Teacher Education Assistance for
or child care professions.                    June 28, 1994; 64 FR 18975, Apr. 16, 1999;
                                                                                           College and Higher Education (TEACH)
                                              64 FR 58952, Nov. 1, 1999; 68 FR 75428,
(2) Stafford loan repayment. In the case                                                   Grant Program
                                              Dec. 31, 2003; 71 FR 45698, Aug. 9, 2006]
of a subsidized Stafford loan, a
                                              §682.103 Applicability of subparts.          TEACH Grant
borrower is not required to make any
principal payments on a Stafford loan         (a) Subpart B of this part contains          Undergraduate student
during the time the borrower is in            general provisions that are applicable to    (2) The following definitions are set
school. The Secretary pays the interest       all participants in the FFEL and Federal     forth in the regulations for Institutional
on the borrower's behalf during the time      GSL programs.                                Eligibility under the Higher Education
the borrower is in school. When the                                                        Act of 1965, as amended, 34 CFR part
borrower ceases to be enrolled on at          (b) The administration of the FFEL
                                              programs by a guaranty agency is             600:
least a half-time basis, a grace period
begins during which no principal              subject to subparts C, D, F, and G of        Accredited
payments are required, and the                this part.
                                                                                           Clock hour
Secretary continues to make interest          (c) The Federal FFEL and Federal GSL
payments on the borrower's behalf. In         programs are subject to subparts C, E,       Correspondence course
the case of an unsubsidized Stafford          F, and G of this part.                       Credit hour
loan, the borrower is responsible for
interest during these periods. At the         (d) Certain requirements applicable to       Educational program
end of the grace period, the repayment        schools under all the FFEL and Federal
                                                                                           Federal Family Education Loan
period begins. During the repayment           GSL programs are set forth in subpart F      Program (formerly known as the
period, for the subsidized and                of this part.                                GuaranteedStudent Loan (GSL)
unsubsidized Stafford loan, the               (Authority: 20 U.S.C. 1071 to 1087-2)        Program)
borrower pays both the principal and          [57 FR 60323, Dec. 18, 1992, as amended at   Foreign institution
the interest accruing on the loan.            64 FR 18975, Apr. 16, 1999; 64 FR 58952,
                                              Nov. 1, 1999]                                Institution of higher education (Sec.
(3) SLS loan repayment. Generally, the
                                                                                           600.4)
repayment period for an SLS loan              Subpart B—General Provisions
begins immediately on the day of the                                                       Nationally recognized accrediting
last disbursement of the loan proceeds        §682.200 Definitions.                        agency
by the lender. The first payment of           (a)(1) The definitions of the following      Postsecondary Vocational Institution
principal and interest on an SLS loan is      terms used in this part are set forth in
due from the borrower within 60 days          subpart A of the Student Assistance          Preaccredited
after the loan is fully disbursed unless a    General Provisions, 34 CFR part 668:         Secretary
borrower who is also a Stafford loan
                                              Academic Competitiveness Grant               State
borrower, but who has not yet entered
                                              (ACG) Program
repayment on the Stafford loan,                                                            (3) The definition for cost of attendance
requests that commencement of                 Academic year                                is set forth in section 472 of the Act, as
repayment on the SLS loan be deferred         Campus-based programs                        amended.
until the borrower's grace period on the
                                              Dependent student                            (b) The following definitions also apply
Stafford loan expires.
                                                                                           to this part:
(4) PLUS loan repayment. Generally,           Eligible program
                                                                                           Act. The Higher Education Act of 1965,
the repayment period for a PLUS loan          Eligible student                             as amended, 20 U.S.C. 1071 et seq.
begins on the day the loan is fully
disbursed by the lender. The first            Enrolled                                     Actual interest rate. The annual interest
payment of principal and interest on a        Expected family contribution (EFC)           rate a lender charges on a loan, which
34 CFR 682.200


may be equal to or less than the            Endorser. An individual who signs a             (iii) For the purpose of determining
applicable interest rate on that loan.      promissory note and agrees to repay             eligibility for a subsidized Stafford loan,
                                            the loan in the event that the borrower         national service education awards or
Applicable interest rate. The maximum
                                            does not.                                       post-service benefits under title I of the
annual interest rate that a lender may
charge under the Act on a loan.             Escrow agent. Any guaranty agency or            National and Community Service Act of
                                            other eligible lender that receives the         1990 (AmeriCorps);
Authority. Any private non-profit or
                                            proceeds of a FFEL program loan as an           (iv) Any portion of the estimated
public entity that may issue tax-exempt
                                            agent of an eligible lender for the             financial assistance described in
obligations to obtain funds to be used
                                            purpose of transmitting those proceeds          paragraph (1) of this definition that is
for the making or purchasing of FFEL
                                            to the borrower or the borrower's               included in the calculation of the
loans. The term “Authority” also
                                            school.                                         student's expected family contribution
includes any agency, including a State
postsecondary institution or any other      Estimated financial assistance. (1) The         (EFC);
instrumentality of a State or local         estimated amount of assistance for a            (v) Non-need-based employment
governmental unit, regardless of the        period of enrollment that a student (or a       earnings;
designation or primary purpose of that      parent on behalf of a student) will             (vi) Assistance not received under a
agency, that may issue tax-exempt           receive from Federal, State,
                                                                                            title IV, HEA program, if that assistance
obligations, any party authorized to        institutional, or other sources, such as,
                                                                                            is designated to offset all or a portion of
issue those obligations on behalf of a      scholarships, grants, the net earnings
                                                                                            a specific amount of the cost of
governmental agency, and any non-           from need-based employment, or loans,
                                                                                            attendance and that component is
profit organization authorized by law to    including but not limited to—
                                                                                            excluded from the cost of attendance
issue tax-exempt obligations.               (i) Except as provided in paragraph             as well. If that assistance is excluded
Borrower. An individual to whom a           (2)(iii) of this definition, national service   from either estimated financial
FFEL Program loan is made.                  education awards or post-service                assistance or cost of attendance, it
                                            benefits under title I of the National and      must be excluded from both.;
Co-Maker. One of two married
                                            Community Service Act of 1990                   (vii) Federal veterans’ education
individuals who jointly borrow a
                                            (AmeriCorps);
Consolidation loan, each of whom are                                                        benefits paid under—
eligible and who are jointly and            (ii) Except as provided in paragraph
                                                                                            (A) Chapter 103 of title 10, United
severally liable for repayment of the       (2)(vii) of this definition, veterans’
                                                                                            States Code (Senior Reserve Officers’
loan. The term co-maker also includes       education benefits;
                                                                                            Training Corps);
one of two parents who are joint            (iii) Any educational benefits paid
borrowers as previously authorized in                                                       (B) Chapter 106A of title 10, United
                                            because of enrollment in a
the PLUS Program.                                                                           States Code (Educational Assistance
                                            postsecondary education institution, or
                                                                                            for Persons Enlisting for Active Duty);
Default. The failure of a borrower and      to cover postsecondary education
endorser, if any, or joint borrowers on a   expenses;                                       (C) Chapter 1606 of title 10, United
PLUS or Consolidation loan, to make                                                         States Code (Selected Reserve
                                            (iv) Fellowships or assistantships,
an installment payment when due, or to                                                      Educational Assistance Program);
                                            except non-need-based employment
meet other terms of the promissory          portions of such awards;                        (D) Chapter 1607 of title 10, United
note, the Act, or regulations as                                                            States Code (Educational Assistance
applicable, if the Secretary or guaranty    (v) Insurance programs for the
                                                                                            Program for Reserve Component
agency finds it reasonable to conclude      student's education; and
                                                                                            Members Supporting Contingency
that the borrower and endorser, if any,     (vi) The estimated amount of other              Operations and Certain Other
no longer intend to honor the obligation    Federal student financial aid, including        Operations);
to repay, provided that this failure        but not limited to a Federal Pell Grant,
persists for—                                                                               (E) Chapter 30 of title 38, United States
                                            Academic Competitiveness Grant,
                                                                                            Code (All-Volunteer Force Educational
(1) 270 days for a loan repayable in        National SMART Grant, campus-based
                                                                                            Assistance Program, also known as the
monthly installments; or                    aid, and the gross amount (including
                                                                                            ‘‘Montgomery GI Bill— active duty’’);
                                            fees) of subsidized and unsubsidized
(2) 330 days for a loan repayable in        Federal Stafford Loans or subsidized            (F) Chapter 31 of title 38, United States
less frequent installments.                 and unsubsidized Federal Direct                 Code (Training and Rehabilitation for
Disbursement. The transfer of loan          Stafford/Ford Loans, and Federal PLUS           Veterans with Service-Connected
proceeds by a lender to a holder, in the    or Federal Direct PLUS Loans.                   Disabilities);
case of a Consolidation loan, or to a       (2) Estimated financial assistance does         (G) Chapter 32 of title 38, United States
borrower, a school, or an escrow agent      not include—(i) Those amounts used to           Code (Post-Vietnam Era Veterans’
by issuance of an individual check, a       replace the expected family                     Educational Assistance Program);
master check or by electronic funds         contribution, including the amounts of
transfer that may represent loan                                                            (H) Chapter 33 of title 38, United States
                                            any TEACH Grant, unsubsidized                   Code (Post 9/11 Educational
amounts for borrowers.                      Federal Stafford or Federal Direct              Assistance);
Disposable income. That part of an          Stafford/Ford Loans, Federal PLUS or
individual's compensation from an           Federal Direct PLUS Loans, and non-             (I) Chapter 35 of title 38, United States
employer and other income from any          federal non-need-based loans,                   Code (Survivors’ and Dependents’
source, including spousal income, that      including private, state-sponsored, and         Educational Assistance Program);
remains after the deduction of any          institutional loans. However, if the sum        (J) Section 903 of the Department of
amounts required by law to be withheld,     of the amounts received that are being          Defense Authorization Act, 1981 (10
or any child support or alimony             used to replace the student's EFC               U.S.C. 2141 note) (Educational
payments that are made under a court        exceed the EFC, the excess amount               Assistance Pilot Program);
order or legally enforceable written        must be treated as estimated financial
agreement. Amounts required by law to       assistance;                                     (K) Section 156(b) of the ‘‘Joint
be withheld include, but are not limited,                                                   Resolution making further continuing
                                            (ii) Federal Perkins loan and Federal           appropriations and providing for
to Federal, State, and local taxes,
                                            Work-Study funds that the student has           productive employment for the fiscal
Social Security contributions, and wage
                                            declined;                                       year 1983, and for other purposes’’ (42
garnishment payments.
                                                                                            U.S.C. 402 note) (Restored Entitlement
34 CFR 682.200


Program for Survivors, also known as          (ii) The phrase “does not have as its           lender's representative to secure FFEL
‘‘Quayle benefits’’);                         primary consumer credit function the            loan applications from individual
                                              making or holding of loans made to              prospective borrowers, unless the
(L) The provisions of chapter 3 of title
                                              students under this part” in section            student is also employed by the lender
37, United States Code, related to
                                              435(d) of the Act means that the lender         for other purposes and discloses that
subsistence allowances for members of
                                              does not, or in the case of a bank              employment to school administrators
the Reserve Officers Training Corps;
                                              holding company, the company's                  and to prospective borrowers;
and
                                              wholly-owned subsidiaries as a group
(M) Any program that the Secretary                                                            (4) Payments or other benefits to a loan
                                              do not at any time, hold FFEL Program
may determine is covered by section                                                           solicitor or sales representative of a
                                              loans that total more than one-half of
                                                                                              lender who visits schools to solicit
480(c)(2) of the HEA; and                     the lender's or subsidiaries' combined
                                                                                              individual prospective borrowers to
(viii) Iraq and Afghanistan Service           consumer credit loan portfolio, including
                                                                                              apply for FFEL loans from the lender;
Grants made under section 420R of the         home mortgages held by the lender or
HEA.                                          its subsidiaries. For purposes of this          (5) Payment to another lender or any
                                              paragraph, loans held in trust by a             other party, including a school, a school
Federal GSL programs. The Federal             trustee lender are not considered part          employee, or a school-affiliated
Insured Student Loan Program, the             of the trustee lender's consumer credit         organization or its employees, of
Federal Supplemental Loans for                function.                                       referral fees, finder fees or processing
Students Program, the Federal PLUS                                                            fees, except those processing fees
Program, and the Federal                      (3) A bank that is subject to
                                                                                              necessary to comply with Federal or
Consolidation Loan Program.                   examination and supervision by an
                                                                                              State law;
                                              agency of the United States, making
Federal Insured Student Loan Program.         student loans as a trustee, may be an           (6) Compensation to an employee of a
The loan program authorized by title IV-      eligible lender if it makes loans under         school’s financial aid office or other
B of the Act under which the Secretary        an express trust, operated as a lender          employee who has responsibilities with
directly insures lenders against losses.      in the FFEL programs prior to January           respect to student loans or other
Foreign school. A school not located in       1, 1975, and met the requirements of            financial aid provided by the school or
a State.                                      this paragraph prior to July 23, 1992.          compensation to a school-affiliated
                                                                                              organization or its employees, to serve
Grace period. The period that begins on       (4) The corporate parent or other owner
                                                                                              on a lender's advisory board,
the day after a Stafford loan borrower        of a school that qualifies as an eligible
                                                                                              commission or other group established
ceases to be enrolled as at least a half-     lender under section 435(d) of the Act
                                                                                              by the lender, except that the lender
time student at an institution of higher      is not an eligible lender unless the
                                                                                              may reimburse the employee for
education and ends on the day before          corporate parent or owner itself
                                                                                              reasonable expenses incurred in
the repayment period begins. See also         qualifies as an eligible lender under
                                                                                              providing the service;
“Post-deferment grace period.” For an         section 435(d) of the Act.
SLS borrower who also has a Federal                                                           (7) Payment of conference or training
                                              (5)(i) The term eligible lender does not
Stafford loan on which the borrower has                                                       registration, travel, and lodging costs
                                              include any lender that the
not yet entered repayment, the grace                                                          for an employee of a school or school-
                                              Secretary determines, after notice and
period is an equivalent period after the                                                      affiliated organization;
                                              opportunity for a hearing before a
borrower ceases to be enrolled as at          designated Department official, has,            (8) Payment of entertainment
least a half-time student at an institution   directly or through an agent or                 expenses, including expenses for
of higher education.                          contractor—                                     private hospitality suites, tickets to
Guaranty agency. A State or private           (A) Except as provided in paragraph             shows or sporting events, meals,
nonprofit organization that has an            (5)(ii) of this definition, offered, directly   alcoholic beverages, and any lodging,
agreement with the Secretary under            or indirectly, points, premiums,                rental, transportation, and other
which it will administer a loan guarantee     payments (including payments for                gratuities related to lender-sponsored
program under the Act.                        referrals, finder fees or processing            activities for employees of a school or a
                                              fees), or other inducements to any              school-affiliated organization;
Holder. An eligible lender owning an          school, any employee of a school, or
FFEL Program loan including a Federal                                                         (9) Philanthropic activities, including
                                              any individual or entity in order to            providing scholarships, grants,
or State agency or an organization or         secure applications for FFEL loans or
corporation acting on behalf of such an                                                       restricted gifts, or financial contributions
                                              FFEL loan volume. This includes but is          in exchange for FFEL loan applications
agency and acting as a conservator,           not limited to—
liquidator, or receiver of an eligible                                                        or application referrals, or a specified
lender.                                       (1) Payments or offerings of other              volume or dollar amount of FFEL loans
                                              benefits, including prizes or additional        made, or placement on a school's list of
Legal guardian. An individual appointed       financial aid funds, to a prospective           recommended or suggested lenders;
by a court to be a “guardian” of a            borrower or to a school or school
person and specifically required by the                                                       (10) Performance of, or payment to
                                              employee in exchange for applying for           another third party to perform, any
court to use his or her financial             or accepting a FFEL loan from the
resources for the support of that                                                             school function required under title IV,
                                              lender;                                         except that the lender may perform
person.
                                              (2) Payments or other benefits,                 entrance counseling as provided in
Lender. (1) The term “eligible lender” is     including payments of stock or other            §682.604(f) and exit counseling as
defined in section 435(d) of the Act, and     securities, tuition payments or                 provided in §682.604(g), and may
in paragraphs (2)-(5) of this definition.     reimbursements, to a school, a school           provide services to participating foreign
(2) With respect to a National or State       employee, any school-affiliated                 schools at the direction of the
chartered bank, a mutual savings bank,        organization, or to any other individual        Secretary, as a third-party servicer; and
a savings and loan association, a stock       in exchange for FFEL loan applications,         (11) Any type of consulting
savings bank, or a credit union—              application referrals, or a specified           arrangement or other contract with an
                                              volume or dollar amount of loans made,          employee of a financial aid office at a
(i) The phrase “subject to examination
                                              or placement on a school's list of              school, or an employee of a school who
and supervision” in section 435(d) of
                                              recommended or suggested lenders;               otherwise has responsibilities with
the Act means “subject to examination
and supervision in its capacity as a          (3) Payments or other benefits provided         respect to student loans or other
lender”;                                      to a student at a school who acts as the        financial aid provided by the school
34 CFR 682.200


under which the employee would               or other targeted purposes approved by       (8) As of January 1, 2007, and for loans
provide services to the lender.              the Secretary, provided these benefits       first disbursed on or after that date
                                             are not marketed to secure loan              under a trustee arrangement, an
(B) Conducted unsolicited mailings, by
                                             applications or loan guarantees;             eligible lender operating as a trustee
postal or electronic means, of student
loan application forms to students           (J) Items of nominal value to schools,       under a contract entered into on or
                                                                                          before September 30, 2006, and which
enrolled in secondary schools or             school-affiliated organizations, and
postsecondary institutions or to family      borrowers that are offered as a form of      continues in effect with a school or a
members of such students, except to a        generalized marketing or advertising, or     school-affiliated organization, must
                                                                                          comply with the requirements of Sec.
student or borrower who previously has       to create good will; and
received a FFEL loan from the lender;                                                     682.601(a)(3), (a)(5), and (a)(7).
                                             (K) Other services as identified and
(C) Offered, directly or indirectly, a       approved by the Secretary through a          Master Promissory Note (MPN). A
FFEL loan to a prospective borrower to       public announcement, such as a notice        promissory note under which the
                                             in the Federal Register.                     borrower may receive loans for a single
induce the purchase of a policy of
insurance or other product or service by                                                  period of enrollment or multiple periods
                                             (iii) For the purposes of this paragraph     of enrollment.
the borrower or other person; or             (5) —
(D) Engaged in fraudulent or misleading                                                   Nationwide consumer reporting agency.
                                             (A) The term “school-affiliated              A consumer reporting agency as
advertising with respect to its FFEL         organization” is defined in §682.200.
loan activities.                                                                          defined in 15 U.S.C. 1681a.
                                             (B) The term “applications” includes the     Nonsubsidized Stafford loan. A Stafford
(ii) Notwithstanding paragraph (5)(i) of
                                             Free Application for Federal Student         loan made prior to October 1, 1992 that
this definition, a lender, in carrying out   Aid (FAFSA), FFEL loan master                does not qualify for interest benefits
its role in the FFEL program and in          promissory notes, and FFEL
attempting to provide better service,                                                     under Sec. 682.301(b) or special
                                             Consolidation loan application and           allowance payments under Sec.
may provide—                                 promissory notes.                            682.302.
(A) Technical assistance to a school         (C) The term “other benefits” includes,      Origination relationship. A special
that is comparable to the kinds of           but is not limited to, preferential rates
technical assistance provided to a                                                        business relationship between a school
                                             for or access to the lender's other          and a lender in which the lender
school by the Secretary under the            financial products, information
Direct Loan program, as identified by                                                     delegates to the school, or to an entity
                                             technology equipment, or non-loan            or individual affiliated with the school,
the Secretary in a public                    processing or non-financial aid-related      substantial functions or responsibilities
announcement, such as a notice in the        computer software at below market
Federal Register;                                                                         normally performed by lenders before
                                             rental or purchase cost, and printing        making FFEL program loans. In this
(B) Support of and participation in a        and distribution of college catalogs and     situation, the school is considered to
school's or a guaranty agency's student      other materials at reduced or no cost.       have “originated” a loan made by the
aid and financial literacy-related           (6) The term eligible lender does not        lender.
outreach activities, including in-person
                                             include any lender that—                     Origination fee. A fee that the lender is
entrance and exit counseling, as long
                                             (i) Is debarred or suspended, or any of      required to pay the Secretary to help
as the name of the entity that
developed and paid for any materials is      whose principals or affiliates (as those     defray the Secretary's costs of
provided to the participants and the         terms are defined in 34 CFR part 85) is      subsidizing the loan. The lender may
                                             debarred or suspended under                  pass this fee on to the Stafford loan
lender does not promote its student
loan or other products;                      Executive Order (E.O.) 12549 (3 CFR,         borrower. The lender must pass this fee
                                             1986 Comp., p. 189) or the Federal           on to the SLS or PLUS borrower.
(C) Meals, refreshments, and
                                             Acquisition Regulation (FAR), 48 CFR         Participating school. A school that has
receptions that are reasonable in cost       part 9, subpart 9.4;                         in effect a current agreement with the
and scheduled in conjunction with
training, meeting, or conference events      (ii) Is an affiliate, as defined in 34 CFR   Secretary under Sec. 682.600.
if those meals, refreshments, or             part 85, of any person who is debarred       Period of enrollment. The period for
receptions are open to all training,         or suspended under E.O. 12549 (3             which a Stafford, SLS, or PLUS loan is
meeting, or conference attendees;            CFR, 1986 Comp., p. 189) or the FAR,         intended. The period of enrollment must
                                             48 CFR part 9, subpart 9.4; or               coincide with one or more bona fide
(D) Toll-free telephone numbers for use
by schools or others to obtain               (iii) Employs a person who is debarred       academic terms established by the
                                             or suspended under E.O. 12549 (3             school for which institutional charges
information about FFEL loans and free
data transmission service for use by         CFR, 1986 Comp., p. 189) or the FAR,         are generally assessed (e.g., a
schools to electronically submit             48 CFR part 9, subpart 9.4, in a             semester, trimester, or quarter in weeks
                                             capacity that involves the administration    of instructional time, an academic year,
applicant loan processing information or
student status confirmation data;            or receipt of FFEL Program funds.            or the length of the student's program
                                                                                          of study in weeks of instructional time).
(E) A reduced origination fee in             (7) An eligible lender may not make or       The period of enrollment is also
accordance with §682.202(c);                 hold a loan as trustee for a school, or      referred to as the loan period.
                                             for a school-affiliated organization as
(F) A reduced interest rate as provided                                                   Post-deferment grace period. For a
                                             defined in this section, unless on or
under the Act;                               before September 30, 2006—                   loan made prior to October 1, 1981, a
(G) Payment of Federal default fees in                                                    single period of six consecutive months
                                             (i) The eligible lender was serving as       beginning on the day following the last
accordance with the Act;
                                             trustee for the school or school-            day of an authorized deferment period.
(H) Purchase of a loan made by               affiliated organization under a contract
another lender at a premium;                 entered into and continuing in effect as     Repayment period. (1) For a Stafford
                                             of that date; and                            loan, the period beginning on the date
(I) Other benefits to a borrower under a                                                  following the expiration of the grace
repayment incentive program that             (ii) The eligible lender held at least one   period and ending no later than 10
requires, at a minimum, one or more          loan in trust on behalf of the school or     years, or 25 years under an extended
scheduled payments to receive or             school-affiliated organization on that       repayment schedule, from the date the
retain the benefit or under a loan           date.                                        first payment of principal is due from
forgiveness program for public service
34 CFR 682.200


the borrower, exclusive of any period of    three (3) consecutive, on-time voluntary      disabled dependent of a borrower, this
deferment or forbearance.                   full monthly payments on a defaulted          term means a spouse or other
                                            loan.                                         dependent who, during a period of
(2) For unsubsidized Stafford loans, the
                                            (3) The required full monthly payment         injury or illness, requires continuous
period that begins on the day after the
                                                                                          nursing or similar services for a period
expiration of the applicable grace          amount may not be more than is
                                                                                          of at least 90 days.
period that follows after the student       reasonable and affordable based on the
ceases to be enrolled on at least a half-   borrower's total financial circumstances.     Third-party servicer. Any State or
time basis and ending no later than 10      Voluntary payments are those                  private, profit or nonprofit organization
years or 25 years under an extended         payments made directly by the                 or any individual that enters into a
repayment schedule, from that date,         borrower, and do not include payments         contract with a lender or guaranty
exclusive of any period of deferment or     obtained by income tax off-set,               agency to administer, through either
forbearance. However, payments of           garnishment, or income or asset               manual or automated processing, any
interest are the responsibility of the      execution. On-time means a payment            aspect of the lender's or guaranty
borrower during the in-school and grace     received by the Secretary or a guaranty       agency's FFEL programs required by
period, but may be capitalized by the       agency or its agent within 15 days of         any statutory provision of or applicable
lender.                                     the scheduled due date.                       to Title IV of the HEA, any regulatory
(3) For SLS loans, the period that          School. (1) An “institution of higher         provision prescribed under that
begins on the date the loan is              education” as that term is defined in 34      statutory authority, or any applicable
                                            CFR 600.4.                                    special arrangement, agreement, or
disbursed, or if the loan is disbursed in
more than one installment, on the date                                                    limitation entered into under the
                                            (2) For purposes of an in-school              authority of statutes applicable to Title
the last disbursement is made and           deferment, the term includes an               IV of the HEA that governs the FFEL
ending no later than 10 years from that     institution of higher education, whether
date, exclusive of any period of                                                          programs, including, any applicable
                                            or not it participates in any title IV        function described in the definition of
deferment or forbearance. The first         program or has lost its eligibility to        third-party servicer in 34 CFR part 668;
payment of principal is due within 60       participate in the FFEL program
days after the loan is fully disbursed                                                    originating, guaranteeing, monitoring,
                                            because of a high default rate.               processing, servicing, or collecting
unless a borrower who is also a
Stafford loan borrower but who, has not     School-affiliated organization. A school-     loans; claims submission; or billing for
yet entered repayment on the Stafford       affiliated organization is any                interest benefits and special allowance.
loan requests that commencement of          organization that is directly or indirectly   Totally and permanently disabled. The
repayment on the SLS loan be delayed        related to a school and includes, but is      condition of an individual who—
until the borrower's grace period on the    not limited to, alumni organizations,
                                                                                          (1) Is unable to engage in any
Stafford loan expires. Interest on the      foundations, athletic organizations, and
                                            social, academic, and professional            substantial gainful activity by reason of
loan accrues and is due and payable
                                            organizations.                                any medically determinable physical or
from the date of the first disbursement                                                   mental impairment that—
of the loan. The borrower is responsible    School lender. A school, other than a
for paying interest on the loan during                                                    (i) Can be expected to result in death
                                            correspondence school, that has
the grace period and periods of             entered into a contract of guarantee          (ii) Has lasted for a continuous period
deferment, but the interest may be          under this part with the Secretary or, a      of not less than 60 months; or
capitalized by the lender.                  similar agreement with a guaranty             (iii) Can be expected to last for a
(4) For Federal PLUS loans, the period      agency.
                                                                                          continuous period of not less than 60
that begins on the date the loan is         Stafford Loan Program. The loan               months; or
disbursed, or if the loan is disbursed in   program authorized by Title IV-B of the
more than one installment, on the date                                                    (2) Has been determined by the
                                            Act which encourages the making of
the last disbursement is made and                                                         Secretary of Veterans Affairs to be
                                            subsidized and unsubsidized loans to
ending no later than 10 years, or 25                                                      unemployable due to a service-
                                            undergraduate, graduate, and
years under an extended repayment                                                         connected disability.
                                            professional students and is one of the
schedule, from that date, exclusive of      Federal Family Education Loan                 Unsubsidized Stafford loan. A loan
any period of deferment or forbearance.     programs.                                     made after October 1, 1992, authorized
Interest on the loan accrues and is due                                                   under section 428H of the Act for
and payable from the date of the first      State lender. In any State, a single
                                                                                          borrowers who do not qualify for
disbursement of the loan.                   State agency or private nonprofit
                                                                                          interest benefits under Sec. 682.301(b)
                                            agency designated by the State that
(5) For Federal Consolidation loans, the                                                  but do qualify for special allowance
                                            has entered into a contract of
period that begins on the date the loan                                                   under Sec. 682.302.
                                            guarantee under this part with the
is disbursed and ends no later than 10,     Secretary, or a similar agreement with a      Write-off. Cessation of collection activity
12, 15, 20, 25, or 30 years from that       guaranty agency.                              on a defaulted FFEL loan due to a
date depending upon the sum of the                                                        determination in accordance with
amount of the Consolidation loan, and       Subsidized Stafford Loan. A Stafford
                                                                                          applicable standards that no further
the unpaid balance on other student         loan that qualifies for interest benefits
                                                                                          collection activity is warranted.
loans, exclusive of any period of           under Sec. 682.301(b) and special
                                            allowance under Sec. 682.302.                 (Approved by the Office of Management and
deferment or forbearance.                                                                 Budget under control number 1845-0020)
Satisfactory repayment arrangement.         Substantial gainful activity. A level of
                                                                                          (Authority: 8 U.S.C. 1101; 20 U.S.C. 1070 to
(1) For purposes of regaining eligibility   work performed for pay or profit that         1087-2, 1088-1098, 1141; E.O. 12549 (3
under Sec. 682.401(b)(4), the making        involves doing significant physical or        CFR, 1986 Comp., p. 189), E.O. 12689 (3
of six (6) consecutive, on-time,            mental activities, or a combination of        CFR, 1989 Comp.,p. 235))
voluntary full monthly payments on a        both.
                                                                                          [57 FR 60323, Dec. 18, 1992]
defaulted loan. A borrower may only         Temporarily totally disabled. The             Editorial Note: For Federal Register citations
obtain the benefit of this paragraph with   condition of an individual who, though        affecting §682.200, see the List of CFR
respect to renewed eligibility once.        not totally and permanently disabled, is      Sections Affected, which appears in the
(2) For purposes of consolidating a         unable to work and earn money or              Finding Aids section of the printed volume
                                            attend school, during a period of at          and on GPO Access.
defaulted loan under 34 CFR
682.201(c)(1)(iii)(C), the making of        least 60 days needed to recover from
                                            injury or illness. With regard to a
34 CFR 682.201


§682.201 Eligible borrowers.                  (ii) For purposes of this section,            permanent disability discharge or when
(a) Student Stafford borrower. Except         reaffirmation means the                       the new loan is made unless that
                                              acknowledgement of the loan by the            impairment substantially deteriorates;
for a refinanced SLS/PLUS loan made
                                              borrower in a legally binding manner.         and
under Sec. 682.209 (e) or (f), a student
                                              The acknowledgement may include, but          (B) Collection activity will resume on
is eligible to receive a Stafford loan,
                                              is not limited to, the borrower—
and an independent undergraduate                                                            any loans in a conditional discharge
student, a graduate or professional           (A) Signing a new promissory note that        period.
student, or, subject to paragraph (a)(3)      includes the same terms and conditions        (8) In the case of any student who
of this section, a dependent                  as the original note signed by the            seeks a loan but does not have a
undergraduate student, is eligible to         borrower or repayment schedule; or
                                                                                            certificate of graduation from a school
receive an unsubsidized Stafford loan,        (B) Making a payment on the loan.             providing secondary education or the
if the student who is enrolled or                                                           recognized equivalent of such a
accepted for enrollment on at least a         (5) The suspension of collection activity
                                              has been lifted from any loan on which        certificate, the student meets the
half-time basis at a participating school                                                   requirements under 34 CFR part
meets the requirements for an eligible        collection activity had been suspended
                                              based on a conditional determination          668.32(e).
student under 34 CFR part 668, and—
                                              that the borrower was totally and             (9) Is not serving in a medical internship
(1) In the case of an undergraduate
                                              permanently disabled.                         or residency program, except for an
student who seeks a Stafford loan or                                                        internship in dentistry.
unsubsidized Stafford loan for the cost       (6) In the case of a borrower whose
of attendance at a school that                prior loan under title IV of the Act or       (b) Student PLUS borrower. A graduate
participates in the Pell Grant Program,       whose TEACH Grant service obligation          or professional student who is enrolled
has received a final determination, or,       was discharged after a final                  or accepted for enrollment on at least a
in the case of a student who has filed        determination of total and permanent          half-time basis at a participating school
an application with the school for a Pell     disability, the student must—                 is eligible to receive a PLUS Loan on or
Grant, a preliminary determination, from      (i) Obtain certification from a physician     after July 1, 2006, if the student—
the school of the student's eligibility or    that the borrower is able to engage in        (1) Meets the requirements for an
ineligibility for a Pell Grant and, if        substantial gainful activity;                 eligible student under 34 CFR 668;
eligible, has applied for the period of
enrollment for which the loan is sought;      (ii) Sign a statement acknowledging           (2) Meets the requirements of
                                              that the FFEL loan the borrower               paragraphs (a)(4), (a)(5), (a)(6), (a)(7),
(2) In the case of any student who            receives cannot be discharged in the          (a)(8), and (a)(9) of this section, if
seeks an unsubsidized Stafford loan for       future on the basis of any impairment         applicable;
the cost of attendance at a school that       present when the new loan is made,
participates in the Stafford Loan                                                           (3) Has received a determination of his
                                              unless that impairment substantially          or her annual loan maximum eligibility
Program, the student must—                    deteriorates; and                             under the Federal Subsidized and
(i) Receive a determination of need for       (iii) If a borrower receives a new FFEL       Unsubsidized Stafford Loan Program or
a subsidized Stafford loan; and               loan, other than a Federal                    under the Federal Direct Subsidized
(ii) If the determination of need is in       Consolidation Loan, within three years        Stafford/Ford Loan Program and
excess of $200, have made a request           of the date that any previous title IV        Federal Direct Unsubsidized
to a lender for a subsidized Stafford         loan or TEACH Grant service obligation        Stafford/Ford Loan Program, as
loan;                                         was discharged due to a total and             applicable; and
                                              permanent disability in accordance with       (4) Does not have an adverse credit
(3) For purposes of a dependent
                                              §682.402(c)(3)(ii), 34 CFR                    history in accordance with paragraphs
undergraduate student's eligibility for an    674.61(b)(3)(i), 34 CFR 685.213, or 34
additional unsubsidized Stafford loan                                                       (c)(2)(i) through (c)(2)(v) of this section,
                                              CFR 686.42(b) based on a discharge            or obtains an endorser who has been
amount, as described at Sec.
                                              request received on or after July 1,          determined not to have an adverse
682.204(d), is a dependent                    2010, resume repayment on the
undergraduate student for whom the                                                          credit history, as provided for in
                                              previously discharged loan in                 paragraph (c)(1)(vii) of this section.
financial aid administrator determines
                                              accordance with §682.402(c)(5), 34
and documents in the school's file, after     CFR 674.61(b)(5), or 34 CFR                   (c) Parent PLUS borrower. (1) A parent
review of the family financial                685.213(b)(4), or acknowledge that he         borrower, is eligible to receive a PLUS
information provided by the student and                                                     Program loan, other than a loan made
                                              or she is once again subject to the
consideration of the student's debt           terms of the TEACH Grant agreement            under Sec. 682.209(e), if the parent—
burden, that the student's parents likely     to serve before receiving the new loan.
will be precluded by exceptional                                                            (i) Is borrowing to pay for the
circumstances (e.g., denial of a PLUS         (7) In the case of a borrower whose           educational costs of a dependent
loan to a parent based on adverse             prior loan under title IV of the HEA was      undergraduate student who meets the
credit, the student's parent receives         conditionally discharged after an initial     requirements for an eligible student set
only public assistance or disability          determination that the borrower was           forth in 34 CFR part 668;
benefits, is incarcerated, or his or her      totally and permanently disabled based        (ii) Provides his or her and the student's
whereabouts are unknown) from                 on a discharge request received prior to      social security number;
borrowing under the PLUS Program              July 1, 2010, the borrower must—
and the student's family is otherwise                                                       (iii) Meets the requirements pertaining
                                              (i) Comply with the requirements of           to citizenship and residency that apply
unable to provide the student's               paragraphs (a)(6)(i) and (a)(6)(ii) of this
expected family contribution. A parent's                                                    to the student in 34 CFR 668.33;
                                              section; and
refusal to borrow a PLUS loan does not                                                      (iv) Meets the requirements concerning
constitute an exceptional circumstance;       (ii) Sign a statement acknowledging           defaults and overpayments that apply
                                              that—                                         to the student in 34 CFR 668.35 and
(4)(i) Reaffirms any FFEL loan amount
on which there has been a total               (A) The loan that has been conditionally      meets the requirements of judgment
cessation of collection activity, including   discharged prior to a final determination     liens that apply to the student under 34
all principal, interest, collection costs,    of total and permanent disability cannot      CFR 668.32(g)(3);
court costs, attorney fees, and late          be discharged in the future on the basis      (v) Except for the completion of a
charges that have accrued on that             of any impairment present when the            Statement of Selective Service
amount up to the date of reaffirmation.       borrower applied for a total and              Registration Status, complies with the
34 CFR 682.201


requirements for submission of a             “parent” in 34 CFR 668.2 and the               Direct Consolidation Loan Program for
Statement of Educational Purpose that        spouse of a parent who remarried, if           purposes of obtaining an income
apply to the student in 34 CFR part          that spouse's income and assets would          contingent repayment plan or an
668;                                         have been taken into account when              income-based repayment plan; and
(vi) Meets the requirements of               calculating a dependent student's              (5) A FFEL borrower may consolidate
                                             expected family contribution.
paragraphs (a)(4), (a)(5), (a)(6), and                                                      his or her loans (including a FFEL
(a)(7) of this section, as applicable; and   (d) Consolidation program borrower. (1)        Consolidation Loan) into the Federal
(vii) In the case of a Federal PLUS loan     An individual is eligible to receive a         Direct Consolidation Loan Program for
                                             Consolidation loan if the individual—          the purpose of using—
made on or after July 1, 1993, does not
have an adverse credit history or            (i) On the loans being consolidated—           (i) The Public Service Loan
obtains an endorser who has been             (A) Is, at the time of application for a       Forgiveness Program; or
determined not to have an adverse            Consolidation loan—                            (ii) For FFEL Program loans first
credit history as provided in paragraph                                                     disbursed on or after October 1, 2008
(c)(2)(ii) of this section.                  (1) In a grace period preceding
                                             repayment;                                     (including Federal Consolidation Loans
(viii) Has completed repayment of any                                                       that repaid FFEL or Direct Loan
title IV, HEA program assistance             (2) In repayment status;                       program Loans first disbursed on or
obtained by fraud, if the parent has         (3) In a default status and has either         after October 1, 2008), the no accrual
been convicted of, or has pled nolo          made satisfactory repayment                    of interest benefit for active duty service
contendere or guilty to, a crime             arrangements as defined in applicable          members.
involving fraud in obtaining title IV, HEA   program regulations or has agreed to           (Authority: 20 U.S.C. 1077, 1078, 1078-1,
program assistance.                          repay the consolidation loan under the         1078-2, 1078-3, 1082, and 1091)
(2)(i) For purposes of this section, the     income-sensitive repayment plan                [57 FR 60323, Dec. 18, 1992, as amended at
lender must obtain a credit report on        described in Sec. 682.209(a)(6)(iii) or        59 FR 25745, May 17, 1994; 59 FR 33349,
each applicant from at least one             the income-based repayment plan                June 28, 1994; 59 FR 61215, Nov. 29, 1994;
national credit bureau. The credit report    described in §682.215;                         60 FR 61756, 61815, Dec. 1, 1995; 60 FR
                                                                                            65021, Dec. 18, 1995; 62 FR 63433, Nov. 28,
must be secured within a timeframe           (B) Not subject to a judgment secured          1997; 64 FR 18975, Apr. 16, 1999; 64 FR
that would ensure the most accurate,         through litigation, unless the judgment        58952, Nov. 1, 1999; 65 FR 65619, 65691,
current representation of the borrower's     has been vacated;                              Nov. 1, 2000; 66 FR 44007, Aug. 21, 2001;
credit history before the first day of the                                                  68 FR 75428, Dec. 31, 2003; 71 FR 45699,
period of enrollment for which the loan      (C) Not subject to an order for wage           Aug. 9, 2006; 71 FR 64397, Nov. 1, 2006; 73
is intended.                                 garnishment under section 488A of the          FR 63248, Oct. 23, 2008; 74 FR 55990, Oct.
                                             Act, unless the order has been lifted;         29, 2009]
(ii) Unless the lender determines that
extenuating circumstances existed, the       (D) Not in default status resulting from a     §682.202 Permissible charges by
lender must consider each applicant to       claim filed under Sec. 682.412.                lenders to borrowers.
have an adverse credit history based         (ii) Certifies that no other application for   The charges that lenders may impose
on the credit report if—                     a Consolidation loan is pending; and           on borrowers, either directly or
(A) The applicant is considered 90 or                                                       indirectly, are limited to the following:
                                             (iii) Agrees to notify the holder of any
more days delinquent on the repayment        changes in address.                            (a) Interest. The applicable interest
of a debt; or                                                                               rates for FFEL Program loans are given
                                             (2) A borrower may not consolidate a
(B) The applicant has been the subject                                                      in paragraphs (a)(1) through (a)(4) and
                                             loan under this section for which the
of a default determination, bankruptcy                                                      (a)(8) of this section.
                                             borrower is wholly or partially ineligible.
discharge, foreclosure, repossession,                                                       (1) Stafford Loan Program. (i) For loans
tax lien, wage garnishment, or write-off     (e) A borrower's eligibility to receive a
                                                                                            made prior to July 1, 1994, if, the
of a Title IV debt, during the five years    Consolidation loan terminates upon
                                                                                            borrower, on the date the promissory
preceding the date of the credit report.     receipt of a Consolidation loan except
                                                                                            note evidencing the loan is signed, has
                                             that—
(iii) Nothing in this paragraph precludes                                                   an outstanding balance of principal or
the lender from establishing more            (1) Eligible loans received prior to the       interest on a previous Stafford loan, the
restrictive credit standards to determine    date a Consolidation loan was made             interest rate is the applicable interest
whether the applicant has an adverse         and loans received during the 180-day          rate on that previous Stafford loan.
credit history.                              period following the date a
                                                                                            (ii) If the borrower, on the date the
                                             Consolidation loan was made, may be
(iv) The absence of any credit history is                                                   promissory note evidencing the loan is
                                             added to the Consolidation loan based
not an indication that the applicant has                                                    signed, has no outstanding balance on
                                             on the borrower's request received by
an adverse credit history and is not to                                                     any FFEL Program loan, and the first
                                             the lender during the 180-day period
be used as a reason to deny a PLUS                                                          disbursement is made—
                                             after the date the Consolidation loan
loan to that applicant.                      was made;                                      (A) Prior to October 1, 1992, for a loan
(v) The lender must retain a record of                                                      covering a period of instruction
                                             (2) A borrower who receives an eligible
its basis for determining that                                                              beginning on or after July 1, 1988, the
                                             loan before or after the date a
extenuating circumstances existed.                                                          interest rate is 8 percent until 48
                                             Consolidation loan is made may receive
This record may include, but is not                                                         months elapse after the repayment
                                             a subsequent Consolidation loan;
limited to, an updated credit report, a                                                     period begins, and 10 percent
statement from the creditor that the         (3) A Consolidation loan borrower may          thereafter; or
borrower has made satisfactory               consolidate an existing Consolidation
                                                                                            (B) On or after October 1, 1992, and
arrangements to repay the debt, or a         loan if the borrower has at least one
                                                                                            prior to July 1, 1994, the interest rate is
satisfactory statement from the              other eligible loan made before or after
                                                                                            a variable rate, applicable to each July
borrower explaining any delinquencies        the existing Consolidation loan that will
                                                                                            1-June 30 period, that equals the lesser
with outstanding balances of less than       be consolidated;
                                                                                            of—
$500.                                        (4) If the consolidation loan is in default
                                                                                            (1) The bond equivalent rate of the 91-
(3) For purposes of paragraph (c)(1) of      or has been submitted to the guaranty
                                                                                            day Treasury bills auctioned at the final
this section, a “parent” includes the        agency for default aversion, the
                                                                                            auction prior to the June 1 immediately
individuals described in the definition of   borrower may obtain a subsequent
                                             consolidation loan under the Federal
34 CFR 682.202


preceding the July 1-June 30 period,          applicable to each July 1-June 30             applicable to each July 1-June 30
plus 3.10 percent; or                         period, that equals the lesser of—            period, that equals the lesser of—
(2) 9 percent.                                (A) The bond equivalent rate of the 91-       (A) The bond equivalent rate of the 52-
                                              day Treasury bills auctioned at the final     week Treasury bills auctioned at the
(iii) For a Stafford loan for which the
                                              auction prior to the June 1 immediately       final auction prior to the June 1
first disbursement is made before
                                              preceding the July 1-June 30 period,          immediately preceding the July 1-June
October 1, 1992—
                                              plus 2.5 percent during the in-school,        30 period, plus 3.10 percent; or
(A) If the borrower, on the date the          grace and deferment period and 3.10           (B) 10 percent.
promissory note is signed, has no             percent during repayment; or
outstanding balance on a Stafford loan                                                      (iv) For a loan for which the first
                                              (B) 8.25 percent.
but has an outstanding balance of                                                           disbursement is made on or after July
principal or interest on a PLUS or SLS        (viii) For a Stafford loan for which the      1, 1994 and prior to July 1, 1998, the
loan made for a period of enrollment          first disbursement is made on or after        interest rate is a variable rate applicable
beginning before July 1, 1988, or on a        July 1, 1998, and prior to July 1, 2006,      to each July 1-June 30 period, that
Consolidation loan that repaid a loan         the interest rate is a variable rate,         equals the lesser of—
made for a period of enrollment               applicable to each July 1-June 30
                                                                                            (A) The bond equivalent rate of the 52-
beginning before July 1, 1988, the            period, that equals the lesser of—
                                                                                            week Treasury bills auctioned at the
interest rate is 8 percent; or                (A) The bond equivalent rate of the 91-       final auction prior to the June 1
(B) If the borrower, on the date the          day Treasury bills auctioned at the final     immediately preceding the July 1-June
promissory note evidencing the loan is        auction prior to the June 1 immediately       30 period, plus 3.10 percent; or
signed, has an outstanding balance of         preceding the July 1-June 30 period           (B) 9 percent.
principal or interest on a PLUS or SLS        plus 1.7 percent during the in-school,
loan made for a period of enrollment          grace and deferment periods and 2.3           (v) For a loan for which the first
beginning on or after July 1, 1988, or on     percent during repayment; or                  disbursement is made on or after July
a Consolidation loan that repaid a loan                                                     1, 1998, the interest rate is a variable
                                              (B) 8.25 percent.
made for a period of enrollment                                                             rate, applicable to each July 1-June 30
beginning on or after July 1, 1988, the       (ix) For a Stafford loan for which the        period, that equals the lesser of—
interest rate is 8 percent until 48           first disbursement is made on or after        (A) The bond equivalent rate of the 91-
months elapse after the repayment             July 1, 2006, the interest rate is 6.8
                                                                                            day Treasury bills auctioned at the final
period begins, and 10 percent                 percent.
                                                                                            auction prior to the June 1 immediately
thereafter.                                   (x) For a subsidized Stafford loan made       preceding the July 1-June 30 period,
(iv) For a Stafford loan for which the        to an undergraduate student for which         plus 3.10 percent; or
first disbursement is made on or after        the first disbursement is made on or          (B) 9 percent.
October 1, 1992, but before December          after:
20, 1993, if the borrower, on the date                                                      (vi)(A) Beginning on July 1, 2001, and
                                              (A) July 1, 2006 and before July 1,
the promissory note evidencing the loan                                                     prior to July 1, 2006, the interest rate on
                                              2008, the interest rate is 6.8 percent on
is signed, has no outstanding balance                                                       the loans described in paragraphs
                                              the unpaid principal balance of the loan.
on a Stafford loan but has an                                                               (a)(2)(ii) through (iv) of this section is a
outstanding balance of principal or           (B) July 1, 2008 and before July 1,           variable rate applicable to each July 1-
interest on a PLUS, SLS, or                   2009, the interest rate is 6 percent on       June 30, as determined on the
Consolidation loan, the interest rate is 8    the unpaid principal balance of the loan.     preceding June 26, and is equal to the
percent.                                      (C) July 1, 2009 and before July 1,           weekly average 1-year constant
                                              2010, the interest rate is 5.6 percent on     maturity Treasury yield, as published by
(v) For a Stafford loan for which the first                                                 the Board of Governors of the Federal
disbursement is made on or after              the unpaid principal balance of the loan.
                                                                                            Reserve System, for the last calendar
December 20, 1993 and prior to July 1,        (D) July 1, 2010 and before July 1,           week ending on or before such June
1994, if the borrower, on the date the        2011, the interest rate is 4.5 percent on     26; plus—
promissory note is signed, has no             the unpaid principal balance of the loan.
outstanding balance on a Stafford loan                                                      (1) 3.25 percent for loans described in
but has an outstanding balance of             (E) July 1, 2011 and before July 2012,        paragraph (a)(2)(ii) of this
principal or interest on a PLUS, SLS, or      the interest rate is 3.4 percent on the       section; or
Consolidation loan, the interest rate is      unpaid balance of the loan.
                                                                                            (2) 3.1 percent for loans described in
the rate provided in paragraph                (2) PLUS Program. (i) For a combined          paragraphs (a)(2)(iii) and (iv) of this
(a)(1)(ii)(B) of this section.                repayment schedule under Sec.                 section.
(vi) For a Stafford loan for which the        682.209(d), the interest rate is the
                                              weighted average of the rates of all          (B) The interest rates calculated under
first disbursement is made on or after                                                      paragraph (a)(2)(vi)(A) of this section
July 1, 1994 and prior to July 1, 1995,       loans included under that schedule.
                                                                                            shall not exceed the limits specified in
for a period of enrollment that includes      (ii) For a loan disbursed on or after July    paragraphs (a)(2)(ii)(B), (a)(2)(iii)(B),
or begins on or after July 1, 1994, the       1, 1987 but prior to October 1, 1992,         and (a)(2)(iv)(B) of this section, as
interest rate is a variable rate,             and for any loan made under Sec.              applicable.
applicable to each July 1-June 30             682.209 (e) or (f), the interest rate is a
period, that equals the lesser of—                                                          (vii) For a PLUS loan first disbursed on
                                              variable rate, applicable to each July 1-
                                              June 30 period, that equals the lesser        or after July 1, 2006, the interest rate is
(A) The bond equivalent rate of the 91-                                                     8.5 percent.
day Treasury bills auctioned at the final     of—
auction prior to the June 1 immediately                                                     (3) SLS Program. (i) For a combined
                                              (A) The bond equivalent rate of the 52-
preceding the July 1-June 30 period,                                                        repayment schedule under Sec.
                                              week Treasury bills auctioned at the
plus 3.10; or                                                                               682.209(d), the interest rate is the
                                              final auction prior to the June 1
                                                                                            weighted average of the rates of all
(B) 8.25 percent.                             immediately preceding the July 1-June
                                                                                            loans included under that schedule.
                                              30 period, plus 3.25 percent; or
(vii) For a Stafford loan for which the                                                     (ii) For a loan disbursed on or after July
first disbursement is made on or after        (B) 12 percent.
                                                                                            1, 1987 but prior to October 1, 1992,
July 1, 1995 and prior to July 1, 1998        (iii) For a loan disbursed on or after        and for any loan made under Sec.
the interest rate is a variable rate          October 1, 1992 and prior to July 1,          682.209 (e) or (f), the interest rate is a
                                              1994, the interest rate is a variable rate,   variable rate, applicable to each July 1-
34 CFR 682.202


June 30 period, that equals the lesser        auction held prior to June 1 of each         of the loan shall credit any amounts
of—                                           year plus 3.10 percent; or                   computed under paragraph (a)(6)(i)(A)
(A) The bond equivalent rate of the 52-       (B) 8.25 percent.                            of this section to—
week Treasury bills auctioned at the          (iv) For a Consolidation loan for which      (1) The Secretary, for amounts paid
final auction prior to the June 1             the application was received by the          during any period in which the borrower
immediately preceding the July 1-June         lender on or after October 1, 1998, the      is eligible for interest benefits;
30 period, plus 3.25 percent; or              interest rate for the portion of the loan    (2) The borrower's account to reduce
(B) 12 percent.                               that consolidated loans other than           the outstanding principal balance as of
(iii) For a loan disbursed on or after        HEAL loans is a fixed rate that is the       the date the holder adjusts the
                                              lesser of—                                   borrower's account, provided that the
October 1, 1992, the interest rate is a
                                              (A) The weighted average of interest         borrower's account was not more than
variable rate, applicable to each July 1-
June 30 period, that equals the lesser        rates on the loans consolidated,             30 days delinquent on that December
of—                                           rounded to the nearest higher one-           31; or

(A) The bond equivalent rate of the 52-       eighth of one percent; or                    (3) The Secretary, for a borrower who
                                              (B) 8.25 percent.                            on the last day of the calendar year is
week Treasury bills auctioned at the
final auction prior to the June 1                                                          delinquent for more than 30 days.
                                              (v) For a Consolidation loan for which
immediately preceding the July 1-June         the application was received by the          (ii) For a fixed interest rate loan made
30 period, plus 3.10 percent; or              lender on or after November 13, 1997,        on or after July 23, 1992 to a borrower
(B) 11 percent.                               the annual interest rate applicable to       with an outstanding FFEL Program
                                              the portion of each consolidation loan       loan—
(iv)(A) Beginning on July 1, 2001, the
                                              that repaid HEAL loans is a variable         (A) If during any calendar quarter, the
interest rate on the loans described in
                                              rate adjusted annually on July 1 and         sum of the average of the bond
paragraphs (a)(3)(ii) and (iii) of this
                                              must be equal to the average of the          equivalent rates of the 91-day Treasury
section is a variable rate applicable to
                                              bond equivalent rates of the 91-day          bills auctioned for that quarter, plus
each July 1-June 30, as determined on
                                              Treasury bills auctioned for the quarter     3.10 percent, is less than the applicable
the preceding June 26, and is equal to
                                              ending June 30, plus 3 percent. There        interest rate, the lender shall calculate
the weekly average 1-year constant
                                              is no maximum rate on this portion of        an adjustment and credit the
maturity Treasury yield, as published by
                                              the loan.                                    adjustment to reduce the outstanding
the Board of Governors of the Federal
Reserve System, for the last calendar         (5) Actual interest rates under the          principal balance of the loan as
week ending on or before such June            Stafford loan, SLS, PLUS, and                specified under paragraph (a)(6)(ii)(C)
                                              Consolidation Programs. A lender may         of this section if the borrower's account
26; plus—
                                              charge a borrower an actual rate of          is not more than 30 days delinquent on
(1) 3.25 percent for loans described in                                                    December 31. The amount of an
                                              interest that is less than the applicable
paragraph (a)(3)(ii) of this section; or                                                   adjustment for a calendar quarter is
                                              interest rate specified in paragraphs
(2) 3.1 percent for loans described in        (a)(1)-(4) of this section.                  equal to—
paragraph (a)(3)(iii) of this section.                                                     (1) The applicable interest rate minus
                                              (6) Refund of excess interest paid on
(B) The interest rates calculated under       Stafford loans.                              the sum of the average of the bond
paragraph (a)(3)(iv)(A) of this section                                                    equivalent rates of the 91-day Treasury
                                              (i) For a loan with an applicable interest   bills auctioned for the applicable quarter
shall not exceed the limits specified in
                                              rate of 10 percent made prior to July        plus 3.10 percent;
paragraphs (a)(3)(ii)(B) and (a)(3)(iii)(B)
                                              23, 1992, and for a loan with an
of this section, as applicable.                                                            (2) Multiplied by the average daily
                                              applicable interest rate of 10 percent
(4) Consolidation Program. (i) A              made from July 23, 1992 through              principal balance of the loan (not
Consolidation Program loan made               September 30, 1992, to a borrower with       including unearned interest added to
before July 1, 1994 bears interest at the     no outstanding FFEL Program loans—           principal); and
rate that is the greater of—                                                               (3) Divided by 4;
                                              (A) If during any calendar quarter, the
(A) The weighted average of interest          sum of the average of the bond               (B) For any quarter or portion thereof
rates on the loans consolidated,              equivalent rates of the 91-day Treasury      that the Secretary was obligated to pay
rounded to the nearest whole percent;         bills auctioned for that quarter, plus       interest subsidy on behalf of the
or                                            3.25 percent, is less than 10 percent,       borrower, the holder of the loan shall
(B) 9 percent.                                the lender shall calculate an adjustment     refund to the Secretary, no later than
                                              and credit the adjustment as specified       the end of the following quarter, any
(ii) A Consolidation loan made on or          under paragraph (a)(6)(i)(B) of this         excess interest calculated in
after July 1, 1994, for which the loan        section if the borrower's account is not     accordance with paragraph (a)(6)(ii)(A)
application was received by the lender        more than 30 days delinquent on              of this section;
before November 13, 1997, bears               December 31. The amount of the
interest at the rate that is equal to the                                                  (C) For any other quarter, the holder of
                                              adjustment for a calendar quarter is
weighted average of interest rates on                                                      the loan shall, within 30 days of the end
                                              equal to—
the loans consolidated, rounded                                                            of the calendar year, reduce the
upward to the nearest whole percent.          (1) 10 percent minus the sum of the          borrower's outstanding principal by the
                                              average of the bond equivalent rates of      amount of excess interest calculated
(iii) For a Consolidation loan for which      the 91-day Treasury bills auctioned for      under paragraph (a)(6)(ii)(A) of this
the loan application was received by          the applicable quarter plus 3.25             section, provided that the borrower's
the lender on or after November 13,           percent;                                     account was not more than 30 days
1997 and before October 1, 1998, the                                                       delinquent as of December 31;
interest rate for the portion of the loan     (2) Multiplied by the average daily
that consolidated loans other than            principal balance of the loan (not           (D) For a borrower who on the last day
HEAL loans is a variable rate,                including unearned interest added to         of the calendar year is delinquent for
applicable to each July 1-June 30             principal); and                              more than 30 days, any excess interest
period, that equals the lesser of—                                                         calculated shall be refunded to the
                                              (3) Divided by 4;
                                                                                           Secretary; and
(A) The bond equivalent rate of the 91-       (B) No later than 30 calendar days after
day Treasury bills auctioned at the final                                                  (E) Notwithstanding paragraphs
                                              the end of the calendar year, the holder
                                                                                           (a)(6)(ii)(B), (C) and (D) of this section,
34 CFR 682.202


if the loan was disbursed during a             the maximum interest rate applicable to       (B) At the expiration of a period of
quarter, the amount of any adjustment          the loan prior to the conversion.             authorized deferment;
refunded to the Secretary or credited to       (8) Applicability of the Servicemembers       (C) At the expiration of a period of
the borrower for that quarter shall be         Civil Relief Act (50 U.S.C. 527, App.         authorized forbearance; and
prorated accordingly.                          sec. 207). Notwithstanding paragraphs         (D) When the borrower defaults.
(7) Conversion to Variable Rate.               (a)(1) through (a)(4) of this section,
                                               effective August 14, 2008, upon the           (5) For Consolidation loans, the lender
(i) A lender or holder shall convert the
                                               loan holder’s receipt of the borrower’s       may capitalize interest as provided in
interest rate on a loan under
                                               written request and a copy of the             paragraphs (b)(2) and (b)(3) of this
paragraphs (a)(6)(i) or (ii) of this section                                                 section, except that the lender may
                                               borrower’s military orders, the
to a variable rate.                                                                          capitalize the unpaid interest for a
                                               maximum interest rate, as defined in 50
(ii) The applicable interest rate for each     U.S.C. 527, App. section 207(d), on           period of authorized in-school
12-month period beginning on July 1            FFEL Program loans made prior to the          deferment only at the expiration of the
and ending on June 30 preceding each           borrower entering active duty status is 6     deferment.
12-month period is equal to the sum            percent while the borrower is on active       (6) For any borrower in an in-school or
of—                                            duty military service.                        grace period or the period needed to
(A) The bond equivalent rate of the 91-        (b) Capitalization. (1) A lender may add      align repayment, deferment, or
day Treasury bills auctioned at the final      accrued interest and unpaid insurance         forbearance status, during which the
auction prior to June 1; and                   premiums to the borrower's unpaid             Secretary does not pay interest benefits
(B) 3.25 percent in the case of a loan         principal balance in accordance with          and for which the borrower has agreed
described in paragraph (a)(6)(i) of this       this section. This increase in the            to make payments of interest, the
section or 3.10 percent in the case of a       principal balance of a loan is called         lender may capitalize past due interest
                                               “capitalization.”                             provided that the lender has notified the
loan described in paragraph (a)(6)(ii) of
this section.                                                                                borrower that the borrower's failure to
                                               (2) Except as provided in paragraph
                                                                                             resolve any delinquency constitutes the
(iii)(A) In connection with the                (b)(4) and (b)(5) of this section, a lender
                                                                                             borrower's consent to capitalization of
conversion specified in paragraph              may capitalize interest payable by the
                                                                                             delinquent interest and all interest that
(a)(6)(ii) of this section for any period      borrower that has accrued—
                                                                                             will accrue through the remainder of
prior to the conversion for which a            (i) For the period from the date the first    that period.
rebate has not been provided under             disbursement was made to the                  (c) Fees for FFEL Program loans.
paragraph (a)(6) of this section, a            beginning date of the in-school period
lender or holder shall convert the             or, for a PLUS loan, for the period from      (1)(i) For Stafford loans first disbursed
interest rate to a variable rate.              the date the first disbursement was           prior to July 1, 2006, a lender may
(B) The interest rate for each period          made to the date the repayment period         charge a borrower an origination fee
shall be reset quarterly and the               begins;                                       not to exceed 3 percent of the principal
applicable interest rate for the quarter                                                     amount of the loan.
                                               (ii) For the in-school or grace periods,
or portion shall equal the sum of—             or for a period needed to align               (ii) For Stafford loans first disbursed on
                                               repayment of an SLS with a Stafford           or after July 1, 2006, but before July 1,
(1) The average of the bond equivalent
rates of 91-day Treasury bills auctioned       loan, if capitalization is expressly          2007, a lender may charge a borrower
for the preceding 3-month period; and          authorized by the promissory note (or         an origination fee not to exceed 2
                                               with the written consent of the               percent of the principal amount of the
(2) 3.25 percent in the case of loans as       borrower);                                    loan.
specified under paragraph (a)(6)(i) of
                                               (iii) For a period of authorized              (iii) For Stafford loans first disbursed on
this section or 3.10 percent in the case
of loans as specified under paragraph          deferment;                                    or after July 1, 2007, but before July 1,
                                                                                             2008, a lender may charge a borrower
(a)(6)(ii) of this section.                    (iv) For a period of authorized
                                                                                             an origination fee not to exceed 1.5
(iv)(A) The holder of a loan being             forbearance; or
                                                                                             percent of the principal amount of the
converted under paragraph (a)(7)(iii)(A)       (v) For the period from the date the first    loan.
of this section shall complete such            installment payment was due until it          (iv) For Stafford loans first disbursed on
conversion on or before January 1,             was made.
1995.                                                                                        or after July 1, 2008, but before July 1,
                                               (3) A lender may capitalize accrued           2009, a lender may charge a borrower
(B) The holder shall, not later than 30        interest under paragraphs (b)(2)(ii)          an origination fee not to exceed 1
days prior to the conversion, provide          through (iv) of this section no more          percent of the principal amount of the
the borrower with—                             frequently than quarterly. Capitalization     loan.
(1) A notice informing the borrower that       is again permitted when repayment is
                                                                                             (v) For Stafford loans first disbursed on
the loan is being converted to a variable      required to begin or resume. A lender
                                                                                             or after July 1, 2009, but before July 1,
interest rate;                                 may capitalize accrued interest under
                                                                                             2010, a lender may charge a borrower
                                               paragraph (b)(2) (i) and (v) of this
(2) A description of the rate to the                                                         an origination fee not to exceed .5
                                               section only on the date repayment of
borrower;                                                                                    percent of the principal amount of the
                                               principal is scheduled to begin.
                                                                                             loan.
(3) The current interest rate; and             (4)(i) For unsubsidized Stafford loans
(4) An explanation that the variable rate                                                    (vi) For Stafford loans first disbursed on
                                               disbursed on or after October 7, 1998
will provide a substantially equivalent                                                      or after July 1, 2010, a lender may not
                                               and prior to July 1, 2000, the lender
benefit as the adjustment otherwise                                                          charge a borrower an origination fee.
                                               may capitalize the unpaid interest that
provided under paragraph (a)(6) of this        accrues on the loan according to the          (vii) Except as provided in paragraph
section.                                       requirements of section 428H(e)(2) of         (c)(2) of this section, a lender must
(v) The notice may be provided as part         the Act.                                      charge all borrowers the same
of the disclosure requirement as                                                             origination fee.
                                               (ii) For Stafford loans first disbursed on
specified under Sec. 682.205.                  or after July 1, 2000, the lender may         (2)(i) A lender may charge a lower
(vi) The interest rate as calculated           capitalize the unpaid interest—               origination fee than the amount
under this paragraph may not exceed                                                          specified in paragraph (c)(1) of this
                                               (A) When the loan enters repayment;           section to a borrower whose expected
34 CFR 682.202


family contribution (EFC), used to           (iii) For which a loan check has not          incurred by the lender or its agents in
determine eligibility for the loan, is       been negotiated within 120 days of            collecting installments not paid when
equal to or less than the maximum            disbursement; or                              due, including, but not limited to—
qualifying EFC for a Federal Pell Grant      (iv) For which loan proceeds disbursed        (i) Attorney's fees;
at the time the loan is certified or to a    by electronic funds transfer or master
borrower who qualifies for a subsidized                                                    (ii) Court costs; and
                                             check in accordance with Sec.
Stafford loan. A lender must charge all      682.207(b)(1)(ii) (B) and (C) have not        (iii) Telegrams.
such borrowers the same origination          been released from the restricted
fee.                                                                                       (2) The costs referred to in paragraph
                                             account maintained by the school within       (g)(1) of this section may not include
(ii) With the approval of the Secretary,     120 days of disbursement.                     routine collection costs associated with
a lender may use a standard                  (d) Insurance premium and Federal             preparing letters or notices or with
comparable to that defined in                default fee.                                  making personal contacts with the
paragraph (c)(2)(i) of this section.                                                       borrower (e.g., local and long-distance
                                             (1) For loans guaranteed prior to July 1,
(3) If a lender charges a lower                                                            telephone calls).
                                             2006, a lender may charge the
origination fee on unsubsidized loans        borrower the amount of the insurance          (h) Special allowance. Pursuant to Sec.
under paragraph (c)(1) or (c)(2) of this     premium paid by the lender to the             682.412(c), a lender may charge a
section, the lender must charge the          guarantor (up to 1 percent of the             borrower the amount of special
same fee on subsidized loans.                principal amount of the loan) if that         allowance paid by the Secretary on
(4)(i) For purposes of this paragraph        charge is provided for in the promissory      behalf of the borrower.
(c), a lender is defined as:                 note.                                         (Authority: 20 U.S.C. 1077, 1078, 1078-1,
(A) All entities under common                (2) For loans guaranteed on or after          1078-2, 1078-3, 1079, 1082, 1087-1, 1091a)
ownership, including ownership by a          July 1, 2006, other than an SLS or            [57 FR 60323, Dec. 18, 1992, as amended at
common holding company, that make            PLUS loan refinanced under Sec.               59 FR 22475, Apr. 29, 1994; 59 FR 61427,
loans to borrowers in a particular state;    682.209(e) or (f), a lender may charge        Nov. 30, 1994; 61 FR 60486, Nov. 27, 1996;
                                                                                           62 FR 63434, Nov. 28, 1997; 64 FR 18976,
and                                          the borrower the amount of the Federal
                                                                                           Apr. 16, 1999; 64 FR 58953, Nov. 1, 1999;
(B) Any beneficial owner of loans that       default fee paid by the lender to the         66 FR 34762, June 29, 2001; 71 FR 45700,
                                             guarantor (up to 1 percent of the             Aug. 9, 2006; 72 FR 62000, Nov. 1, 2007; 74
provides funds to an eligible lender
                                             principal amount of the loan) if that         FR 55991, Oct. 29, 2009]
trustee to make loans on the beneficial
                                             charge is provided for in the promissory
owner's behalf in a particular state.                                                      §682.203 Responsible parties.
                                             note.
(ii) If a lender as defined in                                                             (a) Delegation of functions. A school,
                                             (3) If the borrower is charged the
paragraph(c)(4)(i) charges a lower                                                         lender, or guaranty agency may
                                             insurance premium or the Federal
origination fee to any borrower in a                                                       contract or otherwise delegate the
                                             default fee, the amount charged must
particular state under paragraphs (c)(1)                                                   performance of its functions under the
                                             be deducted proportionately from each
or (c)(2) of this section, the lender must                                                 Act and this part to a servicing agency
                                             disbursement of the borrower's loan
charge all such borrowers who reside in                                                    or other party. This contracting or other
                                             proceeds, if the loan is disbursed in
that state or attend school in that state                                                  delegation of functions does not relieve
                                             more than one installment.
the same origination fee.                                                                  the school, lender, or guaranty agency
                                             (4) The lender shall refund the               of its duty to comply with the
(5) Shall charge a borrower an
                                             insurance premium or Federal default          requirements of the Act and this part.
origination fee on a PLUS loan of 3
                                             fee paid by the borrower in accordance
percent of the principal amount of the                                                     (b) Trustee responsibility. A lender that
                                             with the circumstances and procedures
loan;                                                                                      holds a loan in its capacity as a trustee
                                             applicable to the return of origination
(6) Shall deduct a pro rata portion of the                                                 assumes responsibility for complying
                                             fees, as described in paragraph (c)(7)
fee (if charged) from each                                                                 with all statutory and regulatory
                                             of this section.
disbursement; and                                                                          requirements imposed on any other
                                             (e) Administrative charge for a               holders of a loan.
(7) Shall refund by a credit against the     refinanced PLUS or SLS Loan. A lender         (Authority: 20 U.S.C. 1082)
borrower's loan balance the portion of       may charge a borrower up to $100 to
the origination fee previously deducted      cover the administrative costs of             §682.204 Maximum loan amounts.
from the loan that is attributable to any    making a loan to a borrower under Sec.        (a) Stafford Loan Program annual
portion of the loan—                         682.209(e) for the purpose of                 limits. (1) In the case of an
(i) That is returned by a school to a        refinancing a PLUS or SLS loan to             undergraduate student who has not
lender in order to comply with the Act or    secure a variable interest rate.              successfully completed the first year of
with applicable regulations;                 (f) Late charge. (1) If authorized by the     a program of undergraduate education,
                                             borrower's promissory note, the lender        the total amount the student may
(ii) That is repaid or returned within 120
                                             may require the borrower to pay a late        borrow for any academic year of study
days of disbursement, unless—
                                             charge under the circumstances                under the Stafford Loan Program in
(A) The borrower has no FFEL                 described in paragraph (f)(2) of this         combination with the Federal Direct
Program loans in repayment status and        section. This charge may not exceed           Stafford/Ford Loan Program may not
has requested, in writing, that the          six cents for each dollar of each late        exceed the following:
repaid or returned funds be used for a       installment.                                  (i) $2,625, or, for a loan disbursed on or
different purpose; or
                                             (2) The lender may require the                after July 1, 2007, $3,500, for a
(B) The borrower has a FFEL Program          borrower to pay a late charge if the          program of study of at least a full
loan in repayment status, in which case      borrower fails to pay all or a portion of a   academic year in length.
the payment is applied in accordance         required installment payment within 15        (ii) For a one-year program of study
with Sec. 682.209(b) unless the              days after it is due.                         with less than a full academic year
borrower has requested, in writing, that
                                             (g) Collection charges. (1) If provided       remaining, the amount that is the same
the repaid or returned funds be applied
                                             for in the borrower's promissory note,        ratio to $2,625, or, for a loan disbursed
as a cancellation of all or part of the
                                             and notwithstanding any provisions of         on or after July 1, 2007, $3,500, as
loan;
                                             State law, the lender may require that        the—
                                             the borrower or any endorser pay costs
34 CFR 682.204


                                        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              or, for a loan disbursed on or after July
than a full academic year in length, the               1, 2007, $3,500 as the lesser of the—
amount that is the same ratio to $2,625,

                                         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                   with the Federal Direct Stafford/Ford                             (ii) For a program of study with less
successfully completed the first year of               Loan Program may not exceed the                                   than a full academic year remaining, an
an undergraduate program but has not                   following:                                                        amount that is the same ratio to $3,500,
successfully completed the second year                 (i) $3,500, or, for a loan disbursed on or                        or, for a loan disbursed on or after July
of an undergraduate program, the total                 after July 1, 2007, $4,500, for a                                 1, 2007, $4,500, as the—
amount the student may borrow for any                  program whose length is at least a full
academic year of study under the
                                                       academic year in length.
Stafford Loan Program in combination

                                         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                    may borrow for any academic year of                               (i) $5,500 for a program whose length
student who has successfully                           study under the Stafford Loan Program                             is at least an academic year in length.
completed the first and second years of                in combination with the Federal Direct                            (ii) For a program of study with less
a program of study of undergraduate                    Stafford/Ford Loan Program may not                                than a full academic year remaining, an
education but has not successfully                     exceed the following:
                                                                                                                         amount that is the same ratio to $5,500
completed the remainder of the                                                                                           as the—
program, the total amount the student

                                        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                (ii) $5,500 for coursework necessary for                          one academic year in length and who
associate or baccalaureate degree that                 enrollment in a graduate or professional                          has not successfully completed the first
is required for admission into a program               degree or certificate program for a                               year of that program may not borrow an
and who is not a graduate or                           student who has obtained a                                        amount for any academic year of study
professional student, the total amount                 baccalaureate degree.                                             that exceeds the amounts in paragraph
the student may borrow for any                         (7) In the case of a student who has                              (a)(1) of this section.
academic year of study may not exceed                  obtained a baccalaureate degree and is                            (ii) An undergraduate student who is
the amounts in paragraph (a)(3) of this                                                                                  enrolled in a program that is more than
                                                       enrolled or accepted for enrollment in
section.                                               coursework necessary for a                                        one academic year in length and who
(5) In the case of a graduate or                       professional credential or certification                          has successfully completed the first
professional student, the total amount                 from a State that is required for                                 year of that program, but has not
the student may borrow for any                         employment as a teacher in an                                     successfully completed the second year
academic year of study under the                       elementary or secondary school in that                            of the program, may not borrow an
Stafford Loan Program, in combination                  State, the total amount the student may                           amount for any academic year of study
with any amount borrowed under the                     borrow for any academic year of study                             that exceeds the amounts in paragraph
Federal Direct Stafford/Ford Loan                      under the Stafford Loan Program in                                (a)(2) of this section.
Program, may not exceed $8,500.                        combination with the Federal Direct
                                                                                                                         (b) Stafford Loan Program aggregate
(6) In the case of a student enrolled for              Stafford/Ford Loan Program may not
                                                                                                                         limits. The aggregate unpaid principal
no longer than one consecutive 12-                     exceed $5,500.
                                                                                                                         amount of all Stafford Loan Program
month period in a course of study                      (8) Except as provided in paragraph                               loans in combination with loans
necessary for enrollment in a program                  (a)(4) of this section, an undergraduate                          received by the student under the
leading to a degree or certificate, the                student who is enrolled in a program                              Federal Direct Stafford/Ford Loan
total amount the student may borrow for                that is one academic year or less in                              Program, but excluding the amount of
any academic year of study under the                   length may not borrow an amount for                               capitalized interest may not exceed the
Stafford Loan Program in combination                   any academic year of study that                                   following:
with the Federal Direct Stafford/Ford                  exceeds the amounts in paragraph
                                                                                                                         (1) $23,000 in the case of any student
Loan Program may not exceed the                        (a)(1) of this section.
                                                                                                                         who has not successfully completed a
following:                                             (9) Except as provided in paragraph                               program of study at the undergraduate
(i) $2,625 for coursework necessary for                (a)(4) of this section—                                           level.
enrollment in an undergraduate degree                  (i) An undergraduate student who is
or certificate program.                                enrolled in a program that is more than
34 CFR 682.204


(2) $65,500, in the case of a graduate                   amount received under the Stafford                                Stafford/Ford Loan Program is the
or professional student, including loans                 Loan Program or the Federal Direct                                same as the amount determined under
for undergraduate study.                                 Stafford/Ford Loan Program.                                       paragraph (a) of this section, less any
(c) Unsubsidized Stafford Loan                           (ii) Except for a dependent                                       amount received under the Stafford
Program. (1) In the case of a                            undergraduate who qualifies for                                   Loan Program or the Federal Direct
                                                                                                                           Stafford/Ford Loan Program, plus
dependent undergraduate student—                         additional Unsubsidized Stafford Loan
                                                         funds under paragraph (d) of this                                 (A) $2,000, for a program of study of at
(i) For a loan first disbursed before July
1, 2008, the total amount the student                    section in accordance with the                                    least a full academic year in length.
may borrow for any period of study                       conditions specified in §682.201(a)(3),                           (B) For a program of study that is at
                                                         for a loan first disbursed on or after July
under the Unsubsidized Stafford Loan                                                                                       one academic year or more in length
Program in combination with the                          1, 2008, the total amount the student                             with less than a full academic year
Federal Direct Unsubsidized                              may borrow for any period of study                                remaining, the amount that is the same
                                                         under the Unsubsidized Stafford Loan
Stafford/Ford Loan Program is the                                                                                          ratio to $2,000 as the—
same as the amount determined under                      Program in combination with the
paragraph (a) of this section, less any                  Federal Direct Unsubsidized


                                          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                  amount that is the same ratio to $2,000
than a full academic year in length, the                 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 an independent                        (d) Additional eligibility under the                              this section except as provided in
undergraduate student, a graduate or                     Unsubsidized Stafford Loan Program.                               paragraph (d)(9) of this section for
professional student, or certain                         An independent undergraduate student,                             certain dependent undergraduate
dependent undergraduate students                         graduate or professional student, and                             students—
under the conditions specified in Sec.                   certain dependent undergraduate                                   (1) In the case of a student who has not
682.201(a)(3), the total amount the                      students under the conditions specified                           successfully completed the first year of
student may borrow for any period of                     in §682.201(a)(3) may borrow                                      a program of undergraduate education,
enrollment under the Unsubsidized                        additional amounts under the
                                                                                                                           may not exceed the following:
Stafford Loan and Federal Direct                         Unsubsidized Stafford Loan Program in
Unsubsidized Stafford/Ford Loan                          addition to any amount borrowed under                             (i) $4,000, or, for a loan first disbursed
programs may not exceed the amounts                      paragraphs (a) and (c) of this section,                           on or after July 1, 2008, $6,000, for a
determined under paragraph (a) of this                   except as provided in paragraph (d)(9)                            program of study of at least a full
section less any amount received under                   of this section. The additional amount                            academic year.
the Federal Stafford Loan Program or                     that such a student may borrow for any                            (ii) For a one-year program of study
the Federal Direct Stafford/Ford Loan                    academic year of study under the                                  with less than a full academic year
Program, in combination with the                         Unsubsidized Stafford Loan Program in                             remaining, the amount that is the same
amounts determined under paragraph                       combination with the Federal Direct                               ratio to $4,000, or, for a loan first
(d) of this section.                                     Unsubsidized Stafford/Ford Loan                                   disbursed on or after July 1, 2008,
                                                         Program, in addition to the amounts                               $6,000, as the—
                                                         allowed under paragraphs (a) and (c) of

                                          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                or, for a loan first disbursed on or after
than a full academic year in length, an                  July 1, 2008, $6,000, as the lesser of—
amount that is the same ratio to $4,000,
                                           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                     of a program of undergraduate                                     (i) $4,000, or, for a loan first disbursed
completed the first year of a program of                 education may not exceed the                                      on or after July 1, 2008, $6,000, for a
undergraduate education but has not                      following:                                                        program of study of at least a full
successfully completed the second year                                                                                     academic year in length.
34 CFR 682.204


(ii) For a program of study with less                    or, for a loan first disbursed on or after
than a full academic year remaining, an                  July 1, 2008, $6,000, as the—
amount that is the same ratio to $4,000,

                                          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                     (i) $5,000, or, for a loan first disbursed                        (ii) For a program of study with less
successfully completed the second year                   on or after July 1, 2008, $7,000, for a                           than a full academic year remaining, an
of a program of undergraduate                            program of study of at least a full                               amount that is the same ratio to $5,000,
education, but has not completed the                     academic year.                                                    or, for a loan first disbursed on or after
remainder of the program, may not                                                                                          July 1, 2008, $7,000, as the—
exceed the following:

                                          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                  one academic year in length and who                               enrolled in a program of undergraduate
associate or baccalaureate degree that                   has not successfully completed the first                          education that is less than one
is required for admission into a program                 year of that program may not borrow an                            academic year in length and the
and who is not a graduate or                             amount for any academic year of study                             student's SLS loan application is
professional student, the total amount                   that exceeds the amounts in paragraph                             certified pursuant to Sec. 682.603 by
the student may borrow for any                           (d)(1) of this section.                                           the school on or after January 1,
academic year of study may not exceed                                                                                      1990—
                                                         (ii) An undergraduate student who is
the amounts in paragraph (d)(3) of this                  enrolled in a program that is more than                           (i) $2,500 for a student enrolled in a
section.                                                 one academic year in length and who                               program whose length is at least two-
(5) In the case of a graduate or                         has successfully completed the first                              thirds of an academic year but less than
professional student, may not exceed                     year of that program, but has not                                 a full academic year in length;
$10,000, or, for a loan disbursed on or                  successfully completed the second year                            (ii) $1,500 for a student enrolled in a
after July 1, 2007, $12,000.                             of the program, may not borrow an
                                                                                                                           program whose length is less than two-
                                                         amount for any academic year of study
(6) In the case of a student enrolled for                                                                                  thirds of an academic year in length;
                                                         that exceeds the amounts in paragraph
no longer than one consecutive 12-                                                                                         and
                                                         (d)(2) of this section.
month period in a course of study                                                                                          (iii) $0 for a student enrolled in a
necessary for enrollment in a program                    (9) A dependent undergraduate student
                                                                                                                           program whose length is less than one-
leading to a degree or a certificate may                 who qualifies for the additional
                                                                                                                           third of an academic year in length.
not exceed the following:                                Unsubsidized Stafford Loan amounts
                                                         under this section in accordance with                             (2) In the case of a loan for which a first
(i) $4,000, or, for a loan first disbursed
                                                         the conditions specified in                                       disbursement is made on or after July
on or after July 1, 2008, $6,000, for
                                                         §682.201(a)(3) is not eligible to receive                         1, 1993, the total amount a student may
coursework necessary for enrollment in
                                                         the additional Unsubsidized Stafford                              borrow for an academic year under the
an undergraduate degree or certificate
                                                         Loan amounts under paragraph                                      SLS program—
program.
                                                         (c)(1)(ii) of this section.                                       (i) In the case of a student who has not
(ii) $5,000, or, for a loan disbursed on
                                                         (e) Combined Federal Stafford, SLS                                successfully completed the first and
or after July 1, 2007, $7,000, for
                                                         and Federal Unsubsidized Stafford                                 second year of a program of
coursework necessary for enrollment in
                                                         Loan Program aggregate limits. The                                undergraduate education, may not
a graduate or professional degree or
                                                         aggregate unpaid principal amount of                              exceed the following—
certificate program for a student who
                                                         Stafford Loans, Federal Direct                                    (A) $4,000 for enrollment in a program
has obtained a baccalaureate degree.
                                                         Stafford/Ford Loans, Unsubsidized                                 whose length is at least a full academic
(iii) In the case of a student who has                   Stafford Loans, Federal Direct                                    year in length;
obtained a baccalaureate degree and is                   Unsubsidized Stafford/Ford Loans and
enrolled or accepted for enrollment in a                 SLS Loans, but excluding the amount                               (B) $2,500 for enrollment in a program
program necessary for a professional                     of capitalized interest, may not exceed                           whose length is at least two-thirds but
credential or a certification from a State               the following:                                                    less than a full academic year in length;
that is required for employment as a                                                                                       (C) $1,500 for enrollment in a program
                                                         (1) $23,000, or, effective July 1, 2008,
teacher in an elementary or secondary                                                                                      whose length is at least one-third but
                                                         $31,000, for a dependent
school in that State, $5,000, or, for a                                                                                    less than two-thirds of an academic
                                                         undergraduate student.
loan disbursed on or after July 1, 2007,                                                                                   year in length;
$7,000.                                                  (2) $46,000, or, effective July 1, 2008,
                                                         $57,500, for an independent                                       (ii) Except as provided in paragraph
(7) Except as provided in paragraph                                                                                        (f)(3) of this section, in the case of a
                                                         undergraduate student or a dependent
(d)(4) of this section, an undergraduate                                                                                   student who successfully completed the
                                                         undergraduate student under the
student who is enrolled in a program                                                                                       first and second year of an
                                                         conditions specified in §682.201(a)(3).
that is one academic year or less in                                                                                       undergraduate program, but has not
length may not borrow an amount for                      (3) $138,500 for a graduate or                                    completed the remainder of the
any academic year of study that                          professional student.                                             program, may not exceed the
exceeds the amounts in paragraph                         (f) SLS Program annual limit. (1) In the                          following—
(d)(1) of this section.                                  case of a loan for which the first                                (A) $5,000 for enrollment in a program
(8) Except as provided in paragraph                      disbursement is made prior to July 1,                             whose length is at least a full academic
(d)(4) of this section—                                  1993, the total amount of all SLS loans                           year;
(i) An undergraduate student who is                      that a student may borrow for any
                                                         academic year may not exceed $4,000                               (B) $3,325 for enrollment in a program
enrolled in a program that is more than                                                                                    whose length is at least two-thirds of an
                                                         or, if the student is entering or is
34 CFR 682.204


academic year but less than a full            program must equal the percentage of          at the time of each disbursement on the
academic year in length; or                   the original amount of the Consolidation      loan, and an explanation of whether
                                              loan attributable to loans made to the        those charges are to be deducted from
(C) $1,675 for enrollment in a program
                                              borrower under that program.                  the proceeds of the loan or paid
whose length is at least one-third of an
academic year but less than two-thirds        (k) Maximum loan amounts. In no case          separately by the borrower or paid by
                                              may a Stafford, PLUS, or SLS loan             the lender;
of an academic year; and
                                              amount exceed the student's estimated         (vii) The actual interest rate;
(iii) In the case of a graduate or
                                              cost of attendance for the period of          (viii) The annual and aggregate
professional student, may not exceed
                                              enrollment for which the loan is
$10,000.                                                                                    maximum amounts that may be
                                              intended, less—
(3) For a period of enrollment beginning                                                    borrowed;
                                              (1) The student's estimated financial
after October 1, 1993, but prior to July                                                    (ix) A statement that information
                                              assistance for that period; and
1, 1994 for which the first disbursement                                                    concerning the loan, including the date
is made prior to July 1, 1994, in the         (2) The borrower's expected family            of disbursement and the amount of the
case of a student who has successfully        contribution for that period, in the case     loan, will be reported to each
completed the first and second years of       of a Stafford loan that is eligible for       nationwide consumer reporting agency;
a program but has not successfully            interest benefits.                            (x) An explanation of when repayment
completed the remainder of a program          (l) In determining a Stafford loan            of the loan is required and when the
of undergraduate education—                   amount in accordance with Sec.                borrower is required to pay the interest
(i) $5,000; or                                682.204 (a), (c) and (d), the school          that accrues on the loan, and a
(ii) If the student is enrolled in a          must use the definition of academic           description of the types of repayment
                                              year in 34 CFR 668.3.                         plans available;
program, the remainder of which is less
than a full academic year, the maximum        (m) Any TEACH Grants that have been           (xi) The minimum and maximum
annual amount that the student may            converted to Direct Unsubsidized Loans        number of years in which the loan must
receive may not exceed the amount             are not counted against annual or any         be repaid and the minimum amount of
that bears the same ratio to the amount       aggregate loan limits under paragraphs        required annual payments;
in paragraph (f)(3)(i) of this section as     (c), (d), (e), and (f) of this section.
                                                                                            (xii) An explanation of any special
the remainder measured in semester,           (Authority: 20 U.S.C. 1070g, 1078, 1078-2,    options the borrower may have for
trimester, quarter, or clock hours bears      1078-3, 1078-8)                               consolidating or refinancing the loan;
to one academic year.
                                              [59 FR 33350, June 28, 1994, as amended at    (xiii) A statement that the borrower has
(g) SLS Program aggregate limit. The          64 FR 18976, Apr. 16, 1999; 64 FR 58954,
                                              Nov. 1, 1999; 66 FR 34763, June 29, 2001;
                                                                                            the right to prepay all or part of the loan
total unpaid principal amount of SLS                                                        at any time, without penalty;
Program loans made to—                        67 FR 67078, Nov. 1, 2002; 71 FR 45700,
                                              Aug. 9, 2006; 71 FR 64397, Nov. 1, 2006; 73   (xiv) A statement describing the
(1) An undergraduate student may not          FR 35495, June 23, 2008; 73 FR 36793,
                                                                                            circumstances under which repayment
exceed—                                       June 30, 2008; 74 FR 55991, Oct. 29, 2009]
                                                                                            of the loan or interest that accrues on
(i) $20,000, for loans for which the first    §682.205 Disclosure requirements              the loan may be deferred;
disbursement is made prior to July 1,         for lenders.
                                                                                            (xv) A statement of availability of the
1993; or                                      (a) Initial disclosure statement. (1) A       Department of Defense program for
(ii) $23,000, for loans for which the first   lender must disclose the information          repayment of loans on the basis of
disbursement was made on or after             described in paragraph (a)(2) of this         military service, as provided for in 10
July 1, 1993; and                             section to a borrower, in simple and          U.S.C. 2171;
                                              understandable terms, before or at the
(2) A graduate student may not                                                              (xvi) The definition of “default” found in
                                              time of the first disbursement on a
exceed—                                                                                     Sec. 682.200, and the consequences to
                                              Federal Stafford or Federal PLUS loan.
(i) $20,000, for loans for which the first                                                  the borrower of a default, including a
                                              The information given to the borrower
disbursement is made prior to July 1,         must prominently and clearly display, in      statement concerning likely litigation, a
                                                                                            statement that the default will be
1993; or                                      bold type, a clear and concise
                                                                                            reported to each nationwide consumer
(ii) $73,000, for loans for which the first   statement that the borrower is receiving
                                              a loan that must be repaid.                   reporting agency, and statements that
disbursement was made on or after                                                           the borrower will be liable for
July 1, 1993 including loans for              (2) The lender shall provide the              substantial collection costs, that the
undergraduate study.                          borrower with—                                borrower's Federal and State income
(h) PLUS Program annual limit. The            (i) The lender's name;                        tax refund may be withheld to pay the
total amount of all PLUS Program loans                                                      debt, that the borrower's wages may be
                                              (ii) A toll-free telephone number             garnished or offset, and that the
that a parent or student may borrow for
                                              accessible from within the United             borrower will be ineligible for additional
any academic year of study may not            States that the borrower can use to
exceed the student's cost of education                                                      Federal student financial aid, as well as
                                              obtain additional loan information;           for assistance under most Federal
minus other estimated financial
assistance for that student.                  (iii) The address to which                    benefit programs;
                                              correspondence with the lender and            (xvii) An explanation of the possible
(i) Minimum loan interval. The annual
                                              payments should be sent;                      effects of accepting the loan on the
loan limits applicable to a student apply
to the length of the school's academic        (iv) Notice that the lender may sell or       student's eligibility for other forms of
year.                                         transfer the loan to another party and, if    student financial assistance;
                                              it does, that the address and identity of     (xviii) An explanation of any costs the
(j) Treatment of Consolidation loans for
                                              the party to which correspondence and         borrower may incur during repayment
purposes of determining loan limits.
                                              payments should be sent may change;           or in the collection of the loan including
The percentage of the outstanding
balance on a Consolidation loan               (v) The principal amount of the loan;         any fees the borrower may be charged;
counted against a borrower's aggregate        (vi) The amount of any charges,               (xix) In the case of a Stafford or student
loan limits under the Stafford loan,          including the origination fee if              PLUS loan, a statement that the loan
Unsubsidized Stafford loan, Direct            applicable, and the Federal default fee,      proceeds will be transmitted to the
Stafford loan, Direct Unsubsidized loan,      to be collected by the lender before or       school for delivery to the borrower;
SLS, PLUS, Perkins Loan, or HEAL
34 CFR 682.205


(xx) A statement of the total cumulative      (c)(2) of this section, in simple and         a reduced interest rate on the
balance, including the loan applied for,      understandable terms, in a statement          borrower’s total payoff amount and time
owed to that lender, and an estimate of,      provided to the borrower at or prior to       for repayment;
or information that will allow the            the beginning of the repayment period.        (xi) If the lender provides a repayment
borrower to estimate, the projected           In the case of a Federal Stafford or          benefit, any limitations on that benefit,
monthly payment amount based on that          Federal PLUS loan, the disclosures            any circumstances in which the
cumulative outstanding balance;               required by this paragraph must be            borrower could lose that benefit, and
(xxi) For unsubsidized Stafford or            made not less than 30 days nor more           whether and how the borrower may
                                              than 150 days before the first payment        regain eligibility for the repayment
student PLUS borrowers, an
                                              on the loan is due from the borrower. If      benefit;
explanation that the borrower may pay
                                              the borrower enters the repayment
the interest while in school and, if the                                                    (xii) A description of all the repayment
                                              period without the lender's knowledge,
interest is not paid by the borrower                                                        plans available to the borrower and a
                                              the lender must provide the required
while in school, when and how often the
                                              disclosures to the borrower immediately       statement that the borrower may
interest will be capitalized;                                                               change plans during the repayment
                                              upon discovering that the borrower has
(xxii) For parent PLUS borrowers, an          entered the repayment period.                 period at least annually;
explanation that the parent may defer                                                       (xiii) A description of the options
                                              (2) The lender shall provide the
payment on the loan while the student
                                              borrower with—                                available to the borrower to avoid or be
on whose behalf the parent borrowed is                                                      removed from default, as well as any
enrolled at least half-time and, if the       (i) The lender's name, a toll-free
                                                                                            fees associated with those options; and
parent does not pay interest while the        telephone number accessible from
student is in school, when and how            within the United States that the             (xiv) Any additional resources,
often interest will be capitalized, and       borrower can use to obtain additional         including nonprofit organizations,
that the parent may be eligible for a         loan information, and the address to          advocates and counselors, including
deferment on the loan if the parent is        which correspondence with the lender          the Department of Education’s Student
enrolled at least half-time;                  and payments should be sent;                  Loan Ombudsman, the lender is aware
                                                                                            of where the borrower may obtain
(xxiii) A statement summarizing the           (ii) The scheduled date the repayment
                                                                                            additional advice and assistance on
circumstances in which a borrower may         period is to begin, or a deferment under
                                                                                            loan repayment.
obtain forbearance on the loan; and           §682.210(v), if applicable, is to end;
                                                                                            (3) Required disclosures during
(xxiv) A description of the options           (iii) The estimated balance, including
                                                                                            repayment. In addition to the
available for forgiveness of the loan and     the estimated amount of interest to be
                                                                                            disclosures required in paragraph (c)(1)
the requirements to obtain that               capitalized, owed by the borrower as of
                                                                                            of this section, the lender must provide
forgiveness.                                  the date upon which the repayment
                                                                                            the borrower of a FFEL loan with a bill
                                              period is to begin, a deferment under
(3) With the exception of paragraphs                                                        or statement that corresponds to each
                                              §682.210(v), if applicable, is to end, or
(a)(2)(i) through (a)(2)(iii), (a)(2)(v)                                                    payment installment time period in
                                              the date of the disclosure, whichever is
through (a)(2)(vii), and (a)(2)(xx) of this                                                 which a payment is due that includes in
                                              later;
section, a lender's disclosure                                                              simple and understandable terms—
requirements are met if it provides the       (iv) The actual interest rate on the loan;
                                                                                            (i) The original principal amount of the
borrower with either—                         (v) An explanation of any fees that may       borrower’s loan;
(i) The borrower's rights and                 accrue or be charged to the borrower          (ii) The borrower’s current balance, as
responsibilities statement approved by        during the repayment period;
                                                                                            of the time of the bill or statement;
the Secretary under paragraph (b) of          (vi) The borrower's repayment
this section; or                                                                            (iii) The interest rate on the loan;
                                              schedule, including the due date of the
(ii) The plain language disclosure            first installment and the number,             (iv) The total amount of interest for the
approved by the Secretary under               amount, and frequency of payments             preceding installment paid by the
paragraph (g) of this section for             based on the repayment schedule               borrower;
subsequent loans made under a Master          selected by the borrower;                     (v) The aggregate amount paid by the
Promissory Note.                              (vii) Except in the case of a                 borrower on the loan, and separately
(b) Separate statement of borrower            Consolidation loan, an explanation of         identifying the amount the borrower has
rights and responsibilities. In addition to   any special options the borrower may          paid in interest on the loan, the amount
the disclosures required by paragraph         have for consolidating or refinancing         of fees the borrower has paid on the
(a) of this section, the lender must          the loan and of the availability and          loan, and the amount paid against the
provide the borrower with a separate          terms of such other options;                  balance in principal;
written statement, using simple and           (viii) The estimated total amount of          (vi) A description of each fee the
understandable terms, at or prior to the      interest to be paid on the loan,              borrower has been charged for the
time of the first disbursement, that          assuming that payments are made in            most recent preceding installment time
summarizes the rights and                     accordance with the repayment                 period;
responsibilities of the borrower with         schedule, and if interest has been paid,
respect to the loan. The statement must                                                     (vii) The date by which a payment must
                                              the amount of interest paid;                  be made to avoid additional fees and
also warn the borrower about the
consequences described in paragraph           (ix) A statement that the borrower has        the amount of that payment and the
(a)(2)(xvi) of this section if the borrower   the right to prepay all or part of the loan   fees;
defaults on the loan, and that the            at any time, without penalty;                 (viii) The lender’s or servicer’s address
default will be reported to each              (x) Information on any special loan           and toll-free telephone number for
nationwide consumer reporting agency.         repayment benefits offered on the loan,       repayment options, payments and
The Borrower's Rights and                     including benefits that are contingent on     billing error purposes; and
Responsibilities statement approved by        repayment behavior, and any other
the Secretary satisfies this requirement.                                                   (ix) A reminder that the borrower may
                                              special loan repayment benefits for           change repayment plans, a list of all of
(c) Repayment information. (1)                which the borrower may be eligible that       the repayment plans that are available
Disclosures at or prior to repayment.         would reduce the amount or length of          to the borrower, a link to the
The lender must disclose the                  repayment; and at the request of the          Department of Education’s Web site for
information described in paragraph            borrower, an explanation of the effect of     repayment plan information, and
34 CFR 682.205


directions on how the borrower may            interest only, and capitalized interest.          cancellation, deferment, or a reduced
request a change in repayment plans           The lender may rely on the Stafford and           interest rate on FFEL or Direct Loans
from the lender.                              PLUS promissory notes and associated              repaid through consolidation;
(4) Required disclosures for borrowers        materials approved by the Secretary for           (2) If a borrower is repaying a Federal
                                              purposes of complying with this section.
having difficulty making payments. The                                                          Perkins Loan with the Consolidation
lender shall provide a borrower who           (e) Borrower may not be charged for               loan, that the borrower will lose—
has notified the lender that he or she is     disclosures. The lender must provide
                                                                                                (i) The interest-free periods available
having difficulty making payments             the information required by this section
                                                                                                on the Perkins Loan while the borrower
with—                                         at no cost to the borrower.
                                                                                                is enrolled in-school at least half-time,
(i) A description of the repayment plans      (f) Method of disclosure. Any disclosure          in the grace period, or in a deferment
available to the borrower, and how the        of information by a lender under this             period; and
borrower may request a change in              section may be through written or                 (ii) The cancellation benefits on the
repayment plan;                               electronic means.
                                                                                                Perkins Loan. The lender must provide
(ii) A description of the requirements for    (g) Plain language disclosure. The plain          to the borrower a list of the Perkins
obtaining forbearance on the loan and         language disclosure text, as approved             Loan cancellation benefits that would
any costs associated with forbearance;        by the Secretary, must be provided to a           not be available on the Consolidation
and                                           borrower in conjunction with                      loan.
                                              subsequent loans taken under a
(iii) A description of the options                                                              (3) The repayment plans available to
                                              previously signed Master Promissory
available to the borrower to avoid                                                              the borrower;
                                              Note. The requirements of paragraphs
default and any fees or costs                                                                   (4) The borrower’s options to prepay
                                              (a) and (b) of this section are satisfied
associated with those options.                                                                  the Consolidation loan, to pay the loan
                                              for subsequent loans if the borrower is
(5) Required disclosures for borrowers        sent the plain language disclosure text           on a shorter repayment schedule, and
who are 60-days delinquent in making          and an initial disclosure containing the          to change repayment plans;
payments on a loan. (i) The lender shall      information required by paragraphs                (5) That the borrower benefit programs
provide to a borrower who is 60 days          (a)(2)(i) through (iii), (a)(2)(v), (a)(2)(vi),   for a Consolidation loan vary among
delinquent in making required                 (a)(2)(vii), and (a)(2)(xx) of this section.      lenders;
payments a notice of—
                                              (h) Notice of availability of income-             (6) The consequences of default on the
(A) The date on which the loan will           sensitive and income-based repayment              Consolidation loan; and
default if no payment is made;                options. (1) At the time of offering a
                                              borrower a loan and at the time of                (7) That applying for the Consolidation
(B) The minimum payment the
                                              offering a borrower repayment options,            loan does not obligate the borrower to
borrower must make, as of the date of                                                           agree to take the Consolidation loan,
the notice, to avoid default, including       the lender must provide the borrower
                                              with a notice that informs the borrower           and the process and deadline by which
the payment amount needed to bring
                                              of the availability of income-sensitive           the borrower may cancel the
the loan current or payment in full;                                                            Consolidation loan.
                                              and, except for parent PLUS borrowers
(C) A description of the options              and Consolidation Loan borrowers                  (j) Disclosure procedures when a
available to the borrower to avoid            whose Consolidation Loan paid off one             borrower’s address is not available. If a
default, including deferment and              or more parent PLUS Loans, income-                lender receives information indicating it
forbearance and any fees and costs            based repayment plans. This                       does not know the borrower’s current
associated with those options;                information may be provided in a                  address, the lender is excused from
(D) Any options for discharging the loan      separate notice or as part of the other           providing disclosure information under
that may be available to the borrower;        disclosures required by this section.             this section unless it receives
and                                           The notice must inform the borrower—              communication indicating a valid
(E) Any additional resources, including       (i) That the borrower is eligible for             borrower address before the 241st day
                                              income-sensitive repayment and may                of delinquency, at which point the
nonprofit organizations, advocates and
counselors, including the Department of       be eligible for income-based                      lender must resume providing the
Education’s Student Loan Ombudsman,           repayment, including through loan                 installment bill or statement, and any
                                              consolidation;                                    other disclosure information required
the lender is aware of where the
borrower may obtain additional advice                                                           under this section not previously
                                              (ii) Of the procedures by which the               provided.
and assistance on loan repayment.             borrower can elect income-sensitive or
                                              income-based repayment; and                       (Approved by the Office of Management and
(ii) The notice must be sent within five                                                        Budget under control number 1845-0020)
days of the date the borrower becomes         (iii) Of where and how the borrower
60 days delinquent, unless the lender                                                           (Authority: 20 U.S.C. 1077, 1078, 1078-1,
                                              may obtain more information                       1078-2, 1078-3, 1082, 1083(a))
has sent such a notice within the             concerning income-sensitive and
previous 120 days.                                                                              [57 FR 60323, Dec. 18, 1992, as amended at
                                              income-based repayment plans.
                                                                                                58 FR 9119, Feb. 19, 1993; 59 FR 25745,
(d) Exception to disclosure                   (2) The promissory note and associated            May 17, 1994; 60 FR 30788, June 12, 1995;
requirement. In the case of a Federal         materials approved by the Secretary               64 FR 18976, Apr. 16, 1999; 64 FR 58625,
Unsubsidized Stafford loan or a Federal       satisfy the loan origination notice               Oct. 29, 1999; 64 FR 58965, Nov. 1, 1999;
PLUS loan, the lender is not required to                                                        71 FR 45700. Aug. 9, 2006; 73 FR 63248,
                                              requirements provided for in paragraph            Oct. 23, 2008; 74 55992, Oct. 29, 2009]
provide the information in paragraph          (h)(1) of this section.
(c)(2)(viii) of this section if the lender,                                                     §682.206 Due diligence in making a
instead of that disclosure, provides the      (i) Separate disclosure for                       loan.
borrower with sample projections of the       Consolidation loans. At the time the
                                              lender provides a Consolidation loan              (a) General. (1) Loan-making duties
monthly repayment amounts assuming
                                              application to a prospective borrower, it         include determining the borrower's loan
different levels of borrowing and
                                              must disclose to the prospective                  amount, approving the borrower for a
interest accruals resulting from
                                              borrower, in simple and understandable            loan, explaining to the borrower his or
capitalization of interest while the
                                              terms—                                            her rights and responsibilities under the
borrower or student on whose behalf
                                                                                                loan, and completing and having the
the loan is made is in school. Sample         (1) Whether consolidation will result in a        borrower sign the promissory note
projections must disclose the cost to         loss of loan benefits, including, but not
the borrower of principal and interest,       limited to, loan forgiveness,
34 CFR 682.206


(except with respect to subsequent             any payments to pay off a loan with the       guaranty agency, except with the
loans made under an MPN).                      proceeds of a Consolidation loan, the         agency's prior approval; and
                                               lender shall—
(2) A lender that delegates substantial                                                      (B) Must disburse a Stafford or PLUS
loan-making duties to a school on a            (i) Obtain from the holder of each loan       loan in accordance with the
loan thereby enters into a loan                to be consolidated a certification with       disbursement schedule provided by the
origination relationship with the school       respect to the loan held by the holder        school or any request made by the
in regard to that loan. If that relationship   that—                                         school modifying that schedule.
exists, the lender may rely in good faith      (A) The loan is a legal, valid, and           (ii) Shall disburse loan proceeds by—
upon statements of the borrower made           binding obligation of the borrower;
in the loan application process, but may                                                     (A) A check that is made payable to the
not rely upon statements made by the           (B) The loan was made and serviced in         borrower, or that is made co-payable to
school in that process. A non-school           compliance with applicable laws and           the borrower and the school for
lender that does not have an origination       regulations; and                              attendance at which the loan is
relationship with a school with respect        (C) In the case of a FFEL loan, that the      intended, and requires the personal
to a loan may rely in good faith upon          guarantee on the loan is in full force        endorsement or other written
statements of both the borrower and            and effect; and                               certification of the borrower in order to
the school in the loan application                                                           be cashed or deposited in an account
process. Except as provided in 34 CFR          (ii) Consistent with the requirements of      of the borrower at a financial institution;
part 668, subpart E, a school lender           §682.205(i)(7), notify the borrower,
                                               upon receipt of all information               (B) If authorized by the guarantor,
may rely in good faith upon statements                                                       electronic funds transfer to an account
made by the borrower in the loan               necessary to make the Consolidation
                                               loan, of the borrower’s option to cancel      maintained in accordance with Sec.
application process.                                                                         668.163 by the school as trustee for the
                                               the Consolidation loan, and the
(b) Processing forms. Before disbursing        deadline by which the borrower must           lender, the guaranty agency, the
a loan, a lender must determine that all       notify the lender that he or she wishes       Secretary, and the borrower, that
required forms have been accurately            to cancel the loan. The lender must           requires the approval of the borrower. A
completed by the borrower, the student,        allow the borrower no less than 10 days       disbursement made by electronic funds
the school, and the lender. A lender           from the date of the notice to cancel the     transfer must be accompanied by a list
may not ask the borrower to sign any           loan.                                         of the names, social security numbers,
form before the borrower has provided                                                        and loan amounts of the borrowers who
on the form all information requested          (2) The Consolidation loan lender may         are receiving a portion of the
from the borrower.                             rely in good faith on the certification       disbursement; or
                                               provided under paragraph (f)(1)(i) of
(c) Approval of borrower and                                                                 (C) If the school and the lender agree, a
                                               this section by the holder of a loan to be
determination of loan amount. (1) A            consolidated.                                 master check from the lender to the
lender may make a loan only to an                                                            institution of higher education to an
eligible borrower. To the extent               (Approved by the Office of Management and     account maintained in accordance with
                                               Budget under control number 1840-0538)        Sec. 688.163 by the school as trustee
authorized by paragraph (a)(2) of this
section, the lender may rely on the            (Authority: 20 U.S.C. 1077, 1078, 1078-1,     for the lender. A disbursement made by
information provided by the school, the        1078-2, 1078-3, 1079, 1080, 1082, 1083,       a master check must be accompanied
                                               1085)                                         by a list of the names, social security
borrower, and, if the borrower is a
parent, the student on whose behalf the        [57 FR 60323, Dec. 18, 1992, as amended at    numbers, and loan amounts of the
loan is sought, in determining the             58 FR 9119, Feb. 19, 1993; 59 FR 25746,       borrowers who are receiving a portion
borrower's eligibility for a loan.             May 17, 1994; 59 FR 33352, June 28, 1994;     of the disbursement;
                                               64 FR 18976, Apr. 16, 1999; 64 FR 58957,
(2) Except in the case of a                    Nov. 1, 1999; 66 FR 34763, June 29, 2001;     (iii) May not disburse loan proceeds
Consolidation loan, in determining the         68 FR 75428, Dec. 31, 2003; 71 FR 64398,      earlier than is reasonably necessary to
amount of the loan to be made, in no           Nov. 1, 2006; 74 FR 55993, Oct. 29, 2009]     meet the student's cost of attendance
case may the loan amount exceed the            §682.207 Due diligence in disbursing          for the period for which the loan is
lesser of the amount the borrower              a loan.                                       made, and, in no case without the
requests, the amount certified by the                                                        Secretary's prior approval, disburse
                                               (a)(1) This section prescribes                loan proceeds earlier than 30 days prior
school under Sec. 682.603, or the loan
                                               procedures for lenders to follow in           to the date on which the student is
limits under Sec. 682.204.
                                               disbursing Stafford and PLUS loans.           scheduled to enroll;
(d)(1) The lender must ensure that             This section does not prescribe
each loan is supported by an executed          procedures for a refinanced SLS or            (iv) Shall require an escrow agent to
legally-enforceable promissory note as         PLUS Program loan made under Sec.             disburse loan proceeds no later than 10
proof of the borrower's indebtedness.          682.209 (e) or (f). With respect to FISL      days after the agent receives the
                                               and Federal PLUS loans, references to         proceeds from the lender.
(e) Security, endorsement, and co-
makers. (1) A FFEL Program loan must           the “guaranty agency” in this section         (v) Shall disburse—
be made without security or                    shall be understood to refer to the
                                               “Secretary.”                                  (A) Except as provided in paragraph
endorsement, except as provided in                                                           (b)(1)(v) (C)(1) and (D) of this section,
paragraph (e)(2) of this section.              (2) The requirements of paragraphs            directly to the school;
(2) A Federal PLUS Program Loan may            (b)(1) (ii) and (v) of this section must be
                                               satisfied either by the lender or by an       (B) In the case of a Federal PLUS
be made to an eligible borrower with an                                                      loan—
endorser who is secondarily liable for         escrow agent with which the lender has
repayment of the loan.                         an agreement pursuant to Sec.                 (1) By electronic funds transfer or
                                               682.408. The lender shall comply with         master check from the lender in
(3) A Federal Consolidation loan, based        paragraph (b)(1)(iii) of this section         accordance with the disbursement
on an application received prior to July       whether or not it disburses to an escrow      schedule provided by the school to an
1, 2006, may be made to two eligible           agent.                                        account maintained in accordance with
spouses provided both borrowers agree                                                        Sec. 668.163 by the school as trustee
to be jointly and severally liable for         (b)(1) In disbursing a loan, a lender—
                                                                                             for the lender. A disbursement made by
repayment of the loan as co-makers.            (i)(A) May not disburse loan proceeds         electronic funds transfer or master
(f) Additional requirements for                prior to the issuance of the guarantee        check must be accompanied by a list of
Consolidation loans. (1) Prior to making       commitment for the loan by the                the names, social security numbers,
34 CFR 682.207


and loan amounts for the parent or           the enrollment status for which the loan      lender, servicer, or guaranty agency to
student borrowers who are receiving a        was certified.                                which any inquiries should be
portion of the disbursement and the          (3) For a continuing student, contacting      addressed.
names and social security numbers of         the foreign school the student is to          (3) Except as provided in paragraph
the students on whose behalf the             attend in accordance with procedures          (b)(1)(v)(C)(2) of this section, neither a
parents are borrowing parent PLUS            specified by the Secretary, by                lender nor a school may obtain a
loans.                                       telephone, e-mail or facsimile to verify      borrower's power-of-attorney or other
(2) By a check from the lender that is       that the student is still enrolled at the     authorization to endorse or otherwise
made co-payable to the institution and       foreign school for the period for which       approve the cashing of a loan check or
the parent borrower, for a parent PLUS       the loan is intended at the enrollment        the release of funds disbursed by
loan, or student borrower, for a student     status for which the loan was certified.      electronic funds transfer, nor may a
PLUS loan, directly to the institution of    (B) For a student enrolled in a study-        borrower provide this power-of-attorney
higher education.                            abroad program, contacting the home           or authorization to anyone else.
(C) In the case of a student enrolled in     institution in which the student is           However, the school may present the
a study-abroad program approved for          enrolled by telephone, facsimile or e-        loan check to a financial institution for
                                             mail to verify—                               deposit in an account of the borrower
credit at the home institution in which
the student is enrolled, if the student                                                    pursuant to the borrower's
                                             (1) For a new student, the student's          endorsement or written certification
requests—                                    admission to the study-abroad program         under paragraph (b)(1)(ii)(A) of this
(1) A Stafford loan directly to the          for the period for which the loan is          section.
student only after verification of the       intended at the enrollment status for
                                             which the loan is certified.                  (c) Except as provided in paragraph (e)
student's enrollment with the home
institution by the lender or guaranty                                                      of this section, a lender must disburse
                                             (2) For a continuing student, that the        any Stafford or PLUS loan in
agency; or                                   student is still enrolled in the study-       accordance with the disbursement
(2) To the home institution if the           abroad program for the period for which       schedule provided by the school as
borrower provides a power-of-attorney        the loan is intended at the enrollment        follows:
to an individual not affiliated with the     status for which the loan is certified.
                                                                                           (1) Disbursement must be in two or
institution to endorse the check or          (ii) The lender or guaranty agency that
complete an electronic funds transfer                                                      more installments.
                                             is verifying enrollment at the institution
authorization.                               the student is to attend must maintain        (2) No installment may exceed one-half
(D) In the case of a student enrolled in     the following information in the              of the loan.
an eligible foreign school, if the foreign   student's file:                               (3) Disbursement must be made on a
school requests, a Stafford loan directly    (A) The name and telephone number of          payment period basis in accordance
to the student only after verification of    the school representative contacted;          with the disbursement schedule
the student's enrollment by the lender                                                     provided by the school or any request
or guaranty agency.                          (B) The date of the contact;                  made by the school modifying that
(vi) Except as provided in paragraph (f)     (C) The enrollment period;                    schedule.
of this section, may not disburse a          (D) Whether enrollment was verified at        (d) If one or more scheduled
second or subsequent disbursement of         the enrollment status for which the loan      disbursements have elapsed before a
a Federal Stafford loan to a student         was certified; and                            lender makes a disbursement and the
who has ceased to be enrolled; and                                                         student is still enrolled, the lender may
                                             (E) Any other pertinent information           include in the disbursement loan
(vii) May disburse a second or               received from the school.
subsequent disbursement of an FFEL                                                         proceeds for previously scheduled, but
loan, at the request of the school, even     (iii) Guaranty agencies and lenders           unmade, disbursements.
if the borrower or the school returned       must coordinate their activities to           (e) A lender must disburse the loan in
the prior disbursement, unless the           ensure that the requirements of this          one installment if the school submits a
lender has information that the student      paragraph are met prior to making any         schedule for disbursement of loan
is no longer enrolled.                       direct disbursement to a student.             proceeds in one installment as
(2)(i) A lender or guaranty agency must      (iv) If a lender disburses a Stafford loan    authorized by Sec. 682.604(c)(8).
verify a borrower's enrollment at the        directly to the borrower for attendance       (f) A lender may disburse loan
foreign school, or a borrower's              at an eligible foreign school, or to a        proceeds after the student has ceased
enrollment in a study-abroad program,        borrower enrolled in a study-abroad           to be enrolled on at least a half-time
prior to each disbursement of Stafford       program approved for credit at the            basis only if—
loan funds directly to a student by—         home institution, as provided in
                                             paragraphs (b)(1)(v)(D) and                   (1) The school certified the borrower's
(A) For a student enrolled at a foreign      (b)(1)(v)(D)(1) of this section, the lender   loan eligibility before the date the
school—                                      must, at the time of disbursement,            student became ineligible and the loan
                                             notify the foreign school, for a borrower     funds will be used to pay educational
(1) The guaranty agency accessing the
Department's Postsecondary Education         attending a foreign school, or the home       costs that the school determines the
Participants System (PEPS) Database          institution in which the student is           student incurred for the period in which
                                             enrolled, for a borrower enrolled in a        the student was enrolled and eligible;
(or any successor system) and
confirming that the foreign school the       study-abroad program, of—                     (2) The student completed the first 30
student is to attend is certified to         (A) The name and social security              days of his or her program of study if
participate in the FFEL program.             number of the student;                        the student was a first-year, first-time
                                                                                           borrower as described in Sec.
(2) For a new student, contacting the        (B) The type of loan;
foreign school the student is to attend in                                                 682.604(c)(5); and
accordance with procedures specified         (C) The amount of the disbursement,           (3) In the case of a second or
by the Secretary, by telephone, e-mail       including the amount of any fees              subsequent disbursement, the student
or facsimile to verify the student's         assessed the borrower;                        graduated or successfully completed
admission to the foreign school for the      (D) The date of the disbursement; and         the period of enrollment for which the
period for which the loan is intended at                                                   loan was intended.
                                             (E) The name, address, telephone and
                                             fax number or electronic address of the
34 CFR 682.208


(Approved by the Office of Management and        (4) If, within 3 years of the lender's      (iii) The name and address of the party
Budget under control number 1845-0022)           receipt of an identity theft report, the    to whom subsequent payments or
(Authority: 20 U.S.C. 1077, 1078, 1078-1,        lender receives from the borrower           communications must be sent;
1078-2, 1078-3, 1079, 1080, 1082, 1085)          evidence specified in Sec.                  (iv) The telephone numbers of both the
[57 FR 60323, Dec. 18, 1992]                     682.402(e)(3)(v), the lender may submit
                                                                                             assignor and the assignee;
                                                 a claim and receive interest subsidy
Editorial Note: For Federal Register citations                                               (v) The effective date of the assignment
                                                 and special allowance payments that
affecting §682.207, see the List of CFR
                                                 would have accrued on the loan.             or transfer of the loan;
Sections Affected, which appears in the
Finding Aids section of the printed volume       (c)(1) A lender shall respond within 30     (vi) The date, if applicable, on which
and on GPO Access.                               days after receipt to any inquiry from a    the current loan servicer will stop
§682.208 Due diligence in servicing a            borrower or any endorser on a loan.         accepting payments; and
loan.                                            (2) When a lender learns that a Stafford    (vii) The date on which the new loan
(a) The loan servicing process includes          loan borrower or a student PLUS loan        servicer will begin accepting payments.
reporting to national credit bureaus,            borrower is no longer enrolled at an        (2) If the assignor and assignee
responding to borrower inquiries,                institution of higher education on at       separately provide the notice required
establishing the terms of repayment,             least a half-time basis, the lender shall   by paragraph (e)(1) of this section,
and reporting a borrower's enrollment            promptly contact the borrower in order      each notice must indicate that a
and loan status information.                     to establish the terms of repayment.        corresponding notice will be sent by the
(b)(1) An eligible lender of a FFEL loan         (3)(i) If the borrower disputes the terms   other party to the assignment.
shall report to at least one national            of the loan in writing and the lender       (3) For purposes of this paragraph, the
credit bureau—                                   does not resolve the dispute, the           term “assigned” is defined in Sec.
                                                 lender's response must provide the          682.401(b)(17)(ii).
(i) The total amount of FFEL loans the
                                                 borrower with an appropriate contact at
lender has made to the borrower, within                                                      (4) The assignee, or the assignor on
                                                 the guaranty agency for the resolution
90 days of each disbursement;                                                                behalf of the assignee, shall notify the
                                                 of the dispute.
(ii) The outstanding balance of the                                                          guaranty agency that guaranteed the
                                                 (ii) If the guaranty agency does not        loan within 45 days of the date the
loans;
                                                 resolve the dispute, the agency's           assignee acquires a legally enforceable
(iii) Information concerning the                 response must provide the borrower          right to receive payment from the
repayment status of the loan, no less            with information on the availability of     borrower on the loan of—
frequently than every 90 days or                 the Student Loan Ombudsman's office.
quarterly after a change in that status                                                      (i) The assignment; and
                                                 (d) Subject to the rules regarding
from current to delinquent;                                                                  (ii) The name and address of the
                                                 maximum duration of a repayment
(iv) The date the loan is fully repaid by,       period and minimum annual payment           assignee, and the telephone number of
or on behalf of, the borrower, or                described in Sec. 682.209(a)(7), (c),       the assignee that can be used to obtain
discharged by reason of the borrower's           and (h), nothing in this part is intended   information about the repayment of the
death, bankruptcy, or total and                  to limit a lender's discretion in           loan.
permanent disability, within 90 days             establishing, or, with the borrower's       (5) The requirements of this paragraph
after that date;                                 consent, revising a borrower's              (e), as to borrower notification, apply if
(v) Other information required by law to         repayment schedule—                         the borrower is in a grace period or has
be reported.                                     (1) To provide for graduated or income-     entered the repayment period.
(2) An eligible lender that has acquired         sensitive repayment terms. The              (f)(1) Notwithstanding an error by the
a FFEL loan shall report to at least one         Secretary strongly encourages lenders       school or lender, a lender shall follow
national credit bureau the information           to provide a graduated or income-           the procedures in Sec. 682.412
required by paragraph (b)(1)(ii)-(v) of          sensitive repayment schedule to a           whenever it receives information that
this section within 90 days of its               borrower providing for at least the         can be substantiated that the borrower,
acquisition of the loan.                         payment of interest charges, unless the     or the student on whose behalf a parent
                                                 borrower requests otherwise, in order to    has borrowed, has been convicted of,
(3) Upon receipt of a valid identity theft       make the borrower's repayment burden        or has pled nolo contendere or guilty to,
report as defined in section 603(q)(4) of        commensurate with his or her projected      a crime involving fraud in obtaining title
the Fair Credit Reporting Act (15 U.S.C.         ability to pay; or                          IV, HEA program assistance, provided
1681a) or notification from a credit                                                         false or erroneous information or took
bureau that information furnished by the         (2) To provide a single repayment
                                                 schedule, as authorized and if              actions that caused the student or
lender is a result of an alleged identity                                                    borrower—
theft as defined in Sec. 682.402(e)(14),         practicable, for all FFEL program loans
an eligible lender shall suspend credit          to the borrower held by the lender.         (i) To be ineligible for all or a portion of
bureau reporting for a period not to             (e)(1) If the assignment or transfer of     a loan made under this part;
exceed 120 days while the lender                 ownership interest of a Stafford, PLUS,     (ii) To receive a Stafford loan subject to
determines the enforceability of a loan.         SLS, or Consolidation loan is to result     payment of Federal interest benefits as
(i) If the lender determines that a loan         in a change in the identity of the party    provided under Sec. 682.301, for which
does not qualify for a discharge under           to whom the borrower must send              he or she was ineligible; or
Sec. 682.402(e)(1)(i)(C), but is                 subsequent payments, the assignor
                                                 and assignee of the loan shall, no later    (iii) To receive loan proceeds that were
nonetheless unenforceable, the lender                                                        not paid to the school or repaid to the
must—                                            than 45 days from the date the
                                                 assignee acquires a legally enforceable     lender by or on behalf of a registered
(A) Notify the credit bureau of its              right to receive payment from the           student who—
determination; and                               borrower on the assigned loan, provide,     (A) The school notifies the lender under
(B) Comply with Sec. Sec.                        either jointly or separately, a notice to   34 CFR 668.21(a)(2)(ii) has withdrawn
682.300(b)(2)(ix) and                            the borrower of—                            or been expelled prior to the first day of
682.302(d)(1)(viii).                             (i) The assignment;                         classes for the period of enrollment for
                                                                                             which the loan was intended; or
(ii) [Reserved]                                  (ii) The identity of the assignee;
                                                                                             (B) Failed to attend school during that
                                                                                             period.
34 CFR 682.208


(2) For purposes of this section, the            (iii) For an SLS borrower who has not            least a half-time basis, the lender must
term “guaranty agency” in Sec.                   yet entered repayment on a Stafford              use a new date it receives from a
682.412(e) refers to the Secretary in            loan, the borrower may postpone                  school, unless the lender has already
the case of a Federal GSL loan.                  payment, consistent with the grace               disclosed repayment terms to the
(g) If, during a period when the                 period on the borrower's Stafford loan.          borrower and the new date is within the
                                                 (iv) If the lender first learns after the        same month and year as the most
borrower is not delinquent, a lender
receives information indicating it does          fact that an SLS borrower has entered            recent date reported to the lender.
not know the borrower's address, it may          the repayment period, the repayment              (4) For a borrower of a Stafford loan
commence the skip-tracing activities             begins no later than 75 days after the           who is a correspondence student, the
specified in Sec. 682.411(g).                    date the lender learns that the borrower         grace period specified in paragraph
(h) Notifying the borrower about a               has entered the repayment period.                (a)(3)(i) of this section begins on the
servicing change. If an FFEL Program             (v) The lender may establish a first             earliest of—
loan has not been assigned, but there            payment due date that is no more than            (i) The day after the borrower
is a change in the identity of the party to      an additional 30 days beyond the                 completes the program;
whom the borrower must send                      period specified in paragraphs                   (ii) The day after withdrawal as
subsequent payments or direct any                (a)(2)(i)—(a)(2)(iv) of this section in          determined pursuant to 34 CFR 668.22;
communications concerning the loan,              order for the lender to comply with the
                                                                                                  or
the holder of the loan shall, no later           required deadline contained in Sec.
than 45 days after the date of the               682.205(c)(1).                                   (iii) 60 days following the last day for
change, provide notice to the borrower                                                            completing the program as established
                                                 (3)(i) Except as provided in paragraph
of the name, telephone number, and                                                                by the school.
                                                 (a)(4) of this section, for a Stafford loan
address of the party to whom                     the repayment period begins—                     (5) For purposes of establishing the
subsequent payments or                                                                            beginning of the repayment period for
communications must be sent. The                 (A) For a borrower with a loan for which
                                                                                                  Stafford and SLS loans, the grace
requirements of this paragraph apply if          the applicable interest rate is 7 percent        periods referenced in paragraphs
the borrower is in a grace period or has         per year, not less than 9 nor more than
                                                                                                  (a)(2)(iii) and (a)(3)(i) of this section
entered the repayment period.                    12 months following the date on which            exclude any period during which a
                                                 the borrower is no longer enrolled on at
(i) A lender shall report enrollment and                                                          borrower who is a member of a reserve
                                                 least a half-time basis at an eligible           component of the Armed Forces named
loan status information, or any Title IV
                                                 school. The length of this grace period          in section 10101 of title 10, United
loan-related data required by the                is determined by the lender for loans
Secretary, to the guaranty agency or to                                                           States Code is called or ordered to
                                                 made under the FISL Program, and by              active duty for a period of more than 30
the Secretary, as applicable, by the
                                                 the guaranty agency for loans                    days. Any single excluded period may
deadline date established by the                 guaranteed by the agency;
Secretary.                                                                                        not exceed three years and includes
                                                 (B) For a borrower with a loan for which         the time necessary for the borrower to
(Approved by the Office of Management and
Budget under control number 1845-0020)           the initial applicable interest rate is 8 or     resume enrollment at the next available
                                                 9 percent per year, the day after 6              regular enrollment period. Any Stafford
(Authority: 20 U.S.C. 1077, 1078, 1078-1,        months following the date on which the           or SLS borrower who is in a grace
1078-2, 1078-3, 1079, 1080, 1082, 1085)
                                                 borrower is no longer enrolled on at             period when called or ordered to active
[57 FR 60323, Dec. 18, 1992, as amended at       least a half-time basis at an institution        duty as specified in this paragraph is
58 FR 9119, Feb. 19, 1993; 59 FR 22476,          of higher education; and                         entitled to a full grace period upon
Apr. 29, 1994; 64 FR 18976, Apr. 16, 1999;
                                                 (C) For a borrower with a loan with a            completion of the excluded period.
64 FR 58626, Oct. 29, 1999; 64 FR 58965,
Nov. 1, 1999; 71 FR 45701, Aug. 9, 2006; 72      variable interest rate, the day after 6          (6)(i) The repayment schedule may
FR 62000, 62031, Nov. 1, 2007; 74 FR             months following the date on which the           provide for substantially equal
55993, Oct. 29, 2009]                            borrower is no longer enrolled on at             installment payments or for installment
§682.209 Repayment of a loan.                    least a half-time basis at an institution        payments that increase or decrease in
                                                 of higher education.                             amount during the repayment period. If
(a) Conversion of a loan to repayment
                                                 (ii) The first payment on a Stafford loan        the loan has a variable interest rate that
status. (1) For a Consolidation loan, the
                                                 is due on a date established by the              changes annually, the lender may
repayment period begins on the date
                                                 lender that is no more than—                     establish a repayment schedule that—
the loan is disbursed. The first payment
is due within 60 days after the date the         (A) 60 days following the first day that         (A) Provides for adjustments of the
loan is disbursed.                                                                                amount of the installment payment to
                                                 the repayment period begins;
                                                                                                  reflect annual changes in the variable
(2)(i) For a PLUS loan, the repayment            (B) 60 days from the expiration of a             interest rate; or
period begins on the date of the last            deferment or forbearance period;
disbursement made on the loan.                                                                    (B) Contains no provision for an
Interest accrues and is due and                  (C) 60 days following the end of the             adjustment of the amount of the
payable from the date of the first               post deferment grace period;                     installment payment to reflect annual
disbursement of the loan. The first              (D) If the lender first learns after the fact    changes in the variable interest rate,
payment is due within 60 days after the          that the borrower has entered the                but requires the lender to grant a
date the loan is fully disbursed.                repayment period, no later than 75 days          forbearance to the borrower (or
                                                 after the date the lender learns that the        endorser, if applicable) for a period of
(ii) For an SLS loan, the repayment
                                                 borrower has entered the repayment               up to 3 years of payments in
period begins on the date the loan is
                                                 period; or                                       accordance with Sec. 682.211(i)(5) in
disbursed, or, if the loan is disbursed in
                                                                                                  cases where the effect of a variable
multiple installments, on the date of the        (E) An additional 30 days beyond the             interest rate on a standard or graduated
last disbursement of the loan. Interest          periods specified in paragraphs                  repayment schedule would result in a
accrues and is due and payable from              (a)(3)(ii)(A)-(a)(3)(ii)(D) of this section in   loan not being repaid within the
the date of the first disbursement of the        order for the lender to comply with the          maximum repayment term.
loan. Except as provided in paragraph            required deadlines contained in Sec.
(a)(2)(iii), (a)(2)(iv), and (a)(2)(v) of this   682.205(c)(1).                                   (ii) If a graduated or income-sensitive
section the first payment is due within                                                           repayment schedule is established, it
60 days after the date the loan is fully         (iii) When determining the date that the         may not provide for any single
disbursed.                                       student was no longer enrolled on at             installment that is more than three
34 CFR 682.209


times greater than any other                  required if the schedule provides for        FFEL loans exceed $30,000 may repay
installment. An agreement as specified        less than the minimum annual payment         the loan on a fixed annual repayment
in paragraph (c)(1)(ii) of this section is    amount specified in paragraph (c)(1)(i)      amount or a graduated repayment
not required if the schedule provides for     of this section.                             amount for a period that may not
less than the minimum annual payment          (viii) Under an income-sensitive             exceed 25 years. For purposes of this
amount specified in paragraph (c)(1)(i)       repayment schedule—                          section, a “new borrower” is an
of this section.                                                                           individual who has no outstanding
                                              (A)(1) The amount of the borrower's          principal or interest balance on an
(iii) Not more than six months prior to       installment payment is adjusted              FFEL Program loan as of October 7,
the date that the borrower's first            annually, based on the borrower's
payment is due, the lender must offer                                                      1998, or on the date he or she obtains
                                              expected total monthly gross income          an FFEL Program loan after October 7,
the borrower a choice of a standard,          received by the borrower from                1998.
income-sensitive, income-based,               employment and from other sources
graduated, or, if applicable, an                                                           (x) Under an income-based repayment
                                              during the course of the repayment
extended repayment schedule.                  period; or                                   schedule, the borrower repays the loan
(iv) Except in the case of an income-                                                      in accordance with §682.215.
                                              (2) If the loan has a variable interest
based repayment schedule, the                 rate that changes annually, the lender       (xi) A borrower may request a change
repayment schedule must require that          may establish a repayment schedule           in the repayment schedule on a loan.
each payment equal at least the               that may have adjustments in the             The lender must permit the borrower to
interest that accrues during the interval     payment amount as provided under             change the repayment schedule no less
between scheduled payments.                   paragraph (a)(6)(i) of this section; and     frequently than annually, or at any time
(v) The lender shall require the                                                           in the case of a borrower in an income-
                                              (B) In general, the lender shall request     based repayment plan.
borrower to repay the loan under a            the borrower to inform the lender of his
standard repayment schedule                   or her income no earlier than 90 days        (xii) For purposes of this section, a
described in paragraph (a)(6)(vi) of this     prior to the due date of the borrower's      lender shall, to the extent practicable
section if the borrower—                      initial installment payment and              require that all FFEL loans owed by a
(A) Does not select an income-                subsequent annual payment                    borrower to the lender be combined into
sensitive, income-based, graduated, or,       adjustment under an income-sensitive         one account and repaid under one
if applicable, an extended repayment          repayment schedule. The income               repayment schedule. In that event, the
                                              information must be sufficient for the       word “loan” in this section shall mean
schedule within 45 days after being
notified by the lender to choose a            lender to make a reasonable                  all of the borrower's loans that were
repayment schedule;                           determination of what the borrower's         combined by the lender into that
                                              payment amount should be. If the             account.
(B) Chooses an income-sensitive
                                              lender receives late notification that the   (7)(i) Subject to paragraphs (a)(7)(ii)
repayment schedule, but does not
                                              borrower has dropped below half-time         through (iv) of this section, and except
provide the documentation requested
                                              enrollment status at a school, the           as provided in paragraph (a)(6)(ix) a
by the lender under paragraph
                                              lender may request that income               lender shall allow a borrower at least 5
(a)(6)(viii)(C) of this section within the
                                              information earlier than 90 days prior to    years, but not more than 10 years, or
time period specified by the lender; or
                                              the due date of the borrower's initial       25 years under an extended repayment
(C) Chooses an income-based                   installment payment;                         plan to repay a Stafford, SLS, or PLUS
repayment schedule, but does not                                                           loan, calculated from the beginning of
                                              (C) If the borrower reports income to
provide the income documentation                                                           the repayment period. Except in the
                                              the lender that the lender considers to
requested by the lender under                                                              case of a FISL loan for a period of
                                              be insufficient for establishing monthly
§682.215(e)(1)(i) within the time period                                                   enrollment beginning on or after July 1,
                                              installment payments that would repay
specified by the lender.                                                                   1986, the lender shall require a
                                              the loan within the applicable maximum
(vi) Under a standard repayment               repayment period, the lender shall           borrower to fully repay a FISL loan
schedule, the borrower is scheduled to        require the borrower to submit evidence      within 15 years after it is made.
pay either—                                   showing the amount of the most recent        (ii) If the borrower receives an
(A) The same amount for each                  total monthly gross income received by       authorized deferment or is granted
installment payment made during the           the borrower from employment and             forbearance, as described in Sec.
repayment period, except that the             from other sources including, if             682.210 or Sec. 682.211 respectively,
borrower's final payment may be               applicable, pay statements from              the periods of deferment or forbearance
slightly more or less than the other          employers and documentation of any           are excluded from determinations of the
payments; or                                  income received by the borrower from         5-, 10-, and 15- and 25-year periods,
                                              other parties;                               and from the 10-, 12-, 15-, 20-, 25-, and
(B) An installment amount that will be                                                     30-year periods for repayment of a
adjusted to reflect annual changes in         (D) The lender shall grant a
                                              forbearance to the borrower (or              Consolidation loan pursuant to Sec.
the loan's variable interest rate.                                                         682.209(h).
                                              endorser, if applicable) for a period of
(vii) Under a graduated repayment             up to 5 years of payments in                 (iii) If the minimum annual repayment
schedule—                                     accordance with Sec. 682.211(i)(5) in        required in paragraph (c) of this section
(A)(1) The amount of the borrower's           cases where the effect of decreased          would result in complete repayment of
installment payment is scheduled to           installment amounts paid under an            the loan in less than 5 years, the
change (usually by increasing) during         income-sensitive repayment schedule          borrower is not entitled to the full 5-year
the course of the repayment period; or        would result in a loan not being repaid      period.
                                              within the maximum repayment term;           (iv) The borrower may, prior to the
(2) If the loan has a variable interest       and
rate that changes annually, the lender                                                     beginning of the repayment period,
may establish a repayment schedule            (E) The lender shall inform the borrower     request and be granted by the lender a
that may have adjustments in the              that the loan must be repaid within the      repayment period of less than 5 years.
payment amount as provided under              time limits specified under paragraph        Subject to paragraph (a)(7)(iii) of this
paragraph (a)(6)(i) of this section; and      (a)(7) of this section.                      section, a borrower who makes such a
                                              (ix) Under an extended repayment             request may notify the lender at any
(B) An agreement as specified in                                                           time to extend the repayment period to
paragraph (c)(1)(ii) of this section is not   schedule, a new borrower whose total
                                                                                           a minimum of 5 years.
                                              outstanding principal and interest in
34 CFR 682.209


(8) If, with respect to the aggregate of      repayment period unless forbearance          this section, the holder of the fixed-rate
all loans held by a lender, the total         as described in Sec. 682.211, or             loan shall, within five business days,
payment made by a borrower for a              deferment described in Sec. 682.210,         apply the proceeds to discharge the
monthly or similar payment period             has been approved.                           borrower's obligation on the fixed-rate
would not otherwise be a multiple of          (d) Combined repayment of a                  loan, and provide the refinancing lender
five dollars, except in the case of           borrower's student PLUS and SLS              with either a copy of the borrower's
payments made under an income-                loans held by a lender. (1) A lender         original promissory note evidencing the
based repayment plan, the lender may          may, at the request of a student             fixed-rate loan or the holder's written
round that periodic payment to the next       borrower, combine the borrower's,            certification that the borrower's
highest whole dollar amount that is a         student PLUS and SLS loans held by it        obligation on the fixed-rate loan has
multiple of five dollars.                     into a single repayment schedule.            been fully discharged.
 (b) Payment application and                  (2) The repayment period on the loans        (4) The refinancing lender may charge
prepayment. (1) Except in the case of                                                      the borrower an insurance premium on
                                              included in the combined repayment
payments made under an income-                schedule must be calculated based on         a loan made under paragraph (f)(1) of
based repayment plan, the lender may          the beginning of repayment of the most       this section, but may not charge a fee
credit the entire payment amount first to     recent included loan.                        to cover administrative costs.
any late charges accrued or collection                                                     (5) For purposes of deferments under
costs and then to any outstanding             (3) The interest rate on the loans
                                              included in the new combined                 Sec. 682.210, the refinancing loan—
interest and then to outstanding
principal.                                    repayment schedule must be the               (i) Is considered a PLUS loan if any of
                                              weighted average of the rates of all         the included loans is a PLUS loan
(2)(i) The borrower may prepay the            included loans.                              made to a parent;
whole or any part of a loan at any time
without penalty.                              (e) Refinancing a fixed-rate PLUS or         (ii) Is considered an SLS loan if the
                                              SLS Program loan to secure a variable        combined loan does not include a
(ii) If the prepayment amount equals or       interest rate. (1) Subject to paragraph      PLUS loan made to a parent; or
exceeds the monthly payment amount            (g) of this section, a lender may, at the
under the repayment schedule                                                               (iii) Is considered a loan to a “new
                                              request of a borrower, refinance a
established for the loan, the lender shall                                                 borrower” as defined in Sec.
                                              PLUS or SLS loan with a fixed interest
apply the prepayment to future                                                             682.210(b)(7), if all the loans that were
                                              rate in order to permit the borrower to
installments by advancing the next                                                         refinanced were made on or after July
                                              obtain a variable interest rate.
payment due date, unless the borrower                                                      1, 1987, for a period of enrollment
requests otherwise. The lender must           (2) A loan made under paragraph (e)(1)       beginning on or after that date.
either inform the borrower in advance         of this section—
                                                                                           (g) Conditions for refinancing certain
using a prominent statement in the            (i) Must bear interest at the variable       loans. (1) A lender may not refinance a
borrower’s coupon book or billing             rate described in Sec. 682.202(a)(2)(ii)     loan under paragraphs (e) or (f) of this
statement that any additional full            and (3)(ii) as appropriate; and              section if that loan is in default, involves
payment amounts submitted without                                                          a violation of a condition of reinsurance
instructions to the lender as to their        (ii) May not extend the repayment
                                              period provided for in paragraph             described in Sec. 682.406, or, in the
handling will be applied to future                                                         case of a Federal SLS or Federal PLUS
scheduled payments with the                   (a)(7)(i) of this section.
                                                                                           loan, is uninsured by the Secretary.
borrower's next scheduled payment             (3) The lender may not charge an
due date advanced consistent with the                                                      (2)(i) Prior to refinancing a fixed-rate
                                              additional insurance premium or
number of additional payments                 Federal default fee on the loan, but may     loan under paragraph (f) of this section,
received, or provide a notification to the    charge the borrower an administrative        the lender shall obtain a written
borrower after the payments are               fee pursuant to Sec. 682.202(e).             statement from the holder of the loan
received informing the borrower that the                                                   certifying that—
payments have been so applied and             (f) Refinancing of a fixed-rate PLUS or
                                              SLS Program loan to secure a variable        (A) The holder has refused to refinance
the date of the borrower's next                                                            the fixed-rate loan under paragraph (e)
scheduled payment due date.                   interest rate by discharge of previous
                                              loan. (1) Subject to paragraph (g) of this   of this section; and
Information related to next scheduled
payment due date need not be provided         section, a borrower who has applied          (B) The fixed-rate loan is eligible for
to borrower's making such prepayments         for, but been denied, a refinanced loan      insurance or reinsurance under
while in an in-school, grace, deferment,      authorized under paragraph (e) of this       paragraph (g)(1) of this section.
or forbearance period when payments           section by the holder of the borrower's
                                                                                           (ii) The holder of the fixed-rate loan
are not due.                                  fixed-rate PLUS or SLS loan, may
                                                                                           shall, within 10 business days of
                                              obtain a loan from another lender for
(c) Minimum annual payment. (1)(i)                                                         receiving a lender's written request to
                                              the purpose of discharging the fixed-
Subject to paragraph (c)(1)(ii) of this                                                    provide a certification under paragraph
                                              rate loan and obtaining a variable
section and except as otherwise                                                            (g)(2)(i) of this section, provide the
                                              interest rate.
provided by a graduated, income-                                                           lender with that certification, or provide
sensitive, extended, or income-based          (2) A loan made under paragraph (f)(1)       the lender and the guarantor on the
repayment plan selected by the                of this section—                             loan with a written explanation of the
borrower, during each year of the             (i) Must bear interest at the variable       reasons for its inability to provide the
repayment period, a borrower's total          interest rate described in Sec.              certification to the requesting lender.
payments to all holders of the                682.202(a)(2)(ii) and (3)(ii) as             (iii) The refinancing lender may rely in
borrower's FFEL Program loans must            appropriate;                                 good faith on the certification provided
total at least $600 or the unpaid                                                          by the holder of the fixed-rate loan
                                              (ii) May not operate to extend the
balance of all loans, including interest,                                                  under paragraph (g)(2)(ii) of this
                                              repayment period provided for in
whichever amount is less.                                                                  section.
                                              paragraph (a)(7)(i) of this section; and
(ii) If the borrower and the lender                                                        (h) Consolidation loans. (1) For a
                                              (iii) Must be disbursed to the holder of
agree, the amount paid may be less.                                                        Consolidation loan, the repayment
                                              the fixed-rate loan to discharge the
(2) The provisions of paragraphs (c)(1)                                                    period begins on the day of
                                              borrower's obligation thereon.
(i) and (ii) of this section may not result                                                disbursement, with the first payment
                                              (3) Upon receipt of the proceeds of a        due within 60 days after the date of
in an extension of the maximum
                                              loan made under paragraph (f)(1) of          disbursement.
34 CFR 682.209


(2) If the sum of the amount of the           withdraws from a school on a loan that            receive a specific type of deferment that
Consolidation loan and the unpaid             is no longer held by that lender, or that         is limited to a maximum period of time
balance on other student loans to the         has been discharged by another lender             only if the total amount of time that the
applicant—                                    by refinancing under Sec. 682.209(f) or           borrower has received the deferment
(i) Is less than $7,500, the borrower         by a Consolidation loan, the lender               does not exceed the maximum time
                                              must transmit the amount of the                   period allowed for the deferment.
shall repay the Consolidation loan in
                                              payment, within 30 days of its receipt,           (2)(i) For a loan made before October
not more than 10 years;
                                              to the lender to whom it assigned the
(ii) Is equal to or greater than $7,500                                                         1, 1981, the borrower is also entitled to
                                              loan, or to the lender that discharged
but less than $10,000, the borrower                                                             have periodic installments of principal
                                              the prior loan, with an explanation of
                                                                                                deferred during the six-month period
shall repay the Consolidation loan in         the source of the payment.
not more than 12 years;                                                                         (post-deferment grace period) that
                                              (ii) Upon receipt of a refund or a return         begins after the completion of each
(iii) Is equal to or greater than $10,000     of title IV, HEA program funds                    deferment period or combination of
but less than $20,000, the borrower           transmitted under paragraph (i)(2)(i) of          those periods, except as provided in
shall repay the Consolidation loan in         this section, the holder of the loan              paragraph (a)(2)(ii) of this section.
not more than 15 years;                       promptly must provide written notice to
                                                                                                (ii) Once a borrower receives a post-
(iv) Is equal to or greater than $20,000      the borrower that the holder has
                                                                                                deferment grace period following an
but less than $40,000, the borrower           received the return of title IV, HEA
                                                                                                unemployment deferment, as described
shall repay the Consolidation loan in         program funds.
                                                                                                in paragraph (b)(1)(v) of this section,
not more than 20 years;                       (j) Certification on loans to be repaid           the borrower does not qualify for
(v) Is equal to or greater than $40,000       through consolidation. Within 10                  additional post-deferment grace periods
but less than $60,000, the borrower           business days after receiving a written           following subsequent unemployment
shall repay the Consolidation loan in         request for a certification from a lender         deferments.
not more than 25 years; or                    under Sec. 682.206(f), a holder shall             (3)(i) Interest accrues and is paid by—
                                              either provide the requesting lender the
(vi) Is equal to or greater than $60,000,     certification or, if it is unable to certify to   (A) The Secretary during the deferment
the borrower shall repay the                  the matters described in that                     period for a subsidized Stafford loan
Consolidation loan in not more than 30        paragraph, provide the requesting                 and for all or a portion of a
years.                                        lender and the guarantor on the loan at           Consolidation loan that qualifies for
(3) For the purpose of paragraph (h)(2)       issue with a written explanation of the           interest benefits under §682.301; or
of this section, the unpaid balance on        reasons for its inability to provide the          (B) The borrower during the deferment
other student loans—                          certification.                                    period and, as applicable, the post-
(i) May not exceed the amount of the          (k) Any lender holding a loan is subject          deferment grace period, on all other
Consolidation loan; and                       to all claims and defenses that the               loans.
                                              borrower could assert against the                 (ii) A borrower who is responsible for
(ii) With the exception of the defaulted      school with respect to that loan if—
title IV loans on which the borrower has                                                        payment of interest during a deferment
made satisfactory repayment                   (1) The loan was made by the school or            period must be notified by the lender, at
arrangements with the holder of the           a school-affiliated organization;                 or before the time the deferment is
loan, does not include the unpaid                                                               granted, that the borrower has the
                                              (2) The lender who made the loan
balance on any defaulted loans.                                                                 option to pay the accruing interest or
                                              provided an improper inducement, as
                                                                                                cancel the deferment and continue
(4) A repayment schedule for a                described in paragraph (5)(i) of the
                                                                                                paying on the loan. The lender must
Consolidation loan—                           definition of Lender in Sec. 682.200(b),
                                                                                                also provide information, including an
                                              to the school or any other party in
(i) Must be established by the lender;                                                          example, on the impact of capitalization
                                              connection with the making of the loan;
                                                                                                of accrued, unpaid interest on loan
(ii) Must require that each payment           (3) The school refers borrowers to the            principal, and on the total amount of
equal at least the interest that accrues      lender; or                                        interest to be paid over the life of the
during the interval between scheduled                                                           loan.
payments.                                     (4) The school is affiliated with the
                                              lender by common control, contract, or            (4) As a condition for receiving a
(5) Upon receipt of the proceeds of a         business arrangement.                             deferment, except for purposes of
loan made under paragraph (h)(2) of                                                             paragraphs (c)(1)(ii), (iii), and (iv) of this
this section, the holder of the underlying    (Approved by the Office of Management and
                                              Budget under control number 1845-0020)            section, the borrower must request the
loan shall promptly apply the proceeds                                                          deferment, and provide the lender with
to discharge fully the borrower's             (Authority: 20 U.S.C. 1077, 1078, 1078-1,
                                                                                                all information and documents required
obligation on the underlying loan, and        1078-2, 1078-3, 1079, 1082, 1085)
                                                                                                to establish eligibility for a specific type
provide the consolidating lender with         [57 FR 60323, Dec. 18, 1992]                      of deferment.
the holder's written certification that the   GPO Editorial Note: For Federal Register
borrower's obligation on the underlying                                                         (5) An authorized deferment period
                                              citations affecting §682.209, see the List of
loan has been fully discharged.               CFR Sections Affected, which appears in the       begins on the date that the holder
                                              Finding Aids section of the printed volume        determines is the date that the
(i) Treatment by a lender of borrowers'                                                         condition entitling the borrower to the
                                              and on GPO Access.
title IV, HEA program funds                                                                     deferment first existed, except that an
                                              §682.210 Deferment.
received from schools if the borrower                                                           initial unemployment deferment as
withdraws. (1) A lender shall treat a         (a) General. (1)(i) A borrower is entitled        described in paragraph (h)(2) of this
refund or a return of title IV, HEA           to have periodic installment payments             section cannot begin more than 6
program funds under Sec. 668.22 when          of principal deferred during authorized           months before the date the holder
a student withdraws received by the           periods after the beginning of the                receives a request and documentation
lender from a school as a credit against      repayment period, pursuant to                     required for the deferment.
the principal amount owed by the              paragraph (b) and paragraphs (s)
                                                                                                (6) An authorized deferment period
borrower on the borrower's loan.              through (v) of this section.
                                                                                                ends on the earlier of—
(2)(i) If a lender receives a refund or a     (ii) With the exception of a deferment
                                                                                                (i) The date when the condition
return of title IV, HEA program funds         authorized under paragraph (o) of this
                                                                                                establishing the borrower's eligibility for
under Sec. 668.22 when a student              section, a borrower may continue to
                                                                                                the deferment ends;
34 CFR 682.210


(ii) Except as provided in paragraph           pursuing a course of study at a school         of study at a school not located in a
(a)(6)(iv) of this section, the date on        not located in a State;                        State.
which, as certified by an authorized           (ii) Engaged in a course of study under        (5) For a new borrower, as defined in
official, the borrower's eligibility for the   an eligible graduate fellowship program;       paragraph (b)(7) of this section, of a
deferment is expected to end;                                                                 Stafford or SLS loan, deferment is
                                               (iii) Engaged in a rehabilitation training
(iii) Except as provided in paragraph          program for disabled individuals;              authorized during any period when the
(a)(6)(iv) of this section, the expiration                                                    borrower is—
date of the period covered by any              (iv) Temporarily totally disabled, or
                                                                                              (i) On active duty status in the National
certification required by this section to      unable to secure employment because
                                               the borrower is caring for a spouse or         Oceanic and Atmospheric
be obtained for the deferment;
                                               other dependent who is disabled and            Administration Corps, for up to three
(iv) In the case of an in-school                                                              years (including any period during
                                               requires continuous nursing or similar
deferment, the student's anticipated           services for up to three years; or             which the borrower received a
graduation date as certified by an                                                            deferment authorized under paragraph
authorized official of the school; or          (v) Conscientiously seeking, but unable        (b)(2)(i) of this section);
                                               to find, full-time employment in the
(v) The date when the condition                                                               (ii) Up to three years of service as a
                                               United States, for up to two years.
providing the basis for the borrower's                                                        full-time teacher in a public or non-profit
eligibility for the deferment has              (2) For a borrower of a Stafford or SLS        private elementary or secondary school
continued to exist for the maximum             loan, and for a parent borrower of a           in a teacher shortage area designated
amount of time allowed for that type of        PLUS loan made before August 15,               by the Secretary under paragraph (q) of
deferment.                                     1983, deferment is authorized during           this section.
                                               any period when the borrower is—
(7) A lender may not deny a borrower a                                                        (iii) Engaged in an internship or
deferment to which the borrower is             (i) On active duty status in the United        residency program, for up to two years
entitled, even though the borrower may         States Armed Forces, or an officer in          (including any period during which the
be delinquent, but not in default, in          the Commissioned Corps of the United           borrower received a deferment
making required installment payments.          States Public Health Service, for up to        authorized under paragraph (b)(2)(v) of
The 270- or 330-day period required to         three years (including any period during       this section); or
establish default does not run during          which the borrower received a
                                               deferment authorized under paragraph           (iv) A mother who has preschool-age
the deferment and post-deferment                                                              children (i.e., children who have not
grace periods. Unless the lender has           (b)(5)(i) of this section);
                                                                                              enrolled in first grade) and who is
granted the borrower forbearance               (ii) A full-time volunteer under the           earning not more than $1 per hour
under Sec. 682.211, when the                   Peace Corps Act, for up to three years;        above the Federal minimum wage, for
deferment and, if applicable, the post-                                                       up to 12 months of employment, and
deferment grace period expire, a               (iii) A full-time volunteer under title I of
                                               the Domestic Volunteer Service Act of          who began that full-time employment
borrower resumes any delinquency                                                              within one year of entering or re-
status that existed when the deferment         1973 (ACTION programs), for up to
                                               three years;                                   entering the work force. Full-time
period began.
                                                                                              employment involves at least 30 hours
(8) A borrower whose loan is in default        (iv) A full-time volunteer for a tax-          of work a week and it expected to last
is not eligible for a deferment on that        exempt organization, for up to three           at least 3 months.
loan, unless the borrower has made             years; or
                                                                                              (6) For a parent borrower of a PLUS
payment arrangements acceptable to             (v) Engaged in an internship of                loan, deferment is authorized during
the lender prior to the payment of a           residency program, for up to two years         any period when a student on whose
default claim by a guaranty agency.            (including any period during which the         behalf the parent borrower received the
(9) The borrower promptly must inform          borrower received a deferment                  loan—
the lender when the condition entitling        authorized under paragraph (b)(5)(iii) of
                                               this section).                                 (i) Is not independent as defined in
the borrower to a deferment no longer                                                         section 480(d) of the Act; and
exists.                                        (3) For a borrower of a Stafford or SLS
                                               loan who has been enrolled on at least         (ii) Meets the conditions and provides
(10) Authorized deferments are
                                               a half-time basis at an institution of         the required documentation, for any of
described in paragraph (b) of this
                                               higher education during the six months         the deferments described in paragraphs
section. Specific requirements for each                                                       (b)(1)(i)-(iii) and (b)(4) of this section.
deferment are set forth in paragraphs          preceding the beginning of this
(c) through (s) of this section.               deferment, deferment is authorized             (7) For purposes of paragraph (b)(5) of
                                               during a period of up to six months            this section, a “new borrower” with
(11) If two individuals are jointly liable     during which the borrower is—                  respect to a loan is a borrower who, on
for repayment of a PLUS loan or a                                                             the date he or she signs the promissory
Consolidation loan, the lender shall           (i) (A) Pregnant;
                                                                                              note, has no outstanding balance on—
grant a request for deferment if both          (B) Caring for his or her newborn child;
individuals simultaneously meet the            or                                             (i) A Stafford, SLS, or PLUS loan made
requirements of this section for                                                              prior to July 1, 1987 for a period of
receiving the same, or different               (C) Caring for a child immediately             enrollment beginning prior to July 1,
deferments.                                    following the placement of the child with      1987; or
                                               the borrower before or immediately
(b) Authorized deferments. (1)                 following adoption; and                        (ii) A Consolidation loan that repaid a
Deferment is authorized for a FFEL                                                            loan made prior to July 1, 1987 and for
borrower during any period when the            (ii) Not attending a school or gainfully       a period of enrollment beginning prior to
borrower is—                                   employed.                                      July 1, 1987.
(i) Except as provided in paragraph            (4) For a “new borrower,” as defined in        (c) In-school deferment. (1) Except as
(c)(5) of this section, engaged in full-       paragraph (b)(7) of this section,              provided in paragraph (c)(5) of this
time study at a school, or at a school         deferment is authorized during periods         section, the lender processes a
that is operated by the Federal                when the borrower is engaged in at             deferment for full-time study or half-time
Government (e.g., the service                  least half-time study at a school, unless      study at a school, when—
academies), unless the borrower is not         the borrower is not a national of the
a national of the United States and is         United States and is pursuing a course
34 CFR 682.210


(i) The borrower submits a request and       eligible graduate fellowship program;        from engaging in full-time employment,
supporting documentation for a               and                                          either because of the number of hours
deferment;                                   (iii) The borrower's anticipated             that must be devoted to rehabilitation or
(ii) The lender receives information         completion date in the program.              because of the nature of the
from the borrower's school about the                                                      rehabilitation. For the purpose of this
                                             (2) For purposes of paragraph (d)(1) of      paragraph, full-time employment
borrower's eligibility in connection with    this section, an eligible graduate
a new loan;                                                                               involves at least 30 hours of work per
                                             fellowship program is a fellowship           week and is expected to last at least
(iii) The lender receives student status     program that—                                three months.
information from the borrower's school,      (i) Provides sufficient financial support    (f) Temporary total disability deferment.
either directly or indirectly, indicating    to graduate fellows to allow for full-time   (1) To qualify for a temporary total
that the borrower's enrollment status        study for at least six months;
supports eligibility for a deferment; or                                                  disability deferment, a borrower shall
                                             (ii) Requires a written statement from       provide the lender with a statement
(iv) The lender confirms a borrower’s        each applicant explaining the                from a physician, who is a doctor of
half-time enrollment status through the      applicant's objectives before the award      medicine or osteopathy and is legally
use of the National Student Loan Data        of that financial support;                   authorized to practice, certifying that
System if requested to do so by the                                                       the borrower is temporarily totally
school the borrower is attending.            (iii) Requires a graduate fellow to          disabled as defined in Sec. 682.200(b).
                                             submit periodic reports, projects, or
(2) The lender must notify the borrower      evidence of the fellow's progress; and       (2) A borrower is not considered
that a deferment has been granted                                                         temporarily totally disabled on the basis
based on paragraphs (c)(1)(ii), (iii), or    (iv) In the case of a course of study at a   of a condition that existed before he or
(iv) of this section and that the borrower   foreign university, accepts the course of    she applied for the loan, unless the
has the option to cancel the deferment       study for completion of the fellowship       condition has substantially deteriorated
and continue paying on the loan.             program.                                     so as to render the borrower
(3) The lender must consider a               (e) Rehabilitation training program          temporarily totally disabled, as
deferment granted on the basis of a          deferment. (1) To qualify for a              substantiated by the statement required
certified loan application or other          rehabilitation training program              under paragraph (f)(1) of this section,
information certified by the school to       deferment, a borrower shall provide the      after the borrower submitted the loan
cover the period lasting until the           lender with a statement from an              application.
anticipated graduation date appearing        authorized official of the borrower's        (3) A lender may not grant a deferment
on the application, and as updated by        rehabilitation training program certifying   based on a single certification under
notice or Student Status Confirmation        that the borrower is either receiving, or    paragraph (f)(1) of this section beyond
Report update to the lender from the         is scheduled to receive, services under      the date that is six months after the
school or guaranty agency, unless and        an eligible rehabilitation training          date of certification.
until it receives notice that the borrower   program for disabled individuals.
                                                                                          (g) Dependent's disability deferment.
has ceased the level of study (i.e., full-   (2) For purposes of paragraph (e)(1) of
time or half-time) required for the          this section, an eligible rehabilitation     (1) To qualify for a deferment given to a
deferment.                                   training program for disabled individuals    borrower whose spouse or other
(4) In the case of a FFEL borrower, the      is a program that—                           dependent requires continuous nursing
lender shall treat a certified loan                                                       or similar services for a period of at
                                             (i) Is licensed, approved, certified, or     least 90 days, the borrower shall
application or other form certified by the   otherwise recognized as providing
school or for multiple holders of a                                                       provide the lender with a statement—
                                             rehabilitation training to disabled
borrower's loans, shared data from the       individuals by—                              (i) From a physician, who is a doctor of
Student Status Confirmation Report, as                                                    medicine or osteopathy and is legally
sufficient documentation for an in-          (A) A State agency with responsibility       authorized to practice, certifying that
school student deferment for any             for vocational rehabilitation programs;      the borrower's spouse or dependent
outstanding FFEL loan previously made        (B) A State agency with responsibility       requires continuous nursing or similar
to the borrower that is held by the          for drug abuse treatment programs;           services for a period of at least 90 days;
lender.                                                                                   and
                                             (C) A State agency with responsibility
(5) A borrower serving in a medical          for mental health services program;          (ii) From the borrower, certifying that
internship or residency program, except                                                   the borrower is unable to secure full-
for an internship in dentistry, is           (D) A State agency with responsibility       time employment because he or she is
prohibited from receiving or continuing      for alcohol abuse treatment programs;        providing continuous nursing or similar
a deferment on a Stafford, or a PLUS         or                                           services to the borrower's spouse or
(unless based on the dependent's             (E) The Department of Veterans Affairs;      other dependent. For the purpose of
status) SLS, or Consolidation loan           and                                          this paragraph, full-time employment
under paragraph (c) of this section.                                                      involves at least 30 hours of work per
                                             (ii) Provides or will provide the borrower
(d) Graduate fellowship deferment. (1)                                                    week and is expected to last at least
                                             with rehabilitation services under a
To qualify for a deferment for study in a                                                 three months.
                                             written plan that—
graduate fellowship program, a                                                            (2) A lender may not grant a deferment
                                             (A) Is individualized to meet the
borrower shall provide the lender with a                                                  based on a single certification under
                                             borrower's needs;
statement from an authorized official of                                                  paragraph (g)(1) of this section beyond
the borrower's fellowship program            (B) Specifies the date on which the          the date that is six months after the
certifying—                                  services to the borrower are expected        date of the certification.
                                             to end; and
(i) That the borrower holds at least a                                                    (h) Unemployment deferment. (1) A
baccalaureate degree conferred by an         (C) Is structured in a way that requires     borrower qualifies for an unemployment
institution of higher education;             a substantial commitment by the              deferment by providing evidence of
                                             borrower to his or her rehabilitation.       eligibility for unemployment benefits to
(ii) That the borrower has been
                                             The Secretary considers a substantial        the lender.
accepted or recommended by an
                                             commitment by the borrower to be a
institution of higher education for                                                       (2) A borrower also qualifies for an
                                             commitment of time and effort that
acceptance on a full-time basis into an                                                   unemployment deferment by providing
                                             normally would prevent an individual
                                                                                          to the lender a written certification, or
34 CFR 682.210


an equivalent as approved by the             Air Force, Marine Corps, and the Coast       (3) The date on which the borrower's
Secretary, that—                             Guard.                                       service is expected to end.
(i) The borrower has registered with a       (3) A borrower enlisted in a reserve         (m) Deferment for full-time volunteer
public or private employment agency, if      component of the Armed Forces may            service for a tax-exempt organization.
one is available to the borrower within a    qualify for a military deferment only for    To qualify for a deferment as a full-time
50-mile radius of the borrower's current     service on a full-time basis that is         paid volunteer for a tax-exempt
address; and                                 expected to last for a period of at least    organization, a borrower shall provide
(ii) For all requests beyond the initial     one year in length, as evidenced by          the lender with a statement from an
                                             official military orders, unless an order    authorized official of the volunteer
request, the borrower has made at least
                                             for national mobilization of reservists is   program certifying—
six diligent attempts during the
                                             issued.                                      (1) That the borrower—
preceding 6-month period to secure full-
time employment.                             (4) A borrower enlisted in the National
                                                                                          (i) Serves in an organization that has
(3) For purposes of obtaining an             Guard qualifies for a military deferment
                                                                                          obtained an exemption from taxation
                                             only while the borrower is on active
unemployment deferment under                                                              under section 501(c)(3) of the Internal
                                             duty status as a member of the U.S.
paragraph (h)(2) of this section, the                                                     Revenue Code of 1986;
                                             Army or Air Force Reserves, and meets
following rules apply:                                                                    (ii) Provides service to low-income
                                             the requirements of paragraph (i)(3) of
(i) A borrower may qualify for an            this section.                                persons and their communities to assist
unemployment deferment whether or                                                         them in eliminating poverty and
                                             (5) A lender that grants a military
not the borrower has been previously                                                      poverty-related human, social, and
                                             service deferment based on a request
employed.                                                                                 environmental conditions;
                                             from a borrower's representative must
(ii) An unemployment deferment is not        notify the borrower that the deferment       (iii) Does not receive compensation
justified if the borrower refuses to seek    has been granted and that the borrower       that exceeds the rate prescribed under
or accept employment in kinds of             has the option to cancel the deferment       section 6 of the Fair Labor Standards
positions or at salary and responsibility    and continue to make payments on the         Act of 1938 (the Federal minimum
levels for which the borrower feels          loan. The lender may also notify the         wage), except that the tax-exempt
overqualified by virtue of education or      borrower's representative of the             organization may provide health,
previous experience.                         outcome of the deferment request.            retirement, and other fringe benefits to
(iii) Full-time employment involves at                                                    the volunteer that are substantially
                                             (j) Public Health Service deferment. To
least 30 hours of work a week and is                                                      equivalent to the benefits offered to
                                             qualify for a Public Health Service
expected to last at least three months.                                                   other employees of the organization;
                                             deferment, the borrower shall provide
                                             the lender with a statement from an          (iv) Does not, as part of his or her
  (iv) The initial period of unemployment
                                             authorized official of the United States     duties, give religious instruction,
deferment may be granted for a period
of unemployment beginning up to 6            Public Health Service (USPHS)                conduct worship services, engage in
months before the date the lender            certifying—                                  religious proselytizing, or engage in
                                                                                          fund-raising to support religious
receives the borrower's request, and         (1) That the borrower is engaged in full-
may be granted for up to 6 months after                                                   activities; and
                                             time service as an officer in the
that date.                                   Commissioned Corps of the USPHS;             (v) Has agreed to serve on a full-time
(4) A lender may not grant an                                                             basis for a term of at least one year;
                                             (2) The date on which the borrower's
unemployment deferment beyond the            service began; and                           (2) The date on which the borrower's
date that is 6 months after the date the                                                  service began; and
                                             (3) The date on which the borrower's
borrower provides evidence of the                                                         (3) The date on which the borrower's
                                             service is expected to end.
borrower's eligibility for unemployment                                                   service is expected to end.
insurance benefits under paragraph           (k) Peace Corps deferment. (1) To
(h)(1) of this section or the date the       qualify for a deferment for service under    (n) Internship or residency deferment.
borrower provides the written                the Peace Corps Act, the borrower shall      (1) To qualify for an internship or
certification, or an approved equivalent,    provide the lender with a statement          residency deferment under paragraphs
under paragraph (h)(2) of this section.      from an authorized official of the Peace     (b)(2)(v) or (b)(5)(iii) of this section, the
                                             Corps certifying—                            borrower shall provide the lender with a
(i) Military deferment. (1) To qualify for
                                                                                          statement from an authorized official of
a military deferment, a borrower or a        (i) That the borrower has agreed to
                                                                                          the organization with which the
borrower's representative shall provide      serve for a term of at least one year;
                                                                                          borrower is undertaking the internship
the lender with—                             (ii) The date on which the borrower's        or residency program
(i) A written statement from the             service began; and
                                                                                          certifying—
borrower's commanding or personnel           (iii) The date on which the borrower's
officer certifying—                                                                       (i) That the internship or residency
                                             service is expected to end.
                                                                                          program is a supervised training
(A) That the borrower is on active duty      (2) The lender must grant a deferment        program that requires the borrower to
in the Armed Forces of the                   for the borrower's full term of service in   hold at least a baccalaureate degree
United States;                               the Peace Corps, not to exceed three         prior to acceptance into the program;
(B) The date on which the borrower's         years.                                       (ii) That, except for a borrower that
service began; and                           (l) Full-time volunteer service in the       provides the statement from a State
(C) The date on which the borrower's         ACTION programs. To qualify for a            official described in paragraph (n)(2) of
service is expected to end; or               deferment as a full-time paid volunteer      this section, the internship or residency
                                             in an ACTION program, the borrower           program leads to a degree or certificate
(ii)(A) A copy of the borrower's official    shall provide the lender with a              awarded by an institution of higher
military orders; and                         statement from an authorized official of     education, a hospital, or a health care
(B) A copy of the borrower's military        the program certifying—                      facility that offers postgraduate training;
identification.                              (1) That the borrower has agreed to          (iii) That the borrower has been
(2) For the purpose of this section, the     serve for a term of at least one year;       accepted into the internship or
Armed Forces means the Army, Navy,           (2) The date on which the borrower's         residency program; and
                                             service began; and
34 CFR 682.210


(iv) The anticipated dates on which the     (3) The date on which the borrower's          request, continue to receive the
borrower will begin and complete the        service is expected to end.                   deferment for those subsequent years,
internship or residency program, or, in                                                   up to the three-year maximum
                                            (q) Targeted teacher deferment. (1) To
the case of a borrower providing the                                                      deferment period, even if his or her
                                            qualify for a targeted teacher deferment
statement described in paragraph (n)(2)                                                   position does not continue to be within
                                            under paragraph (b)(5)(ii) of this
of this section, the anticipated date on                                                  an area designated by the Secretary as
                                            section, the borrower, for each school
which the borrower will begin and                                                         a teacher shortage area in those
                                            year of service for which a deferment is
complete the minimum period of                                                            subsequent years. To continue to
                                            requested, must provide to the lender—
participation in the internship program                                                   receive the deferment in a subsequent
that the State requires be completed        (i) A statement by the chief                  year under this paragraph, the borrower
before an individual may be certified for   administrative officer of the public or       shall provide the lender with a
professional practice or service.           nonprofit private elementary or               statement by the chief administrative
                                            secondary school in which the borrower        officer of the public or nonprofit private
(2) For a borrower who does not
                                            is teaching, certifying that the borrower     elementary or secondary school that
provide a statement certifying to the       is employed as a full-time teacher; and       employs the borrower, certifying that
matters set forth in paragraph (n)(1)(ii)
                                            (ii) A certification that he or she is        the borrower continues to be employed
of this section to qualify for an
                                            teaching in a teacher shortage area           as a full-time teacher in the same
internship deferment under paragraph
                                            designated by the Secretary as                teacher shortage area for which the
(b)(2)(v) of this section, the borrower
                                            provided in paragraphs (q) (5) through        deferment was received for the
shall provide the lender with a
                                            (7) of this section, as described in          previous year.
statement from an official of the
appropriate State licensing agency          paragraph (q)(2) of this section.             (5) For purposes of this section a
certifying that the internship or           (2) In order to satisfy the requirement       teacher shortage area is—
residency program, or a portion thereof,    for certification that a borrower is          (i)(A) A geographic region of the State
is required to be completed before the      teaching in a teacher shortage area           in which there is a shortage of
borrower may be certified for               designated by the Secretary, a                elementary or secondary school
professional practice or service.           borrower must do one of the following:        teachers; or
(o) Parental-leave deferment. (1) To        (i) If the borrower is teaching in a State    (B) A specific grade level or academic,
qualify for the parental-leave deferment    in which the Chief State School Officer       instructional, subject-matter, or
described in paragraph (b)(3) of this       has complied with paragraph (q)(3) of         discipline classification in which there is
section, the borrower shall provide the     this section and provides an annual           a statewide shortage of elementary or
lender with—                                listing of designated teacher shortage        secondary school teachers; and
(i) A statement from an authorized          areas to the State's chief administrative
                                            officers whose schools are affected by        (ii) Designated by the Secretary under
official of a participating school                                                        paragraphs (q)(6) or (q)(7) of this
certifying that the borrower was            the Secretary's designations, the
                                            borrower may obtain a certification that      section.
enrolled on at least a half-time basis
during the six months preceding the         he or she is teaching in a teacher            (6)(i) In order for the Secretary to
beginning of the deferment period;          shortage area from his or her school's        designate one or more teacher
                                            chief administrative officer.                 shortage areas in a State for a school
(ii) A statement from the borrower
                                            (ii) If a borrower is teaching in a State     year, the Chief State School Officer
certifying that the borrower—
                                            in which the Chief State School Officer       shall by January 1 of the calendar year
(A) Is pregnant, caring for his or her                                                    in which the school year begins, and in
                                            has not complied with paragraph (q)(3)
newborn child, or caring for a child        of this section or does not provide an        accordance with objective written
immediately following the placement of      annual listing of designated teacher          standards, propose teacher shortage
the child with the borrower in              shortage areas to the State's chief           areas to the Secretary for designation.
connection with an adoption;                administrative officers whose schools         With respect to private nonprofit
(B) Is not, and will not be, attending      are affected by the Secretary's               schools included in the
                                            designations, the borrower must obtain        recommendation, the Chief State
school during the deferment period; and
                                            certification that he or she is teaching in   School Officer shall consult with
(C) Is not, and will not be, engaged in                                                   appropriate officials of the private
                                            a teacher shortage area from the Chief
full-time employment during the                                                           nonprofit schools in the State prior to
deferment period; and                       State School Officer for the State in         submitting the recommendation.
(iii) A physician's statement               which the borrower is teaching.
                                                                                          (ii) In identifying teacher shortage areas
demonstrating the existence of the          (3) In the case of a State in which           to propose for designation under
pregnancy, a birth certificate, or a        borrowers wish to obtain certifications       paragraph (q)(6)(i) of this section, the
statement from the adoption agency          as provided for in paragraph (q)(2)(i) of     Chief State School Officer shall
official evidencing a pre-adoption          this section, the State's Chief State         consider data from the school year in
placement.                                  School Officer must first have notified       which the recommendation is to be
(2) For purposes of paragraph               the Secretary, by means of a one-time         made, unless that data is not yet
                                            written assurance, that he or she             available, in which case he or she may
(o)(1)(ii)(C) of this section, full-time
                                            provides annually to the State's chief        use data from the immediately
employment involves at least 30 hours
                                            administrative officers whose schools         preceding school year, with respect
of work per week and is expected to
                                            are affected by the Secretary's               to—
last at least three months.
                                            designations and the guaranty agency
(p) NOAA deferment. To qualify for a        for that State, a listing of the teacher      (A) Teaching positions that are unfilled;
National Oceanic and Atmospheric            shortage areas designated by the              (B) Teaching positions that are filled by
Administration (NOAA) deferment, the        Secretary as provided for in paragraphs       teachers who are certified by irregular,
borrower shall provide the lender with a    (q) (5) through (7) of this section.          provisional, temporary, or emergency
statement from an authorized official of                                                  certification; and
                                            (4) If a borrower who receives a
the NOAA corps, certifying—
                                            deferment continues to teach in the           (C) Teaching positions that are filled by
(1) That the borrower is on active duty     same teacher shortage area as that in         teachers who are certified, but who are
service in the NOAA corps;                  which he or she was teaching when the         teaching in academic subject areas
(2) The date on which the borrower's        deferment was originally granted, the         other than their area of preparation.
service began; and                          borrower shall, at the borrower's
34 CFR 682.210


(iii) If the total number of unduplicated     development through classroom              purposes of paragraphs (s)(2) through
full-time equivalent (FTE) elementary or      teaching;                                  (s)(6) of this section, a ``new borrower''
secondary teaching positions identified       (v) Chief State School Officer means       is an individual who has no outstanding
under paragraph                               the highest ranking educational official   principal or interest balance on an
(q)(6)(ii) of this section in the shortage    for elementary and secondary               FFEL Program loan as of July 1, 1993
areas proposed by the State for               education for the State;                   or on the date he or she obtains a loan
designation does not exceed 5 percent         (vi) School year means the period from     on or after July 1, 1993. This term also
of the total number of FTE elementary         July 1 of a calendar year through June     includes a borrower who obtains a
and secondary teaching positions in the       30 of the following calendar year;         Federal Consolidation Loan on or after
State, the Secretary designates those                                                    July 1, 1993 if the borrower has no
areas as teacher shortage areas.              (vii) Teacher shortage area means an       other outstanding FFEL Program loan
                                              area of specific grade, subject matter,    when the Consolidation Loan was
(iv) If the total number of unduplicated      or discipline classification, or a         made.
FTE elementary and secondary                  geographic area in which the Secretary
teaching positions identified under                                                      (ii) As a condition for receiving a
                                              determines that there is an inadequate
paragraph (q)(6)(ii) of this section in the   supply of elementary or secondary          deferment, except for purposes of
shortage areas proposed by the State          school teachers; and                       paragraph (s)(2) of this section, the
for designation exceeds 5 percent of                                                     borrower must request the deferment
the total number of elementary and            (viii) Full-time equivalent means the      and provide the lender with all
secondary FTE teaching positions in           standard used by a State in defining       information and documents required to
the State, the Chief State School             full-time employment, but not less than    establish eligibility for the deferment.
Officer shall submit, with the list of        30 hours per week. For purposes of
                                                                                         (iii) After receiving a borrower's written
proposed areas, supporting                    counting full-time equivalent teacher
                                              positions, a teacher working part of his   or verbal request, a lender may grant a
documentation showing the methods
                                              or her total hours in a position that is   deferment under paragraphs (s)(3)
used for identifying shortage areas, and                                                 through (s)(6) of this section if the
an explanation of the reasons why the         designated as a teacher shortage area
                                              is counted on a pro rata basis             lender is able to confirm that the
Secretary should nevertheless
                                              corresponding to the percentage of his     borrower has received a deferment on
designate all of the proposed areas as                                                   another FFEL loan or on a Direct Loan
teacher shortage areas. The                   or her working hours spent in such a
                                              position.                                  for the same reason and the same time
explanation must include a ranking of                                                    period. The lender may grant the
the proposed shortage areas according         (r) Working-mother deferment. (1) To       deferment based on information from
to priority, to assist the Secretary in       qualify for the working-mother             the other FFEL loan holder or the
determining which areas should be             deferment described in paragraph           Secretary or from an authoritative
designated. The Secretary, after              (b)(5)(iv) of this section, the borrower   electronic database maintained or
considering the explanation, determines       shall provide the lender with a            authorized by the Secretary that
which shortage areas to designate as          statement certifying that she—             supports eligibility for the deferment for
teacher shortage areas.                                                                  the same reason and the same time
                                              (i) Is the mother of a preschool-age
(7) A Chief State School Officer may          child;                                     period.
submit to the Secretary for approval an                                                  (iv) A lender may rely in good faith on
alternative written procedure to the one      (ii) Entered or reentered the workforce
                                              not more than one year before the          the information it receives under
described in paragraph (q)(6) of this                                                    paragraph (s)(1)(iii) of this section when
section, for the Chief State School           beginning date of the period for which
                                              the deferment is being sought;             determining a borrower's eligibility for a
Officer to use to select the teacher                                                     deferment unless the lender, as of the
shortage areas recommended to the             (iii) Is currently engaged in full-time    date of the determination, has
Secretary for designation, and for the        employment; and                            information indicating that the borrower
Secretary to use to choose the areas to                                                  does not qualify for the deferment. A
be designated. If the Secretary               (iv) Does not receive compensation
                                              that exceeds $1 per hour above the         lender must resolve any discrepant
approves the proposed alternative
                                              rate prescribed under section 6 of the     information before granting a deferment
procedure, in writing, that procedure,                                                   under paragraph (s)(1)(iii) of this
once approved, may be used instead of         Fair Labor Standards Act of 1938 (the
                                              Federal minimum wage).                     section.
the procedure described in paragraph
(q)(6) of this section for designation of     (2) In addition to the certification       (v) A lender that grants a deferment
teacher shortage areas in that State.         required under paragraph (r)(1) of this    under paragraph (s)(1)(iii) of this
                                              section, the borrower shall provide to     section must notify the borrower that
(8) For purposes of paragraphs (q)(1)
                                              the lender documents demonstrating         the deferment has been granted and
through (7) of this section—
                                              the age of her child (e.g., a birth        that the borrower has the option to pay
(i) The definition of the term school in      certificate) and the rate of her           interest that accrues on an
Sec. 682.200(b) does not apply;               compensation (e.g., a pay stub showing     unsubsidized FFEL loan or to cancel
(ii) Elementary school means a day or         her hourly rate of pay).                   the deferment and continue to make
                                                                                         payments on the loan.
residential school that provides              (3) For purposes of this paragraph—
elementary education, as determined                                                      (2) In-school deferment. An eligible
under State law;                              (i) A preschool-age child is one who       borrower is entitled to a deferment
                                              has not yet enrolled in first grade or a   based on the borrower's at least half-
(iii) Secondary school means a day or         higher grade in elementary school; and     time study in accordance with the rules
residential school that provides
secondary education, as determined            (ii) Full-time employment involves at      prescribed in Sec. 682.210(c), except
under State law. In the absence of            least 30 hours of work a week and is       that the borrower is not required to
                                              expected to last at least 3 months.        obtain a Stafford or SLS loan for the
applicable State law, the Secretary may
determine, with respect to that State,                                                   period of enrollment covered by the
                                              (s) Deferments for new borrowers on or
whether the term “secondary school”                                                      deferment.
                                              after July 1, 1993—(1) General. (i) A
includes education beyond the twelfth         new borrower who receives an FFEL          (3) Graduate fellowship deferment. An
grade;                                        Program loan first disbursed on or after   eligible borrower is entitled to a
(iv) Teacher means a professional who         July 1, 1993 is entitled to receive        graduate fellowship deferment in
provides direct and personal services to      deferments under paragraphs (s)(2)         accordance with the rules prescribed in
                                              through (s)(6) of this section. For        Sec. 682.210(d).
students for their educational
34 CFR 682.210


(4) Rehabilitation training program          the amount of the borrower's monthly          (3) Serving on active duty during a war
deferment. An eligible borrower is           income.                                       or other military operation or national
entitled to a rehabilitation training                                                      emergency means service by an
                                             (vi) To qualify for a subsequent period
program deferment in accordance with                                                       individual who is—
                                             of deferment that begins less than one
the rules prescribed in Sec. 682.210(e).     year after the end of a period of             (i) A Reserve of an Armed Force
(5) Unemployment deferment. An               deferment under paragraph (s)(6)(iii) of      ordered to active duty under 10 U.S.C.
eligible borrower is entitled to an          this section, the lender must require the     12301(a), 12301(g), 12302, 12304 or
unemployment deferment in                    borrower to submit evidence showing           12306;
accordance with the rules prescribed in      the amount of the borrower's monthly          (ii) A retired member of an Armed
Sec. 682.210(h) for periods that,            income or a copy of the borrower's            Force ordered to active duty under
collectively, do not exceed 3 years.         most recently filed Federal income tax
                                             return.                                       10 U.S.C. 688 for service in connection
(6) Economic hardship deferment. An                                                        with a war or other military operation or
eligible borrower is entitled to an          (vii) For purposes of paragraph (s)(6) of     national emergency, regardless of the
economic hardship deferment for              this section, a borrower's monthly            location at which such active duty
periods of up to one year at a time that,    income is the gross amount of income          service is performed; or
collectively, do not exceed 3 years          received by the borrower from
(except that a borrower who receives a       employment and from other sources, or         (iii) Any other member of an Armed
deferment under paragraph (s)(6)(vi) of      one-twelfth of the borrower's adjusted        Force on active duty in connection with
this section is entitled to an economic      gross income, as recorded on the              such emergency or subsequent actions
hardship deferment for the lesser of the     borrower's most recently filed Federal        or conditions who has been assigned to
borrower's full term of service in the       income tax return.                            a duty station at a location other than
Peace Corps or the borrower's                                                              the location at which member is
                                             (viii) For purposes of paragraph (s)(6)       normally assigned.
remaining period of economic hardship        of this section, a borrower is considered
deferment eligibility under the 3-year       to be working full-time if the borrower is    (4) Qualifying National Guard duty
maximum), if the borrower provides           expected to be employed for at least          during a war or other operation or
documentation satisfactory to the            three consecutive months at 30 hours          national emergency means service as a
lender showing that the borrower is          per week.                                     member of the National Guard on full-
within any of the categories described                                                     time National Guard duty, as defined in
in paragraphs (s)(6)(i) through (s)(6)(vi)   (ix) For purposes of paragraph                10 U.S.C. 101(d)(5), under a call to
of this section.                             (s)(6)(iii)(B) of this section, family size   active service authorized by the
                                             means the number that is determined           President or the Secretary of Defense
Editor’s Note: The cites highlighted in      by counting the borrower, the
the above paragraph need to be                                                             for a period of more than 30
                                             borrower’s spouse, and the borrower’s         consecutive days under 32 U.S.C.
changed to (s)(6)(iv).                       children, including unborn children who       502(f) in connection with a war, other
(i) Has been granted an economic             will be born during the period covered        military operation, or national
hardship deferment under either the          by the deferment, if the children receive     emergency declared by the President
Direct Loan or Federal Perkins Loan          more than half their support from the         and supported by Federal funds.
Programs for the period of time for          borrower. A borrower’s family size
which the borrower has requested an          includes other individuals if, at the time    (5) Payments made by or on behalf of a
economic hardship deferment for his or       the borrower requests the economic            borrower during a period for which the
her FFEL loan.                               hardship deferment, the other                 borrower qualified for a military service
                                             individuals—                                  deferment are not refunded.
(ii) Is receiving payment under a
Federal or State public assistance           (A) Live with the borrower; and               (6) As used in this paragraph—
program, such as Aid to Families with        (B) Receive more than half their              (i) Active duty means active duty as
Dependent Children, Supplemental             support from the borrower and will            defined in 10 U.S.C. 101(d)(1) except
Security Income, Food Stamps, or             continue to receive this support from         that it does not include active duty for
State general public assistance.             the borrower for the year the borrower        training or attendance at a service
(iii) Is working full-time and has a         certifies family size. Support includes       school;
monthly income that does not exceed          money, gifts, loans, housing, food,           (ii) Military operation means a
the greater of (as calculated on a           clothes, car, medical and dental care,        contingency operation as defined in 10
monthly basis)—                              and payment of college costs.                 U.S.C. 101(a)(13); and
(A) The minimum wage rate described          (t) Military service deferments. (1) A        (iii) National emergency means the
in section 6 of the Fair Labor Standards     borrower who receives a FFEL                  national emergency by reason of
Act of 1938; or                              Program loan may receive a military           certain terrorist attacks declared by the
                                             service deferment for such loan for any       President on September 14, 2001, or
(B) An amount equal to 150 percent of
                                             period during which the borrower is—          subsequent national emergencies
the poverty guideline applicable to the
borrower’s family size as published          (i) Serving on active duty during a war       declared by the President by reason of
annually by the Department of Health         or other military operation or national       terrorist attacks.
and Human Services pursuant to 42            emergency; or                                 (7) To receive a military service
U.S.C. 9902(2). If a borrower is not a       (ii) Performing qualifying National           deferment, the borrower, or the
resident of a State identified in the        Guard duty during a war or other              borrower's representative, must request
poverty guidelines, the poverty              military operation or national                the deferment and provide the lender
guideline to be used for the borrower is     emergency.                                    with all information and documents
the poverty guideline (for the relevant                                                    required to establish eligibility for the
family size) used for the 48 contiguous      (2) For a borrower whose active duty
                                                                                           deferment, except that a lender may
States.                                      service includes October 1, 2007, or
                                                                                           grant a borrower a military service
                                             begins on or after that date, the
(iv) Is serving as a volunteer in the                                                      deferment under the procedures
                                             deferment period ends 180 days after
Peace Corps.                                                                               specified in paragraphs (s)(1)(iii)
                                             the demobilization date for each period
                                                                                           through (s)(1)(v) of this section.
(v) For an initial period of deferment       of service described in paragraph
granted under paragraph (s)(6)(iii) of       (t)(1)(i) and (t)(1)(ii) of this section.     (8) A lender that grants a military
this section, the lender must require the                                                  service deferment based on a request
borrower to submit evidence showing                                                        from a borrower's representative must
34 CFR 682.210


notify the borrower that the deferment         period, the deferment expires at the           GPO Editorial Note: For Federal Register
has been granted and that the borrower         time the borrower returns to enrolled          citations affecting §682.210, see the List of
has the option to cancel the deferment         student status, on at least a half-time        CFR Sections Affected, which appears in the
                                                                                              Finding Aids section of the printed volume
and continue to make payments on the           basis.                                         and on GPO Access.
loan. The lender may also notify the           (4) If a borrower qualifies for both a
borrower's representative of the                                                              §682.211 Forbearance.
                                               military service deferment and a post-
outcome of the deferment request.              active duty student deferment, the 180-        (a)(1) The Secretary encourages a
(9) Without supporting documentation,          day post-demobilization military service       lender to grant forbearance for the
a military service deferment may be            deferment period and the 13-month              benefit of a borrower or endorser in
granted to an otherwise eligible               post-active duty student deferment             order to prevent the borrower or
borrower for a period not to exceed the        period apply concurrently.                     endorser from defaulting on the
initial 12 months from the date the                                                           borrower's or endorser's repayment
                                               (5) To receive a military active duty          obligation, or to permit the borrower or
qualifying eligible service began based
                                               student deferment, the borrower must           endorser to resume honoring that
on a request from the borrower or the          request the deferment and provide the
borrower’s representative.                                                                    obligation after default. Forbearance
                                               lender with all information and                means permitting the temporary
(u) Post-active duty student deferment.        documents required to establish                cessation of payments, allowing an
(1) Effective October 1, 2007, a               eligibility for the deferment, except that     extension of time for making payments,
borrower who receives a FFEL                   a lender may grant a borrower a military       or temporarily accepting smaller
Program loan and is serving on active          active duty student deferment under the        payments than previously were
duty on that date, or begins serving on        procedures specified in paragraphs             scheduled.
or after that date, is entitled to receive a   (s)(1)(iii) through (s)(1)(v) of this
post-active duty student deferment for         section.                                       (2) Subject to paragraph (g) of this
13 months following the conclusion of                                                         section, a lender may grant forbearance
                                               Editor’s Note: Both instances of the           of payments of principal and interest
the borrower's active duty military            the word “military” needs to be changed
service and any applicable grace period                                                       under paragraphs (b), (c), and (d) of
                                               to “post-military”.                            this section only if—
if—
                                               (v) In-school deferments for PLUS loan         (i) The lender reasonably believes, and
(i) The borrower is a member of the
                                               borrowers with loans first disbursed on        documents in the borrower's file, that
National Guard or other reserve                or after July 1, 2008. (1)(i) A student
component of the Armed Forces of the                                                          the borrower or endorser intends to
                                               PLUS borrower is entitled to a                 repay the loan but, due to poor health
United States or a member of such              deferment on a PLUS loan first
forces in retired status; and                                                                 or other acceptable reasons, is
                                               disbursed on or after July 1, 2008             currently unable to make scheduled
(ii) The borrower was enrolled, on at          during the 6-month period that begins          payments; or
least a half-time basis, in a program of       on the day after the student ceases to
instruction at an eligible institution at      be enrolled on at least a half-time basis      (ii) The borrower's payments of
the time, or within six months prior to        at an eligible institution.                    principal are deferred under Sec.
the time, the borrower was called to                                                          682.210 and the Secretary does not
                                               (ii) If a lender grants an in-school           pay interest benefits on behalf of the
active duty.                                   deferment to a student PLUS borrower           borrower under Sec. 682.301.
(2) As used in paragraph (u)(1) of this        based on §682.210(c)(1)(ii), (iii), or (iv),
section, “active duty” means active duty       the deferment period for a PLUS loan           (3) If two individuals are jointly liable for
as defined in section 101(d)(1) of title       first disbursed on or after July 1, 2008       repayment of a PLUS loan or a
10, United States Code for at least a          includes the 6-month post-enrollment           Consolidation loan, the lender may
30-day period, except that—                    period described in paragraph (v)(1)(i)        grant forbearance on repayment of the
                                               of this section. The notice required by        loan only if the ability of both individuals
(i) Active duty includes active State                                                         to make scheduled payments has been
duty for members of the National Guard         §682.210(c)(2) must inform the
                                               borrower that the in-school deferment          impaired based on the same or differing
under which a Governor activates                                                              conditions.
                                               on a PLUS loan first disbursed on or
National Guard personnel based on
State statute or policy and the activities     after July 1, 2008 will end six months         (4) Except as provided in paragraph
of the National Guard are paid for with        after the day the borrower ceases to be        (f)(10) of this section, if payments of
                                               enrolled on at least a half-time basis.        interest are forborne, they may be
State funds;
                                               (2) Upon the request of the borrower,          capitalized as provided in Sec.
(ii) Active duty includes full-time                                                           682.202(b).
National Guard duty under which a              an eligible parent PLUS borrower must
Governor is authorized, with the               be granted a deferment on a PLUS loan          (b) A lender may grant forbearance if—
                                               first disbursed on or after July 1,
approval of the President or the U.S.                                                         (1) The lender and the borrower or
Secretary of Defense, to order a               2008—
                                                                                              endorser agree to the terms of the
member to State active duty and the            (i) During the period when the student         forbearance and, unless the agreement
activities of the National Guard are paid      on whose behalf the loan was obtained          was in writing, the lender sends, within
for with Federal funds;                        is enrolled at an eligible institution on at   30 days, a notice to the borrower or
(iii) Active duty does not include active      least a half-time basis; and                   endorser confirming the terms of the
duty for training or attendance at a           (ii) During the 6-month period that            forbearance and records the terms of
service school; and                            begins on the later of the day after the       the forbearance in the borrower's file; or
(iv) Active duty does not include              student on whose behalf the loan was           (2) In the case of forbearance of
employment in a full-time, permanent           obtained ceases to be enrolled on at           interest during a period of deferment, if
position in the National Guard unless          least a half-time basis or, if the parent      the lender informs the borrower at the
                                               borrower is also a student, the day after      time the deferment is granted that
the borrower employed in such a
position is reassigned to active duty          the parent borrower ceases to be               interest payments are to be forborne.
under paragraph (u)(2)(i) of this section      enrolled on at least a half-time basis.
                                                                                              (c) A lender may grant forbearance for
or full-time National Guard duty under         (Authority: 20 U.S.C. 1077, 1078, 1078-1,      a period of up to one year at a time if
paragraph (u)(2)(ii) of this section.          1078-2, 1078-3, 1082, 1085)
                                                                                              both the borrower or endorser and an
(3) If the borrower returns to enrolled        (Approved by the Office of Management and      authorized official of the lender agree to
                                               Budget under control number 1845-0020)         the terms of the forbearance. If the
student status, on at least a half-time
basis, during the 13-month deferment           [57 FR 60323, Dec. 18, 1992]                   lender and the borrower or endorser
34 CFR 682.211


agree to the terms orally, the lender         (6) Upon receipt of a valid identity theft     been suspended pending approval of
must notify the borrower or endorser of       report as defined in section 603(q)(4) of      the forgiveness by the guaranty
the terms within 30 days of that              the Fair Credit Reporting Act (15 U.S.C.       agency;
agreement.                                    1681a) or notification from a credit           (14) For a period of delinquency at the
(d) A guaranty agency may authorize a         bureau that information furnished by the       time a borrower makes a change to the
                                              lender is a result of an alleged identity      repayment plan; or
lender to grant forbearance to permit a
borrower or endorser to resume                theft as defined in Sec. 682.402(e)(14),
                                              for a period not to exceed 120 days            (15) For PLUS loans first disbursed
honoring the agreement to repay the                                                          before July 1, 2008, to align repayment
                                              necessary for the lender to determine
debt after default but prior to claim                                                        with a borrower’s PLUS loans that were
payment. The terms of the forbearance         the enforceability of the loan. If the
                                              lender determines that the loan does           first disbursed on or after July 1, 2008,
agreement in this situation must include                                                     or with Stafford Loans that are subject
                                              not qualify for discharge under Sec.
a new signed agreement to repay the                                                          to a grace period under §682.209(a)(3).
debt.                                         682.402(e)(1)(i)(C), but is nonetheless
                                              unenforceable, the lender must comply          The notice specified in paragraph (f)
(e)(1) At the time of granting a borrower     with Sec. Sec. 682.300(b)(2)(ix) and           introductory text of this section must
or endorser a forbearance, the lender         682.302(d)(1)(viii).                           inform the borrower that the borrower
must provide the borrower or endorser                                                        has the option to cancel the
                                              (7) For a period not to exceed an              forbearance and continue paying on the
with information to assist the borrower
or endorser in understanding the impact       additional 60 days after the lender has        loan.
                                              suspended collection activity for the
of capitalization of interest on the loan                                                    (g) In granting a forbearance under this
principal and total interest to be paid       initial 60-day period required pursuant
                                              to Sec. 682.211(i)(6) and Sec.                 section, except for a forbearance under
over the life of the loan; and                                                               paragraph (i)(5) of this section, a lender
                                              682.402(b)(3), when the lender
(2) At least once every 180 days during       receives reliable information that the         shall grant a temporary cessation of
the period of forbearance, the lender         borrower (or student on whose behalf a         payments, unless the borrower chooses
must contact the borrower or endorser         parent has borrowed a PLUS Loan) has           another form of forbearance subject to
to inform the borrower or endorser of—        died;                                          paragraph (a)(1) of this section.
(i) The outstanding obligation to repay;      (8) For periods necessary for the              (h) Mandatory forbearance—(1)
(ii) The amount of the unpaid principal       Secretary or guaranty agency to                Medical or dental interns or residents.
                                              determine the borrower's eligibility for       Upon receipt of a request and sufficient
balance and any unpaid interest that
                                              discharge of the loan because of an            supporting documentation, as
has accrued on the loan since the last
                                              unpaid refund, attendance at a closed          described in Sec. 682.210(n), from a
notice provided to the borrower or
                                              school or false certification of loan          borrower serving in a medical or dental
endorser under this paragraph;
                                              eligibility, pursuant to Sec. 682.402(d)       internship or residency program, a
(iii) The fact that interest will accrue on   or (e), or the borrower's or, if applicable,   lender shall grant forbearance to the
the loan for the full term of the             endorser's bankruptcy, pursuant to Sec.        borrower in yearly increments (or a
forbearance;                                  682.402(f);                                    lesser period equal to the actual period
(iv) The amount of interest that will be                                                     during which the borrower is eligible) if
                                              (9) For a period of delinquency at the         the borrower has exhausted his or her
capitalized, as of the date of the notice,    time a loan is sold or transferred, if the
and the date capitalization will occur;                                                      eligibility for a deferment under Sec.
                                              borrower or endorser is less than 60           682.210(n), or the borrower's
(v) The option of the borrower or             days delinquent on the loan at the time        promissory note does not provide for
endorser to pay the interest that has         of sale or transfer;                           such a deferment—
accrued before the interest is                (10) For a period of delinquency that
capitalized; and                                                                             (i) For the length of time remaining in
                                              may remain after a borrower ends a             the borrower's medical or dental
(vi) The borrower's or endorser's option      period of deferment or mandatory               internship or residency that must be
to discontinue the forbearance at any         forbearance until the next due date,           successfully completed before the
time.                                         which can be no later than 60 days             borrower may begin professional
                                              after the period ends;                         practice or service; or
(f) A lender may grant forbearance,
upon notice to the borrower or if             (11) For a period not to exceed 60 days
                                                                                             (ii) For the length of time that the
applicable, the endorser, with respect to     necessary for the lender to collect and
                                                                                             borrower is serving in a medical or
payments of interest and principal that       process documentation supporting the
                                                                                             dental internship or residency program
are overdue or would be due—                  borrower's request for a deferment,
                                                                                             leading to a degree or certificate
                                              forbearance, change in repayment plan,
(1) For a properly granted period of                                                         awarded by an institution of higher
                                              or consolidation loan. Interest that
deferment for which the lender learns                                                        education, a hospital, or a health care
                                              accrues during this period is not
the borrower did not qualify;                                                                facility that offers postgraduate training.
                                              capitalized;
(2) Upon the beginning of an authorized                                                      (2) Borrowers who are not medical or
                                              (12) For a period not to exceed 3
deferment period under Sec. 682.210,                                                         dental interns or residents, and
                                              months when the lender determines
or an administrative forbearance period                                                      endorsers. Upon receipt of a request
                                              that a borrower's ability to make
as specified under paragraph (f)(11) or                                                      and sufficient supporting documentation
                                              payments has been adversely affected
(i)(2) of this section;                                                                      from an endorser (if applicable), or from
                                              by a natural disaster, a local or national
                                                                                             a borrower (other than a borrower who
(3) For the period beginning when the         emergency as declared by the
                                                                                             is serving in a medical or dental
borrower entered repayment without            appropriate government agency, or a
                                                                                             internship or residency described in
the lender's knowledge until the first        military mobilization;
                                                                                             paragraph (h)(1) of this section), a
payment due date was established;             (13) For a period not to exceed 60 days        lender shall grant forbearance—
(4) For the period prior to the borrower's    necessary for the lender to collect and        (i) In increments up to one year, for
filing of a bankruptcy petition as            process documentation supporting the
                                                                                             periods that collectively do not exceed
provided in Sec. 682.402(f);                  borrower’s eligibility for loan
                                                                                             three years, if—
                                              forgiveness under the income-based
(5) For the periods described in Sec.                                                        (A) The borrower or endorser is
                                              repayment program. The lender must
682.402(c) in regard to the borrower's                                                       currently obligated to make payments
                                              notify the borrower that the requirement
total and permanent disability;                                                              on Title IV loans; and
                                              to make payments on the loans for
                                              which forgiveness was requested has
34 CFR 682.211


(B) The amount of those payments             endorser to submit at least the following    designated a disaster area by the
each month (or a proportional share if       documentation:                               president of the United States or
the payments are due less frequently         (A) Evidence showing the amount of           Mexico, the Prime Minister of Canada,
than monthly) is collectively equal to or    the most recent total monthly gross          or by a Governor of a State.
greater than 20 percent of the               income received by the borrower or           (3) As soon as feasible, or by the date
borrower's or endorser's total monthly
                                             endorser from employment and from            specified by the Secretary, the lender
income;                                      other sources; and                           shall notify the borrower (or endorser, if
(ii) In yearly increments (or a lesser       (B) Evidence showing the amount of           applicable) that the lender has granted
period equal to the actual period during     the monthly payments owed by the             a forbearance and the date that
which the borrower is eligible) for as                                                    payments should resume. The lender's
                                             borrower or endorser to other entities
long as a borrower—                          for the most recent month for the            notification shall state that the borrower
(A) Is serving in a national service         borrower's or endorser's Title IV loans.     or endorser—
position for which the borrower receives     (ii) Before granting a forbearance to a      (i) May decline the forbearance and
a national service educational award                                                      continue to be obligated to make
                                             borrower or endorser under paragraph
under the National and Community             (h)(2)(ii)(B) of this section, the lender    scheduled payments; or
Service Trust Act of 1993;                   shall require the borrower or endorser       (ii) Consents to making payments in
(B) Is performing the type of service        to submit documentation showing the          accordance with the lender's
that would qualify the borrower for a        beginning and ending dates that the          notification if the forbearance is not
partial repayment of his or her loan         Department of Defense considers the          declined.
under the Student Loan Repayment             borrower to be eligible for a partial        (4) For purposes of paragraph (i)(2)(i)
Programs administered by the                 repayment of his or her loan under the
                                                                                          of this section, the term “military
Department of Defense under 10               Student Loan Repayment Programs.             mobilization” shall mean a situation in
U.S.C. 2171; or                              (iii) Before granting a forbearance to a     which the Department of Defense
(C) Is performing the type of service        borrower under paragraph (h)(2)(ii)(C)       orders members of the National Guard
that would qualify the borrower for loan     of this section, the lender must require     or Reserves to active duty under
forgiveness and associated                   the borrower to—                             sections 688, 12301(a), 12301(g),
forbearance under the requirements of                                                     12302, 12304, and 12306 of title 10,
                                             (A) Submit documentation for the
the teacher loan forgiveness program in                                                   United States Code. This term also
                                             period of the annual forbearance
Sec. 682.215; and                                                                         includes the assignment of other
                                             request showing the beginning and
                                                                                          members of the Armed Forces to duty
Editor’s Note: This section needs a          anticipated ending dates that the
                                                                                          stations at locations other than the
conforming change to 682.216.                borrower is expected to perform, for
                                                                                          locations at which they were normally
(iii) In yearly increments (or a lesser      that year, the type of service described
                                                                                          assigned, only if the military
period equal to the actual period for        in Sec. 682.215(c); and
                                                                                          mobilization involved the activation of
which the borrower is eligible) when a       (B) Certify the borrower's intent to         the National Guard or Reserves.
member of the National Guard who             satisfy the requirements of Sec.
                                                                                          (5) The lender shall grant a mandatory
qualifies for a post-active duty student     682.215(c).
                                                                                          administrative forbearance to a
deferment, but does not qualify for a        Editorial Note: Both references to           borrower (or endorser, if applicable)
military service deferment or other
                                             682.215 should be 682.216.                   during a period when the borrower (or
deferment, is engaged in active State
                                             (i) Mandatory administrative                 endorser, if applicable) is making
duty as defined in §682.210(u)(2)(i) and
                                             forbearance. (1) The lender shall grant      payments for a period of—
(ii) for a period of more than 30
consecutive days, beginning—                 a mandatory administrative forbearance       (i) Up to 3 years of payments in cases
                                             for the periods specified in paragraph       where the effect of a variable interest
(A) On the day after the grace period
                                             (i)(2) of this section until the lender is   rate on a standard or graduated
expires for a Stafford loan that has not     notified by the Secretary or a guaranty      repayment schedule would result in a
entered repayment; or
                                             agency that the forbearance period no        loan not being repaid within the
(B) On the day after the borrower            longer applies. The lender may not           maximum repayment term; or
ceases at least half-time enrollment, for    require a borrower who is eligible for a
                                                                                          (ii) Up to 5 years of payments in cases
a FFEL loan in repayment.                    forbearance under paragraph (i)(2)(ii) of
                                                                                          where the effect of decreased
Editorial Note: Does not cover               this section to submit a request or
                                                                                          installment amounts paid under an
National Guard members that are              supporting documentation, but shall
                                                                                          income-sensitive repayment schedule
called to Federal active duty where that     require a borrower (or endorser, if
                                                                                          would result in the loan not being repaid
                                             applicable) who requests forbearance
active duty does not fall under a war, a                                                  within the maximum repayment term.
military operation as defined in 10          because of a military mobilization to
                                             provide documentation showing that he        (6) The lender shall grant a mandatory
U.S.C. 101(a)(13), nor a national
                                             or she is subject to a military              administrative forbearance to a
emergency declared by the President
                                             mobilization as described in paragraph       borrower for a period not to exceed 60
due to a terrorist attack.
                                             (i)(4) of this section.                      days after the lender receives reliable
(3) Forbearance agreement. After the                                                      information indicating that the borrower
                                             (2) The lender is not required to notify
lender determines the borrower's or                                                       (or student in the case of a PLUS loan)
                                             the borrower (or endorser, if applicable)
endorser's eligibility, and the lender and                                                has died, until the lender receives
the borrower or endorser agree to the        at the time the forbearance is granted,
                                                                                          documentation of death pursuant to
terms of the forbearance granted under       but shall grant a forbearance to a
                                                                                          Sec. 682.402(b)(3).
                                             borrower or endorser during a period,
this section, the lender sends, within 30
days, a notice to the borrower or            and the 30 days following the period,        (Approved by the Office of Management and
                                             when the lender is notified by the           Budget under control number 1845-0020)
endorser confirming the terms of the
                                             Secretary that—                              (Authority: 20 U.S.C. 1077, 1078, 1078-1,
forbearance and records the terms of
                                                                                          1078-2, 1078-3, 1080, 1082)
the forbearance in the borrower's file.      (i) Exceptional circumstances exist,
                                             such as a local or national emergency        [57 FR 60323, Dec. 18, 1992]
(4) Documentation. (i) Before granting a
forbearance to a borrower or endorser        or military mobilization; or                 GPO Editorial Note: For Federal Register
under paragraph (h)(2)(i) of this section,   (ii) The geographical area in which the      citations affecting §682.211, see the List of
the lender shall require the borrower or     borrower or endorser resides has been        CFR Sections Affected, which appears in the
34 CFR 682.212


Finding Aids section of the printed volume   (f) This section does not preclude a           status, income from alimony, child
and on GPO Access.                           buyer of loans made by a school from           support, and separate maintenance
                                             obtaining from the loan seller a               income, and spouse's financial
§682.212 Prohibited transactions.            warranty that—                                 resources.
(a) No points, premiums, payments, or        (1) Covers future reductions by the            (Approved by the Office of Management and
additional interest of any kind may be       Secretary or a guaranty agency in              Budget under control number 1845-0020)
paid or otherwise extended to any            computing the amount of loss payable           (Authority: 20 U.S.C. 1071-1087-2)
eligible lender or other party in order      on default claims filed on the loans, if       [57 FR 60323, Dec. 18, 1992, as amended at
to—                                          the reductions are attributable to an act,     58 FR 9119, Feb. 19, 1993; 64 FR 58965,
                                             or failure to act, on the part of the seller   Nov. 1, 1999]
(1) Secure funds for making loans; or
                                             or previous holder; and
(2) Induce a lender to make loans to                                                        §682.215 Income-based repayment
                                             (2) Does not cover matters for which a         plan.
either the students or the parents of
                                             purchaser is charged with responsibility
students of a particular school or                                                          (a) Definitions. As used in this section—
                                             under this part, such as due diligence in
particular category of students or their
                                             collecting loans.                              (1) Adjusted gross income (AGI) means
parents.
                                             (g) Section 490(c) of the Act provides         the borrower’s adjusted gross income
(b) The following are examples of                                                           as reported to the Internal Revenue
                                             that any person who knowingly and
transactions that, if entered into for the                                                  Service. For a married borrower filing
                                             willfully makes an unlawful payment to
purposes described in paragraph (a) of                                                      jointly, AGI includes both the borrower’s
                                             an eligible lender as an inducement to
this section, are prohibited:                                                               and spouse’s income. For a married
                                             make, or to acquire by assignment, a
(1) Cash payments by or on behalf of a       FFEL loan shall, upon conviction               borrower filing separately, AGI includes
school made to a lender or other party.      thereof, be fined not more than $10,000        only the borrower’s income.

(2) The maintaining of a compensating        or imprisoned not more than one year,          (2) Eligible loan means any outstanding
balance by or on behalf of a school with     or both.                                       loan made to a borrower under the
a lender.                                    (h) A school may, at its option, make          FFEL and Direct Loan programs except
                                             available a list of recommended or             for a defaulted loan, a FFEL or Direct
(3) Payments by or on behalf of a                                                           PLUS Loan made to a parent borrower,
school to a lender of servicing costs on     suggested lenders, in print or any other
                                             medium or form, for use by the school's        or a FFEL or Direct Consolidation Loan
loans that the school does not own.                                                         that repaid a FFEL or Direct PLUS
                                             students or their parents, provided that
(4) Payments by or on behalf of a            such list complies with the requirements       Loan made to a parent borrower.
school to a lender of unreasonably high      in 34 CFR 601.10 and 668.14(a)(28).            (3) Family size means the number that
servicing costs on loans that the school                                                    is determined by counting the borrower,
                                             (Authority: 20 U.S.C. 1077, 1078, 1078-1,
does own.                                    1078-2, 1078-3, 1082, 1097)                    the borrower’s spouse, and the
(5) Purchase by or on behalf of a                                                           borrower’s children, including unborn
                                             (Approved by the Office of Management and
school of stock of the lender.               Budget under control number 1845-0020)
                                                                                            children who will be born during the
                                                                                            year the borrower certifies family size, if
(6) Payments ostensibly made for other       [57 FR 60323, Dec. 18, 1992, as amended at     the children receive more than half their
purposes.                                    72 FR 62002, Nov. 1, 2007; 74 FR 55664,
                                                                                            support from the borrower. A borrower’s
                                             Oct. 28, 2009]
(c) Except when purchased by an                                                             family size includes other individuals if,
agency of any State functioning as a         §682.213 Prohibition against the use           at the time the borrower certifies family
secondary market or in any other             of the Rule of 78s.                            size, the other individuals—
circumstances approved by the                For purposes of the calculations               (i) Live with the borrower; and
Secretary, notes, or any interest in         required by this part, a lender may not
notes, may not be sold or otherwise                                                         (ii) Receive more than half their support
                                             use the Rule of 78s to calculate the
transferred at discount if the underlying    outstanding principal balance of a loan,       from the borrower and will continue to
loans were made—                                                                            receive this support from the borrower
                                             except for a loan made to a borrower
                                                                                            for the year the borrower certifies family
(1) By a school; or                          who entered repayment before June
                                             26, 1987 and who was informed in the           size. Support includes money, gifts,
(2) To students or parents of students                                                      loans, housing, food, clothes, car,
                                             promissory note that interest on the
attending a school by a lender having                                                       medical and dental care, and payment
                                             loan would be calculated using the Rule
common ownership with that school.           of 78s. For those loans, the Rule of 78s       of college costs.
(d) Except to secure a loan from an          must be used for the life of the loan.         (4) Partial financial hardship means a
agency of a State functioning as a           (Authority: 20 U.S.C. 1077, 1078, 1078-1,      circumstance in which—
secondary market or in other                 1078-2, 1078-3, 1082)                          (i) For an unmarried borrower or a
circumstances approved by the                [57 FR 60323, Dec. 18, 1992, as amended at     married borrower who files an individual
Secretary, a school or lender (with          68 FR 75429, Dec. 31, 2003]                    Federal tax return, the annual amount
respect to a loan made to a student, or                                                     due on all of the borrower’s eligible
a parent of a student, attending a           §682.214 Compliance with equal
                                             credit opportunity requirements.               loans, as calculated under a standard
school having common ownership with                                                         repayment plan based on a 10-year
that lender), may not use a loan made        In making a Stafford loan on which             repayment period, using the greater of
under the FFEL programs as collateral        interest benefits are to be paid, a lender     the amount due at the time the
for any loan bearing aggregate interest      shall comply with the equal credit             borrower initially entered repayment or
and other charges in excess of the sum       opportunity requirements of Regulation         at the time the borrower elects the
of the interest rate applicable to the       B (12 CFR part 202). With regard to            income-based repayment plan,
loan plus the rate of the most recently      Regulation B, the Secretary considers          exceeds 15 percent of the difference
prescribed special allowance under           the Stafford loan program to be a              between the borrower’s AGI and 150
Sec. 682.302.                                credit-assistance program authorized           percent of the poverty guideline for the
(e) The prohibitions described in            by Federal law for the benefit of an           borrower’s family size; or
paragraphs (a), (b), (c), and (d) of this    economically disadvantaged class of
                                             persons within the meaning of 12 CFR           (ii) For a married borrower who files a
section apply to any school, lender, or                                                     joint Federal tax return with his or her
other party that would participate in a      202.8(a)(1). Therefore, under 12 CFR
                                             202.8(d), the lender may request a loan        spouse, the annual amount due on all
proscribed transaction.                                                                     of the borrower’s eligible loans and, if
                                             applicant to disclose his or her marital
34 CFR 682.215


applicable, the spouse’s eligible loans,        (iv) The calculated amount under                apply any payment made under an
as calculated under a standard                  paragraph (b)(1), (b)(1)(i), or (b)(1)(ii) of   income-based repayment plan in the
repayment plan based on a 10-year               this section is equal to or greater than        following order:
repayment period, using the greater of          $5.00 but less than $10.00, in which            (i) Accrued interest.
the amount due at the time the loans            case the borrower’s monthly payment is
initially entered repayment or at the           $10.00.                                         (ii) Collection costs.
time the borrower or spouse elects the          (2) A borrower with eligible loans held         (iii) Late charges.
income-based repayment plan,                    by two or more loan holders must
exceeds 15 percent of the difference                                                            (iv) Loan principal.
                                                request income-based repayment from
between the borrower’s and spouse’s             each loan holder if the borrower wants          (2) The borrower may prepay the whole
AGI, and 150 percent of the poverty             to repay all of his or her eligible loans       or any part of a loan at any time without
guideline for the borrower’s family size.       under an income-based repayment                 penalty.
(5) Poverty guideline refers to the             plan. Each loan holder must apply the           (3) If the prepayment amount equals or
income categorized by State and family          payment calculation rules in paragraphs         exceeds a monthly payment amount of
size in the poverty guidelines published        (b)(1)(iii) and (iv) of this section to loans   $10.00 or more under the repayment
annually by the United States                   they hold.                                      schedule established for the loan, the
Department of Health and Human                  (3) If a borrower elects an income-             loan holder shall apply the prepayment
Services pursuant to 42 U.S.C.                  based repayment plan, the loan holder           consistent with the requirements of
9902(2). If a borrower is not a resident        must, unless the borrower requests              §682.209(b)(2)(ii).
of a State identified in the poverty            otherwise, require that all eligible loans
guidelines, the poverty guideline to be                                                         (4) If the prepayment amount exceeds
                                                owed by the borrower to that holder be          the monthly payment amount of $0.00
used for the borrower is the poverty            repaid under the income-based
guideline (for the relevant family size)                                                        under the repayment schedule
                                                repayment plan.                                 established for the loan, the loan holder
used for the 48 contiguous States.
                                                (4) If the borrower’s monthly payment           shall apply the prepayment consistent
(b) Repayment plan. (1) A borrower              amount is not sufficient to pay the             with the requirements of paragraph
may elect the income-based repayment            accrued interest on the borrower’s              (c)(1) of this section.
plan only if the borrower has a partial         subsidized Stafford Loans or the
financial hardship. The borrower’s                                                              (d) Changes in the payment amount.
                                                subsidized portion of the borrower’s            (1) If a borrower no longer has a partial
aggregate monthly loan payments are             Federal Consolidation loan, the
limited to no more than 15 percent of                                                           financial hardship, the borrower may
                                                Secretary pays to the holder the                continue to make payments under the
the amount by which the borrower’s              remaining accrued interest for a period
AGI exceeds 150 percent of the poverty                                                          income-based repayment plan but the
                                                not to exceed three consecutive years           loan holder must recalculate the
line income applicable to the borrower’s        from the established repayment period
family size, divided by 12. The loan                                                            borrower’s monthly payment. The loan
                                                start date on each loan repaid under            holder also recalculates the monthly
holder adjusts the calculated monthly           the income-based repayment plan. On
payment if—                                                                                     payment for a borrower who chooses to
                                                a Consolidation Loan that repays loans          stop making income-based payments.
(i) Except for borrowers provided for in        on which the Secretary has paid                 In either case, as a result of the
paragraph (b)(1)(ii) of this section, the       accrued interest under this section, the        recalculation—
total amount of the borrower’s eligible         three-year period includes the period
loans includes loans not held by the            for which the Secretary paid accrued            (i) The maximum monthly amount that
loan holder, in which case the loan             interest on the underlying loans. The           the loan holder may require the
holder determines the borrower’s                three-year period does not include any          borrower to repay is the amount the
adjusted monthly payment by                     period during which the borrower                borrower would have paid under the
multiplying the calculated payment by           receives an economic hardship                   FFEL standard repayment plan based
the percentage of the total outstanding         deferment.                                      on a 10-year repayment period on the
principal amount of eligible loans that                                                         borrower’s eligible loans that were
                                                (5) Except as provided in paragraph             outstanding at the time the borrower
are held by the loan holder;                    (b)(4) of this section, accrued interest is     began repayment on the loans with that
(ii) Both the borrower and the                  capitalized at the time the borrower            holder under the income-based
borrower’s spouse have eligible loans           chooses to leave the income-based               repayment plan; and
and filed a joint Federal tax return, in        repayment plan or no longer has a
which case the loan holder determines           partial financial hardship.                     (ii) The borrower’s repayment period
–                                                                                               based on the recalculated payment
                                                (6) If the borrower’s monthly payment           amount may exceed 10 years.
(A) Each borrower’s percentage of the           amount is not sufficient to pay any
couple’s total eligible loan debt;              principal due, the payment of that              (2) If a borrower no longer wishes to
                                                principal is postponed until the borrower       pay under the income-based repayment
(B) The adjusted monthly payment for                                                            plan, the borrower must pay under the
                                                chooses to leave the income-based
each borrower by multiplying the                                                                FFEL standard repayment plan and the
                                                repayment plan or no longer has a
calculated payment by the percentage                                                            loan holder recalculates the borrower’s
                                                partial financial hardship.
determined in paragraph (b)(1)(ii)(A) of                                                        monthly payment based on—
this section; and                               (7) The special allowance payment to a
                                                lender during the period in which the           (i) The time remaining under the
(C) If the borrower’s loans are held by                                                         maximum ten-year repayment period
                                                borrower has a partial financial
multiple holders, the borrower’s                                                                for the amount of the borrower’s loans
                                                hardship under an income-based
adjusted monthly payment by                                                                     that were outstanding at the time the
                                                repayment plan is calculated on the
multiplying the payment determined in                                                           borrower discontinued paying under the
                                                principal balance of the loan and any
paragraph (b)(1)(ii)(B) of this section by                                                      income-based repayment plan; or
                                                accrued interest unpaid by the
the percentage of the total outstanding
                                                borrower.                                       (ii) For a Consolidation Loan, the
principal amount of eligible loans that
are held by the loan holder;                    (8) The repayment period for a                  applicable repayment period remaining
                                                borrower under an income-based                  specified in §682.209(h)(2) for the total
(iii) The calculated amount under                                                               amount of that loan and the balance of
                                                repayment plan may be greater than 10
paragraph (b)(1), (b)(1)(i), or (b)(1)(ii) of                                                   other student loans that was
                                                years.
this section is less than $5.00, in which                                                       outstanding at the time the borrower
case the borrower’s monthly payment is          (c) Payment application and
$0.00; or                                       prepayment. (1) The loan holder shall
34 CFR 682.215


discontinued paying under the income-       were outstanding at the time the               described in paragraph (f)(3)(ii) or (iv)
based repayment plan.                       borrower first selected the income-            of this section.
                                            based repayment plan; or                       (5) A borrower repaying a defaulted
(e) Eligibility documentation and
verification. (1) The loan holder           (v) Received an economic hardship              loan is not considered to be repaying
determines whether a borrower has a         deferment on eligible FFEL loans.              under a qualifying repayment plan for
partial financial hardship to qualify for   (2) As provided under paragraph (f)(4)         the purpose of loan forgiveness, and
the income-based repayment plan for                                                        any payments made on a defaulted
                                            of this section, the Secretary repays
the year the borrower elects the plan                                                      loan are not counted toward the 25-
                                            any outstanding balance of principal
and for each subsequent year that the                                                      year forgiveness period.
                                            and accrued interest on FFEL loans for
borrower remains on the plan. To make       which the borrower qualifies for               (g) Loan forgiveness processing and
this determination, the loan holder         forgiveness if the guaranty agency             payment. (1) No later than 60 days after
requires the borrower to—                   determines that—                               the loan holder determines that a
(i)(A) Provide written consent to the       (i) The borrower made monthly                  borrower qualifies for loan forgiveness
disclosure of AGI and other tax return                                                     under paragraph (f) of this section, the
                                            payments under one or more of the
information by the Internal Revenue                                                        loan holder must request payment from
                                            repayment plans described in
Service to the loan holder. The                                                            the guaranty agency.
                                            paragraph (f)(1) of this section,
borrower provides consent by signing a      including a monthly amount of $0.00 as         (2) If the loan holder requests payment
consent form and returning it to the loan   provided in paragraph (b)(1)(ii) of this       from the guaranty agency later than the
holder;                                     section; and                                   period specified in paragraph (g)(1) of
(B) If the borrower’s AGI is not            (ii)(A) The borrower made those                this section, interest that accrues on the
available, or the loan holder believes                                                     discharged amount after the expiration
                                            monthly payments each year for a 25-
that the borrower’s reported AGI does                                                      of the 60-day filing period is ineligible
                                            year period; or
not reasonably reflect the borrower’s                                                      for reimbursement by the Secretary,
current income, the loan holder may         (B) Through a combination of monthly           and the holder must repay all interest
use other documentation provided by         payments and economic hardship                 and special allowance received on the
the borrower to verify income; and          deferments, the borrower made the              discharged amount for periods after the
                                            equivalent of 25 years of payments.            expiration of the 60-day filing period.
(ii) Annually certify the borrower’s
                                            (3) For a borrower who qualifies for the       The holder cannot collect from the
family size. If the borrower fails to
                                            income-based repayment plan, the               borrower any interest that is not paid by
certify family size, the loan holder must
                                            beginning date for the 25-year period          the Secretary under this paragraph.
assume a family size of one for that
year.                                       is—                                            (3)(i) Within 45 days of receiving the
                                            (i) For a borrower who has a FFEL              holder’s request for payment, the
(2) The loan holder designates the
                                            Consolidation Loan, the date the               guaranty agency must determine if the
repayment option described in
                                            borrower made a payment or received            borrower meets the eligibility
paragraph (d)(1) of this section for any
                                            an economic hardship deferment on              requirements for loan forgiveness under
borrower who selects the income-based
                                            that loan, before the date the borrower        this section and must notify the holder
repayment plan but—
                                            qualified for income-based repayment.          of its determination.
(i) Fails to renew the required written     The beginning date is the date the
consent for income verification; or                                                        (ii) If the guaranty agency approves the
                                            borrower made the payment or                   loan forgiveness, it must, within the
(ii) Withdraws consent and does not         received the deferment, but no earlier         same 45-day period required under
select another repayment plan.              than July 1, 2009;                             paragraph (g)(3)(i) of this section, pay
(f) Loan forgiveness. (1) To qualify for    (ii) For a borrower who has one or             the holder the amount of the
loan forgiveness after 25 years, the        more other eligible FFEL loans, the            forgiveness.
borrower must have participated in the      date the borrower made a payment or            (4) After being notified by the guaranty
income-based repayment plan and             received an economic hardship                  agency of its determination of the
satisfied at least one of the following     deferment on that loan. The beginning          eligibility of the borrower for loan
conditions during that period—              date is the date the borrower made that        forgiveness, the holder must, within 30
(i) Made reduced monthly payments           payment or received the deferment on           days, inform the borrower of the
                                            that loan, but no earlier than July 1,         determination and, if appropriate, that
under a partial financial hardship as
                                            2009;                                          the borrower’s repayment obligation on
provided under paragraph (b)(1) of this
section. Monthly payments of $0.00          (iii) For a borrower who did not make a        the loans for which income-based
qualify as reduced monthly payments         payment or receive an economic                 forgiveness was requested is satisfied.
as provided in paragraph (b)(1)(ii) of      hardship deferment on the loan under           The lender must also provide the
this section;                               paragraph (f)(3)(i) or (ii) of this section,   borrower with information on the
                                            the date the borrower made a payment           required handling of the forgiveness
(ii) Made reduced monthly payments                                                         amount.
                                            under the income-based repayment
after the borrower no longer had a
                                            plan on the loan; or                           (5)(i) The holder must apply the
partial financial hardship or stopped
making income-based payments as             (iv) If the borrower consolidates his or       proceeds of the income-based
provided in paragraph (d)(1) of this        her eligible loans, the date the borrower      repayment loan forgiveness amount to
section;                                    made a payment on the FFEL                     satisfy the outstanding balance on
                                            Consolidation Loan that met the                those loans for which income-based
(iii) Made monthly payments under any                                                      forgiveness was requested; or
                                            conditions in (f)(1) after qualifying for
repayment plan, that were not less than
                                            the income-based repayment plan.               (ii) If the forgiveness amount exceeds
the amount required under the FFEL
standard repayment plan described in        (4) If a borrower satisfies the loan           the outstanding balance on the eligible
§682.209(a)(6)(vi) with a 10-year           forgiveness requirements, the                  loans subject to forgiveness, the loan
repayment period;                           Secretary repays the outstanding               holder must refund the excess amount
                                            balance and accrued interest on the            to the guaranty agency.
(iv) Made monthly payments under the
                                            FFEL Consolidation Loan described in           (6) If the guaranty agency does not pay
FFEL standard repayment plan
                                            paragraph (f)(3)(i), (iii), or (iv) of this    the forgiveness claim, the lender will
described in §682.209(a)(6)(vi) based
                                            section or other eligible FFEL loans           continue the borrower in repayment on
on a 10-year repayment period for the
amount of the borrower’s loans that                                                        the loan. The lender is deemed to have
34 CFR 682.216


exercised forbearance of both principal      (4) A borrower may receive loan              (c) Borrower eligibility. (1) A borrower
and interest from the date the               forgiveness of up to a combined total of     who has been employed at an
borrower’s repayment obligation was          $17,500 on the borrower's eligible           elementary or secondary school or at
suspended until a new payment due            FFEL and Direct Loan Program loans if        an educational service agency as a full-
date is established. Unless the denial of    the borrower was employed for five           time teacher for five consecutive
the forgiveness claim was due to an          consecutive years—.                          complete academic years may obtain
error by the lender, the lender may          (i) At an eligible secondary school as a     loan forgiveness under this program if
capitalize any interest accrued and not                                                   the elementary or secondary school or
                                             highly qualified mathematics or science
paid during this period, in accordance                                                    educational service agency—
                                             teacher, or at an eligible educational
with §682.202(b).                            service agency as a highly qualified         (i) Is in a school district that qualifies for
(7) The loan holder must promptly            teacher of mathematics or science to         funds under title I of the Elementary
return to the sender any payment             secondary school students; or                and Secondary Education Act of 1965,
received on a loan after the guaranty                                                     as amended;
                                             (ii) At an eligible elementary or
agency pays the loan holder the              secondary school or educational              (ii) Has been selected by the Secretary
amount of loan forgiveness.                  service agency as a special education        based on a determination that more
(Authority: 20 U.S.C. 1098e)                 teacher.                                     than 30 percent of the school's or
[73 FR 63249, Oct. 23, 2008, as amended at   (5) The loan for which the borrower is       educational service agency’s total
74 FR 55995, Oct. 29, 2009]                  seeking forgiveness must have been           enrollment is made up of children who
                                             made prior to the end of the borrower's      qualify for services provided under title
§682.216 Teacher loan forgiveness
                                                                                          I; and
program.                                     fifth year of qualifying teaching service.
                                                                                          (iii) Is listed in the Annual Directory of
(a) General. (1) The teacher loan            (b) Definitions. The following definitions
                                             apply to this section:                       Designated Low-Income Schools for
forgiveness program is intended to
                                                                                          Teacher Cancellation Benefits. If this
encourage individuals to enter and           Academic year means one complete             directory is not available before May 1
continue in the teaching profession. For     school year at the same school, or two       of any year, the previous year's
new borrowers, the Secretary repays          complete and consecutive half years at       directory may be used. The Secretary
the amount specified in this paragraph       different schools, or two complete and       considers all elementary and secondary
on the borrower's subsidized and             consecutive half years from different        schools operated by the Bureau of
unsubsidized Federal Stafford Loans,         school years at either the same school       Indian Education (BIE) or operated on
Direct Subsidized Loans, Direct              or different schools. Half years exclude     Indian reservations by Indian tribal
Unsubsidized Loans, and in certain           summer sessions and generally fall           groups under contract with the BIE to
cases, Federal Consolidation Loans or        within a twelve-month period. For            qualify as schools serving low-income
Direct Consolidation Loans. The              schools that have a year-round               students.
forgiveness program is only available to     program of instruction, a minimum of
a borrower who has no outstanding                                                         (2) If the school or educational service
                                             nine months is considered an academic
loan balance under the FFEL Program          year.                                        agency at which the borrower is
or the Direct Loan Program on October                                                     employed meets the requirements
1, 1998 or who has no outstanding loan       Educational service agency means a           specified in paragraph (c)(1) of this
balance on the date he or she obtains a      regional public multiservice agency          section for at least one year of the
loan after October 1, 1998.                  authorized by State statute to develop,      borrower's five consecutive complete
                                             manage, and provide services or              academic years of teaching and fails to
(2)(i) The borrower must have been           programs to local educational agencies,      meet those requirements in subsequent
employed at an eligible elementary or        as defined in section 9101 of the            years, those subsequent years of
secondary school that serves low-            Elementary and Secondary Education           teaching qualify for purposes of this
income families or by an educational         Act of 1965, as amended.                     section for that borrower.
service agency that serves low-income
families as a full-time teacher for five     Elementary school means a public or          (3) In the case of a borrower whose five
consecutive complete academic years.         nonprofit private school that provides       consecutive complete years of
The required five years of teaching may      elementary education as determined by        qualifying teaching service began
include any combination of qualifying        State law or the Secretary if that school    before October 30, 2004, the
teaching service at an eligible              is not in a State.                           borrower—
elementary or secondary school or an         Full-time means the standard used by a       (i) May receive up to $5,000 of loan
eligible educational service agency.         State in defining full-time employment       forgiveness if the borrower—
(ii) Teaching at an eligible elementary      as a teacher. For a borrower teaching
                                                                                          (A) Demonstrated knowledge and
or secondary school may be counted           in more than one school, the
                                             determination of full-time is based on       teaching skills in reading, writing,
toward the required five consecutive                                                      mathematics, and other areas of the
complete academic years only if at           the combination of all qualifying
                                             employment.                                  elementary school curriculum, as
least one year of teaching was after the                                                  certified by the chief administrative
1997–1998 academic year.                     Highly qualified means highly qualified      officer of the eligible elementary school
(iii) Teaching at an educational service     as defined in section 9101 of the            or educational service agency where
agency may be counted toward the             Elementary and Secondary Education           the borrower was employed; or
required five consecutive complete           Act of 1965, as amended.
                                                                                          (B) Taught in a subject area that is
academic years only if the consecutive       Secondary school means a public or           relevant to the borrower's academic
five-year period includes qualifying         nonprofit private school that provides       major as certified by the chief
service at an eligible educational           secondary education as determined by         administrative officer of the eligible
service agency performed after the           State law or the Secretary if the school     secondary school or educational
2007-2008 academic year.                     is not in a State.                           service agency where the borrower was
(3) All borrowers eligible for teacher       Teacher means a person who provides          employed.
loan forgiveness may receive loan            direct classroom teaching or classroom-      (ii) May receive up to $17,500 of loan
forgiveness of up to a combined total of     type teaching in a non-classroom             forgiveness if the borrower—
$5,000 on the borrower's eligible FFEL       setting, including Special Education
and Direct Loan Program loans.                                                            (A) Taught mathematics or science on
                                             teachers.
                                                                                          a full-time basis at an eligible
                                                                                          secondary school, or taught
34 CFR 682.2216


mathematics or science to secondary        (6) For teacher loan forgiveness              schools or educational service agencies
school students on a full-time basis at    applications received by the loan holder      involved, is considered to have
an eligible educational service agency,    on or after July 1, 2006, a teacher in a      completed one academic year of
and was a highly qualified mathematics     private, non-profit elementary or             qualifying teaching.
or science teacher; or                     secondary school who is exempt from           (10) A borrower is not eligible for
                                           State certification requirements (unless
(B) Taught as a special education                                                        teacher loan forgiveness on a defaulted
                                           otherwise applicable under State law)
teacher on a full-time basis to children                                                 loan unless the borrower has made
                                           may qualify for loan forgiveness under
with disabilities at an eligible                                                         satisfactory repayment arrangements to
                                           paragraphs (c)(3)(ii) or (c)(4) of this
elementary or secondary school or                                                        re-establish title IV eligibility, as defined
                                           section if—
educational service agency and was a                                                     in Sec. 682.200.
highly qualified special education         (i) The private school teacher is
                                                                                         (11) A borrower may not receive loan
teacher whose special education            permitted to and does satisfy rigorous
                                                                                         forgiveness for the same qualifying
training corresponded to the children's    subject knowledge and skills tests by
                                                                                         teaching service under this section if
disabilities and who has demonstrated      taking competency tests in applicable
                                                                                         the borrower receives a benefit for the
knowledge and teaching skills in the       grade levels and subject areas;
                                                                                         same teaching service under—
content areas of the elementary or         (ii) The competency tests are
secondary school curriculum.                                                             (i) Subtitle D of title I of the National
                                           recognized by 5 or more States for the
                                                                                         and Community Service Act of 1990
(iii) Teaching service performed at an     purposes of fulfilling the highly qualified
eligible educational service agency may    teacher requirements under section            (ii) 34 CFR 685.219; or
be counted toward the required five        9101 of the Elementary and Secondary          (iii) Section 428K of the Act.
years of teaching only if the              Education Act of 1965; and
consecutive five-year period includes                                                    (d) Forgiveness amount. (1) A qualified
                                           (iii) The private school teacher              borrower is eligible for forgiveness of up
qualifying service at an eligible          achieves a score on each test that
educational service agency performed                                                     to $5,000, or up to $17,500 if the
                                           equals or exceeds the average passing         borrower meets the requirements of
after the 2007-2008 academic year.         score for those 5 states.                     paragraphs (c)(3)(ii) or (c)(4)(ii) of this
(4) In the case of a borrower whose five   (7) The academic year may be counted          section. The forgiveness amount is
consecutive years of qualifying teaching   as one of the borrower's five                 deducted from the aggregate amount of
service began on or after October 30,      consecutive complete academic years if        the borrower's subsidized or
2004, the borrower—                        the borrower completes at least one-          unsubsidized Federal Stafford or
(i) May receive up to $5,000 of loan       half of the academic year and the             Federal Consolidation Loan obligation
forgiveness if the borrower taught full    borrower's employer considers the             that is outstanding after the borrower
time at an eligible elementary or          borrower to have fulfilled his or her         completes his or her fifth consecutive
secondary school or educational            contract requirements for the academic        complete academic year of teaching as
service agency and was a highly            year for the purposes of salary               described in paragraph (c) of this
qualified elementary or secondary          increases, tenure, and retirement if the      section. Only the outstanding portion of
school teacher.                            borrower is unable to complete an             the consolidation loan that was used to
                                           academic year due to—                         repay an eligible subsidized or
(ii) May receive up to $17,500 of loan
                                                                                         unsubsidized Federal Stafford Loan, an
forgiveness if the borrower—               (i) A return to postsecondary education,
                                                                                         eligible Direct Subsidized Loan, or an
(A) Taught mathematics or science on       on at least a half-time basis, that is
                                                                                         eligible Direct Unsubsidized Loan
                                           directly related to the performance of
a full-time basis at an eligible                                                         qualifies for loan forgiveness under this
                                           the service described in this section;
secondary school, or taught                                                              section.
mathematics or science on a full-time      (ii) A condition that is covered under
                                                                                         (2) A borrower may not receive more
basis to secondary school students at      the Family and Medical Leave Act of
                                                                                         than a total of $5,000, or $17,500 if the
an eligible educational service agency,    1993 (FMLA) (29 U.S.C. 2601, et seq.);
                                                                                         borrower meets the requirements of
and was a highly qualified mathematics     or
                                                                                         paragraphs (c)(3)(ii) or (c)(4)(ii) of this
or science teacher; or                     (iii) A call or order to active duty status   section, in loan forgiveness for
(B) Taught as a special education          for more than 30 days as a member of          outstanding principal and accrued
teacher on a full-time basis to children   a reserve component of the Armed              interest under both this section and
with disabilities at an eligible           Forces named in section 10101 of title        under section 34 CFR 685.217.
elementary or secondary school or          10, United States Code.                       (3) The holder does not refund
educational service agency and was a       (8) A borrower's period of                    payments that were received from or on
highly qualified special education         postsecondary education, qualifying           behalf of a borrower who qualifies for
teacher whose special education            FMLA condition, or military active duty       loan forgiveness under this section.
training corresponded to the children's    as described in paragraph (c)(7) of this
disabilities and who has demonstrated                                                    (e) Authorized forbearance during
                                           section, including the time necessary
knowledge and teaching skills in the                                                     qualifying teaching service and
                                           for the borrower to resume qualifying
content areas of the elementary or                                                       discharge processing. (1) A holder
                                           teaching no later than the beginning of
secondary school curriculum.                                                             grants a forbearance—
                                           the next regularly scheduled academic
(iii) Teaching service performed at an     year, does not constitute a break in the      (i) Under Sec. 682.211(h)(2)(ii)(C) and
eligible educational service agency may    required five consecutive years of            (h)(3)(iii), in annual increments for each
be counted toward the required five        qualifying teaching service.                  of the years of qualifying teaching
years of teaching only if the                                                            service, if the holder believes, at the
                                           (9) A borrower who was employed as a
consecutive five year period includes                                                    time of the borrower's annual request,
                                           teacher at more than one qualifying
qualifying service at an eligible                                                        that the expected cancellation amount
                                           school, at more than one qualifying
educational service agency performed                                                     will satisfy the anticipated remaining
                                           educational service agency, or at a
after the 2007-2008 academic year.                                                       outstanding balance on the loan at the
                                           combination of both during an
                                                                                         time of the expected cancellation;
(5) To qualify for loan forgiveness as a   academic year and demonstrates that
highly qualified teacher, the teacher      the combined teaching was the                 (ii) For a period not to exceed 60 days
must have been a highly qualified          equivalent of full-time, as supported by      while the holder is awaiting a completed
teacher for all five years of eligible     the certification of one or more of the       teacher loan forgiveness application
teaching service.                          chief administrative officers of the          from the borrower; and
34 CFR 682.216


(iii) For the period beginning on the         eligibility of the borrower for the           (iii) During the repayment period for
date the holder receives a completed          discharge, the holder must, within 30         loans described in paragraph (d)(2) of
loan forgiveness application to the date      days, inform the borrower of the              this section; and
the holder receives either a denial of        determination. If the discharge is            (iv) During a period that does not
the request or the loan discharge             approved, the holder must also provide
                                                                                            exceed three consecutive years from
amount from the guaranty agency, in           the borrower with information regarding
                                                                                            the established repayment period start
accordance with paragraph (f) of this         any new repayment terms of remaining
                                                                                            date on each loan under the income-
section.                                      loan balances.
                                                                                            based repayment plan and that
(2) At the conclusion of a forbearance        (5) Unless otherwise instructed by the        excludes any period during which the
authorized under paragraph (e)(1) of          borrower, the holder must apply the           borrower receives an economic
this section, the holder must resume          proceeds of the teacher forgiveness           hardship deferment, if the borrower’s
collection activities and may capitalize      discharge first to any outstanding            monthly payment amount under the
any interest accrued and not paid             unsubsidized Federal Stafford loan            plan is not sufficient to pay the accrued
during the forbearance period in              balances, next to any outstanding             interest on the borrower’s loan or on the
accordance with Sec. 682.202(b).              subsidized Federal Stafford loan              qualifying portion of the borrower’s
                                              balances, then to any eligible                Consolidation Loan.
(3) Nothing in paragraph (e) of this
                                              outstanding Federal Consolidation loan        (2) The Secretary's obligation to pay
section restricts holders from offering
                                              balances.
other forbearance options to borrowers                                                      interest benefits on an otherwise
who do not meet the requirements of           (g) Claims for reimbursement from the         eligible loan terminates on the earliest
paragraph (e)(1)(i) of this section.          Secretary on loans held by guaranty           of—
(f) Application and processing. (1) A         agencies. In the case of a teacher loan       (i) The date the borrower's loan is
                                              forgiveness discharge applied to a
borrower, after completing the                                                              repaid;
                                              defaulted loan held by the guaranty
qualifying teaching service, requests                                                       (ii) The date the disbursement check is
                                              agency, the Secretary pays the
loan forgiveness from the holder of the
                                              guaranty agency a percentage of the           returned uncashed to the lender, or the
loan on a form approved by the                                                              120th day after the date of that
                                              amount discharged that is equal to the
Secretary.                                                                                  disbursement, except as provided in
                                              complement of the reinsurance
(2)(i) The holder must file a request for     percentage paid on the loan. The              paragraph (c)(4) of this section if—
payment with the guaranty agency on a         payment of up to $5,000, or up to             (A) The check for the disbursement has
teacher forgiveness discharge no later        $17,500, may also include interest that       not been cashed on or before that date;
than 60 days after the receipt, from the      accrues on the discharged amount              or
borrower, of a completed teacher loan         during the period from the date on
forgiveness application.                      which the guaranty agency received            (B) The proceeds of the disbursement
                                              payment from the Secretary on a               made by electronic funds transfer or
(ii) When filing a request for payment
                                              default claim to the date on which the        master check in accordance with Sec.
on a teacher forgiveness discharge, the
                                              guaranty agency determines that the           682.207(b)(1)(ii) (B) and (C) have not
holder must provide the guaranty                                                            been released from the account
agency with the completed loan                borrower is eligible for the teacher loan
                                              forgiveness discharge.                        maintained by the school on or before
forgiveness application submitted by
                                                                                            that date;
the borrower and any required                 (Approved by the Office of Management and
supporting documentation.                     Budget under control number 1845-0020)        (iii) The date of default by the borrower;
(iii) If the holder files a request for       (Authority: 20 U.S.C. 1078-10)                (iv) The date the lender receives
payment later than 60 days after the          [65 FR 65627, Nov. 1, 2000, as amended by     payment of a claim for loss on the loan;
receipt of the completed teacher loan         66 FR 34763, June 29, 2001; 71FR 45702,       (v) The date the borrower's loan is
forgiveness application form, interest        Aug. 9, 2006; 71 FR 64398, Nov. 1, 2006; 73
                                              FR 35495, June 23, 2008. Redesignated at
                                                                                            discharged in bankruptcy;
that accrued on the discharged amount
                                              73 FR 63249, Oct. 23, 2008; 74 FR 55995,      (vi) The date the lender determines that
after the expiration of the 60-day filing
                                              Oct. 29, 2009]                                the borrower has died or has become
period is ineligible for reimbursement by
the Secretary, and the holder must            Subpart C—Federal Payments of                 totally and permanently disabled;
repay all interest and special allowance      Interest and Special Allowance                (vii) The date the loan ceases to be
received on the discharged amount for                                                       guaranteed or ceases to be eligible for
                                              §682.300 Payment of interest
periods after the expiration of the 60-                                                     reinsurance under this part, with
                                              benefits on Stafford and
day filing period. The holder cannot                                                        respect to that portion of the loan that
                                              Consolidation loans.
collect from the borrower any interest                                                      ceases to be guaranteed or reinsured,
that is not paid by the Secretary under       (a) General. The Secretary pays a             regardless of whether the lender has
this paragraph.                               lender, on behalf of a borrower, a            filed a claim for loss on the loan with
                                              portion of the interest on a subsidized       the guarantor;
(3)(i) Within 45 days of receiving the
                                              Stafford loan and on all or a portion of a
holder's request for payment, the                                                           (viii) The date the lender determines
                                              qualifying Consolidation loan that meets
guaranty agency must determine if the                                                       that the borrower is eligible for loan
                                              the requirements under Sec. 682.301.
borrower meets the eligibility                                                              discharge under Sec. 682.402(d), (e),
                                              This payment is known as interest
requirements for loan forgiveness under                                                     or (l);
                                              benefits.
this section and must notify the holder
of its determination of the borrower's        (b) Covered interest. (1) The Secretary       (ix) The date on which the lender
eligibility for loan forgiveness under this   pays a lender the interest that accrues       determines the loan is legally
section.                                      on an eligible Stafford loan—                 unenforceable based on the receipt of
                                                                                            an identity theft report under Sec.
(ii) If the guaranty agency approves the      (i) During all periods prior to the           682.208(b)(3); or
discharge, it must, within the same 45-       beginning of the repayment period,
day period, pay the holder the amount         except as provided in paragraphs (b)(2)       (x) The date the borrower’s payment
of the discharge, up to $17,500, subject      and (c) of this section.                      under the income-based repayment
to paragraphs (c)(11), (d)(1), (d)(2) and                                                   plan is sufficient to pay the accrued
                                              (ii) During any period when the               interest on the borrower’s loan or the
(f)(2)(iii) of this section.                  borrower has an authorized deferment,         qualifying portion of the borrower’s
(4) After being notified by the guaranty      and, if applicable, a post-deferment          Consolidation Loan.
agency of its determination of the            grace period;
34 CFR 682.300


(3) Section 682.412 sets forth                FR 33352, June 28, 1994; 59 FR 61428,        (Approved by the Office of Management and
circumstances under which a lender            Nov. 30, 1994; 64 FR 18978, Apr. 16, 1999;   Budget under control number 1845-0020)
may be required to repay interest             64 FR 58959, Nov. 1, 1999; 66 FR 34763,
                                                                                           (Authority: 20 U.S.C. 1078, 1082, 1087-1)
                                              June 29, 2001; 71 FR 45703, Aug. 9, 2006;
benefits received on a loan guaranteed        72 FR 62002, Nov. 1, 2007; 73 FR 63252,      [57 FR 60323, Dec. 18, 1992, as amended at
by a guaranty agency.                         Oct. 23, 2008]                               58 FR 9120, Feb. 19, 1993; 59 FR 33352,
(c) Interest not covered. The Secretary                                                    June 28, 1994; 64 FR 18978, Apr. 16, 1999;
                                              §682.301 Eligibility of borrowers for        64 FR 58959, Nov. 1, 1999]
does not pay—                                 interest benefits on Stafford and
(1) Interest for which the borrower is not    Consolidation loans.                         §682.302 Payment of special
                                                                                           allowance on FFEL loans.
otherwise liable;                             (a) General. (1) To qualify for benefits
                                              on a Stafford loan, a borrower must          (a) General. The Secretary pays a
(2) Interest paid on behalf of the
                                              demonstrate financial need in                special allowance to a lender on an
borrower by a guaranty agency;
                                              accordance with Part F of the Act.           eligible FFEL loan. The special
(3) Interest that accrues on the first                                                     allowance is a percentage of the
disbursement of a loan for any period         (2) The Secretary considers a member         average unpaid principal balance of a
that is earlier than—                         of a religious order, group, community,      loan, including capitalized interest,
                                              society, agency, or other organization       computed in accordance with
(i) In the case of a subsidized Stafford      who is pursuing a course of study at an
loan disbursed by a check, 10 days                                                         paragraphs (c) and (f) of this section.
                                              institution of higher education to have      Special allowance is also paid on the
prior to the first day of the period of       no financial need if that organization—
enrollment for which the loan is                                                           unpaid accrued interest of a loan
intended or, if the loan is disbursed         (i) Has as its primary objective the         covered by §682.215(b)(7) computed in
after the first day of the period of          promotion of ideals and beliefs              the same manner as in paragraphs (c)
enrollment, 3 days after the                  regarding a Supreme Being;                   and (f), as applicable, except for this
disbursement date on the check;                                                            purpose the applicable interest rate
                                              (ii) Requires its members to forego
                                                                                           shall be deemed to be zero.
(ii) In the case of a loan disbursed by       monetary or other support substantially
electronic funds transfer or master           beyond the support it provides; and          Editor’s Note: The removal of the “,”
check, 3 days prior to the first day of                                                    after the words “capitalized interest”
                                              (iii)(A) Directs the member to pursue
the period of enrollment or, if the loan is                                                should be retained. Otherwise, the next
                                              the course of study; or                      phrase modifies “capitalized interest”
disbursed after the first day of the
period of enrollment, 3 days after            (B) Provides subsistence support to its      instead of “average principal balance.”
disbursement; or                              members.                                     (b) Eligible loans. (1) Except for non-
(iii) In the case of a loan disbursed         (3) A Consolidation loan borrower            subsidized Federal Stafford loans
through an escrow agent, 3 days prior         qualifies for interest benefits during       disbursed on or after October 1, 1981,
to the first day of the period of             authorized periods of deferment on the       for periods of enrollment beginning prior
enrollment or, if the loan is disbursed       portion of the loan that does not            to October 1, 1992, or as provided in
after the first day of the period of          represent HEAL loans if the loan             paragraphs (b)(2), (b)(3), or (e)(1) of
enrollment, 3 days after disbursement.        application was received by the              this section, FFEL loans that otherwise
                                              lender—                                      meet program requirements are eligible
(4) In the case of a loan disbursed on or                                                  for special allowance payments.
after October 1, 1992, interest on a loan     (i) On or after January 1, 1993 but prior
if—                                           to August 10, 1993;                          (2) For a loan made under the Federal
                                              (ii) On or after August 10, 1993, but        SLS or Federal PLUS Program on or
(i) The disbursement check is returned                                                     after July 1, 1987 and prior to July 1,
uncashed to the lender or the lender is       prior to November 13, 1997 if the loan
                                              consolidates only subsidized Stafford        1994, and for any Federal PLUS loan
notified that the disbursement made by                                                     made on or after July 1, 1998 or on or
electronic funds transfer or master           loans; and
                                                                                           after January 1, 2000 for any period
check will not be released from the           (iii) On or after November 13, 1997, for     prior to April 1, 2006, or under Sec.
restricted account maintained by the          the portion of the loan that repaid          682.209(e) or (f), no special allowance
school; or                                    subsidized FFEL loans and Direct             is paid for any period for which the
(ii) The check for the disbursement has       Subsidized Loans.                            interest rate calculated prior to applying
not been negotiated before the 120th          (b) Application for interest benefits. To    the interest rate maximum for that loan
day after the date of disbursement or         apply for interest benefits on a Stafford    does not exceed—
the disbursement made by electronic           loan, the student, or the school at the      (i) 12 percent in the case of a Federal
funds transfer or master check has not        direction of the student, must submit a      SLS or PLUS loan made prior to
been released from the restricted             statement to the lender pursuant to          October 1, 1992;
account maintained by the school              Sec. 682.603. The student must qualify
before that date.                                                                          (ii) 11 percent in the case of a Federal
                                              for interest benefits if the eligible
                                              institution has determined and               SLS loan made on or after October 1,
(d) Rate. (1) Except as provided in                                                        1992;
paragraph (d)(2) of this section, the         documented the student's amount of
Secretary pays the lender at the actual       need for a loan based on the student's       (iii) 10 percent in the case of a Federal
interest rate on a loan provided that the     estimated cost of attendance, estimated      PLUS loan made on or after
actual interest rate does not exceed the      financial assistance, and expected
                                                                                           October 1, 1992; or
applicable interest rate.                     family contribution as determined under
                                              part F of the Act.                           (iv) 9 percent in the case of a Federal
(2) For a loan disbursed prior to                                                          PLUS loan made on or after July 1,
December 15, 1968, or subject to a            (c) Use of loan proceeds to replace
                                                                                           1998.
binding commitment made prior to that         expected family contribution. A
                                              borrower may use the amount of a             (3) In the case of a subsidized Stafford
date, the Secretary pays an amount
                                              PLUS, unsubsidized Stafford loan,            loan disbursed on or after October 1,
during the repayment period equivalent
to 3 percent per year of the unpaid           State sponsored loan, or private             1992, the Secretary does not pay
                                              program loan obtained for a period of        special allowance on a disbursement
principal amount of the loan.
                                              enrollment to replace the expected           if—
(Authority: 20 U.S.C. 1078, 1082)             family contribution for that period of       (i) The disbursement check is returned
[57 FR 60323, Dec. 18, 1992, as amended at    enrollment.                                  uncashed to the lender or the lender is
59 FR 25746, May 17, 1994; 59
                                                                                           notified that the disbursement made by
34 CFR 682.302


electronic funds transfer or master          1, 1998 for interest that accrues during    obtained from the issuance of an
check will not be released from the          the borrower's in-school, grace, and        obligation of the—
restricted account maintained by the         authorized period of deferment;
                                                                                         (i) Maine Educational Loan Marketing
school; or                                   (B) 3.1 percent to the resulting            Corporation to the Student Loan
(ii) The check for the disbursement has      percentage for—                             Marketing Association pursuant to an
not been negotiated before the 120th         (1) A Federal Stafford Loan made on or      agreement entered into on January 31,
day after the date of disbursement or        after October 1, 1992 and prior to July     1984; or
the disbursement made by electronic          1, 1998, except as provided in              (ii) South Carolina Student Loan
funds transfer or master check has not       paragraph (c)(1)(iii)(A)(7) of this         Corporation to the South Carolina
been released from the restricted            section;                                    National Bank pursuant to an
account maintained by the school                                                         agreement entered into on July 30,
before that date.                            (2) A Federal SLS Loan made on or
                                             after October 1, 1992;                      1986.
(c) Rate. (1) Except as provided in                                                      (3)(i) Subject to paragraphs (c)(3)(iii),
paragraph (c)(2), (c)(3), or (e) of this     (3) A Federal PLUS Loan made on or
                                             after October 1, 1992 and prior to July     (c)(3)(iv), and (e) of this section, the
section, the special allowance rate for                                                  special allowance rate is that provided
an eligible loan during a 3-month period     1, 1998;
                                                                                         in paragraph (c)(3)(ii) of this section for
is calculated by—                            (4) A Federal PLUS Loan made on or          a loan made or guaranteed on or after
(i) Determining the average of the bond      after July 1, 1998 and prior to October     October 1, 1980 that was made or
equivalent rates of—                         1, 1998, except that no special             purchased with funds obtained by the
                                             allowance shall be paid any quarter         holder from—
(A) The quotes of the 3-month                unless the rate determined under Sec.
commercial paper (financial) rates in        682.202(a)(2)(v)(A) exceeds 9 percent;      (A) The proceeds of tax-exempt
effect for each of the days in such                                                      obligations originally issued prior to
quarter as reported by the Federal           (5) A Federal PLUS loan made on or          October 1, 1993;
Reserve in Publication H-15 (or its          after October 1, 1998 and prior to
                                             January 1, 2000, except that no special     (B) Collections or payments by a
successor) for such 3-month period for
                                             allowance shall be paid during any          guarantor on a loan that was made or
a loan for which the first disbursement                                                  purchased with funds obtained by the
is made on or after January 1, 2000; or      quarter unless the rate determined
                                             under Sec. 682.202(a)(2)(v)(A) exceeds      holder from obligations described in
(B) The 91-day Treasury bills auctioned                                                  paragraph (c)(3)(i)(A) of this section;
                                             9 percent;
during the 3-month period for a loan for                                                 (C) Interest benefits or special
which the first disbursement is made         (6) A Federal Consolidation Loan for
                                             which the application was received by       allowance payments on a loan that was
prior to January 1, 2000;
                                             the lender prior to January 1, 2000,        made or purchased with funds obtained
(ii) Subtracting the applicable interest                                                 by the holder from obligations
                                             except that no special allowance shall
rate for that loan;                          be paid during any quarter on a loan for    described in paragraph (c)(3)(i)(A) of
(iii) Adding—                                which the application was received on       this section;

(A)(1) 2.34 percent to the resulting         or after October 1, 1998 unless the         (D) The sale of a loan that was made or
                                             average of the bond equivalent rate of      purchased with funds obtained by the
percentage for a Federal Stafford loan
                                             the 91-day Treasury bills auctioned         holders from obligations described in
for which the first disbursement is made
                                             during that quarter, plus 3.1 percent,      paragraph (c)(3)(i)(A) of this section; or
on or after January 1, 2000;
                                             exceeds the rate determined under
                                                                                         (E) The investment of the proceeds of
(2) 2.64 percent to the resulting            Section 682.202(a)(4)(iv);
                                                                                         obligations described in paragraph
percentage for a Federal PLUS loan for
                                             (C) 3.25 percent to the resulting           (c)(3)(i)(A) of this section.
which the first disbursement is made on
                                             percentage, for a loan made on or after     (ii) The special allowance rate for a
or after January 1, 2000;
                                             November 16, 1986, but prior to
(3) 2.64 percent to the resulting                                                        loan described in paragraph (c)(3)(i) is
                                             October 1, 1992;
                                                                                         one-half of the rate calculated under
percentage for a Federal Consolidation
                                             (D) 3.25 percent to the resulting           paragraph (c)(1) of this section, except
Loan that was made based on an
                                             percentage, for a loan made on or after     that in applying paragraph (c)(1)(iii), 3.5
application received by the lender on or
                                             October 17, 1986 but prior to November      percent is substituted for the
after January 1, 2000;
                                             16, 1986, for a period of enrollment        percentages specified therein.
(4) 1.74 percent to the resulting            beginning on or after November 16,          (iii) The special allowance rate
percentage for a Federal Stafford loan       1986;
for which the first disbursement is made                                                 applicable to loans described in
                                             (E) 3.5 percent to the resulting            paragraph (c)(3)(i) of this section that
on or after January 1, 2000 during the
                                             percentage, for a loan made prior to        are made prior to October 1, 1992, may
borrower's in-school, grace, and
                                             October 17, 1986, or a loan described       not be less than—
authorized period of deferment;
                                             in paragraph (c)(2) of this section; or
                                                                                         (A) 2.5 percent per year on eligible
(5) 2.8 percent to the resulting
                                             (F) 3.5 percent to the resulting            loans for which the applicable interest
percentage for a Federal Stafford loan
                                             percentage, for a loan made on or after     rate is 7 percent;
for which the first disbursement is made
                                             October 17, 1986 but prior to November      (B) 1.5 percent per year on eligible
on or after July 1, 1998 and prior to
                                             16, 1986, for a period of enrollment
January 1, 2000;                                                                         loans for which the applicable interest
                                             beginning prior to November 16, 1986;
                                                                                         rate is 8 percent; or
(6) 2.2 percent to the resulting
percentage for a Federal Stafford loan       (iv) Rounding the result upward to the      (C) One-half of 1 percent per year on
for which the first disbursement is made     nearest one-eighth of 1 percent, for a      eligible loans for which the applicable
on or after July 1, 1998 and prior to        loan made prior to October 1, 1981;         rate is 9 percent.
January 1, 2000, during the borrower's       and
                                                                                         (iv) The special allowance rate
in-school, grace, and authorized period      (v) Dividing the resulting percentage by    applicable to loans described in
of deferment;                                4.                                          paragraph (c)(3)(i) of this section that
(7) 2.5 percent to the resulting             (2) The special allowance rate              are made on or after October 1, 1992,
percentage for a Federal Stafford loan       determined under paragraph                  may not be less than 9.5 percent minus
for which the first disbursement is made     (c)(1)(iii)(E) of this section applies to   the applicable interest rate.
on or after July 1, 1995 and prior to July   loans made or purchased from funds
34 CFR 682.302


(4) Loans made or purchased with               an identity theft report under Sec.            that is pledged or otherwise transferred
funds obtained by the holder from the          682.208(b)(3).                                 in consideration of funds other than
issuance of tax-exempt obligations             (2) In the case of a loan disbursed on or      those specified in paragraph (e)(2)(i) of
originally issued on or after October 1,       after October 1, 1992, the Secretary           this section either—
1993, and loans made with funds                does not pay special allowance on a            (A) At the rate prescribed in paragraph
derived from default reimbursement             loan if—                                       (c)(1) of this section, if—
collections, interest, or other income
related to eligible loans made or              (i) The disbursement check is returned         (1) The prior tax-exempt obligation is
purchased with those tax-exempt funds,         uncashed to the lender or the lender is        retired; or
do not qualify for the minimum special         notified that the disbursement made by
                                                                                              (2) The prior tax-exempt obligation is
allowance rate specified in paragraph          electronic funds transfer or master
                                                                                              defeased by means of obligations that
(c)(3)(iii) or (iv) of this section, and are   check will not be released from the
                                                                                              the Authority certifies in writing to the
not subject to the 50 percent limitation       account maintained by the school; or
                                                                                              Secretary bears a yield that does not
on the maximum rate otherwise                  (ii) The check for the disbursement has        exceed the yield restrictions of section
applicable to loans made with tax-             not been negotiated before the 120th           148 of the Internal Revenue Code and
exempt funds.                                  day after the date of disbursement or          the regulations there under, or
(5) For purposes of paragraphs (c)(3)          the disbursement made by electronic            (B) At the rate prescribed in paragraph
and (c)(4), a loan is purchased with           funds transfer or master check has not
                                                                                              (c)(3) of this section.
funds described in those paragraphs            been released from the account
when the loan is refinanced in                 maintained by the school before that           (3) Loans affected by transactions or
consideration of those funds.                  date.                                          events after September 30, 2004. The
                                                                                              Secretary pays a special allowance to
(d) Termination of special allowance           (3) Section 682.413 sets forth the
                                                                                              an Authority at the rate prescribed in
payments on a loan. (1) The                    circumstances under which a lender
                                                                                              paragraph (c)(1) of this section if, after
Secretary's obligation to pay special          may be required to repay the special
                                                                                              September 30, 2004—
allowance on a loan terminates on the          allowance received on a loan
earliest of—                                   guaranteed by a guaranty agency.               (i) The loan is refinanced with funds
                                                                                              other than those listed in paragraph
(i) The date a borrower's loan is repaid;      (e) Limits on special allowance
                                                                                              (e)(2)(i) of this section;
                                               payments on loans made or purchased
(ii) The date a borrower's loan check is       with funds derived from tax-exempt             (ii) The loan is sold or transferred to
returned uncashed to the lender;               obligations.                                   any other holder; or
(iii) The date a lender receives               (1) General. (i) The Secretary pays a          (iii)(A) The loan is financed by a tax-
payment on a claim for loss on the loan;       special allowance on a loan described          exempt obligation included in the
(iv) The date a loan ceases to be              in paragraph (c)(3) or (c)(4) of this          sources in paragraph (e)(2)(i), and
guaranteed or ceases to be eligible for        section that is held by or on behalf of an     (B) That obligation matures, is
reinsurance under this part, with              Authority only if the loan meets the           refunded, is defeased, or is retired,
respect to that portion of the loan that       requirements of Sec. 682.800.                  whichever occurs earliest.
ceases to be guaranteed or reinsured,          (ii) The Secretary pays a special
regardless of whether the lender has                                                          (4) Loans Affected by Transactions
                                               allowance at the rate prescribed in            After February 7, 2006. Except as
filed a claim for loss on the loan with        paragraph (c)(1) or (c)(3) of this section
the guarantor;                                                                                provided in paragraph (e)(5) or (f) of
                                               on a loan described in paragraph               this section, the Secretary pays a
(v) The 60th day after the borrower's          (c)(3)(i) of this section that is held by or   special allowance at the rate prescribed
default on the loan, unless the lender         on behalf of an Authority in accordance        in paragraph (c)(1) of this section on
files a claim for loss on the loan with the    with paragraphs (e)(2) through (e)(5) of       any loan—
guarantor together with all required           this section, as applicable. References
documentation, on or before the 60th           to “loan” or “loans” in paragraphs (e)(2)      (i) That was made or purchased on or
day;                                           through (e)(5) include only loans              after February 8, 2006, or
(vi) The 120th day after the date of           described in paragraph (c)(3)(i).              (ii) That was not earning, on February
disbursement, if—                              (2) Effect of Refinancing on Special           8, 2006, a quarterly rate of special
                                               Allowance Payments. Except as                  allowance determined under paragraph
(A) The loan check has not been                                                               (c)(3) of this section.
                                               provided in paragraphs (e)(3) through
cashed on or before that date; or
                                               (e)(5) of this section—                        (5) Loans affected by transactions after
(B) the loan proceeds disbursed by                                                            December 30, 2010. (i) The Secretary
                                               (i) The Secretary pays a special
electronic funds transfer or master                                                           pays a special allowance to a holder
                                               allowance at the rate prescribed in
check in accordance with Sec.                                                                 described in paragraph (e)(5)(ii) of this
                                               paragraph (c)(3) of this section to an
682.207(b)(1)(ii) (B) and (C) have not                                                        section at the rate prescribed in
                                               Authority that holds a legal or equitable
been released from the restricted                                                             paragraph (c)(3) of this section only on
                                               interest in the loan that is pledged or
account maintained by the school on or                                                        a loan—
                                               otherwise transferred in consideration
before that date;
                                               of—                                            (A) That was made or purchased prior
(vii) The 30th day after the date the                                                         to December 31, 2010, or
                                               (A) Funds listed in paragraph (c)(3)(i) of
lender received a returned claim from
                                               this section;                                  (B) That was earning, before December
the guaranty agency on a loan
submitted by the deadline specified in         (B) Proceeds of a tax-exempt refunding         31, 2010, a quarterly rate of special
(d)(1)(v) of this section for loss on the      obligation that refinances a debt that—        allowance determined under paragraph
loan to the lender due solely to                                                              (c)(3) of this section.
                                               (1) Was first incurred pursuant to a tax-
inadequate documentation unless the                                                           (ii) A holder for purposes of this
                                               exempt obligation originally issued prior
lender files a claim for loss on the loan                                                     paragraph is an entity that—
                                               to October 1, 1993;
with the guarantor, together with all
required documentation, prior to the           (2) Has been financed continuously by          (A) On February 8, 2006 and during the
30th day; or                                   tax-exempt obligation.                         quarter for which special allowance is
                                                                                              determined under this paragraph—
(viii) The date on which the lender            (ii) The Secretary pays a special
determines the loan is legally                 allowance to an Authority that holds a
unenforceable based on the receipt of          legal or equitable interest in the loan
34 CFR 682.302


(1) Is a unit of State or local              (iii) Adding—                                    from or at the direction of that State or
government or a private nonprofit entity,    (A) 1.94 percent to the resulting                non-profit entity or from a special
and                                                                                           purpose entity established by that State
                                             percentage for a Federal Stafford loan;
(2) Is not owned or controlled by, or                                                         or non-profit entity.
                                             (B) 1.34 percent to the resulting
under common ownership or control by,                                                         (iii) An entity that otherwise qualifies
                                             percentage for a Federal Stafford Loan
a for-profit entity; and                     during the borrower's in-school period,          under paragraph (f)(3)(i) of this section
(B) In the most recent quarterly special                                                      shall not be considered an eligible not-
                                             grace period and authorized period of
allowance payment prior to September         deferment;                                       for-profit holder unless such entity—
30, 2005, held, directly or through any      (C) 1.94 percent to the resulting                (A) Was a State or non-profit entity and
subsidiary, affiliate, or trustee, a total   percentage for a Federal PLUS loan;              an eligible lender under section 435(d)
unpaid balance of principal of                                                                of the Act, other than a school lender,
                                             and
$100,000,000 or less for which special                                                        and on or before September 27, 2007
allowance was determined and paid            (D) 2.24 percent to the resulting                had made or acquired a FFEL loan,
under paragraph (c)(3) of this section.      percentage for a Federal Consolidation           unless the State waives this
                                             loan; and                                        requirement under paragraph (f)(3)(iv)
(f) Special allowance rates for loans
made on or after October 1, 2007. With       (iv) Dividing the resulting percentage by        of this section; or
respect to any loan for which the first      4.                                               (B) Is acting as an eligible lender
disbursement of principal is made on or      (3) Eligible Not-for-Profit Holder. (i) For      trustee on behalf of a State or non-profit
after October 1, 2007, other than a loan     purposes of this section, the term               entity that was the sole beneficial owner
described in paragraph (e)(5) of this        “eligible not-for-profit holder” means an        of a loan eligible for a special allowance
section, the special allowance rate for      eligible lender under section 435(d) of          payment on September 27, 2007.
an eligible loan made during a 3-month       the Act (except an eligible institution)         (iv) Subject to the provisions of section
period is calculated according to the        that requests special allowance                  435(d)(1)(D) of the Act, a State may
formulas described in paragraphs (f)(1)      payments from the Secretary and that             waive the requirement of paragraph
and (f)(2) of this section.                  is—                                              (f)(3)(iii)(A) of this section to identify a
(1) Except as provided in paragraph          (A) A State, or a political subdivision,         new eligible not-for-profit holder
(f)(2) of this section, the special          authority, agency, or other                      pursuant to a written application filed in
allowance formula shall be computed          instrumentality thereof, including such          accordance with paragraph (f)(3)(x) of
by—                                          entities that are eligible to issue bonds        this section, for the purposes of
(i) Determining the average of the bond      described in 26 CFR 1.103-1, or section          carrying out a public purpose of the
equivalent rates of the quotes of the 3-     144(b) of the Internal Revenue Code of           State, except that a State may not
month commercial paper (financial)           1986;                                            designate a trustee for this purpose.
rates in effect for each of the days in      (B) An entity described in section               (v) A State or non-profit entity, and a
such quarter as reported by the Federal      150(d)(2) of the Internal Revenue Code           trustee to the extent acting on behalf of
Reserve in Publication H-15 (or its          of 1986 that has not made the election           such an entity or its related special
successor) for such 3-month period;          described in section 150(d)(3) of that           purpose entity, shall not be an eligible
(ii) Subtracting the applicable interest     Code;                                            not-for-profit holder if the State or non-
rate for that loan;                                                                           profit entity or its related special
                                             (C) An entity described in section               purpose entity is owned or controlled, in
(iii) Adding—                                501(c)(3) of the Internal Revenue Code           whole or in part, by a for-profit entity.
                                             of 1986; or                                      For purposes of this paragraph, a for-
(A) 1.79 percent to the resulting
percentage for a Federal Stafford loan;      (D) A trustee acting as an eligible              profit entity has ownership and control
                                             lender on behalf of an entity that is not        of a State or non-profit entity, or its
(B) 1.19 percent to the resulting            an eligible institution and that is a State      related special purpose entity, if—
percentage for a Federal Stafford            or non-profit entity or a special purpose        (A) The for-profit entity is a member or
Loan during the borrower's in-school         entity for a State or non-profit entity.         shareholder of a State or non-profit
period, grace period and authorized                                                           entity or related special purpose entity
                                             (ii) For purposes of paragraph (f)(3) of
period of deferment;                                                                          that is a membership or stock
                                             this section—
(C) 1.79 percent to the resulting                                                             corporation, and the for-profit entity has
                                             (A) The term “State or non-profit entity”        sufficient power to control the State or
percentage for a Federal PLUS loan;          means an entity described in paragraph
and                                                                                           non-profit entity or its special purpose
                                             (f)(3)(i)(A), (f)(3)(i)(B), or (f)(3)(i)(C) of   entity;
(D) 2.09 percent to the resulting            this section, regardless of whether such
percentage for a Federal Consolidation       entity is an eligible lender under section       (B) The for-profit entity employs or
loan; and                                    435(d) of that Act.                              appoints individuals that together
                                                                                              constitute a majority of the State, non-
(iv) Dividing the resulting percentage by    (B) The term “special purpose entity”            profit, or special purposes entity’s board
4.                                           means an entity established for the              of trustees or directors, or a majority of
(2) For loans held by an eligible not-for-   limited purpose of financing the                 such board’s audit committee,
profit holder as defined in paragraph        acquisition of loans from or at the              executive committee, or compensation
                                             direction of a State or non-profit entity,       committee; or
(f)(3) of this section, the special
allowance formula shall be computed          or servicing and collecting such loans,
                                             and that is—                                     (C) For a State, non-profit, or special
by—                                                                                           purpose entity that has no board of
(i) Determining the average of the bond      (1) An entity established by such State          trustees or directors and associated
                                             or non-profit entity, or                         committees of such, the for-profit entity
equivalent rates of the quotes of the 3-
month commercial paper (financial)           (2) An entity established by an entity           is authorized by law, agreement, or
rates in effect for each of the days in      described in paragraph (f)(3)(ii)(B)(1) of       otherwise to approve decisions by the
such quarter as reported by the Federal      this section.                                    entity regarding its audits, investments,
Reserve in Publication H-15 (or its                                                           hiring, retention, or compensation of
                                             (C) A special purpose entity is a
successor) for such 3-month period;                                                           officials, unless the Secretary
                                             “related special purpose entity” with
                                                                                              determines that the particular authority
(ii) Subtracting the applicable interest     respect to a State or non-profit entity if
                                                                                              to approve such decisions is not likely
rate for that loan;                          it holds any interest in loans acquired
                                                                                              to affect the integrity of those decisions.
34 CFR 682.302


(vi) For purposes of paragraph (f)(3) of      loan is considered to retain that sole          (A) A certification on the State or non-
this section—                                 ownership for purposes of paragraph             profit entity’s letterhead signed by the
                                              (f)(3)(vii)(A) of this section if such entity   State or non-profit entity’s Chief
(A) A for-profit entity has sufficient
                                              transferred beneficial interest in the          Executive Officer (CEO) which--
power to control a State or non-profit
entity or its related special purpose         loan to its related special purpose entity      (1) States the basis upon which the
                                              and no party other than that State or
entity, if it possesses directly, or                                                          entity qualifies as a State or non-profit
represents, either alone or together with     non-profit entity or its related special        entity;
other persons, under a voting trust,          purpose entity owns any beneficial
                                              interest or residual ownership interest in      (2) Includes documentation establishing
power of attorney, proxy, or similar                                                          its status as a State or non-profit entity;
agreement, one or more persons who            the loan or income from the loan.
hold, individually or in combination with     (viii)(A) A trustee described in                (3) Includes the name and lender
the other person represented or the           paragraph (f)(3)(i)(D) of this section          identification number(s) of the entities
persons representing them, a sufficient       shall not receive compensation as               for which designation is being certified;
voting percentage of the membership           consideration for acting as an eligible         (4) Includes the name of any related
interests or voting securities to direct or   lender on behalf of a State or non-profit       special purpose entities that hold any
cause the direction of the management         entity or its related special purpose           interest in any loan on which special
and policies of the State or non-profit       entity in excess of reasonable and              allowance is claimed under paragraph
entity or its related special purpose         customary fees paid for providing the           (f)(2) of this section, describes the role
entity.                                       particular service or services that the         of such entity with respect to the loans,
(B) An individual is deemed to be             trustee undertakes to provide to such           and provides with respect to that entity
employed or appointed by a for-profit         entity.                                         the certifications and documentation
entity if the for-profit entity employs a     (B) Fees are reasonable and                     described in paragraph (f)(3)(x)(A) and
family member, as defined in                  customary, for purposes of this                 (B) of this section; and
§600.21(f), of that individual, unless the    paragraph (f)(3)(viii), if they do not           (5) For an entity establishing status
Secretary determines that the particular      exceed the amounts received by the              under section 150(d) of the Internal
nature of the family member’s                 trustee for similar services with regard        Revenue Code of 1986, includes copies
employment is not likely to affect the        to similar portfolios of loans of that          of the requests of the State or political
integrity of decisions made by the board      State or non-profit entity or its related       subdivision or subdivisions thereof or
or committee member.                          special purpose entity that are not             requirements described in section
(C) “Beneficial owner” (including             eligible to receive special allowance at        150(d)(2) of the Internal Revenue Code
                                              the rate established under paragraph            and the CEO’s additional certification
“beneficial ownership” and “owner of a
beneficial interest”) means the entity        (f)(2) of this section, or if they do not       that the entity has not elected under
that has those rights with respect to the     exceed an amount as determined by               section 150(d)(3) of the Internal
                                              such other method requested by the              Revenue Code to cease its status as a
loan or income from the loan that are
the normal incidents of ownership,            State or non-profit entity that the             qualified scholarship funding
including the right to receive, possess,      Secretary considers reliable.                   corporation.
use, and sell or otherwise exercise           Editor’s Note: The word “this” needs to         (B) A separately submitted certification
control over the loan and the income          be removed.                                     or opinion by the State or non-profit
from the loan, subject to any rights          (C) Loans owned by the State or non-            entity’s external legal counsel or the
granted and limitations imposed in                                                            office of the attorney general of the
                                              profit entity or a related special purpose
connection with or related to the                                                             State, with supporting documentation
                                              entity for which the trustee receives
granting of a security interest described                                                     that shows that the State or non-profit
                                              fees in excess of the amount permitted
in paragraph (f)(3)(ix) of this section,                                                      entity—
                                              by paragraph (f)(3)(viii) of this section
and subject to any limitations on such
                                              cease to qualify for a special allowance        (1) Is constituted a State entity by
rights under the Act as a result of such
                                              payment at the rate prescribed under            operation of specific State law;
entity not qualifying as an eligible
                                              paragraph (f)(2) of this section.
lender or holder under the Act.                                                               (2) Has been designated by the State
                                              (ix) For purposes of paragraph (f)(3) of        or one or more political subdivisions of
(D) “Sole owner” means the entity that
                                              this section, if a State or non-profit          the State to serve as a qualified
has all the rights described in
                                              entity, its related special purpose entity,     scholarship funding corporation under
paragraph (f)(3)(vi)(C) of this section,
                                              or a trustee acting on behalf of any of         section 150(d) of the Internal Revenue
which may be subject to the rights and
                                              these entities, grants a security interest      Code, has not made the election
limitations described in paragraph
                                              in, or otherwise pledges as collateral, a       described under section 150(d)(3) of
(f)(3)(vi)(C), to the exclusion of any
                                              loan, or the income from a loan, to             the Internal Revenue Code, and is
other entity, with respect both to a loan
                                              secure a debt obligation for which such         incorporated under State law as a not-
and the income from a loan.
                                              State or non-profit entity, or its related      for-profit organization.
(vii)(A) No State or non-profit entity,       special purpose entity, is the issuer of
and no trustee to the extent acting on        that debt obligation, none of these             (3) Is incorporated under State law as a
behalf of such a State or non-profit          entities shall, by such action—                 not-for-profit organization or is an entity
entity or its related special purpose                                                         described in section 503(c)(3) of the
                                              (A) Be deemed to be owned or                    Internal Revenue Code; or
entity, shall be an eligible not-for-profit   controlled, in whole or in part, by a for-
holder with respect to any loan or                                                            (4) Has in effect a relationship with an
                                              profit entity; or
income from any loan on which                                                                 eligible lender under which the lender is
payment is claimed at the rate                (B) Lose its status as the sole owner of        acting as trustee on behalf of the State
established under paragraph (f)(2) of         a beneficial interest in a loan and the         or non-profit entity.
this section, unless such State or non-       income from a loan.
profit entity or its related special                                                          (xi) Annual Certification by Eligible Not-
                                              (x) Not-for-Profit Holder Eligibility           for-Profit Holder. A State or non-profit
purpose entity is the sole owner of the       Determination. A State or non-profit
beneficial interest in such loan and the                                                      entity that seeks to retain its eligibility
                                              entity that seeks to qualify as an eligible     as an eligible not-for-profit holder, either
income from such loan.                        not-for-profit holder, either in its own        in its own right or through a trust
(B) A State or non-profit entity that had     right or through a trust agreement with         agreement with an eligible lender
sole ownership of the beneficial interest     an eligible lender trustee, must provide        trustee, must annually provide to the
in a loan and the income from such            to the Secretary—                               Secretary—
34 CFR 682.302


(A) A certification on the State or non-        on the date of the sale, no longer be         §682.303 [Reserved]
profit entity’s letterhead signed by the        calculated under paragraph (f)(2) and         §682.304 Methods for computing
State or non-profit entity’s Chief              shall be calculated under paragraph
                                                                                              interest benefits and special
Executive Office (CEO) which—                   (f)(1) of this section instead.               allowance.
(1) Includes the name and lender                (4) In the case of a loan for which the
                                                                                              (a) General. The Secretary pays a
identification number(s) of the entities        special allowance payment is
                                                                                              lender interest benefits and special
for which designation is being                  calculated under paragraph (f)(2) of this
                                                                                              allowance on eligible loans on a
recertified;                                    section and that is sold by the eligible
                                                                                              quarterly basis. These calendar
                                                not-for-profit holder holding the loan to
(2) States that the State or non-profit                                                       quarters end on March 31, June 30,
                                                an entity that is not an eligible not-for-
entity has not altered its status as a                                                        September 30, and December 31 of
                                                profit holder, the special allowance
State or non-profit entity since its prior                                                    each year. A lender may use either the
                                                payment for such loan shall, beginning
certification to the Secretary, or, if it has                                                 average daily balance method or the
                                                on the date of the sale, no longer be
altered its status, describes any such                                                        actual accrual method to determine the
                                                calculated under paragraph (f)(2) and
alterations; and                                                                              amount of interest benefits payable on
                                                shall be calculated under paragraph
(3) States that the State or non-profit                                                       a lender's loans. A lender shall use the
                                                (f)(1) of this section instead.
entity continues to satisfy the                                                               average daily balance method to
                                                (g) For purposes of this section—             determine the balance on which the
requirements of an eligible not-for-profit
holder, either in its own right or through                                                    Secretary computes the amount of
                                                (1) A tax-exempt obligation is an
a trust agreement with an eligible                                                            special allowance payable on its loans.
                                                obligation the income of which is
lender trustee; and                             exempt from taxation under the Internal       (b) Average daily balance method for
                                                Revenue Code of 1986 (26 U.S.C.);             interest benefits. (1) Under this method,
(B) A copy of its IRS Form 990, if
applicable, and that of any related                                                           the lender adds the unpaid principal
                                                (2) The date on which an obligation is
special purpose entity that holds an                                                          balance outstanding on all loans
                                                considered to be “originally issued” is       qualifying for interest benefits at each
interest in loans on which it seeks to          determined under Sec. 682.302(f)(2)(i)
claim special allowance at the rate                                                           actual interest rate for each day of the
                                                or (ii), as applicable.                       quarter, divides the sum by the number
provided under paragraph (f)(2) of this
section, at the same time these returns         (i) An obligation issued to obtain funds      of days in the quarter, and rounds the
are filed with the Internal Revenue             to make loans, or to purchase a legal or      result to the nearest whole dollar. The
                                                equitable interest in loans, including by     resulting figure is the average daily
Service.
                                                pledge as collateral for that obligation,     balance for qualified loans outstanding
(xii) Not-for-Profit Holder Change of           is considered to be originally issued on      at each actual interest rate.
Status. Within 10 business days of              the date issued.                              (2) The Secretary computes the interest
becoming aware of the occurrence of a
                                                (ii) A tax-exempt obligation that             benefits due on all qualified loans at
change that may result in a State or
non-profit entity that has been                 refunds, or is one of a series of tax-        each actual interest rate by multiplying
designated an eligible not-for-profit           exempt refundings with respect to a           the average daily balance thereof by
                                                tax-exempt obligation described in Sec.       the actual interest rate, multiplying this
holder, either directly or through an
eligible lender trustee, losing that            682.302(f)(2)(i), is considered to be         result by the number of days in the
eligibility, the State or non-profit entity     originally issued on the date on which        quarter, and then dividing this result by
                                                the obligation described in Sec.              the actual number of days in the year.
must—
                                                682.302(f)(2)(i) was issued.                  (c) Actual accrual method for interest
(A) Submit details of the change to the
                                                (3) A loan is refinanced when an              benefits. (1) Under this method, the
Secretary; and
                                                Authority that has pledged the loan as        lender computes the total unpaid
(B) Cease billing for special allowance         collateral for an obligation of that          principal balance outstanding on all
at the rate established under paragraph         Authority retains an interest in the loan,    qualified loans at each actual interest
(f)(2) of this section for the period from      but causes the loan to be released from       rate on each day of the quarter,
the date of the change that may result          the lien of that obligation and pledged       multiplies this result by the actual
in it no longer being eligible for the rate     as collateral for a different obligation of   interest rate, and divides this result by
established under paragraph (f)(2) of           that Authority.                               the actual number of days in the year,
this section to the date of the                                                               or, alternatively, 365.25 days. A lender
                                                (4) References to an Authority include a
Secretary’s determination that such                                                           who chooses to divide by 365.25days
entity has not lost its eligibility as a        successor entity that may not qualify as
                                                                                              must do so for four consecutive years.
result of such change; provided,                an Authority under Sec. 682.200(b).
                                                                                              (2) The interest benefits due for a
however, that in the quarter following          (h) Calculation of special allowance
                                                                                              quarter equal the sum of the daily
the Secretary’s determination that such         payments for loans subject to the
eligible not-for-profit holder has not lost                                                   interest benefits due, computed under
                                                Servicemembers Civil Relief Act (50
its eligibility, the eligible not-for-profit    U.S.C. 527, App. sec. 207). For FFEL          paragraph (c)(1) of this section, for
                                                                                              each day of the quarter.
holder may submit a billing for special         Program loans first disbursed on or
allowance during the period from the            after July 1, 2008 that are subject to the    (d) Average daily balance method for
date of the change to the date of the           interest rate limit under the                 special allowance. (1) To compute the
Secretary’s determination equal to the          Servicemembers Civil Relief Act,              average daily balance outstanding for
difference between special allowance at         special allowance is calculated in            purposes of special allowance, the
the rate established under paragraph            accordance with paragraphs (c) and (f)        lender adds the unpaid principal
(f)(2) of this section and the amount it        of this section, except the applicable        balance outstanding on all qualified
actually billed at the rate established         interest rate for this purpose shall be 6     loans at each applicable interest rate
under paragraph (f)(1) of this section.         percent.                                      for each day of the quarter, divides this
(xiii) In the case of a loan for which the      [57 FR 60323, Dec. 18, 1992, as amended at    sum by the number of days in the
                                                59 FR 25746, May 17, 1994; 59 FR 33353,       quarter, and rounds the result to the
special allowance payment is
calculated under paragraph (f)(2) of this       June 28, 1994; 59 FR 61428, Nov. 30, 1994;    nearest whole dollar. The resulting
section and that is sold by the eligible        64 FR 18978, Apr. 16, 1999; 64 FR 58626,      figure is the average daily balance for
                                                Oct. 29, 1999; 66 FR 34763, June 29, 2001;    the quarter for qualifying loans at each
not-for-profit holder holding the loan to       68 FR 75429, Dec. 31, 2003; 71 FR 45703,
an entity that is not an eligible not-for-                                                    applicable interest rate.
                                                Aug. 9, 2006; 71 FR 64398, Nov. 1, 2006; 72
profit holder, the special allowance            FR 62002, Nov. 1, 2007; 74 FR 55996, Oct.     (2) To compute the average daily
payment for such loan shall, beginning          29, 2009]                                     balance of unpaid accrued interest for
34 CFR 682.305


purposes of special allowance on loans       (iii) The Secretary collects from an         for credit against a debt that the
covered by §682.215(b)(7), the lender        originating lender the amount of             Federal agency has determined the
adds the unpaid accrued interest on          origination fees the originating lender      lender owes.
such loans for each eligible day of the      was authorized to collect from               (2) Penalty interest is an amount that
quarter, divides this sum by the number      borrowers during the quarter whether or
                                                                                          accrues daily on interest benefits and
of days in the quarter, and rounds the       not the originating lender actually
                                                                                          special allowance due to the lender.
result to the nearest whole dollar. The      collected those fees. The Secretary
                                                                                          The penalty interest is computed by—
resulting figure is the average daily        also collects the fees the originating
balance for the quarter for qualifying       lender is required to pay under              (i) Multiplying the daily interest rate
loans at the applicable interest rate.       paragraph (a)(3)(ii) of this section.        applicable to loans on which payment
                                             Generally, the Secretary collects the        for interest benefits was requested, by
(3) The Secretary computes the special
                                             fees from the originating lender by          the amount of interest benefits due on
allowance payable to a lender based                                                       those loans for each interest rate;
                                             offsetting the amount of interest
upon the average daily balance
                                             benefits and special allowance payable       (ii) Multiplying the daily special
computed by the lender under
                                             to the originating lender in a quarter,      allowance rate applicable to loans on
paragraphs (d)(1) and (2) of this
                                             and, if necessary, the amount of             which special allowance was requested
section.
                                             interest benefits and special allowance      by the amount of special allowance due
(Authority: 20 U.S.C. 1082, 1087-1)          payable in subsequent quarters may be        on those loans for each interest rate
[57 FR 60323, Dec. 18, 1992, as amended at   offset until the total amount of fees has    and special allowance category;
73 FR 63254, Oct. 23, 2008]                  been recovered.
                                                                                          (iii) Adding the results of paragraphs
§682.305 Procedures for payment of           (iv) If the full amount of the fees cannot   (b)(2)(i) and (ii) of this section to
interest benefits and special                be collected within two quarters by          determine the gross penalty interest to
allowance and collection of                  reducing interest and special allowance      be paid for each day that penalty
origination and loan fees.                   payable to the originating lender, the       interest is due;
(a) General. (1) If a lender owes            Secretary may collect the unpaid
                                             amount directly from the originating         (iv) Dividing the results of paragraph
origination fees or loan fees under                                                       (b)(2)(iii) of this section by the gross
paragraph (a) of this section, it must       lender.
                                                                                          amount of interest benefits and special
submit quarterly reports to the              (v) If the full amount of the fees cannot    allowance due to obtain the average
Secretary on a form provided or              be collected within two quarters from        penalty interest rate;
prescribed by the Secretary, even if the     the originating lender in accordance
lender is not owed, or does not wish to      with paragraphs (a)(3)(iii) and (iv) of      (v) Multiplying the rate obtained in
receive, interest benefits or special        this section and if the originating lender   paragraph (b)(2)(iv) of this section by
allowance from the Secretary.                has transferred the loan to a                the total amount of reduction to gross
                                             subsequent holder, the Secretary may,        interest benefits and special allowance
(2) The lender shall report, on the                                                       due (e.g., origination fees or other
quarterly report required by paragraph       following written notice, collect the
                                             unpaid amount from the holder by using       debts owed to the Federal
(a)(1) of this section, the amount of                                                     Government);
origination fees it was authorized to        the same steps described in
collect and the amount of those fees         paragraphs (a)(3)(iii) and (iv) of this      (vi) Subtracting the amount calculated
refunded to borrowers during the             section, with the term “holder”              in paragraph (b)(2)(v) of this section
quarter covered by the report.               substituting for the term “originating       from the amount calculated under
                                             lender”.                                     paragraph (b)(2)(iii) of this section to
(3)(i)(A) The Secretary reduces the                                                       obtain the net amount of penalty
amount of interest benefits and special      (4) If an originating lender sells or
                                             otherwise transfers a loan to a new          interest due per day; and
allowance payable to the lender by—
                                             holder, the originating lender remains       (vii) Multiplying the amount calculated
(1) The amount of origination fees the       liable to the Secretary for payment of       in paragraph (b)(2)(vi) of this section by
lender was authorized to collect during      the origination fees. The Secretary will     the number of days calculated under
the quarter under Sec. 682.202(c),           not pay interest benefits or special         paragraph (b)(3) of this section.
whether or not the lender actually           allowance to the new holder or pay
collected that amount; and                   reinsurance to the guaranty agency           (3) The Secretary pays penalty interest
                                             until the origination fees are paid to the   for the period—
(2) The amount of lender fees payable
under paragraph (a)(3)(ii) of this           Secretary.                                   (i) Beginning on the later of—
section; and                                 (b) Penalty interest. (1)(i) If the          (A) The 31st day after the final day of
(3) The amount of excess interest, as        Secretary does not pay interest benefits     the quarter covered by the request for
calculated in accordance with                or the special allowance within 30 days      payment; or
paragraph (d) of this section.               after the Secretary receives an
                                                                                          (B) The 31st day after the Secretary's
                                             accurate, timely, and complete request
(B) The Secretary increases the                                                           receipt of an accurate, timely, and
                                             for payment from a lender, the
amount of interest benefits and special                                                   complete request for payment from the
                                             Secretary pays the lender penalty
allowance payable to the lender by the                                                    lender; and
                                             interest.
amount of origination fees refunded to                                                    (ii) Ending on the day the Secretary
borrowers during the quarter under           (ii) The payment of interest benefits or
                                                                                          pays the interest benefits and the
Sec. 682.202(c).                             special allowance is deemed to occur,
                                                                                          special allowance at issue, in
                                             for purposes of this paragraph, when
(ii)(A) For any FFEL loan made on or                                                      accordance with paragraph (b)(1)(ii) of
                                             the Secretary—
after October 1, 1993, a lender shall                                                     this section.
pay the Secretary a loan fee equal to        (A) Authorizes the Treasury
                                                                                          (4) A request for interest benefits and
0.50% of the principal amount of the         Department to pay the lender;
                                                                                          special allowance is considered timely
loan.                                        (B) Credits the payment due the lender       only if it is received by the Secretary
(B) For any FFEL loan made on or after       against a debt that the Secretary            within 90 days following the end of the
October 1, 2007, a lender shall pay the      determines is owed the Secretary by          quarter to which the request pertains.
Secretary a loan fee equal to 1.0            the lender; or
                                                                                          (5) A request for interest benefits and
percent of the principal amount of the       (C) Authorizes the Treasury                  special allowance is not considered
loan.                                        Department to pay the amount due by          accurate and complete if it—
                                             the lender to another Federal agency
34 CFR 682.305


(i) Requests payments to which the             (vi) With regard to a school that makes      successor) for such 3-month period;
lender is not entitled under Sec. Sec.         or originates loans, the audit               plus
682.300 through 682.302;                       requirements are in 34 CFR Sec.              (ii) 2.34 percent for a Federal Stafford
(ii) Includes loans that the Secretary, in     682.601(a)(7); and                           loan in repayment;
writing, has directed that the lender          (vii) With regard to a lender serving as     (iii) 1.74 percent for a Federal Stafford
exclude from the request;                      a trustee for the purpose of originating     loan during the in-school, grace, and
                                               loans for a school or school-affiliated      deferment periods; or
(iii) Does not contain all information
                                               organization, the audit must include a
required by the Secretary or contains                                                       (iv) 2.64 percent for a Federal PLUS or
                                               determination that—
conflicting information; or                                                                 Consolidation Loan.
                                               (A) Except as provided in paragraph
(iv) Is not provided and certified on the                                                   (Approved by the Office of Management and
                                               (c)(2)(vii)(B) of this section, the school
form and in the manner prescribed by                                                        Budget under control number 1845-0020)
                                               used all proceeds from special
the Secretary.
                                               allowance payments, interest subsidies       (Authority: 20 U.S.C. 1077, 1078, 1078-1,
(c) Independent audits. (1)(i) A lender        received from the Department, and any        1078-2, 1078-3, 1082, 1087-1)
originating or holding more than $5            proceeds from the sale or other              [57 FR 60323, Dec. 18, 1992, as amended at
million in FFEL loans during its fiscal        disposition of the loans originated          58 FR 9119, Feb. 19, 1993; 59 FR 61428,
year must submit an independent                through the lender for need-based grant      Nov. 30, 1994; 60 FR 31411, June 15, 1995;
annual compliance audit for that year,         programs and that those funds                64 FR 18978, Apr. 16, 1999; 64 FR 58627,
conducted by a qualified independent           supplemented, but did not supplant,          Oct. 29, 1999; 71 FR 45705, Aug. 9, 2006;
organization or person.                                                                     71 FR 64398, Nov. 1, 2006; 72 FR 62003,
                                               other Federal or non-Federal funds           Nov. 1, 2007; 74 FR 55996, Oct. 29, 2009]
(ii) Notwithstanding the dollar volume of      otherwise available to be used to make
loans originated or held, a school             need-based grants to its students; and       Subpart D—Administration of the
lender under §682.601 or a lender              (B) The lender used no more than a           Federal Family Education Loan
serving as trustee on behalf of a school       reasonable portion of payments and           Programs by a Guaranty Agency
or a school-affiliated organization for        proceeds from the loans for direct           §682.400 Agreements between a
the purpose of originating loans must          administrative expenses in accordance        guaranty agency and the Secretary.
submit an independent annual                   with §682.601(b), with all references to
compliance audit for that year,                                                             (a) The Secretary enters into
                                               eligible school lender understood to
conducted by a qualified independent                                                        agreements with a guaranty agency
                                               mean a lender in its capacity as trustee
organization or person.                                                                     whose loan guarantee program meets
                                               on behalf of a school or school-affiliated
                                                                                            the requirements of this subpart. The
(iii) The Secretary may, following             organization for the purpose of
                                                                                            agreements enable the guaranty
written notice, suspend the payment of         originating loans.
                                                                                            agency to participate in the FFEL
interest benefits and special allowance        (3) The Secretary may determine that a       programs and to receive the various
to a lender that does not submit its           lender has met the requirements of           payments and benefits related to that
audit within the time period prescribed        paragraph (c) of this section if the         participation.
in paragraph (c)(2) of this section.           lender has been audited in accordance
                                                                                            (b) There are four agreements:
(2) The audit required under paragraph         with 31 U.S.C. 7502 for other purposes,
(c)(1) of this section must—                   the lender submits the results of the        (1) Basic program agreement. In order
                                               audit to the Office of Inspector General,    to participate in the FFEL programs, a
(i) Examine the lender's compliance            and the Secretary determines that the        guaranty agency must have a basic
with the Act and applicable regulations;       audit meets the requirements of this         program agreement. Under this
(ii) Examine the lender's financial            paragraph.                                   agreement—
management of its FFEL program                 (d) Recovery of excess interest paid by      (i) Borrowers whose Stafford and
activities;                                    the Secretary.                               Consolidation loans that consolidate
(iii) Be conducted in accordance with                                                       only subsidized Stafford loans are
                                               (1) For any loan for which the first
the standards for audits issued by the                                                      guaranteed by the agency may qualify
                                               disbursement of principal is made on or
United States General Accounting                                                            for interest benefits that are paid to the
                                               after April 1, 2006, the Secretary
Office's (GAO's) Government Auditing                                                        lender on the borrower's behalf; and
                                               collects the amount of excess interest
Standards. Procedures for audits are           paid to a lender on a quarterly basis        (ii) Lenders under the guaranty agency
contained in an audit guide developed          when the applicable interest rate on a       program may receive special allowance
by and available from the Office of the        loan for each quarter exceeds the            payments from the Secretary and have
Inspector General of the Department;           special allowance support level in           death, disability, bankruptcy, closed
(iv) Be conducted at least annually and        paragraph (d)(2) of this section for the     school and false certification discharge
be submitted to the Secretary within six       loan. Excess interest is calculated and      claims paid by the Secretary through
months of the end of the audit period.         recovered each quarter by subtracting        the guaranty agency.
The initial audit must be of the lender's      the special allowance support level          (2) Federal advances for claim
first fiscal year that begins after July 23,   from the applicable interest rate,           payments agreement. A guaranty
1992, and must be submitted within six         multiplying the result by the average        agency must have an agreement for
months of the end of the audit period.         daily principal balance of the loan (not     Federal advances for claim payments
Each subsequent audit must cover the           including unearned interest added to         to receive and use Federal advances to
lender's activities for the period             principal) during the quarter, and           pay default claims.
beginning no later than the end of the         dividing by four.
period covered by the preceding audit;                                                      (3) Reinsurance agreement. A guaranty
                                               (2) The term special allowance support       agency must have a reinsurance
(v) With regard to a lender that is a          level means a number expressed as a          agreement to receive reimbursement
governmental entity or a nonprofit             percentage equal to the sum of—              from the Secretary for its losses on
organization, the audit required by this       (i) The average of the bond equivalent       default claims.
paragraph must be conducted in                 rates of the quotes of the 3-month
accordance with 31 U.S.C. 7502 and 34                                                       (4) Loan Rehabilitation Agreement. A
                                               commercial paper (financial) rates in        guaranty agency must have an
CFR Sec. Sec. 74.26 and 80.26, as              effect for each of the days in such
applicable;                                                                                 agreement for rehabilitating a loan for
                                               quarter as reported by the Federal           which the Secretary has made a
                                               Reserve in Publication H-15 (or its
34 CFR 682.401


reinsurance payment under section             of the student's study at a participating     the documentation specified in
428(c)(1) of the Act.                         school.                                       paragraph (b)(4)(i)(C) of this section.
(c) The Secretary's execution of an           (ii) Loans must be available to or on         (iii) A guaranty agency must provide
agreement does not indicate                   behalf of any student for at least six        the borrower with a written statement of
acceptance of any current or past             academic years of study.                      the reasonable and affordable payment
standards or procedures used by the           (4) Reinstatement of borrower eligibility.    amount required for the reinstatement
agency.                                       Except as provided in Sec. 668.35(b)          of the borrower's eligibility for Title IV
(d) All of the agreements are subject to      for a borrower with a defaulted loan on       student assistance, and provide the
subsequent changes in the Act, in other       which a judgment has been obtained            borrower with an opportunity to object
                                              and Sec. 668.35(i) for a borrower who         to those terms.
applicable Federal statutes, and in
regulations that apply to the FFEL            fraudulently obtained title IV, HEA           (iv) A guaranty agency must provide
programs.                                     program assistance, reinstatement of          the borrower with written information
(Authority: 20 U.S.C. 1072, 1078-1, 1078-2,   Title IV eligibility for a borrower with a    regarding the possibility of loan
1078-3, 1082, 1087, 1087-1)                   defaulted loan must be in accordance          rehabilitation if the borrower makes
                                              with this paragraph (b)(4). For a             three additional reasonable and
[57 FR 60323, Dec. 18, 1992, as amended at
59 FR 33353, June 28, 1994;64 FR 18978,
                                              borrower's loans held by a guaranty           affordable monthly payments after
Apr. 16, 1999; 64 FR 58627, Oct. 29, 1999]    agency on which a reinsurance claim           making payments to regain eligibility for
                                              has been paid by the Secretary, the           Title IV assistance and the
§682.401 Basic program agreement.             guaranty agency must afford a                 consequences of loan rehabilitation.
(a) General. In order to participate in       defaulted borrower, upon the
                                                                                            (v) A guaranty agency must inform the
the FFEL programs, a guaranty agency          borrower's request, renewed eligibility
                                                                                            borrower that he or she may only obtain
shall enter into a basic agreement with       for Title IV assistance once the
                                                                                            reinstatement of borrower eligibility
the Secretary.                                borrower has made satisfactory
                                                                                            under this section once.
                                              repayment arrangements as that term
(b) Terms of agreement. In the basic                                                        (5) Borrower responsibilities. (i) The
                                              is defined in Sec. 682.200.
agreement, the guaranty agency shall                                                        borrower must indicate his or her
agree to ensure that its loan guarantee       (i) For purposes of this section, the
                                                                                            preferred lender on the promissory note
program meets the following                   determination of reasonable and
                                                                                            or other written or electronic
requirements at all times:                    affordable must—
                                                                                            documentation submitted during the
(1) Aggregate loan limits. The                (A) Include consideration of the              loan origination process if he or she has
aggregate guaranteed unpaid principal         borrower's and spouse's disposable            such a preference.
amount for all Stafford and SLS, loans        income and necessary expenses                 (ii) The borrower must give the lender,
made to a borrower may not exceed the         including, but not limited to, housing,
                                                                                            as part of the promissory note or
amounts set forth in Sec. 682.204 (b),        utilities, food, medical costs, dependent
                                                                                            application process for a parent PLUS
(e), and (g).                                 care costs, work-related expenses and
                                                                                            loan—
                                              other Title IV repayment;
(2) Annual loan limits. (i) The annual                                                      (A) A statement, as described in 34
loan maximum amount for a borrower            (B) Not be a required minimum
                                                                                            CFR part 668, that the loan will be used
that may be guaranteed for an                 payment amount, e.g. $50, if the
                                                                                            for the cost of the student's attendance;
academic year may not exceed the              agency determines that a smaller
amounts set forth in Sec. 682.204 (a),        amount is reasonable and affordable           (B) A statement from the student
(c), (d), (f), and (h).                       based on the borrower's total financial       authorizing the school to release
                                              circumstances. The agency must                information relevant to the student's
(ii) A guaranty agency may make the                                                         eligibility to have a parent borrow on the
                                              include documentation in the borrower's
loan amounts authorized under                 file of the basis for the determination, if   student's behalf (e.g., the student's
paragraph (b)(2)(i) of this section                                                         enrollment status, financial assistance,
                                              the monthly reasonable and affordable
applicable for either—                                                                      and employment records); and
                                              payment established under this section
(A) A period of not less than that            is less than $50.00 or the monthly            (C) Information from the school
attributable to the academic year, as         accrued interest on the loan, whichever       providing the maximum amount that
defined in 34 CFR 668.3; or                   is greater.                                   may be borrowed on behalf of the
(B) A period attributable to the              (C) Be based on the documentation             student.
academic year that is not less than the       provided by the borrower or other             (iii) The borrower shall give the lender,
period specified in paragraph                 sources including, but not limited to—        as part of the application process for a
(b)(2)(ii)(A) of this section, in which the                                                 Consolidation loan—
                                              (1) Evidence of current income (e.g.
student earns the amount of credit in
                                              proof of welfare benefits, Social             (A) Information demonstrating that the
the student's program of study required       Security benefits, Supplemental
by the student's school as the amount                                                       borrower is eligible for the loan under
                                              Security Income, Workers'                     Sec. 682.201(c); and
necessary for the student to advance in
                                              Compensation, child support, veterans'
academic standing as normally                 benefits, two most recent pay stubs,          (B) A statement that the borrower does
measured on an academic year basis                                                          not currently have another application
                                              most recent copy of U.S. income tax
(for example, from freshman to                                                              for a Consolidation loan pending.
                                              return, State Department of Labor
sophomore or, in the case of schools          reports);
using clock hours, completion of at                                                         (iv) The borrower shall promptly
least 900 clock hours).                       (2) Evidence of current expenses (e.g.        notify—
                                              a copy of the borrower's monthly              (A) The current holder or the guaranty
(iii) The amount of a loan guaranteed
                                              household budget, on a form provided          agency of any change of name,
may not exceed the amount set forth in        by the guaranty agency); and
Sec. 682.204(k).                                                                            address, student status to less than
                                              (3) A statement of the unpaid balance         half-time, employer, or employer's
(3) Duration of borrower eligibility. (i) A                                                 address; and
                                              on all FFEL loans held by other holders.
student borrower under the Stafford
Loan Program or the PLUS Loan                 (ii) A borrower may request that the          (B) The school of any change in local
Program and a parent borrower under           monthly payment amount be adjusted            address during enrollment.
the PLUS Program are eligible to              due to a change in the borrower's total       (6) School eligibility— (i) General. A
receive a guaranteed loan for any year        financial circumstances upon providing        school that has a program participation
                                                                                            agreement in effect with the Secretary
34 CFR 682.401


under Sec. 682.14(a) is eligible to         (A) The standards of financial               of that State. In guaranteeing these
participate in the program of the agency    responsibility defined in 34 CFR 668.5;      loans, the agency may not impose any
under reasonable criteria established       or                                           restrictions that it does not apply to
by the guaranty agency, and approved        (B) The standards of administrative          borrowers who are legal residents of
by the Secretary, under paragraph                                                        the State attending in-State schools or
                                            capability defined in 34 CFR 668.16.
(d)(2) of this section, except to the                                                    to parent borrowers who are legal
extent that—                                (iii) Limitation, suspension, or             residents of the State and are
                                            termination of school eligibility. A         borrowing for students attending in-
(A) The school's eligibility is limited,    guaranty agency may limit, suspend, or       State schools.
suspended, or terminated by the             terminate the participation of an eligible
Secretary under 34 CFR part 668 or by                                                    (9) Out-of-State residents. The agency
                                            school. If a guaranty agency limits,
the guaranty agency under standards         suspends, or terminates the                  shall guarantee Stafford, SLS, and
and procedures that are substantially       participation of a school from the           PLUS loans for students who are not
the same as those in 34 CFR part 668;       agency's program, the Secretary              legal residents of any State served by
(B) The Secretary upholds the               applies that limitation, suspension, or      the agency under Sec. 682.404(h)(2)
limitation, suspension, or termination of   termination to all locations of the          but who attend schools in that State,
                                            school.                                      and for parents who are not legal
a school by a guaranty agency and
extends that sanction to all guaranty                                                    residents of that State and who are
                                            (iv) Condition for guaranteeing loans for    borrowing on behalf of students
agency programs under section               students attending a school. The             attending schools in that State. In
432(h)(3) of the Act or Sec. 682.713;       guaranty agency may require the              guaranteeing these loans, the agency
(C) The school is ineligible under          school to execute a participation            may not impose any restrictions that it
section 435(a)(2) of the Act;               agreement with the agency and to             does not apply to borrowers who are
(D) There is a State constitutional         submit documentation that establishes        legal residents of the State attending in-
                                            the school's eligibility to participate in   State schools, or to parent borrowers
prohibition affecting the school's
                                            the agency's program.                        who are legal residents of the State and
eligibility;
                                            (7) Lender eligibility. (i) An eligible      who are borrowing for students
(E) The school's programs consist of                                                     attending in-State schools.
                                            lender may participate in the program of
study solely by correspondence;
                                            the agency under reasonable criteria         (10) Insurance premiums and Federal
(F) The agency determines, subject to       established by the guaranty agency           default fees. (i) Except for a
the agreement of the Secretary, that the    except to the extent that—                   Consolidation Loan or SLS or PLUS
school does not satisfy the standards of                                                 loans refinanced under Sec. 682.209
                                            (A) The lender's eligibility has been
administrative capability and financial                                                  (e) or (f), a guaranty agency:
                                            limited, suspended, or terminated by
responsibility as defined in 34 CFR part
                                            the Secretary under subpart G of this        (A) May charge the lender an insurance
668;
                                            part or by the agency under standards        premium for Stafford, SLS, or PLUS
(G) The school fails to make timely         and procedures that are substantially        loans it guarantees prior to July 1,
refunds to students as required in Sec.     the same as those in subpart G of this       2006; and
682.607(c);                                 part; or
                                                                                         (B) Must collect, either from the lender
(H) The school has not satisfied, within    (B) The lender is disqualified by the        or by payment from any other non-
30 days of issuance, a final judgment       Secretary under sections 432(h)(1),          Federal source, a Federal default fee
obtained by a student seeking a refund;     432(h)(2), 435(d)(3), or 435(d)(5) of the    for any Stafford or PLUS loans it
(I) The school or an owner, director, or    Act or Sec. 682.712; or                      guarantees on or after July 1, 2006, to
officer of the school is found guilty or    (C) There is a State constitutional          be deposited into the Federal Fund
liable in any criminal, civil, or           prohibition affecting the lender's           under Sec. 682.419.
administrative proceeding regarding the     eligibility.                                 (ii) The guaranty agency may not use
obtaining, maintenance, or                                                               the Federal default fee for incentive
                                            (ii) The agency may not guarantee a
disbursement of State or Federal                                                         payments to lenders, and may only use
                                            loan made by a school lender that is not
student grant, loan, or work assistance                                                  the insurance premium or the Federal
                                            located in the geographical area that
funds; or                                                                                default fee for costs incurred in
                                            the agency serves.
(J) The school or an owner, director, or                                                 guaranteeing loans or in the
                                            (iii) The guaranty agency may refuse to      administration of the agency's loan
officer of the school has unpaid
                                            guarantee loans made by a school on          guarantee program, as specified in Sec.
financial liabilities involving the
                                            behalf of students not attending that        682.410(a)(2) or Sec. 682.419(c).
improper acquisition, expenditure, or
                                            school.
refund of State or Federal student                                                       (iii) If a lender charges the borrower an
financial assistance funds.                 (iv) The guaranty agency may, in             insurance premium or Federal default
(ii) Limitation by a guaranty agency of a   determining whether to enter into a          fee, the lender must deduct the charge
                                            guarantee agreement with a lender,           proportionately from each disbursement
school's participation. For purposes of
                                            consider whether the lender has had          of the borrower's loan proceeds.
this paragraph, a school that is subject
                                            prior experience in a similar Federal,
to limitation of participation in the                                                    (iv) The amount of the insurance
                                            State, or private nonprofit student loan
guaranty agency's program may be                                                         premium or Federal default fee, as
                                            program and the amount and
either a school that is applying to                                                      applicable—
                                            percentage of loans that are currently
participate in the agency's program for
                                            delinquent or in default under that          (A) May not exceed 3 percent of the
the first time, or a school that is
                                            program.                                     principal balance for a loan disbursed
renewing its application to continue
participation in the agency's program. A    (8) Out-of-State schools. The agency         on or before June 30, 1994;
guaranty agency may limit the total         shall guarantee Stafford, SLS, and           (B) May not exceed 1 percent of the
number of loans or the volume of loans      PLUS loans for students who are legal        principal balance for a loan disbursed
made to students attending a particular     residents of any State served by the         on or after July 1, 1994;
school, or otherwise establish              agency under Sec. 682.404(h)(2) but
                                            who attend schools out of that State         (C) Shall be 1 percent of the principal
appropriate limitations on the school's
participation, if the agency makes a        and for parents who are legal residents      balance of a loan guaranteed on or
                                            of that State and are borrowing on           after July 1, 2006.
determination that the school does not
satisfy—                                    behalf of students attending schools out
34 CFR 682.401


(v) If the circumstances specified in       percent of the fee the lender charges a      a conservator, liquidator, or receiver of
paragraph (vi) exist, the guaranty          borrower under Sec. 682.202(e) for the       an eligible lender; or
agency shall refund to the lender any       purpose of defraying the agency's
                                                                                         (E) The Secretary.
insurance premium or Federal default        administrative costs incident to the
fee paid by the lender.                     guarantee of a lender's reissuance of a      (ii) For the purpose of this paragraph,
                                            fixed-rate PLUS or SLS loan at a             “assigned” means any kind of transfer
(vi) The lender shall refund to the
                                            variable interest rate. If it charges the    of an interest in the loan, including a
borrower by a credit against the
                                            fee, the agency must charge the same         pledge of such an interest as security.
borrower's loan balance the insurance
                                            fee to all lenders that refinance under      (iii) The guaranty agency must allow a
premium or Federal default fee paid by
                                            this paragraph.                              loan to be assigned under paragraph
the borrower on a loan under the
following circumstances:                    (14) Guaranty liability. The guaranty        (b)(17)(i) of this section, following the
                                            agency shall guarantee—                      first disbursement of the loan if the
(A) The insurance premium or Federal
                                                                                         assignment does not result in a change
default fee attributable to each            (i) 100 percent of the unpaid principal
                                                                                         in the identity of the party to whom
disbursement of a loan must be              balance of each loan guaranteed for
                                                                                         payments must be made.
refunded if the loan check is returned      loans disbursed before October 1,
uncashed to the lender.                     1993;                                        (18) Transfer of guarantees. Except in
                                                                                         the case of a transfer of guarantee
(B) The insurance premium or Federal        (ii) Not more than 98 percent of the
                                                                                         requested by a borrower seeking a
default fee, or an appropriate prorated     unpaid principal balance of each loan
                                                                                         transfer to secure a single guarantor,
amount of the premium or fee, must be       guaranteed for loans first disbursed on
                                                                                         the guaranty agency may transfer its
refunded by application to the              or after October 1, 1993 and before
                                                                                         guarantee obligation on a loan to
borrower's loan balance if—                 July 1, 2006; and
                                                                                         another guaranty agency, only with the
(1) The loan or a portion of the loan is    (iii) Not more than 97 percent of the        approval of the Secretary, the
returned by the school to the lender in     unpaid principal balance of each loan        transferee agency, and the holder of
order to comply with the Act or with        guaranteed for loans first disbursed on      the loan.
applicable regulations;                     or after July 1, 2006.
                                                                                         (19) Standards and procedures. (i) The
(2) Within 120 days of disbursement,        (15) Guaranty agency verification of         guaranty agency shall establish,
the loan or a portion of the loan is        default data. A guaranty agency must         disseminate to concerned parties, and
repaid or returned, unless—                 meet the requirements and deadlines          enforce standards and procedures for—
                                            provided for it in subpart M of 34 CFR       (A) Ensuring that all lenders in its
(i) The borrower has no FFEL Program
                                            part 668 for the cohort default rate
loans in repayment status and has                                                        program meet the definition of “eligible
                                            process.
requested, in writing, that the repaid or                                                lender”' in section 435(d) of the Act and
returned funds be used for a different      (16) Guaranty agency administration. In      have a written lender agreement with
purpose; or                                 the case of a State loan guarantee           the agency;
                                            program administered by a State              (B) School and lender participation in
(ii) The borrower has a FFEL Program
                                            government, the program must be
loan in repayment status, in which case                                                  its program;
                                            administered by a single State agency,
the payment is applied in accordance                                                     (C) Limitation, suspension, termination
                                            or by one or more private nonprofit
with Sec. 682.209(b) unless the                                                          of school and lender participation;
                                            institutions or organizations under the
borrower has requested, in writing, that
                                            supervision of a single State agency.        (D) Emergency action against a
the repaid or returned funds be applied
                                            For this purpose, “supervision”              participating school or lender;
as a cancellation of all or part of the
                                            includes, but is not limited to, setting
loan;                                                                                    (E) The exercise of due diligence by
                                            policies and procedures, and having full
(3) Within 120 days of disbursement,        responsibility for the operation of the      lenders in making, servicing, and
the loan check has not been                 program.                                     collecting loans; and
negotiated; or                                                                           (F) The timely filing by lenders of
                                            (17) Loan assignment. (i) Except as
(4) Within 120 days of disbursement,        provided in paragraph (b)(17)(iii) of this   default, death, disability, bankruptcy,
the loan proceeds disbursed by              section, the guaranty agency must            closed school, false certification unpaid
electronic funds transfer or master         allow a loan to be assigned only if the      refunds, identity theft, and ineligible
check in accordance with Sec.               loan is fully disbursed and is assigned      loan claims.
682.207(b)(1)(ii) (B) and (C) have not      to—                                          (ii) The guaranty agency shall ensure
been released from the restricted                                                        that its program and all participants in
                                            (A) An eligible lender;
account maintained by the school.                                                        its program at all times meet the
                                            (B) A guaranty agency, in the case of a      requirements of subparts B, C, D, and F
(11) Inquiries. The agency must be able
                                            borrower's default, death, total and         of this part.
to receive and respond to written,
                                            permanent disability, or filing of a
electronic, and telephone inquiries.                                                     (20) Monitoring student enrollment. The
                                            bankruptcy petition, or for other
(12) Administrative fee for                 circumstances approved by the                guaranty agency shall monitor the
Consolidation loans. The guaranty           Secretary, such as a loan made for           enrollment status of a FFEL program
agency may charge a lender a fee, not       attendance at a school that closed or a      borrower or student on whose behalf a
to exceed $50, reasonably calculated to     false certification claim;                   parent has borrowed that includes, at a
cover the agency's cost of increased or                                                  minimum, reporting to the current
                                            (C) An educational institution, whether      holder of the loan within 35 days any
extended liability incurred in
                                            or not it is an eligible lender, in          change in the student's enrollment
guaranteeing a Consolidation loan. The
                                            connection with the institution's            status reported that triggers—
lender may not pass the fee on to the
                                            repayment to the agency or to the
borrower. If it charges the fee, the                                                     (i) The beginning of the borrower's
                                            Secretary of a guarantee or a
agency must charge it for all loans                                                      grace period; or
                                            reinsurance claim payment made on a
made under the agency's Consolidation
                                            loan that was ineligible for the payment;    (ii) The beginning or resumption of the
Loan program.
                                            (D) A Federal or State agency or an          borrower's immediate obligation to
(13) Administrative fee for refinancing                                                  make scheduled payments.
                                            organization or corporation acting on
fixed-rate PLUS or SLS loans. The
                                            behalf of such an agency and acting as       (21) Submission of interest and special
guaranty agency may require a lender
to pay to the guaranty agency up to 50                                                   allowance information. Upon the
34 CFR 682.401


Secretary's request, the guaranty            agency enters into a contract and, upon       an excessive proportion of the guaranty
agency shall submit, or require its          request by the Secretary, a copy of that      agency's recoveries on defaulted loans.
lenders to submit, information that the      contract.
                                                                                           (c) Lender-of-last-resort. (1) The
Secretary deems necessary for                (27) Consolidation of defaulted FFEL          guaranty agency must ensure that it, or
determining the amount of interest           loans. (i) A guaranty agency may              an eligible lender described in section
benefits and special allowance payable       charge collection costs in an amount          435(d)(1)(D) of the Act, serves as a
on the agency's guaranteed loans.            not to exceed 18.5 percent of the             lender-of-last-resort in the State in
(22) Submission of information for           outstanding principal and interest on a       which the guaranty agency is the
reports. The guaranty agency shall           defaulted FFEL Program loan that is           designated guaranty agency. The
require lenders to submit to the agency      paid off by a Federal Consolidation           guaranty agency or an eligible lender
the information necessary for the            loan.                                         described in section 435(d)(1)(D) of the
agency to complete the reports required      (ii) Prior to October 1, 2006, when           Act may arrange for a loan required to
by Sec. 682.414(b).                          returning the proceeds from the               be made under paragraph (c)(2) of this
(23) Guaranty agency transfer of             consolidation of a defaulted loan to the      section to be made by another eligible
information. (i) A guaranty agency from      Secretary, a guaranty agency may only         lender. As used in this paragraph, the
                                             retain the amount charged to the              term “designated guaranty agency”
which another guaranty agency
requests information regarding Stafford      borrower pursuant to this paragraph.          means the guaranty agency in the State
and SLS loans made after January 1,                                                        for which the Secretary has signed a
                                             (iii) On or after October 1, 2006, when       Basic Program Agreement under this
1987, to students who are residents of       returning proceeds to the Secretary
the State for which the requesting                                                         section.
                                             from the consolidation of a defaulted
agency is the principal guaranty agency      loan, a guaranty agency that charged          (2) The lender-of-last-resort must make
shall provide—                               the borrower collection costs must remit      subsidized Federal Stafford loans and
(A) The name and social security             an amount that equals the lesser of the       unsubsidized Federal Stafford loans to
number of the student; and                   actual collection costs charged or 8.5        any eligible student who—

(B) The annual loan amount and the           percent of the outstanding principal and      (i) Qualifies for interest benefits
                                             interest of the loan.                         pursuant to Sec. 682.301;
cumulative amount borrowed by the
student in loans under the Stafford and      (iv) On or after October 1, 2009, when        (ii) Qualifies for a combined loan
SLS programs guaranteed by the               returning proceeds to the Secretary           amount of at least $200; and
responding agency.                           from the consolidation of a defaulted         (iii) Has been otherwise unable to
                                             loan that is paid off with excess
(ii) The reasonable costs incurred by an                                                   obtain loans from another eligible
                                             consolidation proceeds as defined in
agency in fulfilling a request for                                                         lender for the same period of
                                             paragraph (b)(27)(v) of this section, a
information made under paragraph                                                           enrollment.
                                             guaranty agency must remit the entire
(b)(23)(i) of this section must be paid by                                                 (3) The lender-of-last resort may make
                                             amount of collection costs repaid
the guaranty agency making the
                                             through the consolidation loan pursuant       unsubsidized Federal Stafford and
request.                                                                                   Federal PLUS loans to borrowers who
                                             to paragraph (b)(27)(ii) of this section.
(24) Information on defaults. The                                                          have been otherwise unable to obtain
                                             (v) The term excess consolidation
guaranty agency shall, upon the                                                            those loans from another eligible
                                             proceeds means, for any Federal fiscal
request of a school, furnish information                                                   lender.
                                             year beginning on or after October 1,
with respect to students, including the                                                    (4) The guaranty agency must develop
                                             2009, the amount of Consolidation
names and addresses of such students,                                                      policies and operating procedures for
                                             Loan proceeds received for defaulted
who were enrolled at that school and
                                             loans under the FFEL Program that             its lender-of-last-resort program that
who are in default on the repayment of                                                     provide for the accessibility of lender-of-
                                             exceed 45 percent of the agency's total
any loan guaranteed by that agency.                                                        last-resort loans. These policies and
                                             collections on defaulted loans in that
(25) Information on loan sales or            Federal fiscal year.                          procedures must be submitted to the
transfers. The guaranty agency must,                                                       Secretary for approval as required
                                             (28) Change in agency's records
upon the request of a school, furnish to                                                   under paragraph (d)(2) of this section.
                                             system. The agency shall provide
the school last attended by the student,                                                   The policies and procedures for the
                                             written notification to the Secretary at
information with respect to the sale or                                                    agency's lender-of-last-resort program
                                             least 30 days prior to placing its new
transfer of a borrower's loan prior to the                                                 must ensure that—
                                             guarantees or converting the records
beginning of the repayment period,                                                         (i) The guaranty agency will serve
                                             relating to its existing guaranty portfolio
including—
                                             to an information or computer system          eligible students attending any eligible
(i) Notice of assignment;                    that is owned by, or otherwise under          school;
(ii) The identity of the assignee;           the control of, an entity that is different   (ii) The program establishes operating
                                             than the party that owns or controls the      hours and methods of application
(iii) The name and address of the party      agency's existing information or
by which contact may be made with the                                                      designed to facilitate application by
                                             computer system. If the agency is             students; and
holder concerning repayment of the           soliciting bids from third parties with
loan; and                                    respect to a proposed conversion, the         (iii) Information about the availability of
(iv) The telephone number of the             agency shall provide written notice to        loans under the program is made
assignee or, if the assignee uses a          the Secretary as soon as the solicitation     available to schools in the State;
lender servicer, another appropriate         begins. The notification described in         (iv) Appropriate steps are taken to
number for borrower inquiries.               this paragraph must include a concise         ensure that borrowers receiving loans
                                             description of the agency's conversion        under the program are appropriately
(26) Third-party servicers. The guaranty     project and the actual or estimated cost
agency may not enter into a contract                                                       counseled on their loan obligation;
                                             of the project.
with a third-party servicer that the                                                       (v) The guaranty agency will respond to
Secretary has determined does not            (29) Plans to Reduce Consolidation of         a student within 60 days after the
meet the financial and compliance            defaulted loans. A guaranty agency            student submits an original complete
standards under Sec. 682.416. The            shall establish and submit to the             application; and
guaranty agency shall provide the            Secretary for approval, procedures to
                                             ensure that consolidation loans are not       (vi) Borrowers are not required to
Secretary with the name and address of                                                     obtain more than two objections from
any third-party servicer with which the
34 CFR 682.401


eligible lenders prior to requesting         criteria or otherwise designated at the      organization or an employee of a
assistance under the lender-of-last-         sole discretion of the Secretary.            school or school-affiliated organization,
resort program.                              (ii) The Secretary may prohibit use of       or any individual or entity, to secure
(5)(i) Upon request of the guaranty          the multi-year feature of the MPN at         applications for FFEL loans. This
agency, the Secretary may advance            specific schools described under             includes, but is not limited to—
Federal funds to the agency, on terms        paragraph (4)(i) of this section under       (A) Payments or offerings of other
and conditions agreed to by the              circumstances including, but not limited     benefits, including prizes or additional
Secretary and the agency, to ensure          to, the school being subject to an           financial aid funds, to a prospective
the availability of loan capital for         emergency action or a limitation,            borrower in exchange for processing a
subsidized and unsubsidized Federal          suspension, or termination action, or        loan using the agency's loan guarantee;
Stafford and Federal PLUS loans to           not meeting other performance criteria       (B) Payments or other benefits,
borrowers who are otherwise unable to        determined by the Secretary.
                                                                                          including prizes or additional financial
obtain those loans if the Secretary          (iii) A student or parent borrower who is    aid funds under any Title IV or State or
determines that—                             borrowing funds for attendance at a          private program, to a school or school-
(A) Eligible borrowers in a State who        school for which the multi-year feature      affiliated organization based on the
qualify for subsidized Federal Stafford      of the MPN has not been authorized           school's or organization's voluntary or
loans are seeking and are unable to          must complete a new promissory note          coerced agreement to use the guaranty
obtain subsidized Federal Stafford           for each academic year.                      agency for processing loans, or to
loans;                                       (iv) Each loan made under an MPN is          provide a specified volume of loans
(B) The guaranty agency designated for       enforceable in accordance with the           using the agency's loan guarantee;
that State has the capability for            terms of the MPN and is eligible for         (C) Payments or other benefits to a
providing lender-of-last-resort loans in a   claim payment based on a true and            school or any school-affiliated
timely manner, either directly or            exact copy of such MPN.                      organization, or to any individual in
indirectly using a third party, in           (v) A lender's ability to make additional    exchange for FFEL loan applications or
accordance with the guaranty agency's        loans under an MPN will automatically        application referrals, a specified volume
obligations under the Act, but cannot do     expire upon the earliest of—                 or dollar amount of FFEL loans using
so without advances provided by the                                                       the agency's loan guarantee, or the
Secretary; and                               (A) The date the lender receives written     placement of a lender that uses the
                                             notification from the borrower               agency's loan guarantee on a school's
(C) It would be cost-effective to            requesting that the MPN no longer be
advance Federal funds to the agency.                                                      list of recommended or suggested
                                             used as the basis for additional loans;      lenders;
(ii) If the Secretary determines that the    (B) Twelve months after the date the         (D) Payment of travel or entertainment
designated guaranty agency does not          borrower signed the MPN if no                expenses, including expenses for
have the capability to provide lender-of-    disbursements are issued by the lender
last-resort loans, in accordance with                                                     private hospitality suites, tickets to
                                             under that MPN; or                           shows or sporting events, meals,
paragraph (c)(5)(i) of this section, the
                                             (C) Ten years from the date the              alcoholic beverages, and any lodging,
Secretary may provide Federal funds to
another guaranty agency, under terms         borrower signed the MPN or the date          rental, transportation or other gratuities
and conditions agreed to by the              the lender receives the MPN. However,        related to any activity sponsored by the
                                             if a portion of a loan is made on or         guaranty agency or a lender
Secretary and the agency, to make
lender-of-last-resort loans in that State.   before 10 years from the signature           participating in the agency's program,
                                             date, remaining disbursements of that        for school employees or employees of
(d) Review of forms and procedures.                                                       school-affiliated organizations;
                                             loan may be made.
(1) The guaranty agency shall submit to
                                             (vi) The lender and school must              (E) Philanthropic activities, including
the Secretary its write-off criteria and
procedures. The agency may not use           develop and document a confirmation          providing scholarships, grants,
these materials until the Secretary          process in accordance with guidelines        restricted gifts, or financial contributions
                                             established by the Secretary for loans       in exchange for FFEL loan applications
approves them.
                                             made under the multi-year feature of         or application referrals, a specified
(2) The guaranty agency shall promptly       the MPN.                                     volume or dollar amount of FFEL loans
submit to the Secretary its regulations,                                                  using the agency's loan guarantee, or
statements of procedures and                 (5) The guaranty agency must develop         the placement of a lender that uses the
standards, agreements, and other             and implement appropriate procedures         agency's loan guarantee on a school's
materials that substantially affect the      that provide for the granting of a           list of recommended or suggested
operation of the agency's program, and       student deferment as specified in Sec.       lenders; and
any proposed changes to those                682.210(a)(6)(iv) and (c)(3) and require
                                             their lenders to use these procedures.       (F) Performance of, or payment to a
materials. Except as provided in
paragraph (d)(1) of this section, the                                                     third party to perform, any school
                                             (6) The guaranty agency shall ensure         function required under title IV, except
agency may use these materials unless        that all program materials meet the
and until the Secretary disapproves                                                       that the guaranty agency may provide
                                             requirements of Federal and State law,       entrance counseling as provided in
them.                                        including, but not limited to, the Act and   §682.604(f) and exit counseling as
(3) The guaranty agency must use             the regulations in this part and part 668.   provided in §682.604(g), and may
common application forms, promissory         (e) Prohibited activities. (1) A guaranty    provide services to participating foreign
notes, Master Promissory Notes (MPN),        agency may not, directly or through an       schools at the direction of the
and other common forms approved by           agent or contractor—                         Secretary, as a third-party servicer.
the Secretary.
                                             (i) Except as provided in paragraph          (ii) Assess additional costs or deny
(4)(i) The Secretary authorizes the use      (e)(2) of this section, offer directly or    benefits otherwise provided to schools
of the multi-year feature of the MPN—        indirectly from any fund or assets           and lenders participating in the
(A) For students and parents for             available to the guaranty agency, any        agency's program on the basis of the
attendance at four-year or                   premium, payment, stock or other             lender's or school's failure to agree to
graduate/professional schools; and           securities, tuition payment or               participate in the agency's program, or
                                             reimbursement, or other inducement to        to provide a specified volume of loan
(B) For students and parents for                                                          applications or loan volume to the
                                             any prospective borrower of an FFEL
attendance at other institutions meeting                                                  agency's program or to place a lender
                                             loan, or to a school or school-affiliated
34 CFR 682.401


that uses the agency's loan guarantee         products; but a guaranty agency may          other non-counseling or non-student
on a school's list of recommended or          promote benefits provided under other        financial aid-related materials at
suggested lenders.                            Federal or State programs administered       reduced or not costs.
(iii) Offer, directly or indirectly, any      by the guaranty agency;                       (iv) The terms “premium,” “incentive
premium, incentive payment, or other          (iv) Meals and refreshments that are         payment,” and “other inducement” do
inducement to any lender, or any              reasonable in cost and provided in           not include services directly related to
person acting as an agent, employee,          connection with guaranty agency              the enhancement of the administration
or independent contractor of any lender       provided training of program                 of the FFEL Program that the guaranty
or other guaranty agency to administer        participants and elementary,                 agency generally provides to lenders
or market FFEL loans, other than              secondary, and postsecondary school          that participate in its program. However,
unsubsidized Stafford loans or                personnel and with workshops and             the terms “premium,” “incentive
subsidized Stafford loans made under a        forums customarily used by the agency        payment,” and “inducement” do apply to
guaranty agency's lender-of-last-resort       to fulfill its responsibilities under the    other activities specifically intended to
program, in an effort to secure the           Act;                                         secure a lender's participation in the
guaranty agency as an insurer of FFEL         (v) Meals, refreshments and receptions       agency's program.
loans. Examples of prohibited                 that are reasonable in cost and              (f) College Access Initiative. (1) A
inducements include, but are not limited      scheduled in conjunction with training,      guaranty agency shall establish a plan
to—                                           meeting, or conference events if those       to promote access to postsecondary
(A) Compensating lenders or their             meals, refreshments, or receptions are       education by—
representatives for the purpose of            open to all training, meeting, or
                                                                                           (i) Providing the Secretary and the
securing loan applications for                conference attendees;
                                                                                           public with information on Internet web
guarantee;                                    (vi) Reimbursement of reasonable             links and a comprehensive listing of
(B) Performing functions normally             expenses incurred by school                  postsecondary education opportunities,
performed by lenders without                  employees to participate in the activities   programs, publications and other
appropriate compensation;                     of an agency's governing board, a            services available in the State, or
(C) Providing equipment or supplies to        standing official advisory committee, or     States for which the guaranty agency
                                              in support of other official activities of   serves as the designated guaranty
lenders at below market cost or rental;
                                              the agency;                                  agency;
(D) Offering to pay a lender that does
                                              (vii) Toll-free telephone numbers for        (ii) Promoting and publicizing
not hold loans guaranteed by the
                                              use by schools or others to obtain           information for students and
agency a fee for each application
                                              information about FFEL loans and free        traditionally underrepresented
forwarded for the agency's guarantee;
                                              data transmission services for use by        populations on college planning, career
(E) Providing or reimbursing travel or        schools to electronically submit             preparation, and paying for college in
entertainment expenses;                       applicant loan processing information or     coordination with other entities that
(F) Providing or reimbursing tuition          student status confirmation data;            provide or distribute such information in
payments or expenses; and                     (viii) Payment of Federal default fees in    the State, or States for which the
                                              accordance with the Act;                     guaranty agency serves as the
(G) Offering prizes, or providing                                                          designated guaranty agency;
payments of stocks or other securities.       (ix) Items of nominal value to schools,
                                              school-affiliated organizations, and         (2) The activities required by this
(iv) Mail or otherwise distribute                                                          section may be funded from the
unsolicited loan applications to students     borrowers that are offered as a form of
                                              generalized marketing or advertising, or     guaranty agency's Operating Fund in
enrolled in a secondary school or a                                                        accordance with Sec. 682.423(c)(1)(vii)
postsecondary institution, or to parents      to create good will;
                                                                                           or from funds remaining in restricted
of those students, unless the potential       (x) Loan forgiveness programs for            accounts established pursuant to
borrower has previously received loans        public service and other targeted            section 422(h)(4) of the HEA.
insured by the guaranty agency.               purposes approved by the Secretary,
                                              provided the programs are not                (3) The guaranty agency shall ensure
(v) Conduct fraudulent or misleading                                                       that the information required by this
advertising concerning loan availability,     marketed to secure loan applications or
                                              loan guarantees; and                         subsection is available to the public by
terms or conditions.                                                                       November 5, 2006 and is—
(2) Notwithstanding paragraph (e)(1)(i),      (xi) Other services as identified and
                                              approved by the Secretary through a          (i) Free of charge; and
(ii), and (iii) of this section, a guaranty
agency is not prohibited from                 public announcement, such as a notice        (ii) Available in print.
providing—                                    in the Federal Register.
                                                                                           (g)(1) A guaranty agency must work
(i) Technical assistance to a school that     (3) For the purposes of this section—        with schools that participate in its
is comparable to the technical                (i) The term “school-affiliated              program to develop and make available
assistance provided by the Secretary to       organization” is defined in Sec.             high-quality educational materials and
a school under the Direct Loan                                                             programs that provide training to
                                              682.200.                                     students and their families in budgeting
Program, as identified by the Secretary
in a public announcement, such as a           (ii) The term “applications” includes the    and financial management, including
notice in the Federal Register;               FAFSA, FFEL loan master promissory           debt management and other aspects of
                                              notes, and FFEL consolidation loan           financial literacy, such as the cost of
(ii) Default aversion activities approved                                                  using high-interest loans to pay for
                                              application and promissory notes.
by the Secretary under section                                                             postsecondary education, and how
422(h)(4)(B) and 433A of the Act;             (iii) The term “other benefits” includes,    budgeting and financial management
(iii) Student aid and financial-literacy      but is not limited to, preferential rates    relate to the title IV student loan
related outreach activities, including in-    for or access to a guaranty agency's         programs.
person school-required entrance and           products and services, information
                                              technology equipment or non- loan            (2) The materials and programs
exit counseling, as long as the name of                                                    described in paragraph (g)(1) of this
the entity that developed and paid for        processing or non-financial aid related
                                              computer software at below market            section must be in formats that are
any materials is provided to participants                                                  simple and understandable to students
and the guaranty agency does not              rental or purchase cost, and the printing
                                              and distribution of college catalogs and     and their families, and must be made
promote its student loan or other                                                          available to students and their families
34 CFR 682.402


by the guaranty agency before, during,          a ruling by a court or administrative           have exercised forbearance as to
and after a student’s enrollment at an          tribunal of competent jurisdiction with         repayment of the loan during the period
institution of higher education.                respect to that loan, or a ruling with          when collection activity was suspended.
(3) A guaranty agency may provide               respect to another loan in a judgment           (4) Once the lender has determined
                                                that collaterally estops the holder from        under paragraph (b)(2) of this section
similar programs and materials to an
                                                contesting the enforceability of the loan;      that the borrower (or student) has died,
institution that participates only in the
William D. Ford Federal Direct Loan             (ii) A loan is conclusively determined to       the lender may not attempt to collect on
Program.                                        be legally unenforceable to the extent          the loan from the borrower's estate or
                                                that the guarantor determines, pursuant         from any endorser.
(4) A lender or loan servicer may also
                                                to an objection presented in a
provide an institution with outreach and                                                        (5) The lender shall return to the sender
                                                proceeding conducted in connection
financial literacy information consistent                                                       any payments received from the estate
                                                with credit bureau reporting, tax refund
with the requirements of paragraphs                                                             or paid on behalf of the borrower after
                                                offset, wage garnishment, or in any
(g)(1) and (2) of this section.                                                                 the date of the borrower's (or student's)
                                                other administrative proceeding, that
(Approved by the Office of Management and                                                       death.
                                                the loan is not legally enforceable; and
Budget under control number 1845-0020)                                                          (6) In the case of a Federal
                                                (iii) If an objection has been raised by
(Authority: 20 U.S.C. 1078, 1078-1, 1078-2,                                                     Consolidation Loan that includes a
                                                the borrower or another party about the
1078-3, 1082)                                                                                   Federal PLUS or Direct PLUS loan
                                                legal enforceability of the loan and no
[57 FR 60323, Dec. 18, 1992]                                                                    borrowed for a dependent who has
                                                determination has been made under
                                                                                                died, the obligation of the borrower or
GPO Editorial Note: For Federal Register        paragraph (a)(5) (i) or (ii) of this section,
                                                                                                any endorser to make any further
citations affecting §682.401, see the List of   the Secretary may authorize the
CFR Sections Affected, which appears in the                                                     payments on the portion of the
                                                payment of a claim under this section
Finding Aids section of the printed volume                                                      outstanding balance of the
                                                under conditions the Secretary
and on GPO Access.                                                                              Consolidation Loan attributable to the
                                                considers appropriate. If the Secretary
                                                                                                Federal PLUS or Direct PLUS loan is
§682.402 Death, disability, closed              determines in that or any other case
                                                                                                discharged as of the date of the
school, false certification, unpaid             that a claim was paid under this section
                                                                                                dependent's death.
refunds, and bankruptcy payments.               with respect to a loan that was not a
                                                legally enforceable obligation of the           (c)(1) Total and permanent disability. (i)
(a) General. (1) Rules governing the
                                                borrower, the recipient of that payment         A borrower's loan is discharged if the
payment of claims based on filing for
                                                must refund that amount of the                  borrower becomes totally and
relief in bankruptcy, and discharge of
                                                payment to the Secretary.                       permanently disabled, as defined in
loans due to death, total and permanent
                                                                                                §682.200(b), and satisfies the eligibility
disability, attendance at a school that         (b) Death. (1) If an individual borrower
                                                                                                requirements in this section.
closes, false certification by a school of      dies, or the student for whom a parent
a borrower's eligibility for a loan, and        received a PLUS loan dies, the                  (ii) For a borrower who becomes totally
unpaid refunds by a school are set forth        obligation of the borrower and any              and permanently disabled as described
in this section.                                endorser to make any further payments           in paragraph (1) of the definition of that
                                                on the loan is discharged.                      term in §682.200(b), the borrower’s
(2) If a Consolidation loan was obtained
                                                                                                loan discharge application is processed
jointly by a married couple, the amount         (2) A discharge of a loan based on the
                                                                                                in accordance with paragraphs (c)(2)
of the Consolidation loan that is               death of the borrower (or student in the
                                                                                                through (7) of this section.
discharged if one of the borrowers dies         case of a PLUS loan) must be based on
or becomes totally and permanently              an original or certified copy of the death      (iii) For a veteran who is totally and
disabled is equal to the portion of the         certificate, or an accurate and complete        permanently disabled as described in
outstanding balance of the                      photocopy of the original or certified          paragraph (2) of the definition of that
Consolidation loan, as of the date the          copy of the death certificate. Under            term in §682.200(b), the veteran’s loan
borrower died or became totally and             exceptional circumstances and on a              discharge application is processed in
permanently disabled, attributable to           case-by-case basis, the chief executive         accordance with paragraph (c)(8) of this
any of that borrower's loans that would         officer of the guaranty agency may              section.
have been eligible for discharge.               approve a discharge based upon other            (2) Discharge application process for a
(3) If a PLUS loan was obtained by two          reliable documentation supporting the           borrower who is totally and permanently
parents as co-makers, and only one of           discharge request.                              disabled as described in paragraph (1)
the borrowers dies, becomes totally and         (3) After receiving reliable information        of the definition of that term in
permanently disabled, has collection of         indicating that the borrower (or student)       §682.200(b). After being notified by the
his or her loan obligation stayed by a          has died, the lender must suspend any           borrower or the borrower's
bankruptcy filing, or has that obligation       collection activity against the borrower        representative that the borrower claims
discharged in bankruptcy, the other             and any endorser for up to 60 days and          to be totally and permanently disabled,
borrower remains obligated to repay the         promptly request the documentation              the lender promptly requests that the
loan unless that borrower would qualify         described in paragraph (b)(2) of this           borrower or the borrower's
for discharge of the loan under these           section. If additional time is required to      representative submit a discharge
regulations.                                    obtain the documentation, the period of         application to the lender, on a form
                                                suspension of collection activity may be        approved by the Secretary. The
(4) Except for a borrower's loan
                                                extended up to an additional 60 days. If        application must contain a certification
obligation discharged by the Secretary
                                                the lender is not able to obtain an             by a physician, who is a doctor of
under the false certification discharge
                                                original or certified copy of the death         medicine or osteopathy legally
provision of paragraphs (e)(1)(ii) or (iii)
                                                certificate, or an accurate and complete        authorized to practice in a State, that
of this section, a loan qualifies for
                                                photocopy of the original or certified          the borrower is totally and permanently
payment under this section and as
                                                copy of the death certificate or other          disabled as described in paragraph (1)
provided in paragraph (h)(1)(iv) of this
                                                documentation acceptable to the                 of the definition of that term in
section, only to the extent that the loan
                                                guaranty agency, under the provisions           §682.200(b). The borrower must submit
is legally enforceable under applicable
                                                of paragraph (b)(2) of this section,            the application to the lender within 90
law by the holder of the loan.
                                                during the period of suspension, the            days of the date the physician certifies
(5) For purposes of this section—               lender must resume collection activity          the application. If the lender and
(i) The legal enforceability of a loan is       from the point that it had been                 guaranty agency approve the discharge
conclusively determined on the basis of         discontinued. The lender is deemed to           claim under the procedures described
34 CFR 682.402


in paragraph (c)(7) of this section, the      be suspended until the borrower              (i) Promptly notify the Secretary of any
guaranty agency must assign the loan          ensures that the full amount of the          changes in address or phone number;
to the Secretary.                             disbursement has been returned to the        (ii) Promptly notify the Secretary if the
(3) Secretary's eligibility determination.    loan holder or to the Secretary, as          borrower's annual earnings from
(i) If, after reviewing the borrower's        applicable.                                  employment exceed the amount
application, the Secretary determines         (5) Conditions for reinstatement of a        specified in paragraph (c)(5)(i)(A) of this
that the certification provided by the        loan after a total and permanent             section; and
borrower supports the conclusion that         disability discharge. (i) The Secretary      (iii) Provide the Secretary, upon
the borrower is totally and permanently       reinstates the borrower’s obligation to      request, with documentation of the
disabled, as described in paragraph (1)       repay a loan that was discharged in          borrower's annual earnings from
of the definition of that term in             accordance with paragraph (c)(3)(ii) of      employment.
§682.200(b), the borrower is                  this section if, within three years after
considered totally and permanently            the date the Secretary granted the           (7) Lender and guaranty agency
disabled as of the date the physician         discharge, the borrower—                     actions. (i) After being notified by a
certifies the borrower's application.                                                      borrower or a borrower's representative
                                              (A) Has annual earnings from
                                                                                           that the borrower claims to be totally
(ii) Upon making a determination that         employment that exceed 100 percent of
                                                                                           and permanently disabled, the lender
the borrower is totally and permanently       the poverty guideline for a family of two,
                                                                                           must continue collection activities until it
disabled as described in paragraph (1)        as published annually by the United
                                                                                           receives either the certification of total
of the definition of that term in             States Department of Health and
                                                                                           and permanent disability from a
§682.200(b), the Secretary discharges         Human Services pursuant to 42 U.S.C.
                                                                                           physician or a letter from a physician
the borrower’s obligation to make             9902(2);
                                                                                           stating that the certification has been
further payments on the loan and              (B) Receives a new TEACH Grant or a          requested and that additional time is
notifies the borrower that the loan has
                                              new loan under the Perkins, FFEL, or         needed to determine if the borrower is
been discharged. Any payments                 Direct Loan programs, except for a           totally and permanently disabled, as
received after the date the physician         FFEL or Direct Consolidation Loan that       described in paragraph (1) of the
certified the borrower’s loan discharge
                                              includes loans that were not                 definition of that term in §682.200(b).
application are returned to the person        discharged; or                               Except as provided in paragraph (c)
who made the payments on the loan.
                                              (C) Fails to ensure that the full amount     (7)(iii) of this section, after receiving the
The notification to the borrower                                                           physician's certification or letter the
explains the terms and conditions under       of any disbursement of a title IV loan or
                                              TEACH Grant received prior to the            lender may not attempt to collect from
which the borrower’s obligation to repay
                                              discharge date that is made during the       the borrower or any endorser.
the loan will be reinstated, as specified
in paragraph (c)(5)(i) of this section.       three-year period following the              (ii) The lender must submit a disability
                                              discharge date is returned to the loan       claim to the guaranty agency if the
(iii) If the Secretary determines that the    holder or to the Secretary, as               borrower submits a certification by a
certification provided by the borrower        applicable, within 120 days of the           physician and the lender makes a
does not support the conclusion that          disbursement date.                           determination that the certification
the borrower is totally and permanently                                                    supports the conclusion that the
disabled as described in paragraph (1)        (ii) If a borrower’s obligation to repay a
                                              loan is reinstated, the Secretary—           borrower is totally and permanently
of the definition of that term in                                                          disabled as described in paragraph (1)
§682.200(b), the Secretary notifies the       (A) Notifies the borrower that the           of the definition of that term in
borrower that the application for a           borrower’s obligation to repay the loan      §682.200(b).
disability discharge has been denied,         has been reinstated; and
and that the loan is due and payable to                                                    (iii) If the lender determines that a
the Secretary under the terms of the          (B) Does not require the borrower to         borrower who claims to be totally and
promissory note.                              pay interest on the loan for the period      permanently disabled is not totally and
                                              from the date the loan was discharged        permanently disabled as described in
(iv) The Secretary reserves the right to      until the date the borrower’s obligation     paragraph (1) of the definition of that
require the borrower to submit                to repay the loan was reinstated.            term in §682.200(b), or if the lender
additional medical evidence if the
                                              (iii) The Secretary’s notification under     does not receive the physician's
Secretary determines that the                                                              certification of total and permanent
borrower's application does not               paragraph (c)(5)(ii)(A) of this section
                                              will include–                                disability within 60 days of the receipt of
conclusively prove that the borrower is
                                                                                           the physician's letter requesting
totally and permanently disabled as           (A) The reason or reasons for the            additional time, as described in
described in paragraph (1) of the             reinstatement;                               paragraph (c) (7)(i) of this section, the
definition of that term in §682.200(b).
                                              (B) An explanation that the first            lender must resume collection of the
As part of the Secretary’s review of the                                                   loan and is deemed to have exercised
borrower’s discharge application, the         payment due date on the loan following
                                              reinstatement will be no earlier than 60     forbearance of payment of both
Secretary may arrange for an additional
                                              days after the date of the notification of   principal and interest from the date
review of the borrower's condition by an                                                   collection activity was suspended. The
independent physician at no expense to        reinstatement; and
                                                                                           lender may capitalize, in accordance
the borrower.                                 (C) Information on how the borrower          with §682.202(b), any interest accrued
(4) Treatment of disbursements made           may contact the Secretary if the             and not paid during that period.
during the period from the date of the        borrower has questions about the
                                              reinstatement or believes that the           (iv) The guaranty agency must pay a
physician’s certification until the date of                                                claim submitted by the lender if the
discharge. If a borrower received a Title     obligation to repay the loan was
                                              reinstated based on incorrect                guaranty agency has reviewed the
IV loan or TEACH Grant prior to the                                                        application and determined that it is
date the physician certified the              information.
                                                                                           complete and that it supports the
borrower’s discharge application and a        (6) Borrower’s responsibilities after a      conclusion that the borrower is totally
disbursement of that loan or grant is         total and permanent disability               and permanently disabled as described
made during the period from the date of       discharge. During the three-year period      in paragraph (1) of the definition of that
the physician’s certification until the       described in paragraph (c)(5)(i) of this     term in §682.200(b).
date the Secretary grants a discharge         section, the borrower or, if applicable,
under this section, the processing of the     the borrower's representative must—          (v) If the guaranty agency does not pay
borrower’s loan discharge request will                                                     the disability claim, the guaranty
34 CFR 682.402


agency must return the claim to the          paragraph (2) of the definition of that      in paragraph (2) of the definition of that
lender with an explanation of the basis      term in §682.200(b)--(i) General. After      term in §682.200(b), but indicates that
for the agency's denial of the claim.        being notified by the veteran or the         the veteran may be totally and
Upon receipt of the returned claim, the      veteran’s representative that the            permanently disabled as described in
lender must notify the borrower that the     veteran claims to be totally and             paragraph (1) of the definition of that
application for a disability discharge has   permanently disabled, the lender             term.
been denied, provide the basis for the       promptly requests that the veteran or        (D) If the documentation from the
denial, and inform the borrower that the     the veteran's representative submit a        Department of Veterans Affairs
lender will resume collection on the         discharge application to the lender, on      indicates that the borrower is totally and
loan. The lender is deemed to have           a form approved by the Secretary. The        permanently disabled as described in
exercised forbearance of both principal      application must be accompanied by           paragraph (2) of the definition of that
and interest from the date collection        documentation from the Department of         term in §682.200(b), the guaranty
activity was suspended until the first       Veterans Affairs showing that the            agency must submit a copy of the
payment due date. The lender may             Department of Veterans Affairs has           veteran’s discharge application and
capitalize, in accordance with               determined that the veteran is               supporting documentation to the
§682.202(b), any interest accrued and        unemployable due to a service-               Secretary, and must notify the veteran
not paid during that period.                 connected disability. The veteran will       that the veteran’s loan discharge
                                             not be required to provide any               request has been referred to the
(vi) If the guaranty agency pays the
                                             additional documentation related to the      Secretary for a determination of
disability claim, the lender must notify
                                             veteran’s disability.                        discharge eligibility.
the borrower that—
                                             (ii) Lender and guaranty agency              (E) If the documentation from the
(A) The loan will be assigned to the
                                             actions. (A) After being notified by a
Secretary for determination of eligibility                                                Department of Veterans Affairs does
                                             veteran or a veteran’s representative        not indicate that the veteran is totally
for a total and permanent disability
                                             that the veteran claims to be totally and    and permanently disabled as described
discharge and that no payments are
                                             permanently disabled as described in         in paragraph (2) of the definition of that
due on the loan; and
                                             paragraph (2) of the definition of that      term in §682.200(b), the guaranty
(B) If the Secretary discharges the loan     term in §682.200(b), the lender must         agency does not pay the disability claim
based on a determination that the            continue collection activities until it      and must return the claim to the lender
borrower is totally and permanently          receives the veteran’s completed loan        with an explanation of the basis for the
disabled as described in paragraph (1)       discharge application with the required      agency's denial of the claim. Upon
of the definition of that term in            documentation from the Department of         receipt of the returned claim, the lender
§682.200(b), the Secretary will reinstate    Veterans Affairs, as described in            must notify the veteran that the
the borrower’s obligation to repay the       paragraph (8)(i) of this section. Except     application for a disability discharge has
loan if, within three years after the date   as provided in paragraph (c)(8)(ii)(C) of    been denied, provide the basis for the
the Secretary granted the discharge,         this section, the lender will not attempt    denial, and inform the veteran that the
the borrower—                                to collect from the veteran or any           lender will resume collection on the
(1) Receives annual earnings from            endorser after receiving the veteran’s       loan. The lender is deemed to have
employment that exceed 100 percent of        discharge application and                    exercised forbearance of both principal
the poverty guideline for a family of two,   documentation from the Department of         and interest from the date collection
as published annually by the United          Veterans Affairs.                            activity was suspended until the first
States Department of Health and              (B) If the veteran submits a completed       payment due date. The lender may
Human Services pursuant to 42 U.S.C.         loan discharge application and the           capitalize, in accordance with
9902(2);                                     required documentation from the              §682.202(b), any interest accrued and
(2) Receives a new TEACH Grant or a          Department of Veterans Affairs, and the      not paid during that period.
new title IV loan, except for a FFEL or      documentation indicates that the             (F) If the Secretary determines, based
Direct Consolidation Loan that includes      veteran is totally and permanently           on a review of the documentation from
loans that were not discharged; or           disabled as described in paragraph (2)       the Department of Veterans Affairs, that
                                             of the definition of that term in            the veteran is totally and permanently
(3) Fails to ensure that the full amount     §682.200(b), the lender must submit a
of any disbursement of a title IV loan or                                                 disabled as described in paragraph (2)
                                             disability claim to the guaranty agency.     of the definition of that term in
TEACH Grant received prior to the
discharge date that is made during the       (C) If the documentation from the            §682.200(b), the Secretary notifies the
three-year period following the              Department of Veterans Affairs does          guaranty agency that the veteran is
discharge date is returned to the loan       not indicate that the veteran is totally     eligible for a total and permanent
holder or to the Secretary, as               and permanently disabled as described        disability discharge. Upon notification
applicable, within 120 days of the           in paragraph (2) of the definition of that   by the Secretary that the veteran is
disbursement date.                           term in §682.200(b), the lender—             eligible for a discharge, the guaranty
                                                                                          agency pays the disability discharge
(vii) After receiving a claim payment        (1) Must resume collection and is
                                                                                          claim. Upon receipt of the claim
from the guaranty agency, the lender         deemed to have exercised forbearance
                                                                                          payment from the guaranty agency, the
must forward to the guaranty agency          of payment of both principal and
                                                                                          lender notifies the veteran that the
any payments subsequently received           interest from the date collection activity
                                                                                          veteran’s obligation to make any further
from or on behalf of the borrower.           was suspended. The lender may
                                                                                          payments on the loan has been
                                             capitalize, in accordance with
(viii) The Secretary reimburses the                                                       discharged and returns to the person
                                             §682.202(b), any interest accrued and
guaranty agency for a disability claim                                                    who made the payments on the loan
                                             not paid during that period.
paid to the lender after the agency pays                                                  any payments received on or after the
the claim to the lender.                     (2) Must inform the veteran that he or       effective date of the determination by
                                             she may reapply for a total and              the Department of Veterans Affairs that
(ix) The guaranty agency must assign         permanent disability discharge in            the veteran is unemployable due to a
the loan to the Secretary after the          accordance with the procedures               service-connected disability.
guaranty agency pays the disability          described in §682.402(c)(2) through
claim.                                                                                    (G) If the Secretary determines, based
                                             (c)(7), if the documentation from the
                                                                                          on a review of the documentation from
(8) Discharge application process for        Department of Veterans Affairs does
                                                                                          the Department of Veterans Affairs, that
veterans who are totally and                 not indicate that the veteran is totally
                                                                                          the veteran is not totally and
permanently disabled as described in         and permanently disabled as described
34 CFR 682.402


permanently disabled as described in         reported by the loan holder to all credit    borrower who requests or receives a
paragraph (2) of the definition of that      reporting agencies to which the holder       discharge under paragraph (d) of this
term in §682.200(b), the Secretary           previously reported the status of the        section must cooperate with the
notifies the guaranty agency of this         loan, so as to delete all adverse credit     Secretary or the Secretary's designee.
determination. Upon notification by the      history assigned to the loan.                At the request of the Secretary or the
Secretary that the veteran is not eligible                                                Secretary's designee, and upon the
                                             (3) Borrower qualification for discharge.
for a discharge, the guaranty agency                                                      Secretary's or the Secretary's
                                             Except as provided in paragraph (d)(8)
and the lender must follow the                                                            designee's tendering to the borrower
                                             of this section, in order to qualify for a
procedures described in paragraph                                                         the fees and costs as are customarily
                                             discharge of a loan under paragraph (d)
(c)(8)(ii)(E) of this section.                                                            provided in litigation to reimburse
                                             of this section, a borrower must submit
                                                                                          witnesses, the borrower shall—
(H) The Secretary reimburses the             a written request and sworn statement
guaranty agency for a disability claim       to the holder of the loan. The statement     (A) Provide testimony regarding any
paid to the lender after the agency pays     need not be notarized, but must be           representation made by the borrower to
the claim to the lender.                     made by the borrower under the               support a request for discharge; and
(d) Closed school— (1) General. (i) The      penalty of perjury, and, in the              (B) Produce any documentation
                                             statement, the borrower must state—
Secretary reimburses the holder of a                                                      reasonably available to the borrower
loan received by a borrower on or after      (i) Whether the student has made a           with respect to those representations
January 1, 1986, and discharges the          claim with respect to the school's           and any sworn statement required by
borrower's obligation with respect to the    closing with any third party, such as the    the Secretary with respect to those
loan in accordance with the provisions       holder of a performance bond or a            representations and documents.
of paragraph (d) of this section, if the     tuition recovery program, and if so, the     (ii) The Secretary revokes the
borrower (or the student for whom a          amount of any payment received by the
                                                                                          discharge, or denies the request for
parent received a PLUS loan) could not       borrower (or student) or credited to the
                                                                                          discharge, of a borrower who—
complete the program of study for            borrower's loan obligation;
which the loan was intended because                                                       (A) Fails to provide testimony, sworn
                                             (ii) That the borrower (or the student for
the school at which the borrower (or                                                      statements, or documentation to
                                             whom a parent received a PLUS loan)
student) was enrolled, closed, or the                                                     support material representations made
                                             —
borrower (or student) withdrew from the                                                   by the borrower to obtain the discharge;
school not more than 90 days prior to        (A) Received, on or after January 1,         or
the date the school closed. This 90-day      1986, the proceeds of any                    (B) Provides testimony, a sworn
period may be extended if the                disbursement of a loan disbursed, in
                                                                                          statement, or documentation that does
Secretary determines that exceptional        whole or in part, on or after January 1,
                                                                                          not support the material representations
circumstances related to a school's          1986 to attend a school;
                                                                                          made by the borrower to obtain the
closing would justify an extension.          (B) Did not complete the educational         discharge.
(ii) For purposes of the closed school       program at that school because the
                                                                                          (5) Transfer to the Secretary of
discharge authorized by this section—        school closed while the student was
                                                                                          borrower's right of recovery against
                                             enrolled or on an approved leave of          third parties. (i) Upon discharge under
(A) A school's closure date is the date      absence in accordance with Sec.
that the school ceases to provide                                                         paragraph (d) of this section, the
                                             682.605(c), or the student withdrew
educational instruction in all programs,                                                  borrower is deemed to have assigned
                                             from the school not more than 90 days
as determined by the Secretary;                                                           to and relinquished in favor of the
                                             before the school closed; and
                                                                                          Secretary any right to a loan refund (up
(B) The term “borrower” includes all         (C) Did not complete the program of          to the amount discharged) that the
endorsers on a loan; and                     study through a teach-out at another         borrower (or student) may have by
(C) A “school” means a school's main         school or by transferring academic           contract or applicable law with respect
campus or any location or branch of the      credits or hours earned at the closed        to the loan or the enrollment agreement
main campus, regardless of whether           school to another school;                    for the program for which the loan was
the school or its location or branch is      (iii) That the borrower agrees to            received, against the school, its
considered eligible.                         provide, upon request by the Secretary       principals, affiliates and their
(2) Relief available pursuant to             or the Secretary's designee, other           successors, its sureties, and any
discharge. (i) Discharge under               documentation reasonably available to        private fund, including the portion of a
                                             the borrower that demonstrates, to the       public fund that represents funds
paragraph (d) of this section relieves
the borrower of an existing or past          satisfaction of the Secretary or the         received from a private party.
obligation to repay the loan and any         Secretary's designee, that the student       (ii) The provisions of paragraph (d) of
charges imposed or costs incurred by         meets the qualifications in paragraph        this section apply notwithstanding any
the holder with respect to the loan that     (d) of this section; and                     provision of State law that would
the borrower is, or was otherwise            (iv) That the borrower agrees to             otherwise restrict transfer of such rights
obligated to pay.                            cooperate with the Secretary or the          by the borrower (or student), limit or
(ii) A discharge of a loan under             Secretary's designee in enforcement          prevent a transferee from exercising
paragraph (d) of this section qualifies      actions in accordance with paragraph         those rights, or establish procedures or
the borrower for reimbursement of            (d)(4) of this section, and to transfer      a scheme of distribution that would
                                             any right to recovery against a third        prejudice the Secretary's ability to
amounts paid voluntarily or through
enforced collection on a loan obligation     party in accordance with paragraph           recover on those rights.
discharged under paragraph (d) of this       (d)(5) of this section.                      (iii) Nothing in this section shall be
section.                                     (4) Cooperation by borrower in               construed as limiting or foreclosing the
(iii) A borrower who has defaulted on a      enforcement actions. (i) In any judicial     borrower's (or student's) right to pursue
loan discharged under paragraph (d) of       or administrative proceeding brought by      legal and equitable relief regarding
this section is not regarded as in default   the Secretary or the Secretary's             disputes arising from matters otherwise
                                             designee to recover for amounts              unrelated to the loan discharged.
on the loan after discharge, and is
eligible to receive assistance under the     discharged under paragraph (d) of this       (6) Guaranty agency responsibilities—
Title IV, HEA programs.                      section or to take other enforcement         (i) Procedures applicable if a school
(iv) A discharge of a loan under             action with respect to the conduct on        closed on or after January 1, 1986, but
                                             which those claims were based, a             prior to June 13, 1994.
paragraph (d) of this section must be
34 CFR 682.402


(A) If a borrower received a loan for         immediately suspend any efforts to             shall be deemed to have exercised
attendance at a school with a closure         collect from the borrower on any loan          forbearance of payment of principal and
date on or after January 1, 1986, but         received for the program of study for          interest from the date it suspended
prior to June 13, 1994, the loan may be       which the loan was made (but may               collection activity. The agency may
discharged in accordance with the             continue to receive borrower                   capitalize, in accordance with Sec.
procedures specified in paragraph             payments), and notify the borrower that        682.202(b), any interest accrued and
(d)(6)(i) of this section.                    the agency will provide additional             not paid during that period.
(B) If a loan subject to paragraph (d) of     information about the procedures for           (J) A borrower's request for discharge
                                              requesting a discharge after the agency        may not be denied solely on the basis
this section was discharged in part in
                                              has received confirmation from the             of failing to meet any time limits set by
accordance with the Secretary's
                                              Secretary that the school had closed.          the lender, guaranty agency, or the
“Closed School Policy” as authorized by
section IV of Bulletin 89-G-159, the          (F) If a loan identified under paragraph       Secretary.
guaranty agency shall initiate the            (d)(6)(i)(D)(2) of this section is held by
                                                                                             (ii) Procedures applicable if a school
discharge of the remaining balance of         the guaranty agency as a defaulted
                                                                                             closed on or after June 13, 1994. (A) A
the loan not later than August 13, 1994.      loan and the borrower's current address
                                                                                             guaranty agency shall notify the
                                              is unknown, the agency shall, by June
(C) A guaranty agency shall review its                                                       Secretary immediately whenever it
                                              13, 1995, further refine the list of
records and identify all schools that                                                        becomes aware of reliable information
                                              borrowers whose loans are potentially
appear to have closed on or after                                                            indicating a school may have closed.
                                              subject to discharge under paragraph
January 1, 1986 and prior to June 13,                                                        The designated guaranty agency in the
                                              (d) of this section by consulting with
1994, and shall identify the loans made                                                      state in which the school is located
                                              representatives of the closed school,
to any borrower (or student) who                                                             shall promptly investigate whether the
                                              the school's licensing agency,
appears to have been enrolled at the                                                         school has closed and, within 30 days
                                              accrediting agency, and other
school on the school closure date or                                                         after receiving information indicating
                                              appropriate parties. Upon learning the
who withdrew not more than 90 days                                                           that the school may have closed, report
                                              new address of a borrower who would
prior to the closure date.                                                                   the results of its investigation to the
                                              still be considered potentially eligible for
(D) A guaranty agency shall notify the                                                       Secretary concerning the date of the
                                              a discharge, the guaranty agency shall,
Secretary immediately if it determines                                                       school's closure and whether a teach-
                                              within 30 days after learning the
                                                                                             out of the closed school's program was
that a school not previously known to         borrower's new address, mail to the
have closed appears to have closed,                                                          made available to students.
                                              borrower a discharge application that
and, within 30 days of making that            meets the requirements of paragraph            (B) If a guaranty agency determines
determination, notify all lenders             (d)(6)(i)(E) of this section.                  that a school appears to have closed, it
participating in its program to suspend                                                      shall, within 30 days of making that
                                              (G) If the guaranty agency determines
collection efforts against individuals                                                       determination, notify all lenders
                                              that a borrower identified in paragraph
with respect to loans made for                                                               participating in its program to suspend
                                              (d)(6)(i)(E) or (F) of this section has
attendance at the closed school, if the                                                      collection efforts against individuals
                                              satisfied all of the conditions required
student to whom (or on whose behalf) a                                                       with respect to loans made for
                                              for a discharge, the agency shall notify
loan was made, appears to have been                                                          attendance at the closed school, if the
                                              the borrower in writing of that
enrolled at the school on the closing                                                        student to whom (or on whose behalf) a
                                              determination within 30 days after
date, or withdrew not more than 90                                                           loan was made, appears to have been
                                              making that determination.
days prior to the date the school                                                            enrolled at the school on the closing
appears to have closed. Within 30 days        (H) If the guaranty agency determines          date, or withdrew not more than 90
after receiving confirmation of the date      that a borrower identified in paragraph        days prior to the date the school
of a school's closure from the                (d)(6)(i)(E) or (F) of this section does       appears to have closed. Within 30 days
Secretary, the agency shall—                  not qualify for a discharge, the agency        after receiving confirmation of the date
                                              shall notify the borrower in writing of        of a school's closure from the
(1) Notify all lenders participating in its
                                              that determination and the reasons for it      Secretary, the agency shall—
program to mail a discharge application
                                              within 30 days after the date the
explaining the procedures and eligibility                                                    (1) Notify all lenders participating in its
                                              agency—
criteria for obtaining a discharge and an                                                    program to mail a discharge application
explanation of the information that must      (1) Made that determination based on           explaining the procedures and eligibility
be included in the sworn statement            information available to the guaranty          criteria for obtaining a discharge and an
(which may be combined) to all                agency;                                        explanation of the information that must
borrowers who may be eligible for a           (2) Was notified by the Secretary that         be included in the sworn statement
closed school discharge; and                  the school had not closed;                     (which may be combined) to all
                                                                                             borrowers who may be eligible for a
(2) Review the records of loans that it       (3) Was notified by the Secretary that
holds, identify the loans made to any                                                        closed school discharge; and
                                              the school had closed on a date that
borrower (or student) who appears to          was more than 90 days after the                (2) Review the records of loans that it
have been enrolled at the school on the       borrower (or student) withdrew from the        holds, identify the loans made to any
school closure date or who withdrew           school;                                        borrower (or student) who appears to
not more than 90 days prior to the                                                           have been enrolled at the school on the
closure date, and mail a discharge            (4) Was notified by the Secretary that         school closure date or who withdrew
application and an explanation of the         the borrower (or student) was ineligible       not more than 90 days prior to the
information that must be included in the      for a closed school discharge for other        closure date, and mail a discharge
sworn statement (which may be                 reasons; or                                    application and an explanation of the
combined) to the borrower. The                (5) Received the borrower's completed          information that must be included in the
application shall inform the borrower of      application and sworn statement.               sworn statement (which may be
the procedures and eligibility criteria for                                                  combined) to the borrower. The
obtaining a discharge.                        (I) If a borrower described in paragraph       application shall inform the borrower of
                                              (d)(6)(i)(E) or (F) of this section fails to   the procedures and eligibility criteria for
(E) If a loan identified under paragraph      submit the written request and sworn
(d)(6)(i)(D)(2) of this section is held by                                                   obtaining a discharge.
                                              statement described in paragraph (d)(3)
the guaranty agency as a defaulted            of this section within 60 days of being        (C) If a loan identified under paragraph
loan and the borrower's current address       notified of that option, the guaranty          (d)(6)(ii)(B)(2) of this section is held by
is known, the guaranty agency shall           agency shall resume collection and             the guaranty agency as a defaulted
34 CFR 682.402


loan and the borrower's current address        statement in light of information             accordance with Sec. 682.402(g) no
is known, the guaranty agency shall            available from the records of the             later than 60 days after the lender
immediately suspend any efforts to             agency and from other sources,                receives the borrower's written request
collect from the borrower on any loan          including other guaranty agencies, state      and sworn statement described in
received for the program of study for          authorities, and cognizant accrediting        paragraph (d)(3) of this section. If a
which the loan was made (but may               associations, and shall take the              lender receives a payment made by or
continue to receive borrower                   following actions—                            on behalf of the borrower on the loan
payments), and notify the borrower that                                                      after the lender files a claim on the loan
                                               (1) If the agency determines that the
the agency will provide additional                                                           with the guaranty agency, the lender
                                               borrower satisfies the requirements for
information about the procedures for                                                         shall forward the payment to the
                                               discharge under paragraph (d) of this
requesting a discharge after the agency                                                      guaranty agency within 30 days of its
                                               section, it shall pay the claim in
has received confirmation from the                                                           receipt. The lender shall assist the
                                               accordance with Sec. 682.402(h) not
Secretary that the school had closed.                                                        guaranty agency and the borrower in
                                               later than 90 days after the agency
                                                                                             determining whether the borrower is
(D) If a loan identified under paragraph       received the claim; or
                                                                                             eligible for discharge of the loan.
(d)(6)(ii)(B)(2) of this section is held by    (2) If the agency determines that the
the guaranty agency as a defaulted                                                           (iv) Within 30 days after receiving
                                               borrower does not qualify for a
loan and the borrower's current address        discharge, the agency shall, not later        reimbursement from the guaranty
is unknown, the agency shall, within           than 90 days after the agency received        agency for a closed school claim, the
one year after identifying the borrower,       the claim, return the claim to the lender     lender shall notify the borrower that the
attempt to locate the borrower and             with an explanation of the reasons for        loan obligation has been discharged,
further determine the borrower's               its determination.                            and request that all credit bureaus to
potential eligibility for a discharge under                                                  which it previously reported the status
paragraph (d) of this section by               (H) If a borrower fails to submit the         of the loan delete all adverse credit
consulting with representatives of the         written request and sworn statement           history assigned to the loan.
closed school, the school's licensing          described in paragraph (d)(3) of this
                                               section within 60 days of being notified      (v) Within 30 days after being notified
agency, accrediting agency, and other                                                        by the guaranty agency that the
appropriate parties. Upon learning the         of that option, the lender or guaranty
                                               agency shall resume collection and            borrower's request for a closed school
new address of a borrower who would                                                          discharge has been denied, the lender
still be considered potentially eligible for   shall be deemed to have exercised
                                               forbearance of payment of principal and       shall resume collection and notify the
a discharge, the guaranty agency shall,
                                               interest from the date it suspended           borrower of the reasons for the denial.
within 30 days after learning the                                                            The lender shall be deemed to have
borrower's new address, mail to the            collection activity. The lender or
                                               guaranty agency may capitalize, in            exercised forbearance of payment of
borrower a discharge application that
                                               accordance with Sec. 682.202(b), any          principal and interest from the date the
meets the requirements of paragraph                                                          lender suspended collection activity,
(d)(6)(ii)(B) of this section.                 interest accrued and not paid during
                                               that period.                                  and may capitalize, in accordance with
(E) If the guaranty agency determines                                                        Sec. 682.202(b), any interest accrued
that a borrower identified in paragraph        (I) A borrower's request for discharge        and not paid during that period.
(d)(6)(ii)(C) or (D) of this section has       may not be denied solely on the basis
                                                                                             (8) Discharge without an application. A
satisfied all of the conditions required       of failing to meet any time limits set by
                                               the lender, guaranty agency, or the           borrower's obligation to repay an FFEL
for a discharge, the agency shall notify
                                               Secretary.                                    Program loan may be discharged
the borrower in writing of that                                                              without an application from the
determination within 30 days after             (7) Lender responsibilities. (i) A lender     borrower if the—
making that determination.                     shall comply with the requirements
                                               prescribed in paragraph (d) of this           (i) Borrower received a discharge on a
(F) If the guaranty agency determines
                                               section. In the absence of specific           loan pursuant to 34 CFR 674.33(g)
that a borrower identified in paragraph                                                      under the Federal Perkins Loan
(d)(6)(ii)(C) or (D) of this section does      instructions from a guaranty agency or
                                               the Secretary, if a lender receives           Program, or 34 CFR 685.213 under the
not qualify for a discharge, the agency
                                               information from a source it believes to      William D. Ford Federal Direct Loan
shall notify the borrower in writing of                                                      Program; or
that determination and the reasons for it      be reliable indicating that an existing or
within 30 days after the date the              former borrower may be eligible for a         (ii) The Secretary or the guaranty
agency—                                        loan discharge under paragraph (d) of         agency, with the Secretary's
                                               this section, the lender shall                permission, determines that the
(1) Made that determination based on           immediately notify the guaranty agency,       borrower qualifies for a discharge
information available to the guaranty          and suspend any efforts to collect from       based on information in the Secretary
agency;                                        the borrower on any loan received for         or guaranty agency's possession.
(2) Was notified by the Secretary that         the program of study for which the loan
                                                                                             (e) False certification by a school of a
the school had not closed;                     was made (but may continue to receive
                                                                                             student's eligibility to borrow and
                                               borrower payments).
(3) Was notified by the Secretary that                                                       unauthorized disbursements.
the school had closed on a date that           (ii) If the borrower fails to submit the
                                                                                             (1) General. (i) The Secretary
was more than 90 days after the                written request and sworn statement
                                                                                             reimburses the holder of a loan
borrower (or student) withdrew from the        described in paragraph (d)(3) of this
                                                                                             received by a borrower on or after
school;                                        section within 60 days after being
                                                                                             January 1, 1986, and discharges a
                                               notified of that option, the lender shall
(4) Was notified by the Secretary that                                                       current or former borrower's obligation
                                               resume collection and shall be deemed
the borrower (or student) was ineligible                                                     with respect to the loan in accordance
                                               to have exercised forbearance of
for a closed school discharge for other                                                      with the provisions of paragraph (e) of
                                               payment of principal and interest from
reasons; or                                                                                  this section, if the borrower's (or the
                                               the date the lender suspended
                                                                                             student for whom a parent received a
(5) Received the borrower's completed          collection activity. The lender may
application and sworn statement.                                                             PLUS loan) eligibility to receive the loan
                                               capitalize, in accordance with Sec.
                                                                                             was falsely certified by an eligible
(G) Upon receipt of a closed school            682.202(b), any interest accrued and
                                                                                             school. On or after July 1, 2006, the
discharge claim filed by a lender, the         not paid during that period.
                                                                                             Secretary reimburses the holder of a
agency shall review the borrower's             (iii) The lender shall file a closed school   loan, and discharges a borrower's
request and supporting sworn                   claim with the guaranty agency in             obligation with respect to the loan in
34 CFR 682.402


accordance with the provisions of               relieves the borrower of an existing or       the loan application or promissory
paragraph (e) of this section, if the           past obligation to repay the loan             note—
borrower's eligibility to receive the loan      certified by the school, and any charges
                                                                                              (A) State that the signature on either of
was falsely certified as a result of a          imposed or costs incurred by the holder
                                                                                              those documents was not the signature
crime of identity theft. For purposes of a      with respect to the loan that the
                                                                                              of the borrower; and
false certification discharge, the term         borrower is, or was, otherwise obligated
“borrower” includes all endorsers on a          to pay.                                       (B) Provide five different specimens of
loan. A student's or other individual's                                                       his or her signature, two of which must
                                                (ii) A discharge of a loan under
eligibility to borrow shall be considered                                                     be not earlier or later than one year
                                                paragraph (e) of this section qualifies
to have been falsely certified by the                                                         before or after the date of the contested
                                                the borrower for reimbursement of
school if the school—                                                                         signature;
                                                amounts paid voluntarily or through
(A) Certified the student's eligibility for a   enforced collection on a loan obligation      (iv) In the case of a borrower
FFEL Program loan on the basis of               discharged under paragraph (e) of this        requesting a discharge because the
ability to benefit from its training and the    section.                                      school, without authorization of the
student did not meet the applicable                                                           borrower, endorsed the borrower's
                                                (iii) A borrower who has defaulted on a
requirements described in 34 CFR part                                                         name on the loan check or signed the
                                                loan discharged under paragraph (e) of
668 and section 484(d) of the Act, as                                                         authorization for electronic funds
                                                this section is not regarded as in default
applicable and as described in                                                                transfer or master check, the borrower
                                                on the loan after discharge, and is
paragraph (e)(13) of this section; or                                                         shall—
                                                eligible to receive assistance under the
(B) Signed the borrower's name without          Title IV, HEA programs.                       (A) Certify that he or she did not
authorization by the borrower on the                                                          endorse the loan check or sign the
                                                (iv) A discharge of a loan under
loan application or promissory note.                                                          authorization for electronic funds
                                                paragraph (e) of this section is reported
                                                                                              transfer or master check, or authorize
(C) Certified the eligibility of an             by the loan holder to all credit reporting
                                                                                              the school to do so;
individual for an FFEL Program loan as          agencies to which the holder previously
a result of the crime of identity theft         reported the status of the loan, so as to     (B) Provide five different specimens of
committed against the individual, as            delete all adverse or inaccurate credit       his or her signature, two of which must
that crime is defined in Sec.                   history assigned to the loan.                 be not earlier or later than one year
682.402(e)(14).                                                                               before or after the date of the contested
                                                (v) Discharge under paragraph (e)(1)(ii)
                                                                                              signature; and
(ii) The Secretary discharges the               of this section qualifies the borrower for
obligation of a borrower with respect to        relief only with respect to the amount of     (C) State that the proceeds of the
a loan disbursement for which the               the disbursement discharged.                  contested disbursement were not
school, without the borrower's                                                                received either through actual delivery
                                                (3) Borrower qualification for discharge.
authorization, endorsed the borrower's                                                        of the loan funds or by a credit in the
                                                Except as provided in paragraph (e)(14)
loan check or authorization for                                                               amount of the contested disbursement
                                                of this section, to qualify for a discharge
electronic funds transfer, unless the                                                         applied to charges owed to the school
                                                of a loan under paragraph (e) of this
student for whom the loan was made                                                            for that portion of the educational
                                                section, the borrower must submit to
received the proceeds of the loan either                                                      program completed by the student;
                                                the holder of the loan a written request
by actual delivery of the loan funds or         and a sworn statement. The statement          (v) In the case of an individual who is
by a credit in the amount of the                need not be notarized, but must be            requesting a discharge of a loan
contested disbursement applied to               made by the borrower under penalty of         because the individual's eligibility was
charges owed to the school for that             perjury, and, in the statement, the           falsely certified as a result of a crime of
portion of the educational program              borrower must—                                identity theft committed against the
completed by the student. However, the                                                        individual—
Secretary does not reimburse the                (i) State whether the student has made
lender with respect to any amount               a claim with respect to the school's          (A) Certify that the individual did not
disbursed by means of a check bearing           false certification with any third party,     sign the promissory note, or that any
an unauthorized endorsement unless              such as the holder of a performance           other means of identification used to
the school also executed the                    bond or a tuition recovery program, and       obtain the loan was used without the
application or promissory note for that         if so, the amount of any payment              authorization of the individual claiming
loan for the named borrower without             received by the borrower (or student) or      relief;
that individual's consent.                      credited to the borrower's loan               (B) Certify that the individual did not
                                                obligation;                                   receive or benefit from the proceeds of
(iii) If a loan was made as a result of
the crime of identity theft that was            (ii) In the case of a borrower requesting     the loan with knowledge that the loan
committed by an employee or agent of            a discharge based on defective testing        had been made without the
the lender, or if at the time the loan was      of the student's ability to benefit, state    authorization of the individual;
made, an employee or agent of the               that the borrower (or the student for         (C) Provide a copy of a local, State, or
lender knew of the identity theft of the        whom a parent received a PLUS loan)           Federal court verdict or judgment that
individual named as the borrower—               —                                             conclusively determines that the
(A) The Secretary does not pay                  (A) Received, on or after January 1,          individual who is named as the
reinsurance, and does not reimburse             1986, the proceeds of any                     borrower of the loan was the victim of a
the holder, for any amount disbursed on         disbursement of a loan disbursed, in          crime of identify theft by a perpetrator
the loan; and                                   whole or in part, on or after January 1,      named in the verdict or judgment;
                                                1986 to attend a school; and                  (D) If the judicial determination of the
(B) Any amounts received by a holder
as interest benefits and special                (B) Was admitted to that school on the        crime does not expressly state that the
allowance payments with respect to the          basis of ability to benefit from its          loan was obtained as a result of the
loan must be refunded to the Secretary,         training and did not meet the applicable      crime, provide—
as provided in paragraphs                       requirements for admission on the             (1) Authentic specimens of the
(e)(8)(ii)(B)(4) and (e)(10)(ii)(D) of this     basis of ability to benefit as described in   signature of the individual, as provided
section.                                        paragraph (e)(13) of this section;            in paragraph (e)(3)(iii)(B), or other
(2) Relief available pursuant to                (iii) In the case of a borrower               means of identification of the individual,
discharge. (i) Discharge under                  requesting a discharge because the            as applicable, corresponding to the
paragraph (e)(1)(i) of this section             school signed the borrower's name on
34 CFR 682.402


means of identification falsely used to       borrower is deemed to have assigned          interest accrued and not paid during
obtain the loan; and                          to and relinquished in favor of the          that period.
                                              Secretary any right to a loan refund (up     (iv) Upon receipt of a discharge claim
(2) A statement of facts that
                                              to the amount discharged) that the           filed by a lender or a request submitted
demonstrate, to the satisfaction of the
                                              borrower (or student) may have by            by a borrower with respect to a loan
Secretary, that eligibility for the loan in
                                              contract or applicable law with respect      held by the guaranty agency, the
question was falsely certified as a result
                                              to the loan or the enrollment agreement      agency shall have up to 90 days to
of the crime of identity theft committed
                                              for the program for which the loan was       determine whether the discharge
against that individual.
                                              received, against the school, its            should be granted. The agency shall
(vi) That the borrower agrees to provide      principals, affiliates and their             review the borrower's request and
upon request by the Secretary or the          successors, its sureties, and any            supporting sworn statement in light of
Secretary's designee, other                   private fund, including the portion of a     information available from the records
documentation reasonably available to         public fund that represents funds            of the agency and from other sources,
the borrower, that demonstrates, to the       received from a private party.               including other guaranty agencies, state
satisfaction of the Secretary or the
                                              (ii) The provisions of paragraph (e) of      authorities, and cognizant accrediting
Secretary's designee, that the student
                                              this section apply notwithstanding any       associations.
meets the qualifications in paragraph
                                              provision of state law that would            (v) A borrower's request for discharge
(e) of this section; and
                                              otherwise restrict transfer of such rights
(vii) That the borrower agrees to                                                          and sworn statement may not be
                                              by the borrower (or student), limit or
cooperate with the Secretary or the                                                        denied solely on the basis of failing to
                                              prevent a transferee from exercising
                                                                                           meet any time limits set by the lender,
Secretary's designee in enforcement           those rights, or establish procedures or
actions in accordance with paragraph                                                       the Secretary or the guaranty agency.
                                              a scheme of distribution that would
(e)(4) of this section, and to transfer       prejudice the Secretary's ability to         (7) Guaranty agency responsibilities
any right to recovery against a third         recover on those rights.                     with respect to a claim filed by a lender
party in accordance with paragraph                                                         based on the borrower's assertion that
                                              (iii) Nothing in this section shall be
(e)(5) of this section.                                                                    he or she did not sign the loan
                                              construed as limiting or foreclosing the
(4) Cooperation by borrower in                                                             application or the promissory note that
                                              borrower's (or student's) right to pursue
enforcement actions. (i) In any judicial                                                   he or she was a victim of the crime of
                                              legal and equitable relief regarding
or administrative proceeding brought by                                                    identity theft, or that the school failed to
                                              disputes arising from matters otherwise
                                                                                           test, or improperly tested, the student's
the Secretary or the Secretary's              unrelated to the loan discharged.            ability to benefit. (i) The agency shall
designee to recover for amounts
                                              (6) Guaranty agency responsibilities—        evaluate the borrower's request and
discharged under paragraph (e) of this
                                              general. (i) A guaranty agency shall         consider relevant information it
section or to take other enforcement
                                              notify the Secretary immediately             possesses and information available
action with respect to the conduct on
                                              whenever it becomes aware of reliable        from other sources, and follow the
which those claims were based, a
                                              information indicating that a school may     procedures described in paragraph
borrower who requests or receives a
                                              have falsely certified a student's           (e)(7) of this section.
discharge under paragraph (e) of this
                                              eligibility or caused an unauthorized        (ii) If the agency determines that the
section must cooperate with the
                                              disbursement of loan proceeds, as
Secretary or the Secretary's designee.                                                     borrower satisfies the requirements for
                                              described in paragraph (e)(3) of this
At the request of the Secretary or the                                                     discharge under paragraph (e) of this
                                              section. The designated guaranty
Secretary's designee, and upon the                                                         section, it shall, not later than 30 days
                                              agency in the state in which the school
Secretary's or the Secretary's                                                             after the agency makes that
                                              is located shall promptly investigate
designee's tendering to the borrower                                                       determination, pay the claim in
                                              whether the school has falsely certified
the fees and costs as are customarily                                                      accordance with Sec. 682.402(h) and—
                                              a student's eligibility and, within 30
provided in litigation to reimburse                                                        (A) Notify the borrower that his or her
                                              days after receiving information
witnesses, the borrower shall—
                                              indicating that the school may have          liability with respect to the amount of
(A) Provide testimony regarding any           done so, report the results of its           the loan has been discharged, and that
representation made by the borrower to        preliminary investigation to the             the lender has been informed of the
support a request for discharge; and          Secretary.                                   actions required under paragraph
(B) Produce any documentation                                                              (e)(7)(ii)(C) of this section;
                                              (ii) If the guaranty agency receives
reasonably available to the borrower          information it believes to be reliable       (B) Refund to the borrower all amounts
with respect to those representations         indicating that a borrower whose loan is     paid by the borrower to the lender or
and any sworn statement required by           held by the agency may be eligible for a     the agency with respect to the
the Secretary with respect to those           discharge under paragraph (e) of this        discharged loan amount, including any
representations and documents.                section, the agency shall immediately        late fees or collection charges imposed
(ii) The Secretary revokes the                suspend any efforts to collect from the      by the lender or agency related to the
                                              borrower on any loan received for the        discharged loan amount; and
discharge, or denies the request for
discharge, of a borrower who—                 program of study for which the loan was      (C) Notify the lender that the borrower's
                                              made (but may continue to receive            liability with respect to the amount of
(A) Fails to provide testimony, sworn         borrower payments), and inform the
statements, or documentation to                                                            the loan has been discharged, and that
                                              borrower of the procedures for               the lender must—
support material representations made         requesting a discharge.
by the borrower to obtain the discharge;                                                   (1) Immediately terminate any collection
or                                            (iii) If the borrower fails to submit the    efforts against the borrower with
                                              written request and sworn statement          respect to the discharged loan amount
(B) Provides testimony, a sworn               described in paragraph (e)(3) of this        and any charges imposed or costs
statement, or documentation that does         section within 60 days of being notified
not support the material representations                                                   incurred by the lender related to the
                                              of that option, the guaranty agency          discharged loan amount that the
made by the borrower to obtain the            shall resume collection and shall be         borrower is, or was, otherwise obligated
discharge.                                    deemed to have exercised forbearance         to pay; and
(5) Transfer to the Secretary of              of payment of principal and interest
borrower's right of recovery against          from the date it suspended collection        (2) Within 30 days, report to all credit
third parties. (i) Upon discharge under       activity. The agency may capitalize, in      reporting agencies to which the lender
                                              accordance with Sec. 682.202(b), any         previously reported the status of the
paragraph (e) of this section, the
34 CFR 682.402


loan, so as to delete all adverse credit     (ii) If the agency determines that a        late fees or collection charges imposed
history assigned to the loan; and            borrower who asserts that he or she did     by the lender or agency related to the
                                             not endorse the loan check satisfies the    discharged loan amount; and
(D) Within 30 days, demand payment in
                                             requirements for discharge under            (C) Notify the lender that the borrower's
full from the perpetrator of the identity
                                             paragraph (e)(3)(iv) of this section, it
theft committed against the individual,                                                  liability with respect to the contested
                                             shall, within 30 days after making that
and if payment is not received, pursue                                                   disbursement of the loan has been
                                             determination—
collection action thereafter against the                                                 discharged, and that the lender must—
perpetrator.                                 (A) Notify the borrower that his or her
                                                                                         (1) Immediately terminate any collection
(iii) If the agency determines that the      liability with respect to the amount of
                                                                                         efforts against the borrower with
                                             the contested disbursement of the loan
borrower does not qualify for a                                                          respect to the discharged loan amount
                                             has been discharged, and that the
discharge, it shall, within 30 days after                                                and any charges imposed or costs
                                             lender has been informed of the actions
making that determination—                                                               incurred by the lender related to the
                                             required under paragraph (e)(8)(ii)(B) of
(A) Notify the lender that the borrower's                                                discharged loan amount that the
                                             this section;
                                                                                         borrower is, or was, otherwise obligated
liability on the loan is not discharged
                                             (B) Notify the lender that the borrower's   to pay; and
and that, depending on the borrower's
                                             liability with respect to the amount of
decision under paragraph (e)(7)(iii)(B)                                                  (2) Within 30 days, report to all credit
                                             the contested disbursement of the loan
of this section, the loan shall either be                                                reporting agencies to which the lender
                                             has been discharged, and that the
returned to the lender or paid as a                                                      previously reported the status of the
                                             lender must—
default claim; and                                                                       loan, so as to delete all adverse credit
(B) Notify the borrower that the             (1) Immediately terminate any collection    history assigned to the loan.
                                             efforts against the borrower with
borrower does not qualify for discharge,                                                 (iv) If the agency determines that the
                                             respect to the discharged loan amount
and state the reasons for that                                                           borrower does not qualify for a
                                             and any charges imposed or costs
conclusion. The agency shall advise the                                                  discharge, it shall, within 30 days after
                                             incurred by the lender related to the
borrower that he or she remains                                                          making that determination—
                                             discharged loan amount that the
obligated to repay the loan and warn                                                     (A) Notify the lender that the borrower's
                                             borrower is, or was, otherwise obligated
the borrower of the consequences of                                                      liability on the loan is not discharged
                                             to pay;
default, and explain that the borrower
                                                                                         and that, depending on the borrower's
will be considered to be in default on       (2) Within 30 days, report to all credit
                                                                                         decision under paragraph (e)(8)(iv)(B)
the loan unless the borrower submits a       reporting agencies to which the lender
                                                                                         of this section, the loan shall either be
written statement to the agency within       previously reported the status of the
                                                                                         returned to the lender or paid as a
30 days stating that the borrower—           loan, so as to delete all adverse credit
                                                                                         default claim; and
                                             history assigned to the loan;
(1) Acknowledges the debt and, if                                                        (B) Notify the borrower that the
payments are due, will begin or resume       (3) Refund to the borrower, within 30
                                                                                         borrower does not qualify for discharge,
making those payments to the lender;         days, all amounts paid by the borrower
                                                                                         and state the reasons for that
or                                           with respect to the loan disbursement
                                                                                         conclusion. The agency shall advise the
                                             that was discharged, including any
(2) Requests the Secretary to review                                                     borrower that he or she remains
                                             charges imposed or costs incurred by
the agency's decision.                                                                   obligated to repay the loan and warn
                                             the lender related to the discharged
(iv) Within 30 days after receiving the                                                  the borrower of the consequences of
                                             loan amount; and
borrower's written statement described                                                   default, and explain that the borrower
                                             (4) Refund to the Secretary, within 30      will be considered to be in default on
in paragraph (e)(7)(iii)(B)(1) of this
                                             days, all interest benefits and special     the loan unless the borrower submits a
section, the agency shall return the
                                             allowance payments received from the        written statement to the agency within
claim file to the lender and notify the
                                             Secretary with respect to the loan          30 days stating that the borrower—
lender to resume collection efforts if
                                             disbursement that was discharged; and
payments are due.                                                                        (1) Acknowledges the debt and, if
                                             (C) Transfer to the lender the              payments are due, will begin or resume
(v) Within 30 days after receiving the
                                             borrower's written assignment of any        making those payments to the lender;
borrower's request for review by the
                                             rights the borrower may have against        or
Secretary, the agency shall forward the
                                             third parties with respect to a loan
claim file to the Secretary for his review                                               (2) Requests the Secretary to review
                                             disbursement that was discharged
and take the actions required under                                                      the agency's decision.
                                             because the borrower did not sign the
paragraph (e)(11) of this section.                                                       (v) Within 30 days after receiving the
                                             loan check.
(vi) The agency shall pay a default                                                      borrower's written statement described
                                             (iii) If the agency determines that a
claim to the lender within 30 days after                                                 in paragraph (e)(8)(iv)(B)(1) of this
                                             borrower who asserts that he or she did
the borrower fails to return either of the                                               section, the agency shall return the
                                             not sign the electronic funds transfer or
written statements described in                                                          claim file to the lender and notify the
                                             master check authorization satisfies the
paragraph (e)(7)(iii)(B) of this section.                                                lender to resume collection efforts if
                                             requirements for discharge under
(8) Guaranty agency responsibilities                                                     payments are due.
                                             paragraph (e)(3)(iv) of this section, it
with respect to a claim filed by a lender    shall, within 30 days after making that     (vi) Within 30 days after receiving the
based only on the borrower's assertion       determination, pay the claim in             borrower's request for review by the
that he or she did not sign the loan         accordance with Sec. 682.402(h) and—        Secretary, the agency shall forward the
check or the authorization for the                                                       claim file to the Secretary for his review
                                             (A) Notify the borrower that his or her
release of loan funds via electronic                                                     and take the actions required under
                                             liability with respect to the amount of
funds transfer or master check. (i) The                                                  paragraph (e)(11) of this section.
                                             the contested disbursement of the loan
agency shall evaluate the borrower's                                                     (vii) The agency shall pay a default
                                             has been discharged, and that the
request and consider relevant                                                            claim to the lender within 30 days after
                                             lender has been informed of the actions
information it possesses and                                                             the borrower fails to return either of the
                                             required under paragraph (e)(8)(iii)(C)
information available from other
                                             of this section;                            written statements described in
sources, and follow the procedures                                                       paragraph (e)(8)(iv)(B) of this section.
described in paragraph (e)(8) of this        (B) Refund to the borrower all amounts
section.                                     paid by the borrower to the lender or       (9) Guaranty agency responsibilities in
                                             the agency with respect to the              the case of a loan held by the agency
                                             discharged loan amount, including any       for which a discharge request is
34 CFR 682.402


submitted by a borrower based on the        (B) Requests the Secretary to review         that represent borrower payments
borrower's assertion that he or she did     the agency's decision.                       previously paid to the lender with
not sign the loan application or the                                                     respect to the loan disbursement that
                                            (iv) Within 30 days after receiving the
promissory note, that he or she was a                                                    was discharged;
                                            borrower's request for review by the
victim of the crime of identity theft, or   Secretary, the agency shall forward the      (E) Notify the lender to whom a claim
that the school failed to test, or          borrower's discharge request and all         payment was made that the lender
improperly tested, the student's ability    relevant documentation to the                must, within 30 days, reimburse the
to benefit. (i) The agency shall evaluate   Secretary for his review and take the        agency for the amount of the loan that
the borrower's request and consider         actions required under paragraph             was discharged, minus the amount of
relevant information it possesses and       (e)(11) of this section.                     borrower payments made to the lender
information available from other                                                         that were refunded to the borrower by
sources, and follow the procedures          (v) The agency shall resume collection
                                            action if within 30 days of giving notice    the guaranty agency under paragraph
described in paragraph (e)(9) of this                                                    (e)(10)(ii)(C) of this section; and
section.                                    of its determination the borrower fails to
                                            seek review by the Secretary or agree        (F) Transfer to the lender the borrower's
(ii) If the agency determines that the      to repay the loan.                           written assignment of any rights the
borrower satisfies the requirements for
                                            (10) Guaranty agency responsibilities in     borrower may have against third parties
discharge under paragraph (e)(3) of this                                                 with respect to the loan disbursement
section, it shall immediately terminate     the case of a loan held by the agency
                                                                                         that was discharged.
any collection efforts against the          for which a discharge request is
borrower with respect to the discharged     submitted by a borrower based only on        (iii) In the case of a borrower who
loan amount and any charges imposed         the borrower's assertion that he or she      requests a discharge because he or
or costs incurred by the agency related     did not sign the loan check or the           she did not sign the electronic funds
to the discharged loan amount that the      authorization for the release of loan        transfer or master check authorization,
borrower is, or was otherwise obligated     proceeds via electronic funds transfer       if the agency determines that the
to pay and, not later than 30 days after    or master check. (i) The agency shall        borrower meets the conditions for
the agency makes the determination          evaluate the borrower's request and          discharge, it shall immediately
that the borrower satisfies the             consider relevant information it             terminate any collection efforts against
requirements for discharge—                 possesses and information available          the borrower with respect to the
                                            from other sources, and follow the           discharged loan amount and any
(A) Notify the borrower that his or her     procedures described in paragraph            charges imposed or costs incurred by
liability with respect to the amount of     (e)(10) of this section.                     the agency related to the discharged
the loan has been discharged;
                                            (ii) If the agency determines that a         loan amount that the borrower is, or
(B) Report to all credit reporting                                                       was, otherwise obligated to pay, and
                                            borrower who asserts that he or she did
agencies to which the agency                not endorse the loan check satisfies the     within 30 days after making that
previously reported the status of the       requirements for discharge under             determination—
loan, so as to delete all adverse credit    paragraph (e)(3)(iv) of this section, it     (A) Notify the borrower that his or her
history assigned to the loan;               shall refund to the Secretary the            liability with respect to the amount of
(C) Refund to the borrower all amounts      amount of reinsurance payment                the contested disbursement of the loan
paid by the borrower to the lender or       received with respect to the amount          has been discharged;
the agency with respect to the              discharged on that loan less any
                                                                                         (B) Refund to the borrower all amounts
discharged loan amount, including any       repayments made by the lender under
                                                                                         paid by the borrower to the lender or
late fees or collection charges imposed     paragraph (e)(10)(ii)(D)(2) of this
                                                                                         the agency with respect to the
by the lender or agency related to the      section, and within 30 days after
                                                                                         discharged loan amount, including any
discharged loan amount; and                 making that determination—
                                                                                         late fees or collection charges imposed
(D) Within 30 days, demand payment in       (A) Notify the borrower that his or her      by the lender or agency related to the
full from the perpetrator of the identity   liability with respect to the amount of      discharged loan amount; and
theft committed against the individual,     the contested disbursement of the loan
                                                                                         (C) Report to all credit reporting
and if payment is not received, pursue      has been discharged;
                                                                                         agencies to which the lender previously
collection action thereafter against the    (B) Report to all credit reporting           reported the status of the loan, so as to
perpetrator.                                agencies to which the agency                 delete all adverse credit history
(iii) If the agency determines that the     previously reported the status of the        assigned to the loan.
borrower does not qualify for a             loan, so as to delete all adverse credit     (iv) The agency shall take the actions
discharge, it shall, within 30 days after   history assigned to the loan;
                                                                                         required under paragraphs (e)(9) (iii)
making that determination, notify the       (C) Refund to the borrower all amounts       through (v) if the agency determines
borrower that the borrower's liability      paid by the borrower to the lender or        that the borrower does not qualify for a
with respect to the amount of the loan is   the agency with respect to the               discharge.
not discharged, state the reasons for       discharged loan amount, including any
that conclusion, and if the borrower is                                                  (11) Guaranty agency responsibilities if
                                            late fees or collection charges imposed
not then making payments in                 by the lender or agency related to the
                                                                                         a borrower requests a review by the
accordance with a repayment                                                              Secretary. (i) Within 30 days after
                                            discharged loan amount;
arrangement with the agency on the                                                       receiving the borrower's request for
loan, advise the borrower of the            (D) Notify the lender to whom a claim        review under paragraph (e)(7)(iii)(B)(2),
consequences of continued failure to        payment was made that the lender             (e)(8)(iv)(B)(2), (e)(9)(iii)(B), or
reach such an arrangement, and that         must refund to the Secretary, within 30      (e)(10)(iv) of this section, the agency
collection action will resume on the loan   days—                                        shall forward the borrower's discharge
unless within 30 days the borrower—         (1) All interest benefits and special        request and all relevant documentation
                                            allowance payments received from the         to the Secretary for his review.
(A) Acknowledges the debt and, if
payments are due, reaches a                 Secretary with respect to the loan           (ii) The Secretary notifies the agency
satisfactory arrangement to repay the       disbursement that was discharged; and        and the borrower of a determination on
loan or resumes making payments             (2) The amount of the borrower's             review. If the Secretary determines that
under such an arrangement to the            payments that were refunded to the           the borrower is not eligible for a
agency; or                                  borrower by the guaranty agency under        discharge under paragraph (e) of this
                                            paragraph (e)(10)(ii)(C) of this section     section, within 30 days after being so
34 CFR 682.402


informed, the agency shall take the                persuasive evidence that the proceeds         existence at the time the determination
actions described in paragraphs (e)(8)             of the loan were received by the              was made;
(iv) through (vii) or (e)(9)(iii) through (v)      borrower or the student for whom the          (B) For periods of enrollment beginning
of this section, as applicable.                    loan was made, as provided in                 between July 1, 1987 and June 30,
(iii) If the Secretary determines that the         paragraph (e)(1)(ii). If the lender           1996, achieved a passing grade on a
                                                   determines that the loan check was            test—
borrower meets the requirements for a
                                                   properly endorsed or the proceeds
discharge under paragraph (e) of this                                                            (1) Approved by the Secretary, for
                                                   were received by the borrower or
section, the agency shall, within 30                                                             periods of enrollment beginning on or
                                                   student, the lender may consider the
days after being so informed, take the                                                           after July 1, 1991, or by the accrediting
                                                   borrower's objection to repayment as a
actions required under paragraph                                                                 agency for other periods; and
                                                   statement of intention not to repay the
(e)(7)(ii), (e)(8)(ii), (e)(8)(iii), (e)(9)(ii),
                                                   loan, and may file a claim with the           (2) Administered substantially in
(e)(10)(ii), or (e)(10)(iii) of this section,
                                                   guaranty agency for reimbursement on          accordance with the requirements for
as applicable.
                                                   that ground, but shall not report the         use of the test;
(12) Lender Responsibilities. (i) If the           loan to credit bureaus as in default until
lender is notified by a guaranty agency            the guaranty agency, or, as applicable,       (C) Successfully completed a program
or the Secretary, or receives                      the Secretary, reviews the claim for          of developmental or remedial education
information it believes to be reliable             relief. By filing such a claim, the lender    provided by the school; or
from another source indicating that a              shall be deemed to have agreed to the         (D) For periods of enrollment beginning
current or former borrower may be                  following—                                    on or after July 1, 1996 through June
eligible for a discharge under paragraph                                                         30, 2000—
                                                   (A) If the guarantor or the Secretary
(e) of this section, the lender shall
                                                   determines that the borrower endorsed         (1) Obtained, within 12 months before
immediately suspend any efforts to
                                                   the loan check or the proceeds of the         the date the student initially receives
collect from the borrower on any loan
                                                   loan were received by the borrower or         title IV, HEA program assistance, a
received for the program of study for
                                                   the student, any failure to satisfy due       passing score specified by the
which the loan was made (but may
                                                   diligence requirements by the lender          Secretary on an independently
continue to receive borrower payments)
                                                   prior to the filing of the claim that would   administered test in accordance with
and, within 30 days of receiving the
                                                   have resulted in the loss of reinsurance      subpart J of 34 CFR part 668; or
information or notification, inform the
                                                   on the loan in the event of default will
borrower of the procedures for                                                                   (2) Enrolled in an eligible institution that
                                                   be waived by the Secretary; and
requesting a discharge.                                                                          participates in a State process
                                                   (B) If the guarantor or the Secretary         approved by the Secretary under
(ii) If the borrower fails to submit the
                                                   determines that the borrower did not          subpart J of 34 CFR part 668.
written request and sworn statement
                                                   endorse the loan check and that the
described in paragraph (e)(3) of this                                                            (E) For periods of enrollment beginning
                                                   proceeds of the loan were not received
section within 60 days of being notified                                                         on or after July 1, 2000—
                                                   by the borrower or the student, the
of that option, the lender shall resume
                                                   lender will comply with the                   (1) Met either of the conditions
collection and shall be deemed to have
                                                   requirements specified in paragraph           described in paragraph (e)(13)(ii)(D) of
exercised forbearance of payment of
                                                   (e)(8)(ii)(B) of this section.                this section; or
principal and interest from the date the
lender suspended collection activity.              (vi) Within 30 days after being notified      (2) Was home schooled and met the
The lender may capitalize, in                      by the guaranty agency that the               requirements of 34 CFR 668.32(e)(4).
accordance with Sec. 682.202(b), any               borrower's request for a discharge has
                                                                                                 (iii) Notwithstanding paragraphs
interest accrued and not paid during               been denied, the lender shall notify the
                                                                                                 (e)(13)(i) and (ii) of this section, a
that period.                                       borrower of the reasons for the denial
                                                                                                 student did not have the ability to
                                                   and, if payments are due, resume
(iii) The lender shall file a claim with the                                                     benefit from training offered by the
                                                   collection against the borrower. The
guaranty agency in accordance with                                                               school if—
                                                   lender shall be deemed to have
Sec. 682.402(g) no later than 60 days
                                                   exercised forbearance of payment of           (A) The school certified the eligibility of
after the lender receives the borrower's
                                                   principal and interest from the date the      the student for a FFEL Program loan;
written request and sworn statement
                                                   lender suspended collection activity,         and
described in paragraph (e)(3) of this
                                                   and may capitalize, in accordance with        (B) At the time of certification, the
section. If a lender receives a payment
                                                   Sec. 682.202(b), any interest accrued         student would not meet the
made by or on behalf of the borrower
                                                   and not paid during that period.              requirements for employment (in the
on the loan after the lender files a claim
on the loan with the guaranty agency,              (13) Requirements for certifying a            student's State of residence) in the
the lender shall forward the payment to            borrower's eligibility for a loan. (i) For    occupation for which the training
the guaranty agency within 30 days of              periods of enrollment beginning               program supported by the loan was
its receipt. The lender shall assist the           between July 1, 1987 and June 30,             intended because of a physical or
guaranty agency and the borrower in                1991, a student who had a general             mental condition, age, or criminal
determining whether the borrower is                education diploma or received one             record or other reason accepted by the
eligible for discharge of the loan.                before the scheduled completion of the        Secretary.
                                                   program of instruction is deemed to           (iv) Notwithstanding paragraphs
(iv) The lender shall comply with all
                                                   have the ability to benefit from the          (e)(13)(i) and (ii) of this section, a
instructions received from the Secretary
                                                   training offered by the school.               student has the ability to benefit from
or a guaranty agency with respect to
loan discharges under paragraph (e) of             (ii) A student not described in               the training offered by the school if the
this section.                                      paragraph (e)(13)(i) of this section is       student received a high school diploma
                                                   considered to have the ability to benefit     or its recognized equivalent prior to
(v) The lender shall review a claim that
                                                   from training offered by the school if the    enrollment at the school.
the borrower did not endorse and did
                                                   student—                                      (14) Identity theft. (i) The unauthorized
not receive the proceeds of a loan
check. The lender shall take the actions           (A) For periods of enrollment beginning       use of the identifying information of
required under paragraphs (e)(8)(ii)(A)            prior to July 1, 1987, was determined to      another individual that is punishable
and (B) of this section if it determines           have the ability to benefit from the          under 18 U.S.C. 1028, 1029, or 1030,
that the borrower did not endorse the              school's training in accordance with the      or substantially comparable State or
loan check, unless the lender secures              requirements of 34 CFR 668.6, as in           local law.
34 CFR 682.402


(ii) Identifying information includes, but   Chapters 7 or 11 of the Bankruptcy             bankruptcy proceeding is completed or
is not limited to—                           Code.                                          dismissed.
(A) Name, Social Security number, date       (3) Determination of filing. The lender        (g) Claim procedures for a loan held by
of birth, official State or government       must determine that a borrower has             a lender— (1) Documentation. A lender
issued driver's license or identification    filed a petition for relief in bankruptcy on   shall provide the guaranty agency with
number, alien registration number,           the basis of receiving a notice of the         the following documentation when filing
government passport number, and              first meeting of creditors or other proof      a death, disability, closed school, false
employer or taxpayer identification          of filing provided by the debtor's             certification, or bankruptcy claim:
number;                                      attorney or the bankruptcy court.              (i) The original or a true and exact copy
(B) Unique biometric data, such as           (4) Proof of claim. (i) Except as              of the promissory note.
fingerprints, voiceprint, retina or iris     provided in paragraph (f)(4)(ii) of this
                                                                                            (ii) The loan application, if a separate
image, or unique physical                    section, the holder of the loan shall file
                                                                                            loan application was provided to the
representation;                              a proof of claim with the bankruptcy
                                                                                            lender.
                                             court within—
(C) Unique electronic identification                                                        (iii) In the case of a death claim, an
number, address, or routing code; or         (A) 30 days after the holder receives a
                                                                                            original or certified death certificate, or
(D) Telecommunication identifying            notice of first meeting of creditors
                                                                                            other documentation supporting the
                                             unless, in the case of a proceeding
information or access device (as                                                            discharge request that formed the basis
                                             under chapter 7, the notice states that
defined in 18 U.S.C. 1029(e)).                                                              for the determination of death.
                                             the borrower has no assets; or
(15) Discharge without an application. A                                                    (iv) In the case of a disability claim, a
                                             (B) 30 days after the holder receives a
borrower's obligation to repay all or a                                                     copy of the certification of disability
                                             notice from the court stating that a
portion of an FFEL Program loan may                                                         described in paragraph (c)(2) of this
                                             chapter 7 no-asset case has been
be discharged without an application                                                        section.
                                             converted to an asset case.
from the borrower if the Secretary, or                                                      (v) In the case of a bankruptcy claim—
the guaranty agency with the                 (ii) A guaranty agency that is a state
Secretary's permission, determines that      guaranty agency, and on that basis             (A) Evidence that a bankruptcy petition
the borrower qualifies for a discharge       may assert immunity from suit in               has been filed, all pertinent documents
based on information in the Secretary        bankruptcy court, and that does not            sent to or received from the bankruptcy
or guaranty agency's possession.             assign any loans affected by a                 court by the lender, and an assignment
                                             bankruptcy filing to another guaranty          to the guaranty agency of any proof of
(f) Bankruptcy— (1) General. If a
                                             agency—                                        claim filed by the lender regarding the
borrower files a petition for relief under                                                  loan; and
the Bankruptcy Code, the Secretary           (A) Is not required to file a proof of
reimburses the holder of the loan for        claim on a loan already held by the            (B) A statement of any facts of which
unpaid principal and interest on the         guaranty agency; and                           the lender is aware that may form the
loan in accordance with paragraphs (h)                                                      basis for an objection or exception to
                                             (B) May direct lenders not to file proofs
through (k) of this section.                                                                the discharge of the borrower's loan
                                             of claim on loans guaranteed by that
                                                                                            obligation in bankruptcy and all
(2) Suspension of collection activity. (i)   agency.
                                                                                            documents supporting those facts.
If the lender is notified that a borrower    (5) Filing of bankruptcy claim with the
has filed a petition for relief in                                                          (vi) In the case of a closed school
                                             guaranty agency. (i) The lender shall
bankruptcy, the lender must                                                                 claim, the documentation described in
                                             file a bankruptcy claim on the loan with
immediately suspend any collection                                                          paragraph (d)(3) of this section, or any
                                             the guaranty agency in accordance with
efforts outside the bankruptcy                                                              other documentation as the Secretary
                                             paragraph (g) of this section, if—
proceeding against the borrower and—                                                        may require;
                                             (A) The borrower has filed a petition for
(A) Must suspend any collection efforts                                                     (vii) In the case of a false certification
                                             relief under chapters 12 or 13 of the
against any co-maker or endorser if the                                                     claim, the documentation described in
                                             Bankruptcy Code; or
borrower has filed for relief under                                                         paragraph (e)(3) of this section.
Chapters 12 or 13 of the Bankruptcy          (B) The borrower has filed a petition for
                                                                                            (2) Filing deadlines. A lender shall file a
Code; or                                     relief under chapters 7 or 11 of the
                                                                                            death, disability, closed school, false
                                             Bankruptcy Code before October 8,
(B) May suspend any collection efforts                                                      certification, or bankruptcy claim within
                                             1998 and the loan has been in
against any co-maker or endorser if the                                                     the following periods:
                                             repayment for more than seven years
borrower has filed for relief under          (exclusive of any applicable suspension        (i) Within 60 days of the date on which
Chapters 7 or 11 of the Bankruptcy           of the repayment period) from the due          the lender determines that a borrower
Code.                                        date of the first payment until the date       (or the student on whose behalf a
(ii) If the lender is notified that a co-    of the filing of the petition for relief; or   parent obtained a PLUS loan) has died,
maker or endorser has filed a petition                                                      or the lender determines that the
                                             (C) The borrower has begun an action
for relief in bankruptcy, the lender must                                                   borrower is totally and permanently
                                             to have the loan obligation determined
immediately suspend any collection                                                          disabled.
                                             to be dischargeable on grounds of
efforts outside the bankruptcy               undue hardship.                                (ii) In the case of a closed school claim,
proceeding against the co-maker or                                                          the lender shall file a claim with the
endorser and—                                (ii) In cases not described in paragraph
                                                                                            guaranty agency no later than 60 days
                                             (f)(5)(i) of this section, the lender shall
(A) Must suspend collection efforts                                                         after the borrower submits to the lender
                                             continue to hold the loan
against the borrower and any other                                                          the written request and sworn
                                             notwithstanding the bankruptcy
parties to the note if the co-maker or                                                      statement described in paragraph (d)(3)
                                             proceeding. Once the bankruptcy
endorser has filed for relief under                                                         of this section or after the lender is
                                             proceeding is completed or dismissed,
Chapters 12 or 13 of the Bankruptcy                                                         notified by the Secretary or the
                                             the lender shall treat the loan as if the
Code; or                                                                                    Secretary's designee or by the guaranty
                                             lender had exercised forbearance as to
                                                                                            agency to do so.
(B) May suspend any collection efforts       repayment of principal and interest
against the borrower and any other           accrued from the date of the borrower's        (iii) In the case of a false certification
parties to the note if the co-maker or       filing of the bankruptcy petition until the    claim, the lender shall file a claim with
endorser has filed for relief under          date the lender is notified that the           the guaranty agency no later than 60
                                                                                            days after the borrower submits to the
34 CFR 682.402


lender the written request and sworn         because of the lack of evidence of the          amount equal to the amount paid on the
statement described in paragraph (e)(3)      confirmation process or processes,              loan by or on behalf of the borrower,
of this section or after the lender is       insurance benefits must be repaid.              less any school tuition refunds or
notified by the Secretary or the             (v) In the case of a disability claim           payments received by the holder or the
Secretary's designee or by the guaranty      based on a veteran’s discharge request          borrower from a tuition recovery fund,
agency to do so.                             processed in accordance with                    performance bond, or other third-party
(iv) A lender shall file a bankruptcy        § 682.402(c)(8), the guaranty agency            source.
claim with the guaranty agency by the        shall—                                          (v) In the case of a loan that has been
earlier of—                                  (A) Review the claim promptly and               included in a Consolidation Loan, the
(A) 30 days after the date on which the      not later than 45 days after the claim          agency shall pay to the holder of the
lender receives notice of the first          was filed by the lender submit the              borrower's Consolidation Loan, an
meeting of creditors or other                veteran’s discharge application and             amount equal to—
information described in paragraph           supporting documentation to the                 (A) The amount paid on the loan by or
(f)(3) of this section; or                   Secretary or return the claim to the            on behalf of the borrower at the time
(B) 15 days after the lender is served       lender in accordance with                       the loan was paid through
                                             §682.402(c)(8)(ii)(D) or (E), as                consolidation;
with a complaint or motion to have the
                                             applicable; and
loan determined to be dischargeable on                                                       (B) The amount paid by the
grounds of undue hardship, or, if the        (B) Not later than 45 days after                consolidating lender to the holder of the
lender secures an extension of time          receiving notification from the Secretary       loan when it was repaid through
within which an answer may be filed, 25      of the veteran’s eligibility or ineligibility   consolidation; minus
days before the expiration of that           for discharge, pay the claim or return
                                                                                             (C) Any school tuition refunds or
extended period, whichever is later.         the claim to the lender in accordance
                                                                                             payments received by the holder or the
(h) Payment of death, disability, closed     with § 682.402(c)(8)(ii)(F) or (G), as
                                                                                             borrower from a tuition recovery fund,
                                             applicable.
school, false certification, and                                                             performance bond, or other third-party
bankruptcy claims by the guaranty            (2)(i) The amount of loss payable—              source if those refunds or payments
agency— (1) General. (i) Except as           (A) On a death or disability claim is           were—
provided in paragraph (h)(1)(v) of this      equal to the sum of the remaining               (1) Received by the borrower or
section, the guaranty agency shall           principal balance and interest accrued          received by the holder and applied to
review a death, disability, bankruptcy,      on the loan, collection costs incurred by       the borrower's loan balance before the
closed school, or false certification        the lender and applied to the borrower's        date the loan was repaid through
claim promptly and shall pay the lender      account within 30 days of the date              consolidation; or
on an approved claim the amount of           those costs were actually incurred, and
loss in accordance with paragraphs                                                           (2) Received by the borrower or
                                             unpaid interest up to the date the lender
(h)(2) and (h)(3) of this section—                                                           received by the Consolidation Loan
                                             should have filed the claim.
                                                                                             holder on or after the date the
(A) Not later than 45 days after the         (B) On a bankruptcy claim is equal to           consolidating lender made a payment
claim was filed by the lender for death      the unpaid balance of principal and             to the former holder to discharge the
and bankruptcy claims; and                   interest determined in accordance with          borrower's obligation to that former
(B) Not later than 90 days after the         paragraph (h)(3) of this section.               holder.
claim was filed by the lender for            (ii) The amount of loss payable to a            (3) Payment of interest. If the guarantee
disability, closed school, or false          lender on a closed school claim or on a         covers unpaid interest, the amount
certification claims.                        false certification claim is equal to the       payable on an approved claim includes
(ii) In the case of a bankruptcy claim,      sum of the remaining principal balance          the unpaid interest that accrues during
the guaranty agency shall, upon receipt      and interest accrued on the loan,               the following periods:
of the claim from the lender,                collection costs incurred by the lender         (i) During the period before the claim is
immediately take those actions required      and applied to the borrower's account
                                                                                             filed, not to exceed the period provided
under paragraph (i) of this section to       within 30 days of the date those costs
                                                                                             for in paragraph (g)(2) of this section for
oppose the discharge of the loan by the      were actually incurred, and unpaid
                                                                                             filing the claim.
bankruptcy court.                            interest determined in accordance with
                                             paragraph (h)(3) of this section.               (ii) During a period not to exceed 30
(iii) In the case of a closed school claim
                                                                                             days following the receipt date by the
or a false certification claim based on      (iii) In the case of a closed school or
                                                                                             lender of a claim returned by the
the determination that the borrower did      false certification claim filed by a lender
                                                                                             guaranty agency for additional
not sign the loan application, the           on an outstanding loan owed by the
                                                                                             documentation necessary for the claim
promissory note, or the authorization for    borrower, on the same date that the
                                                                                             to be approved by the guaranty agency.
the electronic transfer of loan funds, or    agency pays a claim to the lender, the
that the school failed to test, or           agency shall pay the borrower an                (iii) During the period required by the
improperly tested, the student's ability     amount equal to the amount paid on the          guaranty agency to approve the claim
to benefit, the guaranty agency shall        loan by or on behalf of the borrower,           and to authorize payment or to return
document its determination that the          less any school tuition refunds or              the claim to the lender for additional
borrower is eligible for discharge under     payments received by the holder or the          documentation not to exceed—
paragraphs (d) or (e) of this section and    borrower from a tuition recovery fund,          (A) 45 days for death or bankruptcy
pay the borrower or the holder the           performance bond, or other third-party          claims; or
amount determined under paragraph            source.
(h)(2) of this section.                                                                      (B) 90 days for disability, closed school,
                                             (iv) In the case of a claim filed by a          or false certification claims.
(iv) In reviewing a claim under this         lender based on a request received
section, the issue of confirmation of        from a borrower whose loan had been             (i) Guaranty agency participation in
subsequent loans under an MPN will           repaid in full by, or on behalf of the          bankruptcy proceedings— (1) Undue
not be reviewed and a claim will not be      borrower to the lender, on the same             hardship claims. (i) In response to a
denied based on the absence of any           date that the agency notifies the lender        petition filed prior to October 8, 1998
evidence relating to confirmation in a       that the borrower is eligible for a closed      with regard to any bankruptcy
particular loan file. However, if a court    school or false certification discharge,        proceeding by the borrower for
rules that a loan is unenforceable solely    the agency shall pay the borrower an            discharge under 11 U.S.C. 523(a)(8) on
34 CFR 682.402


the grounds of undue hardship, the            records and documents filed by the          section to cover any periods of
guaranty agency must, on the basis of         debtor in the bankruptcy proceeding—        delinquency prior to the bankruptcy
reasonably available information,                                                         action through the date the lender
                                              (A) What part of the loan obligation will
determine whether the first payment on                                                    purchases the loan and receives the
                                              be discharged under the plan as
the loan was due more than 7 years                                                        supporting loan documentation from the
                                              proposed;
(exclusive of any applicable suspension                                                   guaranty agency.
of the repayment period) before the           (B) Whether the plan itself or the
                                                                                          (k) Claims for reimbursement from the
filing of that petition and, if so, process   classification of the loan under the plan
                                              meets the requirements of 11 U.S.C.         Secretary on loans held by guarantee
the claim.                                                                                agencies. (1)(i) The Secretary
                                              1129, 1225, or 1325, as applicable; and
(ii) In all other cases, the guaranty                                                     reimburses the guaranty agency for its
agency must determine whether                 (C) Whether grounds exist under 11          losses on bankruptcy claims paid to
repayment under either the current            U.S.C. 1112, 1208, or 1307, as              lenders after—
repayment schedule or any adjusted            applicable, to move for conversion or
                                              dismissal of the case.                      (A) A determination by the court that
schedule authorized under this part                                                       the loan is dischargeable under 11
would impose an undue hardship on             (iii) If the agency determines that         U.S.C. 523(a)(8) with respect to a
the borrower and his or her                   grounds exist to challenge the              proceeding initiated under chapter 7 or
dependents.                                   proposed plan, the agency shall, as         chapter 11; or
(iii) If the guaranty agency determines       appropriate, object to the plan or move
                                                                                          (B) With respect to any other loan, after
that repayment would not constitute an        to dismiss the case, if—
                                                                                          the agency pays the claim to the lender.
undue hardship, the guaranty agency           (A) The costs of litigation of these
must then determine whether the               actions are not reasonably expected to      (ii) The guaranty agency shall refund to
expected costs of opposing the                exceed one-third of the amount of the       the Secretary the full amount of
discharge petition would exceed one-          loan to be discharged under the plan;       reimbursement received from the
third of the total amount owed on the         and                                         Secretary on a loan that a lender
loan, including principal, interest, late                                                 repurchases under this section.
charges, and collection costs. If the         (B) With respect to an objection under
                                              11 U.S.C. 1325, the additional amount       (2) The Secretary pays a death,
guaranty agency has determined that                                                       disability, bankruptcy, closed school, or
the expected costs of opposing the            that may be recovered under the plan if
                                              an objection is successful can              false certification claim in an amount
discharge petition will exceed one-third                                                  determined under Sec. 682.402(k)(5)
of the total amount of the loan, it may,      reasonably be expected to equal or
                                              exceed the cost of litigating the           on a loan held by a guaranty agency
but is not required to, engage in the                                                     after the agency has paid a default
activities described in paragraph             objection.
                                                                                          claim to the lender thereon and
(i)(1)(iv) of this section.                   (iv) The agency shall monitor the           received payment under its reinsurance
(iv) The guaranty agency must use             debtor's performance under a                agreement. The Secretary reimburses
diligence and may assert any defense          confirmed plan. If the debtor fails to      the guaranty agency only if—
consistent with its status under              make payments required under the plan
                                                                                          (i) The guaranty agency determines
applicable law to avoid discharge of the      or seeks but does not demonstrate
                                              entitlement to discharge under 11           that the borrower (or the student for
loan. Unless discharge would be more                                                      whom a parent obtained a PLUS loan
effectively opposed by not taking the         U.S.C. 1328(b), the agency shall
                                              oppose any requested discharge or           or each of the co-makers of a PLUS
following actions, the agency must—                                                       loan) has died, or the borrower (or each
                                              move to dismiss the case if the costs of
(A) Oppose the borrower's petition for a      litigation together with the costs          of the co-makers of a PLUS loan) has
determination of dischargeability; and        incurred for objections to the plan are     become totally and permanently
                                              not reasonably expected to exceed           disabled since applying for the loan, or
(B) If the borrower is in default on the
                                              one-third of the amount of the loan to      has filed for relief in bankruptcy, in
loan, seek a judgment for the amount                                                      accordance with the procedures in
owed on the loan.                             be discharged under the plan.
                                                                                          paragraphs (b), (c), or (f) of this section,
(v) In opposing a petition for a              (j) Mandatory purchase by a lender of a     or the student was unable to complete
determination of dischargeability on the      loan subject to a bankruptcy claim. (1)     an educational program because the
grounds of undue hardship, a guaranty         The lender shall repurchase from the        school closed, or the borrower's
agency may agree to discharge of a            guaranty agency a loan held by the          eligibility to borrow (or the student's
portion of the amount owed on a loan if       agency pursuant to a bankruptcy claim       eligibility in the case of a PLUS loan)
it reasonably determines that the             paid to that lender, unless the guaranty    was falsely certified by an eligible
agreement is necessary in order to            agency sells the loan to another lender,    school. For purposes of this paragraph,
obtain a judgment on the remainder of         promptly after the earliest of the          references to the “lender” and “guaranty
the loan.                                     following events:                           agency” in paragraphs (b) through (f) of
(2) Response by a guaranty agency to          (i) The entry of an order denying or        this section mean the guaranty agency
                                              revoking discharge or dismissing a          and the Secretary respectively;
plans proposed under Chapters 11, 12,
and 13. The guaranty agency shall take        proceeding under any chapter.               (ii) In the case of a Stafford, SLS, or
the following actions when a petition for     (ii) A ruling in a proceeding under         PLUS loan, the guaranty agency
relief in bankruptcy under Chapters 11,       chapter 7 or 11 that the loan is not        determines that the borrower (or the
12, or 13 is filed:                           dischargeable under 11 U.S.C.               student for whom a parent obtained a
(i) The agency is not required to             523(a)(8) or other applicable law.          PLUS loan, or each of the co-makers of
respond to a proposed plan that—                                                          a PLUS loan) has died, or the borrower
                                              (iii) The entry of an order granting        (or each of the co-makers of a PLUS
(A) Provides for repayment of the full        discharge under chapter 12 or 13, or        loan) has become totally and
outstanding balance of the loan;              confirming a plan of arrangement under      permanently disabled since applying for
                                              chapter 11, unless the court determined     the loan, or has filed the petition for
(B) Makes no provision with regard to         that the loan is dischargeable under 11
the loan or to general unsecured                                                          relief in bankruptcy within 10 years of
                                              U.S.C. 523(a)(8) on grounds of undue        the date the borrower entered
claims.                                       hardship.                                   repayment, exclusive of periods of
(ii) In any other case, the agency shall      (2) The lender may capitalize all           deferment or periods of forbearance
determine, based on a review of its own       outstanding interest accrued on a loan      granted by the lender that extended the
                                              purchased under paragraph (j) of this       10-year maximum repayment period, or
34 CFR 682.402


the borrower (or the student for whom a       PLUS loan, or each of the co-makers of       paid in excess of the remaining balance
parent received a PLUS loan) was              a PLUS loan) died, or filed a petition for   of the loan (including accrued interest,
unable to complete an educational             relief in bankruptcy until the Secretary     late charges, collection costs,
program because the school closed, or         authorizes payment;                          origination fees, and insurance
the borrower's eligibility to borrow (or      (ii) For disability claims, the shorter of   premiums) owed by the borrower at the
the student's eligibility in the case of a                                                 time of discharge.
                                              60 days or the period from the date the
PLUS loan) was falsely certified by an        guaranty agency makes a preliminary          (ii) The holder of the loan reports the
eligible school;                              determination that the borrower              discharge of a portion of a loan under
(iii) In the case of a Consolidation loan,    became totally and permanently               this section to all credit reporting
the borrower (or one of the co-makers)        disabled until the Secretary authorizes      agencies to which the holder of the loan
has died, is determined to be totally and     payment; or                                  previously reported the status of the
permanently disabled under Sec.               (iii) For closed school or false             loan.
682.402(c), or has filed the petition for     certification claims, the period from the    (4) Borrower qualification for discharge.
relief in bankruptcy within the maximum       date on which the guaranty agency            To receive a discharge of a portion of a
repayment period described in Sec.            received payment from the Secretary          loan under this section, a borrower
682.209(h)(2), exclusive of periods of        on a default claim to the date on which      must submit a written application to the
deferment or periods of forbearance           the Secretary authorizes payment of          holder or guaranty agency except as
granted by the lender that extended the       the closed school or false certification     provided in paragraph (l)(5)(iv) of this
maximum repayment period;                     claim.                                       section. The application requests the
(iv) The guaranty agency has not              (l) Unpaid refund discharge— (1)             information required to calculate the
written off the loan in accordance with       Unpaid refunds in closed school              amount of the discharge and requires
the procedures established by the             situations. In the case of a school that     the borrower to sign a statement
agency under Sec. 682.410(b)(6)(x),           has closed, the Secretary reimburses         swearing to the accuracy of the
except for closed school and false            the guarantor of a loan and discharges       information in the application. The
certification discharges; and                 a former or current borrower's (and any      statement need not be notarized but
(v) The guaranty agency has exercised         endorser's) obligation to repay that         must be made by the borrower under
due diligence in the collection of the        portion of an FFEL Program loan              penalty of perjury. In the statement, the
                                              (disbursed, in whole or in part on or        borrower must—
loan in accordance with the procedures
established by the agency under Sec.          after January 1, 1986) equal to the          (i) State that the borrower (or the
682.410(b)(6)(x), until the borrower (or      refund that should have been made by         student on whose behalf a parent
the student for whom a parent obtained        the school under applicable Federal law      borrowed) —
a PLUS loan, or each of the co-makers         and regulations, including this section.
                                                                                           (A) Received the proceeds of a loan, in
of a PLUS loan) has died, or the              Any accrued interest and other charges
                                                                                           whole or in part, on or after January 1,
borrower (or each of the co-makers of a       (late charges, collection costs,
                                                                                           1986 to attend a school;
PLUS loan) has become totally and             origination fees, and insurance
permanently disabled or filed a Chapter       premiums) associated with the unpaid         (B) Did not attend, withdrew, or was
12 or Chapter 13 petition, or had the         refund are also discharged.                  terminated from the school within a
loan discharged in bankruptcy, or for                                                      timeframe that entitled the borrower to
                                              (2) Unpaid refunds in open school
closed school and false certification                                                      a refund; and
                                              situations. In the case of a school that
claims, the guaranty agency receives a        is open, the guarantor discharges a          (C) Did not receive the benefit of a
request for discharge from the borrower       former or current borrower's (and any        refund to which the borrower was
or another party.                             endorser's) obligation to repay that         entitled either from the school or from a
(3) [Reserved]                                portion of an FFEL loan (disbursed, in       third party, such as a holder of a
                                              whole or in part, on or after January 1,     performance bond or a tuition recovery
(4) Within 30 days of receiving
                                              1986) equal to the amount of the refund      program.
reimbursement for a closed school or
                                              that should have been made by the            (ii) State whether the borrower has any
false certification claim, the guaranty
                                              school under applicable Federal law          other application for discharge pending
agency shall pay—
                                              and regulations, including this section,     for this loan; and
(i) The borrower an amount equal to the       if—
amount paid on the loan by or on behalf                                                    (iii) State that the borrower—
                                              (i) The borrower (or the student on
of the borrower, less any school tuition                                                   (A) Agrees to provide upon request by
                                              whose behalf a parent borrowed) is not
refunds or payments received by the                                                        the Secretary or the Secretary's
                                              attending the school that owes the
holder, guaranty agency, or the                                                            designee other documentation
                                              refund; and
borrower from a tuition recovery fund,                                                     reasonably available to the borrower
performance bond, or other third-party        (ii) The guarantor receives                  that demonstrates that the borrower
source; or                                    documentation regarding the refund           meets the qualifications for an unpaid
                                              and the borrower and guarantor have          refund discharge under this section;
(ii) The amount determined under
                                              been unable to resolve the unpaid            and
paragraph (h)(2)(iv) of this section to
                                              refund within 120 days from the date
the holder of the borrower's                                                               (B) Agrees to cooperate with the
                                              the guarantor receives a complete
Consolidation Loan.                                                                        Secretary or the Secretary's designee
                                              application in accordance with
(5) The Secretary pays the guaranty           paragraph (l)(4) of this section. Any        in enforcement actions in accordance
agency a percentage of the outstanding        accrued interest and other charges (late     with paragraph (e) of this section and to
principal and interest that is equal to the   charges, collection costs, origination       transfer any right to recovery against a
complement of the reinsurance                 fees, and insurance premiums)                third party to the Secretary in
percentage paid on the loan. This             associated with the amount of the            accordance with paragraph (d) of this
interest includes interest that accrues       unpaid refund amount are also                section.
during—                                       discharged.                                  (5) Unpaid refund discharge
(i) For death or bankruptcy claims, the       (3) Relief to borrower (and any              procedures. (i) Except for the
shorter of 60 days or the period from         endorser) following discharge. (i) If a      requirements of paragraph (l)(5)(iv) of
the date the guaranty agency                  borrower receives a discharge of a           this section related to an open school, if
determines that the borrower (or the          portion of a loan under this section, the    the holder or guaranty agency learns
student for whom a parent obtained a          borrower is reimbursed for any amounts       that a school did not pay a refund of
34 CFR 682.402


loan proceeds owed under applicable            amount of the unpaid refund using the        agency must review an unpaid refund
law and regulations, the holder or the         unpaid refund calculation defined in         discharge request promptly and must
guaranty agency sends the borrower a           paragraph (o) of this section.               pay the lender the amount of loss as
discharge application and an                   (vii) If the guaranty agency determines      defined in paragraphs (l)(1) and (l)(2) of
explanation of the qualifications and                                                       this section, related to the unpaid
                                               that a borrower does not qualify for an
procedures for obtaining a discharge.                                                       refund not later than 45 days after a
                                               unpaid refund discharge, (or, if the
The holder of the loan also promptly                                                        properly filed request is made.
                                               holder is the lender and is informed by
suspends any efforts to collect from the       the guarantor that the borrower does         (2) Determination of the unpaid refund
borrower on any affected loan.                 not qualify for a discharge) —               discharge amount to the lender. The
(ii) If the borrower returns the                                                            amount of loss payable to a lender on
                                               (A) Within 30 days of the guarantor's
application, specified in paragraph (l)(4)                                                  an unpaid refund includes that portion
                                               determination, the agency must notify
of this section, the holder or the                                                          of an FFEL Program loan equal to the
                                               the borrower in writing of the reason for
guaranty agency must review the                                                             amount of the refund required under
                                               the determination and of the borrower's
application to determine whether the                                                        applicable Federal law and regulations,
                                               right to request a review of the agency's
application appears to be complete. In                                                      including this section, and including any
                                               determination. The guaranty agency
the case of a loan held by a lender,                                                        accrued interest and other charges (late
                                               must make a determination within 30
once the lender determines that the                                                         charges, collection costs, origination
                                               days of the borrower's submission of
application appears complete, it must                                                       fees, and insurance premiums)
                                               additional documentation supporting
provide the application and all pertinent                                                   associated with the unpaid refund.
                                               the borrower's eligibility that was not
information to the guaranty agency             considered in any prior determination.       (o)(1) Determination of amount eligible
including, if available, the borrower's        During the review period, collection         for discharge. The guaranty agency
last date of attendance. If the borrower       activities must be suspended; and            determines the amount eligible for
returns the application within 60 days,                                                     discharge based on information
the lender must extend the period              (B) The holder must resume collection
                                               if the determination remains unchanged       showing the refund amount or by
during which efforts to collect on the
                                               and grant forbearance of principal and       applying the appropriate refund formula
affected loan are suspended to the date                                                     to information that the borrower
the lender receives either a denial of         interest for any period during which
                                               collection activity was suspended under      provides or that is otherwise available
the request or the unpaid refund                                                            to the guaranty agency. For purposes
amount from the guaranty agency. At            this section. The holder may capitalize
                                               any interest accrued and not paid            of this section, all unpaid refunds are
the conclusion of the period during
                                               during these periods in accordance with      considered to be attributed to loan
which the collection activity was                                                           proceeds.
suspended, the lender may capitalize           Sec. 682.202(b).
any interest accrued and not paid              (viii) If the guaranty agency determines     (2) If the information in paragraph (o)(1)
during that period in accordance with          that a current or former borrower at an      of this section is not available, the
Sec. 682.202(b).                               open school may be eligible for a            guaranty agency uses the following
                                               discharge under this section, the            formulas to determine the amount
(iii) If the borrower fails to return the
                                               guaranty agency must notify the lender       eligible for discharge:
application within 60 days, the holder of
the loan resumes collection efforts and        and the school of the unpaid refund          (i) In the case of a student who fails to
grants forbearance of principal and            allegation. The notice to the school         attend or whose withdrawal or
interest for the period during which the       must include all pertinent facts available   termination date is before October 7,
collection activity was suspended. The         to the guaranty agency regarding the         2000 and who completes less than 60
holder may capitalize any interest             alleged unpaid refund. The school            percent of the loan period, the guaranty
accrued and not paid during that period        must, no later than 60 days after            agency discharges the lesser of the
in accordance with Sec. 682.202(b).            receiving the notice, provide the            institutional charges unearned or the
                                               guaranty agency with documentation           loan amount. The guaranty agency
(iv) The guaranty agency may, with the         demonstrating, to the satisfaction of the    determines the amount of the
approval of the Secretary, discharge a         guarantor, that the alleged unpaid           institutional charges unearned by—
portion of a loan under this section           refund was either paid or not required
without an application if the guaranty                                                      (A) Calculating the ratio of the amount
                                               to be paid.
agency determines, based on                                                                 of time in the loan period after the
information in the guaranty agency's           (ix) In the case of a school that does       student's last day of attendance to the
possession, that the borrower qualifies        not make a refund or provide sufficient      actual length of the loan period; and
for a discharge.                               documentation demonstrating the
                                                                                            (B) Multiplying the resulting factor by
                                               refund was either paid or was not
(v) If the holder of the loan or the                                                        the institutional charges assessed the
                                               required, within 60 days of its receipt of
guaranty agency determines that the                                                         student for the loan period.
                                               the allegation notice from the guaranty
information contained in its files             agency, relief is provided to the            (ii) In the case of a student who fails to
conflicts with the information provided        borrower (and any endorser) if the           attend or whose withdrawal or
by the borrower, the guaranty agency           guaranty agency determines the relief        termination date is on or after October
must use the most reliable information         is appropriate. The agency must              7, 2000 and who completes less than
available to it to determine eligibility for   forward documentation of the school's        60 percent of the loan period, the
and the appropriate payment of the             failure to pay the unpaid refund to the      guaranty agency discharges the loan
refund amount.                                 Secretary.                                   amount unearned. The guaranty
(vi) If the holder of the loan is the                                                       agency determines the loan amount
                                               (m) Unpaid refund discharge
guaranty agency and the agency                                                              unearned by—
                                               procedures for a loan held by a lender.
determines that the borrower qualifies         In the case of an unpaid refund              (A) Calculating the ratio of the amount
for a discharge of an unpaid refund, the       discharge request, the lender must           of time remaining in the loan period
guaranty agency must suspend any               provide the guaranty agency with             after the student's last day of
efforts to collect on the affected loan        documentation related to the borrower's      attendance to the actual length of the
and, within 30 days of its determination,      qualification for discharge as specified     loan period; and
discharge the appropriate amount and           in paragraph (l)(4) of this section.
inform the borrower of its determination.                                                   (B) Multiplying the resulting factor by
Absent documentation of the exact              (n) Payment of an unpaid refund              the total amount of title IV grants and
amount of refund due the borrower, the         discharge request by a guaranty              loans received by the student, or if
guaranty agency must calculate the             agency— (1) General. The guaranty            unknown, the loan amount.
34 CFR 682.402


(iii) In the case of a student who             payments to the Secretary for crediting        date on which the proceeding is
completes 60 percent or more of the            to the borrower's account. At the same         completed or dismissed, unless
loan period, the guaranty agency does          time that the agency forwards the              payments have been made during that
not discharge any amount because a             payments, it must notify the borrower          period in amounts sufficient to meet the
student who completes 60 percent or            that there is no obligation to make            amount owed under the repayment
more of the loan period is not entitled to     payments on the loan while it is               schedule in effect when the petition was
a refund.                                      conditionally discharged prior to a final      filed.
(p) Requests for reimbursement from            determination of eligibility for a total and   (Approved by the Office of Management and
                                               permanent disability discharge, unless         Budget under control number 1845-0020)
the Secretary on loans held by guaranty
                                               the Secretary directs the borrower
agencies. The Secretary reimburses                                                            (Authority: 20 U.S.C. 1070g, 1078, 1078-1,
                                               otherwise.
the guaranty agency for its losses on                                                         1078-2, 1078-3, 1082, 1087)
unpaid refund request payments to              (3) When the Secretary makes a final           [57 FR 60323, Dec. 18, 1992]
lenders or borrowers in an amount that         determination to discharge the loan, the
                                                                                              GPO Editorial Note: For Federal Register
is equal to the amount specified in            Secretary returns to the sender any
                                                                                              citations affecting §682.402, see the List of
paragraph (n)(2) of this section.              payments received on the loan after the        CFR Sections Affected, which appears in the
                                               date the borrower became totally and           Finding Aids section of the printed volume
(q) Payments received after the
                                               permanently disabled.                          and on GPO Access.
guaranty agency's payment of an
unpaid refund request. (1) The holder          (4) The guaranty agency shall remit to         §682.403 Federal advances for claim
must promptly return to the sender any         the Secretary all payments received            payments.
payment on a fully discharged loan,            from a tuition recovery fund,
                                                                                              (a) The Secretary makes an advance to
received after the guaranty agency             performance bond, or other third party
                                                                                              a guaranty agency that has a
pays an unpaid refund request unless           with respect to a loan on which the
                                                                                              reinsurance agreement. The advance
the sender is required to pay (as in the       Secretary previously paid a closed
                                                                                              may be used only to pay guarantee
case of a tuition recovery fund) in which      school or false certification claim.
                                                                                              claims. The Secretary makes an
case, the payment amount must be               (5) If the guaranty agency has returned        advance to—
forwarded to the Secretary. At the same        a payment to the borrower, or the
time that the holder returns the                                                              (1) A State guaranty agency; or
                                               borrower's representative, with the
payment, it must notify the borrower           notice described in paragraphs (r)(1) or       (2) 1 or more private nonprofit
that there is no obligation to repay a         (r)(2) of this section, and the borrower       guarantee agencies in a State if, during
loan fully discharged.                         (or representative) continues to send          a fiscal year—
(2) If the holder has returned a payment       payments to the guaranty agency, the           (i) The State does not have a guaranty
to the borrower, or the borrower's             agency must remit all of those                 agency program;
representative, with the notice                payments to the Secretary.
described in paragraph (q)(1) of this                                                         (ii) The Secretary consults the chief
                                               (s) Applicable suspension of the               executive officer of the State and finds
section, and the borrower (or                  repayment period. For purposes of this
representative) continues to send                                                             it unlikely that the State will have a
                                               section and 11 U.S.C. 523(a)(8)(A) with        program for that year; and
payments to the holder, the holder must        respect to loans guaranteed under the
remit all of those payments to the             FFEL Program, an applicable                    (iii) Each private nonprofit guaranty
Secretary.                                     suspension of the repayment period—            agency—
(3) If the loan has not been fully             (1) Includes any period during which           (A) Agrees to establish at least 1 office
discharged, payments must be applied           the lender does not require the                in the State with sufficient staff to
to the remaining debt.                         borrower to make a payment on the              handle written and telephone inquiries
(r) Payments received after the                loan.                                          from students, eligible lenders, and
Secretary's payment of a death,                                                               other persons in the State;
                                               (2) Begins on the date on which the
disability, closed school, false               borrower qualifies for the requested           (B) Agrees to encourage maximum
certification, or bankruptcy claim (1) If                                                     commercial lender participation within
                                               deferment as provided in Sec.
the guaranty agency receives any               682.210(a)(5) or the lender grants the         the State and to conduct periodic visits
payments from or on behalf of the              requested forbearance;                         to at least the major lenders within the
borrower on or attributable to a loan                                                         State;
that has been discharged in bankruptcy         (3) Closes on the later of the date on
on which the Secretary previously paid         which—                                         (C) Agrees that the benefit of its loan
a bankruptcy claim, the guaranty                                                              guarantees will not be denied to
                                               (i) The condition for which the                students because of their choice of
agency must return 100 percent of              requested deferment or forbearance
these payments to the sender. The                                                             schools or lack of need; and
                                               was received ends; or
guaranty agency must promptly return,                                                         (D) Certifies that it is not an institution
to the sender, any payment on a                (ii) The lender receives notice of the         of higher education and that it does not
cancelled or discharged loan made by           end of the condition for which the             have any substantial affiliation with an
the sender and received after the              requested deferment or forbearance             institution of higher education.
Secretary pays a closed school or false        was received, if the condition ended
                                               earlier than represented by the                (b) A guaranty agency shall apply to the
certification claim. At the same time that
                                               borrower at the time of the request and        Secretary in order to receive an initial
the agency returns the payment, it must
                                               the borrower did not notify timely the         advance.
notify the borrower that there is no
obligation to repay a loan discharged          lender of the date on which the                (c)(1) An advance may be made to a
on the basis of death, bankruptcy, false       condition actually ended;                      new guaranty agency for each of five
certification, or closing of the school.       (4) Includes the period between the end        consecutive calendar years. A new
                                               of the borrower's grace period and the         agency is an agency that entered into a
(2) If the guaranty agency receives any
                                               first payment due date established by          basic agreement on or after October
payments from or on behalf of the
                                               the lender in the case of a borrower           12, 1976, or that was not actively
borrower on or attributable to a loan
                                               who entered repayment without the              carrying on a loan guarantee program
that has been assigned to the Secretary
                                               knowledge of the lender;                       on or before October 12, 1976.
for determination of eligibility for a total
and permanent disability discharge, the        (5) Includes the period between the            (2)(i) A guaranty agency may request
guaranty agency must forward those             filing of the petition for relief and the      that the initial advance be made on a
34 CFR 682.403


specified date. The Secretary pays           (D) For loans that meet the definition of      (i) 90 percent of its losses on default
subsequent advances on the same day          exempt claims in paragraph (a)(2)(iii) of      claim payments to lenders on loans for
that the initial advance was made for        this section;                                  which the first disbursement is made
each of the four succeeding calendar         (E) For a guaranty agency that entered         before October 1, 1993 or transferred
years.                                       into a basic program agreement under           under a plan approved by the Secretary
(ii) An additional advance may be made                                                      from an insolvent guaranty agency or a
                                             section 428(b) of the Act after
to a private nonprofit guaranty agency       September 30, 1976, or was not                 guaranty agency that withdraws its
only if the agency continues to qualify      actively carrying on a loan guarantee          participation in the FFEL Program;
under paragraph (a) of this section.         program covered by a basic program             (ii) 88 percent of its losses on default
(d) The Secretary makes an advance to        agreement on October 1, 1976 for five          claim payments to lenders on loans for
a guaranty agency—                           consecutive fiscal years beginning with        which the first disbursement is made on
                                             the first year of its operation.               or after October 1, 1993, and before
(1) On terms and conditions specified in                                                    October 1, 1998; or
                                             (2) For purposes of this section—
an agreement between the Secretary
                                                                                            (iii) 85 percent of its losses on default
and the guaranty agency;                     (i) Losses means the amount of unpaid
                                             principal and accrued interest the             claim payments to lenders on loans for
(2) To ensure that the agency will fulfill                                                  which the first disbursement is made on
its lender-of-last resort obligation; and    agency paid on a default claim filed by
                                                                                            or after October 1, 1998.
                                             a lender on a reinsured loan, minus
(3) To meet the agency's immediate           payments made by or on behalf of the           (2) If the total of reinsurance claims
cash needs and to ensure the                 borrower after default but before the          paid by the Secretary to a guaranty
uninterrupted payment of claims when         Secretary reimburses the agency;               agency during any fiscal year reaches 9
the Secretary has terminated the                                                            percent of the amount of loans in
                                             (ii) Default aversion assistance means
agency's agreement and assumed its                                                          repayment at the end of the preceding
                                             the activities of a guaranty agency that
functions.                                                                                  fiscal year, the Secretary's reinsurance
                                             are designed to prevent a default by a
(e) In the case of a private nonprofit                                                      payment on a default claim
                                             borrower who is at least 60 days
guaranty agency, the repayment of            delinquent and that are directly related       subsequently paid by the guaranty
advances is determined separately for        to providing collection assistance to the      agency during that fiscal year equals—
each State for which the agency has          lender.                                        (i) 80 percent of its losses on default
received in advance under this section,                                                     claim payments to lenders on loans for
                                             (iii) Exempt claims means claims with
in accordance with section 422(c)(4) of                                                     which the first disbursement is made
the Act.                                     respect to loans for which it is
                                                                                            before October 1, 1993 or transferred
                                             determined that the borrower (or
(f) A guaranty agency shall return           student on whose behalf a parent has           under a plan approved by the Secretary
advances provided under this section in      borrowed), without the lender's or the         from an insolvent guaranty agency or a
accordance with the provisions of                                                           guaranty agency that withdraws its
                                             institution's knowledge at the time the
section 422 of the Act.                      loan was made, provided false or               participation in the FFEL Program;
(Authority: 20 U.S.C. 1072, 1082)            erroneous information or took actions          (ii) 78 percent of its losses on default
                                             that caused the borrower or the student        claim payments to lenders on loans for
[57 FR 60323, Dec. 18, 1992, as amended at
64 FR 18980, Apr. 16, 1999]
                                             to be ineligible for all of a portion of the   which the first disbursement is made on
                                             loan or for interest benefits on the loan.     or after October 1, 1993, and before
§682.404 Federal reinsurance                                                                October 1, 1998; or
agreement.                                   (3) A guaranty agency's loss on a loan
                                             that was outstanding when a                    (iii) 75 percent of its losses on default
(a) General. (1) The Secretary may           reinsurance agreement was executed is          claim payments to lenders on loans for
enter into a reinsurance agreement with      covered by the reinsurance agreement           which the first disbursement is made on
a guaranty agency that has a basic           only if the default on the loan occurs         or after October 1, 1998.
program agreement. Except as                 after the effective date of the
provided in paragraph (b) of this                                                           (3) For purposes of this section, the
                                             agreement.                                     total of reinsurance claims paid by the
section, under a reinsurance
agreement, the Secretary reimburses          (4) If a lender has requested default          Secretary to a guaranty agency during
the guaranty agency for—                     aversion assistance as described in            any fiscal year does not include
                                             paragraph (a)(2)(ii) of this section, the      amounts paid on claims by the guaranty
(i) 95 percent of its losses on default      agency must, upon request of the               agency—
claim payments to lenders on loans for       school at which the borrower received
which the first disbursement is made on                                                     (i) On loans considered in default under
                                             the loan, notify the school of the
or after October 1, 1998;                                                                   Sec. 682.412(e);
                                             lender's request. The guaranty agency
(ii) 98 percent of its losses on default     may not charge the school or the               (ii) Under a policy established by the
claim payments to lenders for loans for      school's agent for providing this              agency that is consistent with Sec.
which the first disbursement is made on      notification and must accept a blanket         682.509(a)(1); or
or after October 1, 1993, and before         request from the school to be notified         (iii) That were filed by lenders at the
October 1, 1998; or                          whenever any of the school's current or        direction of the Secretary;
                                             former students are the subject of a
(iii) 100 percent of its losses on default   default aversion assistance request.           (iv) On loans made under a guaranty
claim payments to lenders—                   The agency must notify schools                 agency's approved lender-of- last-resort
(A) For loans for which the first            annually of the option to make this            program.
disbursement is made prior to October        blanket request.                               (4) For purposes of this section, amount
1, 1993;                                     (b) Reduction in reinsurance rate. (1) If      of loans in repayment means—
(B) For loans made under an approved         the total of reinsurance claims paid by        (i) The sum of—
lender-of-last-resort program;               the Secretary to a guaranty agency
                                             during any fiscal year reaches 5               (A) The original principal amount of all
(C) For loans transferred under a plan                                                      loans guaranteed by the agency; and
                                             percent of the amount of loans in
approved by the Secretary from an
                                             repayment at the end of the preceding          (B) The original principal amount of any
insolvent guaranty agency or a
                                             fiscal year, the Secretary's reinsurance       loans on which the guarantee was
guaranty agency that withdraws its
                                             payment on a default claim                     transferred to the agency from another
participation in the FFEL Program;
                                             subsequently paid by the guaranty              agency;
                                             agency during that fiscal year equals—
34 CFR 682.404


(ii) Minus the original principal amount     guarantee obligation on the loan to         (h) Nondiscrimination. (1) A guaranty
of all loans on which—                       another guaranty agency.                    agency may not engage in any pattern
                                                                                         or practice that results in a denial of a
(A) The loan guarantee was canceled;         (3) The guaranty agency shall pay the
                                                                                         borrower's access to FFEL loans
(B) The loan guarantee was transferred       reinsurance fee required by paragraph
                                                                                         because of the borrower's race, sex,
to another agency;                           (d)(1) of this section due the Secretary
                                                                                         color, religion, national origin, age,
                                             for each calendar quarter ending March
(C) The borrower has not yet reached                                                     handicapped status, income,
                                             31, June 30, September 30, and
the repayment period;                                                                    attendance at a particular participating
                                             December 31, within 90 days after the
                                                                                         school within any State served by the
(D) Payment in full has been made by         end of the applicable quarter or within
                                                                                         guaranty agency, length of the
the borrower;                                30 days after receiving written notice
                                                                                         borrower's educational program, or the
                                             from the Secretary that the fees are
(E) The borrower was in deferment                                                        borrower's academic year in school.
                                             due, whichever is earlier.
status at the time repayment was                                                         (2) For purposes of this section a
scheduled to begin and remains in            (e) Initiation or extension of
                                                                                         guaranty agency is deemed to be
deferment status;                            agreements. In deciding whether to
                                                                                         serving a State if it guarantees a loan
                                             enter into or extend a reinsurance
(F) Reinsurance coverage has been                                                        that is—
                                             agreement, or, if an agreement has
lost and cannot be regained; and             been terminated, whether to enter into      (i) Made by a lender located in a State
(G) The agency paid claims, excluding        a new agreement, the Secretary              not served by the agency;
the amount of those claims—                  considers the adequacy of—                  (ii) Made to a borrower who is a
(1) Paid under Sec. 682.412(e);              (1) Efforts by the guaranty agency and      resident of a State not served by the
                                             the lenders to which it provides            agency; and
(2) Paid under a policy established by       guarantees to collect outstanding loans
the agency that is consistent with Sec.                                                  (iii) Made for attendance at a school
                                             as required by Sec. 682.410(b) (6) or       located in the State.
682.509(a)(1); or                            (7), and Sec. 682.411;
(3) Paid at the direction of the                                                         (i) Account maintenance fee. A
                                             (2) Efforts by the guaranty agency to
Secretary.                                                                               guaranty agency is paid an account
                                             make FFEL loans available to all            maintenance fee based on the original
(c) Submission of reinsurance rate           eligible borrowers; and                     principal amount of outstanding FFEL
base data. The guaranty agency shall         (3) Other relevant aspects of the           Program loans insured by the agency.
submit to the Secretary the quarterly        guaranty agency's program operations.       For fiscal years 1999 and 2000, the fee
report required by the Secretary for the                                                 is 0.12 percent of the original principal
previous quarter ending September 30         (f) Application of borrower payments. A
                                                                                         amount of outstanding loans. For fiscal
containing complete and accurate data        payment made to a guaranty agency by
                                                                                         years 2000 through 2007, the fee is
in order for the Secretary to calculate      a borrower on a defaulted loan must be
                                                                                         0.10 percent of the original principal
the amount of loans in repayment at the      applied first to the collection costs
                                                                                         amount of outstanding loans. After
end of the preceding fiscal year. The        incurred to collect that amount and then
                                                                                         fiscal year 2007, the fee is 0.06 percent
Secretary does not pay a reinsurance         to other incidental charges, such as late
                                                                                         of the original principal amount of
claim to the guaranty agency after the       charges, then to accrued interest and
                                                                                         outstanding loans.
date the guarterly report is due until the   then to principal.
quaranty agency submits a complete           (g) Share of borrower payments              (j) Loan processing and issuance fee. A
and accurate report.                         returned to the Secretary. (1) After an     guaranty agency is paid a loan
                                             agency pays a default claim to a holder     processing and issuance fee based on
Editorial Note: The first letter in the                                                  the principal amount of FFEL Program
words “quarterly” and “guaranty” have        using assets of the Federal Fund, the
                                             agency must pay to the Secretary the        loans originated during a fiscal year that
been transposed. The text should read,                                                   are insured by the agency. The fee is
“…quarterly report is due until the          portion of payments received on those
                                             defaulted loans remaining after—            paid quarterly. No payment is made for
guaranty agency…”.                                                                       loans for which the disbursement
(d) Reinsurance fee. (1) Except for          (i) The agency deposits into the Federal    checks have not been cashed or for
loans made under Sec. 682.209(e), (f)        Fund the amount of those payments           which electronic funds transfers have
and (h), and all loans guaranteed on or      equal to the applicable complement of       not been completed. For fiscal years
after October 1, 1993, a guaranty            the reinsurance percentage that was in      1999 through 2003, the fee is 0.65
agency shall pay to the Secretary            effect at the time the claim was paid;      percent of the principal amount of loans
during each fiscal year in quarterly         and                                         originated. Beginning October 1, 2003,
installments a reinsurance fee equal         (ii) The agency has deducted an             the fee is 0.40 percent.
to—                                          amount equal to—                            (k) Default aversion fee— (1) General.
(i) 0.25 percent of the total principal      (A) 30 percent of borrower payments         If a guaranty agency performs default
amount of the Stafford, SLS, and PLUS        received before October 1, 1993;            aversion activities on a delinquent loan
loans on which guarantees were issued                                                    in response to a lender's request for
by that agency during that fiscal year;      (B) 27 percent of borrower payments         default aversion assistance on that
or                                           received on or after October 1, 1993,       loan, the agency receives a default
                                             and before October 1, 1998;                 aversion fee. The fee may not be paid
(ii) 0.5 percent of the total principal
                                             (C) 24 percent of borrower payments         more than once on any loan. The
amount of the Stafford, SLS, and PLUS
                                             received on or after October 1, 1998,       lender's request for assistance must be
loans on which guarantees were issued
                                             and before October 1, 2003; and             submitted to the guaranty agency no
by that agency during that fiscal year if
                                                                                         earlier than the 60th day and no later
the agency's reinsurance claims paid         (D) 23 percent of borrower payments         than the 120th day of the borrower's
reach the amount described in                received on or after October 1, 2003.       delinquency. A guaranty agency may
paragraph (b)(1) of this section at any
                                             (E) 16 percent of borrower payments         not restrict a lender's choice of the date
time during that fiscal year.
                                             received on or after October 1, 2007.       during this period on which the lender
(2) The agency that is the original                                                      submits a request for default aversion
                                             (2) Unless the Secretary approves
guarantor of a loan shall pay the                                                        assistance.
                                             otherwise, the guaranty agency must
reinsurance fee to the Secretary even if
                                             pay to the Secretary the Secretary's        (2) Amount of fees transferred. No
the guaranty agency transfers its
                                             share of borrower payments within 45        more frequently than monthly, a
                                             days of its receipt of the payments.        guaranty agency may transfer default
34 CFR 682.404


aversion fees from the Federal Fund to        agreement with the Secretary. The           the ninth consecutive calendar month
its Operating Fund. The amount of the         guaranty agency must establish a loan       following that month.
fees that may be transferred is equal         rehabilitation program for all borrowers    (iii) For the purposes of this section, the
to—                                           with an enforceable promissory note for     determination of reasonable and
(i) One percent of the unpaid principal       the purpose of rehabilitating defaulted     affordable by the guaranty agency or its
                                              loans, except for loans for which a
and accrued interest owed on loans                                                        agents must—
that were submitted by lenders to the         judgment has been obtained, loans on
                                              which a default claim was filed under       (A) Include a consideration of the
agency for default aversion assistance;                                                   borrower's and spouse's disposable
                                              Sec. 682.412, and loans on which the
minus                                                                                     income and reasonable and necessary
                                              borrower has been convicted of, or has
(ii) One percent of the unpaid principal      pled nolo contendere or guilty to, a        expenses including, but not limited to,
and accrued interest owed by                  crime involving fraud in obtaining title    housing, utilities, food, medical costs,
borrowers on default claims that—             IV, HEA program assistance, so that         work-related expenses, dependent care
(A) Were paid by the agency for the           the loan may be purchased, if               costs and other Title IV repayment;
same time period for which the agency         practicable, by an eligible lender and      (B) Not be a required minimum
transferred default aversion fees from        removed from default status.                payment amount, e.g. $50, if the
its Federal Fund; and                         (2) A loan is considered to be              agency determines that a smaller
(B) For which default aversion fees           rehabilitated only after—                   amount is reasonable and affordable
                                                                                          based on the borrower's total financial
have been received by the agency.             (i) The borrower has made and the
                                                                                          circumstances. The agency must
(3) Calculation of fee. (i) For purposes      guaranty agency has received nine of
                                                                                          include documentation in the borrower's
of calculating the one percent default        the ten payments required under a           file of the basis for the determination if
aversion fee described in paragraph           monthly repayment agreement.                the monthly reasonable and affordable
(k)(2)(i) of this section, the agency must    (A) Each of which payments is—              payment established under this section
use the total unpaid principal and                                                        is less than $50 or the monthly accrued
accrued interest owed by the borrower         (1) Made voluntarily;
                                                                                          interest on the loan, whichever is
as of the date the default aversion           (2) In the full amount required; and        greater. However, $50 may not be the
assistance request is submitted by the                                                    minimum payment for a borrower if the
                                              (3) Received within 20 days of the due
lender.                                       date for the payment, and                   agency determines that a smaller
(ii) For purposes of paragraph (k)(2)(ii)                                                 amount is reasonable and affordable;
                                              (B) All nine payments are received          and
of this section, the agency must use the
                                              within a 10-month period that begins
total unpaid principal and accrued            with the month in which the first           (C) Be based on the documentation
interest owed by the borrower as of the       required due date falls and ends with       provided by the borrower or other
date the agency paid the default claim.                                                   sources including, but not be limited
                                              the ninth consecutive calendar month
(4) Prohibition against conflicts. If a       following that month, and                   to—
guaranty agency contracts with an             (ii) The loan has been sold to an           (1) Evidence of current income (e.g.,
outside entity to perform any default         eligible lender.                            proof of welfare benefits, Social
aversion activities, that outside entity                                                  Security benefits, child support,
may not—                                      (3) After the loan has been                 veterans' benefits, Supplemental
                                              rehabilitated, the borrower regains all     Security Income, Workmen's
(i) Hold or service the loan; or
                                              benefits of the program, including any      Compensation, two most recent pay
(ii) Perform collection activities on the     remaining deferment eligibility under       stubs, most recent copy of U.S. income
loan in the event of default within 3         section 428(b)(1)(M) of the Act, from       tax return, State Department of Labor
years of the claim payment date.              the date of the rehabilitation. Effective   reports);
(l) Other terms. The reinsurance              for any loan that is rehabilitated on or
                                              after August 14, 2008, the borrower         (2) Evidence of current expenses (e.g.,
agreement contains other terms and                                                        a copy of the borrower's monthly
                                              cannot rehabilitate the loan again if the
conditions that the Secretary finds                                                       household budget, on a form provided
necessary to—                                 loan returns to default status following
                                              the rehabilitation.                         by the guaranty agency); and
(1) Promote the purposes of the FFEL                                                      (3) A statement of the unpaid balance
                                              (b) Terms of agreement. In the loan
programs and to protect the United                                                        on all FFEL loans held by other holders.
                                              rehabilitation agreement, the guaranty
States from unreasonable risks of loss;
                                              agency agrees to ensure that its loan       (iv) The agency must include any
(2) Ensure proper and efficient               rehabilitation program meets the            payment made under Sec.
administration of the loan guarantee          following requirements at all times:        682.401(b)(4) in determining whether
program; and                                                                              the nine out of ten payments required
                                              (1) A borrower may request
(3) Ensure that due diligence will be         rehabilitation of the borrower's            under paragraph (b)(1) of this section
exercised in the collection of loans.         defaulted loan held by the guaranty         have been made.
(Approved by the Office of Management and     agency. In order to be eligible for         (v) A borrower may request that the
Budget under control number 1845-0020)        rehabilitation of the loan, the borrower    monthly payment amount be adjusted
(Authority: 20 U.S.C. 1078, 1078-1, 1078-2,
                                              must voluntarily make at least nine of      due to a change in the borrower's total
1078-3, 1082)                                 the ten payments required under a           financial circumstances only upon
                                              monthly repayment agreement.                providing the documentation specified
[57 FR 60323, Dec. 18, 1992, as amended at
58 FR 9119, Feb. 19, 1993; 59 FR 25746,       (i) Each of which payment is—               in paragraph (b)(1)(iii)(C) of this
May 17, 1994; 59 FR 61429, Nov. 30, 1994;                                                 section.
60 FR 31411, June 15, 1995; 61 FR 60486,      (A) Made voluntarily,
                                                                                          (vi) A guaranty agency must provide
Nov. 27, 1996; 64 FR 18980, Apr. 16, 1999;    (B) In the full amount required, and
64 FR 58628, Oct. 29, 1999; 71 FR 45707,
                                                                                          the borrower with a written statement
Aug. 9, 2006; 72 FR 62006, Nov. 1, 2007]      (C) Received within 20 days of the due      confirming the borrower's reasonable
                                              date for the payment, and                   and affordable payment amount, as
§682.405 Loan rehabilitation                                                              determined by the agency, and
agreement.                                    (ii) All nine payments are received         explaining any other terms and
                                              within a ten-month period that begins       conditions applicable to the required
(a) General. (1) A guaranty agency that
                                              with the month in which the first           series of payments that must be made
has a basic program agreement must
                                              required due date falls and ends with       before a borrower's account can be
enter into a loan rehabilitation
34 CFR 682.405


considered for repurchase by an             (c) A guaranty agency must make               (7) The lender satisfied all conditions of
eligible lender. The statement must         available financial and economic              guarantee coverage set by the agency,
inform borrowers of the effects of          education materials, including debt           unless the agency reinstated guarantee
having their loans rehabilitated (e.g.,     management information, to any                coverage on the loan following the
credit clearing, possibility of increased   borrower who has rehabilitated a              lender's failure to satisfy such a
monthly payments). The statement            defaulted loan in accordance with             condition pursuant to written policies
must inform the borrower of the amount      paragraph (a)(2) of this section.             and procedures established by the
of the collection costs to be added to      (Approved by the Office of Management and     agency;
the unpaid principal at the time of the     Budget under control number 1845-0020)        (8) The agency paid or returned to the
sale. The collection costs may not                                                        lender for additional documentation a
                                            (Authority: 20 U.S.C. 1078-6)
exceed 18.5 percent of the unpaid                                                         default claim thereon filed by the lender
principal and accrued interest at the       [59 FR 33355, June 28, 1994, as amended at
                                            60 FR 30788, June 12, 1995; 64 FR 18980,      within 90 days of the date the lender
time of the sale.                                                                         filed the claim or, if applicable, the
                                            Apr. 16, 1999; 64 FR 58965, Nov. 1, 1999;
(vii) A guaranty agency must provide        66 FR 34764, June 29, 2001; 67 FR 67080,      additional documentation, except that
the borrower with an opportunity to         Nov. 1, 2002; 68 FR 75429, Dec. 31, 2003;     interest accruing beyond the 60th day
object to terms of the rehabilitation of    71 FR 45707, Aug. 9, 2006; 71 FR 64398,       after the date the lender originally filed
the borrower's defaulted loan.              Nov. 1, 2006; 74 FR 63254, Oct. 23, 2008;     the claim is not reinsured;
                                            74 FR 56000, Oct. 29, 2009]
(2) For the purposes of this section,                                                     (9) The agency submitted a request for
                                            §682.406 Conditions for claim
payment in the full amount required                                                       the payment on a form required by the
                                            payments from the Federal Fund and
means payment of an amount that is                                                        Secretary no later than 30 days
                                            for reinsurance coverage.
reasonable and affordable, based on                                                       following payment of a default claim to
the borrower's total financial              (a) A guaranty agency may make a              the lender;
circumstances, as agreed to by the          claim payment from the Federal Fund
                                                                                          (10) The loan was legally enforceable
borrower and the agency. Voluntary          and receive a reinsurance payment on
                                                                                          by the lender when the agency paid a
payments are those made directly by         a loan only if—
                                                                                          claim on the loan to the lender;
the borrower and do not include             (1) The lender exercised due diligence
payments obtained by Federal offset,                                                      (11) The agency exercised due
                                            in making, disbursing, and servicing the
garnishment, income or asset                                                              diligence in collection of the loan in
                                            loan as prescribed by the rules of the
execution, or after a judgment has been                                                   accordance with Sec. 682.410(b)(6);
                                            agency;
entered on a loan. A guaranty agency                                                      (12) The agency and lender, if
must attempt to secure a lender to          (2) With respect to the reinsurance
                                                                                          applicable, complied with all other
purchase the loan at the end of the 9-      payment on the portion of a loan
                                                                                          Federal requirements with respect to
or 10-month payment period as               represented by a single disbursement
                                                                                          the loan including—
applicable.                                 of loan proceeds—
                                                                                          (i) Payment of origination fees;
(3) Upon the sale of a rehabilitated loan   (i) The check for the disbursement was
to an eligible lender—                      cashed within 120 days after                  (ii) For Consolidation loans disbursed
                                            disbursement; or                              on or after October 1, 1993, and prior to
(i) The guaranty agency must, within 45                                                   October 1, 1998, payment on a monthly
days of the sale—                           (ii) The proceeds of the disbursement
                                                                                          basis, of an interest payment rebate fee
                                            made by electronic funds transfer or
(A) Provide notice to the prior holder of                                                 calculated on an annual basis and
                                            master check in accordance with Sec.
such sale, and                                                                            equal to 1.05 percent of the unpaid
                                            682.207(b)(1)(ii) (B) and (C) have been
                                                                                          principal and accrued interest on the
(B) Request that any consumer               released from the restricted account
                                                                                          loan;
reporting agency to which the default       maintained by the school within 120
was reported remove the record of           days after disbursement;                      (iii) For Consolidation loans for which
default from the borrower's credit                                                        the application was received by the
                                            (3) The lender provided an accurate
history.                                                                                  lender on or after October 1, 1998 and
                                            collection history and an accurate
                                                                                          prior to February 1, 1999, payment on a
(ii) The prior holder of the loan must,     payment history to the guaranty agency
                                                                                          monthly basis, of an interest payment
within 30 days of receiving the             with the default claim filed on the loan
                                                                                          rebate fee calculated on an annual
notification from the guaranty agency,      showing that the lender exercised due
                                                                                          basis and equal to 0.62 percent of the
request that any consumer reporting         diligence in collecting the loan through
                                                                                          unpaid principal and accrued interest
agency to which the default claim           collection efforts meeting the
                                                                                          on the loan;
payment or other equivalent record was      requirements of Sec. 682.411, including
reported remove such record from the        collection efforts against each endorser;     (iv) For Consolidation loans disbursed
borrower’s credit history.                                                                on or after February 1, 1999, payment
                                            (4) The loan was in default before the
                                                                                          of an interest payment rebate fee in
(4) An eligible lender purchasing a         agency paid a default claim filed
                                                                                          accordance with paragraph (a)(12)(ii) of
rehabilitated loan must establish a         thereon;
                                                                                          this section; and
repayment schedule that meets the           (5) The lender filed a default claim
same requirements that are applicable                                                     (v) Compliance with all default aversion
                                            thereon with the guaranty agency within
to other FFEL Program loans of the                                                        assistance requirements in Sec.
                                            90 days of default;
same loan type as the rehabilitated loan                                                  682.404(a)(2)(ii).
and must permit the borrower to choose      (6) The lender resubmitted a properly
                                                                                          (13) The agency assigns the loan to the
any statutorily available repayment plan    documented default claim to the
                                                                                          Secretary, if so directed, in accordance
for that loan type. The lender must treat   guaranty agency not later than 60 days
                                                                                          with the requirements of Sec. 682.409;
the first payment made under the nine       from the date the agency had returned
                                                                                          and
payments as the first payment under         that claim due solely to inadequate
the applicable maximum repayment            documentation, except that interest           (14) The guaranty agency certifies to
term, as defined under Sec. 682.209(a)      accruing beyond the 30th day after the        the Secretary that diligent attempts
or (h). For Consolidation loans, the        date the guaranty agency returned the         have been made by the lender and the
maximum repayment term is based on          claim is not reinsured unless the lender      guaranty agency under Sec. 682.411(h)
the balance outstanding at the time of      files a claim for loss on the loan with the   to locate the borrower through the use
loan rehabilitation.                        guarantor together with all required          of effective skip-tracing techniques,
                                            documentation, prior to the 30th day;         including contact with the schools the
                                                                                          student attended.
34 CFR 682.406


(b) Notwithstanding paragraph (a) of           (i) The parent owes a FFEL PLUS Loan          (7) Present at the World Trade Center
this section, the Secretary may waive          incurred on behalf of an eligible victim;     in New York City, New York, at the
his right to refuse to make or require         or                                            Pentagon in Virginia, or at the
repayment of a reinsurance payment if,         (ii) The parent owes a FFEL                   Shanksville, Pennsylvania site means
in the Secretary's judgment, the best          Consolidation Loan that was used to           physically present at the time of the
interests of the United States so                                                            terrorist-related aircraft crashes or in
                                               repay a FFEL or Direct Loan PLUS
require. The Secretary's waiver policy         Loan incurred on behalf of an eligible        the immediate aftermath—
for violations of paragraph (a)(3) or          victim.                                       (i) In the buildings portions of the
(a)(5) of this section is set forth in
                                               (4) Died due to injuries suffered in the      buildings that were destroyed as a
appendix D to this part.                                                                     result of the terrorist-related aircraft
                                               terrorist attacks on September 11, 2001
(c) In evaluating a claim for insurance                                                      crashes;
                                               means the individual was present at the
or reinsurance, the issue of                   World Trade Center in New York City,          (ii) In any area contiguous to the crash
confirmation of subsequent loans under
                                               New York, at the Pentagon in Virginia,        site that was sufficiently close to the
an MPN will not be reviewed and a              or at the Shanksville, Pennsylvania site      site that there was a demonstrable risk
claim will not be denied based on the          at the time of or in the immediate            of physical harm resulting from the
absence of any evidence relating to
                                               aftermath of the terrorist-related aircraft   impact of the aircraft or any subsequent
confirmation in a particular loan file.        crashes on September 11, 2001, and            fire, explosions, or building collapses.
However, if a court rules that a loan is       the individual died as a direct result of     Generally, this includes the immediate
unenforceable solely because of the
                                               these crashes.                                area in which the impact occurred, fire
lack of evidence of a confirmation                                                           occurred, portions of buildings fell, or
process or processes, insurance and            (5) Became permanently and totally
                                               disabled due to injuries suffered in the      debris fell upon and injured persons; or
reinsurance benefits must be repaid.
                                               terrorist attacks on September 11, 2001       (iii) On board American Airlines flights
(d) A guaranty agency may not make a
                                               means the individual was present at the       11 or 77 or United Airlines flights 93 or
claim payment from the Federal Fund            World Trade Center in New York City,          175 on September 11, 2001.
or receive a reinsurance payment on a          New York, at the Pentagon in Virginia,
loan if the agency determines or is                                                          (b) September 11 survivors discharge.
                                               or at the Shanksville, Pennsylvania site      (1) The obligation of a borrower and
notified by the Secretary that the lender      at the time of or in the immediate
offered or provided an improper                                                              any endorser to make any further
                                               aftermath of the terrorist-related aircraft   payments on an eligible FFEL Program
inducement as described in paragraph           crashes on September 11, 2001 and
(5)(i) of the definition of lender in Sec.                                                   Loan is discharged if the borrower was,
                                               the individual became permanently and         at the time of the terrorist attacks on
682.200(b).
                                               totally disabled as a direct result of        September 11, 2001, and currently is,
(Approved by the Office of Management and      these crashes.
Budget under control number 1845-0020)                                                       the spouse of an eligible public servant,
                                               (i) An individual is considered               unless the eligible public servant has
(Authority: 20 U.S.C. 1078, 1078-1, 1078-2,    permanently and totally disabled if—          died. If the eligible public servant has
1078-3, 1082)
                                               (A) The disability is the result of a         died, the borrower must have been the
[57 FR 60323, Dec. 18, 1992, as amended at                                                   spouse of the eligible public servant at
58 FR 9119, Feb. 19, 1993; 59 FR 25746,        physical injury to the individual that was
                                               treated by a medical professional within      the time of the terrorist attacks on
May 17, 1994; 59 FR 33356, June 28, 1994;
                                               72 hours of the injury having been            September 11, 2001 and until the date
59 FR 61429, Nov. 30, 1994; 61 FR 60486,
                                                                                             the eligible public servant died.
Nov. 27, 1996; 64 FR 18980, Apr. 16, 1999;     sustained or within 72 hours of the
64 FR 58629, Oct. 29, 1999; 64 FR 58963,       rescue;                                       (2) The obligation of a borrower to
Nov. 1, 1999; 65 FR 65620, Nov. 1, 2000; 66                                                  make any further payments towards the
FR 34764, June 29, 2001; 71 FR 45708,          (B) The physical injury that caused the
Aug. 9, 2006; 72 FR 62006, Nov. 1, 2007]       disability is verified by                     portion of a joint FFEL Consolidation
                                                                                             Loan incurred on behalf of an eligible
§682.407 Discharge of student loan             contemporaneous medical records
                                               created by or at the direction of the         victim is discharged if the borrower
indebtedness for survivors of                                                                was, at the time of the terrorist attacks
victims of the September 11, 2001,             medical professional who provided the
                                                                                             on September 11, 2001, and currently
attacks.                                       medical care; and
                                                                                             is, the spouse of an eligible victim,
(a) Definition of terms. As used in this       (C) The individual is unable to work and      unless the eligible victim has died. If the
section—                                       earn money due to the disability and          eligible victim has died, the borrower
                                               the disability is expected to continue        must have been the spouse of the
(1) Eligible public servant means an           indefinitely or result in death.              eligible victim at the time of the terrorist
individual who—                                                                              attacks on September 11, 2001 and
                                               (ii) If the injuries suffered due to the
(i) Served as a police officer, firefighter,   terrorist-related aircraft crashes did not    until the date the eligible victim died.
other safety or rescue personnel, or as        make the individual permanently and           (3) If the borrower is an eligible
a member of the Armed Forces; and              totally disabled at the time of or in the     parent—
(ii)(A) Died due to injuries suffered in       immediate aftermath of the attacks, the
                                                                                             (i) The obligation of a borrower and any
the terrorist attacks on September 11,         individual may be considered to be
                                                                                             endorser to make any further payments
2001; or                                       permanently and totally disabled for
                                               purposes of this section if the               on a FFEL PLUS Loan incurred on
(B) Became permanently and totally             individual's medical condition has            behalf of an eligible victim is
disabled due to injuries suffered in the                                                     discharged.
                                               deteriorated to the extent that the
terrorist attacks on September 11,             individual is permanently and totally         (ii) The obligation of the borrower to
2001.                                          disabled.                                     make any further payments towards the
(2) Eligible victim means an individual        (6) Immediate aftermath means, except         portion of a FFEL Consolidation Loan
who died due to injuries suffered in the                                                     that repaid a FFEL or Direct Loan
                                               in the case of an eligible public servant,
terrorist attacks on September 11, 2001        the period of time from the aircraft          PLUS Loan incurred on behalf of an
or became permanently and totally              crashes until 12 hours after the              eligible victim is discharged.
disabled due to injuries suffered in the       crashes. With respect to eligible public      (4) The parent of an eligible public
terrorist attacks on September 11,             servants, the immediate aftermath             servant may qualify for a discharge of a
2001.                                          includes the period of time from the          FFEL PLUS loan incurred on behalf of
(3) Eligible parent means the parent of        aircraft crashes until 96 hours after the     the eligible public servant, or the portion
an eligible victim if—                         crashes.                                      of a FFEL Consolidation Loan that
34 CFR 682.407


repaid a FFEL or Direct PLUS Loan            which the lender determines that the         (11) After being notified that the
incurred on behalf of the eligible public    borrower qualifies for a discharge.          guaranty agency has paid a discharge
servant, under the procedures, eligibility                                                claim, the lender shall notify the
                                             (6) The guaranty agency must review a
criteria, and documentation                                                               borrower that the loan has been
                                             discharge claim under this section
requirements described in this section                                                    discharged or, in the case of a partial
                                             promptly.
for an eligible parent applying for a                                                     discharge of a Consolidation Loan,
discharge of a loan incurred on behalf       (7) If the guaranty agency determines        partially discharged. Except in the case
of an eligible victim.                       that the borrower does not qualify for a     of a partial discharge of a Consolidation
                                             discharge under this section, the            Loan, the lender shall return to the
(c) Applying for discharge. (1) In           guaranty agency must return the claim        sender any payments received by the
accordance with the procedures in            to the lender with an explanation of the     lender after the date the guaranty
paragraphs (c)(2) through (c)(13) of this    basis for the agency's denial of the         agency paid the discharge claim.
section, a discharge may be granted          claim. Upon receipt of the returned
on—                                                                                       (12) The Secretary reimburses the
                                             claim, the lender must notify the
(i) A FFEL Program Loan owed by the          borrower that the application for the        guaranty agency for a discharge claim
spouse of an eligible public servant;        discharge has been denied, provide the       paid to the lender under this section
                                             basis for the denial, and inform the         after the agency pays the lender. Any
(ii) A FFEL PLUS Loan incurred on                                                         failure by the lender to satisfy due
                                             borrower that the lender will resume
behalf of an eligible victim;                                                             diligence requirements prior to the filing
                                             collection on the loan. The lender is
(iii) The portion of a FFEL                  deemed to have exercised forbearance         of the claim that would have resulted in
Consolidation Loan that repaid a PLUS        of both principal and interest from the      the loss of reinsurance on the loan in
loan incurred on behalf of an eligible       date collection activity was suspended       the event of default are waived by the
victim; and                                  until the next payment due date. The         Secretary, provided the loan was held
                                             lender may capitalize, in accordance         by an eligible loan holder at all times.
(iv) The portion of a joint Consolidation
Loan incurred on behalf of an eligible       with Sec. 682.202(b), any interest           (13) Except in the case of a partial
victim.                                      accrued and not paid during this period.     discharge of a Consolidation Loan, the
                                             (8) If the guaranty agency determines        guaranty agency shall promptly return
(2) After being notified by the borrower                                                  to the sender any payment on a
that the borrower claims to qualify for a    that the borrower qualifies for a
                                             discharge, the guaranty agency pays          discharged loan made by the sender
discharge under this section, the lender                                                  and received after the Secretary pays a
shall suspend collection activity on the     the lender on an approved claim the
                                             amount of loss required under                discharge claim. At the same time that
borrower's eligible FFEL Program Loan                                                     the agency returns the payment it shall
and promptly request that the borrower       paragraph (c)(9) of this section. The
                                             guaranty agency shall pay the claim not      notify the borrower that the loan has
submit a request for discharge on a                                                       been discharged and that there is no
form approved by the Secretary.              later than 90 days after the claim was
                                             filed by the lender.                         further obligation to repay the loan.
(3) If the lender determines that the                                                     (14) A FFEL Program Loan owed by an
borrower does not qualify for a              (9) The amount of loss payable on a
                                             discharge claim is—                          eligible public servant or an eligible
discharge under this section, or the                                                      victim may be discharged under the
lender does not receive the completed        (i) An amount equal to the sum of the        procedures in Sec. 682.402 for a
discharge request form from the              remaining principal balance and interest     discharge based on the death or total
borrower within 60 days of the borrower      accrued on the loan, unpaid collection       and permanent disability of the eligible
notifying the lender that the borrower       costs incurred by the lender and             public servant or eligible victim.
claims to qualify for a discharge, the       applied to the borrower's account within
lender shall resume collection and shall                                                  (d) Documentation that an eligible
                                             30 days of the date those costs were
be deemed to have exercised                  actually incurred, and unpaid interest       public servant or eligible victim died due
forbearance of payment of both               up to the date the lender should have        to injuries suffered in the terrorist
principal and interest from the date the                                                  attacks on September 11, 2001. (1)
                                             filed the claim; or
lender was notified by the borrower.                                                      Documentation that an eligible public
                                             (ii) In the case of a partial discharge of   servant died due to injuries suffered in
The lender must notify the borrower
                                             a Consolidation Loan, the amount             the terrorist attacks on September 11,
that the application for the discharge
                                             specified in paragraph (c)(9)(i) of this     2001 must include—
has been denied, provide the basis for
                                             section for the portion of the
the denial, and inform the borrower that                                                  (i) A certification from an authorized
                                             Consolidation Loan incurred on behalf
the lender will resume collection on the                                                  official that the individual was a
                                             of the eligible victim.
loan. The lender may capitalize, in                                                       member of the Armed Forces, or was
accordance with Sec. 682.202(b), any         (10) The amount payable on an                employed as a police officer, firefighter,
interest accrued and not paid during         approved claim includes the unpaid           or other safety or rescue personnel,
this period.                                 interest that accrues during the             and was present at the World Trade
(4) If the lender determines that the        following periods:                           Center in New York City, New York, at
borrower qualifies for a discharge under     (i) During the period before the claim is    the Pentagon in Virginia, or at the
this section, the lender shall provide the   filed, not to exceed 60 days from the        Shanksville, Pennsylvania site at the
guaranty agency with the following           date the lender determines that the          time of the terrorist-related aircraft
documentation—                               borrower qualifies for a discharge under     crashes or in the immediate aftermath
                                             this section.                                of these crashes; and
(i) The loan application, if a separate
loan application was provided to the         (ii) During a period not to exceed 30        (ii) The inclusion of the individual on an
lender; and                                  days following the date the lender           official list of the individuals who died in
                                             receives a claim returned by the             the terrorist attacks on September 11,
(ii) The completed discharge form, and                                                    2001.
                                             guaranty agency for additional
all accompanying documentation
                                             documentation necessary for the claim        (2) If the individual is not included on an
supporting the discharge request that
                                             to be approved by the guaranty agency.       official list of the individuals who died in
formed the basis for the determination
that the borrower qualifies for a            (iii) During the period required by the      the terrorist attacks on September 11,
discharge.                                   guaranty agency to approve the claim         2001, the borrower must provide—
                                             and to authorize payment or to return        (i) The certification described in
(5) The lender must file a discharge
                                             the claim to the lender for additional       paragraph (d)(1)(i) of this section;
claim within 60 days of the date on
                                             documentation, not to exceed 90 days.
34 CFR 682.407


(ii) An original or certified copy of the     approved by the chief executive officer      by another FFEL lender because the
individual's death certificate; and           of the guaranty agency.                      eligible victim became permanently and
                                                                                           totally disabled due to injuries suffered
(iii) A certification from a physician or a   (e) Documentation that an eligible
                                                                                           in the terrorist attacks on September
medical examiner that the individual          public servant or eligible victim became
                                                                                           11, 2001, documentation of the
died due to injuries suffered in the          permanently and totally disabled due to
                                                                                           discharge may be used as an
terrorist attacks on September 11,            injuries suffered in the terrorist attacks
                                              on September 11, 2001. (1)                   alternative to the documentation in
2001.
                                                                                           paragraph (e)(2) of this section.
(3) If the individual owed a FFEL             Documentation that an eligible public
                                              servant became permanently and               (f) Additional information. (1) A lender
Program Loan, a Direct Loan, or a
                                              totally disabled due to injuries suffered    or guaranty agency may require the
Perkins Loan at the time of the terrorist
                                              in the terrorist attacks on September        borrower to submit additional
attacks, documentation that the
                                              11, 2001 must include—                       information that the lender or guaranty
individual's loans were discharged by
                                              (i) A certification from an authorized       agency deems necessary to determine
the lender, the Secretary, or the
institution due to death may be               official that the individual was a           the borrower's eligibility for a discharge
substituted for the original or certified     member of the Armed Forces or was            under this section.
copy of a death certificate.                  employed as a police officer, firefighter    (2) To establish that the eligible public
                                              or other safety or rescue personnel,         servant or eligible victim was present at
(4) Documentation that an eligible
                                              and was present at the World Trade           the World Trade Center in New York
victim died due to injuries suffered in
                                              Center in New York City, New York, at        City, New York, at the Pentagon in
the terrorist attacks on September 11,
                                              the Pentagon in Virginia, or at the          Virginia, or at the Shanksville,
2001 is the inclusion of the individual on
                                              Shanksville, Pennsylvania site at the        Pennsylvania site, such additional
an official list of the individuals who
                                              time of the terrorist-related aircraft       information may include but is not
died in the terrorist attacks on
                                              crashes or in the immediate aftermath        limited to—
September 11, 2001.
                                              of these crashes;                            (i) Records of employment;
(5) If the eligible victim is not included
                                              (ii) Copies of contemporaneous
on an official list of the individuals who                                                 (ii) Contemporaneous records of a
                                              medical records created by or at the
died in the terrorist attacks on                                                           federal, state, city, or local government
                                              direction of a medical professional who
September 11, 2001, the borrower must                                                      agency;
                                              provided medical care to the individual
provide—                                                                                   (iii) An affidavit or declaration of the
                                              within 24 hours of the injury having
(i) The documentation described in            been sustained or within 24 hours of         eligible public servant's or eligible
paragraphs (d)(2)(ii) or (d)(3), and          the rescue; and                              victim's employer; and
(d)(2)(iii) of this section; and                                                           (iv) A sworn statement (or an unsworn
                                              (iii) A certification by a physician, who
(ii) A certification signed by the            is a doctor of medicine or osteopathy        statement complying with 28 U.S.C.
borrower that the eligible victim was         and legally authorized to practice in a      1746) regarding the presence of the
present at the World Trade Center in          state, that the individual became            eligible public servant or eligible victim
New York City, New York, at the               permanently and totally disabled due to      at the site.
Pentagon in Virginia, or at the               injuries suffered in the terrorist attacks   (3) To establish that the disability of the
Shanksville, Pennsylvania site at the         on September 11, 2001.                       eligible public servant or eligible victim
time of the terrorist-related aircraft
                                              (2) Documentation that an eligible           is due to injuries suffered in the terrorist
crashes or in the immediate aftermath                                                      attacks on September 11, 2001, such
                                              victim became permanently and totally
of these crashes.                                                                          additional information may include but
                                              disabled due to injuries suffered in the
(6) If the borrower is the spouse of an       terrorist attacks on September 11, 2001      is not limited to—
eligible public servant, and has been         must include—                                (i) Contemporaneous medical records
granted a discharge on a Perkins Loan,                                                     of hospitals, clinics, physicians, or other
                                              (i) The documentation described in
a Direct Loan, or a FFEL Program Loan                                                      licensed medical personnel;
                                              paragraphs (e)(1)(ii) and (e)(1)(iii) of
held by another FFEL lender because
                                              this section; and                            (ii) Registries maintained by federal,
the eligible public servant died due to
injuries suffered in the terrorist attacks    (ii) A certification signed by the           state, or local governments; or
on September 11, 2001, documentation          borrower that the eligible victim was        (iii) Records of all continuing medical
of the discharge may be used as an            present at the World Trade Center in         treatment.
alternative to the documentation in           New York City, New York, at the
paragraphs (d)(1) through (d)(3) of this      Pentagon in Virginia, or at the              (4) To establish the borrower's
section.                                      Shanksville, Pennsylvania site at the        relationship to the eligible public
                                              time of the terrorist-related aircraft       servant or eligible victim, such
(7) If the borrower is the spouse or                                                       additional information may include but
                                              crashes or in the immediate aftermath
parent of an eligible victim, and has                                                      is not limited to—
                                              of these crashes.
been granted a discharge on a Direct
Loan or on a FFEL Program Loan held           (3) If the borrower is the spouse of an      (i) Copies of relevant legal records
by another FFEL lender because the            eligible public servant, and has been        including court orders, letters of
eligible victim died due to injuries          granted a discharge on a Perkins Loan,       testamentary or similar documentation;
suffered in the terrorist attacks on          a Direct Loan, or a FFEL Program Loan        (ii) Copies of wills, trusts, or other
September 11, 2001, documentation of          held by another FFEL lender because          testamentary documents; or
the discharge may be used as an               the eligible public servant became
alternative to the documentation in           permanently and totally disabled due to      (iii) Copies of approved joint
paragraphs (d)(4) and (d)(5) of this          injuries suffered in the terrorist attacks   Consolidation Loan applications or
section.                                      on September 11, 2001, documentation         approved FFEL or Direct Loan PLUS
                                              of the discharge may be used as an           loan applications.
(8) Under exceptional circumstances
                                              alternative to the documentation in          (g) Limitations on discharge. (1) Only
and on a case-by-case basis, the
                                              paragraph (e)(1) of this section.            outstanding Federal SLS Loans,
determination that an eligible public
servant or an eligible victim died due to     (4) If the borrower is the spouse or         Federal Stafford Loans, Federal PLUS
injuries suffered in the terrorist attacks    parent of an eligible victim, and has        Loans, and Federal Consolidation
on September 11, 2001 may be based            been granted a discharge on a Direct         Loans for which amounts were owed on
on other reliable documentation               Loan or on a FFEL Program Loan held          September 11, 2001, or outstanding
                                                                                           Federal Consolidation Loans incurred
34 CFR 682.407


to pay off loan amounts that were owed        (i) The lender may make payments into        agency must assign any loan that
on September 11, 2001, are eligible for       an escrow account that is administered       meets all of the following criteria as of
discharge under this section.                 by the escrow agent in accordance with       April 15 of each year:
(2)(i) Eligibility for a discharge under      the requirements of paragraph (c) of         (i) The unpaid principal balance is at
this section does not qualify a borrower      this section and Sec. 682.207(b)(1)(iv);     least $100.
for a refund of any payments made on          (ii) The lender shall promptly notify the    (ii) For each of the two fiscal years
the borrower's loan prior to the date the     borrower's school when funds are
                                                                                           following the fiscal year in which these
loan was discharged.                          escrowed for the borrower; and               regulations are effective, the loan, and
(ii) A borrower may apply for a partial       (iii) The escrow agent is authorized         any other loans held by the agency for
discharge of a joint Consolidation loan       to—                                          that borrower, have been held by the
due to death or total and permanent           (A) Transmit the proceeds according to       agency for at least four years; for any
disability under the procedures in Sec.       the note evidencing the loan;                subsequent fiscal year such loan must
682.402(b) or (c). If the borrower is                                                      have been held by the agency for at
granted a partial discharge under the         (B) Commingle the proceeds of the            least five years.
procedures in Sec. 682.402(b) or (c)          loans paid to it pursuant to an escrow
                                                                                           (iii) A payment has not been received
the borrower may qualify for a refund of      agreement;
                                                                                           on the loan in the last year.
payments in accordance with Sec.              (C) Invest the loan proceeds only in
682.402(b)(5) or Sec. 682.402(c)(1)(i).                                                    (iv) A judgment has not been entered
                                              obligations of the Federal Government
                                              or obligations that are insured or           on the loan against the borrower.
(iii) A borrower may apply for a
discharge of a PLUS loan due to the           guaranteed by the Federal                    (2) If the agency fails to meet a fiscal
death of the student for whom the             Government; and                              year recovery rate standard under
borrower received the PLUS loan under         (D) Retain for its own use interest or       paragraph (a)(2)(ii) of this section for a
the procedures in Sec. 682.402(b). If a       other earnings on those investments.         loan type, and the Secretary
borrower is granted a discharge under                                                      determines that additional assignments
the procedures in Sec. 682.402(b), the        (b) Disbursement by the lender. Subject      are necessary to protect the Federal
borrower may qualify for a refund of          to Sec. 682.207(b)(1)(iii), the lender       fiscal interest, the Secretary may
payments in accordance with Sec.              may disburse the loan proceeds to the        require the agency to assign in addition
682.402(b)(5).                                escrow agent using any method agreed         to those loans described in paragraph
                                              to by the escrow agent and the lender.       (a)(1) of this section, loans in amounts
(3) A determination by a lender or a
                                              (c) Transmittal of FFEL loan proceeds        needed to satisfy the requirements of
guaranty agency that an eligible public
                                              by an escrow agent. The escrow agent         paragraph (a)(2)(iii) or (a)(3)(i) of this
servant or an eligible victim became                                                       section.
permanently and totally disabled due to       shall transmit Stafford and PLUS loan
injuries suffered in the terrorist attacks    proceeds received from a lender under        (i) Calculation of fiscal year loan type
on September 11, 2001 for purposes of         this section to a school in accordance       recovery rate. A fiscal year loan type
this section does not qualify the eligible    with the requirements of Sec.                recovery rate for an agency is
public servant or the eligible victim for a   682.207(b)(1)(ii) and (iv), or Stafford      determined by dividing the amount
discharge based on a total and                Loan proceeds to a borrower in               collected on defaulted loans, including
permanent disability under Sec.               accordance with the requirements of          collections by Federal Income Tax
682.402.                                      Sec. 682.207(b)(1)(i) and (ii), not later    Refund Offset, for each loan program
                                              than 10 days after the agent receives        (i.e., the Stafford, PLUS, SLS, and
(4) The spouse of an eligible public          the funds from the lender.                   Consolidation loan programs) by the
servant or eligible victim may not                                                         agency for loans of that program
receive a discharge under this section if     (d) Return of untransmitted proceeds.
                                              The escrow agent shall return any            (including payments received by the
the eligible public servant or eligible
                                              untransmitted proceeds of a loan to the      agency on loans under Sec.
victim has been identified as a                                                            682.401(b)(4) and Sec. 682.409 and
participant or conspirator in the             lender within 15 working days after
                                              receiving information indicating that the    the amounts of any loans purchased
terrorist-related aircraft crashes on
                                              student has not enrolled, or has ceased      from the guaranty agency by an eligible
September 11, 2001. An eligible parent                                                     lender) during the most recent fiscal
may not receive a discharge on a FFEL         to be enrolled on at least a half-time
                                              basis, for the period of enrollment for      year for which data are available by the
PLUS Loan or on a Consolidation Loan
                                              which the loan was intended.                 total of principal and interest owed to an
that was used to repay a FFEL or Direct                                                    agency on defaulted loans for each
Loan PLUS Loan incurred on behalf of          (Authority: 20 U.S.C. 1078, 1082)            loan program at the beginning of the
an individual who has been identified as      [57 FR 60323, Dec. 18, 1992, as amended at   same fiscal year, less accounts
a participant or conspirator in the           64 FR 18980, Apr. 16, 1999; 71 FR 45708,     permanently assigned to the Secretary
terrorist-related aircraft crashes on         Aug. 9, 2006; 71 FR 64399, Nov. 1, 2006]     through the most recent fiscal year.
September 11, 2001.
                                              §682.409 Mandatory assignment by             (ii) Fiscal year loan type recovery rates
[71 FR 78080, Dec. 28, 2006, as amended at    guaranty agencies of defaulted loans
72 FR 55053, Sept. 28, 2007]                                                               standards. (A) If, in each of the two
                                              to the Secretary.                            fiscal years following the fiscal year in
§682.408 Loan disbursement                    (a)(1) If the Secretary determines that      which these regulations are effective,
through an escrow agent.                      action is necessary to protect the           the fiscal year loan type recovery rate
(a) General. (1) A guaranty agency or         Federal fiscal interest, the Secretary       for a loan program for an agency is
an eligible lender may act as an escrow       directs a guaranty agency to promptly        below 80 percent of the average
agent for the purpose of receiving            assign to the Secretary any loans held       recovery rate of all active guaranty
Stafford and PLUS loan proceeds               by the agency on which the agency has        agencies in each of the same two fiscal
disbursed by an eligible lender other         received payment under Sec.                  years for that program type, and the
than a school, State lender, or a State       682.402(f), 682.402(k), or 682.404. The      Secretary determines that additional
agency or instrumentality, and                collection of unpaid loans owed by           assignments are necessary to protect
transmitting those proceeds to the            Federal employees by Federal salary          the Federal fiscal interest, the Secretary
borrower's school if the lender and the       offset is, among other things, deemed        may require the agency to make
escrow agent have entered into a              to be in the Federal fiscal interest.        additional assignments in accordance
written agreement for this purpose.           Unless the Secretary notifies an             with paragraph (a)(2)(iii) of this section.
                                              agency, in writing, that other loans must    (B) In any subsequent fiscal year the
(2) The agreement must provide that—
                                              be assigned to the Secretary, an             loan type recovery rate standard for a
34 CFR 682.409


loan program must be 90 percent of the       (A) For each of the two fiscal years          compensation for a loan assigned
average recovery rate of all active          following the fiscal year in which these      under this section.
guaranty agencies.                           regulations are effective, the Secretary      (2) The guaranty agency does not
(iii) Non-achievement of loan type           considers information presented by an         share in any amounts received by the
recovery rate standards. (A) Unless the      agency with a fiscal year loan type           Secretary on a loan assigned under this
                                             recovery rate above the average rate of       section, regardless of the reinsurance
Secretary determines under paragraph
                                             all active agencies to demonstrate that       percentage paid on the loan or the
(a)(2)(iv) of this section that protection
                                             the protection of the Federal fiscal          agency's previous collection costs.
of the Federal fiscal interest requires
                                             interest will be served if any amounts of
that a lesser amount be assigned, upon                                                     (c)(1) A guaranty agency must assign a
                                             loans of the loan type required to be
notice from the Secretary, an agency
                                             assigned to the Secretary under               loan to the Secretary under this section
with a fiscal year loan type recovery                                                      at the time, in the manner, and with the
                                             paragraph (a)(1) of this section are
rate described in paragraph (a)(2)(ii) of                                                  information and documentation that the
                                             retained by that agency. For any
this section must promptly assign to the
                                             subsequent fiscal year, the Secretary         Secretary requires. The agency must
Secretary a sufficient amount of                                                           submit this information and
                                             considers information presented by an
defaulted loans, in addition to loans to                                                   documentation in the form (including
                                             agency with a fiscal year recovery rate
be assigned in accordance with
                                             10 percent above the average rate of all      magnetic media) and format specified
paragraph (a)(1) of this section, to                                                       by the Secretary.
                                             active agencies.
cause the fiscal year loan type recovery
rate of the agency that fiscal year to       (B) The Secretary considers                   (2) The guaranty agency must execute
equal or exceed the average rate of all      information presented by an agency            an assignment to the United States of
agencies described in paragraph              that is required to assign loans under        America of all right, title, and interest in
(a)(2)(ii) of this section when              paragraph (a)(2) of this section to           the promissory note or judgment
recalculated to exclude from the             demonstrate that the protection of the        evidencing a loan assigned under this
denominator of the agency's fiscal year      Federal fiscal interest will be served if     section. If more than one loan is made
loan type recovery rate the amount of        the agency demonstrates that its              under an MPN, the assignment of the
these additional loans.                      compliance with Sec. 682.401(b)(4) and        note only applies to the loan or loans
                                             Sec. 682.405 has reduced substantially        being assigned to the Secretary.
(B) The Secretary, in consultation with
                                             its fiscal year loan type recovery rate or    (3) If the agency does not provide the
the guaranty agency, may require the
                                             rates or if the agency is not required to     required information and documentation
amount of loans to be assigned under
                                             assign amounts of loans that would            in the form and format required by the
paragraph (a)(2) of this section to
                                             otherwise have to be assigned.                Secretary, the Secretary may, at his
include particular categories of loans
that share characteristics that make the     (C) The information provided by an            option—
performance of the agency fall below         agency pursuant to paragraphs                 (i) Allow the agency to revise the
the appropriate percentage of the loan       (a)(3)(i)(A) and (B) of this section may      agency's submission to include the
type recovery rate as described in           include, but is not limited to the            required information and documentation
paragraph (a)(2)(ii) of this section.        following:                                    in the specified form and format;
(iv) Calculation of loan type recovery       (1) The fiscal year loan type recovery        (ii) In the case of an improperly
rate standards. The Secretary, within        rate within such school sectors as the        formatted computer tape, reformat the
30 days after the date for submission of     Secretary may designate for the               tape and assess the cost of the activity
the second quarterly report from all         agency, and for all agencies.                 against the agency;
agencies, makes available to all             (2) The fiscal year loan type recovery
agencies a mid-year report, showing                                                        (iii) Reorganize the material submitted
                                             rate for loans for the agency and for all     and assess the cost of that activity
the recovery rate for each agency and        agencies categorized by age of the
the average recovery rate of all active                                                    against the agency; or
                                             loans as the Secretary may determine.
guaranty agencies for each loan type.                                                      (iv) Obtain from other agency records
In addition, the Secretary, within 120       (3) The performance of the agency, and        and add to the agency's submission
days after the beginning of each fiscal      all agencies, in default aversion.            any information from the original
year, makes available a final report         (4) The agency's performance on               submission, and assess the cost of that
showing those rates and the average          judgment enforcement.                         activity against the agency.
rate for each loan type for the
preceding fiscal year.                       (5) The existence and use of any state        (4) For each loan assigned, the agency
                                             or guaranty agency-specific collection        shall submit to the Secretary the
(3)(i) Determination that the protection     tools.                                        following documents associated for
of the Federal fiscal interest requires                                                    each loan, assembled in the order listed
assignments. Upon petition by an             (6) The agency's level of compliance
                                                                                           below:
agency submitted within 45 days of the       with Sec. Sec. 682.409 and
notice required by paragraph                 682.410(b)(6).                                (i) The original or a true and exact copy
(a)(2)(iii)(A) of this section, the                                                        of the promissory note.
                                             (7) Other factors that may affect loan
Secretary may determine that                 repayment such as State or regional           (ii) Any documentation of a judgment
protection of the Federal fiscal interest    unemployment and natural disasters.           entered on the loan.
does not require assignment of all loans
                                             (ii) Denial of an agency's petition. If the   (iii) A written assignment of the loan or
described in paragraph (a)(1) of this
                                             Secretary does not accept the agency's        judgment, unless this assignment is
section or of loans in the full amount
                                             petition, the Secretary provides, in          affixed to the promissory note.
described in paragraph (a)(2)(iii) of this
section only after review of the             writing, to the agency the Secretary's        (iv) The loan application, if a separate
agency's petition. In making this            reasons for concluding that the Federal       application was provided to the lender.
determination, the Secretary considers       fiscal interest is best protected by
                                             requiring the assignment.                     (v) A payment history for the loan, as
all relevant information available to him                                                  described in Sec. 682.414(a)(1)(ii)(C).
(including any information and               (b)(1) A guaranty agency that assigns a
documentation obtained by the                defaulted loan to the Secretary under         (vi) A collection history for the loan, as
Secretary in reviews of the agency or        this section thereby releases all rights      described in Sec. 682.414(a)(1)(ii)(D).
submitted to the Secretary by the            and title to that loan. The Secretary         (vii) The record of the lender's
agency) as follows:                          does not pay the guaranty agency any          disbursement of Stafford and PLUS
34 CFR 682.409


loan funds to the school for delivery to      (ii) Funds received from a State for the     (viii)(A) The repayment, on or after
the borrower.                                 agency's guaranty activities, including      December 29, 1993, of amounts
(viii) If the MPN or promissory note was      matching funds under section 422(a) of       credited under paragraphs (a)(1)(ii) or
signed electronically, the name and           the Act;                                     (a)(1)(ix) of this section, if the agency
location of the entity in possession of       (iii) Federal advances obtained under        provides the Secretary 30 days prior
                                                                                           notice of the repayment and
the original electronic MPN or                sections 422(a) and (c) of the Act;
promissory note.                                                                           demonstrates that—
                                              (iv) Federal payments for default,
(5) The agency may submit copies of           bankruptcy, death, disability, closed        (1) These amounts were originally
required documents in lieu of originals.      schools, and false certification claims;     received by the agency under
                                                                                           appropriate contemporaneous
(6) The Secretary may accept the              (v) Supplemental preclaims assistance        documentation specifying that receipt
assignment of a loan without all of the       payments;                                    was on a temporary basis only;
documents listed in paragraph (c)(4) of       (vi) Transitional support payments           (2) The objective for which these
this section. If directed to do so, the       received under section 458(a) of the         amounts were originally received by the
agency must retain these documents            Act;
for submission to the Secretary at some                                                    agency has been fully achieved; and
future date.                                  (vii) Funds collected by the guaranty        (3) Repayment of these amounts would
                                              agency on FFEL Program loans on              not cause the agency to fail to comply
(d)(1) If the Secretary determines that
                                              which a claim has been paid;                 with the minimum reserve levels
the agency has not submitted a
document or record required by                (viii) Investment earnings on the            provided by paragraph (a)(10) of this
paragraph (c) of this section, and the        reserve fund; and                            section, except that the Secretary may,
                                                                                           for good cause, provide written
Secretary decides to allow the agency         (ix) Other funds received by the
an additional opportunity to submit the                                                    permission for a payment that meets
                                              guaranty agency from any source for          the other requirements of this
omitted document under paragraph              the agency's guaranty activities.            paragraph (a)(2)(ix)(A).
(c)(3)(i) of this section, the Secretary
notifies the agency and provides a            (2) Uses of reserve fund assets. A           (B) The repayment, prior to December
reasonable period of time for the             guaranty agency may not use the              29, 1993, of amounts credited under
agency to submit the omitted record or        assets of the reserve fund established       paragraphs (a)(1)(ii) or (a)(1)(ix) of this
document.                                     under paragraph (a)(1) of this section to    section, if the agency demonstrates
                                              pay costs prohibited under Sec.              that—
(2) If the omitted document is not            682.418, but shall use the assets of the
submitted within the time specified by        reserve fund to pay only—                    (1) These amounts were originally
the Secretary, the Secretary determines                                                    received by the agency under
whether that omission impairs the             (i) Insurance claims;                        appropriate contemporaneous
Secretary's ability to collect the loan.      (ii) Costs that are reasonable, as           documentation that receipt was on a
(3) If the Secretary determines that the      defined under Sec. 682.410(a)(11)(iii),      temporary basis only; and
ability to collect the loan has been          and that are ordinary and necessary for      (2) The objective for which these
impaired under paragraph (d)(2) of this       the agency to fulfill its responsibilities   amounts were originally received by the
section, the Secretary assesses the           under the HEA, including costs of            agency has been fully achieved.
agency the amount paid to the agency          collecting loans, providing preclaims
                                              assistance, monitoring enrollment and        (ix) Any other costs or payments
under the reinsurance agreement and                                                        ordinary and necessary to perform
accrued interest at the rate applicable       repayment status, and carrying out any
                                              other guaranty activities. Those costs       functions directly related to the
to the borrower under Sec.
                                              must be—                                     agency's responsibilities under the HEA
682.410(b)(3).                                                                             and for their proper and efficient
(4) The Secretary reassigns to the            (A) Allocable to the FFEL Program;           administration;
agency that portion of the loan               (B) Not higher than the agency would         (x) Notwithstanding any other provision
determined to be unenforceable by the         incur under established policies,            of this section, any other payment that
Department.                                   regulations, and procedures that apply       was allowed by law or regulation at the
(Approved by the Office of Management and     to any comparable non-Federal                time it was made, if the agency acted in
Budget under control number 1845-0020)        activities of the guaranty agency;           good faith when it made the payment or
(Authority: 20 U.S.C. 1078, 1078-1, 1078-2,   (C) Not included as a cost or used to        the agency would otherwise be unfairly
1078-3, 1082)                                 meet cost sharing or matching                prejudiced by the nonallowability of the
[57 FR 60323, Dec. 18, 1992, as amended at    requirements of any other federally          payment at a later time; and
58 FR 9120, Feb. 19, 1993; 59                 supported activity, except as                (xi) Any other amounts authorized or
FR 33356, June 28, 1994; 60 FR 30788,         specifically provided by Federal law;        directed by the Secretary.
June 12, 1995; 64 FR 18980, Apr. 16, 1999;    (D) Net of all applicable credits; and
64 FR 58630, Oct. 29, 1999; 64 FR 58963,                                                   (3) Accounting basis. Except as
Nov. 1, 1999; 72 FR 62006, Nov. 1, 2007]      (E) Documented in accordance with            approved by the Secretary, a guaranty
                                              applicable legal and accounting              agency shall credit the items listed in
§682.410 Fiscal, administrative, and                                                       paragraph (a)(1) of this section to its
                                              standards;
enforcement requirements.                                                                  reserve fund upon their receipt, without
                                              (iii) The Secretary's equitable share of     any deferral for accounting purposes,
(a) Fiscal requirements—(1) Reserve
                                              collections;                                 and shall deduct the items listed in
fund assets. A guaranty agency shall
establish and maintain a reserve fund         (iv) Federal advances and other funds        paragraph (a)(2) of this section from its
to be used solely for its activities as a     owed to the Secretary;                       reserve fund upon their payment,
guaranty agency under the FFEL                                                             without any accrual for accounting
                                              (v) Reinsurance fees;
Program (“guaranty activities”). The                                                       purposes.
guaranty agency shall credit to the           (vi) Insurance premiums and Federal
                                                                                           (4) Accounting records. (i) The
reserve fund—                                 default fees related to cancelled loans;
                                                                                           accounting records of a guaranty
(i) The total amount of insurance             (vii) Borrower refunds, including those      agency must reflect the correct amount
premiums and Federal default fees             arising out of student or other borrower     of sources and uses of funds under
collected;                                    claims and defenses;                         paragraph (a) of this section.
34 CFR 682.410


(ii) A guaranty agency may reverse           unrelated to its guaranty activities, the   with paragraphs (a)(2) and (a)(3) of this
prior credits to its reserve fund if—        agency promptly shall deposit into the      section; and
                                             reserve fund described in paragraph
(A) The agency gives the Secretary                                                       (ii) Amount of loans outstanding
                                             (a)(1) of this section a fair percentage
prior notice setting forth a detailed                                                    means—
                                             of the fair market value or, in the case
justification for the action;                                                            (A) The sum of—
                                             of a temporary conversion, the rental
(B) The Secretary determines that such       value of the portion of the asset           (1) The original principal amount of all
credits were made erroneously and in         employed for the unrelated use.             loans guaranteed by the agency; and
good faith; and
                                             (ii) If the agency uses funds or assets     (2) The original principal amount of any
(C) The Secretary determines that the        described in paragraph (a)(6)(i) of this    loans on which the guarantee was
action would not unfairly prejudice other    section in the manner described in that     transferred to the agency from another
parties.                                     paragraph and makes a cost and              guarantor, excluding loan guarantees
(iii) A guaranty agency shall correct any    maintenance allocation erroneously and      transferred to another agency pursuant
other errors in its accounting or            in good faith, it shall correct the         to a plan of the Secretary in response
reporting as soon as practicable after       allocation under paragraph (a)(4)(iii) of   to the insolvency of the agency;
the errors become known to the               this section.
                                                                                         (B) Minus the original principal amount
agency.                                      (7) Third-party claims. If the guaranty     of all loans on which—
(iv) If a general reconstruction of a        agency has any claim against any other
                                             party to recover funds or other assets      (1) The loan guarantee was cancelled;
guaranty agency's historical accounting
records is necessary to make a change        for the reserve fund, the claim is the      (2) The loan guarantee was transferred
under paragraphs (a)(4)(ii) and              property of the United States.              to another agency;
(a)(4)(iii) of this section or any other     (8) Related-party transactions. All         (3) Payment in full has been made by
retroactive change to its accounting         transactions between a guaranty             the borrower;
records, the agency may make this            agency and a related organization or
reconstruction only upon prior approval      other person that involve funds required    (4) Reinsurance coverage has been
by the Secretary and without any             to be credited to the agency's reserve      lost and cannot be regained; and
deduction from its reserve fund for the      fund under paragraph (a)(1) of this         (5) The agency paid claims.
cost of the reconstruction.                  section or assets derived from the
                                                                                         (iii) Reasonable cost means a cost that,
(5) Investments. The guaranty agency         reserve fund must be on terms that are
                                                                                         in its nature and amount, does not
shall exercise the level of care required    not less advantageous to the reserve
                                                                                         exceed that which would be incurred by
of a fiduciary charged with the duty of      fund than would have been negotiated
                                                                                         a prudent person under the
investing the money of others when it        on an arm's-length basis by unrelated
                                                                                         circumstances prevailing at the time the
invests the assets of the reserve fund       parties.
                                                                                         decision was made to incur the cost.
described in paragraph (a)(1) of this        (9) Scope of definition. The provisions     The burden of proof is upon the
section. It may invest these assets only     of this Sec. 682.410(a) define reserve      guaranty agency, as a fiduciary under
in low-risk securities, such as              funds and assets for purposes of            its agreements with the Secretary, to
obligations issued or guaranteed by the      sections 422 and 428 of the Act. These      establish that costs are reasonable. In
United States or a State.                    provisions do not, however, affect the      determining reasonableness of a given
(6) Development of assets. (i) If the        Secretary's authority to use all funds      cost, consideration must be given to—
guaranty agency uses in a substantial        and assets of the agency pursuant to
                                                                                         (A) Whether the cost is of a type
way for purposes other than the              section 428(c)(9)(F)(vi) of the Act.
                                                                                         generally recognized as ordinary and
agency's guaranty activities any funds       (10) Minimum reserve fund level. The        necessary for the proper and efficient
required to be credited to the reserve       guaranty agency must maintain a             performance and administration of the
fund under paragraph (a)(1) of this          current minimum reserve level of not        guaranty agency's responsibilities
section or any assets derived from the       less than—                                  under the HEA;
reserve fund to develop an asset of any
                                             (i) .5 percent of the amount of loans       (B) The restraints or requirements
kind and does not in good faith allocate
                                             outstanding, for the fiscal year of the     imposed by factors such as sound
a portion of the cost of developing and
                                             agency that begins in calendar year         business practices, arms-length
maintaining the developed asset to
                                             1993;                                       bargaining, Federal, State, and other
funds other than the reserve fund, the
Secretary may require the agency to—         (ii) .7 percent of the amount of loans      laws and regulations, and the terms
                                             outstanding, for the fiscal year of the     and conditions of the guaranty agency's
(A) Correct this allocation under                                                        agreements with the Secretary; and
                                             agency that begins in calendar year
paragraph (a)(4)(iii) of this section; or
                                             1994;                                       (C) Market prices of comparable goods
(B) Correct the recorded ownership of                                                    or services.
                                             (iii) .9 percent of the amount of loans
the asset under paragraph (a)(4)(iii) of
                                             outstanding, for the fiscal year of the     (b) Administrative requirements— (1)
this section so that—
                                             agency that begins in calendar year         Independent audits. The guaranty
(1) If, in a transaction with an unrelated   1995; and                                   agency shall arrange for an
third party, the agency sells or                                                         independent financial and compliance
                                             (iv) 1.1 percent of the amount of loans
otherwise derives revenue from uses of                                                   audit of the agency's FFEL program as
                                             outstanding, for each fiscal year of the
the asset that are unrelated to the                                                      follows:
                                             agency that begins on or after January
agency's guaranty activities, the agency
                                             1, 1996.                                    (i) With regard to a guaranty agency
promptly shall deposit into the reserve
fund described in paragraph (a)(1) of        (11) Definitions. For purposes of this      that is an agency of a State
this section a percentage of the sale        section—                                    government, an audit must be
proceeds or revenue equal to the fair                                                    conducted in accordance with 31
                                             (i) Reserve fund level means—               U.S.C. 7502 and 34 CFR part 80,
percentage of the total development
cost of the asset paid with the reserve      (A) The total of reserve fund assets as     appendix G.
fund monies or provided by assets            defined in paragraph (a)(1) of this         (ii) With regard to a guaranty agency
derived from the reserve fund; or            section;                                    that is a nonprofit organization, an audit
(2) If the agency otherwise converts the     (B) Minus the total amount of the           must be conducted in accordance with
asset, in whole or in part, to a use         reserve fund assets used in accordance      OMB Circular A-133, Audits of
                                                                                         Institutions of Higher Education and
34 CFR 682.410


Other Nonprofit Organizations and 34        (ii) In the case of a loan for which a       reporting the debt to consumer
CFR 74.61(h)(3). If a nonprofit guaranty    judgment has been obtained, the rate         reporting agencies until it determines
agency meets the criteria in Circular A-    provided for by State law.                   that the borrower has demonstrated
133 to have a program specific audit,       (4) Capitalization of unpaid interest.       that the loan obligation is not legally
and chooses that option, the program                                                     enforceable or that alternative
                                            The guaranty agency shall capitalize
specific audit must meet the following                                                   repayment arrangements satisfactory to
                                            any unpaid interest due the lender from
requirements:                                                                            the agency have been made with the
                                            the borrower at the time the agency
                                                                                         borrower.
(A) The audit must examine the              pays a default claim to the lender.
agency's compliance with the Act,           (5) Reports to consumer reporting            (B) The deadline established by the
applicable regulations, and agreements      agencies. (i) After the completion of the    agency for requesting administrative
entered into under this part.               procedures in paragraph (b)(5)(ii) of this   review under paragraph (b)(5)(ii)(C) of
(B) The audit must examine the              section, the guaranty agency shall, after    this section must allow the borrower at
                                            it has paid a default claim, report          least 60 days from the date the notice
agency's financial management of its
FFEL program activities.                    promptly, but not less than sixty days       described in paragraph (b)(5)(ii)(A) of
                                            after completion of the procedures in        this section is sent to request that
(C) The audit must be conducted in                                                       review.
                                            paragraph (b)(6)(v) of this section, and
accordance with the standards for
                                            on a regular basis, to all nationwide        (v) An agency may not permit an
audits issued by the United States
                                            consumer reporting agencies—                 employee, official, or agent to conduct
General Accounting Office's (GAO)
Government Auditing Standards.              (A) The total amount of loans made to        the administrative review required
                                            the borrower and the remaining balance       under this paragraph if that individual
Procedures for audits are contained in
an audit guide developed by, and            of those loans;                              is—
available from, the Office of the           (B) The date of default;                     (A) Employed in an organizational
Inspector General of the Department.                                                     component of the agency or its agent
                                            (C) Information concerning collection of     that is charged with collection of loan
(D) The audit must be conducted             the loan, including the repayment status
annually and must be submitted to the                                                    obligations; or
                                            of the loan;
Secretary within six months of the end                                                   (B) Compensated on the basis of
of the audit period. The first audit must   (D) Any changes or corrections in the        collections on loan obligations.
cover the agency's activities for a         information reported by the agency that
                                                                                         (vi) The notice sent by the agency
period that includes July 23, 1992,         result from information received after
                                            the initial report; and                      under paragraph (b)(5)(ii)(A) of this
unless the agency is currently
                                                                                         section must—
submitting audits on a biennial basis,      (E) The date the loan is fully repaid by
and the second year of its biennial         or on behalf of the borrower or              (A) Advise the borrower that the agency
cycle starts on or before July 23, 1992.    discharged by reason of the borrower's       has paid a default claim filed by the
Under these circumstances, the agency       death, bankruptcy, total and permanent       lender and has taken assignment of the
shall submit a biennial audit that          disability, or closed school or false        loan;
includes July 23, 1992 and submit its       certification.                               (B) Identify the lender that made the
next audit as an annual audit.                                                           loan and the school for attendance at
                                            (ii) The guaranty agency, after it pays a
(2) Collection charges. Whether or not      default claim on a loan but before it        which the loan was made;
provided for in the borrower's              reports the default to a consumer            (C) State the outstanding principal,
promissory note and subject to any          reporting agency or assesses collection      accrued interest, and any other charges
limitation on the amount of those costs     costs against a borrower, shall, within      then owing on the loan;
in that note, the guaranty agency shall     the timeframe specified in paragraph
charge a borrower an amount equal to                                                     (D) Demand that the borrower
                                            (b)(6)(ii) of this section, provide the
reasonable costs incurred by the                                                         immediately begin repayment of the
                                            borrower with—
agency in collecting a loan on which the                                                 loan;
agency has paid a default or                (A) Written notice that meets the
                                                                                         (E) Explain the rate of interest that will
bankruptcy claim. These costs may           requirements of paragraph (b)(5)(vi) of
                                                                                         accrue on the loan, that all costs
include, but are not limited to, all        this section regarding the proposed
                                                                                         incurred to collect the loan will be
attorney's fees, collection agency          actions;
                                                                                         charged to the borrower, the authority
charges, and court costs. Except as         (B) An opportunity to inspect and copy       for assessing these costs, and the
provided in Sec. Sec. 682.401(b)(27)        agency records pertaining to the loan        manner in which the agency will
and 682.405(b)(1)(iv), the amount           obligation;                                  calculate the amount of these costs;
charged a borrower must equal the
lesser of—                                  (C) An opportunity for an administrative     (F) Notify the borrower that the agency
                                            review of the legal enforceability or        will report the default to all nationwide
(i) The amount the same borrower            past-due status of the loan obligation;      consumer reporting agencies to the
would be charged for the cost of            and                                          detriment of the borrower's credit rating;
collection under the formula in 34 CFR
30.60; or                                   (D) An opportunity to enter into a           (G) Explain the opportunities available
                                            repayment agreement on terms                 to the borrower under agency rules to
(ii) The amount the same borrower           satisfactory to the agency.                  request access to the agency's records
would be charged for the cost of                                                         on the loan, to request an
collection if the loan was held by the      (iii) The procedures set forth in 34 CFR
                                            30.20-30.33 (administrative offset)          administrative review of the legal
U.S. Department of Education.                                                            enforceability or past-due status of the
                                            satisfy the requirements of paragraph
(3) Interest charged by guaranty            (b)(5)(ii) of this section.                  loan, and to reach an agreement on
agencies. The guaranty agency shall                                                      repayment terms satisfactory to the
charge the borrower interest on the         (iv)(A) In response to a request             agency to prevent the agency from
amount owed by the borrower after the       submitted by a borrower, after the           reporting the loan as defaulted to
capitalization required under paragraph     deadlines established under agency           consumer reporting agencies and
(b)(4) of this section has occurred at a    rules, for access to records, an             provide deadlines and method for
rate that is the greater of—                administrative review, or for an             requesting this relief;
                                            opportunity to enter into a repayment
(i) The rate established by the terms of    agreement, the agency shall provide          (H) Unless the agency uses a separate
the borrower's original promissory note;    the requested relief but may continue        notice to advise the borrower regarding
34 CFR 682.410


other proposed enforcement actions,          procedures to collect the debt. The           (7) Special conditions for agency
describe specifically any other              agency's notification to the borrower         payment of a claim. (i) A guaranty
enforcement action, such as offset           must state that the agency may                agency may adopt a policy under which
against Federal or state income tax          administratively garnish the borrower's       it pays a claim to a lender on a loan
refunds or wage garnishment that the         wages, file a civil suit to compel            under the conditions described in Sec.
agency intends to use to collect the         repayment, offset the borrower's State        682.509(a)(1).
debt, and explain the procedures             and Federal income tax refunds and            (ii) Upon the payment of a claim under
available to the borrower prior to those     other payments made by the Federal
                                                                                           a policy described in paragraph (b)(7)(i)
other enforcement actions for access to      Government to the borrower, assign the
                                                                                           of this section, the guaranty agency
records, for an administrative review, or    loan to the Secretary in accordance
                                                                                           shall—
for agreement to alternative repayment       with Sec. 682.409, and take other
terms;                                       lawful collection means to collect the        (A) Perform the loan servicing functions
                                             debt, at the discretion of the agency.        required of a lender under Sec.
(I) Describe the grounds on which the
                                             The agency's notification must include        682.208, except that the agency is not
borrower may object that the loan                                                          required to follow the credit bureau
                                             a statement that borrowers may have
obligation as stated in the notice is not                                                  reporting requirements of that section;
                                             certain legal rights in the collection of
a legally enforceable debt owed by the
                                             debts, and that borrowers may wish to         (B) Perform the functions of the lender
borrower;
                                             contact counselors or lawyers regarding       during the repayment period of the
(J) Describe any appeal rights available     those rights.                                 loan, as required under Sec. 682.209;
to the borrower from an adverse
                                             (iii) Within a reasonable time after all of   (C) If the borrower is delinquent in
decision on administrative review of the
                                             the information described in paragraph        repaying the loan at the time the
loan obligation;
                                             (b)(6)(ii) of this section has been sent,     agency pays a claim thereon to the
(K) Describe any right to judicial review    the agency must send at least one             lender or becomes delinquent while the
of an adverse decision by the agency         notice informing the borrower that the        agency holds the loan, exercise due
regarding the legal enforceability or        default has been reported to all              diligence in accordance with Sec.
past-due status of the loan obligation;      nationwide consumer reporting                 682.411 in attempting to collect the loan
(L) Describe the collection actions that     agencies and that the borrower's credit       from the borrower and any endorser or
the agency may take in the future if         rating may thereby have been                  co-maker; and
those presently proposed do not result       damaged.
                                                                                           (D) After the date of default on the loan,
in repayment of the loan obligation,         (iv) The agency must send a notice            if any, comply with paragraph (b)(6) of
including the filing of a lawsuit against    informing the borrower of the options         this section with respect to collection
the borrower by the agency and               that are available to remove the loan         activities on the loan, with the date of
assignment of the loan to the Secretary      from default, including an explanation of     default treated as the claim payment
for the filing of a lawsuit against the      the fees and conditions associated with       date for purposes of those paragraphs.
borrower by the Federal Government;          each option. This notice must be sent
and                                          within a reasonable time after the end        (8) Preemption of State law. The
                                             of the period for requesting an               provisions of paragraphs (b)(2), (5), and
(M) Inform the borrower of the options
                                             administrative review as specified in         (6) of this section preempt any State
that are available to the borrower to
                                             paragraph (b)(5)(iv)(B) of this section       law, including State statutes,
remove the loan from default, including                                                    regulations, or rules, that would conflict
an explanation of the fees and               or, if the borrower has requested an
                                             administrative review, within a               with or hinder satisfaction of the
conditions associated with each option.
                                             reasonable time following the                 requirements of these provisions.
(vii) As part of the guaranty agency's       conclusion of the administrative review.      (9) Administrative Garnishment. (i) If a
response to a borrower who appeals an                                                      guaranty agency decides to garnish the
adverse decision resulting from the          (v) A guaranty agency must attempt an
                                             annual Federal offset against all eligible    disposable pay of a borrower who is not
agency's administrative review of the
                                             borrowers. If an agency initiates             making payments on a loan held by the
loan obligation, the agency must                                                           agency, on which the Secretary has
provide the borrower with information        proceedings to offset a borrower's State
                                             or Federal income tax refunds and             paid a reinsurance claim, it shall do so
on the availability of the Student Loan
                                             other payments made by the Federal            in accordance with the following
Ombudsman's office.                                                                        procedures:
                                             Government to the borrower, it may not
(6) Collection efforts on defaulted loans.   initiate those proceedings sooner than        (A) The employer shall deduct and pay
(i) A guaranty agency must engage in         60 days after sending the notice              to the agency from a borrower's wages
reasonable and documented collection         described in paragraph (b)(5)(ii)(A) of       an amount that does not exceed the
activities on a loan on which it pays a      this section.                                 lesser of 15 percent of the borrower's
default claim filed by a lender. For a                                                     disposable pay for each pay period or
non-paying borrower, the agency must         (vi) A guaranty agency must initiate
                                             administrative wage garnishment               the amount permitted by 15 U.S.C.
perform at least one activity every 180                                                    1673, unless the borrower provides the
days to collect the debt, locate the         proceedings against all eligible
                                             borrowers, except as provided in              agency with written consent to deduct a
borrower (if necessary), or determine if
                                             paragraph (b)(6)(vii) of this section, by     greater amount. For this purpose, the
the borrower has the means to repay                                                        term “disposable pay” means that part
the debt.                                    following the procedures described in
                                             paragraph (b)(9) of this section.             of the borrower's compensation from an
(ii) Within 45 days after paying a                                                         employer remaining after the deduction
lender's default claim, the agency must      (vii) A guaranty agency may file a civil      of any amounts required by law to be
send a notice to the borrower that           suit against a borrower to compel             withheld.
contains the information described in        repayment only if the borrower has no
                                             wages that can be garnished under             (B) At least 30 days before the initiation
paragraph (b)(5)(ii) of this section.
                                             paragraph (b)(9) of this section, or the      of garnishment proceedings, the
During this time period, the agency also                                                   guaranty agency shall mail to the
must notify the borrower, either in the      agency determines that the borrower
                                             has sufficient attachable assets or           borrower's last known address, a
notice containing the information
                                             income that is not subject to                 written notice of the nature and amount
described in paragraph (b)(5)(ii) of this                                                  of the debt, the intention of the agency
section, or in a separate notice, that if    administrative wage garnishment that
                                             can be used to repay the debt, and the        to initiate proceedings to collect the
he or she does not make repayment
                                             use of litigation would be more effective     debt through deductions from pay, and
arrangements acceptable to the                                                             an explanation of the borrower's rights.
agency, the agency will promptly initiate    in collection of the debt.
34 CFR 682.410


(C) The guaranty agency shall offer the      borrower has been provided the                applied for violations of the standards
borrower an opportunity to inspect and       requested hearing. For purposes of this       by employees, officers, directors,
copy agency records related to the           paragraph, in the absence of evidence         trustees, or agents of the guaranty
debt.                                        to the contrary, a borrower shall be          agency, and must include provisions
                                             considered to have received the notice        to—
(D) The guaranty agency shall offer the
                                             described in paragraph (b)(9)(i)(B) of        (A) Prohibit any employee, officer,
borrower an opportunity to enter into a
                                             this section 5 days after it was mailed       director, trustee, or agent from
written repayment agreement with the
                                             by the agency. The guaranty agency            participating in the selection, award, or
agency under terms agreeable to the
                                             shall provide a hearing to the borrower       decision-making related to the
agency.
                                             in sufficient time to permit a decision, in   administration of a contract or
(E) The guaranty agency shall offer the      accordance with the procedures that           agreement supported by the reserve
borrower an opportunity for a hearing in     the agency may prescribe, to be               fund described in paragraph (a) of this
accordance with paragraph (b)(9)(i)(J)       rendered within 60 days.                      section, if that participation would
of this section concerning the existence
                                             (L) If the borrower's written request is      create a conflict of interest. Such a
or the amount of the debt and, in the
                                             received by the guaranty agency after         conflict would arise if the employee,
case of a borrower whose proposed
                                             the 15th day following the borrower's         officer, director, trustee, or agent, or
repayment schedule under the
                                             receipt of the notice described in            any member of his or her immediate
garnishment order is established other
                                             paragraph (b)(9)(i)(B) of this section,       family, his or her partner, or an
than by a written agreement under
                                             the guaranty agency shall provide a           organization that employs or is about to
paragraph (b)(9)(i)(D) of this section,
                                             hearing to the borrower in sufficient         employ any of those parties has a
the terms of the repayment schedule.
                                             time that a decision, in accordance with      financial or ownership interest in the
(F) The guaranty agency shall sue any        the procedures that the agency may            organization selected for an award or
employer for any amount that the             prescribe, may be rendered within 60          would benefit from the decision made in
employer, after receipt of the               days, but may not delay issuance of a         the administration of the contract or
garnishment notice provided by the           withholding order unless the agency           agreement. The prohibitions described
agency under paragraph (b)(9)(i)(H) of       determines that the delay in filing the       in this paragraph do not apply to
this section, fails to withhold from         request was caused by factors over            employees of a State agency covered
wages owed and payable to an                 which the borrower had no control, or         by codes of conduct established under
employee under the employer's normal         the agency receives information that          State law;
pay and disbursement cycle.                  the agency believes justifies a delay or
                                                                                           (B) Ensure sufficient separation of
(G) The guaranty agency may not              cancellation of the withholding order.
                                                                                           responsibility and authority between its
garnish the wages of a borrower whom         For purposes of this paragraph, in the
                                                                                           lender claims processing as a guaranty
it knows has been involuntarily              absence of evidence to the contrary, a
                                                                                           agency and its lending or loan servicing
separated from employment until the          borrower shall be considered to have
                                                                                           activities, or both, within the guaranty
borrower has been reemployed                 received the notice described in
                                                                                           agency or between that agency and
continuously for at least 12 months.         paragraph (b)(9)(i)(B) of this section 5
                                                                                           one or more affiliates, including
                                             days after it was mailed by the agency.
(H) Unless the guaranty agency                                                             independence in direct reporting
receives information that the agency         (M) The hearing official appointed by         requirements and such management
believes justifies a delay or cancellation   the agency to conduct the hearing may         and systems controls as may be
of the withholding order, it shall send a    be any qualified individual, including an     necessary to demonstrate, in the
withholding order to the employer within     administrative law judge, not under the       independent audit required under Sec.
20 days after the borrower fails to make     supervision or control of the head of the     682.410(b)(1), that claims filed by
a timely request for a hearing, or, if a     guaranty agency.                              another arm of the guaranty agency or
timely request for a hearing is made by      (N) The hearing official shall issue a        by an affiliate of that agency receive no
the borrower, within 20 days after a         final written decision at the earliest        more favorable treatment than that
final decision is made by the agency to      practicable date, but not later than 60       accorded the claims filed by a lender or
proceed with garnishment.                    days after the guaranty agency's              servicer that is not an affiliate or part of
                                             receipt of the borrower's hearing             the guaranty agency; and
(I) The notice given to the employer
under paragraph (b)(9)(i)(H) of this         request.                                      (C) Prohibit the employees, officers,
section must contain only the                (O) As specified in section 488A(a)(8)        directors, trustees, and agents of the
information as may be necessary for          of the HEA, the borrower may seek             guaranty agency, his or her partner, or
the employer to comply with the              judicial relief, including punitive           any member of his or her immediate
withholding order.                           damages, if the employer discharges,          family, from soliciting or accepting
                                             refuses to employ, or takes disciplinary      gratuities, favors, or anything of
(J) The guaranty agency shall provide a                                                    monetary value from contractors or
hearing, which, at the borrower's            action against the borrower due to the
                                             issuance of a withholding order.              parties to agreements, except that
option, may be oral or written, if the                                                     nominal and unsolicited gratuities,
borrower submits a written request for a     (ii) References to “the borrower” in this     favors, or items may be accepted.
hearing on the existence or amount of        paragraph include all endorsers on a
the debt or the terms of the repayment       loan.                                         (ii) Guaranty agency restructuring. If
schedule. The time and location of the                                                     the Secretary determines that action is
                                             (10) Conflicts of interest. (i) A guaranty    necessary to protect the Federal fiscal
hearing shall be established by the
                                             agency shall maintain and enforce             interest because of an agency's failure
agency. An oral hearing may, at the
                                             written standards of conduct governing        to meet the requirements of Sec.
borrower's option, be conducted either
                                             the performance of its employees,             682.410(b)(10)(i), the Secretary may
in-person or by telephone conference.
                                             officers, directors, trustees, and agents     require the agency to comply with any
All telephonic charges must be the
                                             engaged in the selection, award, and          additional measures that the Secretary
responsibility of the guaranty agency.
                                             administration of contracts or                believes are appropriate, including the
(K) If the borrower's written request is     agreements. The standards of conduct          total divestiture of the agency's non-
received by the guaranty agency on or        must, at a minimum, require disclosure        FFEL functions and the agency's
before the 15th day following the            of financial or other interests and must      interests in any affiliated organization.
borrower's receipt of the notice             mandate disinterested decision-making.
described in paragraph (b)(9)(i)(B) of       The standards must provide for                (c) Enforcement requirements. A
this section, the guaranty agency may        appropriate disciplinary actions to be        guaranty agency shall take such
not issue a withholding order until the                                                    measures and establish such controls
34 CFR 682.410


as are necessary to ensure its vigorous       the school, lender, or other party for        (i) Conducting on-site program reviews;
enforcement of all Federal, State, and        payment, together with all supporting         (ii) Providing training and technical
guaranty agency requirements,                 documentation, any correspondence,
                                                                                            assistance, if appropriate;
including agreements, applicable to its       and any other documentation submitted
loan guarantee program, including, at a       by that party regarding the repayment.        (iii) Filing a proof of claim with a
minimum, the following:                                                                     bankruptcy court for recovery of any
                                              (4) Adopting procedures for identifying
                                                                                            funds due the agency and any refunds
(1) Conducting comprehensive biennial         fraudulent loan applications.
                                                                                            due to borrowers on FFEL loans that it
on-site program reviews, using                (5) Undertaking or arranging with State       has guaranteed when the agency
statistically valid techniques to calculate   or local law enforcement agencies for         learns that a school has filed a
liabilities to the Secretary that each        the prompt and thorough investigation         bankruptcy petition;
review indicates may exist, of at least—      of all allegations and indications of
                                                                                            (iv) Promptly notifying the Secretary
(i)(A) Each participating lender whose        criminal or other programmatic
                                                                                            that the agency has determined that a
dollar volume of FFEL loans made or           misconduct by its program participants,
                                                                                            school or holder of loans is
held by the lender and guaranteed by          including violations of Federal law or
                                                                                            experiencing potential solvency
the agency in the preceding year—             regulations.
                                                                                            problems; and
(1) Equaled or exceeded two percent of        (6) Promptly referring to appropriate
                                                                                            (v) Promptly notifying the Secretary of
the total of all loans guaranteed in that     State and local regulatory agencies and
                                                                                            the results of any actions taken by the
year by the agency;                           to nationally recognized accrediting
                                                                                            agency to protect Federal funds
                                              agencies and associations for
(2) Was one of the ten largest lenders                                                      involving such a school or holder.
                                              investigation information received by
whose loans were guaranteed in that                                                         (Approved by the Office of Management and
                                              the guaranty agency that may affect the
year by the agency; or                                                                      Budget under control number 1845-0020)
                                              retention or renewal of the license or
(3) Equaled or exceeded $10 million in        accreditation of a program participant.       (Authority: 20 U.S.C. 1078, 1078-1, 1078-2,
the most recent fiscal year;                                                                1078-3, 1080a, 1082, 1087, 1091a, and
                                              (7) Promptly reporting all of the             1099)
(B) Each lender described in section          allegations and indications of
435(d)(1)(D) or (J) of the Act that is                                                      [57 FR 60323, Dec. 18, 1992, as amended at
                                              misconduct having a substantial basis
                                                                                            58 FR 9119, Feb. 19, 1993; 59 FR 22487,
located in any State in which the             in fact, and the scope, progress, and         Apr. 29, 1994; 59 FR 25747, May 17, 1994;
agency is the principal guarantor, and,       results of the agency's investigations        59 FR 35625, July 13, 1994; 59 FR 60691,
at the option of each guaranty agency,        thereof to the Secretary.                     Nov. 25, 1994; 61 FR 60436, 60486, Nov. 27,
the Student Loan Marketing                                                                  1996; 64 FR 18981, Apr. 16, 1999; 64 FR
                                              (8) Referring appropriate cases to State
Association; and                                                                            58630, Oct. 29, 1999; 64 FR 58965, Nov. 1,
                                              or local authorities for criminal             1999; 65 FR 65621, 65650, Nov. 1, 2000; 66
(C) Each participating school, located in     prosecution or civil litigation.              FR 34764, June 29, 2001; 68 FR 75429,
a State for which the guaranty agency                                                       Dec. 31, 2003; 71 FR 45708, Aug. 9, 2006;
                                              (9) Promptly notifying the Secretary
is the principal guaranty agency, that                                                      74 FR 56000, Oct. 29, 2009]
                                              of—
has a cohort default rate, as described                                                     §682.411 Lender due diligence in
in subpart M of 34 CFR part 668, for          (i) Any action it takes affecting the
                                                                                            collecting guaranty agency loans.
either of the 2 immediately preceding         FFEL program eligibility of a
fiscal years, as defined in 34 CFR            participating lender or school;               (a) General. In the event of delinquency
668.182, that exceeds 20 percent,                                                           on an FFEL Program loan, the lender
                                              (ii) Information it receives regarding an
unless the school is under a mandate                                                        must engage in at least the collection
                                              action affecting the FFEL program
from the Secretary under subpart M of                                                       efforts described in paragraphs (c)
                                              eligibility of a participating lender or
34 CFR part 668 to take specific default                                                    through (n) of this section, except that
                                              school taken by a nationally recognized
reduction measures or if the total dollar                                                   in the case of a loan made to a
                                              accrediting agency, association, or a
amount of loans entering repayment in                                                       borrower who is incarcerated, residing
                                              State licensing agency;
each fiscal year on which the cohort                                                        outside a State, Mexico, or Canada, or
default rate over 20 percent is based         (iii) Any judicial or administrative          whose telephone number is unknown,
does not exceed $100,000; or                  proceeding relating to the enforceability     the lender may send a forceful
                                              of FFEL loans guaranteed by the               collection letter instead of each
(ii) The schools and lenders selected         agency or in which tuition obligations of     telephone effort required by this
by the agency as an alternative to the        a school's students are directly at issue,    section.
reviews required by paragraphs                other than a proceeding relating to a
(c)(1)(A)-(C) of this section if the                                                        (b) Delinquency. (1) For purposes of
                                              single borrower or student; and
Secretary approves the agency's                                                             this section, delinquency on a loan
proposed alternative selection                (iv) Any petition for relief in bankruptcy,   begins on the first day after the due
methodology.                                  application for receivership, or              date of the first missed payment that is
                                              corporate dissolution proceeding              not later made. The due date of the first
(2) Demanding prompt repayment by             brought by or against a school or lender      payment is established by the lender
the responsible parties to lenders,           participating in its loan guarantee           but must occur by the deadlines
borrowers, the agency, or the                 program.                                      specified in Sec. 682.209(a) or, if the
Secretary, as appropriate, of all funds                                                     lender first learns after the fact that the
found in those reviews to be owed by          (10) Cooperating with all program
                                              reviews, investigations, and audits           borrower has entered the repayment
the participants with regard to loans
                                              conducted by the Secretary relating to        period, no later than 75 days after the
guaranteed by the agency, whether or                                                        day the lender so learns, except as
not the agency holds the loans, and           the agency's loan guarantee program.
                                                                                            provided in Sec. 682.209(a)(2)(v) and
monitoring the implementation by              (11) Taking prompt action to protect the      (a)(3)(ii)(E). If a payment is made late,
participants of corrective actions,           rights of borrowers and the Federal           the first day of delinquency is the day
including these repayments, required          fiscal interest respecting loans that the     after the due date of the next missed
by the agency as a result of those            agency has guaranteed when the                payment that is not later made. A
reviews.                                      agency learns that a participating            payment that is within five dollars of the
(3) Referring to the Secretary for further    school or holder of loans is                  amount normally required to advance
enforcement action any case in which          experiencing problems that threaten the       the due date may nevertheless
repayment of funds to the Secretary is        solvency of the school or holder,             advance the due date if the lender's
not made in full within 60 days of the        including—                                    procedures allow for that advancement.
date of the agency's written demand to
34 CFR 682.411


(2) At no point during the periods              address for the borrower, the lender's     correct telephone number of a borrower
specified in paragraphs (c), (d), and (e)       receipt from the drawee of a dishonored    as required by paragraph (m) of this
of this section may the lender permit           check received as a payment on the         section, the lender is excused from any
the occurrence of a gap in collection           loan, the lender's receipt of a correct    further efforts to contact the borrower
activity, as defined in paragraph (j) of        telephone number for the borrower, or      by telephone, unless the borrower's
this section, of more than 45 days (60          the expiration of an authorized            number is obtained before the 211th
days in the case of a transfer).                deferment or forbearance period, the       day of delinquency (the 271st day for
(3) As part of one of the collection            lender is required to engage in only—      loans repayable in installments less
                                                                                           frequently than monthly).
activities provided for in this section, the    (i) Two diligent efforts to contact the
lender must provide the borrower with           borrower by telephone during this          (h) Skip-tracing. (1) Unless the letter
information on the availability of the          period, if the loan is less than 91 days   specified under paragraph (f) of this
Student Loan Ombudsman's office.                delinquent (121 days delinquent for a      section has already been sent, within
(c) 1-15 days delinquent. Except in the         loan repayable in installments less        10 days of its receipt of information
case in which a loan is brought into this       frequently than monthly) upon receipt of   indicating that it does not know the
period by a payment on the loan,                the payment, correct address, correct      borrower's current address, the lender
                                                telephone number, or returned check,       must begin to diligently attempt to
expiration of an authorized deferment
or forbearance period, or the lender's          or expiration of the deferment or          locate the borrower through the use of
receipt from the drawee of a dishonored         forbearance; or                            effective commercial skip-tracing
                                                (ii) One diligent effort to contact the    techniques. These efforts must include,
check submitted as a payment on the
loan, the lender during this period must        borrower by telephone during this          but are not limited to, sending a letter to
send at least one written notice or             period if the loan is 91-120 days          or making a diligent effort to contact
                                                delinquent (121-180 days delinquent for    each endorser, relative, reference,
collection letter to the borrower
informing the borrower of the                   a loan repayable in installments less      individual, and entity, identified in the
delinquency and urging the borrower to          frequently than monthly) upon receipt of   borrower's loan file, including the
                                                the payment, correct address, correct      schools the student attended. For this
make payments sufficient to eliminate
the delinquency. The notice or                  telephone number, or returned check,       purpose, a lender's contact with a
                                                or expiration of the deferment or          school official who might reasonably be
collection letter sent during this period
must include, at a minimum, a lender or         forbearance.                               expected to know the borrower's
servicer contact, a telephone number,                                                      address may be with someone other
                                                (4) A lender need not attempt to contact   than the financial aid administrator, and
and a prominent statement informing             by telephone any borrower who is more
the borrower that assistance may be                                                        may be in writing or by phone calls.
                                                than 120 days delinquent (180 days         These efforts must be completed by the
available if he or she is experiencing          delinquent for a loan repayable in         date of default with no gap of more than
difficulty in making a scheduled                installments less frequent than monthly)
repayment.                                                                                 45 days between attempts to contact
                                                following the lender's receipt of—         those individuals or entities.
(d) 16-180 days delinquent (16-240
                                                (i) A payment on the loan;                 (2) Upon receipt of information
days delinquent for a loan repayable in
                                                (ii) A correct address or correct          indicating that it does not know the
installments less frequently than
monthly). (1) Unless exempted under             telephone number for the borrower;         borrower's current address, the lender
paragraph (d)(4) of this section, during                                                   must discontinue the collection efforts
                                                (iii) A dishonored check received from     described in paragraphs (c) through (f)
this period the lender must engage in at        the drawee as a payment on the loan;
least four diligent efforts to contact the                                                 of this section.
                                                or
borrower by telephone and send at                                                          (3) If the lender is unable to ascertain
least four collection letters urging the        (iv) The expiration of an authorized       the borrower's current address despite
borrower to make the required                   deferment or forbearance.                  its performance of the activities
payments on the loan. At least one of           (e) 181-270 days delinquent (241-330       described in paragraph (h)(1) of this
the diligent efforts to contact the             days delinquent for a loan repayable in    section, the lender is excused
borrower by telephone must occur on or          installments less frequently than          thereafter from performance of the
before, and another one must occur              monthly). During this period the lender    collection activities described in
after, the 90th day of delinquency.             must engage in efforts to urge the         paragraphs (c) through (f) and (l)(1)
Collection letters sent during this period      borrower to make the required              through (l)(3) and (l)(5) of this section
must include, at a minimum, information         payments on the loan. These efforts        unless it receives communication
for the borrower regarding deferment,           must, at a minimum, provide                indicating the borrower's address
forbearance, income-sensitive                   information to the borrower regarding      before the 241st day of delinquency
repayment, income-based repayment               options to avoid default and the           (the 301st day for loans payable in less
and loan consolidation, and other               consequences of defaulting on the loan.    frequent installments than monthly).
available options to avoid default.                                                        (4) The activities specified by
                                                (f) Final demand. On or after the 241st
(2) At least two of the collection letters      day of delinquency (the 301st day for      paragraph (m)(1)(i) or (ii) of this section
required under paragraph (d)(1) of this         loans payable in less frequent             (with references to the “borrower”
section must warn the borrower that, if         installments than monthly) the lender      understood to mean endorser,
the loan is not paid, the lender will           must send a final demand letter to the     reference, relative, individual, or entity
assign the loan to the guaranty agency          borrower requiring repayment of the        as appropriate) meet the requirement
that, in turn, will report the default to all   loan in full and notifying the borrower    that the lender make a diligent effort to
national credit bureaus, and that the           that a default will be reported to a       contact each individual identified in the
agency may institute proceedings to             national credit bureau. The lender must    borrower's loan file.
offset the borrower's State and Federal         allow the borrower at least 30 days        (i) Default aversion assistance. Not
income tax refunds and other payments           after the date the letter is mailed to     earlier than the 60th day and no later
made by the Federal Government to               respond to the final demand letter and     than the 120th day of delinquency, a
the borrower or to garnish the                  to bring the loan out of default before    lender must request default aversion
borrower's wages, or to assign the loan         filing a default claim on the loan.        assistance from the guaranty agency
to the Federal Government for litigation                                                   that guarantees the loan.
against the borrower.                           (g) Collection procedures when
                                                borrower's telephone number is not         (j) Gap in collection activity. For
(3) Following the lender's receipt of a         available. Upon completion of a diligent   purposes of this section, the term gap
payment on the loan or a correct                but unsuccessful effort to ascertain the
34 CFR 682.411


in collection activity means, with           (4) Mailing or otherwise transmitting to       letter containing the information
respect to a loan, any period—               the guaranty agency a request for              described in paragraph (d)(2) of this
                                             default aversion assistance available          section (with references to “the
(1) Beginning on the date that is the
                                             from the agency on the loan at the time        borrower” understood to mean the
day after—
                                             the request is transmitted; or                 endorser).
(i) The due date of a payment unless
                                             (5) Any telephone discussion or                (2) On or after the 241st day of
the lender does not know the
                                             personal contact with the borrower so          delinquency (the 301st day for loans
borrower's address on that date;
                                             long as the borrower is apprised of the        payable in less frequent installments
(ii) The day on which the lender             account's past-due status.                     than monthly) the lender must send a
receives a payment on a loan that                                                           final demand letter to the endorser
                                             (m) Diligent effort for telephone contact.
remains delinquent notwithstanding the                                                      requiring repayment of the loan in full
                                             (1) For purposes of this section, the
payment;                                                                                    and notifying the endorser that a default
                                             term diligent effort with respect to
(iii) The day on which the lender            telephone contact means—                       will be reported to a national credit
receives the correct address for a                                                          bureau. The lender must allow the
                                             (i) A successful effort to contact the         endorser at least 30 days after the date
delinquent borrower;
                                             borrower by telephone;                         the letter is mailed to respond to the
(iv) The day on which the lender                                                            final demand letter and to bring the loan
                                             (ii) At least two unsuccessful attempts
completes a collection activity;                                                            out of default before filing a default
                                             to contact the borrower by telephone at
(v) The day on which the lender              a number that the lender reasonably            claim on the loan.
receives a dishonored check submitted        believes to be the borrower's correct          (3) Unless the letter specified under
as a payment on the loan;                    telephone number; or                           paragraph (n)(2) of this section has
(vi) The expiration of an authorized         (iii) An unsuccessful effort to ascertain      already been sent, upon receipt of
deferment or forbearance period on a         the correct telephone number of a              information indicating that it does not
delinquent loan; or                          borrower, including, but not limited to, a     know the endorser's current address or
                                             directory assistance inquiry as to the         telephone number, the lender must
(vii) The day the lender receives                                                           diligently attempt to locate the endorser
information indicating it does not know      borrower's telephone number, and
                                             sending a letter to or making a diligent       through the use of effective commercial
the borrower's current address; and                                                         skip-tracing techniques. This effort must
                                             effort to contact each reference,
(2) Ending on the date of the earliest       relative, and individual identified in the     include an inquiry to directory
of—                                          most recent loan application or most           assistance.
(i) The day on which the lender              recent school certification for that           (o) Preemption. The provisions of this
receives the first subsequent payment        borrower held by the lender. The lender        section—
or completed deferment request or            may contact a school official other than
                                                                                            (1) Preempt any State law, including
forbearance agreement;                       the financial aid administrator who
                                             reasonably may be expected to know             State statutes, regulations, or rules, that
(ii) The day on which the lender begins      the borrower's address or telephone            would conflict with or hinder satisfaction
the first subsequent collection activity;    number.                                        of the requirements or frustrate the
                                                                                            purposes of this section; and
(iii) The day on which the lender            (2) If the lender is unable to ascertain
receives written communication from          the borrower's correct telephone               (2) Do not preempt provisions of the
the borrower relating to his or her          number despite its performance of the          Fair Credit Reporting Act that provide
account; or                                  activities described in paragraph              relief to a borrower while the lender
                                             (m)(1)(iii) of this section, the lender is     determines the legal enforceability of a
(iv) Default.
                                             excused thereafter from attempting to          loan when the lender receives a valid
(k) Transfer. For purposes of this                                                          identity theft report or notification from a
                                             contact the borrower by telephone
section, the term transfer with respect                                                     credit bureau that information furnished
                                             unless it receives a communication
to a loan means any action, including,                                                      is a result of an alleged identity theft as
                                             indicating the borrower's current
but not limited to, the sale of the loan,                                                   defined in Sec. 682.402(e)(14).
                                             telephone number before the 211th day
that results in a change in the system
                                             of delinquency (the 271st day for loans        Approved by the Office of Management and
used to monitor or conduct collection                                                       Budget under control number 1845-0020)
                                             repayable in installments less
activity on a loan from one system to
                                             frequently than monthly).                      (Authority: 20 U.S.C. 1078, 1078-1, 1078-2,
another.
                                                                                            1078-3, 1080a, 1082, 1087)
                                             (3) The activities specified by
(l) Collection activity. For purposes of                                                    [64 FR 58630, Oct. 29, 1999, as amended at
                                             paragraph (m)(1) (i) or (ii) of this section
this section, the term collection activity                                                  64 FR 58965, Nov. 1, 1999; 72 FR 62006,
                                             (with references to “the borrower”
with respect to a loan means—                                                               Nov. 1, 2007; 73 FR 63254, Oct. 23, 2008]
                                             understood to mean endorser,
(1) Mailing or otherwise transmitting to     reference, relative, or individual as          §682.412 Consequences of the
the borrower at an address that the          appropriate), meet the requirement that        failure of a borrower or student to
lender reasonably believes to be the         the lender make a diligent effort to           establish eligibility.
borrower's current address a collection      contact each endorser or each                  (a) The lender shall immediately send
letter or final demand letter that           reference, relative, or individual
                                                                                            to the borrower a final demand letter
satisfies the timing and content             identified on the borrower's most recent
                                                                                            meeting the requirements of Sec.
requirements of paragraph (c), (d), (e),     loan application or most recent school
                                                                                            682.411(f) when it learns and can
or (f) of this section;                      certification.
                                                                                            substantiate that the borrower or the
(2) Making an attempt to contact the         (n) Due diligence for endorsers. (1)           student on whose behalf a parent has
borrower by telephone to urge the            Before filing a default claim on a loan        borrowed, without the lender or school's
borrower to begin or resume                  with an endorser, the lender must—             knowledge at the time the loan was
repayment;                                                                                  made, provided false or erroneous
                                             (i) Make a diligent effort to contact the
(3) Conducting skip-tracing efforts, in                                                     information or took actions that caused
                                             endorser by telephone; and
accordance with paragraph (h)(1) or                                                         the student or borrower—
                                             (ii) Send the endorser on the loan two
(m)(1)(iii) of this section, to locate a                                                    (1) To be ineligible for all or a portion of
                                             letters advising the endorser of the
borrower whose correct address or                                                           a loan made under this part;
                                             delinquent status of the loan and urging
telephone number is unknown to the
                                             the endorser to make the required              (2) To receive a Stafford loan subject to
lender;
                                             payments on the loan with at least one         payment of Federal interest benefits as
34 CFR 682.412


provided under Sec. 682.301 for which          compensation received on a loan               applicable, or the agency failed to meet
he or she was ineligible; or                   guaranteed by a guaranty agency,              the requirements of Sec. 682.406(a).
                                               pursuant to paragraph (a)(2) of this          (2) The Secretary may require a
(3) To receive loan proceeds for a
period of enrollment from which he or          section—                                      guaranty agency to repay reinsurance
she has withdrawn or been expelled             (i) For any period beginning on the date      payments received on a loan or to
prior to the first day of classes or during    of a failure by the lender or servicer,       assign FFEL loans to the Department if
which he or she failed to attend school        with respect to the loan, to comply with      the agency fails to meet the
and has not paid those funds to the            any of the requirements set forth in          requirements of Sec. 682.410.
school or repaid them to the lender.           Sec. 682.406(a)(1)-(a)(6), (a)(9), and        (c)(1) In addition to requiring repayment
(b) The lender shall neither bill the          (a)(12);
                                                                                             of reinsurance payments pursuant to
Secretary for nor be entitled to interest      (ii) For any period beginning on the          paragraph (b) of this section, the
benefits on a loan after it learns that        date of a failure by the lender or            Secretary may take one or more of the
one of the conditions described in             servicer, with respect to the loan, to        following remedial actions against a
paragraph (a) of this section exists with      meet a condition of guarantee coverage        guaranty agency or third-party servicer
respect to the loan.                           established by the guaranty agency, to        administering any aspect of the FFEL
(c) In the final demand letter                 the date, if any, on which the guaranty       programs under a contract with the
                                               agency reinstated the guarantee               guaranty agency, that makes an
transmitted under paragraph (a) of this
section, the lender shall demand that          coverage pursuant to policies and             incomplete or incorrect statement in
within 30 days from the date the letter is     procedures established by the agency;         connection with any agreement entered
                                               (iii) For any period in which the lender      into under this part or violates any
mailed the borrower repay in full any
principal amount for which the borrower        or servicer, with respect to the loan,        applicable Federal requirement:
is ineligible and any accrued interest,        violates the requirements of subpart C        (i) Require the agency to return
including interest and all special             of this part; and                             payments made by the Secretary to the
allowance paid by the Secretary.               (iv) For any period beginning on the          agency.
(d) If the borrower repays the amounts         day after the Secretary's obligation to       (ii) Withhold payments to the agency.
described in paragraph (c) of this             pay special allowance on the loan             (iii) Limit the terms and conditions of
section within the 30-day period, the          terminates under Sec. 682.302(d).
                                                                                             the agency's continued participation in
lender shall—                                  (2) For purposes of this section, a           the FFEL programs.
(1) On its next quarterly interest billing     lender and any applicable third-party         (iv) Suspend or terminate agreements
submitted under Sec. 682.305, refund           servicer shall be considered jointly and      with the agency.
to the Secretary the interest benefits         severally liable for the repayment of any
and special allowance repaid by the            interest benefits and special allowance       (v) Impose a fine on the agency or
borrower and all other interest benefits       paid as a result of a violation of            servicer. For purposes of assessing a
and special allowance previously paid          applicable requirements by the servicer       fine on a third-party servicer, a
by the Secretary on the ineligible             in administering the lender's FFEL            repeated mechanical systemic
portion of the loan; and                       programs.                                     unintentional error shall be counted as
                                                                                             one violation, unless the servicer has
(2) Treat that payment of the principal        (3) For purposes of paragraph (a)(2) of
                                                                                             been cited for a similar violation
amount of the ineligible portion of the        this section, the relevant third-party
                                                                                             previously and had failed to make the
loan as a prepayment of principal.             servicer shall repay any outstanding          appropriate corrections to the system.
(e) If a borrower fails to comply with the     liabilities under paragraph (a)(2) of this
                                               section only if—                              (vi) Require repayment from the
terms of a final demand letter described                                                     agency and servicer pursuant to
in paragraph (a) of this section, the          (i) The Secretary has determined that
                                                                                             paragraph (c)(2) of this section, of
lender shall treat the entire loan as in       the servicer is jointly and severally         interest, special allowance, and
default, and—                                  liable for the liabilities; and               reinsurance paid on Consolidation loan
(1) With its next quarterly interest billing   (ii)(A) The lender has not repaid in full     amounts attributed to Consolidation
submitted under Sec. 682.305, refund           the amount of the liability within 30 days    loans for which the certification required
to the Secretary the amount of the             from the date the lender receives notice      under Sec. 682.206(f)(1) is not
interest benefits received from the            from the Secretary of the liability;          available.
Secretary on the ineligible portion of the     (B) The lender has not made other             (vii) Require repayment from the
loan, whether or not repaid by the             satisfactory arrangements to pay the          agency or servicer, pursuant to
borrower; and                                  amount of the liability within 30 days        paragraph (c)(2) of this section, of any
(2) Within the time specified in Sec.          from the date the lender receives notice      related payments that the Secretary
682.406(a)(5), file a default claim            from the Secretary of the liability; or       became obligated to make to others as
thereon with the guaranty agency for           (C) The Secretary is unable to collect        a result of an incomplete or incorrect
the entire unpaid balance of principal         the liability from the lender by offsetting   statement or a violation of an applicable
and accrued interest.                                                                        Federal requirement.
                                               the lender's bill to the Secretary for
(Approved by the Office of Management and      interest benefits or special allowance,       (2) For purposes of this section, a
Budget under control number 1840-0538)         if—                                           guaranty agency and any applicable
(Authority: 20 U.S.C. 1077, 1078, 1078-1,      (1) The bill is submitted after the 30 day    third-party servicer shall be considered
1078-2, 1078-3, 1082, 1087-1)                                                                jointly and severally liable for the
                                               period specified in paragraph
[57 FR 60323, Dec. 18, 1992, as amended at     (a)(3)(ii)(A) of this section has passed;     repayment of any interest benefits,
58 FR 9120, Feb. 19, 1993; 60 FR 61757,        and                                           special allowance, reinsurance paid, or
Dec. 1, 1995; 64 FR 58632, Oct. 29, 1999]                                                    other compensation on Consolidation
                                               (2) The lender has not paid, or made          loan amounts attributed to
§682.413 Remedial actions.
                                               satisfactory arrangements to pay, the         Consolidation loans as specified in Sec.
(a)(1) The Secretary requires a lender         liability.                                    682.413(c)(1)(vi) as a result of a
and its third-party servicer                   (b)(1) The Secretary requires a               violation by the servicer administering
administering any aspect of the FFEL                                                         any aspect of the FFEL programs under
                                               guaranty agency to repay reinsurance
programs under a contract with the                                                           a contract with that guaranty agency.
                                               payments received on a loan if the
lender to repay interest benefits and
                                               lender, third-party servicer, if
special allowance or other
34 CFR 682.413


(3) For purposes of paragraph (c)(2) of      (2)(i) The Secretary may withhold             of this section. The records must be
this section, the relevant third-party       payments from an agency or suspend            maintained in a system that allows
servicer shall repay any outstanding         an agreement with an agency prior to          ready identification of each loan's
liabilities under paragraph (c)(2) of this   giving notice and an opportunity to be        current status, updated at least once
section only if—                             heard if the Secretary finds that             every 10 business days. Any reference
                                             emergency action is necessary to              to a guaranty agency under this section
(i) The Secretary has determined that
                                             prevent substantial harm to Federal           includes a third-party servicer that
the servicer is jointly and severally
                                             interests.                                    administers any aspect of the FFEL
liable for the liabilities; and
                                             (ii) The Secretary follows the notice and     programs under a contract with the
(ii)(A) The guaranty agency has not                                                        guaranty agency, if applicable.
                                             show cause procedures described in
repaid in full the amount of the liability
                                             Sec. 682.704 applicable to emergency          (ii) The agency shall maintain—
within 30 days from the date the
                                             actions against lenders in taking an          (A) All documentation supporting the
guaranty agency receives notice from
                                             emergency action against a guaranty
the Secretary of the liability;                                                            claim filed by the lender;
                                             agency.
(B) The guaranty agency has not made                                                       (B) Notices of changes in a borrower's
                                             (3) The Secretary follows the
other satisfactory arrangements to pay                                                     address;
                                             procedures in 34 CFR 30.20-30.32 in
the amount of the liability within 30 days                                                 (C) A payment history showing the date
                                             collecting a debt by offset against
from the date the guaranty agency                                                          and amount of each payment received
                                             payments otherwise due a guaranty
receives notice from the Secretary of
                                             agency or lender.                             from or on behalf of the borrower by the
the liability; or                                                                          guaranty agency, and the amount of
                                             (f) Notwithstanding paragraphs (a)-(e)
(C) The Secretary is unable to collect                                                     each payment that was attributed to
                                             of this section, the Secretary may waive
the liability from the guaranty agency by                                                  principal, accrued interest, and
                                             the right to require repayment of funds
offsetting the guaranty agency's first                                                     collection costs and other charges,
                                             by a lender or agency if in the
reinsurance claim to the Secretary, if—                                                    such as late charges;
                                             Secretary's judgment the best interests
(1) The claim is submitted after the 30-     of the United States so require. The          (D) A collection history showing the
day period specified in paragraph            Secretary's waiver policy for violations      date and subject of each
(c)(3)(ii)(A) of this section has passed;    of Sec. 682.406(a)(3) or (a)(5) is set        communication between the agency
and                                          forth in appendix D to this part.             and the borrower or endorser relating to
                                                                                           collection of a defaulted loan, each
(2) The guaranty agency has not paid,        (g) The Secretary's final decision to
or made satisfactory arrangements to                                                       communication between the agency
                                             require repayment of funds or to take
pay, the liability.                                                                        and a credit bureau regarding the loan,
                                             other remedial action, other than a fine,
                                                                                           each effort to locate a borrower whose
(d)(1) The Secretary follows the             against a lender or guaranty agency
                                                                                           address was unknown at any time, and
procedures described in 34 CFR part          under this section is conclusive and
                                                                                           each request by the lender for default
668, subpart G, applicable to fine           binding on the lender or agency.
                                                                                           aversion assistance on the loan;
proceedings against schools, in              (h) In any action to require repayment
                                                                                           (E) Documentation regarding any wage
imposing a fine against a lender,            of funds or to withhold funds from a
guaranty agency, or third-party servicer.                                                  garnishment actions initiated by the
                                             guaranty agency, or to limit, suspend,
References to “the institution” in those                                                   agency on the loan;
                                             or terminate a guaranty agency based
regulations shall be understood to           on a violation of Sec. 682.401(e), if the     (F) Documentation of any matters
mean the lender, guaranty agency, or         Secretary finds that the guaranty             relating to the collection of the loan by
third-party servicer, as applicable, for     agency provided or offered the                tax-refund offset; and
this purpose.                                payments or activities listed in Sec.         (G) Any additional records that are
(2) The Secretary also follows the           682.401(e)(1), the Secretary applies a        necessary to document its right to
provisions of section 432(g) of the Act      rebuttable presumption that the               receive or retain payments made by the
in imposing a fine against a guaranty        payments or activities were offered or        Secretary under this part and the
agency or lender.                            provided to secure applications for           accuracy of reports it submits to the
                                             FFEL loans or to secure FFEL loan             Secretary.
(e)(1)(i) The Secretary's decision to        volume. To reverse the presumption,
require repayment of funds, withhold         the guaranty agency must present              (2) A guaranty agency must retain the
funds, or to limit or suspend a lender,      evidence that the activities or payments      records required for each loan for not
guaranty agency, or third party servicer     were provided for a reason unrelated to       less than 3 years following the date the
from participation in the FFEL Program       securing applications for FFEL loans or       loan is repaid in full by the borrower, or
or to terminate a lender or third party      securing FFEL loan volume.                    for not less than 5 years following the
from participation in the FFEL Program                                                     date the agency receives payment in
does not become final until the              Note to Sec. 682.413: A decision by the       full from any other source. However, in
Secretary provides the lender, agency,       Secretary under this section is subject       particular cases, the Secretary may
or servicer with written notice of the       to judicial review under 5 U.S.C. 706         require the retention of records beyond
intended action and an opportunity to        and 41 U.S.C. 321-322.                        these minimum periods.
be heard. The hearing is at a time and       (Authority: 20 U.S.C. 1078, 1078-1, 1078-2,   (3) A guaranty agency shall retain a
in a manner the Secretary determines         1078-3, 1082, 1087-1, 1097)
                                                                                           copy of the audit report required under
to be appropriate to the resolution of       [57 FR 60323, Dec. 18, 1992, as amended at    Sec. 682.410(b) for not less than five
the issues on which the lender, agency,      59 FR 22454, Apr. 29, 1994; 59 FR 61190,      years after the report is issued.
or servicer requests the hearing.            Nov. 29, 1994; 61 FR 60487, Nov. 27, 1996;
                                             64 FR 18981, Apr. 16, 1999; 64 FR 58632,      (4)(i) The guaranty agency shall require
(ii) The Secretary's decision to             Oct. 29, 1999; 72 FR 62006, Nov. 1, 2007]     a participating lender to maintain
terminate a guaranty agency's
                                             §682.414 Records, reports, and                current, complete, and accurate records
participation in the FFEL Program after                                                    of each loan that it holds, including, but
September 24, 1998 does not become           inspection requirements for
                                             guaranty agency programs.                     not limited to, the records described in
final until the Secretary provides the
                                                                                           paragraph (a)(4)(ii) of this section. The
agency with written notice of the            (a) Records. (1)(i) The guaranty agency       records must be maintained in a system
intended action and provides an              shall maintain current, complete, and         that allows ready identification of each
opportunity for a hearing on the record.     accurate records of each loan that it         loan's current status.
                                             holds, including, but not limited to, the
                                             records described in paragraph (a)(1)(ii)     (ii) The lender shall keep—
34 CFR 682.414


(A) A copy of the loan application if a      (iii) A lender or guaranty agency              (F) All other documentary and technical
separate application was provided to         holding a promissory note must retain          evidence requested by the Secretary to
the lender;                                  the original or a true and exact copy of       support the validity or the authenticity of
(B) A copy of the signed promissory          the promissory note until the loan is          the electronically signed promissory
                                             paid in full or assigned to the Secretary.     note.
note;
                                             When a loan is paid in full by the
(C) The repayment schedule;                                                                 (iii) The Secretary may request a
                                             borrower, the lender or guaranty
                                                                                            record, affidavit, certification or
(D) A record of each disbursement of         agency must return either the original or
                                                                                            evidence under paragraph (a)(6) of this
loan proceeds;                               a true and exact copy of the note to the
                                                                                            section as needed to resolve any
                                             borrower or notify the borrower that the
(E) Notices of changes in a borrower's                                                      factual dispute involving a loan that has
                                             loan is paid in full, and retain a copy for
address and status as at least a half-                                                      been assigned to the Secretary
                                             the prescribed period.
time student;                                                                               including, but not limited to, a factual
                                             (iv) If a lender made a loan based on          dispute raised in connection with
(F) Evidence of the borrower's eligibility   an electronically signed MPN, the              litigation or any other legal proceeding,
for a deferment;                             holder of the original electronically          or as needed in connection with loans
(G) The documents required for the           signed MPN must retain that original           assigned to the Secretary that are
exercise of forbearance;                     MPN for at least 3 years after all the         included in a Title IV program audit
                                             loans made on the MPN have been                sample, or for other similar purposes.
(H) Documentation of the assignment of       satisfied.                                     The guaranty agency must respond to
the loan;                                                                                   any request from the Secretary within
                                             (6)(i) Upon the Secretary's request with
(I) A payment history showing the date       respect to a particular loan or loans          10 business days.
and amount of each payment received          assigned to the Secretary and                  (iv) As long as any loan made to a
from or on behalf of the borrower, and       evidenced by an electronically signed          borrower under a MPN created by the
the amount of each payment that was          promissory note, the guaranty agency           lender is not satisfied, the holder of the
attributed to principal, interest, late      and the lender that created the original       original electronically signed promissory
charges, and other costs;                    electronically signed promissory note          note is responsible for ensuring that all
(J) A collection history showing the date    must cooperate with the Secretary in all       parties entitled to access to the
and subject of each communication            activities necessary to enforce the loan       electronic loan record, including the
between the lender and the borrower or       or loans. The guaranty agency or               guaranty agency and the Secretary,
endorser relating to collection of a         lender must provide—                           have full and complete access to the
delinquent loan, each communication          (A) An affidavit or certification regarding    electronic record.
other than regular reports by the lender     the creation and maintenance of the            (b) Reports. A guaranty agency shall
showing that an account is current,          electronic records of the loan or loans        accurately complete and submit to the
between the lender and a credit bureau       in a form appropriate to ensure                Secretary the following reports:
regarding the loan, each effort to locate    admissibility of the loan records in a
a borrower whose address is unknown                                                         (1) A report concerning the status of the
                                             legal proceeding. This affidavit or
at any time, and each request by the                                                        agency's reserve fund and the
                                             certification may be executed in a
lender for default aversion assistance                                                      operation of the agency's loan
                                             single record for multiple loans provided
on the loan;                                                                                guarantee program at the time and in
                                             that this record is reliably associated
                                                                                            the manner that the Secretary may
(K) Documentation of any MPN                 with the specific loans to which it
                                                                                            reasonably require. The Secretary does
confirmation process or processes; and       pertains; and
                                                                                            not pay the agency any funds, the
(L) Any additional records that are          (B) Testimony by an authorized official        amount of which are determined by
necessary to document the validity of a      or employee of the guaranty agency or          reference to data in the report, until a
claim against the guarantee or the           lender, if necessary to ensure                 complete and accurate report is
accuracy of reports submitted under          admission of the electronic records of         received.
this part.                                   the loan or loans in the litigation or legal   (2) Annually, for each State in which it
                                             proceeding to enforce the loan or loans.
(iii) Except as provided in paragraph                                                       operates, a report of the total
(a)(4)(iv) of this section, a lender must    (ii) The affidavit or certification            guaranteed loan volume, default
retain the records required for each         described in paragraph (a)(6)(i)(A) of         volume, and default rate for each of the
loan for not less than 3 years following     this section must include, if requested        following categories of originating
the date the loan is repaid in full by the   by the Secretary—                              lenders on all loans guaranteed after
borrower, or for not less than five years    (A) A description of the steps followed        December 31, 1980:
following the date the lender receives       by a borrower to execute the                   (i) Schools.
payment in full from any other source.       promissory note (such as a flow chart);
However, in particular cases, the                                                           (ii) State or private nonprofit lenders.
Secretary or the guaranty agency may         (B) A copy of each screen as it would
                                                                                            (iii) Commercial financial institutions
require the retention of records beyond      have appeared to the borrower of the
                                                                                            (banks, savings and loan asso