[Title 34 CFR ]
[Code of Federal Regulations (annual edition) - July 1, 2017 Edition]
[From the U.S. Government Publishing Office]



[[Page i]]

          

          Title 34

Education


________________________

Part 680 to End


          
          
          Title 35

                         [Reserved]

                         Revised as of July 1, 2017

          Containing a codification of documents of general 
          applicability and future effect

          As of July 1, 2017
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

[[Page ii]]

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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 34:
    SUBTITLE B--Regulations of the Offices of the Department 
      of Education (Continued)
          Chapter VI--Office of Postsecondary Education, 
          Department of Education (Continued)                        5
          Chapter VII--Office of Educational Research and 
          Improvement, Department of Education [Reserved]
    SUBTITLE C--Regulations Relating to Education
          Chapter XI [Reserved]
          Chapter XII--National Council on Disability              405

  Title 35 [Reserved]
  Findings Aids:
      Table of CFR Titles and Chapters........................     419
      Alphabetical List of Agencies Appearing in the CFR......     439
      List of CFR Sections Affected...........................     449

[[Page iv]]


      


                     ----------------------------

                     Cite this Code:  CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 34 CFR 682.100 
                       refers to title 34, part 
                       682, section 100.

                     ----------------------------

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
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    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
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LEGAL STATUS

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HOW TO USE THE CODE OF FEDERAL REGULATIONS

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[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
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[[Page vii]]

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    Director,
    Office of the Federal Register.
    July 1, 2017.

                                
                                      
                            

  

[[Page ix]]



                               THIS TITLE

    Title 34--Education is composed of four volumes. The parts in these 
volumes are arranged in the following order: Parts 1-299, parts 300-399, 
parts 400-679, and part 680 to end. The contents of these volumes 
represent all regulations codified under this title of the CFR as of 
July 1, 2017.

    For this volume, Robert J. Sheehan, III was Chief Editor. The Code 
of Federal Regulations publication program is under the direction of 
John Hyrum Martinez, assisted by Stephen J. Frattini.

[[Page 1]]



                           TITLE 34--EDUCATION




                  (This book contains part 680 to End)

  --------------------------------------------------------------------

 SUBTITLE B--Regulations of the Offices of the Department of Education 
                                (Continued)

                                                                    Part

chapter VI--Office of Postsecondary Education, Department of 
  Education (Continued).....................................         682
chapter VII--Office of Educational Research and Improvement, Department 
  of Education [Reserved]

              SUBTITLE C--Regulations Relating to Education

chapter XI--National Institute for Literacy [Reserved]

chapter XII--National Council on Disability.................        1200

[[Page 3]]

 Subtitle B--Regulations of the Offices of the Department of Education 
                               (Continued)

[[Page 5]]



 CHAPTER VI--OFFICE OF POSTSECONDARY EDUCATION, DEPARTMENT OF EDUCATION 
                               (CONTINUED)




  --------------------------------------------------------------------
Part                                                                Page
680-681

[Reserved]

682             Federal family education loan (FFEL) program           7
685             William D. Ford Federal direct loan program.         196
686             Teacher education assistance for college and 
                    higher education (TEACH) grant program..         309
690             Federal Pell grant program..................         330
691             Academic competitiveness grant (ACG) and 
                    national science and mathematics access 
                    to retain talent grant (national smart 
                    grant) programs.........................         345
692             Leveraging educational assistance 
                    partnership program.....................         364
693

[Reserved]

694             Gaining Early Awareness and Readiness for 
                    Undergraduate Programs (GEAR UP)........         390
695-699

[Reserved]

[[Page 7]]

                        PARTS 680	681 [RESERVED]



PART 682_FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM
--Table of Contents



                       Subpart A_Purpose and Scope

Sec.
682.100  The Federal Family Education Loan programs.
682.101  Participation in the FFEL programs.
682.102  Repaying a loan.
682.103  Applicability of subparts.

                      Subpart B_General Provisions

682.200  Definitions.
682.201  Eligible borrowers.
682.202  Permissible charges by lenders to borrowers.
682.203  Responsible parties.
682.204  Maximum loan amounts.
682.205  Disclosure requirements for lenders.
682.206-682.207  [Reserved]
682.208  Due diligence in servicing a loan.
682.209  Repayment of a loan.
682.210  Deferment.
682.211  Forbearance.
682.212  Prohibited transactions.
682.213  Prohibition against the use of the Rule of 78s.
682.214  [Reserved]
682.215  Income-based repayment plan.
682.216  Teacher loan forgiveness program.

      Subpart C_Federal Payments of Interest and Special Allowance

682.300  Payment of interest benefits on Stafford and Consolidation 
          loans.
682.301  Eligibility of borrowers for interest benefits on Stafford and 
          Consolidation loans.
682.302  Payment of special allowance on FFEL loans.
682.303  [Reserved]
682.304  Methods for computing interest benefits and special allowance.
682.305  Procedures for payment of interest benefits and special 
          allowance and collection of origination and loan fees.

 Subpart D_Administration of the Federal Family Education Loan Programs 
                          by a Guaranty Agency

682.400  Agreements between a guaranty agency and the Secretary.
682.401  Basic program agreement.
682.402  Death, disability, closed school, false certification, unpaid 
          refunds, and bankruptcy payments.
682.403  [Reserved]
682.404  Federal reinsurance agreement.
682.405  Loan rehabilitation agreement.
682.406  Conditions for claim payments from the Federal Fund and for 
          reinsurance coverage.
682.407  Discharge of student loan indebtedness for survivors of victims 
          of the September 11, 2001, attacks.
682.408  [Reserved]
682.409  Mandatory assignment by guaranty agencies of defaulted loans to 
          the Secretary.
682.410  Fiscal, administrative, and enforcement requirements.
682.411  Lender due diligence in collecting guaranty agency loans.
682.412  Consequences of the failure of a borrower or student to 
          establish eligibility.
682.413  Remedial actions.
682.414  Records, reports, and inspection requirements for guaranty 
          agency programs.
682.415  [Reserved]
682.416  Requirements for third-party servicers and lenders contracting 
          with third-party servicers.
682.417  Determination of Federal funds or assets to be returned.
682.418  [Reserved]
682.419  Guaranty agency Federal Fund.
682.420-682.422  [Reserved]
682.423  Guaranty agency Operating Fund.

Subpart E [Reserved]

    Subpart F_Requirements, Standards, and Payments for Schools That 
                    Participated in the FFEL Program

682.600-682.602  [Reserved]
682.603  Certification by a school that participated in the FFEL Program 
          in connection with a loan application.
682.604  Required exit counseling for borrowers.
682.605  Determining the date of a student's withdrawal.
682.606  [Reserved]
682.607  Payment of a refund or a return of title IV, HEA program funds 
          to a lender upon a student's withdrawal.
682.608  [Reserved]
682.609  Remedial actions.
682.610  Administrative and fiscal requirements for schools that 
          participated in the FFEL Program.
682.611  [Reserved]

  Subpart G_Limitation, Suspension, or Termination of Lender or Third-
       Party Servicer Eligibility and Disqualification of Lenders

682.700  Purpose and scope.
682.701  Definitions of terms used in this subpart.
682.702  Effect on participation.
682.703  Informal compliance procedure.
682.704  Emergency action.

[[Page 8]]

682.705  Suspension proceedings.
682.706  Limitation or termination proceedings.
682.707  Appeals in a limitation or termination proceeding.
682.708  Evidence of mailing and receipt dates.
682.709  Reimbursements, refunds, and offsets.
682.710  Removal of limitation.
682.711  Reinstatement after termination.
682.712  Disqualification review of limitation, suspension, and 
          termination actions taken by guarantee agencies against 
          lenders.
682.713  [Reserved]

Subpart H [Reserved]

Appendices A-C to Part 682 [Reserved]
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]

    Authority: 20 U.S.C. 1071-1087-4, unless otherwise noted.

    Source: 57 FR 60323, Dec. 18, 1992, unless otherwise noted.



                       Subpart A_Purpose and Scope



Sec. 682.100  The Federal Family Education Loan programs.

    (a) This part governs the following four programs collectively 
referred to in these regulations as ``the Federal Family Education Loan 
(FFEL) programs,'' in which lenders used their own funds prior to July 
1, 2010, to make loans to enable a student or his or her parents to pay 
the costs of the student's attendance at postsecondary schools.
    (1) The Federal Stafford Loan (Stafford) Program, which encouraged 
making loans to undergraduate, graduate, and professional students.
    (2) The Federal Supplemental Loans for Students (SLS) Program, as in 
effect for periods of enrollment that began prior to July 1, 1994, which 
encouraged making loans to graduate, professional, independent 
undergraduate, and certain dependent undergraduate students.
    (3) The Federal PLUS (PLUS) Program, which encouraged making loans 
to parents of dependent undergraduate students. Before October 17, 1986, 
the PLUS Program also provided for making loans to graduate, 
professional, and independent undergraduate students. Before July 1, 
1993, the PLUS Program also provided for making loans to parents of 
dependent graduate students. The PLUS Program also provided for making 
loans to graduate and professional students on or after July 1, 2006 and 
prior to July 1, 2010.
    (4) The Federal Consolidation Loan Program (Consolidation Loan 
Program), which encouraged making loans to borrowers for the purpose of 
consolidating loans: under the Federal Insured Student Loan (FISL), 
Stafford loan, SLS, ALAS (as in effect before October 17, 1986), PLUS, 
Perkins Loan programs, the Health Professions Student Loan (HPSL) 
including Loans for Disadvantaged Students (LDS) Program authorized by 
subpart II of part A of Title VII of the Public Health Services Act, 
Health Education Assistance Loans (HEAL) authorized by subpart I of Part 
A of Title VII of the Health Services Act, Nursing Student Loan Program 
loans authorized by subpart II of part B of title VIII of the Public 
Health Service Act, and existing loans obtained under the Consolidation 
Loan Program, and William D. Ford Direct Loan (Direct Loan) program 
loans, if the application for the Consolidation loan was received on or 
after November 13, 1997 and prior to July 1, 2010.
    (b)(1) Except for the loans guaranteed directly by the Secretary 
described in paragraph (b)(2) of this section, a guaranty agency 
guarantees a lender against losses due to default by the borrower on a 
FFEL loan. If the guaranty agency meets certain Federal requirements, 
the guaranty agency is reimbursed by the Secretary for all or part of 
the amount of default claims it pays to lenders.
    (2)(i) The Secretary guarantees lenders against losses--
    (A) Within the Stafford Loan Program, on loans made under Federal 
Insured Student Loan (FISL) Program;
    (B) Within the PLUS Program, on loans made under the Federal PLUS 
Program;

[[Page 9]]

    (C) Within the SLS Program, on loans made under the Federal SLS 
Program as in effect for periods of enrollment that began prior to July 
1, 1994; and
    (D) Within the Consolidation Loan Program, on loans made under the 
Federal Consolidation Loan Program.
    (ii) The loan programs listed in paragraph (b)(2)(i) of this section 
collectively are referred to in these regulations as the ``Federal 
Guaranteed Student Loan (GSL) programs.''
    (iii) The Federal GSL programs were authorized to operate in States 
not served by a guaranty agency program. In addition, the FISL and 
Federal SLS (as in effect for periods of enrollment that began prior to 
July 1, 1994) programs were authorized, under limited circumstances, to 
operate in States in which a guaranty agency program did not serve all 
eligible students.

(Authority: 20 U.S.C. 1701 to 1087-2)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 33348, June 28, 1994; 
59 FR 61215, Nov. 29, 1994; 64 FR 18974, 18975, Apr. 16, 1999; 64 FR 
58952, Nov. 1, 1999; 66 FR 34762, June 29, 2001; 71 FR 45698, Aug. 9, 
2006; 78 FR 65806, Nov. 1, 2013]



Sec. 682.101  Participation in the FFEL programs.

    The following entities and persons participate in the FFEL programs:
    (a) Eligible banks, savings and loan associations, credit unions, 
pension funds, insurance companies, schools, and State and private 
nonprofit agencies made loans prior to July 1, 2010.
    (b) Institutions of higher education, including most colleges, 
universities, graduate and professional schools, and many vocational, 
technical schools participated as schools, enabling an eligible student 
or his or her parents to obtain a loan to pay for the student's cost of 
education.
    (c) Students who met certain requirements, including enrollment at a 
participating school, borrowed under the Stafford Loan Program prior to 
July 1, 2010 and, for periods of enrollment that began prior to July 1, 
1994, the SLS program. Parents of eligible dependent undergraduate 
students borrowed under the PLUS Program prior to July 1, 2010. 
Borrowers with outstanding Stafford, SLS, FISL, Perkins, HPSL, HEAL, 
ALAS, PLUS, or Nursing Student Loan Program loans borrowed under the 
Consolidation Loan Program prior to July 1, 2010. The PLUS Program also 
provided for making loans to graduate and professional students on or 
after July 1, 2006 and prior to July 1, 2010.

(Authority: 20 U.S.C. 1071 to 1087-2)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 61215, Nov. 29, 1994; 
64 FR 18975, Apr. 16, 1999; 66 FR 34762, June 29, 2001; 71 FR 45698, 
Aug. 9, 2006; 71 FR 64397, Nov. 1, 2006; 78 FR 65806, Nov. 1, 2013]



Sec. 682.102  Repaying a loan.

    (a) General. Generally, the borrower is obligated to repay the full 
amount of the loan, late fees, collection costs chargeable to the 
borrower, and any interest not payable by the Secretary. The borrower's 
obligation to repay is cancelled if the borrower dies, becomes totally 
and permanently disabled, or has that obligation discharged in 
bankruptcy. A parent borrower's obligation to repay a PLUS loan is 
cancelled if the student, on whose behalf the parent borrowed, dies. The 
borrower's or student's obligation to repay all or a portion of his or 
her loan may be cancelled if the student is unable to complete his or 
her program of study because the school closed or the borrower's or 
student's eligibility to borrow was falsely certified by the school. The 
obligation to repay all or a portion of a loan may be forgiven for 
Stafford Loan borrowers who enter certain areas of the teaching 
profession.
    (b) Stafford loan repayment. In the case of a subsidized Stafford 
loan, a borrower is not required to make any principal payments during 
the time the borrower is in school. The Secretary pays the interest on 
the borrower's behalf during the time the borrower is in school. When 
the borrower ceases to be enrolled on at least a half-time basis, a 
grace period begins during which no principal payments are required, and 
the Secretary continues to make interest payments on the borrower's 
behalf. In the case of an unsubsidized Stafford loan, the borrower is 
responsible for interest during these periods. At the end

[[Page 10]]

of the grace period, the repayment period begins. During the repayment 
period, for the subsidized and unsubsidized Stafford loan, the borrower 
pays both the principal and the interest accruing on the loan.
    (c) SLS loan repayment. Generally, the repayment period for an SLS 
loan begins immediately on the day of the last disbursement of the loan 
proceeds by the lender. The first payment of principal and interest on 
an SLS loan is due from the borrower within 60 days after the loan is 
fully disbursed unless a borrower who is also a Stafford loan borrower, 
but who has not yet entered repayment on the Stafford loan, requests 
that commencement of repayment on the SLS loan be deferred until the 
borrower's grace period on the Stafford loan expires.
    (d) PLUS loan repayment. Generally, the repayment period for a PLUS 
loan begins on the day the loan is fully disbursed by the lender. The 
first payment of principal and interest on a PLUS loan is due from the 
borrower within 60 days after the loan is fully disbursed.
    (e) Consolidation loan repayment. Generally, the repayment period 
for a Consolidation loan begins on the day the loan is disbursed. The 
first payment of principal and interest on a Consolidation loan is due 
from the borrower within 60 days after the borrower's liability on all 
loans being consolidated has been discharged.
    (f) Deferment of repayment. Repayment of principal on a FFEL program 
loan may be deferred under the circumstances described in Sec. 682.210.
    (g) Default. If a borrower defaults on a loan, the guarantor 
reimburses the lender for the amount of its loss. The guarantor then 
collects the amount owed from the borrower.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1071 to 1087-2)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 25744, May 17, 1994; 59 
FR 33348, June 28, 1994; 64 FR 18975, Apr. 16, 1999; 64 FR 58952, Nov. 
1, 1999; 68 FR 75428, Dec. 31, 2003; 71 FR 45698, Aug. 9, 2006; 78 FR 
65806, Nov. 1, 2013]



Sec. 682.103  Applicability of subparts.

    (a) Subpart B of this part contains general provisions that are 
applicable to all participants in the FFEL and Federal GSL programs.
    (b) The administration of the FFEL programs by a guaranty agency is 
subject to subparts C, D, F, and G of this part.
    (c) The Federal FFEL and Federal GSL programs are subject to 
subparts C, F, and G of this part.
    (d) Certain requirements applicable to schools under all the FFEL 
and Federal GSL programs are set forth in subpart F of this part.

(Authority: 20 U.S.C. 1071 to 1087-2)

[57 FR 60323, Dec. 18, 1992, as amended at 64 FR 18975, Apr. 16, 1999; 
64 FR 58952, Nov. 1, 1999; 78 FR 65806, Nov. 1, 2013]



                      Subpart B_General Provisions



Sec. 682.200  Definitions.

    (a)(1) The definitions of the following terms used in this part are 
set forth in the Student Assistance General Provisions, 34 CFR part 668:

Academic year
Campus-based programs
Dependent student
Eligible program
Eligible student
Enrolled
Expected family contribution (EFC)
Federal Consolidation Loan Program
Federal Pell Grant Program
Federal Perkins Loan Program
Federal PLUS Program
Federal Work-Study (FWS) Program
Full-time student
Half-time student
Independent student
National of the United States (Referred to as U.S. Citizen or National 
in 34 CFR 668.2)
Payment period
Teacher Education Assistance for College and Higher Education (TEACH) 
Grant Program
TEACH Grant
Undergraduate student

    (2) The following definitions are set forth in the regulations for 
Institutional Eligibility under the Higher Education Act of 1965, as 
amended, 34 CFR part 600:

Accredited
Clock hour
Correspondence course
Credit hour
Educational program
Federal Family Education Loan Program (formerly known as the Guaranteed 
Student Loan (GSL) Program)

[[Page 11]]

Foreign institution
Institution of higher education (Sec. 600.4)
Nationally recognized accrediting agency
Postsecondary Vocational Institution
Preaccredited
Secretary
State

    (3) The definition for cost of attendance is set forth in section 
472 of the Act, as amended.
    (b) The following definitions also apply to this part:
    Act. The Higher Education Act of 1965, as amended, 20 U.S.C. 1071 et 
seq.
    Actual interest rate. The annual interest rate a lender charges on a 
loan, which may be equal to or less than the applicable interest rate on 
that loan.
    Applicable interest rate. The maximum annual interest rate that a 
lender may charge under the Act on a loan.
    Authority. Any private non-profit or public entity that may issue 
tax-exempt obligations to obtain funds to be used for the purchase of 
FFEL loans. The term ``Authority'' also includes any agency, including a 
State postsecondary institution or any other instrumentality of a State 
or local governmental unit, regardless of the designation or primary 
purpose of that agency, that may issue tax-exempt obligations, any party 
authorized to issue those obligations on behalf of a governmental 
agency, and any non-profit organization authorized by law to issue tax-
exempt obligations.
    Borrower. An individual to whom a FFEL Program loan was made.
    Co-Maker: One of two married individuals who jointly borrow a 
Consolidation loan, each of whom are eligible and who are jointly and 
severally liable for repayment of the loan. The term co-maker also 
includes one of two parents who are joint borrowers as previously 
authorized in the PLUS Program.
    Default. The failure of a borrower and endorser, if any, or joint 
borrowers on a PLUS or Consolidation loan, to make an installment 
payment when due, or to meet other terms of the promissory note, the 
Act, or regulations as applicable, if the Secretary or guaranty agency 
finds it reasonable to conclude that the borrower and endorser, if any, 
no longer intend to honor the obligation to repay, provided that this 
failure persists for--
    (1) 270 days for a loan repayable in monthly installments; or
    (2) 330 days for a loan repayable in less frequent installments.
    Disbursement. The transfer of loan proceeds by a lender to a holder, 
in the case of a Consolidation loan, or to a borrower, a school, or an 
escrow agent by issuance of an individual check, a master check or by 
electronic funds transfer that may represent loan amounts for borrowers.
    Disposable income. That part of an individual's compensation from an 
employer and other income from any source, including spousal income, 
that remains after the deduction of any amounts required by law to be 
withheld, or any child support or alimony payments that are made under a 
court order or legally enforceable written agreement. Amounts required 
by law to be withheld include, but are not limited, to Federal, State, 
and local taxes, Social Security contributions, and wage garnishment 
payments.
    Endorser. An individual who signs a promissory note and agrees to 
repay the loan in the event that the borrower does not.
    Escrow agent. Any guaranty agency or other eligible lender that 
receives the proceeds of a FFEL program loan as an agent of an eligible 
lender for the purpose of transmitting those proceeds to the borrower or 
the borrower's school.
    Estimated financial assistance. (1) The estimated amount of 
assistance for a period of enrollment that a student (or a parent on 
behalf of a student) will receive from Federal, State, institutional, or 
other sources, such as, scholarships, grants, the net earnings from 
need-based employment, or loans, including but not limited to--
    (i) Except as provided in paragraph (2)(iii) of this definition, 
national service education awards or post-service benefits under title I 
of the National and Community Service Act of 1990 (AmeriCorps);
    (ii) Except as provided in paragraph (2)(vii) of this definition, 
veterans' education benefits;
    (iii) Any educational benefits paid because of enrollment in a 
postsecondary education institution, or to

[[Page 12]]

cover postsecondary education expenses;
    (iv) Fellowships or assistantships, except non-need-based employment 
portions of such awards;
    (v) Insurance programs for the student's education; and
    (vi) The estimated amount of other Federal student financial aid, 
including but not limited to a Federal Pell Grant, campus-based aid, and 
the gross amount (including fees) of subsidized and unsubsidized Federal 
Stafford Loans or subsidized and unsubsidized Federal Direct Stafford/
Ford Loans, and Federal PLUS or Federal Direct PLUS Loans.
    (2) Estimated financial assistance does not include--
    (i) Those amounts used to replace the expected family contribution, 
including the amounts of any TEACH Grant, unsubsidized Federal Stafford 
or Federal Direct Stafford/Ford Loans, Federal PLUS or Federal Direct 
PLUS Loans, and non-federal non-need-based loans, including private, 
state-sponsored, and institutional loans. However, if the sum of the 
amounts received that are being used to replace the student's EFC exceed 
the EFC, the excess amount must be treated as estimated financial 
assistance;
    (ii) Federal Perkins loan and Federal Work-Study funds that the 
student has declined;
    (iii) For the purpose of determining eligibility for a subsidized 
Stafford loan, national service education awards or post-service 
benefits under title I of the National and Community Service Act of 1990 
(AmeriCorps);
    (iv) Any portion of the estimated financial assistance described in 
paragraph (1) of this definition that is included in the calculation of 
the student's expected family contribution (EFC);
    (v) Non-need-based employment earnings;
    (vi) Assistance not received under a title IV, HEA program, if that 
assistance is designated to offset all or a portion of a specific amount 
of the cost of attendance and that component is excluded from the cost 
of attendance as well. If that assistance is excluded from either 
estimated financial assistance or cost of attendance, it must be 
excluded from both;
    (vii) Federal veterans' education benefits paid under--
    (A) Chapter 103 of title 10, United States Code (Senior Reserve 
Officers' Training Corps);
    (B) Chapter 106A of title 10, United States Code (Educational 
Assistance for Persons Enlisting for Active Duty);
    (C) Chapter 1606 of title 10, United States Code (Selected Reserve 
Educational Assistance Program);
    (D) Chapter 1607 of title 10, United States Code (Educational 
Assistance Program for Reserve Component Members Supporting Contingency 
Operations and Certain Other Operations);
    (E) Chapter 30 of title 38, United States Code (All-Volunteer Force 
Educational Assistance Program, also known as the ``Montgomery GI Bill--
active duty'');
    (F) Chapter 31 of title 38, United States Code (Training and 
Rehabilitation for Veterans with Service-Connected Disabilities);
    (G) Chapter 32 of title 38, United States Code (Post-Vietnam Era 
Veterans' Educational Assistance Program);
    (H) Chapter 33 of title 38, United States Code (Post 9/11 
Educational Assistance);
    (I) Chapter 35 of title 38, United States Code (Survivors' and 
Dependents' Educational Assistance Program);
    (J) Section 903 of the Department of Defense Authorization Act, 1981 
(10 U.S.C. 2141 note) (Educational Assistance Pilot Program);
    (K) Section 156(b) of the ``Joint Resolution making further 
continuing appropriations and providing for productive employment for 
the fiscal year 1983, and for other purposes'' (42 U.S.C. 402 note) 
(Restored Entitlement Program for Survivors, also known as ``Quayle 
benefits'');
    (L) The provisions of chapter 3 of title 37, United States Code, 
related to subsistence allowances for members of the Reserve Officers 
Training Corps; and
    (M) Any program that the Secretary may determine is covered by 
section 480(c)(2) of the HEA; and

[[Page 13]]

    (viii) Iraq and Afghanistan Service Grants made under section 420R 
of the HEA.
    Federal GSL programs. The Federal Insured Student Loan Program, the 
Federal Supplemental Loans for Students Program, the Federal PLUS 
Program, and the Federal Consolidation Loan Program.
    Federal Insured Student Loan Program. The loan program authorized by 
title IV-B of the Act under which the Secretary directly insures lenders 
against losses.
    Grace period. The period that begins on the day after a Stafford 
loan borrower ceases to be enrolled as at least a half-time student at 
an institution of higher education and ends on the day before the 
repayment period begins. See also ``Post-deferment grace period.'' For 
an SLS borrower who also has a Federal Stafford loan on which the 
borrower has not yet entered repayment, the grace period is an 
equivalent period after the borrower ceases to be enrolled as at least a 
half-time student at an institution of higher education.
    Guaranty agency. A State or private nonprofit organization that has 
an agreement with the Secretary under which it will administer a loan 
guarantee program under the Act.
    Holder. An eligible lender owning an FFEL Program loan including a 
Federal or State agency or an organization or corporation acting on 
behalf of such an agency and acting as a conservator, liquidator, or 
receiver of an eligible lender.
    Legal guardian. An individual appointed by a court to be a 
``guardian'' of a person and specifically required by the court to use 
his or her financial resources for the support of that person.
    Lender. (1) The term ``eligible lender'' is defined in section 
435(d) of the Act, and in paragraphs (2)-(5) of this definition.
    (2) With respect to a National or State chartered bank, a mutual 
savings bank, a savings and loan association, a stock savings bank, or a 
credit union--
    (i) The phrase ``subject to examination and supervision'' in section 
435(d) of the Act means ``subject to examination and supervision in its 
capacity as a lender'';
    (ii) The phrase ``does not have as its primary consumer credit 
function the making or holding of loans made to students under this 
part'' in section 435(d) of the Act means that the lender does not, or 
in the case of a bank holding company, the company's wholly-owned 
subsidiaries as a group do not at any time, hold FFEL Program loans that 
total more than one-half of the lender's or subsidiaries' combined 
consumer credit loan portfolio, including home mortgages held by the 
lender or its subsidiaries. For purposes of this paragraph, loans held 
in trust by a trustee lender are not considered part of the trustee 
lender's consumer credit function.
    (3) A bank that is subject to examination and supervision by an 
agency of the United States, making student loans as a trustee, may be 
an eligible lender if it makes loans under an express trust, operated as 
a lender in the FFEL programs prior to January 1, 1975, and met the 
requirements of this paragraph prior to July 23, 1992.
    (4) The corporate parent or other owner of a school that qualifies 
as an eligible lender under section 435(d) of the Act is not an eligible 
lender unless the corporate parent or owner itself qualifies as an 
eligible lender under section 435(d) of the Act.
    (5)(i) The term eligible lender does not include any lender that the 
Secretary determines, after notice and opportunity for a hearing before 
a designated Department official, has, directly or through an agent or 
contractor--
    (A) Except as provided in paragraph (5)(ii) of this definition, 
offered, directly or indirectly, points, premiums, payments (including 
payments for referrals, finder fees or processing fees), or other 
inducements to any school, any employee of a school, or any individual 
or entity in order to secure applications for FFEL loans or FFEL loan 
volume. This includes but is not limited to--
    (1) Payments or offerings of other benefits, including prizes or 
additional financial aid funds, to a prospective borrower or to a school 
or school employee in exchange for applying for or accepting a FFEL loan 
from the lender;

[[Page 14]]

    (2) Payments or other benefits, including payments of stock or other 
securities, tuition payments or reimbursements, to a school, a school 
employee, any school-affiliated organization, or to any other individual 
in exchange for FFEL loan applications, application referrals, or a 
specified volume or dollar amount of loans made, or placement on a 
school's list of recommended or suggested lenders;
    (3) Payments or other benefits provided to a student at a school who 
acts as the lender's representative to secure FFEL loan applications 
from individual prospective borrowers, unless the student is also 
employed by the lender for other purposes and discloses that employment 
to school administrators and to prospective borrowers;
    (4) Payments or other benefits to a loan solicitor or sales 
representative of a lender who visits schools to solicit individual 
prospective borrowers to apply for FFEL loans from the lender;
    (5) Payment to another lender or any other party, including a 
school, a school employee, or a school-affiliated organization or its 
employees, of referral fees, finder fees or processing fees, except 
those processing fees necessary to comply with Federal or State law;
    (6) Compensation to an employee of a school's financial aid office 
or other employee who has responsibilities with respect to student loans 
or other financial aid provided by the school or compensation to a 
school-affiliated organization or its employees, to serve on a lender's 
advisory board, commission or other group established by the lender, 
except that the lender may reimburse the employee for reasonable 
expenses incurred in providing the service;
    (7) Payment of conference or training registration, travel, and 
lodging costs for an employee of a school or school-affiliated 
organization;
    (8) Payment of entertainment expenses, including expenses for 
private hospitality suites, tickets to shows or sporting events, meals, 
alcoholic beverages, and any lodging, rental, transportation, and other 
gratuities related to lender-sponsored activities for employees of a 
school or a school-affiliated organization;
    (9) Philanthropic activities, including providing scholarships, 
grants, restricted gifts, or financial contributions in exchange for 
FFEL loan applications or application referrals, or a specified volume 
or dollar amount of FFEL loans made, or placement on a school's list of 
recommended or suggested lenders;
    (10) Performance of, or payment to another third party to perform, 
any school function required under title IV, except that the lender may 
perform entrance counseling and, as provided in Sec. 682.604(a), exit 
counseling, and may provide services to participating foreign schools at 
the direction of the Secretary, as a third-party servicer; and
    (11) Any type of consulting arrangement or other contract with an 
employee of a financial aid office at a school, or an employee of a 
school who otherwise has responsibilities with respect to student loans 
or other financial aid provided by the school under which the employee 
would provide services to the lender.
    (B) Conducted unsolicited mailings, by postal or electronic means, 
of student loan application forms to students enrolled in secondary 
schools or postsecondary institutions or to family members of such 
students, except to a student or borrower who previously has received a 
FFEL loan from the lender;
    (C) Offered, directly or indirectly, a FFEL loan to a prospective 
borrower to induce the purchase of a policy of insurance or other 
product or service by the borrower or other person; or
    (D) Engaged in fraudulent or misleading advertising with respect to 
its FFEL loan activities.
    (ii) Notwithstanding paragraph (5)(i) of this definition, a lender, 
in carrying out its role in the FFEL program and in attempting to 
provide better service, may provide--
    (A) Technical assistance to a school that is comparable to the kinds 
of technical assistance provided to a school by the Secretary under the 
Direct Loan program, as identified by the Secretary in a public 
announcement, such as a notice in the Federal Register;
    (B) Support of and participation in a school's or a guaranty 
agency's student aid and financial literacy-related outreach activities, 
including in-person

[[Page 15]]

entrance and exit counseling, as long as the name of the entity that 
developed and paid for any materials is provided to the participants and 
the lender does not promote its student loan or other products;
    (C) Meals, refreshments, and receptions that are reasonable in cost 
and scheduled in conjunction with training, meeting, or conference 
events if those meals, refreshments, or receptions are open to all 
training, meeting, or conference attendees;
    (D) Toll-free telephone numbers for use by schools or others to 
obtain information about FFEL loans and free data transmission service 
for use by schools to electronically submit applicant loan processing 
information or student status confirmation data;
    (E) A reduced origination fee in accordance with Sec. 682.202(c);
    (F) A reduced interest rate as provided under the Act;
    (G) Payment of Federal default fees in accordance with the Act;
    (H) Purchase of a loan made by another lender at a premium;
    (I) Other benefits to a borrower under a repayment incentive program 
that requires, at a minimum, one or more scheduled payments to receive 
or retain the benefit or under a loan forgiveness program for public 
service or other targeted purposes approved by the Secretary, provided 
these benefits are not marketed to secure loan applications or loan 
guarantees;
    (J) Items of nominal value to schools, school-affiliated 
organizations, and borrowers that are offered as a form of generalized 
marketing or advertising, or to create good will; and
    (K) Other services as identified and approved by the Secretary 
through a public announcement, such as a notice in the Federal Register.
    (iii) For the purposes of this paragraph (5)--
    (A) The term ``school-affiliated organization'' is defined in 
Sec. 682.200.
    (B) The term ``applications'' includes the Free Application for 
Federal Student Aid (FAFSA), FFEL loan master promissory notes, and FFEL 
Consolidation loan application and promissory notes.
    (C) The term ``other benefits'' includes, but is not limited to, 
preferential rates for or access to the lender's other financial 
products, information technology equipment, or non-loan processing or 
non-financial aid-related computer software at below market rental or 
purchase cost, and printing and distribution of college catalogs and 
other materials at reduced or no cost.
    (6) The term eligible lender does not include any lender that--
    (i) Is debarred or suspended, or any of whose principals or 
affiliates (as those terms are defined in 2 CFR parts 180 and 3485) is 
debarred or suspended under Executive Order (E.O.) 12549 (3 CFR, 1986 
Comp., p. 189) or the Federal Acquisition Regulation (FAR), 48 CFR part 
9, subpart 9.4;
    (ii) Is an affiliate, as defined in 2 CFR parts 180 and 3485, of any 
person who is debarred or suspended under E.O. 12549 (3 CFR, 1986 Comp., 
p. 189) or the FAR, 48 CFR part 9, subpart 9.4; or
    (iii) Employs a person who is debarred or suspended under E.O. 12549 
(3 CFR, 1986 Comp., p. 189) or the FAR, 48 CFR part 9, subpart 9.4, in a 
capacity that involves the administration or receipt of FFEL Program 
funds.
    (7) An eligible lender may not make or hold a loan as trustee for a 
school, or for a school-affiliated organization as defined in this 
section, unless on or before September 30, 2006--
    (i) The eligible lender was serving as trustee for the school or 
school-affiliated organization under a contract entered into and 
continuing in effect as of that date; and
    (ii) The eligible lender held at least one loan in trust on behalf 
of the school or school-affiliated organization on that date.
    (8) As of January 1, 2007, and for loans first disbursed on or after 
that date under a trustee arrangement, an eligible lender operating as a 
trustee under a contract entered into on or before September 30, 2006, 
and which continues in effect with a school or a school-affiliated 
organization--
    (i) Must not--
    (A) Make a loan to any undergraduate student;
    (B) Make a loan other than a Federal Stafford loan to a graduate or 
professional student; or

[[Page 16]]

    (C) Make a loan to a borrower who is not enrolled at that school;
    (ii) Must offer loans that carry an origination fee or an interest 
rate, or both, that are less than the fee or rate authorized under the 
provisions of the Act; and
    (iii) Must, for any fiscal year beginning on or after July 1, 2006 
in which the school engages in activities as an eligible lender, submit 
an annual compliance audit that satisfies the following requirements:
    (A) With regard to a school that is a governmental entity or a 
nonprofit organization, the audit must be conducted in accordance with 
Sec. 682.305(c)(2)(v) and chapter 75 of title 31, United States Code, 
and in addition, during years when the student financial aid cluster (as 
defined in Office of Management and Budget Circular A-133, Appendix B, 
Compliance Supplement) is not audited as a ``major program'' (as defined 
under 31 U.S.C. 7501) must, without regard to the amount of loans made, 
include in such audit the school's lending activities as a major 
program.
    (B) With regard to a school that is not a governmental entity or a 
nonprofit organization, the audit must be conducted annually in 
accordance with Sec. 682.305(c)(2)(i) through (iii).
    (C) With regard to any school, the audit must include a 
determination that--
    (1) The school used all payments and proceeds (i.e., special 
allowance and interest payments from borrowers, interest subsidy 
payments, proceeds from the sale or other disposition of loans) from the 
loans for need-based grant programs;
    (2) Those need-based grants supplemented, rather than supplanted, 
the institution's use of non-Federal funds for such grants; and
    (3) The school used no more than a reasonable portion of payments 
and proceeds from the loans for direct administrative expenses.
    Master Promissory Note (MPN). A promissory note under which the 
borrower may receive loans for a single period of enrollment or multiple 
periods of enrollment.
    Nationwide consumer reporting agency. A consumer reporting agency 
that compiles and maintains files on consumers on a nationwide basis and 
as defined in 15 U.S.C. 1681a(p).
    Nonsubsidized Stafford loan. A Stafford loan made prior to October 
1, 1992 that does not qualify for interest benefits under 
Sec. 682.301(b) or special allowance payments under Sec. 682.302.
    Origination relationship. A special business relationship between a 
school and a lender in which the lender delegates to the school, or to 
an entity or individual affiliated with the school, substantial 
functions or responsibilities normally performed by lenders before 
making FFEL program loans. In this situation, the school is considered 
to have ``originated'' a loan made by the lender.
    Origination fee. A fee that the lender is required to pay the 
Secretary to help defray the Secretary's costs of subsidizing the loan. 
The lender may pass this fee on to the Stafford loan borrower. The 
lender must pass this fee on to the SLS or PLUS borrower.
    Participating school. A school that has in effect a current 
agreement with the Secretary under Sec. 682.600.
    Period of enrollment. The period for which a Stafford, SLS, or PLUS 
loan is intended. The period of enrollment must coincide with one or 
more bona fide academic terms established by the school for which 
institutional charges are generally assessed (e.g., a semester, 
trimester, or quarter in weeks of instructional time, an academic year, 
or the length of the student's program of study in weeks of 
instructional time). The period of enrollment is also referred to as the 
loan period.
    Post-deferment grace period. For a loan made prior to October 1, 
1981, a single period of six consecutive months beginning on the day 
following the last day of an authorized deferment period.
    Repayment period. (1) For a Stafford loan, the period beginning on 
the date following the expiration of the grace period and ending no 
later than 10 years, or 25 years under an extended repayment schedule, 
from the date the first payment of principal is due from the borrower, 
exclusive of any period of deferment or forbearance.
    (2) For unsubsidized Stafford loans, the period that begins on the 
day after the expiration of the applicable grace

[[Page 17]]

period that follows after the student ceases to be enrolled on at least 
a half-time basis and ending no later than 10 years or 25 years under an 
extended repayment schedule, from that date, exclusive of any period of 
deferment or forbearance. However, payments of interest are the 
responsibility of the borrower during the in-school and grace period, 
but may be capitalized by the lender.
    (3) For SLS loans, the period that begins on the date the loan is 
disbursed, or if the loan is disbursed in more than one installment, on 
the date the last disbursement is made and ending no later than 10 years 
from that date, exclusive of any period of deferment or forbearance. The 
first payment of principal is due within 60 days after the loan is fully 
disbursed unless a borrower who is also a Stafford loan borrower but 
who, has not yet entered repayment on the Stafford loan requests that 
commencement of repayment on the SLS loan be delayed until the 
borrower's grace period on the Stafford loan expires. Interest on the 
loan accrues and is due and payable from the date of the first 
disbursement of the loan. The borrower is responsible for paying 
interest on the loan during the grace period and periods of deferment, 
but the interest may be capitalized by the lender.
    (4) For Federal PLUS loans, the period that begins on the date the 
loan is disbursed, or if the loan is disbursed in more than one 
installment, on the date the last disbursement is made and ending no 
later than 10 years, or 25 years under an extended repayment schedule, 
from that date, exclusive of any period of deferment or forbearance. 
Interest on the loan accrues and is due and payable from the date of the 
first disbursement of the loan.
    (5) For Federal Consolidation loans, the period that begins on the 
date the loan is disbursed and ends no later than 10, 12, 15, 20, 25, or 
30 years from that date depending upon the sum of the amount of the 
Consolidation loan, and the unpaid balance on other student loans, 
exclusive of any period of deferment or forbearance.
    Satisfactory repayment arrangement. (1) For purposes of regaining 
eligibility under the title IV student financial assistance programs, 
the making of six consecutive, on-time, voluntary full monthly payments 
on a defaulted loan. A borrower may only obtain the benefit of this 
paragraph with respect to renewed eligibility once.
    (2) The required full monthly payment amount may not be more than is 
reasonable and affordable based on the borrower's total financial 
circumstances. Voluntary payments are payments made directly by the 
borrower, and do not include payments obtained by income tax off-set, 
garnishment, or income or asset execution. ``On-time'' means a payment 
received by the Secretary or a guaranty agency or its agent within 20 
days of the scheduled due date.
    (3) A borrower has not used the one opportunity to renew eligibility 
for title IV assistance if the borrower makes six consecutive, on-time, 
voluntary, full monthly payments under an agreement to rehabilitate a 
defaulted loan but does not receive additional title IV assistance prior 
to defaulting on that loan again.
    School. (1) An ``institution of higher education'' as that term is 
defined in 34 CFR 600.4.
    (2) For purposes of an in-school deferment, the term includes an 
institution of higher education, whether or not it participates in any 
title IV program or has lost its eligibility to participate in the FFEL 
program because of a high default rate.
    School-affiliated organization. A school-affiliated organization is 
any organization that is directly or indirectly related to a school and 
includes, but is not limited to, alumni organizations, foundations, 
athletic organizations, and social, academic, and professional 
organizations.
    School lender. A school, other than a correspondence school, that 
has entered into a contract of guarantee under this part with the 
Secretary or, a similar agreement with a guaranty agency.
    Stafford Loan Program. The loan program authorized by Title IV-B of 
the Act which encourages the making of subsidized and unsubsidized loans 
to undergraduate, graduate, and professional students and is one of the 
Federal Family Education Loan programs.

[[Page 18]]

    State lender. In any State, a single State agency or private 
nonprofit agency designated by the State that has entered into a 
contract of guarantee under this part with the Secretary, or a similar 
agreement with a guaranty agency.
    Subsidized Stafford Loan: A Stafford loan that qualifies for 
interest benefits under Sec. 682.301(b) and special allowance under 
Sec. 682.302.
    Substantial gainful activity. A level of work performed for pay or 
profit that involves doing significant physical or mental activities, or 
a combination of both.
    Temporarily totally disabled. The condition of an individual who, 
though not totally and permanently disabled, is unable to work and earn 
money or attend school, during a period of at least 60 days needed to 
recover from injury or illness. With regard to a disabled dependent of a 
borrower, this term means a spouse or other dependent who, during a 
period of injury or illness, requires continuous nursing or similar 
services for a period of at least 90 days.
    Third-party servicer. Any State or private, profit or nonprofit 
organization or any individual that enters into a contract with a lender 
or guaranty agency to administer, through either manual or automated 
processing, any aspect of the lender's or guaranty agency's FFEL 
programs required by any statutory provision of or applicable to Title 
IV of the HEA, any regulatory provision prescribed under that statutory 
authority, or any applicable special arrangement, agreement, or 
limitation entered into under the authority of statutes applicable to 
Title IV of the HEA that governs the FFEL programs, including, any 
applicable function described in the definition of third-party servicer 
in 34 CFR part 668; originating, guaranteeing, monitoring, processing, 
servicing, or collecting loans; claims submission; or billing for 
interest benefits and special allowance.
    Totally and permanently disabled. The condition of an individual 
who--
    (1) Is unable to engage in any substantial gainful activity by 
reason of any medically determinable physical or mental impairment 
that--
    (i) Can be expected to result in death;
    (ii) Has lasted for a continuous period of not less than 60 months; 
or
    (iii) Can be expected to last for a continuous period of not less 
than 60 months; or
    (2) Has been determined by the Secretary of Veterans Affairs to be 
unemployable due to a service-connected disability.
    Unsubsidized Stafford loan. A loan made after October 1, 1992, 
authorized under section 428H of the Act for borrowers who do not 
qualify for interest benefits under Sec. 682.301(b) but do qualify for 
special allowance under Sec. 682.302.
    Write-off. Cessation of collection activity on a defaulted FFEL loan 
due to a determination in accordance with applicable standards that no 
further collection activity is warranted.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 8 U.S.C. 1101; 20 U.S.C. 1070 to 1087-2, 1088-1098, 1141; 
E.O. 12549 (3 CFR, 1986 Comp., p. 189), E.O. 12689 (3 CFR, 1989 Comp., 
p. 235))

[57 FR 60323, Dec. 18, 1992]

    Editorial Note: For Federal Register citations affecting 
Sec. 682.200, see the List of CFR Sections Affected, which appears in 
the Finding Aids section of the printed volume and at www.fdsys.gov.



Sec. 682.201  Eligible borrowers.

    (a) Student Stafford borrower. Except for a refinanced SLS/PLUS 
loan, a student is eligible to receive a Stafford loan, and an 
independent undergraduate student, a graduate or professional student, 
or, subject to paragraph (a)(3) of this section, a dependent 
undergraduate student, is eligible to receive an unsubsidized Stafford 
loan, if the student who is enrolled or accepted for enrollment on at 
least a half-time basis at a participating school meets the requirements 
for an eligible student under 34 CFR part 668, and--
    (1) In the case of an undergraduate student who seeks a Stafford 
loan or unsubsidized Stafford loan for the cost of attendance at a 
school that participates in the Pell Grant Program, has received a final 
determination, or, in the case of a student who has filed an application 
with the school for a Pell Grant, a preliminary determination, from the 
school of the student's eligibility or ineligibility for a Pell Grant

[[Page 19]]

and, if eligible, has applied for the period of enrollment for which the 
loan is sought;
    (2) In the case of any student who seeks an unsubsidized Stafford 
loan for the cost of attendance at a school that participates in the 
Stafford Loan Program, the student must--
    (i) Receive a determination of need for a subsidized Stafford loan; 
and
    (ii) If the determination of need is in excess of $200, have made a 
request to a lender for a subsidized Stafford loan;
    (3) For purposes of a dependent undergraduate student's eligibility 
for an additional unsubsidized Stafford loan amount, as described at 
Sec. 682.204(d), is a dependent undergraduate student for whom the 
financial aid administrator determines and documents in the school's 
file, after review of the family financial information provided by the 
student and consideration of the student's debt burden, that the 
student's parents likely will be precluded by exceptional circumstances 
(e.g., denial of a PLUS loan to a parent based on adverse credit, the 
student's parent receives only public assistance or disability benefits, 
is incarcerated, or his or her whereabouts are unknown) from borrowing 
under the PLUS Program and the student's family is otherwise unable to 
provide the student's expected family contribution. A parent's refusal 
to borrow a PLUS loan does not constitute an exceptional circumstance;
    (4)(i) Reaffirms any FFEL loan amount on which there has been a 
total cessation of collection activity, including all principal, 
interest, collection costs, court costs, attorney fees, and late charges 
that have accrued on that amount up to the date of reaffirmation.
    (ii) For purposes of paragraph (a)(4) of this section, reaffirmation 
means the acknowledgement of the loan by the borrower in a legally 
binding manner. The acknowledgement may include, but is not limited to, 
the borrower--
    (A) Signing a new promissory note that includes the same terms and 
conditions as the original note signed by the borrower or repayment 
schedule; or
    (B) Making a payment on the loan.
    (5) The suspension of collection activity has been lifted from any 
loan on which collection activity had been suspended based on a 
conditional determination that the borrower was totally and permanently 
disabled.
    (6) In the case of a borrower whose prior loan under title IV of the 
Act or whose TEACH Grant service obligation was discharged after a final 
determination of total and permanent disability, the borrower must--
    (i) Obtain certification from a physician that the borrower is able 
to engage in substantial gainful activity;
    (ii) Sign a statement acknowledging that the FFEL loan the borrower 
receives cannot be discharged in the future on the basis of any 
impairment present when the new loan is made, unless that impairment 
substantially deteriorates; and
    (iii) If a borrower receives a new FFEL loan, other than a Federal 
Consolidation Loan, within three years of the date that any previous 
title IV loan or TEACH Grant service obligation was discharged due to a 
total and permanent disability in accordance with 
Sec. 682.402(c)(3)(ii), 34 CFR 674.61(b)(3)(i), 34 CFR 685.213, or 34 
CFR 686.42(b) based on a discharge request received on or after July 1, 
2010, resume repayment on the previously discharged loan in accordance 
with Sec. 682.402(c)(5), 34 CFR 674.61(b)(5), or 34 CFR 685.213(b)(4), 
or acknowledge that he or she is once again subject to the terms of the 
TEACH Grant agreement to serve before receiving the new loan.
    (7) In the case of a borrower whose prior loan under title IV of the 
HEA was conditionally discharged after an initial determination that the 
borrower was totally and permanently disabled based on a discharge 
request received prior to July 1, 2010, the borrower must--
    (i) Comply with the requirements of paragraphs (a)(6)(i) and 
(a)(6)(ii) of this section; and
    (ii) Sign a statement acknowledging that--
    (A) The loan that has been conditionally discharged prior to a final 
determination of total and permanent disability cannot be discharged in 
the future on the basis of any impairment present when the borrower 
applied for

[[Page 20]]

a total and permanent disability discharge or when the new loan is made 
unless that impairment substantially deteriorates; and
    (B) Collection activity will resume on any loans in a conditional 
discharge period.
    (8) In the case of any student who seeks a loan but does not have a 
certificate of graduation from a school providing secondary education or 
the recognized equivalent of such a certificate, the student meets the 
requirements under 34 CFR part 668.32(e).
    (9) Is not serving in a medical internship or residency program, 
except for an internship in dentistry.
    (b) Student PLUS borrower. A graduate or professional student who is 
enrolled or accepted for enrollment on at least a half-time basis at a 
participating school is eligible to receive a PLUS Loan on or after July 
1, 2006, if the student--
    (1) Meets the requirements for an eligible student under 34 CFR 668;
    (2) Meets the requirements of paragraphs (a)(4), (a)(5), (a)(6), 
(a)(7), (a)(8), and (a)(9) of this section, if applicable;
    (3) Has received a determination of his or her annual loan maximum 
eligibility under the Federal Subsidized and Unsubsidized Stafford Loan 
Program or under the Federal Direct Subsidized Stafford/Ford Loan 
Program and Federal Direct Unsubsidized Stafford/Ford Loan Program, as 
applicable; and
    (4) Does not have an adverse credit history in accordance with 
paragraphs (c)(2)(i) through (c)(2)(v) of this section, or obtains an 
endorser who has been determined not to have an adverse credit history, 
as provided for in paragraph (c)(1)(vii) of this section.
    (c) Parent PLUS borrower. (1) A parent borrower, is eligible to 
receive a PLUS Program loan, other than a loan made under 
Sec. 682.209(e), if the parent--
    (i) Is borrowing to pay for the educational costs of a dependent 
undergraduate student who meets the requirements for an eligible student 
set forth in 34 CFR part 668;
    (ii) Provides his or her and the student's social security number;
    (iii) Meets the requirements pertaining to citizenship and residency 
that apply to the student in 34 CFR 668.33;
    (iv) Meets the requirements concerning defaults and overpayments 
that apply to the student in 34 CFR 668.35 and meets the requirements of 
judgment liens that apply to the student under 34 CFR 668.32(g)(3);
    (v) Except for the completion of a Statement of Selective Service 
Registration Status, complies with the requirements for submission of a 
Statement of Educational Purpose that apply to the student in 34 CFR 
part 668;
    (vi) Meets the requirements of paragraphs (a)(4), (a)(5), (a)(6), 
and (a)(7) of this section, as applicable; and
    (vii) In the case of a Federal PLUS loan made on or after July 1, 
1993, does not have an adverse credit history or obtains an endorser who 
has been determined not to have an adverse credit history as provided in 
paragraph (c)(2)(ii) of this section.
    (viii) Has completed repayment of any title IV, HEA program 
assistance obtained by fraud, if the parent has been convicted of, or 
has pled nolo contendere or guilty to, a crime involving fraud in 
obtaining title IV, HEA program assistance.
    (2)(i) For purposes of this section, the lender must obtain a credit 
report on each applicant from at least one national consumer reporting 
agency. The credit report must be secured within a timeframe that would 
ensure the most accurate, current representation of the borrower's 
credit history before the first day of the period of enrollment for 
which the loan is intended.
    (ii) Unless the lender determines that extenuating circumstances 
existed, the lender must consider each applicant to have an adverse 
credit history based on the credit report if--
    (A) The applicant is considered 90 or more days delinquent on the 
repayment of a debt; or
    (B) The applicant has been the subject of a default determination, 
bankruptcy discharge, foreclosure, repossession, tax lien, wage 
garnishment, or write-off of a Title IV debt, during the five years 
preceding the date of the credit report.
    (iii) Nothing in this paragraph precludes the lender from 
establishing more restrictive credit standards to determine whether the 
applicant has an adverse credit history.

[[Page 21]]

    (iv) The absence of any credit history is not an indication that the 
applicant has an adverse credit history and is not to be used as a 
reason to deny a PLUS loan to that applicant.
    (v) The lender must retain a record of its basis for determining 
that extenuating circumstances existed. This record may include, but is 
not limited to, an updated credit report, a statement from the creditor 
that the borrower has made satisfactory arrangements to repay the debt, 
or a satisfactory statement from the borrower explaining any 
delinquencies with outstanding balances of less than $500.
    (3) For purposes of paragraph (c)(1) of this section, a ``parent'' 
includes the individuals described in the definition of ``parent'' in 34 
CFR 668.2 and the spouse of a parent who remarried, if that spouse's 
income and assets would have been taken into account when calculating a 
dependent student's expected family contribution.
    (d) Consolidation program borrower. (1) An individual is eligible to 
receive a Consolidation loan if the individual--
    (i) On the loans being consolidated--
    (A) Is, at the time of application for a Consolidation loan--
    (1) In a grace period preceding repayment;
    (2) In repayment status;
    (3) In a default status and has either made satisfactory repayment 
arrangements as defined in applicable program regulations or has agreed 
to repay the consolidation loan under the income-sensitive repayment 
plan described in Sec. 682.209(a)(6)(iii) or the income-based repayment 
plan described in Sec. 682.215;
    (B) Not subject to a judgment secured through litigation, unless the 
judgment has been vacated;
    (C) Not subject to an order for wage garnishment under section 488A 
of the Act, unless the order has been lifted;
    (D) Not in default status resulting from a claim filed under 
Sec. 682.412.
    (ii) Certifies that no other application for a Consolidation loan is 
pending; and
    (iii) Agrees to notify the holder of any changes in address.
    (2) A borrower may not consolidate a loan under this section for 
which the borrower is wholly or partially ineligible.
    (e) A borrower's eligibility to receive a Consolidation loan 
terminates upon receipt of a Consolidation loan except that--
    (1) Eligible loans received prior to the date a Consolidation loan 
was made and loans received during the 180-day period following the date 
a Consolidation loan was made, may be added to the Consolidation loan 
based on the borrower's request received by the lender during the 180-
day period after the date the Consolidation loan was made;
    (2) A borrower who receives an eligible loan before or after the 
date a Consolidation loan is made may receive a subsequent Consolidation 
loan;
    (3) A Consolidation loan borrower may consolidate an existing 
Consolidation loan if the borrower has at least one other eligible loan 
made before or after the existing Consolidation loan that will be 
consolidated;
    (4) If the consolidation loan is in default or has been submitted to 
the guaranty agency for default aversion, the borrower may obtain a 
subsequent consolidation loan under the Federal Direct Consolidation 
Loan Program for purposes of obtaining an income contingent repayment 
plan or an income-based repayment plan; and
    (5) A FFEL borrower may consolidate his or her loans (including a 
FFEL Consolidation Loan) into the Federal Direct Consolidation Loan 
Program for the purpose of using--
    (i) The Public Service Loan Forgiveness Program; or
    (ii) For FFEL Program loans first disbursed on or after October 1, 
2008 (including Federal Consolidation Loans that repaid FFEL or Direct 
Loan program Loans first disbursed on or after October 1, 2008), the no 
accrual of interest benefit for active duty service members.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, and 
1091)

[57 FR 60323, Dec. 18, 1992]

    Editorial Note: For Federal Register citations affecting 
Sec. 682.201, see the List of CFR Sections Affected, which appears in 
the Finding Aids section of the printed volume and at www.fdsys.gov.

[[Page 22]]



Sec. 682.202  Permissible charges by lenders to borrowers.

    The charges that lenders may impose on borrowers, either directly or 
indirectly, are limited to the following:
    (a) Interest. The applicable interest rates for FFEL Program loans 
are given in paragraphs (a)(1) through (a)(4) and (a)(8) of this 
section.
    (1) Stafford Loan Program. (i) For loans made prior to July 1, 1994, 
if the borrower, on the date the promissory note evidencing the loan was 
signed, had an outstanding balance of principal or interest on a 
previous Stafford loan, the interest rate is the applicable interest 
rate on that previous Stafford loan.
    (ii) If the borrower, on the date the promissory note evidencing the 
loan was signed, had no outstanding balance on any FFEL Program loan, 
and the first disbursement was made--
    (A) Prior to October 1, 1992, for a loan covering a period of 
instruction beginning on or after July 1, 1988, the interest rate is 8 
percent until 48 months elapse after the repayment period begins, and 10 
percent thereafter; or
    (B) On or after October 1, 1992, and prior to July 1, 1994, the 
interest rate is a variable rate, applicable to each July 1-June 30 
period, that equals the lesser of--
    (1) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.10 percent; or
    (2) 9 percent.
    (iii) For a Stafford loan for which the first disbursement was made 
before October 1, 1992--
    (A) If the borrower, on the date the promissory note was signed, had 
no outstanding balance on a Stafford loan but had an outstanding balance 
of principal or interest on a PLUS or SLS loan made for a period of 
enrollment beginning before July 1, 1988, or on a Consolidation loan 
that repaid a loan made for a period of enrollment beginning before July 
1, 1988, the interest rate is 8 percent; or
    (B) If the borrower, on the date the promissory note evidencing the 
loan was signed, had an outstanding balance of principal or interest on 
a PLUS or SLS loan made for a period of enrollment beginning on or after 
July 1, 1988, or on a Consolidation loan that repaid a loan made for a 
period of enrollment beginning on or after July 1, 1988, the interest 
rate is 8 percent until 48 months elapse after the repayment period 
begins, and 10 percent thereafter.
    (iv) For a Stafford loan for which the first disbursement was made 
on or after October 1, 1992, but before December 20, 1993, if the 
borrower, on the date the promissory note evidencing the loan was 
signed, had no outstanding balance on a Stafford loan but had an 
outstanding balance of principal or interest on a PLUS, SLS, or 
Consolidation loan, the interest rate is 8 percent.
    (v) For a Stafford loan for which the first disbursement was made on 
or after December 20, 1993 and prior to July 1, 1994, if the borrower, 
on the date the promissory note was signed, had no outstanding balance 
on a Stafford loan but had an outstanding balance of principal or 
interest on a PLUS, SLS, or Consolidation loan, the interest rate is the 
rate provided in paragraph (a)(1)(ii)(B) of this section.
    (vi) For a Stafford loan for which the first disbursement was made 
on or after July 1, 1994 and prior to July 1, 1995, for a period of 
enrollment that included or began on or after July 1, 1994, the interest 
rate is a variable rate, applicable to each July 1-June 30 period, that 
equals the lesser of--
    (A) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.10; or
    (B) 8.25 percent.
    (vii) For a Stafford loan for which the first disbursement was made 
on or after July 1, 1995 and prior to July 1, 1998 the interest rate is 
a variable rate applicable to each July 1-June 30 period, that equals 
the lesser of--
    (A) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 2.5 percent during the in-school, grace and 
deferment period and 3.10 percent during repayment; or
    (B) 8.25 percent.
    (viii) For a Stafford loan for which the first disbursement was made 
on or after July 1, 1998, and prior to July 1,

[[Page 23]]

2006, the interest rate is a variable rate, applicable to each July 1-
June 30 period, that equals the lesser of--
    (A) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period plus 1.7 percent during the in-school, grace and 
deferment periods and 2.3 percent during repayment; or
    (B) 8.25 percent.
    (ix) For a Stafford loan for which the first disbursement was made 
on or after July 1, 2006, the interest rate is 6.8 percent.
    (x) For a subsidized Stafford loan made to an undergraduate student 
for which the first disbursement was made on or after:
    (A) July 1, 2006 and before July 1, 2008, the interest rate is 6.8 
percent on the unpaid principal balance of the loan.
    (B) July 1, 2008 and before July 1, 2009, the interest rate is 6 
percent on the unpaid principal balance of the loan.
    (C) July 1, 2009 and before July 1, 2010, the interest rate is 5.6 
percent on the unpaid principal balance of the loan.
    (2) PLUS Program. (i) For a combined repayment schedule under 
Sec. 682.209(d), the interest rate is the weighted average of the rates 
of all loans included under that schedule.
    (ii) For a loan disbursed on or after July 1, 1987 but prior to 
October 1, 1992, and for any refinanced PLUS loan, the interest rate is 
a variable rate, applicable to each July 1-June 30 period, that equals 
the lesser of--
    (A) The bond equivalent rate of the 52-week Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.25 percent; or
    (B) 12 percent.
    (iii) For a loan disbursed on or after October 1, 1992 and prior to 
July 1, 1994, the interest rate is a variable rate, applicable to each 
July 1-June 30 period, that equals the lesser of--
    (A) The bond equivalent rate of the 52-week Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.10 percent; or
    (B) 10 percent.
    (iv) For a loan for which the first disbursement was made on or 
after July 1, 1994 and prior to July 1, 1998, the interest rate is a 
variable rate applicable to each July 1-June 30 period, that equals the 
lesser of--
    (A) The bond equivalent rate of the 52-week Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.10 percent; or
    (B) 9 percent.
    (v) For a loan for which the first disbursement was made on or after 
July 1, 1998, the interest rate is a variable rate, applicable to each 
July 1-June 30 period, that equals the lesser of--
    (A) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.10 percent; or
    (B) 9 percent.
    (vi)(A) Beginning on July 1, 2001, and prior to July 1, 2006, the 
interest rate on the loans described in paragraphs (a)(2)(ii) through 
(iv) of this section is a variable rate applicable to each July 1-June 
30, as determined on the preceding June 26, and is equal to the weekly 
average 1-year constant maturity Treasury yield, as published by the 
Board of Governors of the Federal Reserve System, for the last calendar 
week ending on or before such June 26; plus--
    (1) 3.25 percent for loans described in paragraph (a)(2)(ii) of this 
section; or
    (2) 3.1 percent for loans described in paragraphs (a)(2)(iii) and 
(iv) of this section.
    (B) The interest rates calculated under paragraph (a)(2)(vi)(A) of 
this section shall not exceed the limits specified in paragraphs 
(a)(2)(ii)(B), (a)(2)(iii)(B), and (a)(2)(iv)(B) of this section, as 
applicable.
    (vii) For a PLUS loan first disbursed on or after July 1, 2006, the 
interest rate is 8.5 percent.
    (3) SLS Program. (i) For a combined repayment schedule under 
Sec. 682.209(d), the interest rate is the weighted average of the rates 
of all loans included under that schedule.
    (ii) For a loan disbursed on or after July 1, 1987 but prior to 
October 1, 1992,

[[Page 24]]

and for any refinance SLS loan, the interest rate is a variable rate, 
applicable to each July 1-June 30 period, that equals the lesser of--
    (A) The bond equivalent rate of the 52-week Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.25 percent; or
    (B) 12 percent.
    (iii) For a loan disbursed on or after October 1, 1992, the interest 
rate is a variable rate, applicable to each July 1-June 30 period, that 
equals the lesser of--
    (A) The bond equivalent rate of the 52-week Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.10 percent; or
    (B) 11 percent.
    (iv)(A) Beginning on July 1, 2001, the interest rate on the loans 
described in paragraphs (a)(3)(ii) and (iii) of this section is a 
variable rate applicable to each July 1-June 30, as determined on the 
preceding June 26, and is equal to the weekly average 1-year constant 
maturity Treasury yield, as published by the Board of Governors of the 
Federal Reserve System, for the last calendar week ending on or before 
such June 26; plus--
    (1) 3.25 percent for loans described in paragraph (a)(3)(ii) of this 
section; or
    (2) 3.1 percent for loans described in paragraph (a)(3)(iii) of this 
section.
    (B) The interest rates calculated under paragraph (a)(3)(iv)(A) of 
this section shall not exceed the limits specified in paragraphs 
(a)(3)(ii)(B) and (a)(3)(iii)(B) of this section, as applicable.
    (4) Consolidation Program. (i) A Consolidation Program loan made 
before July 1, 1994 bears interest at the rate that is the greater of--
    (A) The weighted average of interest rates on the loans 
consolidated, rounded to the nearest whole percent; or
    (B) 9 percent.
    (ii) A Consolidation loan made on or after July 1, 1994, for which 
the loan application was received by the lender before November 13, 
1997, bears interest at the rate that is equal to the weighted average 
of interest rates on the loans consolidated, rounded upward to the 
nearest whole percent.
    (iii) For a Consolidation loan for which the loan application was 
received by the lender on or after November 13, 1997 and before October 
1, 1998, the interest rate for the portion of the loan that consolidated 
loans other than HEAL loans is a variable rate, applicable to each July 
1-June 30 period, that equals the lesser of--
    (A) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction held prior to June 1 of each year plus 3.10 
percent; or
    (B) 8.25 percent.
    (iv) For a Consolidation loan for which the application was received 
by the lender on or after October 1, 1998 and prior to July 1, 2010, the 
interest rate for the portion of the loan that consolidated loans other 
than HEAL loans is a fixed rate that is the lesser of--
    (A) The weighted average of interest rates on the loans 
consolidated, rounded to the nearest higher one-eighth of one percent; 
or
    (B) 8.25 percent.
    (v) For a Consolidation loan for which the application was received 
by the lender on or after November 13, 1997, the annual interest rate 
applicable to the portion of each consolidation loan that repaid HEAL 
loans is a variable rate adjusted annually on July 1 and must be equal 
to the average of the bond equivalent rates of the 91-day Treasury bills 
auctioned for the quarter ending June 30, plus 3 percent. There is no 
maximum rate on this portion of the loan.
    (5) Actual interest rates under the Stafford loan, SLS, PLUS, and 
Consolidation Programs. A lender may charge a borrower an actual rate of 
interest that is less than the applicable interest rate specified in 
paragraphs (a)(1)-(4) of this section.
    (6) Refund of excess interest paid on Stafford loans.
    (i) For a loan with an applicable interest rate of 10 percent made 
prior to July 23, 1992, and for a loan with an applicable interest rate 
of 10 percent made from July 23, 1992 through September 30, 1992, to a 
borrower with no outstanding FFEL Program loans--
    (A) If during any calendar quarter, the sum of the average of the 
bond equivalent rates of the 91-day Treasury

[[Page 25]]

bills auctioned for that quarter, plus 3.25 percent, is less than 10 
percent, the lender shall calculate an adjustment and credit the 
adjustment as specified under paragraph (a)(6)(i)(B) of this section if 
the borrower's account is not more than 30 days delinquent on December 
31. The amount of the adjustment for a calendar quarter is equal to--
    (1) 10 percent minus the sum of the average of the bond equivalent 
rates of the 91-day Treasury bills auctioned for the applicable quarter 
plus 3.25 percent;
    (2) Multiplied by the average daily principal balance of the loan 
(not including unearned interest added to principal); and
    (3) Divided by 4;
    (B) No later than 30 calendar days after the end of the calendar 
year, the holder of the loan shall credit any amounts computed under 
paragraph (a)(6)(i)(A) of this section to--
    (1) The Secretary, for amounts paid during any period in which the 
borrower is eligible for interest benefits;
    (2) The borrower's account to reduce the outstanding principal 
balance as of the date the holder adjusts the borrower's account, 
provided that the borrower's account was not more than 30 days 
delinquent on that December 31; or
    (3) The Secretary, for a borrower who on the last day of the 
calendar year is delinquent for more than 30 days.
    (ii) For a fixed interest rate loan made on or after July 23, 1992 
to a borrower with an outstanding FFEL Program loan--
    (A) If during any calendar quarter, the sum of the average of the 
bond equivalent rates of the 91-day Treasury bills auctioned for that 
quarter, plus 3.10 percent, is less than the applicable interest rate, 
the lender shall calculate an adjustment and credit the adjustment to 
reduce the outstanding principal balance of the loan as specified under 
paragraph (a)(6)(ii)(C) of this section if the borrower's account is not 
more than 30 days delinquent on December 31. The amount of an adjustment 
for a calendar quarter is equal to--
    (1) The applicable interest rate minus the sum of the average of the 
bond equivalent rates of the 91-day Treasury bills auctioned for the 
applicable quarter plus 3.10 percent;
    (2) Multiplied by the average daily principal balance of the loan 
(not including unearned interest added to principal); and
    (3) Divided by 4;
    (B) For any quarter or portion thereof that the Secretary was 
obligated to pay interest subsidy on behalf of the borrower, the holder 
of the loan shall refund to the Secretary, no later than the end of the 
following quarter, any excess interest calculated in accordance with 
paragraph (a)(6)(ii)(A) of this section;
    (C) For any other quarter, the holder of the loan shall, within 30 
days of the end of the calendar year, reduce the borrower's outstanding 
principal by the amount of excess interest calculated under paragraph 
(a)(6)(ii)(A) of this section, provided that the borrower's account was 
not more than 30 days delinquent as of December 31;
    (D) For a borrower who on the last day of the calendar year is 
delinquent for more than 30 days, any excess interest calculated shall 
be refunded to the Secretary; and
    (E) Notwithstanding paragraphs (a)(6)(ii)(B), (C) and (D) of this 
section, if the loan was disbursed during a quarter, the amount of any 
adjustment refunded to the Secretary or credited to the borrower for 
that quarter shall be prorated accordingly.
    (7) Conversion to Variable Rate.
    (i) A lender or holder shall convert the interest rate on a loan 
under paragraphs (a)(6)(i) or (ii) of this section to a variable rate.
    (ii) The applicable interest rate for each 12-month period beginning 
on July 1 and ending on June 30 preceding each 12-month period is equal 
to the sum of--
    (A) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction prior to June 1; and
    (B) 3.25 percent in the case of a loan described in paragraph 
(a)(6)(i) of this section or 3.10 percent in the case of a loan 
described in paragraph (a)(6)(ii) of this section.
    (iii)(A) In connection with the conversion specified in paragraph 
(a)(7)(i) of this section for any period prior to

[[Page 26]]

the conversion for which a rebate has not been provided under paragraph 
(a)(6) of this section, a lender or holder shall convert the interest 
rate to a variable rate.
    (B) The interest rate for each period shall be reset quarterly and 
the applicable interest rate for the quarter or portion shall equal the 
sum of--
    (1) The average of the bond equivalent rates of 91-day Treasury 
bills auctioned for the preceding 3-month period; and
    (2) 3.25 percent in the case of loans as specified under paragraph 
(a)(6)(i) of this section or 3.10 percent in the case of loans as 
specified under paragraph (a)(6)(ii) of this section.
    (iv)(A) The holder of a loan being converted under paragraph 
(a)(7)(iii)(A) of this section shall complete such conversion on or 
before January 1, 1995.
    (B) The holder shall, not later than 30 days prior to the 
conversion, provide the borrower with--
    (1) A notice informing the borrower that the loan is being converted 
to a variable interest rate;
    (2) A description of the rate to the borrower;
    (3) The current interest rate; and
    (4) An explanation that the variable rate will provide a 
substantially equivalent benefit as the adjustment otherwise provided 
under paragraph (a)(6) of this section.
    (v) The notice may be provided as part of the disclosure requirement 
as specified under Sec. 682.205.
    (vi) The interest rate as calculated under this paragraph may not 
exceed the maximum interest rate applicable to the loan prior to the 
conversion.
    (8) Applicability of the Servicemembers Civil Relief Act (SCRA) (50 
U.S.C. 527, App. sec. 207). Notwithstanding paragraphs (a)(1) through 
(4) of this section, a loan holder must use the official electronic 
database maintained by the Department of Defense to identify all 
borrowers with an outstanding loan who are members of the military 
service, as defined in Sec. 682.208(j)(10) and ensure the interest rate 
on a borrower's qualified loans with an outstanding balance does not 
exceed the six percent maximum interest rate under 50 U.S.C. 527, App. 
section 207(a) on FFEL Program loans made prior to the borrower entering 
military service status. For purposes of this paragraph (a)(8), the 
interest rate includes any other charges or fees applied to the loan.
    (b) Capitalization. (1) A lender may add accrued interest and unpaid 
insurance premiums or Federal default fees to the borrower's unpaid 
principal balance in accordance with this section. This increase in the 
principal balance of a loan is called ``capitalization.''
    (2) Except as provided in paragraph (b)(4) and (b)(5) of this 
section, a lender may capitalize interest payable by the borrower that 
has accrued--
    (i) For the period from the date the first disbursement was made to 
the beginning date of the in-school period or, for a PLUS loan, for the 
period from the date the first disbursement was made to the date the 
repayment period begins;
    (ii) For the in-school or grace periods, or for a period needed to 
align repayment of an SLS with a Stafford loan, if capitalization is 
expressly authorized by the promissory note (or with the written consent 
of the borrower);
    (iii) For a period of authorized deferment;
    (iv) For a period of authorized forbearance; or
    (v) For the period from the date the first installment payment was 
due until it was made.
    (3) A lender may capitalize accrued interest under paragraphs 
(b)(2)(ii) through (iv) of this section no more frequently than 
quarterly. Capitalization is again permitted when repayment is required 
to begin or resume. A lender may capitalize accrued interest under 
paragraph (b)(2) (i) and (v) of this section only on the date repayment 
of principal is scheduled to begin.
    (4)(i) For unsubsidized Stafford loans disbursed on or after October 
7, 1998 and prior to July 1, 2000, the lender may capitalize the unpaid 
interest that accrues on the loan according to the requirements of 
section 428H(e)(2) of the Act.
    (ii) For Stafford loans first disbursed on or after July 1, 2000, 
the lender may capitalize the unpaid interest--
    (A) When the loan enters repayment;
    (B) At the expiration of a period of authorized deferment;

[[Page 27]]

    (C) At the expiration of a period of authorized forbearance; and
    (D) When the borrower defaults.
    (5) For Consolidation loans, the lender may capitalize interest as 
provided in paragraphs (b)(2) and (b)(3) of this section, except that 
the lender may capitalize the unpaid interest for a period of authorized 
in-school deferment only at the expiration of the deferment.
    (6) For any borrower in an in-school or grace period or the period 
needed to align repayment, deferment, or forbearance status, during 
which the Secretary does not pay interest benefits and for which the 
borrower has agreed to make payments of interest, the lender may 
capitalize past due interest provided that the lender has notified the 
borrower that the borrower's failure to resolve any delinquency 
constitutes the borrower's consent to capitalization of delinquent 
interest and all interest that will accrue through the remainder of that 
period.
    (c) Fees for FFEL Program loans. (1)(i) For Stafford loans first 
disbursed prior to July 1, 2006, a lender may charge a borrower an 
origination fee not to exceed 3 percent of the principal amount of the 
loan.
    (ii) For Stafford loans first disbursed on or after July 1, 2006, 
but before July 1, 2007, a lender may charge a borrower an origination 
fee not to exceed 2 percent of the principal amount of the loan.
    (iii) For Stafford loans first disbursed on or after July 1, 2007, 
but before July 1, 2008, a lender may charge a borrower an origination 
fee not to exceed 1.5 percent of the principal amount of the loan.
    (iv) For Stafford loans first disbursed on or after July 1, 2008, 
but before July 1, 2009, a lender may charge a borrower an origination 
fee not to exceed 1 percent of the principal amount of the loan.
    (v) For Stafford loans first disbursed on or after July 1, 2009, but 
before July 1, 2010, a lender may charge a borrower an origination fee 
not to exceed .5 percent of the principal amount of the loan.
    (vi) Except as provided in paragraph (c)(2) of this section, a 
lender must charge all borrowers the same origination fee.
    (2)(i) A lender may charge a lower origination fee than the amount 
specified in paragraph (c)(1) of this section to a borrower whose 
expected family contribution (EFC), used to determine eligibility for 
the loan, is equal to or less than the maximum qualifying EFC for a 
Federal Pell Grant at the time the loan is certified or to a borrower 
who qualifies for a subsidized Stafford loan. A lender must charge all 
such borrowers the same origination fee.
    (ii) With the approval of the Secretary, a lender may use a standard 
comparable to that defined in paragraph (c)(2)(i) of this section.
    (3) If a lender charges a lower origination fee on unsubsidized 
loans under paragraph (c)(1) or (c)(2) of this section, the lender must 
charge the same fee on subsidized loans.
    (4)(i) For purposes of this paragraph (c), a lender is defined as:
    (A) All entities under common ownership, including ownership by a 
common holding company, that make loans to borrowers in a particular 
state; and
    (B) Any beneficial owner of loans that provides funds to an eligible 
lender trustee to make loans on the beneficial owner's behalf in a 
particular state.
    (ii) If a lender as defined in paragraph (c)(4)(i) charges a lower 
origination fee to any borrower in a particular state under paragraphs 
(c)(1) or (c)(2) of this section, the lender must charge all such 
borrowers who reside in that state or attend school in that state the 
same origination fee.
    (5) A lender must charge a borrower an origination fee on a PLUS 
loan of 3 percent of the principal amount of the loan;
    (6) A lender must deduct a pro rata portion of the fee (if charged) 
from each disbursement; and
    (7) A lender must refund by a credit against the borrower's loan 
balance the portion of the origination fee previously deducted from the 
loan that is attributable to any portion of the loan--
    (i) That is returned by a school to a lender in order to comply with 
the Act or with applicable regulations;

[[Page 28]]

    (ii) That is repaid or returned within 120 days of disbursement, 
unless--
    (A) The borrower has no FFEL Program loans in repayment status and 
has requested, in writing, that the repaid or returned funds be used for 
a different purpose; or
    (B) The borrower has a FFEL Program loan in repayment status, in 
which case the payment is applied in accordance with Sec. 682.209(b) 
unless the borrower has requested, in writing, that the repaid or 
returned funds be applied as a cancellation of all or part of the loan;
    (iii) For which a loan check has not been negotiated within 120 days 
of disbursement; or
    (iv) For which loan proceeds disbursed by electronic funds transfer 
or master check have not been released from the restricted account 
maintained by the school within 120 days of disbursement.
    (d) Insurance premium and Federal default fee. (1) For loans 
guaranteed prior to July 1, 2006, a lender may charge the borrower the 
amount of the insurance premium paid by the lender to the guarantor (up 
to 1 percent of the principal amount of the loan) if that charge is 
provided for in the promissory note.
    (2) For loans guaranteed on or after July 1, 2006 and prior to July 
1, 2010, a lender may charge the borrower the amount of the Federal 
default fee paid by the lender to the guarantor (up to 1 percent of the 
principal amount of the loan) if that charge is provided for in the 
promissory note.
    (3) If the borrower is charged the insurance premium or the Federal 
default fee, the amount charged must be deducted proportionately from 
each disbursement of the borrower's loan proceeds, if the loan is 
disbursed in more than one installment.
    (4) The lender shall refund the insurance premium or Federal default 
fee paid by the borrower in accordance with the circumstances and 
procedures applicable to the return of origination fees, as described in 
paragraph (c)(7) of this section.
    (e) Late charge. (1) If authorized by the borrower's promissory 
note, the lender may require the borrower to pay a late charge under the 
circumstances described in paragraph (e)(2) of this section. This charge 
may not exceed six cents for each dollar of each late installment.
    (2) The lender may require the borrower to pay a late charge if the 
borrower fails to pay all or a portion of a required installment payment 
within 15 days after it is due.
    (f) Collection charges. (1) If provided for in the borrower's 
promissory note, and notwithstanding any provisions of State law, the 
lender may require that the borrower or any endorser pay costs incurred 
by the lender or its agents in collecting installments not paid when 
due, including, but not limited to--
    (i) Attorney fees;
    (ii) Court costs; and
    (iii) Telegrams.
    (2) The costs referred to in paragraph (f)(1) of this section may 
not include routine collection costs associated with preparing letters 
or notices or with making personal contacts with the borrower (e.g., 
local and long-distance telephone calls).
    (g) Special allowance. Pursuant to Sec. 682.412(c), a lender may 
charge a borrower the amount of special allowance paid by the Secretary 
on behalf of the borrower.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079, 1082, 
1087-1, 1091a)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22475, Apr. 29, 1994; 
59 FR 61427, Nov. 30, 1994; 61 FR 60486, Nov. 27, 1996; 62 FR 63434, 
Nov. 28, 1997; 64 FR 18976, Apr. 16, 1999; 64 FR 58953, Nov. 1, 1999; 66 
FR 34762, June 29, 2001; 71 FR 45700, Aug. 9, 2006; 72 FR 62000, Nov. 1, 
2007; 74 FR 55991, Oct. 29, 2009; 78 FR 65807, Nov. 1, 2013; 80 FR 
67236, Oct. 30, 2015]

    Effective Date Note: At 81 FR 76079, Nov. 1, 2016, Sec. 682.202 was 
amended in paragraph (b)(1) by removing the words ``A lender'' and 
adding in their place ``Except as provided in Sec. 682.405(b)(4), a 
lender,'' eff. July 1, 2017. At 82 FR 27621, June 16, 2017, the 
effective date was delayed indefinitely.



Sec. 682.203  Responsible parties.

    (a) Delegation of functions. A school, lender, or guaranty agency 
may contract or otherwise delegate the performance of its functions 
under the Act and this part to a servicing agency or other party. This 
contracting or other delegation of functions does not relieve the 
school, lender, or guaranty agency of its duty to comply with the 
requirements of the Act and this part.

[[Page 29]]

    (b) Trustee responsibility. A lender that holds a loan in its 
capacity as a trustee assumes responsibility for complying with all 
statutory and regulatory requirements imposed on any other holders of a 
loan.

(Authority: 20 U.S.C. 1082)



Sec. 682.204  Maximum loan amounts.

    (a) Stafford Loan Program annual limits. (1) In the case of an 
undergraduate student who has not successfully completed the first year 
of a program of undergraduate education, the total amount the student 
may borrow for any academic year of study under the Stafford Loan 
Program in combination with the Direct Subsidized Loan Program may not 
exceed the following:
    (i) $2,625, or, for a loan disbursed on or after July 1, 2007, 
$3,500, for a program of study of at least a full academic year in 
length.
    (ii) For a one-year program of study with less than a full academic 
year remaining, the amount that is the same ratio to $3,500, as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.009

    (iii) For a program of study that is less than a full academic year 
in length, the amount that is the same ratio to $3,500 as the lesser of 
the--
[GRAPHIC] [TIFF OMITTED] TR01NO13.000

    (2) In the case of a student who has successfully completed the 
first year of an undergraduate program but has not successfully 
completed the second year of an undergraduate program, the total amount 
the student may borrow for any academic year of study under the Stafford 
Loan Program in combination with the Direct Subsidized Loan Program may 
not exceed the following:
    (i) $4,500 for a program whose length is at least a full academic 
year in length.
    (ii) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $4,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.011


[[Page 30]]


    (3) In the case of an undergraduate student who has successfully 
completed the first and second years of a program of study of 
undergraduate education but has not successfully completed the remainder 
of the program, the total amount the student may borrow for any academic 
year of study under the Stafford Loan Program in combination with the 
Direct Subsidized Loan Program may not exceed the following:
    (i) $5,500 for a program whose length is at least an academic year 
in length.
    (ii) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $5,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.012

    (4) In the case of a student who has an associate or baccalaureate 
degree that is required for admission into a program and who is not a 
graduate or professional student, the total amount the student may 
borrow for any academic year of study may not exceed the amounts in 
paragraph (a)(3) of this section.
    (5) In the case of a graduate or professional student, the total 
amount the student may borrow for loans made prior to July 1, 2010 for 
any academic year of study under the Stafford Loan Program, in 
combination with any amount borrowed under the Direct Subsidized Loan 
Program, may not exceed $8,500.
    (6) In the case of a student enrolled for no longer than one 
consecutive 12-month period in a course of study necessary for 
enrollment in a program leading to a degree or certificate, the total 
amount the student may borrow for any academic year of study under the 
Stafford Loan Program in combination with the Direct Subsidized Loan 
Program may not exceed the following:
    (i) $2,625 for coursework necessary for enrollment in an 
undergraduate degree or certificate program.
    (ii) $5,500 for coursework necessary for enrollment in a graduate or 
professional degree or certificate program for a student who has 
obtained a baccalaureate degree.
    (7) In the case of a student who has obtained a baccalaureate degree 
and is enrolled or accepted for enrollment in coursework necessary for a 
professional credential or certification from a State that is required 
for employment as a teacher in an elementary or secondary school in that 
State, the total amount the student may borrow for any academic year of 
study under the Stafford Loan Program in combination with the Direct 
Subsidized Loan Program may not exceed $5,500.
    (8) Except as provided in paragraph (a)(4) of this section, an 
undergraduate student who is enrolled in a program that is one academic 
year or less in length may not borrow an amount for any academic year of 
study that exceeds the amounts in paragraph (a)(1) of this section.
    (9) Except as provided in paragraph (a)(4) of this section--
    (i) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has not successfully 
completed the first year of that program may not borrow an amount for 
any academic year of study that exceeds the amounts in paragraph (a)(1) 
of this section.
    (ii) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has successfully completed 
the first year of that program, but has not successfully completed the 
second year of the program, may not borrow an amount for any academic 
year of study that exceeds the amounts in paragraph (a)(2) of this 
section.
    (b) Stafford Loan Program aggregate limits. The aggregate unpaid 
principal amount of all Stafford Loan Program loans in combination with 
loans received by the student under the Direct Subsidized Loan Program, 
but excluding the amount of capitalized interest may not exceed the 
following:

[[Page 31]]

    (1) $23,000 in the case of any student who has not successfully 
completed a program of study at the undergraduate level.
    (2) $65,500, in the case of a graduate or professional student, 
including loans for undergraduate study.
    (c) Unsubsidized Stafford Loan Program. (1) Except for a dependent 
undergraduate student who qualifies for additional Unsubsidized Stafford 
Loan funds because the student's parents are unable to borrow under the 
PLUS Loan Program, as described in paragraph (d) of this section, the 
total amount the dependent undergraduate student may borrow for any 
academic year under the Unsubsidized Stafford Loan Program in 
combination with the Direct Unsubsidized Loan Program is the same amount 
determined under paragraph (a) of this section, less any amount received 
under the Stafford Loan Program or the Direct Subsidized Loan program, 
plus--
    (i) $2,000, for a program of study of at least a full academic year 
in length.
    (ii) For a program of study that is at least one academic year or 
more in length with less than a full academic year remaining, the amount 
that is the same ratio to $2,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO13.001

    (iii) For a program of study that is less than a full academic year 
in length, the amount that is the same ratio to $2,000 as the lesser of 
the--
[GRAPHIC] [TIFF OMITTED] TR01NO13.002

    (2) In the case of an independent undergraduate student, a graduate 
or professional student, or certain dependent undergraduate students 
under the conditions specified in Sec. 682.201(a)(3), the total amount 
the student may borrow for any period of enrollment under the 
Unsubsidized Stafford Loan and Direct Unsubsidized Loan programs may not 
exceed the amounts determined under paragraph (a) of this section less 
any amount received under the Federal Stafford Loan Program or the 
Direct Subsidized Loan Program, in combination with the amounts 
determined under paragraph (d) of this section.

[[Page 32]]

    (d) Additional eligibility under the Unsubsidized Stafford Loan 
Program. An independent undergraduate student, graduate or professional 
student, and certain dependent undergraduate students under the 
conditions specified in Sec. 682.201(a)(3) may borrow amounts under the 
Unsubsidized Stafford Loan Program in addition to any amount borrowed 
under paragraphs (a) and (c) of this section, except as provided in 
paragraph (d)(9) of this section. The additional amount that such a 
student may borrow for any academic year of study under the Unsubsidized 
Stafford Loan Program in combination with the Direct Unsubsidized Loan 
Program, in addition to the amounts allowed under paragraphs (a) and (c) 
of this section, except as provided in paragraph (d)(9) of this section 
for certain dependent undergraduate students--
    (1) In the case of a student who has not successfully completed the 
first year of a program of undergraduate education, may not exceed the 
following:
    (i) $6,000 for a program of study of at least a full academic year.
    (ii) For a one-year program of study with less than a full academic 
year remaining, the amount that is the same ratio to $6,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.013

    (iii) For a program of study that is less than a full academic year 
in length, an amount that is the same ratio to $6,000 as the lesser of--
[GRAPHIC] [TIFF OMITTED] TR01NO13.003

    (2) In the case of a student who has completed the first year of a 
program of undergraduate education but has not successfully completed 
the second year of a program of undergraduate education may not exceed 
the following:
    (i) $6,000 for a program of study of at least a full academic year 
in length.
    (ii) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $6,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.015


[[Page 33]]


    (3) In the case of a student who has successfully completed the 
second year of a program of undergraduate education, but has not 
completed the remainder of the program, may not exceed the following:
    (i) $7,000 for a program of study of at least a full academic year.
    (ii) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $7,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.016

    (4) In the case of a student who has an associate or baccalaureate 
degree that is required for admission into a program and who is not a 
graduate or professional student, the total amount the student may 
borrow for any academic year of study may not exceed the amounts in 
paragraph (d)(3) of this section.
    (5) In the case of a graduate or professional student, may not 
exceed $12,000.
    (6) In the case of a student enrolled for no longer than one 
consecutive 12-month period in a course of study necessary for 
enrollment in a program leading to a degree or a certificate may not 
exceed the following:
    (i) $6,000 for coursework necessary for enrollment in an 
undergraduate degree or certificate program.
    (ii) $7,000 for coursework necessary for enrollment in a graduate or 
professional degree or certificate program for a student who has 
obtained a baccalaureate degree.
    (iii) In the case of a student who has obtained a baccalaureate 
degree and is enrolled or accepted for enrollment in a program necessary 
for a professional credential or a certification from a State that is 
required for employment as a teacher in an elementary or secondary 
school in that State, $7,000.
    (7) Except as provided in paragraph (d)(4) of this section, an 
undergraduate student who is enrolled in a program that is one academic 
year or less in length may not borrow an amount for any academic year of 
study that exceeds the amounts in paragraph (d)(1) of this section.
    (8) Except as provided in paragraph (d)(4) of this section--
    (i) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has not successfully 
completed the first year of that program may not borrow an amount for 
any academic year of study that exceeds the amounts in paragraph (d)(1) 
of this section.
    (ii) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has successfully completed 
the first year of that program, but has not successfully completed the 
second year of the program, may not borrow an amount for any academic 
year of study that exceeds the amounts in paragraph (d)(2) of this 
section.
    (9) A dependent undergraduate student who qualifies for the 
additional Unsubsidized Stafford Loan amounts under this section in 
accordance with the conditions specified in Sec. 682.201(a)(3) is not 
eligible to receive the additional Unsubsidized Stafford Loan amounts 
under paragraph (c)(1)(ii) of this section.
    (e) Combined Federal Stafford, SLS and Federal Unsubsidized Stafford 
Loan Program aggregate limits. The aggregate unpaid principal amount of 
Stafford Loans, Direct Subsidized Loans, Unsubsidized Stafford Loans, 
Direct Unsubsidized Loans and SLS Loans, but excluding the amount of 
capitalized interest, may not exceed the following:
    (1) $31,000 for a dependent undergraduate student.
    (2) $57,500 for an independent undergraduate student or a dependent 
undergraduate student under the conditions specified in 
Sec. 682.201(a)(3).
    (3) $138,500 for a graduate or professional student.
    (f) SLS Program aggregate limit. The total unpaid principal amount 
of SLS Program loans made to--

[[Page 34]]

    (1) An undergraduate student may not exceed--
    (i) $20,000, for loans for which the first disbursement is made 
prior to July 1, 1993; or
    (ii) $23,000, for loans for which the first disbursement was made on 
or after July 1, 1993; and
    (2) A graduate student may not exceed--
    (i) $20,000, for loans for which the first disbursement is made 
prior to July 1, 1993; or
    (ii) $73,000, for loans for which the first disbursement was made on 
or after July 1, 1993 including loans for undergraduate study.
    (g) PLUS Program annual limit. The total amount of all PLUS Program 
loans that a parent or student may borrow for any academic year of study 
may not exceed the student's cost of education minus other estimated 
financial assistance for that student.
    (h) Minimum loan interval. The annual loan limits applicable to a 
student apply to the length of the school's academic year.
    (i) Treatment of Consolidation loans for purposes of determining 
loan limits. The percentage of the outstanding balance on a 
Consolidation loan counted against a borrower's aggregate loan limits 
under the Stafford loan, Unsubsidized Stafford loan, Direct Stafford 
loan, Direct Unsubsidized loan, SLS, PLUS, Perkins Loan, or HEAL program 
must equal the percentage of the original amount of the Consolidation 
loan attributable to loans made to the borrower under that program.
    (j) Maximum loan amounts. In no case may a Stafford, PLUS, or SLS 
loan amount exceed the student's estimated cost of attendance for the 
period of enrollment for which the loan is intended, less--
    (1) The student's estimated financial assistance for that period; 
and
    (2) The borrower's expected family contribution for that period, in 
the case of a Stafford loan that is eligible for interest benefits.
    (k) In determining a Stafford loan amount in accordance with 
Sec. 682.204 (a), (c) and (d), the school must use the definition of 
academic year in 34 CFR 668.3.
    (l) Any TEACH Grants that have been converted to Direct Unsubsidized 
Loans are not counted against annual or any aggregate loan limits under 
paragraphs (c), (d), and (e) of this section.

(Authority: 20 U.S.C. 1070g, 1078, 1078-2, 1078-3, 1078-8)

[59 FR 33350, June 28, 1994, as amended at 64 FR 18976, Apr. 16, 1999; 
64 FR 58954, Nov. 1, 1999; 66 FR 34763, June 29, 2001; 67 FR 67078, Nov. 
1, 2002; 71 FR 45700, Aug. 9, 2006; 71 FR 64397, Nov. 1, 2006; 73 FR 
35495, June 23, 2008; 73 FR 36793, June 30, 2008; 74 FR 55991, Oct. 29, 
2009; 78 FR 65808, Nov. 1, 2013]



Sec. 682.205  Disclosure requirements for lenders.

    (a) Repayment information-- (1) Disclosures at or prior to 
repayment. The lender must disclose the information described in 
paragraph (a)(2) of this section, in simple and understandable terms, in 
a statement provided to the borrower at or prior to the beginning of the 
repayment period. In the case of a Federal Stafford or Federal PLUS 
loan, the disclosures required by this paragraph must be made not less 
than 30 days nor more than 150 days before the first payment on the loan 
is due from the borrower. If the borrower enters the repayment period 
without the lender's knowledge, the lender must provide the required 
disclosures to the borrower immediately upon discovering that the 
borrower has entered the repayment period.
    (2) The lender shall provide the borrower with--
    (i) The lender's name, a toll-free telephone number accessible from 
within the United States that the borrower can use to obtain additional 
loan information, and the address to which correspondence with the 
lender and payments should be sent;
    (ii) The scheduled date the repayment period is to begin, or a 
deferment under Sec. 682.210(v), if applicable, is to end;
    (iii) The estimated balance, including the estimated amount of 
interest to be capitalized, owed by the borrower as of the date upon 
which the repayment period is to begin, a deferment under 
Sec. 682.210(v), if applicable, is to end, or the date of the 
disclosure, whichever is later;

[[Page 35]]

    (iv) The actual interest rate on the loan;
    (v) An explanation of any fees that may accrue or be charged to the 
borrower during the repayment period;
    (vi) The borrower's repayment schedule, including the due date of 
the first installment and the number, amount, and frequency of payments 
based on the repayment schedule selected by the borrower;
    (vii) Except in the case of a Consolidation loan, an explanation of 
any special options the borrower may have for consolidating or 
refinancing the loan and of the availability and terms of such other 
options;
    (viii) The estimated total amount of interest to be paid on the 
loan, assuming that payments are made in accordance with the repayment 
schedule, and if interest has been paid, the amount of interest paid;
    (ix) A statement that the borrower has the right to prepay all or 
part of the loan at any time, without penalty;
    (x) Information on any special loan repayment benefits offered on 
the loan, including benefits that are contingent on repayment behavior, 
and any other special loan repayment benefits for which the borrower may 
be eligible that would reduce the amount or length of repayment; and at 
the request of the borrower, an explanation of the effect of a reduced 
interest rate on the borrower's total payoff amount and time for 
repayment;
    (xi) If the lender provides a repayment benefit, any limitations on 
that benefit, any circumstances in which the borrower could lose that 
benefit, and whether and how the borrower may regain eligibility for the 
repayment benefit;
    (xii) A description of all the repayment plans available to the 
borrower and a statement that the borrower may change plans during the 
repayment period at least annually;
    (xiii) A description of the options available to the borrower to 
avoid or be removed from default, as well as any fees associated with 
those options; and
    (xiv) Any additional resources, including nonprofit organizations, 
advocates and counselors, including the Department of Education's 
Student Loan Ombudsman, the lender is aware of where the borrower may 
obtain additional advice and assistance on loan repayment.
    (3) Required disclosures during repayment. In addition to the 
disclosures required in paragraph (a)(1) of this section, the lender 
must provide the borrower of a FFEL loan with a bill or statement that 
corresponds to each payment installment time period in which a payment 
is due that includes in simple and understandable terms--
    (i) The original principal amount of the borrower's loan;
    (ii) The borrower's current balance, as of the time of the bill or 
statement;
    (iii) The interest rate on the loan;
    (iv) The total amount of interest for the preceding installment paid 
by the borrower;
    (v) The aggregate amount paid by the borrower on the loan, and 
separately identifying the amount the borrower has paid in interest on 
the loan, the amount of fees the borrower has paid on the loan, and the 
amount paid against the balance in principal;
    (vi) A description of each fee the borrower has been charged for the 
most recent preceding installment time period;
    (vii) The date by which a payment must be made to avoid additional 
fees and the amount of that payment and the fees;
    (viii) The lender's or servicer's address and toll-free telephone 
number for repayment options, payments and billing error purposes; and
    (ix) A reminder that the borrower may change repayment plans, a list 
of all of the repayment plans that are available to the borrower, a link 
to the Department of Education's Web site for repayment plan 
information, and directions on how the borrower may request a change in 
repayment plans from the lender.
    (4) Required disclosures for borrowers having difficulty making 
payments. (i) Except as provided in paragraph (a)(4)(ii) of this 
section, the lender must provide a borrower who has notified the lender 
that he or she is having difficulty making payments with--
    (A) A description of the repayment plans available to the borrower, 
and how the borrower may request a change in repayment plan;

[[Page 36]]

    (B) A description of the requirements for obtaining forbearance on 
the loan and any costs associated with forbearance; and
    (C) A description of the options available to the borrower to avoid 
default and any fees or costs associated with those options.
    (ii) A disclosure under paragraph (a)(4)(i) of this section is not 
required if the borrower's difficulty has been resolved through contact 
with the borrower resulting from an earlier disclosure or other 
communication between the lender and the borrower.
    (5) Required disclosures for borrowers who are 60-days delinquent in 
making payments on a loan. (i) The lender shall provide to a borrower 
who is 60 days delinquent in making required payments a notice of--
    (A) The date on which the loan will default if no payment is made;
    (B) The minimum payment the borrower must make, as of the date of 
the notice, to avoid default, including the payment amount needed to 
bring the loan current or payment in full;
    (C) A description of the options available to the borrower to avoid 
default, including deferment and forbearance and any fees and costs 
associated with those options;
    (D) Any options for discharging the loan that may be available to 
the borrower; and
    (E) Any additional resources, including nonprofit organizations, 
advocates and counselors, including the Department of Education's 
Student Loan Ombudsman, the lender is aware of where the borrower may 
obtain additional advice and assistance on loan repayment.
    (ii) The notice must be sent within five business days of the date 
the borrower becomes 60 days delinquent, unless the lender has sent such 
a notice within the previous 120 days.
    (b) Exception to disclosure requirement. In the case of a Federal 
Unsubsidized Stafford loan or a Federal PLUS loan, the lender is not 
required to provide the information in paragraph (a)(2)(viii) of this 
section if the lender, instead of that disclosure, provides the borrower 
with sample projections of the monthly repayment amounts assuming 
different levels of borrowing and interest accruals resulting from 
capitalization of interest while the borrower or student on whose behalf 
the loan is made is in school. Sample projections must disclose the cost 
to the borrower of principal and interest, interest only, and 
capitalized interest. The lender may rely on the Stafford and PLUS 
promissory notes and associated materials approved by the Secretary for 
purposes of complying with this section.
    (c) Borrower may not be charged for disclosures. The lender must 
provide the information required by this section at no cost to the 
borrower.
    (d) Method of disclosure. Any disclosure of information by a lender 
under this section may be through written or electronic means.
    (e) Notice of availability of income-sensitive and income-based 
repayment options. (1) At the time of offering a borrower a loan and at 
the time of offering a borrower repayment options, the lender must 
provide the borrower with a notice that informs the borrower of the 
availability of income-sensitive and, except for parent PLUS borrowers 
and Consolidation Loan borrowers whose Consolidation Loan paid off one 
or more parent PLUS Loans, income-based repayment plans. This 
information may be provided in a separate notice or as part of the other 
disclosures required by this section. The notice must inform the 
borrower--
    (i) That the borrower is eligible for income-sensitive repayment and 
may be eligible for income-based repayment, including through loan 
consolidation;
    (ii) Of the procedures by which the borrower can elect income-
sensitive or income-based repayment; and
    (iii) Of where and how the borrower may obtain more information 
concerning income-sensitive and income-based repayment plans.
    (2) The promissory note and associated materials approved by the 
Secretary satisfy the loan origination notice requirements provided for 
in paragraph (e)(1) of this section.
    (f) Disclosure procedures when a borrower's address is not 
available. If a lender receives information indicating it does not know 
the borrower's current address, the lender is excused from providing 
disclosure information under

[[Page 37]]

this section unless it receives communication indicating a valid 
borrower address before the 241st day of delinquency, at which point the 
lender must resume providing the installment bill or statement, and any 
other disclosure information required under this section not previously 
provided.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1083(a))

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 25745, May 17, 1994; 60 FR 30788, June 12, 1995; 64 FR 18976, Apr. 
16, 1999; 64 FR 58625, Oct. 29, 1999; 64 FR 58965, Nov. 1, 1999; 71 FR 
45700. Aug. 9, 2006; 73 FR 63248, Oct. 23, 2008; 74 FR 55992, Oct. 29, 
2009; 78 FR 65810, Nov. 1, 2013]



Secs. 682.206-682.207  [Reserved]



Sec. 682.208  Due diligence in servicing a loan.

    (a) The loan servicing process includes reporting to nationwide 
consumer reporting agencies, responding to borrower inquiries, 
establishing the terms of repayment, and reporting a borrower's 
enrollment and loan status information.
    (b)(1) An eligible lender of a FFEL loan shall report to each 
nationwide consumer reporting agency--
    (i) The total amount of FFEL loans the lender has made to the 
borrower, within 90 days of each disbursement;
    (ii) The outstanding balance of the loans;
    (iii) Information concerning the repayment status of the loan, no 
less frequently than every 90 days or quarterly after a change in that 
status from current to delinquent;
    (iv) The date the loan is fully repaid by, or on behalf of, the 
borrower, or discharged by reason of the borrower's death, bankruptcy, 
or total and permanent disability, within 90 days after that date;
    (v) Other information required by law to be reported.
    (2) An eligible lender that has acquired a FFEL loan shall report to 
each nationwide consumer reporting agency the information required by 
paragraph (b)(1)(ii)-(v) of this section within 90 days of its 
acquisition of the loan.
    (3) Upon receipt of a valid identity theft report as defined in 
section 603(q)(4) of the Fair Credit Reporting Act (15 U.S.C. 1681a) or 
notification from a consumer reporting agency that information furnished 
by the lender is a result of an alleged identity theft as defined in 
Sec. 682.402(e)(14), an eligible lender shall suspend consumer reporting 
agency reporting for a period not to exceed 120 days while the lender 
determines the enforceability of a loan.
    (i) If the lender determines that a loan does not qualify for a 
discharge under Sec. 682.402(e)(1)(i)(C), but is nonetheless 
unenforceable, the lender must--
    (A) Notify the consumer reporting agency of its determination; and
    (B) Comply with Secs. 682.300(b)(2)(ix) and 682.302(d)(1)(viii).
    (ii) [Reserved]
    (4) If, within 3 years of the lender's receipt of an identity theft 
report, the lender receives from the borrower evidence specified in 
Sec. 682.402(e)(3)(v), the lender may submit a claim and receive 
interest subsidy and special allowance payments that would have accrued 
on the loan.
    (c)(1) A lender shall respond within 30 days after receipt to any 
inquiry from a borrower or any endorser on a loan.
    (2) When a lender learns that a Stafford loan borrower or a student 
PLUS loan borrower is no longer enrolled at an institution of higher 
education on at least a half-time basis, the lender shall promptly 
contact the borrower in order to establish the terms of repayment.
    (3)(i) If the borrower disputes the terms of the loan in writing and 
the lender does not resolve the dispute, the lender's response must 
provide the borrower with an appropriate contact at the guaranty agency 
for the resolution of the dispute.
    (ii) If the guaranty agency does not resolve the dispute, the 
agency's response must provide the borrower with information on the 
availability of the Student Loan Ombudsman's office.
    (d) Subject to the rules regarding maximum duration of a repayment 
period and minimum annual payment described in Sec. 682.209(a)(7), (c), 
and (h), nothing in this part is intended to

[[Page 38]]

limit a lender's discretion in establishing, or, with the borrower's 
consent, revising a borrower's repayment schedule--
    (1) To provide for graduated or income-sensitive repayment terms. 
The Secretary strongly encourages lenders to provide a graduated or 
income-sensitive repayment schedule to a borrower providing for at least 
the payment of interest charges, unless the borrower requests otherwise, 
in order to make the borrower's repayment burden commensurate with his 
or her projected ability to pay; or
    (2) To provide a single repayment schedule, as authorized and if 
practicable, for all FFEL program loans to the borrower held by the 
lender.
    (e)(1) If the assignment or transfer of ownership interest of a 
Stafford, PLUS, SLS, or Consolidation loan is to result in a change in 
the identity of the party to whom the borrower must send subsequent 
payments, the assignor and assignee of the loan shall, no later than 45 
days from the date the assignee acquires a legally enforceable right to 
receive payment from the borrower on the assigned loan, provide, either 
jointly or separately, a notice to the borrower of--
    (i) The assignment;
    (ii) The identity of the assignee;
    (iii) The name and address of the party to whom subsequent payments 
or communications must be sent;
    (iv) The telephone numbers of both the assignor and the assignee;
    (v) The effective date of the assignment or transfer of the loan;
    (vi) The date, if applicable, on which the current loan servicer 
will stop accepting payments; and
    (vii) The date on which the new loan servicer will begin accepting 
payments.
    (2) If the assignor and assignee separately provide the notice 
required by paragraph (e)(1) of this section, each notice must indicate 
that a corresponding notice will be sent by the other party to the 
assignment.
    (3) For purposes of this paragraph, the term ``assigned'' is defined 
in Sec. 682.401(b)(8)(ii).
    (4) The assignee, or the assignor on behalf of the assignee, shall 
notify the guaranty agency that guaranteed the loan within 45 days of 
the date the assignee acquires a legally enforceable right to receive 
payment from the borrower on the loan of--
    (i) The assignment; and
    (ii) The name and address of the assignee, and the telephone number 
of the assignee that can be used to obtain information about the 
repayment of the loan.
    (5) The requirements of this paragraph (e), as to borrower 
notification, apply if the borrower is in a grace period or has entered 
the repayment period.
    (f)(1) Notwithstanding an error by the school or lender, a lender 
shall follow the procedures in Sec. 682.412 whenever it receives 
information that can be substantiated that the borrower, or the student 
on whose behalf a parent has borrowed, has been convicted of, or has 
pled nolo contendere or guilty to, a crime involving fraud in obtaining 
title IV, HEA program assistance, provided false or erroneous 
information or took actions that caused the student or borrower--
    (i) To be ineligible for all or a portion of a loan made under this 
part;
    (ii) To receive a Stafford loan subject to payment of Federal 
interest benefits as provided under Sec. 682.301, for which he or she 
was ineligible; or
    (iii) To receive loan proceeds that were not paid to the school or 
repaid to the lender by or on behalf of a registered student who--
    (A) The school notifies the lender under 34 CFR 668.21(a)(2)(ii) has 
withdrawn or been expelled prior to the first day of classes for the 
period of enrollment for which the loan was intended; or
    (B) Failed to attend school during that period.
    (2) For purposes of this section, the term ``guaranty agency'' in 
Sec. 682.412(e) refers to the Secretary in the case of a Federal GSL 
loan.
    (g) If, during a period when the borrower is not delinquent, a 
lender receives information indicating it does not know the borrower's 
address, it may commence the skip-tracing activities specified in 
Sec. 682.411(h).
    (h) Notifying the borrower about a servicing change. If an FFEL 
Program loan has not been assigned, but there is a change in the 
identity of the party to

[[Page 39]]

whom the borrower must send subsequent payments or direct any 
communications concerning the loan, the holder of the loan shall, no 
later than 45 days after the date of the change, provide notice to the 
borrower of the name, telephone number, and address of the party to whom 
subsequent payments or communications must be sent. The requirements of 
this paragraph apply if the borrower is in a grace period or has entered 
the repayment period.
    (i) A lender shall report enrollment and loan status information, or 
any Title IV loan-related data required by the Secretary, to the 
guaranty agency or to the Secretary, as applicable, by the deadline date 
established by the Secretary.
    (j)(1) Effective July 1, 2016, a loan holder is required to use the 
official electronic database maintained by the Department of Defense, 
to--
    (i) Identify all borrowers who are military servicemembers and who 
are eligible under Sec. 682.202(a)(8); and
    (ii) Confirm the dates of the borrower's military service status and 
begin, extend, or end, as applicable, the use of the SCRA interest rate 
limit of six percent.
    (2) The loan holder must compare its list of borrowers against the 
database maintained by the Department of Defense at least monthly to 
identify servicemembers who are in military service status for the 
purpose of determining eligibility under Sec. 682.202(a)(8).
    (3) A borrower may provide the loan holder with alternative evidence 
of military service status to demonstrate eligibility if the borrower 
believes that the information contained in the Department of Defense 
database is inaccurate or incomplete. Acceptable alternative evidence 
includes--
    (i) A copy of the borrower's military orders; or
    (ii) The certification of the borrower's military service from an 
authorized official using a form approved by the Secretary.
    (4)(i) When the loan holder determines that the borrower is eligible 
under Sec. 682.202(a)(8), the loan holder must ensure the interest rate 
on the borrower's loan does not exceed the SCRA interest rate limit of 
six percent.
    (ii) The loan holder must apply the SCRA interest rate limit of six 
percent for the longest eligible period verified with the official 
electronic database, or alternative evidence of military service status 
received under paragraph (j)(3) of this section, using the combination 
of evidence that provides the borrower with the earliest military 
service start date and the latest military service end date.
    (iii) In the case of a reservist, the loan holder must use the 
reservist's notification date as the start date of the military service 
period.
    (5) When the loan holder applies the SCRA interest rate limit of six 
percent to a borrower's loan, it must notify the borrower in writing 
within 30 days that the interest rate on the loan has been reduced to 
six percent during the borrower's period of military service.
    (6)(i) For PLUS loans with an endorser, the loan holder must use the 
official electronic database to begin, extend, or end, as applicable, 
the SCRA interest rate limit of six percent on the loan based on the 
borrower's or endorser's military service status, regardless of whether 
the loan holder is currently pursuing the endorser for repayment of the 
loan.
    (ii) If both the borrower and the endorser are eligible for the SCRA 
interest rate limit of six percent on a loan, the loan holder must use 
the earliest military service start date of either party and the latest 
military service end date of either party to begin, extend, or end, as 
applicable, the SCRA interest rate limit.
    (7)(i) For joint consolidation loans, the loan holder must use the 
official electronic database to begin, extend, or end, as applicable, 
the SCRA interest rate limit of six percent on the loan if either of the 
borrowers is eligible for the SCRA interest rate limit under 
Sec. 682.202(a)(8).
    (ii) If both borrowers on a joint consolidation loan are eligible 
for the SCRA interest rate limit of six percent on a loan, the loan 
holder must use the earliest military service start date of either party 
and the latest military service end date of either party to begin, 
extend, or end, as applicable, the SCRA interest rate limit.

[[Page 40]]

    (8) If the application of the SCRA interest rate limit of six 
percent results in an overpayment on a loan that is subsequently paid in 
full through consolidation, the underlying loan holder must return the 
overpayment to the holder of the consolidation loan.
    (9) For any other circumstances where application of the SCRA 
interest rate limit of six percent results in an overpayment of the 
remaining balance on the loan, the loan holder must refund the amount of 
that overpayment to the borrower.
    (10) For purposes of this section, the term ``military service'' 
means--
    (i) In the case of a servicemember who is a member of the Army, 
Navy, Air Force, Marine Corps, or Coast Guard--
    (A) Active duty, meaning full-time duty in the active military 
service of the United States. Such term includes full-time training 
duty, annual training duty, and attendance, while in the active military 
service, at a school designated as a service school by law or by the 
Secretary of the military department concerned. Such term does not 
include full-time National Guard duty.
    (B) In the case of a member of the National Guard, including service 
under a call to active service, which means service on active duty or 
full-time National Guard duty, authorized by the President or the 
Secretary of Defense for a period of more than 30 consecutive days for 
purposes of responding to a national emergency declared by the President 
and supported by Federal funds;
    (ii) In the case of a servicemember who is a commissioned officer of 
the Public Health Service or the National Oceanic and Atmospheric 
Administration, active service; and
    (iii) Any period during which a servicemember is absent from duty on 
account of sickness, wounds, leave, or other lawful cause.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079, 1080, 
1082, 1085)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 22476, Apr. 29, 1994; 64 FR 18976, Apr. 16, 1999; 64 FR 58626, Oct. 
29, 1999; 64 FR 58965, Nov. 1, 1999; 71 FR 45701, Aug. 9, 2006; 72 FR 
62000, 62031, Nov. 1, 2007; 74 FR 55993, Oct. 29, 2009; 78 FR 65811, 
Nov. 1, 2013; 80 FR 67237, Oct. 30, 2015]



Sec. 682.209  Repayment of a loan.

    (a) Conversion of a loan to repayment status. (1) For a 
Consolidation loan, the repayment period begins on the date the loan is 
disbursed. The first payment is due within 60 days after the date the 
loan is disbursed.
    (2)(i) For a PLUS loan, the repayment period begins on the date of 
the last disbursement made on the loan. Interest accrues and is due and 
payable from the date of the first disbursement of the loan. The first 
payment is due within 60 days after the date the loan is fully 
disbursed.
    (ii) For an SLS loan, the repayment period begins on the date the 
loan is disbursed, or, if the loan is disbursed in multiple 
installments, on the date of the last disbursement of the loan. Interest 
accrues and is due and payable from the date of the first disbursement 
of the loan. Except as provided in paragraph (a)(2)(iii), (a)(2)(iv), 
and (a)(2)(v) of this section the first payment is due within 60 days 
after the date the loan is fully disbursed.
    (iii) For an SLS borrower who has not yet entered repayment on a 
Stafford loan, the borrower may postpone payment, consistent with the 
grace period on the borrower's Stafford loan.
    (iv) If the lender first learns after the fact that an SLS borrower 
has entered the repayment period, the repayment begins no later than 75 
days after the date the lender learns that the borrower has entered the 
repayment period.
    (v) The lender may establish a first payment due date that is no 
more than an additional 30 days beyond the period specified in 
paragraphs (a)(2)(i)-(a)(2)(iv) of this section in order for the

[[Page 41]]

lender to comply with the required deadline contained in 
Sec. 682.205(c)(1).
    (3)(i) Except as provided in paragraph (a)(4) of this section, for a 
Stafford loan the repayment period begins--
    (A) For a borrower with a loan for which the applicable interest 
rate is 7 percent per year, not less than 9 nor more than 12 months 
following the date on which the borrower is no longer enrolled on at 
least a half-time basis at an eligible school. The length of this grace 
period is determined by the lender for loans made under the FISL 
Program, and by the guaranty agency for loans guaranteed by the agency;
    (B) For a borrower with a loan for which the initial applicable 
interest rate is 8 or 9 percent per year, the day after 6 months 
following the date on which the borrower is no longer enrolled on at 
least a half-time basis at an institution of higher education;
    (C) For a borrower with a loan with a variable interest rate, the 
day after 6 months following the date on which the borrower is no longer 
enrolled on at least a half-time basis at an institution of higher 
education; and
    (D) For a borrower with a loan for which the applicable interest 
rate is fixed at 6.0 percent per year, 5.6 percent per year, or 6.8 
percent per year, the day after 6 months following the date on which the 
borrower is no longer enrolled on at least a half-time basis at an 
institution of higher education.
    (ii) The first payment on a Stafford loan is due on a date 
established by the lender that is no more than--
    (A) 60 days following the first day that the repayment period 
begins;
    (B) 60 days from the expiration of a deferment or forbearance 
period;
    (C) 60 days following the end of the post deferment grace period;
    (D) If the lender first learns after the fact that the borrower has 
entered the repayment period, no later than 75 days after the date the 
lender learns that the borrower has entered the repayment period; or
    (E) An additional 30 days beyond the periods specified in paragraphs 
(a)(3)(ii)(A)-(a)(3)(ii)(D) of this section in order for the lender to 
comply with the required deadlines contained in Sec. 682.205(a)(1).
    (iii) When determining the date that the student was no longer 
enrolled on at least a half-time basis, the lender must use a new date 
it receives from a school, unless the lender has already disclosed 
repayment terms to the borrower and the new date is within the same 
month and year as the most recent date reported to the lender.
    (4) For a borrower of a Stafford loan who is a correspondence 
student, the grace period specified in paragraph (a)(3)(i) of this 
section begins on the earliest of--
    (i) The day after the borrower completes the program;
    (ii) The day after withdrawal as determined pursuant to 34 CFR 
668.22; or
    (iii) 60 days following the last day for completing the program as 
established by the school.
    (5) For purposes of establishing the beginning of the repayment 
period for Stafford and SLS loans, the grace periods referenced in 
paragraphs (a)(2)(iii) and (a)(3)(i) of this section exclude any period 
during which a borrower who is a member of a reserve component of the 
Armed Forces named in section 10101 of title 10, United States Code is 
called or ordered to active duty for a period of more than 30 days. Any 
single excluded period may not exceed three years and includes the time 
necessary for the borrower to resume enrollment at the next available 
regular enrollment period. Any Stafford or SLS borrower who is in a 
grace period when called or ordered to active duty as specified in this 
paragraph is entitled to a full grace period upon completion of the 
excluded period.
    (6)(i) The repayment schedule may provide for substantially equal 
installment payments or for installment payments that increase or 
decrease in amount during the repayment period. If the loan has a 
variable interest rate that changes annually, the lender may establish a 
repayment schedule that--
    (A) Provides for adjustments of the amount of the installment 
payment to reflect annual changes in the variable interest rate; or
    (B) Contains no provision for an adjustment of the amount of the 
installment payment to reflect annual changes in the variable interest 
rate,

[[Page 42]]

but requires the lender to grant a forbearance to the borrower (or 
endorser, if applicable) for a period of up to 3 years of payments in 
accordance with Sec. 682.211(i)(5) in cases where the effect of a 
variable interest rate on a standard or graduated repayment schedule 
would result in a loan not being repaid within the maximum repayment 
term.
    (ii) If a graduated or income-sensitive repayment schedule is 
established, it may not provide for any single installment that is more 
than three times greater than any other installment. An agreement as 
specified in paragraph (c)(1)(ii) of this section is not required if the 
schedule provides for less than the minimum annual payment amount 
specified in paragraph (c)(1)(i) of this section.
    (iii) Not more than six months prior to the date that the borrower's 
first payment is due, the lender must offer the borrower a choice of a 
standard, income-sensitive, income-based, graduated, or, if applicable, 
an extended repayment schedule.
    (iv) Except in the case of an income-based repayment schedule, the 
repayment schedule must require that each payment equal at least the 
interest that accrues during the interval between scheduled payments.
    (v) The lender shall require the borrower to repay the loan under a 
standard repayment schedule described in paragraph (a)(6)(vi) of this 
section if the borrower--
    (A) Does not select an income-sensitive, income-based, graduated, 
or, if applicable, an extended repayment schedule within 45 days after 
being notified by the lender to choose a repayment schedule;
    (B) Chooses an income-sensitive repayment schedule, but does not 
provide the documentation requested by the lender under paragraph 
(a)(6)(viii)(C) of this section within the time period specified by the 
lender; or
    (C) Chooses an income-based repayment schedule, but does not provide 
the income documentation requested by the lender under 
Sec. 682.215(e)(1)(i) through (e)(1)(iii) within the time period 
specified by the lender.
    (vi) Under a standard repayment schedule, the borrower is scheduled 
to pay either--
    (A) The same amount for each installment payment made during the 
repayment period, except that the borrower's final payment may be 
slightly more or less than the other payments; or
    (B) An installment amount that will be adjusted to reflect annual 
changes in the loan's variable interest rate.
    (vii) Under a graduated repayment schedule--
    (A)(1) The amount of the borrower's installment payment is scheduled 
to change (usually by increasing) during the course of the repayment 
period; or
    (2) If the loan has a variable interest rate that changes annually, 
the lender may establish a repayment schedule that may have adjustments 
in the payment amount as provided under paragraph (a)(6)(i) of this 
section; and
    (B) An agreement as specified in paragraph (c)(1)(ii) of this 
section is not required if the schedule provides for less than the 
minimum annual payment amount specified in paragraph (c)(1)(i) of this 
section.
    (viii) Under an income-sensitive repayment schedule--
    (A)(1) The amount of the borrower's installment payment is adjusted 
annually, based on the borrower's expected total monthly gross income 
received by the borrower from employment and from other sources during 
the course of the repayment period; or
    (2) If the loan has a variable interest rate that changes annually, 
the lender may establish a repayment schedule that may have adjustments 
in the payment amount as provided under paragraph (a)(6)(i) of this 
section; and
    (B) In general, the lender shall request the borrower to inform the 
lender of his or her income no earlier than 90 days prior to the due 
date of the borrower's initial installment payment and subsequent annual 
payment adjustment under an income-sensitive repayment schedule. The 
income information must be sufficient for the lender to make a 
reasonable determination of what the borrower's payment amount should 
be. If the lender receives late notification that the borrower has 
dropped below half-time enrollment status at a school, the lender may 
request that income information earlier than 90 days prior to the due

[[Page 43]]

date of the borrower's initial installment payment;
    (C) If the borrower reports income to the lender that the lender 
considers to be insufficient for establishing monthly installment 
payments that would repay the loan within the applicable maximum 
repayment period, the lender shall require the borrower to submit 
evidence showing the amount of the most recent total monthly gross 
income received by the borrower from employment and from other sources 
including, if applicable, pay statements from employers and 
documentation of any income received by the borrower from other parties;
    (D) The lender shall grant a forbearance to the borrower (or 
endorser, if applicable) for a period of up to 5 years of payments in 
accordance with Sec. 682.211(i)(5) in cases where the effect of 
decreased installment amounts paid under an income-sensitive repayment 
schedule would result in a loan not being repaid within the maximum 
repayment term; and
    (E) The lender shall inform the borrower that the loan must be 
repaid within the time limits specified under paragraph (a)(7) of this 
section.
    (ix) Under an extended repayment schedule, a new borrower whose 
total outstanding principal and interest in FFEL loans exceed $30,000 
may repay the loan on a fixed annual repayment amount or a graduated 
repayment amount for a period that may not exceed 25 years. For purposes 
of this section, a ``new borrower'' is an individual who has no 
outstanding principal or interest balance on an FFEL Program loan as of 
October 7, 1998, or on the date he or she obtains an FFEL Program loan 
after October 7, 1998.
    (x) Under an income-based repayment schedule, the borrower repays 
the loan in accordance with Sec. 682.215.
    (xi) A borrower may request a change in the repayment schedule on a 
loan. The lender must permit the borrower to change the repayment 
schedule no less frequently than annually, or at any time in the case of 
a borrower in an income-based repayment plan.
    (xii) For purposes of this section, a lender shall, to the extent 
practicable require that all FFEL loans owed by a borrower to the lender 
be combined into one account and repaid under one repayment schedule. In 
that event, the word ``loan'' in this section shall mean all of the 
borrower's loans that were combined by the lender into that account.
    (7)(i) Subject to paragraphs (a)(7)(ii) through (iv) of this 
section, and except as provided in paragraph (a)(6)(ix) a lender shall 
allow a borrower at least 5 years, but not more than 10 years, or 25 
years under an extended repayment plan to repay a Stafford, SLS, or PLUS 
loan, calculated from the beginning of the repayment period. Except in 
the case of a FISL loan for a period of enrollment beginning on or after 
July 1, 1986, the lender shall require a borrower to fully repay a FISL 
loan within 15 years after it is made.
    (ii) If the borrower receives an authorized deferment or is granted 
forbearance, as described in Sec. 682.210 or Sec. 682.211 respectively, 
the periods of deferment or forbearance are excluded from determinations 
of the 5-, 10-, and 15- and 25-year periods, and from the 10-, 12-, 15-, 
20-, 25-, and 30-year periods for repayment of a Consolidation loan 
pursuant to Sec. 682.209(h).
    (iii) If the minimum annual repayment required in paragraph (c) of 
this section would result in complete repayment of the loan in less than 
5 years, the borrower is not entitled to the full 5-year period.
    (iv) The borrower may, prior to the beginning of the repayment 
period, request and be granted by the lender a repayment period of less 
than 5 years. Subject to paragraph (a)(7)(iii) of this section, a 
borrower who makes such a request may notify the lender at any time to 
extend the repayment period to a minimum of 5 years.
    (8) If, with respect to the aggregate of all loans held by a lender, 
the total payment made by a borrower for a monthly or similar payment 
period would not otherwise be a multiple of five dollars, except in the 
case of payments made under an income-based repayment plan, the lender 
may round that periodic payment to the next highest whole dollar amount 
that is a multiple of five dollars.

[[Page 44]]

    (b) Payment application and prepayment. (1) Except in the case of 
payments made under an income-based repayment plan, the lender may 
credit the entire payment amount first to any late charges accrued or 
collection costs and then to any outstanding interest and then to 
outstanding principal.
    (2)(i) The borrower may prepay the whole or any part of a loan at 
any time without penalty.
    (ii) If the prepayment amount equals or exceeds the monthly payment 
amount under the repayment schedule established for the loan, the lender 
shall apply the prepayment to future installments by advancing the next 
payment due date, unless the borrower requests otherwise. The lender 
must either inform the borrower in advance using a prominent statement 
in the borrower's coupon book or billing statement that any additional 
full payment amounts submitted without instructions to the lender as to 
their handling will be applied to future scheduled payments with the 
borrower's next scheduled payment due date advanced consistent with the 
number of additional payments received, or provide a notification to the 
borrower after the payments are received informing the borrower that the 
payments have been so applied and the date of the borrower's next 
scheduled payment due date. Information related to next scheduled 
payment due date need not be provided to borrowers making such 
prepayments while in an in-school, grace, deferment, or forbearance 
period when payments are not due.
    (c) Minimum annual payment. (1)(i) Subject to paragraph (c)(1)(ii) 
of this section and except as otherwise provided by a graduated, income-
sensitive, extended, or income-based repayment plan selected by the 
borrower, during each year of the repayment period, a borrower's total 
payments to all holders of the borrower's FFEL Program loans must total 
at least $600 or the unpaid balance of all loans, including interest, 
whichever amount is less.
    (ii) If the borrower and the lender agree, the amount paid may be 
less.
    (2) The provisions of paragraphs (c)(1) (i) and (ii) of this section 
may not result in an extension of the maximum repayment period unless 
forbearance as described in Sec. 682.211, or deferment described in 
Sec. 682.210, has been approved.
    (d) Combined repayment of a borrower's student PLUS and SLS loans 
held by a lender. (1) A lender may, at the request of a student 
borrower, combine the borrower's, student PLUS and SLS loans held by it 
into a single repayment schedule.
    (2) The repayment period on the loans included in the combined 
repayment schedule must be calculated based on the beginning of 
repayment of the most recent included loan.
    (3) The interest rate on the loans included in the new combined 
repayment schedule must be the weighted average of the rates of all 
included loans.
    (e) Consolidation loans. (1) For a Consolidation loan, the repayment 
period begins on the day of disbursement, with the first payment due 
within 60 days after the date of disbursement.
    (2) If the sum of the amount of the Consolidation loan and the 
unpaid balance on other student loans to the applicant--
    (i) Is less than $7,500, the borrower shall repay the Consolidation 
loan in not more than 10 years;
    (ii) Is equal to or greater than $7,500 but less than $10,000, the 
borrower shall repay the Consolidation loan in not more than 12 years;
    (iii) Is equal to or greater than $10,000 but less than $20,000, the 
borrower shall repay the Consolidation loan in not more than 15 years;
    (iv) Is equal to or greater than $20,000 but less than $40,000, the 
borrower shall repay the Consolidation loan in not more than 20 years;
    (v) Is equal to or greater than $40,000 but less than $60,000, the 
borrower shall repay the Consolidation loan in not more than 25 years; 
or
    (vi) Is equal to or greater than $60,000, the borrower shall repay 
the Consolidation loan in not more than 30 years.
    (3) For the purpose of paragraph (e)(2) of this section, the unpaid 
balance on other student loans--
    (i) May not exceed the amount of the Consolidation loan; and
    (ii) With the exception of the defaulted title IV loans on which the 
borrower has made satisfactory repayment

[[Page 45]]

arrangements with the holder of the loan, does not include the unpaid 
balance on any defaulted loans.
    (4) A repayment schedule for a Consolidation loan--
    (i) Must be established by the lender;
    (ii) Except in the case of an income-based repayment schedule, must 
require that each payment equal at least the interest that accrues 
during the interval between scheduled payments.
    (5) Upon receipt of the proceeds of a loan made under paragraph 
(e)(2) of this section, the holder of the underlying loan shall promptly 
apply the proceeds to discharge fully the borrower's obligation on the 
underlying loan, and provide the consolidating lender with the holder's 
written certification that the borrower's obligation on the underlying 
loan has been fully discharged.
    (f) Treatment by a lender of borrowers' title IV, HEA program funds 
received from schools if the borrower withdraws. (1) A lender shall 
treat a refund or a return of title IV, HEA program funds under 
Sec. 668.22 when a student withdraws received by the lender from a 
school as a credit against the principal amount owed by the borrower on 
the borrower's loan.
    (2)(i) If a lender receives a refund or a return of title IV, HEA 
program funds under Sec. 668.22 when a student withdraws from a school 
on a loan that is no longer held by that lender, or that has been 
discharged by another lender by refinancing or by a Consolidation loan, 
the lender must transmit the amount of the payment, within 30 days of 
its receipt, to the lender to whom it assigned the loan, or to the 
lender that discharged the prior loan, with an explanation of the source 
of the payment.
    (ii) Upon receipt of a refund or a return of title IV, HEA program 
funds transmitted under paragraph (f)(2)(i) of this section, the holder 
of the loan promptly must provide written notice to the borrower that 
the holder has received the return of title IV, HEA program funds.
    (g) Any lender holding a loan is subject to all claims and defenses 
that the borrower could assert against the school with respect to that 
loan if--
    (1) The loan was made by the school or a school-affiliated 
organization;
    (2) The lender who made the loan provided an improper inducement, as 
described in paragraph (5)(i) of the definition of Lender in 
Sec. 682.200(b), to the school or any other party in connection with the 
making of the loan;
    (3) The school refers borrowers to the lender; or
    (4) The school is affiliated with the lender by common control, 
contract, or business arrangement.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079, 1082, 
1085)

[57 FR 60323, Dec. 18, 1992]

    Editorial Note: For Federal Register citations affecting 
Sec. 682.209, see the List of CFR Sections Affected, which appears in 
the Finding Aids section of the printed volume and at www.fdsys.gov.



Sec. 682.210  Deferment.

    (a) General. (1)(i) A borrower is entitled to have periodic 
installment payments of principal deferred during authorized periods 
after the beginning of the repayment period, pursuant to paragraph (b) 
and paragraphs (s) through (v) of this section.
    (ii) With the exception of a deferment authorized under paragraph 
(o) of this section, a borrower may continue to receive a specific type 
of deferment that is limited to a maximum period of time only if the 
total amount of time that the borrower has received the deferment does 
not exceed the maximum time period allowed for the deferment.
    (2)(i) For a loan made before October 1, 1981, the borrower is also 
entitled to have periodic installments of principal deferred during the 
six-month period (post-deferment grace period) that begins after the 
completion of each deferment period or combination of those periods, 
except as provided in paragraph (a)(2)(ii) of this section.
    (ii) Once a borrower receives a post-deferment grace period 
following an unemployment deferment, as described in paragraph (b)(1)(v) 
of this section, the borrower does not qualify for additional post-
deferment grace periods following subsequent unemployment deferments.
    (3)(i) Interest accrues and is paid by--

[[Page 46]]

    (A) The Secretary during the deferment period for a subsidized 
Stafford loan and for all or a portion of a Consolidation loan that 
qualifies for interest benefits under Sec. 682.301; or
    (B) The borrower during the deferment period and, as applicable, the 
post-deferment grace period, on all other loans.
    (ii) A borrower who is responsible for payment of interest during a 
deferment period must be notified by the lender, at or before the time 
the deferment is granted, that the borrower has the option to pay the 
accruing interest or cancel the deferment and continue paying on the 
loan. The lender must also provide information, including an example, on 
the impact of capitalization of accrued, unpaid interest on loan 
principal, and on the total amount of interest to be paid over the life 
of the loan.
    (4) As a condition for receiving a deferment, except for purposes of 
paragraphs (c)(1)(ii), (iii), and (iv) of this section, the borrower, or 
the borrower's representative for purposes of paragraphs (i) and (t) of 
this section, must request the deferment, and provide the lender with 
all information and documents required to establish eligibility for a 
specific type of deferment.
    (5) An authorized deferment period begins on the date that the 
holder determines is the date that the condition entitling the borrower 
to the deferment first existed, except that an initial unemployment 
deferment as described in paragraph (h)(2) of this section cannot begin 
more than 6 months before the date the holder receives a request and 
documentation required for the deferment.
    (6) An authorized deferment period ends on the earlier of--
    (i) The date when the condition establishing the borrower's 
eligibility for the deferment ends;
    (ii) Except as provided in paragraph (a)(6)(iv) of this section, the 
date on which, as certified by an authorized official, the borrower's 
eligibility for the deferment is expected to end;
    (iii) Except as provided in paragraph (a)(6)(iv) of this section, 
the expiration date of the period covered by any certification required 
by this section to be obtained for the deferment;
    (iv) In the case of an in-school deferment, the student's 
anticipated graduation date as certified by an authorized official of 
the school; or
    (v) The date when the condition providing the basis for the 
borrower's eligibility for the deferment has continued to exist for the 
maximum amount of time allowed for that type of deferment.
    (7) A lender may not deny a borrower a deferment to which the 
borrower is entitled, even though the borrower may be delinquent, but 
not in default, in making required installment payments. The 270- or 
330-day period required to establish default does not run during the 
deferment and post-deferment grace periods. Unless the lender has 
granted the borrower forbearance under Sec. 682.211, when the deferment 
and, if applicable, the post-deferment grace period expire, a borrower 
resumes any delinquency status that existed when the deferment period 
began.
    (8) A borrower whose loan is in default is not eligible for a 
deferment on that loan, unless the borrower has made payment 
arrangements acceptable to the lender prior to the payment of a default 
claim by a guaranty agency.
    (9) The borrower promptly must inform the lender when the condition 
entitling the borrower to a deferment no longer exists.
    (10) Authorized deferments are described in paragraph (b) of this 
section. Specific requirements for each deferment are set forth in 
paragraphs (c) through (s) of this section.
    (11) If two individuals are jointly liable for repayment of a PLUS 
loan or a Consolidation loan, the lender shall grant a request for 
deferment if both individuals simultaneously meet the requirements of 
this section for receiving the same, or different deferments.
    (b) Authorized deferments for borrowers prior to July 1, 1993--(1) 
For all borrowers who are not new borrowers on or after July 1, 1993. 
Deferment is authorized for a FFEL borrower during any period when the 
borrower is--
    (i) Except as provided in paragraph (b)(4) of this section, engaged 
in full-

[[Page 47]]

time study at a school in accordance with paragraph (c) of this section;
    (ii) Engaged in a course of study under an eligible graduate 
fellowship program in accordance with paragraph (d) of this section;
    (iii) Engaged in a rehabilitation training program for disabled 
individuals in accordance with paragraph (e) of this section;
    (iv) Temporarily totally disabled in accordance with paragraph (f) 
of this section, or unable to secure employment because the borrower is 
caring for a spouse or other dependent who is disabled and requires 
continuous nursing or similar services for up to three years in 
accordance with paragraph (g) of this section; or
    (v) Conscientiously seeking, but unable to find, full-time 
employment in the United States, for up to two years, in accordance with 
paragraph (h) of this section.
    (2) For all Stafford and SLS borrowers who are not new borrowers on 
or after July 1, 1993, and for parent PLUS loans made before August 15, 
1983. Deferment is authorized during any period when the borrower is--
    (i) On active duty status in the United States Armed Forces in 
accordance with paragraph (i) of this section, or an officer in the 
Commissioned Corps of the United States Public Health Service in 
accordance with paragraph (j) of this section, for up to three years 
(including any period during which the borrower received a deferment 
authorized under paragraph (b)(3)(ii) of this section);
    (ii) A full-time volunteer under the Peace Corps Act, for up to 
three years, in accordance with paragraph (k) of this section;
    (iii) A full-time volunteer under title I of the Domestic Volunteer 
Service Act of 1973 (ACTION programs), for up to three years, in 
accordance with paragraph (l) of this section;
    (iv) A full-time volunteer for a tax-exempt organization, for up to 
three years, in accordance with paragraph (m) of this section; or
    (v) Engaged in an internship or residency program, in accordance 
with paragraph (n) of this section, for up to two years (including any 
period during which the borrower received a deferment authorized under 
paragraph (b)(3)(iv) of this section).
    (3) For new Stafford or SLS borrowers on or after July 1, 1987 but 
before July 1, 1993. Deferment is authorized--
    (i) In accordance with paragraph (o) of this section, if the 
borrower has been enrolled on at least a half-time basis at an 
institution of higher education during the six months preceding the 
beginning of the deferment, for a period of up to six months during 
which the borrower is--
    (A)(1) Pregnant;
    (2) Caring for his or her newborn child; or
    (3) Caring for a child immediately following the placement of the 
child with the borrower before or immediately following adoption; and
    (B) Not attending a school or gainfully employed;
    (ii) During a period when the borrower is on active duty status in 
the National Oceanic and Atmospheric Administration Corps, for up to 
three years, in accordance with paragraph (p) of this section, 
(including any period during which the borrower received a deferment 
authorized under paragraph (b)(2)(i) of this section);
    (iii) During a period of up to three years when the borrower is 
serving as a full-time teacher in a public or non-profit private 
elementary or secondary school in a teacher shortage area designated by 
the Secretary under paragraph (q) of this section;
    (iv) During a period when the borrower is engaged in an internship 
or residency program, for up to two years, in accordance with paragraph 
(n) of this section, (including any period during which the borrower 
received a deferment authorized under paragraph (b)(2)(v) of this 
section); or
    (v) When a mother who has preschool-age children (i.e., children who 
have not enrolled in first grade) and who is earning not more than $1 
per hour above the Federal minimum wage, for up to 12 months of 
employment, and who began that full-time employment within one year of 
entering or re-entering the work force, in accordance with paragraph (r) 
of this section. Full-time employment involves at least 30 hours of work 
a week and it is expected to last at least 3 months.

[[Page 48]]

    (4) For new Stafford or SLS borrowers on or after July 1, 1987. 
Deferment is authorized during periods when the borrower is engaged in 
at least half-time study at a school in accordance with paragraph (b) of 
this section.
    (5) For new parent PLUS borrowers on or after July 1, 1987 and 
before July 1, 1993. Deferment is authorized during any period when a 
student on whose behalf the parent borrower received the loan--
    (i) Is not independent as defined in section 480(d) of the Act; and
    (ii) Meets the conditions and provides the required documentation, 
for any of the deferments described in paragraphs (b)(1)(i) through 
(iii) and (b)(4) of this section.
    (6) Definition of a new borrower. For purposes of paragraphs (b)(3), 
(b)(4), and (b)(5) of this section, a ``new borrower'' with respect to a 
loan is a borrower who, on the date he or she signs the promissory note, 
has no outstanding balance on--
    (i) A Stafford, SLS, or PLUS loan made prior to July 1, 1987 for a 
period of enrollment beginning prior to July 1, 1987; or
    (ii) A Consolidation loan that repaid a loan made prior to July 1, 
1987 and for a period of enrollment beginning prior to July 1, 1987.
    (c) In-school deferment. (1) Except as provided in paragraph (c)(5) 
of this section, the lender processes a deferment for full-time study or 
half-time study at a school, when--
    (i) The borrower submits a request and supporting documentation for 
a deferment;
    (ii) The lender receives information from the borrower's school 
about the borrower's eligibility in connection with a new loan;
    (iii) The lender receives student status information from the 
borrower's school, either directly or indirectly, indicating that the 
borrower's enrollment status supports eligibility for a deferment; or
    (iv) The lender confirms a borrower's half-time enrollment status 
through the use of the National Student Loan Data System if requested to 
do so by the school the borrower is attending.
    (2) The lender must notify the borrower that a deferment has been 
granted based on paragraphs (c)(1)(ii), (iii), or (iv) of this section 
and that the borrower has the option to cancel the deferment and 
continue paying on the loan.
    (3) The lender must consider a deferment granted on the basis of a 
certified loan application or other information certified by the school 
to cover the period lasting until the anticipated graduation date 
appearing on the application, and as updated by notice or Student Status 
Confirmation Report update to the lender from the school or guaranty 
agency, unless and until it receives notice that the borrower has ceased 
the level of study (i.e., full-time or half-time) required for the 
deferment.
    (4) In the case of a FFEL borrower, the lender shall treat a 
certified loan application or other form certified by the school or for 
multiple holders of a borrower's loans, shared data from the Student 
Status Confirmation Report, as sufficient documentation for an in-school 
student deferment for any outstanding FFEL loan previously made to the 
borrower that is held by the lender.
    (5) A borrower serving in a medical internship or residency program, 
except for an internship in dentistry, is prohibited from receiving or 
continuing a deferment on a Stafford, or a PLUS (unless based on the 
dependent's status) SLS, or Consolidation loan under paragraph (c) of 
this section.
    (d) Graduate fellowship deferment. (1) To qualify for a deferment 
for study in a graduate fellowship program, a borrower shall provide the 
lender with a statement from an authorized official of the borrower's 
fellowship program certifying--
    (i) That the borrower holds at least a baccalaureate degree 
conferred by an institution of higher education;
    (ii) That the borrower has been accepted or recommended by an 
institution of higher education for acceptance on a full-time basis into 
an eligible graduate fellowship program; and
    (iii) The borrower's anticipated completion date in the program.
    (2) For purposes of paragraph (d)(1) of this section, an eligible 
graduate fellowship program is a fellowship program that--

[[Page 49]]

    (i) Provides sufficient financial support to graduate fellows to 
allow for full-time study for at least six months;
    (ii) Requires a written statement from each applicant explaining the 
applicant's objectives before the award of that financial support;
    (iii) Requires a graduate fellow to submit periodic reports, 
projects, or evidence of the fellow's progress; and
    (iv) In the case of a course of study at a foreign university, 
accepts the course of study for completion of the fellowship program.
    (e) Rehabilitation training program deferment. (1) To qualify for a 
rehabilitation training program deferment, a borrower shall provide the 
lender with a statement from an authorized official of the borrower's 
rehabilitation training program certifying that the borrower is either 
receiving, or is scheduled to receive, services under an eligible 
rehabilitation training program for disabled individuals.
    (2) For purposes of paragraph (e)(1) of this section, an eligible 
rehabilitation training program for disabled individuals is a program 
that--
    (i) Is licensed, approved, certified, or otherwise recognized as 
providing rehabilitation training to disabled individuals by--
    (A) A State agency with responsibility for vocational rehabilitation 
programs;
    (B) A State agency with responsibility for drug abuse treatment 
programs;
    (C) A State agency with responsibility for mental health services 
program;
    (D) A State agency with responsibility for alcohol abuse treatment 
programs; or
    (E) The Department of Veterans Affairs; and
    (ii) Provides or will provide the borrower with rehabilitation 
services under a written plan that--
    (A) Is individualized to meet the borrower's needs;
    (B) Specifies the date on which the services to the borrower are 
expected to end; and
    (C) Is structured in a way that requires a substantial commitment by 
the borrower to his or her rehabilitation. The Secretary considers a 
substantial commitment by the borrower to be a commitment of time and 
effort that normally would prevent an individual from engaging in full-
time employment, either because of the number of hours that must be 
devoted to rehabilitation or because of the nature of the 
rehabilitation. For the purpose of this paragraph, full-time employment 
involves at least 30 hours of work per week and is expected to last at 
least three months.
    (f) Temporary total disability deferment. (1) To qualify for a 
temporary total disability deferment, a borrower shall provide the 
lender with a statement from a physician, who is a doctor of medicine or 
osteopathy and is legally authorized to practice, certifying that the 
borrower is temporarily totally disabled as defined in Sec. 682.200(b).
    (2) A borrower is not considered temporarily totally disabled on the 
basis of a condition that existed before he or she applied for the loan, 
unless the condition has substantially deteriorated so as to render the 
borrower temporarily totally disabled, as substantiated by the statement 
required under paragraph (f)(1) of this section, after the borrower 
submitted the loan application.
    (3) A lender may not grant a deferment based on a single 
certification under paragraph (f)(1) of this section beyond the date 
that is six months after the date of certification.
    (g) Dependent's disability deferment. (1) To qualify for a deferment 
given to a borrower whose spouse or other dependent requires continuous 
nursing or similar services for a period of at least 90 days, the 
borrower shall provide the lender with a statement--
    (i) From a physician, who is a doctor of medicine or osteopathy and 
is legally authorized to practice, certifying that the borrower's spouse 
or dependent requires continuous nursing or similar services for a 
period of at least 90 days; and
    (ii) From the borrower, certifying that the borrower is unable to 
secure full-time employment because he or she is providing continuous 
nursing or similar services to the borrower's spouse or other dependent. 
For the purpose of this paragraph, full-time employment involves at 
least 30 hours of

[[Page 50]]

work per week and is expected to last at least three months.
    (2) A lender may not grant a deferment based on a single 
certification under paragraph (g)(1) of this section beyond the date 
that is six months after the date of the certification.
    (h) Unemployment deferment. (1) A borrower qualifies for an 
unemployment deferment by providing evidence of eligibility for 
unemployment benefits to the lender.
    (2) A borrower also qualifies for an unemployment deferment by 
providing to the lender a written certification, or an equivalent as 
approved by the Secretary, that--
    (i) The borrower has registered with a public or private employment 
agency, if one is available to the borrower within a 50-mile radius of 
the borrower's current address; and
    (ii) For all requests beyond the initial request, the borrower has 
made at least six diligent attempts during the preceding 6-month period 
to secure full-time employment.
    (3) For purposes of obtaining an unemployment deferment under 
paragraph (h)(2) of this section, the following rules apply:
    (i) A borrower may qualify for an unemployment deferment whether or 
not the borrower has been previously employed.
    (ii) An unemployment deferment is not justified if the borrower 
refuses to seek or accept employment in kinds of positions or at salary 
and responsibility levels for which the borrower feels overqualified by 
virtue of education or previous experience.
    (iii) Full-time employment involves at least 30 hours of work a week 
and is expected to last at least three months.
    (iv) The initial period of unemployment deferment may be granted for 
a period of unemployment beginning up to 6 months before the date the 
lender receives the borrower's request, and may be granted for up to 6 
months after that date.
    (4) A lender may not grant an unemployment deferment beyond the date 
that is 6 months after the date the borrower provides evidence of the 
borrower's eligibility for unemployment insurance benefits under 
paragraph (h)(1) of this section or the date the borrower provides the 
written certification, or an approved equivalent, under paragraph (h)(2) 
of this section.
    (i) Military deferment. (1) To qualify for a military deferment, a 
borrower or a borrower's representative shall provide the lender with--
    (i) A written statement from the borrower's commanding or personnel 
officer certifying--
    (A) That the borrower is on active duty in the Armed Forces of the 
United States;
    (B) The date on which the borrower's service began; and
    (C) The date on which the borrower's service is expected to end; or
    (ii)(A) A copy of the borrower's official military orders; and
    (B) A copy of the borrower's military identification.
    (2) For the purpose of this section, the Armed Forces means the 
Army, Navy, Air Force, Marine Corps, and the Coast Guard.
    (3) A borrower enlisted in a reserve component of the Armed Forces 
may qualify for a military deferment only for service on a full-time 
basis that is expected to last for a period of at least one year in 
length, as evidenced by official military orders, unless an order for 
national mobilization of reservists is issued.
    (4) A borrower enlisted in the National Guard qualifies for a 
military deferment only while the borrower is on active duty status as a 
member of the U.S. Army or Air Force Reserves, and meets the 
requirements of paragraph (i)(3) of this section.
    (5) A lender that grants a military service deferment based on a 
request from a borrower's representative must notify the borrower that 
the deferment has been granted and that the borrower has the option to 
cancel the deferment and continue to make payments on the loan. The 
lender may also notify the borrower's representative of the outcome of 
the deferment request.
    (j) Public Health Service deferment. To qualify for a Public Health 
Service deferment, the borrower shall provide the lender with a 
statement from an authorized official of the United States Public Health 
Service (USPHS) certifying--

[[Page 51]]

    (1) That the borrower is engaged in full-time service as an officer 
in the Commissioned Corps of the USPHS;
    (2) The date on which the borrower's service began; and
    (3) The date on which the borrower's service is expected to end.
    (k) Peace Corps deferment. (1) To qualify for a deferment for 
service under the Peace Corps Act, the borrower shall provide the lender 
with a statement from an authorized official of the Peace Corps 
certifying--
    (i) That the borrower has agreed to serve for a term of at least one 
year;
    (ii) The date on which the borrower's service began; and
    (iii) The date on which the borrower's service is expected to end.
    (2) The lender must grant a deferment for the borrower's full term 
of service in the Peace Corps, not to exceed three years.
    (l) Full-time volunteer service in the ACTION programs. To qualify 
for a deferment as a full-time paid volunteer in an ACTION program, the 
borrower shall provide the lender with a statement from an authorized 
official of the program certifying--
    (1) That the borrower has agreed to serve for a term of at least one 
year;
    (2) The date on which the borrower's service began; and
    (3) The date on which the borrower's service is expected to end.
    (m) Deferment for full-time volunteer service for a tax-exempt 
organization. To qualify for a deferment as a full-time paid volunteer 
for a tax-exempt organization, a borrower shall provide the lender with 
a statement from an authorized official of the volunteer program 
certifying--
    (1) That the borrower--
    (i) Serves in an organization that has obtained an exemption from 
taxation under section 501(c)(3) of the Internal Revenue Code of 1986;
    (ii) Provides service to low-income persons and their communities to 
assist them in eliminating poverty and poverty-related human, social, 
and environmental conditions;
    (iii) Does not receive compensation that exceeds the rate prescribed 
under section 6 of the Fair Labor Standards Act of 1938 (the Federal 
minimum wage), except that the tax-exempt organization may provide 
health, retirement, and other fringe benefits to the volunteer that are 
substantially equivalent to the benefits offered to other employees of 
the organization;
    (iv) Does not, as part of his or her duties, give religious 
instruction, conduct worship services, engage in religious 
proselytizing, or engage in fund-raising to support religious 
activities; and
    (v) Has agreed to serve on a full-time basis for a term of at least 
one year;
    (2) The date on which the borrower's service began; and
    (3) The date on which the borrower's service is expected to end.
    (n) Internship or residency deferment. (1) To qualify for an 
internship or residency deferment under paragraph (b)(3)(iv) of this 
section, the borrower shall provide the lender with a statement from an 
authorized official of the organization with which the borrower is 
undertaking the internship or residency program certifying--
    (i) That the internship or residency program is a supervised 
training program that requires the borrower to hold at least a 
baccalaureate degree prior to acceptance into the program;
    (ii) That, except for a borrower that provides the statement from a 
State official described in paragraph (n)(2) of this section, the 
internship or residency program leads to a degree or certificate awarded 
by an institution of higher education, a hospital, or a health care 
facility that offers postgraduate training;
    (iii) That the borrower has been accepted into the internship or 
residency program; and
    (iv) The anticipated dates on which the borrower will begin and 
complete the internship or residency program, or, in the case of a 
borrower providing the statement described in paragraph (n)(2) of this 
section, the anticipated date on which the borrower will begin and 
complete the minimum period of participation in the internship program 
that the State requires be completed before an individual may be 
certified for professional practice or service.
    (2) For a borrower who does not provide a statement certifying to 
the matters set forth in paragraph (n)(1)(ii) of this section to qualify 
for an internship

[[Page 52]]

deferment under paragraph (b)(3)(iv) of this section, the borrower shall 
provide the lender with a statement from an official of the appropriate 
State licensing agency certifying that the internship or residency 
program, or a portion thereof, is required to be completed before the 
borrower may be certified for professional practice or service.
    (o) Parental-leave deferment. (1) To qualify for the parental-leave 
deferment described in paragraph (b)(3)(i) of this section, the borrower 
shall provide the lender with--
    (i) A statement from an authorized official of a participating 
school certifying that the borrower was enrolled on at least a half-time 
basis during the six months preceding the beginning of the deferment 
period;
    (ii) A statement from the borrower certifying that the borrower--
    (A) Is pregnant, caring for his or her newborn child, or caring for 
a child immediately following the placement of the child with the 
borrower in connection with an adoption;
    (B) Is not, and will not be, attending school during the deferment 
period; and
    (C) Is not, and will not be, engaged in full-time employment during 
the deferment period; and
    (iii) A physician's statement demonstrating the existence of the 
pregnancy, a birth certificate, or a statement from the adoption agency 
official evidencing a pre-adoption placement.
    (2) For purposes of paragraph (o)(1)(ii)(C) of this section, full-
time employment involves at least 30 hours of work per week and is 
expected to last at least three months.
    (p) NOAA deferment. To qualify for a National Oceanic and 
Atmospheric Administration (NOAA) deferment, the borrower shall provide 
the lender with a statement from an authorized official of the NOAA 
corps, certifying--
    (1) That the borrower is on active duty service in the NOAA corps;
    (2) The date on which the borrower's service began; and
    (3) The date on which the borrower's service is expected to end.
    (q) Targeted teacher deferment. (1) To qualify for a targeted 
teacher deferment under paragraph (b)(3)(iii) of this section, the 
borrower, for each school year of service for which a deferment is 
requested, must provide to the lender--
    (i) A statement by the chief administrative officer of the public or 
nonprofit private elementary or secondary school in which the borrower 
is teaching, certifying that the borrower is employed as a full-time 
teacher; and
    (ii) A certification that he or she is teaching in a teacher 
shortage area designated by the Secretary as provided in paragraphs (q) 
(5) through (7) of this section, as described in paragraph (q)(2) of 
this section.
    (2) In order to satisfy the requirement for certification that a 
borrower is teaching in a teacher shortage area designated by the 
Secretary, a borrower must do one of the following:
    (i) If the borrower is teaching in a State in which the Chief State 
School Officer has complied with paragraph (q)(3) of this section and 
provides an annual listing of designated teacher shortage areas to the 
State's chief administrative officers whose schools are affected by the 
Secretary's designations, the borrower may obtain a certification that 
he or she is teaching in a teacher shortage area from his or her 
school's chief administrative officer.
    (ii) If a borrower is teaching in a State in which the Chief State 
School Officer has not complied with paragraph (q)(3) of this section or 
does not provide an annual listing of designated teacher shortage areas 
to the State's chief administrative officers whose schools are affected 
by the Secretary's designations, the borrower must obtain certification 
that he or she is teaching in a teacher shortage area from the Chief 
State School Officer for the State in which the borrower is teaching.
    (3) In the case of a State in which borrowers wish to obtain 
certifications as provided for in paragraph (q)(2)(i) of this section, 
the State's Chief State School Officer must first have notified the 
Secretary, by means of a one-time written assurance, that he or she 
provides annually to the State's chief administrative officers whose 
schools are affected by the Secretary's designations and the guaranty 
agency for that State, a listing of the teacher shortage areas 
designated by the Secretary as

[[Page 53]]

provided for in paragraphs (q) (5) through (7) of this section.
    (4) If a borrower who receives a deferment continues to teach in the 
same teacher shortage area as that in which he or she was teaching when 
the deferment was originally granted, the borrower shall, at the 
borrower's request, continue to receive the deferment for those 
subsequent years, up to the three-year maximum deferment period, even if 
his or her position does not continue to be within an area designated by 
the Secretary as a teacher shortage area in those subsequent years. To 
continue to receive the deferment in a subsequent year under this 
paragraph, the borrower shall provide the lender with a statement by the 
chief administrative officer of the public or nonprofit private 
elementary or secondary school that employs the borrower, certifying 
that the borrower continues to be employed as a full-time teacher in the 
same teacher shortage area for which the deferment was received for the 
previous year.
    (5) For purposes of this section a teacher shortage area is--
    (i)(A) A geographic region of the State in which there is a shortage 
of elementary or secondary school teachers; or
    (B) A specific grade level or academic, instructional, subject-
matter, or discipline classification in which there is a statewide 
shortage of elementary or secondary school teachers; and
    (ii) Designated by the Secretary under paragraphs (q)(6) or (q)(7) 
of this section.
    (6)(i) In order for the Secretary to designate one or more teacher 
shortage areas in a State for a school year, the Chief State School 
Officer shall by January 1 of the calendar year in which the school year 
begins, and in accordance with objective written standards, propose 
teacher shortage areas to the Secretary for designation. With respect to 
private nonprofit schools included in the recommendation, the Chief 
State School Officer shall consult with appropriate officials of the 
private nonprofit schools in the State prior to submitting the 
recommendation.
    (ii) In identifying teacher shortage areas to propose for 
designation under paragraph (q)(6)(i) of this section, the Chief State 
School Officer shall consider data from the school year in which the 
recommendation is to be made, unless that data is not yet available, in 
which case he or she may use data from the immediately preceding school 
year, with respect to--
    (A) Teaching positions that are unfilled;
    (B) Teaching positions that are filled by teachers who are certified 
by irregular, provisional, temporary, or emergency certification; and
    (C) Teaching positions that are filled by teachers who are 
certified, but who are teaching in academic subject areas other than 
their area of preparation.
    (iii) If the total number of unduplicated full-time equivalent (FTE) 
elementary or secondary teaching positions identified under paragraph 
(q)(6)(ii) of this section in the shortage areas proposed by the State 
for designation does not exceed 5 percent of the total number of FTE 
elementary and secondary teaching positions in the State, the Secretary 
designates those areas as teacher shortage areas.
    (iv) If the total number of unduplicated FTE elementary and 
secondary teaching positions identified under paragraph (q)(6)(ii) of 
this section in the shortage areas proposed by the State for designation 
exceeds 5 percent of the total number of elementary and secondary FTE 
teaching positions in the State, the Chief State School Officer shall 
submit, with the list of proposed areas, supporting documentation 
showing the methods used for identifying shortage areas, and an 
explanation of the reasons why the Secretary should nevertheless 
designate all of the proposed areas as teacher shortage areas. The 
explanation must include a ranking of the proposed shortage areas 
according to priority, to assist the Secretary in determining which 
areas should be designated. The Secretary, after considering the 
explanation, determines which shortage areas to designate as teacher 
shortage areas.
    (7) A Chief State School Officer may submit to the Secretary for 
approval

[[Page 54]]

an alternative written procedure to the one described in paragraph 
(q)(6) of this section, for the Chief State School Officer to use to 
select the teacher shortage areas recommended to the Secretary for 
designation, and for the Secretary to use to choose the areas to be 
designated. If the Secretary approves the proposed alternative 
procedure, in writing, that procedure, once approved, may be used 
instead of the procedure described in paragraph (q)(6) of this section 
for designation of teacher shortage areas in that State.
    (8) For purposes of paragraphs (q)(1) through (7) of this section--
    (i) The definition of the term school in Sec. 682.200(b) does not 
apply;
    (ii) Elementary school means a day or residential school that 
provides elementary education, as determined under State law;
    (iii) Secondary school means a day or residential school that 
provides secondary education, as determined under State law. In the 
absence of applicable State law, the Secretary may determine, with 
respect to that State, whether the term ``secondary school'' includes 
education beyond the twelfth grade;
    (iv) Teacher means a professional who provides direct and personal 
services to students for their educational development through classroom 
teaching;
    (v) Chief State School Officer means the highest ranking educational 
official for elementary and secondary education for the State;
    (vi) School year means the period from July 1 of a calendar year 
through June 30 of the following calendar year;
    (vii) Teacher shortage area means an area of specific grade, subject 
matter, or discipline classification, or a geographic area in which the 
Secretary determines that there is an inadequate supply of elementary or 
secondary school teachers; and
    (viii) Full-time equivalent means the standard used by a State in 
defining full-time employment, but not less than 30 hours per week. For 
purposes of counting full-time equivalent teacher positions, a teacher 
working part of his or her total hours in a position that is designated 
as a teacher shortage area is counted on a pro rata basis corresponding 
to the percentage of his or her working hours spent in such a position.
    (r) Working-mother deferment. (1) To qualify for the working-mother 
deferment described in paragraph (b)(3)(v) of this section, the borrower 
shall provide the lender with a statement certifying that she--
    (i) Is the mother of a preschool-age child;
    (ii) Entered or reentered the workforce not more than one year 
before the beginning date of the period for which the deferment is being 
sought;
    (iii) Is currently engaged in full-time employment; and
    (iv) Does not receive compensation that exceeds $1 per hour above 
the rate prescribed under section 6 of the Fair Labor Standards Act of 
1938 (the Federal minimum wage).
    (2) In addition to the certification required under paragraph (r)(1) 
of this section, the borrower shall provide to the lender documents 
demonstrating the age of her child (e.g., a birth certificate) and the 
rate of her compensation (e.g., a pay stub showing her hourly rate of 
pay).
    (3) For purposes of this paragraph--
    (i) A preschool-age child is one who has not yet enrolled in first 
grade or a higher grade in elementary school; and
    (ii) Full-time employment involves at least 30 hours of work a week 
and is expected to last at least 3 months.
    (s) Deferments for new borrowers on or after July 1, 1993--(1) 
General. (i) A new borrower who receives an FFEL Program loan first 
disbursed on or after July 1, 1993 is entitled to receive deferments 
under paragraphs (s)(2) through (s)(6) of this section. For purposes of 
paragraphs (s)(2) through (s)(6) of this section, a ``new borrower'' is 
an individual who has no outstanding principal or interest balance on an 
FFEL Program loan as of July 1, 1993 or on the date he or she obtains a 
loan on or after July 1, 1993. This term also includes a borrower who 
obtains a Federal Consolidation Loan on or after July 1, 1993 if the 
borrower has no other outstanding FFEL Program loan when the 
Consolidation Loan was made.

[[Page 55]]

    (ii) As a condition for receiving a deferment, except for purposes 
of paragraph (s)(2) of this section, the borrower must request the 
deferment and provide the lender with all information and documents 
required to establish eligibility for the deferment.
    (iii) After receiving a borrower's written or verbal request, a 
lender may grant a deferment under paragraphs (s)(3) through (s)(6) of 
this section if the lender is able to confirm that the borrower has 
received a deferment on another FFEL loan or on a Direct Loan for the 
same reason and the same time period. The lender may grant the deferment 
based on information from the other FFEL loan holder or the Secretary or 
from an authoritative electronic database maintained or authorized by 
the Secretary that supports eligibility for the deferment for the same 
reason and the same time period.
    (iv) A lender may rely in good faith on the information it receives 
under paragraph (s)(1)(iii) of this section when determining a 
borrower's eligibility for a deferment unless the lender, as of the date 
of the determination, has information indicating that the borrower does 
not qualify for the deferment. A lender must resolve any discrepant 
information before granting a deferment under paragraph (s)(1)(iii) of 
this section.
    (v) A lender that grants a deferment under paragraph (s)(1)(iii) of 
this section must notify the borrower that the deferment has been 
granted and that the borrower has the option to pay interest that 
accrues on an unsubsidized FFEL loan or to cancel the deferment and 
continue to make payments on the loan.
    (2) In-school deferment. An eligible borrower is entitled to a 
deferment based on the borrower's at least half-time study in accordance 
with the rules prescribed in Sec. 682.210(c).
    (3) Graduate fellowship deferment. An eligible borrower is entitled 
to a graduate fellowship deferment in accordance with the rules 
prescribed in Sec. 682.210(d).
    (4) Rehabilitation training program deferment. An eligible borrower 
is entitled to a rehabilitation training program deferment in accordance 
with the rules prescribed in Sec. 682.210(e).
    (5) Unemployment deferment. An eligible borrower is entitled to an 
unemployment deferment in accordance with the rules prescribed in 
Sec. 682.210(h) for periods that, collectively, do not exceed 3 years.
    (6) Economic hardship deferment. An eligible borrower is entitled to 
an economic hardship deferment for periods of up to one year at a time 
that, collectively, do not exceed 3 years (except that a borrower who 
receives a deferment under paragraph (s)(6)(iv) of this section is 
entitled to an economic hardship deferment for the lesser of the 
borrower's full term of service in the Peace Corps or the borrower's 
remaining period of economic hardship deferment eligibility under the 3-
year maximum), if the borrower provides documentation satisfactory to 
the lender showing that the borrower is within any of the categories 
described in paragraphs (s)(6)(i) through (s)(6)(iv) of this section.
    (i) Has been granted an economic hardship deferment under either the 
Direct Loan or Federal Perkins Loan Programs for the period of time for 
which the borrower has requested an economic hardship deferment for his 
or her FFEL loan.
    (ii) Is receiving payment under a Federal or State public assistance 
program, such as Aid to Families with Dependent Children, Supplemental 
Security Income, Food Stamps, or State general public assistance.
    (iii) Is working full-time and has a monthly income that does not 
exceed the greater of (as calculated on a monthly basis)--
    (A) The minimum wage rate described in section 6 of the Fair Labor 
Standards Act of 1938; or
    (B) An amount equal to 150 percent of the poverty guideline 
applicable to the borrower's family size as published annually by the 
Department of Health and Human Services pursuant to 42 U.S.C. 9902(2). 
If a borrower is not a resident of a State identified in the poverty 
guidelines, the poverty guideline to be used for the borrower is the 
poverty guideline (for the relevant family size) used for the 48 
contiguous States.
    (iv) Is serving as a volunteer in the Peace Corps.

[[Page 56]]

    (v) For an initial period of deferment granted under paragraph 
(s)(6)(iii) of this section, the lender must require the borrower to 
submit evidence showing the amount of the borrower's monthly income.
    (vi) To qualify for a subsequent period of deferment that begins 
less than one year after the end of a period of deferment under 
paragraph (s)(6)(iii) of this section, the lender must require the 
borrower to submit evidence showing the amount of the borrower's monthly 
income or a copy of the borrower's most recently filed Federal income 
tax return.
    (vii) For purposes of paragraph (s)(6) of this section, a borrower's 
monthly income is the gross amount of income received by the borrower 
from employment and from other sources, or one-twelfth of the borrower's 
adjusted gross income, as recorded on the borrower's most recently filed 
Federal income tax return.
    (viii) For purposes of paragraph (s)(6) of this section, a borrower 
is considered to be working full-time if the borrower is expected to be 
employed for at least three consecutive months at 30 hours per week.
    (ix) For purposes of paragraph (s)(6)(iii)(B) of this section, 
family size means the number that is determined by counting the 
borrower, the borrower's spouse, and the borrower's children, including 
unborn children who will be born during the period covered by the 
deferment, if the children receive more than half their support from the 
borrower. A borrower's family size includes other individuals if, at the 
time the borrower requests the economic hardship deferment, the other 
individuals--
    (A) Live with the borrower; and
    (B) Receive more than half their support from the borrower and will 
continue to receive this support from the borrower for the year the 
borrower certifies family size. Support includes money, gifts, loans, 
housing, food, clothes, car, medical and dental care, and payment of 
college costs.
    (t) Military service deferments. (1) A borrower who receives a FFEL 
Program loan may receive a military service deferment for such loan for 
any period during which the borrower is--
    (i) Serving on active duty during a war or other military operation 
or national emergency; or
    (ii) Performing qualifying National Guard duty during a war or other 
military operation or national emergency.
    (2) For a borrower whose active duty service includes October 1, 
2007, or begins on or after that date, the deferment period ends 180 
days after the demobilization date for each period of service described 
in paragraph (t)(1)(i) and (t)(1)(ii) of this section.
    (3) Serving on active duty during a war or other military operation 
or national emergency means service by an individual who is--
    (i) A Reserve of an Armed Force ordered to active duty under 10 
U.S.C. 12301(a), 12301(g), 12302, 12304 or 12306;
    (ii) A retired member of an Armed Force ordered to active duty under 
10 U.S.C. 688 for service in connection with a war or other military 
operation or national emergency, regardless of the location at which 
such active duty service is performed; or
    (iii) Any other member of an Armed Force on active duty in 
connection with such emergency or subsequent actions or conditions who 
has been assigned to a duty station at a location other than the 
location at which member is normally assigned.
    (4) Qualifying National Guard duty during a war or other operation 
or national emergency means service as a member of the National Guard on 
full-time National Guard duty, as defined in 10 U.S.C. 101(d)(5), under 
a call to active service authorized by the President or the Secretary of 
Defense for a period of more than 30 consecutive days under 32 U.S.C. 
502(f) in connection with a war, other military operation, or national 
emergency declared by the President and supported by Federal funds.
    (5) Payments made by or on behalf of a borrower during a period for 
which the borrower qualified for a military service deferment are not 
refunded.
    (6) As used in this paragraph--
    (i) Active duty means active duty as defined in 10 U.S.C. 101(d)(1) 
except that it does not include active duty for training or attendance 
at a service school;

[[Page 57]]

    (ii) Military operation means a contingency operation as defined in 
10 U.S.C. 101(a)(13); and
    (iii) National emergency means the national emergency by reason of 
certain terrorist attacks declared by the President on September 14, 
2001, or subsequent national emergencies declared by the President by 
reason of terrorist attacks.
    (7) To receive a military service deferment, the borrower, or the 
borrower's representative, must request the deferment and provide the 
lender with all information and documents required to establish 
eligibility for the deferment, except that a lender may grant a borrower 
a military service deferment under the procedures specified in 
paragraphs (s)(1)(iii) through (s)(1)(v) of this section.
    (8) A lender that grants a military service deferment based on a 
request from a borrower's representative must notify the borrower that 
the deferment has been granted and that the borrower has the option to 
cancel the deferment and continue to make payments on the loan. The 
lender may also notify the borrower's representative of the outcome of 
the deferment request.
    (9) Without supporting documentation, a military service deferment 
may be granted to an otherwise eligible borrower for a period not to 
exceed the initial 12 months from the date the qualifying eligible 
service began based on a request from the borrower or the borrower's 
representative.
    (u) Post-active duty student deferment. (1) Effective October 1, 
2007, a borrower who receives a FFEL Program loan and is serving on 
active duty on that date, or begins serving on or after that date, is 
entitled to receive a post-active duty student deferment for 13 months 
following the conclusion of the borrower's active duty military service 
and any applicable grace period if--
    (i) The borrower is a member of the National Guard or other reserve 
component of the Armed Forces of the United States or a member of such 
forces in retired status; and
    (ii) The borrower was enrolled, on at least a half-time basis, in a 
program of instruction at an eligible institution at the time, or within 
six months prior to the time, the borrower was called to active duty.
    (2) As used in paragraph (u)(1) of this section, ``active duty'' 
means active duty as defined in section 101(d)(1) of title 10, United 
States Code for at least a 30-day period, except that--
    (i) Active duty includes active State duty for members of the 
National Guard under which a Governor activates National Guard personnel 
based on State statute or policy and the activities of the National 
Guard are paid for with State funds;
    (ii) Active duty includes full-time National Guard duty under which 
a Governor is authorized, with the approval of the President or the U.S. 
Secretary of Defense, to order a member to State active duty and the 
activities of the National Guard are paid for with Federal funds;
    (iii) Active duty does not include active duty for training or 
attendance at a service school; and
    (iv) Active duty does not include employment in a full-time, 
permanent position in the National Guard unless the borrower employed in 
such a position is reassigned to active duty under paragraph (u)(2)(i) 
of this section or full-time National Guard duty under paragraph 
(u)(2)(ii) of this section.
    (3) If the borrower returns to enrolled student status, on at least 
a half-time basis, during the 13-month deferment period, the deferment 
expires at the time the borrower returns to enrolled student status, on 
at least a half-time basis.
    (4) If a borrower qualifies for both a military service deferment 
and a post-active duty student deferment, the 180-day post-
demobilization military service deferment period and the 13-month post-
active duty student deferment period apply concurrently.
    (5) To receive a post-active duty student deferment, the borrower 
must request the deferment and provide the lender with all information 
and documents required to establish eligibility for the deferment, 
except that a lender may grant a borrower a post-active duty student 
deferment under the procedures specified in paragraphs (s)(1)(iii) 
through (s)(1)(v) of this section.

[[Page 58]]

    (v) In-school deferments for PLUS loan borrowers with loans first 
disbursed on or after July 1, 2008. (1)(i) A student PLUS borrower is 
entitled to a deferment on a PLUS loan first disbursed on or after July 
1, 2008 during the 6-month period that begins on the day after the 
student ceases to be enrolled on at least a half-time basis at an 
eligible institution.
    (ii) If a lender grants an in-school deferment to a student PLUS 
borrower based on Sec. 682.210(c)(1)(ii), (iii), or (iv), the deferment 
period for a PLUS loan first disbursed on or after July 1, 2008 includes 
the 6-month post-enrollment period described in paragraph (v)(1)(i) of 
this section. The notice required by Sec. 682.210(c)(2) must inform the 
borrower that the in-school deferment on a PLUS loan first disbursed on 
or after July 1, 2008 will end six months after the day the borrower 
ceases to be enrolled on at least a half-time basis.
    (2) Upon the request of the borrower, an eligible parent PLUS 
borrower must be granted a deferment on a PLUS loan first disbursed on 
or after July 1, 2008--
    (i) During the period when the student on whose behalf the loan was 
obtained is enrolled at an eligible institution on at least a half-time 
basis; and
    (ii) During the 6-month period that begins on the later of the day 
after the student on whose behalf the loan was obtained ceases to be 
enrolled on at least a half-time basis or, if the parent borrower is 
also a student, the day after the parent borrower ceases to be enrolled 
on at least a half-time basis.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1085)

[57 FR 60323, Dec. 18, 1992]

    Editorial Note: For Federal Register citations affecting 
Sec. 682.210, see the List of CFR Sections Affected, which appears in 
the Finding Aids section of the printed volume and at www.fdsys.gov.



Sec. 682.211  Forbearance.

    (a)(1) The Secretary encourages a lender to grant forbearance for 
the benefit of a borrower or endorser in order to prevent the borrower 
or endorser from defaulting on the borrower's or endorser's repayment 
obligation, or to permit the borrower or endorser to resume honoring 
that obligation after default. Forbearance means permitting the 
temporary cessation of payments, allowing an extension of time for 
making payments, or temporarily accepting smaller payments than 
previously were scheduled.
    (2) Subject to paragraph (g) of this section, a lender may grant 
forbearance of payments of principal and interest under paragraphs (b), 
(c), and (d) of this section only if--
    (i) The lender reasonably believes, and documents in the borrower's 
file, that the borrower or endorser intends to repay the loan but, due 
to poor health or other acceptable reasons, is currently unable to make 
scheduled payments; or
    (ii) The borrower's payments of principal are deferred under 
Sec. 682.210 and the Secretary does not pay interest benefits on behalf 
of the borrower under Sec. 682.301.
    (3) If two individuals are jointly liable for repayment of a PLUS 
loan or a Consolidation loan, the lender may grant forbearance on 
repayment of the loan only if the ability of both individuals to make 
scheduled payments has been impaired based on the same or differing 
conditions.
    (4) Except as provided in paragraph (f)(11) of this section, if 
payments of interest are forborne, they may be capitalized as provided 
in Sec. 682.202(b).
    (b) A lender may grant forbearance if--
    (1) The lender and the borrower or endorser agree to the terms of 
the forbearance and, unless the agreement was in writing, the lender 
sends, within 30 days, a notice to the borrower or endorser confirming 
the terms of the forbearance and records the terms of the forbearance in 
the borrower's file; or
    (2) In the case of forbearance of interest during a period of 
deferment, if the lender informs the borrower at the time the deferment 
is granted that interest payments are to be forborne.
    (c) Except as provided in paragraph (d)(2) of this section, a lender 
may grant forbearance for a period of up to one year at a time if both 
the borrower or endorser and an authorized official of the lender agree 
to the terms of the

[[Page 59]]

forbearance. If the borrower or endorser requests the forbearance orally 
and the lender and the borrower or endorser agree to the terms of the 
forbearance orally, the lender must notify the borrower or endorser of 
the terms within 30 days of that agreement.
    (d)(1) A guaranty agency may authorize a lender to grant forbearance 
to permit a borrower or endorser to resume honoring the agreement to 
repay the debt after default but prior to claim payment. The forbearance 
agreement in this situation must include a new agreement to repay the 
debt signed by the borrower or endorser or a written or oral affirmation 
of the borrower's or endorser's obligation to repay the debt.
    (2) If the forbearance is based on the borrower's or endorser's oral 
request and affirmation of the obligation to repay the debt--
    (i) The forbearance period is limited to a period of 120 days;
    (ii) Such a forbearance cannot be granted consecutively;
    (iii) The lender must orally review with the borrower the terms and 
conditions of the forbearance, including the consequences of interest 
capitalization, and all other repayment options available to the 
borrower; and
    (iv) The lender must--
    (A) Send a notice to the borrower or endorser, as provided in 
paragraph (c) of this section, that confirms the terms of the 
forbearance and the borrower's or endorser's affirmation of the 
obligation to repay the debt, and includes information on all other 
repayment options available to the borrower, and
    (B) Retain a record of the terms of the forbearance and affirmation 
in the borrower's or endorser's file.
    (3) For purposes of this section, an ``affirmation'' means an 
acknowledgement of the loan by the borrower or endorser in a legally 
binding manner. The form of the affirmation may include, but is not 
limited to, the borrower's or endorser's--
    (i) New signed repayment agreement or schedule, or another form of 
signed agreement to repay the debt;
    (ii) Oral acknowledgment and agreement to repay the debt documented 
by the lender in the borrower's or endorser's file and confirmed by the 
lender in a notice to the borrower; or
    (iii) A payment made on the loan by the borrower or endorser.
    (e)(1) At the time of granting a borrower or endorser a forbearance, 
the lender must provide the borrower or endorser with information to 
assist the borrower or endorser in understanding the impact of 
capitalization of interest on the loan principal and total interest to 
be paid over the life of the loan; and
    (2) At least once every 180 days during the period of forbearance, 
the lender must contact the borrower or endorser to inform the borrower 
or endorser of--
    (i) The outstanding obligation to repay;
    (ii) The amount of the unpaid principal balance and any unpaid 
interest that has accrued on the loan since the last notice provided to 
the borrower or endorser under this paragraph;
    (iii) The fact that interest will accrue on the loan for the full 
term of the forbearance;
    (iv) The amount of interest that will be capitalized, as of the date 
of the notice, and the date capitalization will occur;
    (v) The option of the borrower or endorser to pay the interest that 
has accrued before the interest is capitalized; and
    (vi) The borrower's or endorser's option to discontinue the 
forbearance at any time.
    (f) A lender may grant forbearance, upon notice to the borrower or 
if applicable, the endorser, with respect to payments of interest and 
principal that are overdue or would be due--
    (1) For a properly granted period of deferment for which the lender 
learns the borrower did not qualify;
    (2) Upon the beginning of an authorized deferment period under 
Sec. 682.210, or an authorized period of forbearance;
    (3) For the period beginning when the borrower entered repayment 
without the lender's knowledge until the first payment due date was 
established;
    (4) For the period prior to the borrower's filing of a bankruptcy 
petition as provided in Sec. 682.402(f);
    (5) For the periods described in Sec. 682.402(c) in regard to the 
borrower's total and permanent disability;

[[Page 60]]

    (6) Upon receipt of a valid identity theft report as defined in 
section 603(q)(4) of the Fair Credit Reporting Act (15 U.S.C. 1681a) or 
notification from a consumer reporting agency that information furnished 
by the lender is a result of an alleged identity theft as defined in 
Sec. 682.402(e)(14), for a period not to exceed 120 days necessary for 
the lender to determine the enforceability of the loan. If the lender 
determines that the loan does not qualify for discharge under 
Sec. 682.402(e)(1)(i)(C), but is nonetheless unenforceable, the lender 
must comply with Secs. 682.300(b)(2)(ix) and 682.302(d)(1)(viii).
    (7) For a period not to exceed an additional 60 days after the 
lender has suspended collection activity for the initial 60-day period 
required pursuant to Sec. 682.211(i)(6) and Sec. 682.402(b)(3), when the 
lender receives reliable information that the borrower (or student on 
whose behalf a parent has borrowed a PLUS Loan) has died;
    (8) For periods necessary for the Secretary or guaranty agency to 
determine the borrower's eligibility for discharge of the loan because 
of an unpaid refund, attendance at a closed school or false 
certification of loan eligibility, pursuant to Sec. 682.402(d) or (e), 
or the borrower's or, if applicable, endorser's bankruptcy, pursuant to 
Sec. 682.402(f);
    (9) For a period of delinquency at the time a loan is sold or 
transferred, if the borrower or endorser is less than 60 days delinquent 
on the loan at the time of sale or transfer;
    (10) For a period of delinquency that may remain after a borrower 
ends a period of deferment or mandatory forbearance until the next due 
date, which can be no later than 60 days after the period ends;
    (11) For a period not to exceed 60 days necessary for the lender to 
collect and process documentation supporting the borrower's request for 
a deferment, forbearance, change in repayment plan, or consolidation 
loan. Interest that accrues during this period is not capitalized;
    (12) For a period not to exceed 3 months when the lender determines 
that a borrower's ability to make payments has been adversely affected 
by a natural disaster, a local or national emergency as declared by the 
appropriate government agency, or a military mobilization;
    (13) For a period not to exceed 60 days necessary for the lender to 
collect and process documentation supporting the borrower's eligibility 
for loan forgiveness under the income-based repayment program. The 
lender must notify the borrower that the requirement to make payments on 
the loans for which forgiveness was requested has been suspended pending 
approval of the forgiveness by the guaranty agency;
    (14) For a period of delinquency at the time a borrower makes a 
change to the repayment plan; or
    (15) For PLUS loans first disbursed before July 1, 2008, to align 
repayment with a borrower's PLUS loans that were first disbursed on or 
after July 1, 2008, or with Stafford Loans that are subject to a grace 
period under Sec. 682.209(a)(3). The notice specified in paragraph (f) 
introductory text of this section must inform the borrower that the 
borrower has the option to cancel the forbearance and continue paying on 
the loan; or
    (16) For the periods described in Sec. 682.215(e)(9) in regard to 
the income-based repayment plan.
    (g) In granting a forbearance under this section, except for a 
forbearance under paragraph (i)(5) of this section, a lender shall grant 
a temporary cessation of payments, unless the borrower chooses another 
form of forbearance subject to paragraph (a)(1) of this section.
    (h) Mandatory forbearance--(1) Medical or dental interns or 
residents. Upon receipt of a request and sufficient supporting 
documentation, as described in Sec. 682.210(n), from a borrower serving 
in a medical or dental internship or residency program, a lender shall 
grant forbearance to the borrower in yearly increments (or a lesser 
period equal to the actual period during which the borrower is eligible) 
if the borrower has exhausted his or her eligibility for a deferment 
under Sec. 682.210(n), or the borrower's promissory note does not 
provide for such a deferment--

[[Page 61]]

    (i) For the length of time remaining in the borrower's medical or 
dental internship or residency that must be successfully completed 
before the borrower may begin professional practice or service; or
    (ii) For the length of time that the borrower is serving in a 
medical or dental internship or residency program leading to a degree or 
certificate awarded by an institution of higher education, a hospital, 
or a health care facility that offers postgraduate training.
    (2) Borrowers who are not medical or dental interns or residents, 
and endorsers. Upon receipt of a request and sufficient supporting 
documentation from an endorser (if applicable), or from a borrower 
(other than a borrower who is serving in a medical or dental internship 
or residency described in paragraph (h)(1) of this section), a lender 
shall grant forbearance--
    (i) In increments up to one year, for periods that collectively do 
not exceed three years, if--
    (A) The borrower or endorser is currently obligated to make payments 
on Title IV loans; and
    (B) The amount of those payments each month (or a proportional share 
if the payments are due less frequently than monthly) is collectively 
equal to or greater than 20 percent of the borrower's or endorser's 
total monthly income;
    (ii) In yearly increments (or a lesser period equal to the actual 
period during which the borrower is eligible) for as long as a 
borrower--
    (A) Is serving in a national service position for which the borrower 
receives a national service educational award under the National and 
Community Service Trust Act of 1993;
    (B) Is performing the type of service that would qualify the 
borrower for a partial repayment of his or her loan under the Student 
Loan Repayment Programs administered by the Department of Defense under 
10 U.S.C. 2171, 2173, 2174 or any other student loan repayment programs 
administered by the Department of Defense; or
    (C) Is performing the type of service that would qualify the 
borrower for loan forgiveness and associated forbearance under the 
requirements of the teacher loan forgiveness program in Sec. 682.216; 
and
    (iii) In yearly increments (or a lesser period equal to the actual 
period for which the borrower is eligible) when a member of the National 
Guard who qualifies for a post-active duty student deferment, but does 
not qualify for a military service deferment or other deferment, is 
engaged in active State duty as defined in Sec. 682.210(u)(2)(i) and 
(ii) for a period of more than 30 consecutive days, beginning--
    (A) On the day after the grace period expires for a Stafford loan 
that has not entered repayment; or
    (B) On the day after the borrower ceases at least half-time 
enrollment, for a FFEL loan in repayment.
    (3) Forbearance agreement. After the lender determines the 
borrower's or endorser's eligibility, and the lender and the borrower or 
endorser agree to the terms of the forbearance granted under this 
section, the lender sends, within 30 days, a notice to the borrower or 
endorser confirming the terms of the forbearance and records the terms 
of the forbearance in the borrower's file.
    (4) Documentation. (i) Before granting a forbearance to a borrower 
or endorser under paragraph (h)(2)(i) of this section, the lender shall 
require the borrower or endorser to submit at least the following 
documentation:
    (A) Evidence showing the amount of the most recent total monthly 
gross income received by the borrower or endorser from employment and 
from other sources; and
    (B) Evidence showing the amount of the monthly payments owed by the 
borrower or endorser to other entities for the most recent month for the 
borrower's or endorser's Title IV loans.
    (ii) Before granting a forbearance to a borrower or endorser under 
paragraph (h)(2)(ii)(B) of this section, the lender shall require the 
borrower or endorser to submit documentation showing the beginning and 
ending dates that the Department of Defense considers the borrower to be 
eligible for a partial repayment of his or her loan under the Student 
Loan Repayment Programs.
    (iii) Before granting a forbearance to a borrower under paragraph 
(h)(2)(ii)(C)

[[Page 62]]

of this section, the lender must require the borrower to--
    (A) Submit documentation for the period of the annual forbearance 
request showing the beginning and anticipated ending dates that the 
borrower is expected to perform, for that year, the type of service 
described in Sec. 682.216(c); and
    (B) Certify the borrower's intent to satisfy the requirements of 
Sec. 682.216(c).
    (i) Mandatory administrative forbearance. (1) The lender shall grant 
a mandatory administrative forbearance for the periods specified in 
paragraph (i)(2) of this section until the lender is notified by the 
Secretary or a guaranty agency that the forbearance period no longer 
applies. The lender may not require a borrower who is eligible for a 
forbearance under paragraph (i)(2)(ii) of this section to submit a 
request or supporting documentation, but shall require a borrower (or 
endorser, if applicable) who requests forbearance because of a military 
mobilization to provide documentation showing that he or she is subject 
to a military mobilization as described in paragraph (i)(4) of this 
section.
    (2) The lender is not required to notify the borrower (or endorser, 
if applicable) at the time the forbearance is granted, but shall grant a 
forbearance to a borrower or endorser during a period, and the 30 days 
following the period, when the lender is notified by the Secretary 
that--
    (i) Exceptional circumstances exist, such as a local or national 
emergency or military mobilization; or
    (ii) The geographical area in which the borrower or endorser resides 
has been designated a disaster area by the president of the United 
States or Mexico, the Prime Minister of Canada, or by a Governor of a 
State.
    (3) As soon as feasible, or by the date specified by the Secretary, 
the lender shall notify the borrower (or endorser, if applicable) that 
the lender has granted a forbearance and the date that payments should 
resume. The lender's notification shall state that the borrower or 
endorser--
    (i) May decline the forbearance and continue to be obligated to make 
scheduled payments; or
    (ii) Consents to making payments in accordance with the lender's 
notification if the forbearance is not declined.
    (4) For purposes of paragraph (i)(2)(i) of this section, the term 
``military mobilization'' shall mean a situation in which the Department 
of Defense orders members of the National Guard or Reserves to active 
duty under sections 688, 12301(a), 12301(g), 12302, 12304, and 12306 of 
title 10, United States Code. This term also includes the assignment of 
other members of the Armed Forces to duty stations at locations other 
than the locations at which they were normally assigned, only if the 
military mobilization involved the activation of the National Guard or 
Reserves.
    (5) The lender shall grant a mandatory administrative forbearance to 
a borrower (or endorser, if applicable) during a period when the 
borrower (or endorser, if applicable) is making payments for a period 
of--
    (i) Up to 3 years of payments in cases where the effect of a 
variable interest rate on a standard or graduated repayment schedule 
would result in a loan not being repaid within the maximum repayment 
term; or
    (ii) Up to 5 years of payments in cases where the effect of 
decreased installment amounts paid under an income-sensitive repayment 
schedule would result in the loan not being repaid within the maximum 
repayment term.
    (6) The lender shall grant a mandatory administrative forbearance to 
a borrower for a period not to exceed 60 days after the lender receives 
reliable information indicating that the borrower (or student in the 
case of a PLUS loan) has died, until the lender receives documentation 
of death pursuant to Sec. 682.402(b)(3).

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1080, 1082)

[57 FR 60323, Dec. 18, 1992]

    Editorial Note: For Federal Register citations affecting 
Sec. 682.211, see the List of CFR Sections Affected, which appears in 
the Finding Aids section of the printed volume and at www.fdsys.gov.

[[Page 63]]


    Effective Date Note: At 81 FR 76079, Nov. 1, 2016, Sec. 682.211 was 
amended by adding paragraph (i)(7), eff. July 1, 2017. At 82 FR 27621, 
June 16, 2017, the effective date was delayed indefinitely. For the 
convenience of the user, the added text was set forth as follows:



Sec. 682.211  Forbearance.

                                * * * * *

    (i) * * *
    (7) The lender must grant a mandatory administrative forbearance to 
a borrower upon being notified by the Secretary that the borrower has 
made a borrower defense claim related to a loan that the borrower 
intends to consolidate into the Direct Loan Program for the purpose of 
seeking relief in accordance with Sec. 685.212(k). The mandatory 
administrative forbearance shall be granted in yearly increments or for 
a period designated by the Secretary until the loan is consolidated or 
until the lender is notified by the Secretary to discontinue the 
forbearance.

                                * * * * *



Sec. 682.212  Prohibited transactions.

    (a) No points, premiums, payments, or additional interest of any 
kind may be paid or otherwise extended to any eligible lender or other 
party in order to--
    (1) Secure funds for making loans; or
    (2) Induce a lender to make loans to either the students or the 
parents of students of a particular school or particular category of 
students or their parents.
    (b) The following are examples of transactions that, if entered into 
for the purposes described in paragraph (a) of this section, are 
prohibited:
    (1) Cash payments by or on behalf of a school made to a lender or 
other party.
    (2) The maintaining of a compensating balance by or on behalf of a 
school with a lender.
    (3) Payments by or on behalf of a school to a lender of servicing 
costs on loans that the school does not own.
    (4) Payments by or on behalf of a school to a lender of unreasonably 
high servicing costs on loans that the school does own.
    (5) Purchase by or on behalf of a school of stock of the lender.
    (6) Payments ostensibly made for other purposes.
    (c) Except when purchased by an agency of any State functioning as a 
secondary market or in any other circumstances approved by the 
Secretary, notes, or any interest in notes, may not be sold or otherwise 
transferred at discount if the underlying loans were made--
    (1) By a school; or
    (2) To students or parents of students attending a school by a 
lender having common ownership with that school.
    (d) Except to secure a loan from an agency of a State functioning as 
a secondary market or in other circumstances approved by the Secretary, 
a school or lender (with respect to a loan made to a student, or a 
parent of a student, attending a school having common ownership with 
that lender), may not use a loan made under the FFEL programs as 
collateral for any loan bearing aggregate interest and other charges in 
excess of the sum of the interest rate applicable to the loan plus the 
rate of the most recently prescribed special allowance under 
Sec. 682.302.
    (e) The prohibitions described in paragraphs (a), (b), (c), and (d) 
of this section apply to any school, lender, or other party that would 
participate in a proscribed transaction.
    (f) This section does not preclude a buyer of loans made by a school 
from obtaining from the loan seller a warranty that--
    (1) Covers future reductions by the Secretary or a guaranty agency 
in computing the amount of loss payable on default claims filed on the 
loans, if the reductions are attributable to an act, or failure to act, 
on the part of the seller or previous holder; and
    (2) Does not cover matters for which a purchaser is charged with 
responsibility under this part, such as due diligence in collecting 
loans.
    (g) Section 490(c) of the Act provides that any person who knowingly 
and willfully makes an unlawful payment to an eligible lender as an 
inducement to make, or to acquire by assignment, a FFEL loan shall, upon 
conviction thereof, be fined not more than $10,000 or imprisoned not 
more than one year, or both.

[[Page 64]]

    (h) A school may, at its option, make available a list of 
recommended or suggested lenders, in print or any other medium or form, 
for use by the school's students or their parents provided that such 
list complies with the requirements in 34 CFR 601.10 and 668.14(a)(28).

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1097)

[57 FR 60323, Dec. 18, 1992, as amended at 72 FR 62002, Nov. 1, 2007; 74 
FR 55664, Oct. 28, 2009]



Sec. 682.213  Prohibition against the use of the Rule of 78s.

    For purposes of the calculations required by this part, a lender may 
not use the Rule of 78s to calculate the outstanding principal balance 
of a loan, except for a loan made to a borrower who entered repayment 
before June 26, 1987 and who was informed in the promissory note that 
interest on the loan would be calculated using the Rule of 78s. For 
those loans, the Rule of 78s must be used for the life of the loan.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 68 FR 75429, Dec. 31, 2003]



Sec. 682.214  [Reserved]



Sec. 682.215  Income-based repayment plan.

    (a) Definitions. As used in this section--
    (1) Adjusted gross income (AGI) means the borrower's adjusted gross 
income as reported to the Internal Revenue Service. For a married 
borrower filing jointly, AGI includes both the borrower's and spouse's 
income. For a married borrower filing separately, AGI includes only the 
borrower's income.
    (2) Eligible loan means any outstanding loan made to a borrower 
under the FFEL and Direct Loan programs except for a defaulted loan, a 
FFEL or Direct PLUS Loan made to a parent borrower, or a FFEL or Direct 
Consolidation Loan that repaid a FFEL or Direct PLUS Loan made to a 
parent borrower.
    (3) Family size means the number that is determined by counting the 
borrower, the borrower's spouse, and the borrower's children, including 
unborn children who will be born during the year the borrower certifies 
family size, if the children receive more than half their support from 
the borrower. A borrower's family size includes other individuals if, at 
the time the borrower certifies family size, the other individuals--
    (i) Live with the borrower; and
    (ii) Receive more than half their support from the borrower and will 
continue to receive this support from the borrower for the year the 
borrower certifies family size. Support includes money, gifts, loans, 
housing, food, clothes, car, medical and dental care, and payment of 
college costs.
    (4) Partial financial hardship means a circumstance in which--
    (i) For an unmarried borrower or a married borrower who files an 
individual Federal tax return, the annual amount due on all of the 
borrower's eligible loans, as calculated under a standard repayment plan 
based on a 10-year repayment period, using the greater of the amount due 
at the time the borrower initially entered repayment or at the time the 
borrower elects the income-based repayment plan, exceeds 15 percent of 
the difference between the borrower's AGI and 150 percent of the poverty 
guideline for the borrower's family size; or
    (ii) For a married borrower who files a joint Federal tax return 
with his or her spouse, the annual amount due on all of the borrower's 
eligible loans and, if applicable, the spouse's eligible loans, as 
calculated under a standard repayment plan based on a 10-year repayment 
period, using the greater of the amount due at the time the loans 
initially entered repayment or at the time the borrower or spouse elects 
the income-based repayment plan, exceeds 15 percent of the difference 
between the borrower's and spouse's AGI, and 150 percent of the poverty 
guideline for the borrower's family size.
    (5) Poverty guideline refers to the income categorized by State and 
family size in the poverty guidelines published annually by the United 
States Department of Health and Human Services

[[Page 65]]

pursuant to 42 U.S.C. 9902(2). If a borrower is not a resident of a 
State identified in the poverty guidelines, the poverty guideline to be 
used for the borrower is the poverty guideline (for the relevant family 
size) used for the 48 contiguous States.
    (b) Repayment plan. (1) A borrower may elect the income-based 
repayment plan only if the borrower has a partial financial hardship. 
The borrower's aggregate monthly loan payments are limited to no more 
than 15 percent of the amount by which the borrower's AGI exceeds 150 
percent of the poverty line income applicable to the borrower's family 
size, divided by 12. The loan holder adjusts the calculated monthly 
payment if--
    (i) Except for borrowers provided for in paragraph (b)(1)(ii) of 
this section, the total amount of the borrower's eligible loans includes 
loans not held by the loan holder, in which case the loan holder 
determines the borrower's adjusted monthly payment by multiplying the 
calculated payment by the percentage of the total outstanding principal 
amount of the borrower's eligible loans that are held by the loan 
holder;
    (ii) Both the borrower and the borrower's spouse have eligible loans 
and filed a joint Federal tax return, in which case the loan holder 
determines--
    (A) Each borrower's percentage of the couple's total eligible loan 
debt;
    (B) The adjusted monthly payment for each borrower by multiplying 
the calculated payment by the percentage determined in paragraph 
(b)(1)(ii)(A) of this section; and
    (C) If the borrower's loans are held by multiple holders, the 
borrower's adjusted monthly payment by multiplying the payment 
determined in paragraph (b)(1)(ii)(B) of this section by the percentage 
of the total outstanding principal amount of the borrower's eligible 
loans that are held by the loan holder;
    (iii) The calculated amount under paragraph (b)(1), (b)(1)(i), or 
(b)(1)(ii) of this section is less than $5.00, in which case the 
borrower's monthly payment is $0.00; or
    (iv) The calculated amount under paragraph (b)(1), (b)(1)(i), or 
(b)(1)(ii) of this section is equal to or greater than $5.00 but less 
than $10.00, in which case the borrower's monthly payment is $10.00.
    (2) A borrower with eligible loans held by two or more loan holders 
must request income-based repayment from each loan holder if the 
borrower wants to repay all of his or her eligible loans under the 
income-based repayment plan. Each loan holder must apply the payment 
calculation rules in paragraphs (b)(1)(iii) and (iv) of this section to 
loans they hold.
    (3) If a borrower elects the income-based repayment plan on or after 
July 1, 2013, the loan holder must, unless the borrower has some loans 
that are eligible for repayment under the income-based repayment plan 
and other loans that are not eligible for repayment under that plan, 
require that all eligible loans owed by the borrower to that holder be 
repaid under the income-based repayment plan.
    (4) If the borrower's monthly payment amount is not sufficient to 
pay the accrued interest on the borrower's subsidized Stafford Loans or 
the subsidized portion of the borrower's Federal Consolidation loan, the 
Secretary pays to the holder the remaining accrued interest for a period 
not to exceed three consecutive years from the established repayment 
period start date on each loan repaid under the income-based repayment 
plan. On a Consolidation Loan that repays loans on which the Secretary 
has paid accrued interest under this section, the three-year period 
includes the period for which the Secretary paid accrued interest on the 
underlying loans. The three-year period does not include any period 
during which the borrower receives an economic hardship deferment.
    (5) Except as provided in paragraph (b)(4) of this section, accrued 
interest is capitalized at the time the borrower chooses to leave the 
income-based repayment plan or no longer has a partial financial 
hardship.
    (6) If the borrower's monthly payment amount is not sufficient to 
pay any principal due, the payment of that principal is postponed until 
the borrower chooses to leave the income-

[[Page 66]]

based repayment plan or no longer has a partial financial hardship.
    (7) The special allowance payment to a lender during the period in 
which the borrower has a partial financial hardship under the income-
based repayment plan is calculated on the principal balance of the loan 
and any accrued interest unpaid by the borrower.
    (8) The repayment period for a borrower under the income-based 
repayment plan may be greater than 10 years.
    (c) Payment application and prepayment. (1) The loan holder shall 
apply any payment made under the income-based repayment plan in the 
following order:
    (i) Accrued interest.
    (ii) Collection costs.
    (iii) Late charges.
    (iv) Loan principal.
    (2) The borrower may prepay the whole or any part of a loan at any 
time without penalty.
    (3) If the prepayment amount equals or exceeds a monthly payment 
amount of $10.00 or more under the repayment schedule established for 
the loan, the loan holder shall apply the prepayment consistent with the 
requirements of Sec. 682.209(b)(2)(ii).
    (4) If the prepayment amount exceeds the monthly payment amount of 
$0.00 under the repayment schedule established for the loan, the loan 
holder shall apply the prepayment consistent with the requirements of 
paragraph (c)(1) of this section.
    (d) Changes in the payment amount. (1) If a borrower no longer has a 
partial financial hardship, the borrower may continue to make payments 
under the income-based repayment plan but the loan holder must 
recalculate the borrower's monthly payment. The loan holder also 
recalculates the monthly payment for a borrower who chooses to stop 
making income-based payments. In either case, as a result of the 
recalculation--
    (i) The maximum monthly amount that the loan holder requires the 
borrower to repay is the amount the borrower would have paid under the 
FFEL standard repayment plan based on a 10-year repayment period using 
the amount of the borrower's eligible loans that was outstanding at the 
time the borrower began repayment on the loans with that holder under 
the income-based repayment plan; and
    (ii) The borrower's repayment period based on the recalculated 
payment amount may exceed 10 years.
    (2) If a borrower no longer wishes to pay under the income-based 
repayment plan, the borrower must pay under the FFEL standard repayment 
plan and the loan holder recalculates the borrower's monthly payment 
based on--
    (i) Except as provided in paragraph (d)(2)(ii) of this section, the 
time remaining under the maximum 10-year repayment period and the amount 
of the borrower's loans that was outstanding at the time the borrower 
discontinued paying under the income-based repayment plan; or
    (ii) For a Consolidation Loan, the time remaining under the 
applicable repayment period as initially determined under 
Sec. 682.209(h)(2) and the total amount of that loan that was 
outstanding at the time the borrower discontinued paying under the 
income-based repayment plan.
    (3) A borrower who no longer wishes to repay under the income-based 
repayment plan and who is required to repay under the FFEL standard 
repayment plan in accordance with paragraph (d)(2) of this section may 
request a change to a different repayment plan after making one monthly 
payment under the FFEL standard repayment plan. For this purpose, a 
monthly payment may include one payment made under a forbearance that 
provides for temporarily accepting smaller payments than previously 
scheduled, in accordance with Sec. 682.211(a)(1).
    (e) Eligibility documentation, verification, and notifications. (1) 
The loan holder determines whether a borrower has a partial financial 
hardship to qualify for the income-based repayment plan for the year the 
borrower elects the plan and for each subsequent year that the borrower 
remains on the plan. To make this determination, the loan holder 
requires the borrower to--
    (i) Provide documentation, acceptable to the loan holder, of the 
borrower's AGI;
    (ii) If the borrower's AGI is not available, or the loan holder 
believes that the borrower's reported AGI does not

[[Page 67]]

reasonably reflect the borrower's current income, provide other 
documentation to verify income;
    (iii) If the spouse of a married borrower who files a joint Federal 
tax return has eligible loans and the loan holder does not hold at least 
one of the spouse's eligible loans--
    (A) Ensure that the borrower's spouse has provided consent for the 
loan holder to obtain information about the spouse's eligible loans from 
the National Student Loan Data System; or
    (B) Provide other documentation, acceptable to the loan holder, of 
the spouse's eligible loan information; and
    (iv) Annually certify the borrower's family size. If the borrower 
fails to certify family size, the loan holder must assume a family size 
of one for that year.
    (2) After making a determination that a borrower has a partial 
financial hardship to qualify for the income-based repayment plan for 
the year the borrower initially elects the plan and for any subsequent 
year that the borrower has a partial financial hardship, the loan holder 
must send the borrower a written notification that provides the borrower 
with--
    (i) The borrower's scheduled monthly payment amount, as calculated 
under paragraph (b)(1) of this section, and the time period during which 
this scheduled monthly payment amount will apply (annual payment 
period);
    (ii) Information about the requirement for the borrower to annually 
provide the information described in paragraph (e)(1) of this section, 
if the borrower chooses to remain on the income-based repayment plan 
after the initial year on the plan, and an explanation that the borrower 
will be notified in advance of the date by which the loan holder must 
receive this information;
    (iii) An explanation of the consequences, as described in paragraphs 
(e)(1)(iv) and (e)(7) of this section, if the borrower does not provide 
the required information;
    (iv) An explanation of the consequences if the borrower no longer 
wishes to repay under the income-based repayment plan; and
    (v) Information about the borrower's option to request, at any time 
during the borrower's current annual payment period, that the loan 
holder recalculate the borrower's monthly payment amount if the 
borrower's financial circumstances have changed and the income amount 
that was used to calculate the borrower's current monthly payment no 
longer reflects the borrower's current income. If the loan holder 
recalculates the borrower's monthly payment amount based on the 
borrower's request, the loan holder must send the borrower a written 
notification that includes the information described in paragraphs 
(e)(2)(i) through (e)(2)(v) of this section.
    (3) For each subsequent year that a borrower who currently has a 
partial financial hardship remains on the income-based repayment plan, 
the loan holder must notify the borrower in writing of the requirements 
in paragraph (e)(1) of this section no later than 60 days and no earlier 
than 90 days prior to the date specified in paragraph (e)(3)(i) of this 
section. The notification must provide the borrower with--
    (i) The date, no earlier than 35 days before the end of the 
borrower's annual payment period, by which the loan holder must receive 
all of the information described in paragraph (e)(1) of this section 
(annual deadline); and
    (ii) The consequences if the loan holder does not receive the 
information within 10 days following the annual deadline specified in 
the notice, including the borrower's new monthly payment amount as 
determined under paragraph (d)(1) of this section, the effective date 
for the recalculated monthly payment amount, and the fact that unpaid 
accrued interest will be capitalized at the end of the borrower's 
current annual payment period in accordance with paragraph (b)(5) of 
this section.
    (4) Each time a loan holder makes a determination that a borrower no 
longer has a partial financial hardship for a subsequent year that the 
borrower wishes to remain on the plan, the loan holder must send the 
borrower a written notification that provides the borrower with--

[[Page 68]]

    (i) The borrower's recalculated monthly payment amount, as 
determined in accordance with paragraph (d)(1) of this section;
    (ii) An explanation that unpaid accrued interest will be capitalized 
in accordance with paragraph (b)(5) of this section; and
    (iii) Information about the borrower's option to request, at any 
time, that the loan holder redetermine whether the borrower has a 
partial financial hardship, if the borrower's financial circumstances 
have changed and the income amount used to determine that the borrower 
no longer has a partial financial hardship does not reflect the 
borrower's current income, and an explanation that the borrower will be 
notified annually of this option. If the loan holder determines that the 
borrower again has a partial financial hardship, the loan holder must 
recalculate the borrower's monthly payment in accordance with paragraph 
(b)(1) of this section and send the borrower a written notification that 
includes the information described in paragraphs (e)(2)(i) through 
(e)(2)(v) of this section.
    (5) For each subsequent year that a borrower who does not currently 
have a partial financial hardship remains on the income-based repayment 
plan, the loan holder must send the borrower a written notification that 
includes the information described in paragraph (e)(4)(iii) of this 
section.
    (6) If a borrower who is currently repaying under another repayment 
plan selects the income-based repayment plan but does not provide the 
documentation described in paragraphs (e)(1)(i) through (e)(1)(iii) of 
this section, or if the loan holder determines that the borrower does 
not have a partial financial hardship, the borrower remains on his or 
her current repayment plan.
    (7) The loan holder designates the repayment option described in 
paragraph (d)(1) of this section if a borrower who is currently repaying 
under the income-based repayment plan remains on the plan for a 
subsequent year but the loan holder does not receive the information 
described in paragraphs (e)(1)(i) through (e)(1)(iii) of this section 
within 10 days of the specified annual deadline, unless the loan holder 
is able to determine the borrower's new monthly payment amount before 
the end of the borrower's current annual payment period.
    (8) If the loan holder receives the information described in 
paragraphs (e)(1)(i) through (e)(1)(iii) of this section within 10 days 
of the specified annual deadline--
    (i) The loan holder must promptly determine the borrower's new 
monthly payment amount.
    (ii) If the loan holder does not determine the new monthly payment 
amount by the end of the borrower's current annual payment period, the 
loan holder must prevent the borrower's monthly payment amount from 
being recalculated in accordance with paragraph (d)(1) of this section 
and maintain the borrower's current scheduled monthly payment amount 
until the loan holder determines the new monthly payment amount.
    (A) If the new monthly payment amount is less than the borrower's 
previously calculated income-based monthly payment amount, the loan 
holder must make the appropriate adjustment to the borrower's account to 
reflect any payments at the previously calculated amount that the 
borrower made after the end of the most recent annual payment period. 
Notwithstanding the requirements of Sec. 682.209(b)(2)(ii), unless the 
borrower requests otherwise the loan holder applies the excess payment 
amounts made after the end of the most recent annual payment period in 
accordance with the requirements of paragraph (c)(1) of this section.
    (B) If the new monthly payment amount is equal to or greater than 
the borrower's previously calculated income-based monthly payment 
amount, the loan holder does not make any adjustments to the borrower's 
account.
    (iii) The new annual payment period begins on the day after the end 
of the most recent annual payment period.
    (9) If the loan holder receives the documentation described in 
paragraphs (e)(1)(i) through (e)(1)(iii) of this section more than 10 
days after the specified annual deadline and the borrower's monthly 
payment amount is recalculated in accordance with paragraph

[[Page 69]]

(d)(1) of this section, the loan holder may grant forbearance with 
respect to payments that are overdue or would be due at the time the new 
calculated income-based monthly payment amount is determined, if the new 
monthly payment amount is $0.00 or is less than the borrower's 
previously calculated income-based monthly payment amount. Interest that 
accrues during the portion of this forbearance period that covers 
payments that are overdue after the end of the prior annual payment 
period is not capitalized.
    (f) Loan forgiveness. (1) To qualify for loan forgiveness after 25 
years, the borrower must have participated in the income-based repayment 
plan and satisfied at least one of the following conditions during that 
period--
    (i) Made reduced monthly payments under a partial financial hardship 
as provided in paragraph (b)(1) of this section, including a monthly 
payment amount of $0.00, as provided in paragraph (b)(1)(iii) of this 
section;
    (ii) Made reduced monthly payments after the borrower no longer had 
a partial financial hardship or stopped making income-based payments as 
provided in paragraph (d)(1) of this section;
    (iii) Made monthly payments under any repayment plan, that were not 
less than the amount required under the FFEL standard repayment plan 
described in Sec. 682.209(a)(6)(vi) with a 10-year repayment period for 
the amount of the borrower's loans that were outstanding at the time the 
loans initially entered repayment;
    (iv) Made monthly payments under the FFEL standard repayment plan 
described in Sec. 682.209(a)(6)(vi) based on a 10-year repayment period; 
or
    (v) Received an economic hardship deferment on eligible FFEL loans.
    (2) As provided under paragraph (f)(4) of this section, the 
Secretary repays any outstanding balance of principal and accrued 
interest on FFEL loans for which the borrower qualifies for forgiveness 
if the guaranty agency determines that--
    (i) The borrower made monthly payments under one or more of the 
repayment plans described in paragraph (f)(1) of this section, including 
a monthly amount of $0.00 as provided in paragraph (b)(1)(ii) of this 
section; and
    (ii)(A) The borrower made those monthly payments each year for a 25-
year period; or
    (B) Through a combination of monthly payments and economic hardship 
deferments, the borrower made the equivalent of 25 years of payments.
    (3) For a borrower who qualifies for the income-based repayment 
plan, the beginning date for the 25-year period is--
    (i) For a borrower who has an eligible FFEL Consolidation Loan, the 
date the borrower made a payment or received an economic hardship 
deferment on that loan, before the date the borrower qualified for 
income-based repayment. The beginning date is the date the borrower made 
the payment or received the deferment, but no earlier than July 1, 2009;
    (ii) For a borrower who has one or more other eligible FFEL loans, 
the date the borrower made a payment or received an economic hardship 
deferment on that loan. The beginning date is the date the borrower made 
that payment or received the deferment on that loan, but no earlier than 
July 1, 2009;
    (iii) For a borrower who did not make a payment or receive an 
economic hardship deferment on the loan under paragraph (f)(3)(i) or 
(ii) of this section, the date the borrower made a payment under the 
income-based repayment plan on the loan; or
    (iv) If the borrower consolidates his or her eligible loans, the 
date the borrower made a payment on the FFEL Consolidation Loan that met 
the conditions in paragraph (f)(1) of this section.
    (4) If a borrower satisfies the loan forgiveness requirements, the 
Secretary repays the outstanding balance and accrued interest on the 
FFEL Consolidation Loan described in paragraph (f)(3)(i), (iii), or (iv) 
of this section or other eligible FFEL loans described in paragraph 
(f)(3)(ii) or (iv) of this section.
    (5) Any payments made on a defaulted loan are not made under a 
qualifying repayment plan and are not counted toward the 25-year 
forgiveness period.
    (g) Loan forgiveness processing and payment. (1) The loan holder 
determines when a borrower has met the

[[Page 70]]

loan forgiveness requirements under paragraph (f) of this section and 
does not require the borrower to submit a request for loan forgiveness. 
No later than six months prior to the anticipated date that the borrower 
will meet the loan forgiveness requirements, the loan holder must send 
the borrower a written notice that includes--
    (i) An explanation that the borrower is approaching the date that he 
or she is expected to meet the requirements to receive loan forgiveness;
    (ii) A reminder that the borrower must continue to make the 
borrower's scheduled monthly payments; and
    (iii) General information on the current treatment of the 
forgiveness amount for tax purposes, and instructions for the borrower 
to contact the Internal Revenue Service for more information.
    (2) No later than 60 days after the loan holder determines that a 
borrower qualifies for loan forgiveness, the loan holder must request 
payment from the guaranty agency.
    (3) If the loan holder requests payment from the guaranty agency 
later than the period specified in paragraph (g)(2) of this section, 
interest that accrues on the discharged amount after the expiration of 
the 60-day filing period is ineligible for reimbursement by the 
Secretary, and the holder must repay all interest and special allowance 
received on the discharged amount for periods after the expiration of 
the 60-day filing period. The holder cannot collect from the borrower 
any interest that is not paid by the Secretary under this paragraph.
    (4)(i) Within 45 days of receiving the holder's request for payment, 
the guaranty agency must determine if the borrower meets the eligibility 
requirements for loan forgiveness under this section and must notify the 
holder of its determination.
    (ii) If the guaranty agency approves the loan forgiveness, it must, 
within the same 45-day period required under paragraph (g)(4)(i) of this 
section, pay the holder the amount of the forgiveness.
    (5) After being notified by the guaranty agency of its determination 
of the eligibility of the borrower for loan forgiveness, the holder 
must, within 30 days--
    (i) Inform the borrower of the determination and, if appropriate, 
that the borrower's repayment obligation on the loans is satisfied; and
    (ii) Provide the borrower with the information described in 
paragraph (g)(1)(iii) of this section.
    (6)(i) The holder must apply the payment from the guaranty agency 
under paragraph (g)(4)(ii) of this section to satisfy the outstanding 
balance on those loans subject to income-based forgiveness; or
    (ii) If the forgiveness amount exceeds the outstanding balance on 
the eligible loans subject to forgiveness, the loan holder must refund 
the excess amount to the guaranty agency.
    (7) If the guaranty agency does not pay the forgiveness claim, the 
lender will continue the borrower in repayment on the loan. The lender 
is deemed to have exercised forbearance of both principal and interest 
from the date the borrower's repayment obligation was suspended until a 
new payment due date is established. Unless the denial of the 
forgiveness claim was due to an error by the lender, the lender may 
capitalize any interest accrued and not paid during this period, in 
accordance with Sec. 682.202(b).
    (8) The loan holder must promptly return to the sender any payment 
received on a loan after the guaranty agency pays the loan holder the 
amount of loan forgiveness.

(Approved by the Office of Management and Budget under control number 
1845-NEWA)


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

[73 FR 63249, Oct. 23, 2008, as amended at 74 FR 55995, Oct. 29, 2009; 
77 FR 66128, Nov. 1, 2012]



Sec. 682.216  Teacher loan forgiveness program.

    (a) General. (1) The teacher loan forgiveness program is intended to 
encourage individuals to enter and continue in the teaching profession. 
For new borrowers, the Secretary repays the amount specified in this 
paragraph on the borrower's subsidized and unsubsidized Federal Stafford 
Loans, Direct Subsidized Loans, Direct Unsubsidized Loans, and in 
certain cases,

[[Page 71]]

Federal Consolidation Loans or Direct Consolidation Loans. The 
forgiveness program is only available to a borrower who has no 
outstanding loan balance under the FFEL Program or the Direct Loan 
Program on October 1, 1998 or who has no outstanding loan balance on the 
date he or she obtains a loan after October 1, 1998.
    (2)(i) The borrower must have been employed at an eligible 
elementary or secondary school that serves low-income families or by an 
educational service agency that serves low-income families as a full-
time teacher for five consecutive complete academic years. The required 
five years of teaching may include any combination of qualifying 
teaching service at an eligible elementary or secondary school or an 
eligible educational service agency.
    (ii) Teaching at an eligible elementary or secondary school may be 
counted toward the required five consecutive complete academic years 
only if at least one year of teaching was after the 1997-1998 academic 
year.
    (iii) Teaching for an educational service agency may be counted 
toward the required five consecutive complete academic years only if the 
consecutive five-year period includes qualifying service at an eligible 
educational service agency performed after the 2007-2008 academic year.
    (3) All borrowers eligible for teacher loan forgiveness may receive 
loan forgiveness of up to a combined total of $5,000 on the borrower's 
eligible FFEL and Direct Loan Program loans.
    (4) A borrower may receive loan forgiveness of up to a combined 
total of $17,500 on the borrower's eligible FFEL and Direct Loan Program 
loans if the borrower was employed for five consecutive years--
    (i) At an eligible secondary school as a highly qualified 
mathematics or science teacher, or for an eligible educational service 
agency as a highly qualified teacher of mathematics or science to 
secondary school students; or
    (ii) At an eligible elementary or secondary school or educational 
service agency as a special education teacher.
    (5) The loan for which the borrower is seeking forgiveness must have 
been made prior to the end of the borrower's fifth year of qualifying 
teaching service.
    (b) Definitions. The following definitions apply to this section:
    Academic year means one complete school year at the same school, or 
two complete and consecutive half years at different schools, or two 
complete and consecutive half years from different school years at 
either the same school or different schools. Half years exclude summer 
sessions and generally fall within a twelve-month period. For schools 
that have a year-round program of instruction, a minimum of nine months 
is considered an academic year.
    Educational service agency means a regional public multiservice 
agency authorized by State statute to develop, manage, and provide 
services or programs to local educational agencies, as defined in 
section 9101 of the Elementary and Secondary Education Act of 1965, as 
amended.
    Elementary school means a public or nonprofit private school that 
provides elementary education as determined by State law or the 
Secretary if that school is not in a State.
    Full-time means the standard used by a State in defining full-time 
employment as a teacher. For a borrower teaching in more than one 
school, the determination of full-time is based on the combination of 
all qualifying employment.
    Highly qualified means highly qualified as defined in section 9101 
of the Elementary and Secondary Education Act of 1965, as amended.
    Secondary school means a public or nonprofit private school that 
provides secondary education as determined by State law or the Secretary 
if the school is not in a State.
    Teacher means a person who provides direct classroom teaching or 
classroom-type teaching in a non-classroom setting, including Special 
Education teachers.
    (c) Borrower eligibility. (1) A borrower who has been employed at an 
elementary or secondary school or for an educational service agency as a 
full-time teacher for five consecutive complete

[[Page 72]]

academic years may obtain loan forgiveness under this program if the 
elementary or secondary school or educational service agency--
    (i) Is in a school district that qualifies for funds under title I 
of the Elementary and Secondary Education Act of 1965, as amended;
    (ii) Has been selected by the Secretary based on a determination 
that more than 30 percent of the school's or educational service 
agency's total enrollment is made up of children who qualify for 
services provided under title I; and
    (iii) Is listed in the Annual Directory of Designated Low-Income 
Schools for Teacher Cancellation Benefits. If this directory is not 
available before May 1 of any year, the previous year's directory may be 
used.
    (2) The Secretary considers all elementary and secondary schools 
operated by the Bureau of Indian Education (BIE) or operated on Indian 
reservations by Indian tribal groups under contract with the BIE to 
qualify as schools serving low-income students.
    (3) If the school or educational service agency at which the 
borrower is employed meets the requirements specified in paragraph 
(c)(1) of this section for at least one year of the borrower's five 
consecutive complete academic years of teaching and fails to meet those 
requirements in subsequent years, those subsequent years of teaching 
qualify for purposes of this section for that borrower.
    (4) In the case of a borrower whose five consecutive complete years 
of qualifying teaching service began before October 30, 2004, the 
borrower--
    (i) May receive up to $5,000 of loan forgiveness if the borrower--
    (A) Demonstrated knowledge and teaching skills in reading, writing, 
mathematics, and other areas of the elementary school curriculum, as 
certified by the chief administrative officer of the eligible elementary 
school or educational service agency where the borrower was employed; or
    (B) Taught in a subject area that is relevant to the borrower's 
academic major as certified by the chief administrative officer of the 
eligible secondary school or educational service agency where the 
borrower was employed.
    (ii) May receive up to $17,500 of loan forgiveness if the borrower--
    (A) Taught mathematics or science on a full-time basis at an 
eligible secondary school, or taught mathematics or science to secondary 
school students on a full-time basis for an eligible educational service 
agency, and was a highly qualified mathematics or science teacher; or
    (B) Taught as a special education teacher on a full-time basis to 
children with disabilities at an eligible elementary or secondary school 
or an educational service agency and was a highly qualified special 
education teacher whose special education training corresponded to the 
children's disabilities and who has demonstrated knowledge and teaching 
skills in the content areas of the elementary or secondary school 
curriculum.
    (iii) Teaching service performed for an eligible educational service 
agency may be counted toward the required five years of teaching only if 
the consecutive five-year period includes qualifying service at an 
eligible educational service agency performed after the 2007-2008 
academic year.
    (5) In the case of a borrower whose five consecutive years of 
qualifying teaching service began on or after October 30, 2004, the 
borrower--
    (i) May receive up to $5,000 of loan forgiveness if the borrower 
taught full time at an eligible elementary or secondary school or for an 
educational service agency and was a highly qualified elementary or 
secondary school teacher.
    (ii) May receive up to $17,500 of loan forgiveness if the borrower--
    (A) Taught mathematics or science on a full-time basis at an 
eligible secondary school, or taught mathematics or science on a full-
time basis to secondary school students for an eligible educational 
service agency, and was a highly qualified mathematics or science 
teacher; or
    (B) Taught as a special education teacher on a full-time basis to 
children with disabilities at an eligible elementary or secondary school 
or for an educational service agency and was a highly qualified special 
education teacher whose special education training corresponded to the 
children's disabilities

[[Page 73]]

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

[[Page 74]]

outstanding after the borrower completes his or her fifth consecutive 
complete academic year of teaching as described in paragraph (c) of this 
section. Only the outstanding portion of the consolidation loan that was 
used to repay an eligible subsidized or unsubsidized Federal Stafford 
Loan, an eligible Direct Subsidized Loan, or an eligible Direct 
Unsubsidized Loan qualifies for loan forgiveness under this section.
    (2) A borrower may not receive more than a total of $5,000, or 
$17,500 if the borrower meets the requirements of paragraph (c)(4)(ii) 
or (c)(5)(ii) of this section, in loan forgiveness for outstanding 
principal and accrued interest under both this section and under section 
34 CFR 685.217.
    (3) The holder does not refund payments that were received from or 
on behalf of a borrower who qualifies for loan forgiveness under this 
section.
    (e) Authorized forbearance during qualifying teaching service and 
forgiveness processing. (1) A holder grants a forbearance--
    (i) Under Sec. 682.211(h)(2)(ii)(C) and (h)(4)(iii), in annual 
increments for each of the years of qualifying teaching service, if the 
holder believes, at the time of the borrower's annual request, that the 
expected cancellation amount will satisfy the anticipated remaining 
outstanding balance on the loan at the time of the expected 
cancellation;
    (ii) For a period not to exceed 60 days while the holder is awaiting 
a completed teacher loan forgiveness application from the borrower; and
    (iii) For the period beginning on the date the holder receives a 
completed loan forgiveness application to the date the holder receives 
either a denial of the request or the loan forgiveness amount from the 
guaranty agency, in accordance with paragraph (f) of this section.
    (2) At the conclusion of a forbearance authorized under paragraph 
(e)(1) of this section, the holder must resume collection activities and 
may capitalize any interest accrued and not paid during the forbearance 
period in accordance with Sec. 682.202(b).
    (3) Nothing in paragraph (e) of this section restricts holders from 
offering other forbearance options to borrowers who do not meet the 
requirements of paragraph (e)(1)(i) of this section.
    (f) Application and processing. (1) A borrower, after completing the 
qualifying teaching service, requests loan forgiveness from the holder 
of the loan on a form approved by the Secretary.
    (2)(i) The holder must file a request for payment with the guaranty 
agency on a teacher loan forgiveness amount no later than 60 days after 
the receipt, from the borrower, of a completed teacher loan forgiveness 
application.
    (ii) When filing a request for payment on a teacher loan 
forgiveness, the holder must provide the guaranty agency with the 
completed loan forgiveness application submitted by the borrower and any 
required supporting documentation.
    (iii) If the holder files a request for payment later than 60 days 
after the receipt of the completed teacher loan forgiveness application 
form, interest that accrued on the loan forgiveness amount after the 
expiration of the 60-day filing period is ineligible for reimbursement 
by the Secretary, and the holder must repay all interest and special 
allowance received on the loan forgiveness amount for periods after the 
expiration of the 60-day filing period. The holder cannot collect from 
the borrower any interest that is not paid by the Secretary under this 
paragraph.
    (3)(i) Within 45 days of receiving the holder's request for payment, 
the guaranty agency must determine if the borrower meets the eligibility 
requirements for loan forgiveness under this section and must notify the 
holder of its determination of the borrower's eligibility for loan 
forgiveness under this section.
    (ii) If the guaranty agency approves the loan forgiveness, it must, 
within the same 45-day period, pay the holder the amount of the laon 
forgiveness, up to $17,500, subject to paragraphs (c)(11), (d)(1), 
(d)(2) and (f)(2)(iii) of this section.
    (4) After being notified by the guaranty agency of its determination 
of the eligibility of the borrower for the loan forgiveness, the holder 
must, within 30 days, inform the borrower of the determination. If the 
loan forgiveness is approved, the holder must also provide

[[Page 75]]

the borrower with information regarding any new repayment terms of 
remaining loan balances.
    (5) Unless otherwise instructed by the borrower, the holder must 
apply the proceeds of the teacher forgiveness first to any outstanding 
unsubsidized Federal Stafford loan balances, next to any outstanding 
subsidized Federal Stafford loan balances, then to any eligible 
outstanding Federal Consolidation loan balances.
    (g) Claims for reimbursement from the Secretary on loans held by 
guaranty agencies. In the case of a teacher loan forgiveness applied to 
a defaulted loan held by the guaranty agency, the Secretary pays the 
guaranty agency a percentage of the amount forgiven that is equal to the 
complement of the reinsurance percentage paid on the loan. The payment 
of up to $5,000, or up to $17,500, may also include interest that 
accrues on the forgiveness amount during the period from the date on 
which the guaranty agency received payment from the Secretary on a 
default claim to the date on which the guaranty agency determines that 
the borrower is eligible for the teacher loan forgiveness.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078-10)

[65 FR 65627, Nov. 1, 2000, as amended at 66 FR 34763, June 29, 2001; 71 
FR 45702, Aug. 9, 2006; 71 FR 64398, Nov. 1, 2006; 73 FR 35495, June 23, 
2008. Redesignated at 73 FR 63249, Oct. 23, 2008; 74 FR 55995, Oct. 29, 
2009; 78 FR 65813, Nov. 1, 2013]



      Subpart C_Federal Payments of Interest and Special Allowance



Sec. 682.300  Payment of interest benefits on Stafford and 
Consolidation loans.

    (a) General. The Secretary pays a lender, on behalf of a borrower, a 
portion of the interest on a subsidized Stafford loan and on all or a 
portion of a qualifying Consolidation loan that meets the requirements 
under Sec. 682.301. This payment is known as interest benefits.
    (b) Covered interest. (1) The Secretary pays a lender the interest 
that accrues on an eligible Stafford loan--
    (i) During all periods prior to the beginning of the repayment 
period, except as provided in paragraphs (b)(2) and (c) of this section.
    (ii) During any period when the borrower has an authorized 
deferment, and, if applicable, a post-deferment grace period;
    (iii) During the repayment period for loans described in paragraph 
(d)(2) of this section; and
    (iv) During a period that does not exceed three consecutive years 
from the established repayment period start date on each loan under the 
income-based repayment plan and that excludes any period during which 
the borrower receives an economic hardship deferment, if the borrower's 
monthly payment amount under the plan is not sufficient to pay the 
accrued interest on the borrower's loan or on the qualifying portion of 
the borrower's Consolidation Loan.
    (2) The Secretary's obligation to pay interest benefits on an 
otherwise eligible loan terminates on the earliest of--
    (i) The date the borrower's loan is repaid;
    (ii) The date the disbursement check is returned uncashed to the 
lender, or the 120th day after the date of that disbursement if--
    (A) The check for the disbursement has not been cashed on or before 
that date; or
    (B) The proceeds of the disbursement made by electronic funds 
transfer or master check have not been released from the account 
maintained by the school on or before that date;
    (iii) The date of default by the borrower;
    (iv) The date the lender receives payment of a claim for loss on the 
loan;
    (v) The date the borrower's loan is discharged in bankruptcy;
    (vi) The date the lender determines that the borrower has died or 
has become totally and permanently disabled;
    (vii) The date the loan ceases to be guaranteed or ceases to be 
eligible for reinsurance under this part, with respect to that portion 
of the loan that ceases to be guaranteed or reinsured, regardless of 
whether the lender has filed a claim for loss on the loan with the 
guarantor;

[[Page 76]]

    (viii) The date the lender determines that the borrower is eligible 
for loan discharge under Sec. 682.402(d), (e), or (l);
    (ix) The date on which the lender determines the loan is legally 
unenforceable based on the receipt of an identity theft report under 
Sec. 682.208(b)(3); or
    (x) The date the borrower's payment under the income-based repayment 
plan is sufficient to pay the accrued interest on the borrower's loan or 
the qualifying portion of the borrower's Consolidation Loan.
    (3) Section 682.412 sets forth circumstances under which a lender 
may be required to repay interest benefits received on a loan guaranteed 
by a guaranty agency.
    (c) Interest not covered. The Secretary does not pay--
    (1) Interest for which the borrower is not otherwise liable; or
    (2) Interest paid on behalf of the borrower by a guaranty agency.
    (d) Rate. (1) Except as provided in paragraph (d)(2) of this 
section, the Secretary pays the lender at the actual interest rate on a 
loan provided that the actual interest rate does not exceed the 
applicable interest rate.
    (2) For a loan disbursed prior to December 15, 1968, or subject to a 
binding commitment made prior to that date, the Secretary pays an amount 
during the repayment period equivalent to 3 percent per year of the 
unpaid principal amount of the loan.

(Authority: 20 U.S.C. 1078, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 25746, May 17, 1994; 59 
FR 33352, June 28, 1994; 59 FR 61428, Nov. 30, 1994; 64 FR 18978, Apr. 
16, 1999; 64 FR 58959, Nov. 1, 1999; 66 FR 34763, June 29, 2001; 71 FR 
45703, Aug. 9, 2006; 72 FR 62002, Nov. 1, 2007; 73 FR 63252, Oct. 23, 
2008; 78 FR 65813, Nov. 1, 2013]



Sec. 682.301  Eligibility of borrowers for interest benefits on
Stafford and Consolidation loans.

    (a) General. (1) To qualify for benefits on a Stafford loan, a 
borrower must demonstrate financial need in accordance with Part F of 
the Act.
    (2) The Secretary considers a member of a religious order, group, 
community, society, agency, or other organization who is pursuing a 
course of study at an institution of higher education to have no 
financial need if that organization--
    (i) Has as its primary objective the promotion of ideals and beliefs 
regarding a Supreme Being;
    (ii) Requires its members to forego monetary or other support 
substantially beyond the support it provides; and
    (iii) (A) Directs the member to pursue the course of study; or
    (B) Provides subsistence support to its members.
    (3) A Consolidation loan borrower qualifies for interest benefits 
during authorized periods of deferment on the portion of the loan that 
does not represent HEAL loans if the loan application was received by 
the lender--
    (i) On or after January 1, 1993 but prior to August 10, 1993;
    (ii) On or after August 10, 1993, but prior to November 13, 1997 if 
the loan consolidates only subsidized Stafford loans; and
    (iii) On or after November 13, 1997, for the portion of the loan 
that repaid subsidized FFEL loans and Direct Subsidized Loans.
    (b) Application for interest benefits. To apply for interest 
benefits on a Stafford loan, the student, or the school at the direction 
of the student, must submit a statement to the lender pursuant to 
Sec. 682.603. The student must qualify for interest benefits if the 
eligible institution has determined and documented the student's amount 
of need for a loan based on the student's estimated cost of attendance, 
estimated financial assistance, and expected family contribution as 
determined under part F of the Act.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1082, 1087-1)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59 
FR 33352, June 28, 1994; 64 FR 18978, Apr. 16, 1999; 64 FR 58959, Nov. 
1, 1999; 78 FR 65813, Nov. 1, 2013]



Sec. 682.302  Payment of special allowance on FFEL loans.

    (a) General. The Secretary pays a special allowance to a lender on 
an eligible FFEL loan. The special allowance is a percentage of the 
average unpaid principal balance of a loan, including capitalized 
interest computed in accordance with paragraphs (c) and (f) of this 
section. Special allowance is also

[[Page 77]]

paid on the unpaid accrued interest of a loan covered by 
Sec. 682.215(b)(7) computed in the same manner as in paragraphs (c) and 
(f), as applicable, except for this purpose the applicable interest rate 
shall be deemed to be zero.
    (b) Eligible loans. (1) Except for non-subsidized Federal Stafford 
loans disbursed on or after October 1, 1981, for periods of enrollment 
beginning prior to October 1, 1992, or as provided in paragraphs (b)(2), 
(b)(3), or (e)(1) of this section, FFEL loans that otherwise meet 
program requirements are eligible for special allowance payments.
    (2) For a loan made under the Federal SLS or Federal PLUS Program on 
or after July 1, 1987 and prior to July 1, 1994, and for any Federal 
PLUS loan made on or after July 1, 1998 or on or after January 1, 2000 
for any period prior to April 1, 2006, or under Sec. 682.209(e) or (f), 
no special allowance is paid for any period for which the interest rate 
calculated prior to applying the interest rate maximum for that loan 
does not exceed--
    (i) 12 percent in the case of a Federal SLS or PLUS loan made prior 
to October 1, 1992;
    (ii) 11 percent in the case of a Federal SLS loan made on or after 
October 1, 1992;
    (iii) 10 percent in the case of a Federal PLUS loan made on or after 
October 1, 1992; or
    (iv) 9 percent in the case of a Federal PLUS loan made on or after 
July 1, 1998.
    (3) In the case of a subsidized Stafford loan disbursed on or after 
October 1, 1992 and prior to July 1, 2010, the Secretary does not pay 
special allowance on a disbursement if--
    (i) The disbursement check is returned uncashed to the lender or the 
lender is notified that the disbursement made by electronic funds 
transfer or master check will not be released from the restricted 
account maintained by the school; or
    (ii) The check for the disbursement has not been negotiated before 
the 120th day after the date of disbursement or the disbursement made by 
electronic funds transfer or master check has not been released from the 
restricted account maintained by the school before that date.
    (c) Rate. (1) Except as provided in paragraph (c)(2), (c)(3), or (e) 
of this section, the special allowance rate for an eligible loan during 
a 3-month period is calculated by--
    (i) Determining the average of the bond equivalent rates of--
    (A) The quotes of the 3-month commercial paper (financial) rates in 
effect for each of the days in such quarter as reported by the Federal 
Reserve in Publication H-15 (or its successor) for such 3-month period 
for a loan for which the first disbursement is made on or after January 
1, 2000; or
    (B) The 91-day Treasury bills auctioned during the 3-month period 
for a loan for which the first disbursement is made prior to January 1, 
2000;
    (ii) Subtracting the applicable interest rate for that loan;
    (iii) Adding--
    (A)(1) 2.34 percent to the resulting percentage for a Federal 
Stafford loan for which the first disbursement is made on or after 
January 1, 2000;
    (2) 2.64 percent to the resulting percentage for a Federal PLUS loan 
for which the first disbursement is made on or after January 1, 2000;
    (3) 2.64 percent to the resulting percentage for a Federal 
Consolidation Loan that was made based on an application received by the 
lender on or after January 1, 2000;
    (4) 1.74 percent to the resulting percentage for a Federal Stafford 
loan for which the first disbursement is made on or after January 1, 
2000 during the borrower's in-school, grace, and authorized period of 
deferment;
    (5) 2.8 percent to the resulting percentage for a Federal Stafford 
loan for which the first disbursement is made on or after July 1, 1998 
and prior to January 1, 2000;
    (6) 2.2 percent to the resulting percentage for a Federal Stafford 
loan for which the first disbursement is made on or after July 1, 1998 
and prior to January 1, 2000, during the borrower's in-school, grace, 
and authorized period of deferment;
    (7) 2.5 percent to the resulting percentage for a Federal Stafford 
loan for which the first disbursement is made on or after July 1, 1995 
and prior to July 1, 1998 for interest that accrues

[[Page 78]]

during the borrower's in-school, grace, and authorized period of 
deferment;
    (B) 3.1 percent to the resulting percentage for--
    (1) A Federal Stafford Loan made on or after October 1, 1992 and 
prior to July 1, 1998, except as provided in paragraph (c)(1)(iii)(A)(7) 
of this section;
    (2) A Federal SLS Loan made on or after October 1, 1992;
    (3) A Federal PLUS Loan made on or after October 1, 1992 and prior 
to July 1, 1998;
    (4) A Federal PLUS Loan made on or after July 1, 1998 and prior to 
October 1, 1998, except that no special allowance shall be paid any 
quarter unless the rate determined under Sec. 682.202(a)(2)(v)(A) 
exceeds 9 percent;
    (5) A Federal PLUS loan made on or after October 1, 1998 and prior 
to January 1, 2000, except that no special allowance shall be paid 
during any quarter unless the rate determined under 
Sec. 682.202(a)(2)(v)(A) exceeds 9 percent;
    (6) A Federal Consolidation Loan for which the application was 
received by the lender prior to January 1, 2000, except that no special 
allowance shall be paid during any quarter on a loan for which the 
application was received on or after October 1, 1998 unless the average 
of the bond equivalent rate of the 91-day Treasury bills auctioned 
during that quarter, plus 3.1 percent, exceeds the rate determined under 
Section 682.202(a)(4)(iv);
    (C) 3.25 percent to the resulting percentage, for a loan made on or 
after November 16, 1986, but prior to October 1, 1992;
    (D) 3.25 percent to the resulting percentage, for a loan made on or 
after October 17, 1986 but prior to November 16, 1986, for a period of 
enrollment beginning on or after November 16, 1986;
    (E) 3.5 percent to the resulting percentage, for a loan made prior 
to October 17, 1986, or a loan described in paragraph (c)(2) of this 
section; or
    (F) 3.5 percent to the resulting percentage, for a loan made on or 
after October 17, 1986 but prior to November 16, 1986, for a period of 
enrollment beginning prior to November 16, 1986;
    (iv) Rounding the result upward to the nearest one-eighth of 1 
percent, for a loan made prior to October 1, 1981; and
    (v) Dividing the resulting percentage by 4.
    (2) The special allowance rate determined under paragraph 
(c)(1)(iii)(E) of this section applies to loans made or purchased from 
funds obtained from the issuance of an obligation of the--
    (i) Maine Educational Loan Marketing Corporation to the Student Loan 
Marketing Association pursuant to an agreement entered into on January 
31, 1984; or
    (ii) South Carolina Student Loan Corporation to the South Carolina 
National Bank pursuant to an agreement entered into on July 30, 1986.
    (3)(i) Subject to paragraphs (c)(3)(iii), (c)(3)(iv), and (e) of 
this section, the special allowance rate is that provided in paragraph 
(c)(3)(ii) of this section for a loan made or guaranteed on or after 
October 1, 1980 that was made or purchased with funds obtained by the 
holder from--
    (A) The proceeds of tax-exempt obligations originally issued prior 
to October 1, 1993;
    (B) Collections or payments by a guarantor on a loan that was made 
or purchased with funds obtained by the holder from obligations 
described in paragraph (c)(3)(i)(A) of this section;
    (C) Interest benefits or special allowance payments on a loan that 
was made or purchased with funds obtained by the holder from obligations 
described in paragraph (c)(3)(i)(A) of this section;
    (D) The sale of a loan that was made or purchased with funds 
obtained by the holders from obligations described in paragraph 
(c)(3)(i)(A) of this section; or
    (E) The investment of the proceeds of obligations described in 
paragraph (c)(3)(i)(A) of this section.
    (ii) The special allowance rate for a loan described in paragraph 
(c)(3)(i) is one-half of the rate calculated under paragraph (c)(1) of 
this section, except that in applying paragraph (c)(1)(iii), 3.5 percent 
is substituted for the percentages specified therein.
    (iii) The special allowance rate applicable to loans described in 
paragraph (c)(3)(i) of this section that are made prior to October 1, 
1992, may not be less than--

[[Page 79]]

    (A) 2.5 percent per year on eligible loans for which the applicable 
interest rate is 7 percent;
    (B) 1.5 percent per year on eligible loans for which the applicable 
interest rate is 8 percent; or
    (C) One-half of 1 percent per year on eligible loans for which the 
applicable rate is 9 percent.
    (iv) The special allowance rate applicable to loans described in 
paragraph (c)(3)(i) of this section that are made on or after October 1, 
1992, may not be less than 9.5 percent minus the applicable interest 
rate.
    (4) Loans made or purchased with funds obtained by the holder from 
the issuance of tax-exempt obligations originally issued on or after 
October 1, 1993, and loans made with funds derived from default 
reimbursement collections, interest, or other income related to eligible 
loans made or purchased with those tax-exempt funds, do not qualify for 
the minimum special allowance rate specified in paragraph (c)(3)(iii) or 
(iv) of this section, and are not subject to the 50 percent limitation 
on the maximum rate otherwise applicable to loans made with tax-exempt 
funds.
    (5) For purposes of paragraphs (c)(3) and (c)(4), a loan is 
purchased with funds described in those paragraphs when the loan is 
refinanced in consideration of those funds.
    (d) Termination of special allowance payments on a loan. (1) The 
Secretary's obligation to pay special allowance on a loan terminates on 
the earliest of--
    (i) The date a borrower's loan is repaid;
    (ii) The date a borrower's loan check is returned uncashed to the 
lender;
    (iii) The date a lender receives payment on a claim for loss on the 
loan;
    (iv) The date a loan ceases to be guaranteed or ceases to be 
eligible for reinsurance under this part, with respect to that portion 
of the loan that ceases to be guaranteed or reinsured, regardless of 
whether the lender has filed a claim for loss on the loan with the 
guarantor;
    (v) The 60th day after the borrower's default on the loan, unless 
the lender files a claim for loss on the loan with the guarantor 
together with all required documentation, on or before the 60th day;
    (vi) The 120th day after the date of disbursement, if--
    (A) The loan check has not been cashed on or before that date; or
    (B) The loan proceeds disbursed by electronic funds transfer or 
master check have not been released from the restricted account 
maintained by the school on or before that date;
    (vii) The 30th day after the date the lender received a returned 
claim from the guaranty agency on a loan submitted by the deadline 
specified in (d)(1)(v) of this section for loss on the loan to the 
lender due solely to inadequate documentation unless the lender files a 
claim for loss on the loan with the guarantor, together with all 
required documentation, prior to the 30th day; or
    (viii) The date on which the lender determines the loan is legally 
unenforceable based on the receipt of an identity theft report under 
Sec. 682.208(b)(3).
    (2) In the case of a loan disbursed on or after October 1, 1992 and 
prior to July 1, 2010, the Secretary does not pay special allowance on a 
loan if--
    (i) The disbursement check is returned uncashed to the lender or the 
lender is notified that the disbursement made by electronic funds 
transfer or master check will not be released from the account 
maintained by the school; or
    (ii) The check for the disbursement has not been negotiated before 
the 120th day after the date of disbursement or the disbursement made by 
electronic funds transfer or master check has not been released from the 
account maintained by the school before that date.
    (3) Section 682.413 sets forth the circumstances under which a 
lender may be required to repay the special allowance received on a loan 
guaranteed by a guaranty agency.
    (e) Limits on special allowance payments on loans made or purchased 
with funds derived from tax-exempt obligations--(1) General. (i) The 
Secretary pays a special allowance on a loan described in paragraph 
(c)(3) or (c)(4) of this section that is held by or on behalf of an 
Authority only if the loan meets

[[Page 80]]

the requirements of section 438(e) of the Act.
    (ii) The Secretary pays a special allowance at the rate prescribed 
in paragraph (c)(1) or (c)(3) of this section on a loan described in 
paragraph (c)(3)(i) of this section that is held by or on behalf of an 
Authority in accordance with paragraphs (e)(2) through (e)(5) of this 
section, as applicable. References to ``loan'' or ``loans'' in 
paragraphs (e)(2) through (e)(5) include only loans described in 
paragraph (c)(3)(i).
    (2) Effect of Refinancing on Special Allowance Payments. Except as 
provided in paragraphs (e)(3) through (e)(5) of this section--
    (i) The Secretary pays a special allowance at the rate prescribed in 
paragraph (c)(3) of this section to an Authority that holds a legal or 
equitable interest in the loan that is pledged or otherwise transferred 
in consideration of--
    (A) Funds listed in paragraph (c)(3)(i) of this section;
    (B) Proceeds of a tax-exempt refunding obligation that refinances a 
debt that--
    (1) Was first incurred pursuant to a tax-exempt obligation 
originally issued prior to October 1, 1993;
    (2) Has been financed continuously by tax-exempt obligation.
    (ii) The Secretary pays a special allowance to an Authority that 
holds a legal or equitable interest in the loan that is pledged or 
otherwise transferred in consideration of funds other than those 
specified in paragraph (e)(2)(i) of this section either--
    (A) At the rate prescribed in paragraph (c)(1) of this section, if--
    (1) The prior tax-exempt obligation is retired; or
    (2) The prior tax-exempt obligation is defeased by means of 
obligations that the Authority certifies in writing to the Secretary 
bears a yield that does not exceed the yield restrictions of section 148 
of the Internal Revenue Code and the regulations thereunder, or
    (B) At the rate prescribed in paragraph (c)(3) of this section.
    (3) Loans affected by transactions or events after September 30, 
2004. The Secretary pays a special allowance to an Authority at the rate 
prescribed in paragraph (c)(1) of this section if, after September 30, 
2004--
    (i) The loan is refinanced with funds other than those listed in 
paragraph (e)(2)(i) of this section;
    (ii) The loan is sold or transferred to any other holder; or
    (iii)(A) The loan is financed by a tax-exempt obligation included in 
the sources in paragraph (e)(2)(i), and
    (B) That obligation matures, is refunded, is defeased, or is 
retired, whichever occurs earliest.
    (4) Loans Affected by Transactions After February 7, 2006. Except as 
provided in paragraph (e)(5) or (f) of this section, the Secretary pays 
a special allowance at the rate prescribed in paragraph (c)(1) of this 
section on any loan--
    (i) That was made or purchased on or after February 8, 2006, or
    (ii) That was not earning, on February 8, 2006, a quarterly rate of 
special allowance determined under paragraph (c)(3) of this section.
    (5) Loans affected by transactions after December 30, 2010. (i) The 
Secretary pays a special allowance to a holder described in paragraph 
(e)(5)(ii) of this section at the rate prescribed in paragraph (c)(3) of 
this section only on a loan--
    (A) That was made or purchased prior to December 31, 2010, or
    (B) That was earning, before December 31, 2010, a quarterly rate of 
special allowance determined under paragraph (c)(3) of this section.
    (ii) A holder for purposes of this paragraph is an entity that--
    (A) On February 8, 2006 and during the quarter for which special 
allowance is determined under this paragraph--
    (1) Is a unit of State or local government or a private nonprofit 
entity, and
    (2) Is not owned or controlled by, or under common ownership or 
control by, a for-profit entity; and
    (B) In the most recent quarterly special allowance payment prior to 
September 30, 2005, held, directly or through any subsidiary, affiliate, 
or trustee, a total unpaid balance of principal of $100,000,000 or less 
for which special allowance was determined and paid under paragraph 
(c)(3) of this section.

[[Page 81]]

    (f) Special allowance rates for loans made on or after October 1, 
2007. With respect to any loan for which the first disbursement of 
principal is made on or after October 1, 2007, other than a loan 
described in paragraph (e)(5) of this section, the special allowance 
rate for an eligible loan made during a 3-month period is calculated 
according to the formulas described in paragraphs (f)(1) and (f)(2) of 
this section.
    (1) Except as provided in paragraph (f)(2) of this section, the 
special allowance formula shall be computed by--
    (i) Determining the average of the bond equivalent rates of the 
quotes of the 3-month commercial paper (financial) rates in effect for 
each of the days in such quarter as reported by the Federal Reserve in 
Publication H-15 (or its successor) for such 3-month period;
    (ii) Subtracting the applicable interest rate for that loan;
    (iii) Adding--
    (A) 1.79 percent to the resulting percentage for a Federal Stafford 
loan;
    (B) 1.19 percent to the resulting percentage for a Federal Stafford 
Loan during the borrower's in-school period, grace period and authorized 
period of deferment;
    (C) 1.79 percent to the resulting percentage for a Federal PLUS 
loan; and
    (D) 2.09 percent to the resulting percentage for a Federal 
Consolidation loan; and
    (iv) Dividing the resulting percentage by 4.
    (2) For loans held by an eligible not-for-profit holder as defined 
in paragraph (f)(3) of this section, the special allowance formula shall 
be computed by--
    (i) Determining the average of the bond equivalent rates of the 
quotes of the 3-month commercial paper (financial) rates in effect for 
each of the days in such quarter as reported by the Federal Reserve in 
Publication H-15 (or its successor) for such 3-month period;
    (ii) Subtracting the applicable interest rate for that loan;
    (iii) Adding--
    (A) 1.94 percent to the resulting percentage for a Federal Stafford 
loan;
    (B) 1.34 percent to the resulting percentage for a Federal Stafford 
Loan during the borrower's in-school period, grace period and authorized 
period of deferment;
    (C) 1.94 percent to the resulting percentage for a Federal PLUS 
loan; and
    (D) 2.24 percent to the resulting percentage for a Federal 
Consolidation loan; and
    (iv) Dividing the resulting percentage by 4.
    (3) Eligible Not-for-Profit Holder. (i) For purposes of this 
section, the term ``eligible not-for-profit holder'' means an eligible 
lender under section 435(d) of the Act (except an eligible institution) 
that requests special allowance payments from the Secretary and that 
is--
    (A) A State, or a political subdivision, authority, agency, or other 
instrumentality thereof, including such entities that are eligible to 
issue bonds described in 26 CFR 1.103-1, or section 144(b) of the 
Internal Revenue Code of 1986;
    (B) An entity described in section 150(d)(2) of the Internal Revenue 
Code of 1986 that has not made the election described in section 
150(d)(3) of that Code;
    (C) An entity described in section 501(c)(3) of the Internal Revenue 
Code of 1986; or
    (D) A trustee acting as an eligible lender on behalf of an entity 
that is not an eligible institution and that is a State or non-profit 
entity or a special purpose entity for a State or non-profit entity.
    (ii) For purposes of paragraph (f)(3) of this section--
    (A) The term ``State or non-profit entity'' means an entity 
described in paragraph (f)(3)(i)(A), (f)(3)(i)(B), or (f)(3)(i)(C) of 
this section, regardless of whether such entity is an eligible lender 
under section 435(d) of that Act.
    (B) The term ``special purpose entity'' means an entity established 
for the limited purpose of financing the acquisition of loans from or at 
the direction of a State or non-profit entity, or servicing and 
collecting such loans, and that is--
    (1) An entity established by such State or non-profit entity, or
    (2) An entity established by an entity described in paragraph 
(f)(3)(ii)(B)(1) of this section.

[[Page 82]]

    (C) A special purpose entity is a ``related special purpose entity'' 
with respect to a State or non-profit entity if it holds any interest in 
loans acquired from or at the direction of that State or non-profit 
entity or from a special purpose entity established by that State or 
non-profit entity.
    (iii) An entity that otherwise qualifies under paragraph (f)(3)(i) 
of this section shall not be considered an eligible not-for-profit 
holder unless such entity--
    (A) Was a State or non-profit entity and an eligible lender under 
section 435(d) of the Act, other than a school lender, and on or before 
September 27, 2007 had made or acquired a FFEL loan, unless the State 
waives this requirement under paragraph (f)(3)(iv) of this section; or
    (B) Is acting as an eligible lender trustee on behalf of a State or 
non-profit entity that was the sole beneficial owner of a loan eligible 
for a special allowance payment on September 27, 2007.
    (iv) Subject to the provisions of section 435(d)(1)(D) of the Act, a 
State may waive the requirement of paragraph (f)(3)(iii)(A) of this 
section to identify a new eligible not-for-profit holder pursuant to a 
written application filed in accordance with paragraph (f)(3)(x) of this 
section, for the purposes of carrying out a public purpose of the State, 
except that a State may not designate a trustee for this purpose.
    (v) A State or non-profit entity, and a trustee to the extent acting 
on behalf of such an entity or its related special purpose entity, shall 
not be an eligible not-for-profit holder if the State or non-profit 
entity or its related special purpose entity is owned or controlled, in 
whole or in part, by a for-profit entity. For purposes of this 
paragraph, a for-profit entity has ownership and control of a State or 
non-profit entity, or its related special purpose entity, if--
    (A) The for-profit entity is a member or shareholder of a State or 
non-profit entity or related special purpose entity that is a membership 
or stock corporation, and the for-profit entity has sufficient power to 
control the State or non-profit entity or its special purpose entity;
    (B) The for-profit-entity employs or appoints individuals that 
together constitute a majority of the State, non-profit, or special 
purpose entity's board of trustees or directors, or a majority of such 
board's audit committee, executive committee, or compensation committee; 
or
    (C) For a State, non-profit, or special purpose entity that has no 
board of trustees or directors and associated committees of such, the 
for-profit entity is authorized by law, agreement, or otherwise to 
approve decisions by the entity regarding its audits, investments, 
hiring, retention, or compensation of officials, unless the Secretary 
determines that the particular authority to approve such decisions is 
not likely to affect the integrity of those decisions.
    (vi) For purposes of paragraph (f)(3) of this section--
    (A) A for-profit entity has sufficient power to control a State or 
non-profit entity or its related special purpose entity, if it possesses 
directly, or represents, either alone or together with other persons, 
under a voting trust, power of attorney, proxy, or similar agreement, 
one or more persons who hold, individually or in combination with the 
other person represented or the persons representing them, a sufficient 
voting percentage of the membership interests or voting securities to 
direct or cause the direction of the management and policies of the 
State or non-profit entity or its related special purpose entity.
    (B) An individual is deemed to be employed or appointed by a for-
profit entity if the for-profit entity employs a family member, as 
defined in Sec. 600.21(f), of that individual, unless the Secretary 
determines that the particular nature of the family member's employment 
is not likely to affect the integrity of decisions made by the board or 
committee member.
    (C) ``Beneficial owner'' (including ``beneficial ownership'' and 
``owner of a beneficial interest'') means the entity that has those 
rights with respect to the loan or income from the loan that are the 
normal incidents of ownership, including the right to receive, possess, 
use, and sell or otherwise exercise control over the loan and the income 
from

[[Page 83]]

the loan, subject to any rights granted and limitations imposed in 
connection with or related to the granting of a security interest 
described in paragraph (f)(3)(ix) of this section, and subject to any 
limitations on such rights under the Act as a result of such entity not 
qualifying as an eligible lender or holder under the Act.
    (D) ``Sole owner'' means the entity that has all the rights 
described in paragraph (f)(3)(vi)(C) of this section, which may be 
subject to the rights and limitations described in paragraph 
(f)(3)(vi)(C), to the exclusion of any other entity, with respect both 
to a loan and the income from a loan.
    (vii)(A) No State or non-profit entity, and no trustee to the extent 
acting on behalf of such a State or non-profit entity or its related 
special purpose entity, shall be an eligible not-for-profit holder with 
respect to any loan or income from any loan on which payment is claimed 
at the rate established under paragraph (f)(2) of this section, unless 
such State or non-profit entity or its related special purpose entity is 
the sole owner of the beneficial interest in such loan and the income 
from such loan.
    (B) A State or non-profit entity that had sole ownership of the 
beneficial interest in a loan and the income from such loan is 
considered to retain that sole ownership for purposes of paragraph 
(f)(3)(vii)(A) of this section if such entity transferred beneficial 
interest in the loan to its related special purpose entity and no party 
other than that State or non-profit entity or its related special 
purpose entity owns any beneficial interest or residual ownership 
interest in the loan or income from the loan.
    (viii)(A) A trustee described in paragraph (f)(3)(i)(D) of this 
section shall not receive compensation as consideration for acting as an 
eligible lender on behalf of a State or non-profit entity or its related 
special purpose entity in excess of reasonable and customary fees paid 
for providing the particular service or services that the trustee 
undertakes to provide to such entity.
    (B) Fees are reasonable and customary for purposes of paragraph 
(f)(3)(viii) of this section, if they do not exceed the amounts received 
by the trustee for similar services with regard to similar portfolios of 
loans of that State or non-profit entity or its related special purpose 
entity that are not eligible to receive special allowance at the rate 
established under paragraph (f)(2) of this section, or if they do not 
exceed an amount as determined by such other method requested by the 
State or non-profit entity that the Secretary considers reliable.
    (C) Loans owned by the State or non-profit entity or a related 
special purpose entity for which the trustee receives fees in excess of 
the amount permitted by paragraph (f)(3)(viii) of this section cease to 
qualify for a special allowance payment at the rate prescribed under 
paragraph (f)(2) of this section.
    (ix) For purposes of paragraph (f)(3) of this section, if a State or 
non-profit entity, its related special purpose entity, or a trustee 
acting on behalf of any of these entities, grants a security interest 
in, or otherwise pledges as collateral, a loan, or the income from a 
loan, to secure a debt obligation for which such State or non-profit 
entity, or its related special purpose entity, is the issuer of that 
debt obligation, none of these entities shall, by such action--
    (A) Be deemed to be owned or controlled, in whole or in part, by a 
for-profit entity; or
    (B) Lose its status as the sole owner of a beneficial interest in a 
loan and the income from a loan.
    (x) Not-for-Profit Holder Eligibility Determination. A State or non-
profit entity that seeks to qualify as an eligible not-for-profit 
holder, either in its own right or through a trust agreement with an 
eligible lender trustee, must provide to the Secretary--
    (A) A certification on the State or non-profit entity's letterhead 
signed by the State or non-profit entity's Chief Executive Officer (CEO) 
which--
    (1) States the basis upon which the entity qualifies as a State or 
non-profit entity;
    (2) Includes documentation establishing its status as a State or 
non-profit entity;
    (3) Includes the name and lender identification number(s) of the 
entities for which designation is being certified;

[[Page 84]]

    (4) Includes the name of any related special purpose entities that 
hold any interest in any loan on which special allowance is claimed 
under paragraph (f)(2)of this section, describes the role of such entity 
with respect to the loans, and provides with respect to that entity the 
certifications and documentation described in paragraph (f)(3)(x)(A) and 
(B) of this section; and
    (5) For an entity establishing status under section 150(d) of the 
Internal Revenue Code of 1986, includes copies of the requests of the 
State or political subdivision or subdivisions thereof or requirements 
described in section 150(d)(2) of the Internal Revenue Code and the 
CEO's additional certification that the entity has not elected under 
section 150(d)(3) of the Internal Revenue Code to cease its status as a 
qualified scholarship funding corporation.
    (B) A separately submitted certification or opinion by the State or 
non-profit entity's external legal counsel or the office of the attorney 
general of the State, with supporting documentation that shows that the 
State or non-profit entity--
    (1) Is constituted a State entity by operation of specific State 
law;
    (2) Has been designated by the State or one or more political 
subdivisions of the State to serve as a qualified scholarship funding 
corporation under section 150(d) of the Internal Revenue Code, has not 
made the election described under section 150(d)(3) of the Internal 
Revenue Code, and is incorporated under State law as a not-for-profit 
organization;
    (3) Is incorporated under State law as a not-for-profit organization 
or is an entity described in section 501(c)(3) of the Internal Revenue 
Code; or
    (4) Has in effect a relationship with an eligible lender under which 
the lender is acting as trustee on behalf of the State or non-profit 
entity.
    (xi) Annual Certification by Eligible Not-for-Profit Holder. A State 
or non-profit entity that seeks to retain its eligibility as an eligible 
not-for-profit holder, either in its own right or through a trust 
agreement with an eligible lender trustee, must annually provide to the 
Secretary--
    (A) A certification on the State or non-profit entity's letterhead 
signed by the State or non-profit entity's Chief Executive Officer (CEO) 
which--
    (1) Includes the name and lender identification number(s) of the 
entities for which designation is being recertified;
    (2) States that the State or non-profit entity has not altered its 
status as a State or non-profit entity since its prior certification to 
the Secretary, or, if it has altered its status, describes any such 
alterations; and
    (3) States that the State or non-profit entity continues to satisfy 
the requirements of an eligible not-for-profit holder, either in its own 
right or through a trust agreement with an eligible lender trustee; and
    (B) A copy of its IRS Form 990, if applicable, and that of any 
related special purpose entity that holds an interest in loans on which 
it seeks to claim special allowance at the rate provided under paragraph 
(f)(2) of this section, at the same time these returns are filed with 
the Internal Revenue Service.
    (xii) Not-for-Profit Holder Change of Status. Within 10 business 
days of becoming aware of the occurrence of a change that may result in 
a State or non-profit entity that has been designated an eligible not-
for-profit holder, either directly or through an eligible lender 
trustee, losing that eligibility, the State or non-profit entity must--
    (A) Submit details of the change to the Secretary; and
    (B) Cease billing for special allowance at the rate established 
under paragraph (f)(2) of this section for the period from the date of 
the change that may result in it no longer being eligible for the rate 
established under paragraph (f)(2) of this section to the date of the 
Secretary's determination that such entity has not lost its eligibility 
as a result of such change; provided, however, that in the quarter 
following the Secretary's determination that such eligible not-for-
profit holder has not lost its eligibility, the eligible not-for-profit 
holder may submit a billing for special allowance during the period from 
the date of the change to the date of the Secretary's determination 
equal

[[Page 85]]

to the difference between special allowance at the rate established 
under paragraph (f)(2) of this section and the amount it actually billed 
at the rate established under paragraph (f)(1) of this section.
    (xiii) In the case of a loan for which the special allowance payment 
is calculated under paragraph (f)(2) of this section and that is sold by 
the eligible not-for-profit holder holding the loan to an entity that is 
not an eligible not-for-profit holder, the special allowance payment for 
such loan shall, beginning on the date of the sale, no longer be 
calculated under paragraph (f)(2) and shall be calculated under 
paragraph (f)(1) of this section instead.
    (4) In the case of a loan for which the special allowance payment is 
calculated under paragraph (f)(2) of this section and that is sold by 
the eligible not-for-profit holder holding the loan to an entity that is 
not an eligible not-for-profit holder, the special allowance payment for 
such loan shall, beginning on the date of the sale, no longer be 
calculated under paragraph (f)(2) and shall be calculated under 
paragraph (f)(1) of this section instead.
    (g) For purposes of this section--
    (1) A tax-exempt obligation is an obligation the income of which is 
exempt from taxation under the Internal Revenue Code of 1986 (26 
U.S.C.);
    (2) The date on which an obligation is considered to be ``originally 
issued'' is determined under Sec. 682.302(f)(2)(i) or (ii), as 
applicable.
    (i) An obligation issued to obtain funds to make loans, or to 
purchase a legal or equitable interest in loans, including by pledge as 
collateral for that obligation, is considered to be originally issued on 
the date issued.
    (ii) A tax-exempt obligation that refunds, or is one of a series of 
tax-exempt refundings with respect to a tax-exempt obligation described 
in Sec. 682.302(f)(2)(i), is considered to be originally issued on the 
date on which the obligation described in Sec. 682.302(f)(2)(i) was 
issued.
    (3) A loan is refinanced when an Authority that has pledged the loan 
as collateral for an obligation of that Authority retains an interest in 
the loan, but causes the loan to be released from the lien of that 
obligation and pledged as collateral for a different obligation of that 
Authority.
    (4) References to an Authority include a successor entity that may 
not qualify as an Authority under Sec. 682.200(b).
    (h) Calculation of special allowance payments for loans subject to 
the Servicemembers Civil Relief Act (50 U.S.C. 527, App. sec. 207). For 
FFEL Program loans first disbursed on or after July 1, 2008 that are 
subject to the interest rate limit under the Servicemembers Civil Relief 
Act, special allowance is calculated in accordance with paragraphs (c) 
and (f) of this section, except the applicable interest rate for this 
purpose shall be 6 percent.

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 25746, May 17, 1994; 59 
FR 33353, June 28, 1994; 59 FR 61428, Nov. 30, 1994; 64 FR 18978, Apr. 
16, 1999; 64 FR 58626, Oct. 29, 1999; 66 FR 34763, June 29, 2001; 68 FR 
75429, Dec. 31, 2003; 71 FR 45703, Aug. 9, 2006; 71 FR 64398, Nov. 1, 
2006; 72 FR 62002, Nov. 1, 2007; 73 FR 63252, Oct. 23, 2008; 74 FR 
55996, Oct. 29, 2009; 78 FR 65813, Nov. 1, 2013]



Sec. 682.303  [Reserved]



Sec. 682.304  Methods for computing interest benefits and special allowance.

    (a) General. The Secretary pays a lender interest benefits and 
special allowance on eligible loans on a quarterly basis. These calendar 
quarters end on March 31, June 30, September 30, and December 31 of each 
year. A lender may use either the average daily balance method or the 
actual accrual method to determine the amount of interest benefits 
payable on a lender's loans. A lender shall use the average daily 
balance method to determine the balance on which the Secretary computes 
the amount of special allowance payable on its loans.
    (b) Average daily balance method for interest benefits. (1) Under 
this method, the lender adds the unpaid principal balance outstanding on 
all loans qualifying for interest benefits at each actual interest rate 
for each day of the quarter, divides the sum by the number of days in 
the quarter, and rounds the result to the nearest whole dollar. The 
resulting figure is the average daily balance for qualified loans 
outstanding at each actual interest rate.

[[Page 86]]

    (2) The Secretary computes the interest benefits due on all 
qualified loans at each actual interest rate by multiplying the average 
daily balance thereof by the actual interest rate, multiplying this 
result by the number of days in the quarter, and then dividing this 
result by the actual number of days in the year.
    (c) Actual accrual method for interest benefits. (1) Under this 
method, the lender computes the total unpaid principal balance 
outstanding on all qualified loans at each actual interest rate on each 
day of the quarter, multiplies this result by the actual interest rate, 
and divides this result by the actual number of days in the year, or, 
alternatively, 365.25 days. A lender who chooses to divide by 365.25 
days must do so for four consecutive years.
    (2) The interest benefits due for a quarter equal the sum of the 
daily interest benefits due, computed under paragraph (c)(1) of this 
section, for each day of the quarter.
    (d) Average daily balance method for special allowance. (1) To 
compute the average daily balance outstanding for purposes of special 
allowance, the lender adds the unpaid principal balance outstanding on 
all qualified loans at each applicable interest rate for each day of the 
quarter, divides this sum by the number of days in the quarter, and 
rounds the result to the nearest whole dollar. The resulting figure is 
the average daily balance for the quarter for qualifying loans at each 
applicable interest rate.
    (2) To compute the average daily balance of unpaid accrued interest 
for purposes of special allowance on loans covered by 
Sec. 682.215(b)(7), the lender adds the unpaid accrued interest on such 
loans for each eligible day of the quarter, divides this sum by the 
number of days in the quarter, and rounds the result to the nearest 
whole dollar. The resulting figure is the average daily balance for the 
quarter for qualifying loans at the applicable interest rate.
    (3) The Secretary computes the special allowance payable to a lender 
based upon the average daily balance computed by the lender under 
paragraphs (d)(1) and (2) of this section.

(Authority: 20 U.S.C. 1082, 1087-1)

[57 FR 60323, Dec. 18, 1992, as amended at 73 FR 63254, Oct. 23, 2008]



Sec. 682.305  Procedures for payment of interest benefits and special
allowance and collection of origination and loan fees.

    (a) General. (1) If a lender owes origination fees or loan fees 
under paragraph (a) of this section, it must submit quarterly reports to 
the Secretary on a form provided or prescribed by the Secretary, even if 
the lender is not owed, or does not wish to receive, interest benefits 
or special allowance from the Secretary.
    (2) The lender shall report, on the quarterly report required by 
paragraph (a)(1) of this section, the amount of origination fees it was 
authorized to collect and the amount of those fees refunded to borrowers 
during the quarter covered by the report.
    (3)(i)(A) The Secretary reduces the amount of interest benefits and 
special allowance payable to the lender by--
    (1) The amount of origination fees the lender was authorized to 
collect during the quarter under Sec. 682.202(c), whether or not the 
lender actually collected that amount; and
    (2) The amount of lender fees payable under paragraph (a)(3)(ii) of 
this section; and
    (3) The amount of excess interest, as calculated in accordance with 
paragraph (d) of this section.
    (B) The Secretary increases the amount of interest benefits and 
special allowance payable to the lender by the amount of origination 
fees refunded to borrowers during the quarter under Sec. 682.202(c).
    (ii)(A) For any FFEL loan made on or after October 1, 1993, a lender 
shall pay the Secretary a loan fee equal to 0.50% of the principal 
amount of the loan.
    (B) For any FFEL loan made on or after October 1, 2007 and prior to 
July 1, 2010, a lender shall pay the Secretary a loan fee equal to 1.0 
percent of the principal amount of the loan.
    (iii) The Secretary collects from an originating lender the amount 
of origination fees the originating lender was authorized to collect 
from borrowers

[[Page 87]]

during the quarter whether or not the originating lender actually 
collected those fees. The Secretary also collects the fees the 
originating lender is required to pay under paragraph (a)(3)(ii) of this 
section. Generally, the Secretary collects the fees from the originating 
lender by offsetting the amount of interest benefits and special 
allowance payable to the originating lender in a quarter, and, if 
necessary, the amount of interest benefits and special allowance payable 
in subsequent quarters may be offset until the total amount of fees has 
been recovered.
    (iv) If the full amount of the fees cannot be collected within two 
quarters by reducing interest and special allowance payable to the 
originating lender, the Secretary may collect the unpaid amount directly 
from the originating lender.
    (v) If the full amount of the fees cannot be collected within two 
quarters from the originating lender in accordance with paragraphs 
(a)(3)(iii) and (iv) of this section and if the originating lender has 
transferred the loan to a subsequent holder, the Secretary may, 
following written notice, collect the unpaid amount from the holder by 
using the same steps described in paragraphs (a)(3)(iii) and (iv) of 
this section, with the term ``holder'' substituting for the term 
``originating lender''.
    (4) If an originating lender sells or otherwise transfers a loan to 
a new holder, the originating lender remains liable to the Secretary for 
payment of the origination fees. The Secretary will not pay interest 
benefits or special allowance to the new holder or pay reinsurance to 
the guaranty agency until the origination fees are paid to the 
Secretary.
    (b) Penalty interest. (1)(i) If the Secretary does not pay interest 
benefits or the special allowance within 30 days after the Secretary 
receives an accurate, timely, and complete request for payment from a 
lender, the Secretary pays the lender penalty interest.
    (ii) The payment of interest benefits or special allowance is deemed 
to occur, for purposes of this paragraph, when the Secretary--
    (A) Authorizes the Treasury Department to pay the lender;
    (B) Credits the payment due the lender against a debt that the 
Secretary determines is owed the Secretary by the lender; or
    (C) Authorizes the Treasury Department to pay the amount due by the 
lender to another Federal agency for credit against a debt that the 
Federal agency has determined the lender owes.
    (2) Penalty interest is an amount that accrues daily on interest 
benefits and special allowance due to the lender. The penalty interest 
is computed by--
    (i) Multiplying the daily interest rate applicable to loans on which 
payment for interest benefits was requested, by the amount of interest 
benefits due on those loans for each interest rate;
    (ii) Multiplying the daily special allowance rate applicable to 
loans on which special allowance was requested by the amount of special 
allowance due on those loans for each interest rate and special 
allowance category;
    (iii) Adding the results of paragraphs (b)(2)(i) and (ii) of this 
section to determine the gross penalty interest to be paid for each day 
that penalty interest is due;
    (iv) Dividing the results of paragraph (b)(2)(iii) of this section 
by the gross amount of interest benefits and special allowance due to 
obtain the average penalty interest rate;
    (v) Multiplying the rate obtained in paragraph (b)(2)(iv) of this 
section by the total amount of reduction to gross interest benefits and 
special allowance due (e.g., origination fees or other debts owed to the 
Federal Government);
    (vi) Subtracting the amount calculated in paragraph (b)(2)(v) of 
this section from the amount calculated under paragraph (b)(2)(iii) of 
this section to obtain the net amount of penalty interest due per day; 
and
    (vii) Multiplying the amount calculated in paragraph (b)(2)(vi) of 
this section by the number of days calculated under paragraph (b)(3) of 
this section.
    (3) The Secretary pays penalty interest for the period--
    (i) Beginning on the later of--
    (A) The 31st day after the final day of the quarter covered by the 
request for payment; or

[[Page 88]]

    (B) The 31st day after the Secretary's receipt of an accurate, 
timely, and complete request for payment from the lender; and
    (ii) Ending on the day the Secretary pays the interest benefits and 
the special allowance at issue, in accordance with paragraph (b)(1)(ii) 
of this section.
    (4) A request for interest benefits and special allowance is 
considered timely only if it is received by the Secretary within 90 days 
following the end of the quarter to which the request pertains.
    (5) A request for interest benefits and special allowance is not 
considered accurate and complete if it--
    (i) Requests payments to which the lender is not entitled under 
Secs. 682.300 through 682.302;
    (ii) Includes loans that the Secretary, in writing, has directed 
that the lender exclude from the request;
    (iii) Does not contain all information required by the Secretary or 
contains conflicting information; or
    (iv) Is not provided and certified on the form and in the manner 
prescribed by the Secretary.
    (c) Independent audits. (1)(i) A lender holding more than $5 million 
in FFEL loans during its fiscal year must submit an independent annual 
compliance audit for that year, conducted by a qualified independent 
organization or person.
    (ii) The Secretary may, following written notice, suspend the 
payment of interest benefits and special allowance to a lender that does 
not submit its audit within the time period prescribed in paragraph 
(c)(2) of this section.
    (2) The audit required under paragraph (c)(1) of this section must--
    (i) Examine the lender's compliance with the Act and applicable 
regulations;
    (ii) Examine the lender's financial management of its FFEL program 
activities;
    (iii) Be conducted in accordance with the standards for audits 
issued by the United States General Accounting Office's (GAO's) 
Government Auditing Standards. Procedures for audits are contained in an 
audit guide developed by and available from the Office of the Inspector 
General of the Department;
    (iv) Be conducted at least annually and be submitted to the 
Secretary within six months of the end of the audit period. The initial 
audit must be of the lender's first fiscal year that begins after July 
23, 1992, and must be submitted within six months of the end of the 
audit period. Each subsequent audit must cover the lender's activities 
for the period beginning no later than the end of the period covered by 
the preceding audit; and
    (v) A lender must conduct the audit required by this paragraph in 
accordance with 31 U.S.C. 7502 and 2 CFR part 200, subpart F--Audit 
Requirements.\1\
---------------------------------------------------------------------------

    \1\ None of the other regulations in 2 CFR part 200 apply to 
lenders. Only those requirements in subpart F-Audit Requirements, apply 
to lenders, as required under the Single Audit Act Amendments of 1996 
(31 U.S.C. Chapter 75).
---------------------------------------------------------------------------

    (3) The Secretary may determine that a lender has met the 
requirements of paragraph (c) of this section if the lender has been 
audited in accordance with 31 U.S.C. 7502 for other purposes, the lender 
submits the results of the audit to the Office of Inspector General, and 
the Secretary determines that the audit meets the requirements of this 
paragraph.
    (d) Recovery of excess interest paid by the Secretary. (1) For any 
loan for which the first disbursement of principal is made on or after 
April 1, 2006, the Secretary collects the amount of excess interest paid 
to a lender on a quarterly basis when the applicable interest rate on a 
loan for each quarter exceeds the special allowance support level in 
paragraph (d)(2) of this section for the loan. Excess interest is 
calculated and recovered each quarter by subtracting the special 
allowance support level from the applicable interest rate, multiplying 
the result by the average daily principal balance of the loan (not 
including unearned interest added to principal) during the quarter, and 
dividing by four.
    (2) The term special allowance support level means a number 
expressed as a percentage equal to the sum of--
    (i) The average of the bond equivalent rates of the quotes of the 3-
month commercial paper (financial) rates in effect for each of the days 
in such quarter as reported by the Federal Reserve in Publication H-15 
(or its successor) for such 3-month period; plus

[[Page 89]]

    (ii) 2.34 percent for a Federal Stafford loan in repayment;
    (iii) 1.74 percent for a Federal Stafford loan during the in-school, 
grace, and deferment periods; or
    (iv) 2.64 percent for a Federal PLUS or Consolidation Loan.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1087-1)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 61428, Nov. 30, 1994; 60 FR 31411, June 15, 1995; 64 FR 18978, Apr. 
16, 1999; 64 FR 58627, Oct. 29, 1999; 71 FR 45705, Aug. 9, 2006; 71 FR 
64398, Nov. 1, 2006; 72 FR 62003, Nov. 1, 2007; 74 FR 55996, Oct. 29, 
2009; 78 FR 65814, Nov. 1, 2013; 79 FR 76105, Dec. 19, 2014]



 Subpart D_Administration of the Federal Family Education Loan Programs 
                          by a Guaranty Agency



Sec. 682.400  Agreements between a guaranty agency and the Secretary.

    (a) The Secretary enters into agreements with a guaranty agency 
whose loan guarantee program meets the requirements of this subpart. The 
agreements enable the guaranty agency to participate in the FFEL 
programs and to receive the various payments and benefits related to 
that participation.
    (b) There are four agreements:
    (1) Basic program agreement. In order to participate in the FFEL 
programs, a guaranty agency must have a basic program agreement. Under 
this agreement--
    (i) Borrowers whose Stafford or Consolidation loans are guaranteed 
by the agency may qualify for interest benefits that are paid to the 
lender on the borrower's behalf under Sec. 682.301; and
    (ii) Lenders under the guaranty agency program may receive special 
allowance payments from the Secretary and have death, disability, 
bankruptcy, closed school and false certification discharge claims paid 
by the Secretary through the guaranty agency.
    (2) Federal advances for claim payments agreement. A guaranty agency 
must have an agreement for Federal advances for claim payments to 
receive and use Federal advances to pay default claims.
    (3) Reinsurance agreement. A guaranty agency must have a reinsurance 
agreement to receive reimbursement from the Secretary for its losses on 
default claims.
    (4) Loan Rehabilitation Agreement. A guaranty agency must have an 
agreement for rehabilitating a loan for which the Secretary has made a 
reinsurance payment under section 428(c)(1) of the Act.
    (c) The Secretary's execution of an agreement does not indicate 
acceptance of any current or past standards or procedures used by the 
agency.
    (d) All of the agreements are subject to subsequent changes in the 
Act, in other applicable Federal statutes, and in regulations that apply 
to the FFEL programs.

(Authority: 20 U.S.C. 1072, 1078-1, 1078-2, 1078-3, 1082, 1087, 1087-1)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 33353, June 28, 1994; 
64 FR 18978, Apr. 16, 1999; 64 FR 58627, Oct. 29, 1999; 78 FR 65814, 
Nov. 1, 2013]



Sec. 682.401  Basic program agreement.

    (a) General. In order to participate in the FFEL programs, a 
guaranty agency shall enter into a basic agreement with the Secretary.
    (b) Terms of agreement. In the basic agreement, the guaranty agency 
shall agree to ensure that its loan guarantee program meets the 
following requirements at all times:
    (1) Reinstatement of borrower eligibility. Except as provided in 
Sec. 668.35(b) for a borrower with a defaulted loan on which a judgment 
has been obtained and Sec. 668.35(i) for a borrower who fraudulently 
obtained title IV, HEA program assistance, reinstatement of Title IV 
eligibility for a borrower with a defaulted loan must be in accordance 
with this paragraph (b)(1). For a borrower's loans held by a guaranty 
agency on which a reinsurance claim has been paid by the Secretary, the 
guaranty agency must afford a defaulted borrower, upon the borrower's 
request, renewed eligibility for Title IV assistance once the borrower 
has made satisfactory repayment arrangements as that term is defined in 
Sec. 682.200.
    (i) For purposes of this section, the determination of reasonable 
and affordable must--

[[Page 90]]

    (A) Include consideration of the borrower's and spouse's disposable 
income and necessary expenses including, but not limited to, housing, 
utilities, food, medical costs, dependent care costs, work-related 
expenses and other Title IV repayment;
    (B) Not be a required minimum payment amount, e.g. $50, if the 
agency determines that a smaller amount is reasonable and affordable 
based on the borrower's total financial circumstances. The agency must 
include documentation in the borrower's file of the basis for the 
determination, if the monthly reasonable and affordable payment 
established under this section is less than $50.00 or the monthly 
accrued interest on the loan, whichever is greater.
    (C) Be based on the documentation provided by the borrower or other 
sources including, but not limited to--
    (1) Evidence of current income (e.g. proof of welfare benefits, 
Social Security benefits, Supplemental Security Income, Workers' 
Compensation, child support, veterans' benefits, two most recent pay 
stubs, most recent copy of U.S. income tax return, State Department of 
Labor reports);
    (2) Evidence of current expenses (e.g. a copy of the borrower's 
monthly household budget, on a form provided by the guaranty agency); 
and
    (3) A statement of the unpaid balance on all FFEL loans held by 
other holders.
    (ii) A borrower may request that the monthly payment amount be 
adjusted due to a change in the borrower's total financial circumstances 
upon providing the documentation specified in paragraph (b)(4)(i)(C) of 
this section.
    (iii) A guaranty agency must provide the borrower with a written 
statement of the reasonable and affordable payment amount required for 
the reinstatement of the borrower's eligibility for Title IV student 
assistance, and provide the borrower with an opportunity to object to 
those terms.
    (iv) A guaranty agency must provide the borrower with written 
information regarding the possibility of loan rehabilitation if the 
borrower makes three additional reasonable and affordable monthly 
payments after making payments to regain eligibility for Title IV 
assistance and the consequences of loan rehabilitation.
    (v) A guaranty agency must inform the borrower that he or she may 
only obtain reinstatement of borrower eligibility under this section 
once.
    (2) Lender eligibility. (i) An eligible lender may participate in 
the program of the agency under reasonable criteria established by the 
guaranty agency except to the extent that--
    (A) The lender's eligibility has been limited, suspended, or 
terminated by the Secretary under subpart G of this part or by the 
agency under standards and procedures that are substantially the same as 
those in subpart G of this part; or
    (B) The lender is disqualified by the Secretary under sections 
432(h)(1), 432(h)(2), 435(d)(3), or 435(d)(5) of the Act or 
Sec. 682.712; or
    (C) There is a State constitutional prohibition affecting the 
lender's eligibility.
    (ii) The agency may not guarantee a loan made by a school lender 
that is not located in the geographical area that the agency serves.
    (iii) The guaranty agency may refuse to guarantee loans made by a 
school on behalf of students not attending that school.
    (iv) The guaranty agency may, in determining whether to enter into a 
guarantee agreement with a lender, consider whether the lender has had 
prior experience in a similar Federal, State, or private nonprofit 
student loan program and the amount and percentage of loans that are 
currently delinquent or in default under that program.
    (3) Insurance premiums and Federal default fees. (i) Except for a 
Consolidation Loan or refinanced SLS or PLUS loans, a guaranty agency:
    (A) May charge the lender an insurance premium for Stafford, SLS, or 
PLUS loans it guarantees prior to July 1, 2006; and
    (B) Must collect, either from the lender or by payment from any 
other non-Federal source, a Federal default fee for any Stafford or PLUS 
loans it guarantees on or after July 1, 2006, to be deposited into the 
Federal Fund under Sec. 682.419.

[[Page 91]]

    (ii) The guaranty agency may not use the Federal default fee for 
incentive payments to lenders, and may only use the insurance premium or 
the Federal default fee for costs incurred in guaranteeing loans or in 
the administration of the agency's loan guarantee program, as specified 
in Sec. 682.410(a)(2) or Sec. 682.419(c).
    (iii) If a lender charges the borrower an insurance premium or 
Federal default fee, the lender must deduct the charge proportionately 
from each disbursement of the borrower's loan proceeds.
    (iv) The amount of the insurance premium or Federal default fee, as 
applicable--
    (A) May not exceed 3 percent of the principal balance for a loan 
disbursed on or before June 30, 1994;
    (B) May not exceed 1 percent of the principal balance for a loan 
disbursed on or after July 1, 1994;
    (C) Shall be 1 percent of the principal balance of a loan guaranteed 
on or after July 1, 2006 and prior to July 1, 2010.
    (v) If the circumstances specified in paragraph (vi) exist, the 
guaranty agency shall refund to the lender any insurance premium or 
Federal default fee paid by the lender.
    (vi) The lender shall refund to the borrower by a credit against the 
borrower's loan balance the insurance premium or Federal default fee 
paid by the borrower on a loan under the following circumstances:
    (A) The insurance premium or Federal default fee attributable to 
each disbursement of a loan must be refunded if the loan check is 
returned uncashed to the lender.
    (B) The insurance premium or Federal default fee, or an appropriate 
prorated amount of the premium or fee, must be refunded by application 
to the borrower's loan balance if--
    (1) The loan or a portion of the loan is returned by the school to 
the lender in order to comply with the Act or with applicable 
regulations;
    (2) Within 120 days of disbursement, the loan or a portion of the 
loan is repaid or returned, unless--
    (i) The borrower has no FFEL Program loans in repayment status and 
has requested, in writing, that the repaid or returned funds be used for 
a different purpose; or
    (ii) The borrower has a FFEL Program loan in repayment status, in 
which case the payment is applied in accordance with Sec. 682.209(b) 
unless the borrower has requested, in writing, that the repaid or 
returned funds be applied as a cancellation of all or part of the loan;
    (3) Within 120 days of disbursement, the loan check has not been 
negotiated; or
    (4) Within 120 days of disbursement, the loan proceeds disbursed by 
electronic funds transfer or master check have not been released from 
the restricted account maintained by the school.
    (4) Inquiries. The agency must be able to receive and respond to 
written, electronic, and telephone inquiries.
    (5) Guaranty liability. The guaranty agency shall guarantee--
    (i) 100 percent of the unpaid principal balance of each loan 
guaranteed for loans disbursed before October 1, 1993;
    (ii) Not more than 98 percent of the unpaid principal balance of 
each loan guaranteed for loans first disbursed on or after October 1, 
1993 and before July 1, 2006; and
    (iii) Not more than 97 percent of the unpaid principal balance of 
each loan guaranteed for loans first disbursed on or after July 1, 2006.
    (6) Guaranty agency verification of default data. A guaranty agency 
must meet the requirements and deadlines provided for it in subpart M 
and N of 34 CFR part 668 for the cohort default rate process.
    (7) Guaranty agency administration. In the case of a State loan 
guarantee program administered by a State government, the program must 
be administered by a single State agency, or by one or more private 
nonprofit institutions or organizations under the supervision of a 
single State agency. For this purpose, ``supervision'' includes, but is 
not limited to, setting policies and procedures, and having full 
responsibility for the operation of the program.
    (8) Loan assignment. (i) Except as provided in paragraph (b)(8)(iii) 
of this section, the guaranty agency must allow a

[[Page 92]]

loan to be assigned only if the loan is fully disbursed and is assigned 
to--
    (A) An eligible lender;
    (B) A guaranty agency, in the case of a borrower's default, death, 
total and permanent disability, or filing of a bankruptcy petition, or 
for other circumstances approved by the Secretary, such as a loan made 
for attendance at a school that closed or a false certification claim;
    (C) An educational institution, whether or not it is an eligible 
lender, in connection with the institution's repayment to the agency or 
to the Secretary of a guarantee or a reinsurance claim payment made on a 
loan that was ineligible for the payment;
    (D) A Federal or State agency or an organization or corporation 
acting on behalf of such an agency and acting as a conservator, 
liquidator, or receiver of an eligible lender; or
    (E) The Secretary.
    (ii) For the purpose of this paragraph, ``assigned'' means any kind 
of transfer of an interest in the loan, including a pledge of such an 
interest as security.
    (iii) The guaranty agency must allow a loan to be assigned under 
paragraph (b)(8)(i) of this section, following the first disbursement of 
the loan if the assignment does not result in a change in the identity 
of the party to whom payments must be made.
    (9) Transfer of guarantees. Except in the case of a transfer of 
guarantee requested by a borrower seeking a transfer to secure a single 
guarantor, the guaranty agency may transfer its guarantee obligation on 
a loan to another guaranty agency, only with the approval of the 
Secretary, the transferee agency, and the holder of the loan.
    (10) Standards and procedures. (i) The guaranty agency shall 
establish, disseminate to concerned parties, and enforce standards and 
procedures for--
    (A) Ensuring that all lenders in its program meet the definition of 
``eligible lender'' in section 435(d) of the Act and have a written 
lender agreement with the agency;
    (B) Lender participation in its program;
    (C) Limitation, suspension, termination of lender participation;
    (D) Emergency action against a participating lender;
    (E) The exercise of due diligence by lenders in making, servicing, 
and collecting loans; and
    (F) The timely filing by lenders of default, death, disability, 
bankruptcy, closed school, false certification unpaid refunds, identity 
theft, and ineligible loan claims.
    (ii) The guaranty agency shall ensure that its program and all 
participants in its program at all times meet the requirements of 
subparts B, C, D, and F of this part.
    (11) Monitoring student enrollment. The guaranty agency shall 
monitor the enrollment status of a FFEL program borrower or student on 
whose behalf a parent has borrowed that includes, at a minimum, 
reporting to the current holder of the loan within 35 days of any change 
in the student's enrollment status reported that triggers--
    (i) The beginning of the borrower's grace period; or
    (ii) The beginning or resumption of the borrower's immediate 
obligation to make scheduled payments.
    (12) Submission of interest and special allowance information. Upon 
the Secretary's request, the guaranty agency shall submit, or require 
its lenders to submit, information that the Secretary deems necessary 
for determining the amount of interest benefits and special allowance 
payable on the agency's guaranteed loans.
    (13) Submission of information for reports. The guaranty agency 
shall require lenders to submit to the agency the information necessary 
for the agency to complete the reports required by Sec. 682.414(b).
    (14) Guaranty agency transfer of information. (i) A guaranty agency 
from which another guaranty agency requests information regarding 
Stafford and SLS loans made after January 1, 1987, to students who are 
residents of the State for which the requesting agency is the principal 
guaranty agency shall provide--
    (A) The name and social security number of the student; and
    (B) The annual loan amount and the cumulative amount borrowed by the 
student in loans under the Stafford and

[[Page 93]]

SLS programs guaranteed by the responding agency.
    (ii) The reasonable costs incurred by an agency in fulfilling a 
request for information made under paragraph (b)(14)(i) of this section 
must be paid by the guaranty agency making the request.
    (15) Information on defaults. The guaranty agency shall, upon the 
request of a school, furnish information with respect to students, 
including the names and addresses of such students, who were enrolled at 
that school and who are in default on the repayment of any loan 
guaranteed by that agency.
    (16) Information on loan sales or transfers. The guaranty agency 
must, upon the request of a school, furnish to the school last attended 
by the student, information with respect to the sale or transfer of a 
borrower's loan prior to the beginning of the repayment period, 
including--
    (i) Notice of assignment;
    (ii) The identity of the assignee;
    (iii) The name and address of the party by which contact may be made 
with the holder concerning repayment of the loan; and
    (iv) The telephone number of the assignee or, if the assignee uses a 
lender servicer, another appropriate number for borrower inquiries.
    (17) Third-party servicers. The guaranty agency may not enter into a 
contract with a third-party servicer that the Secretary has determined 
does not meet the financial and compliance standards under Sec. 682.416. 
The guaranty agency shall provide the Secretary with the name and 
address of any third-party servicer with which the agency enters into a 
contract and, upon request by the Secretary, a copy of that contract.
    (18) Consolidation of defaulted FFEL loans. (i) A guaranty agency 
may charge collection costs in an amount not to exceed 18.5 percent of 
the outstanding principal and interest on a defaulted FFEL Program loan 
that is paid off by a Direct Consolidation loan.
    (ii) On or after October 1, 2006, when returning proceeds to the 
Secretary from the consolidation of a defaulted loan, a guaranty agency 
that charged the borrower collection costs must remit an amount that 
equals the lesser of the actual collection costs charged or 8.5 percent 
of the outstanding principal and interest of the loan.
    (iii) On or after October 1, 2009, when returning proceeds to the 
Secretary from the consolidation of a defaulted loan that is paid off 
with excess consolidation proceeds as defined in paragraph (b)(18)(iv) 
of this section, a guaranty agency must remit the entire amount of 
collection costs repaid through the consolidation loan.
    (iv) The term excess consolidation proceeds means, for any Federal 
fiscal year beginning on or after October 1, 2009, the amount of 
Consolidation Loan proceeds received for defaulted loans under the FFEL 
Program that exceed 45 percent of the agency's total collections on 
defaulted loans in that Federal fiscal year.
    (19) Change in agency's records system. The agency shall provide 
written notification to the Secretary at least 30 days prior to placing 
its new guarantees or converting the records relating to its existing 
guaranty portfolio to an information or computer system that is owned 
by, or otherwise under the control of, an entity that is different than 
the party that owns or controls the agency's existing information or 
computer system. If the agency is soliciting bids from third parties 
with respect to a proposed conversion, the agency shall provide written 
notice to the Secretary as soon as the solicitation begins. The 
notification described in this paragraph must include a concise 
description of the agency's conversion project and the actual or 
estimated cost of the project.
    (20) Plans to Reduce Consolidation of defaulted loans. A guaranty 
agency shall establish and submit to the Secretary for approval, 
procedures to ensure that consolidation loans are not an excessive 
proportion of the guaranty agency's recoveries on defaulted loans.
    (c) Review of forms and procedures. (1) The guaranty agency shall 
submit to the Secretary its write-off criteria and procedures. The 
agency may not use these materials until the Secretary approves them.
    (2) The guaranty agency shall promptly submit to the Secretary its 
regulations, statements of procedures

[[Page 94]]

and standards, agreements, and other materials that substantially affect 
the operation of the agency's program, and any proposed changes to those 
materials. Except as provided in paragraph (c)(1) of this section, the 
agency may use these materials unless and until the Secretary 
disapproves them.
    (3) The guaranty agency must use common application forms, 
promissory notes, Master Promissory Notes (MPN), and other common forms 
approved by the Secretary. Each loan made under an MPN is enforceable in 
accordance with the terms of the MPN and is eligible for claim payment 
based on a true and exact copy of such MPN.
    (4) The guaranty agency must develop and implement appropriate 
procedures that provide for the granting of a student deferment as 
specified in Sec. 682.210(a)(6)(iv) and (c)(3) and require their lenders 
to use these procedures.
    (5) The guaranty agency shall ensure that all program materials meet 
the requirements of Federal and State law, including, but not limited 
to, the Act and the regulations in this part and part 668.
    (d) College Access Initiative. (1) A guaranty agency shall establish 
a plan to promote access to postsecondary education by--
    (i) Providing the Secretary and the public with information on 
Internet web links and a comprehensive listing of postsecondary 
education opportunities, programs, publications and other services 
available in the State, or States for which the guaranty agency serves 
as the designated guaranty agency;
    (ii) Promoting and publicizing information for students and 
traditionally underrepresented populations on college planning, career 
preparation, and paying for college in coordination with other entities 
that provide or distribute such information in the State, or States for 
which the guaranty agency serves as the designated guaranty agency;
    (2) The activities required by this section may be funded from the 
guaranty agency's Operating Fund in accordance with 
Sec. 682.423(c)(1)(vii) or from funds remaining in restricted accounts 
established pursuant to section 422(h)(4) of the Act.
    (3) The guaranty agency shall ensure that the information required 
by this subsection is available to the public by November 5, 2006 and 
is--
    (i) Free of charge; and
    (ii) Available in print.
    (e)(1) A guaranty agency must work with schools that participated in 
its program to develop and make available high-quality educational 
materials and programs that provide training to students and their 
families in budgeting and financial management, including debt 
management and other aspects of financial literacy, such as the cost of 
using high-interest loans to pay for postsecondary education, and how 
budgeting and financial management relate to the title IV student loan 
programs.
    (2) The materials and programs described in paragraph (e)(1) of this 
section must be in formats that are simple and understandable to 
students and their families, and must be made available to students and 
their families by the guaranty agency before, during, and after a 
student's enrollment at an institution of higher education.
    (3) A guaranty agency may provide similar programs and materials to 
an institution that participates only in the William D. Ford Federal 
Direct Loan Program.
    (4) A lender or loan servicer may also provide an institution with 
outreach and financial literacy information consistent with the 
requirements of paragraphs (e)(1) and (2) of this section.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082)

[57 FR 60323, Dec. 18, 1992]

    Editorial Note: For Federal Register citations affecting 
Sec. 682.401, see the List of CFR Sections Affected, which appears in 
the Finding Aids section of the printed volume and at www.fdsys.gov.



Sec. 682.402  Death, disability, closed school, false certification,
unpaid refunds, and bankruptcy payments.

    (a) General. (1) Rules governing the payment of claims based on 
filing for relief in bankruptcy, and discharge of loans due to death, 
total and permanent disability, attendance at a school that closes, 
false certification by a

[[Page 95]]

school of a borrower's eligibility for a loan, and unpaid refunds by a 
school are set forth in this section.
    (2) If a Consolidation loan was obtained jointly by a married 
couple, the amount of the Consolidation loan that is discharged if one 
of the borrowers dies or becomes totally and permanently disabled is 
equal to the portion of the outstanding balance of the Consolidation 
loan, as of the date the borrower died or became totally and permanently 
disabled, attributable to any of that borrower's loans that would have 
been eligible for discharge.
    (3) If a PLUS loan was obtained by two parents as co-makers, and 
only one of the borrowers dies, becomes totally and permanently 
disabled, has collection of his or her loan obligation stayed by a 
bankruptcy filing, or has that obligation discharged in bankruptcy, the 
other borrower remains obligated to repay the loan unless that borrower 
would qualify for discharge of the loan under these regulations.
    (4) Except for a borrower's loan obligation discharged by the 
Secretary under the false certification discharge provision of 
paragraphs (e)(1)(ii) or (iii) of this section, a loan qualifies for 
payment under this section and as provided in paragraph (h)(1)(iv) of 
this section, only to the extent that the loan is legally enforceable 
under applicable law by the holder of the loan.
    (5) For purposes of this section--
    (i) The legal enforceability of a loan is conclusively determined on 
the basis of a ruling by a court or administrative tribunal of competent 
jurisdiction with respect to that loan, or a ruling with respect to 
another loan in a judgment that collaterally estops the holder from 
contesting the enforceability of the loan;
    (ii) A loan is conclusively determined to be legally unenforceable 
to the extent that the guarantor determines, pursuant to an objection 
presented in a proceeding conducted in connection with consumer 
reporting agency reporting, tax refund offset, wage garnishment, or in 
any other administrative proceeding, that the loan is not legally 
enforceable; and
    (iii) If an objection has been raised by the borrower or another 
party about the legal enforceability of the loan and no determination 
has been made under paragraph (a)(5) (i) or (ii) of this section, the 
Secretary may authorize the payment of a claim under this section under 
conditions the Secretary considers appropriate. If the Secretary 
determines in that or any other case that a claim was paid under this 
section with respect to a loan that was not a legally enforceable 
obligation of the borrower, the recipient of that payment must refund 
that amount of the payment to the Secretary.
    (b) Death. (1) If an individual borrower dies, or the student for 
whom a parent received a PLUS loan dies, the obligation of the borrower 
and any endorser to make any further payments on the loan is discharged.
    (2)(i) A discharge of a loan based on the death of the borrower (or 
student in the case of a PLUS loan) must be based on--
    (A) An original or certified copy of the death certificate;
    (B) An accurate and complete photocopy of the original or certified 
copy of the death certificate;
    (C) An accurate and complete original or certified copy of the death 
certificate that is scanned and submitted electronically or sent by 
facsimile transmission; or
    (D) Verification of the borrower's or student's death through an 
authoritative Federal or State electronic database approved for use by 
the Secretary.
    (ii) Under exceptional circumstances and on a case-by-case basis, 
the chief executive officer of the guaranty agency may approve a 
discharge based upon other reliable documentation of the borrower's or 
student's death.
    (3) After receiving reliable information indicating that the 
borrower (or student) has died, the lender must suspend any collection 
activity against the borrower and any endorser for up to 60 days and 
promptly request the documentation described in paragraph (b)(2) of this 
section. If additional time is required to obtain the documentation, the 
period of suspension of collection activity may be extended up to an 
additional 60 days. If the lender is not able to obtain an original or 
certified copy of the death certificate, or an accurate and complete 
photocopy of the original or certified copy of the death

[[Page 96]]

certificate or other documentation acceptable to the guaranty agency, 
under the provisions of paragraph (b)(2) of this section, during the 
period of suspension, the lender must resume collection activity from 
the point that it had been discontinued. The lender is deemed to have 
exercised forbearance as to repayment of the loan during the period when 
collection activity was suspended.
    (4) Once the lender has determined under paragraph (b)(2) of this 
section that the borrower (or student) has died, the lender may not 
attempt to collect on the loan from the borrower's estate or from any 
endorser.
    (5) The lender shall return to the sender any payments received from 
the estate or paid on behalf of the borrower after the date of the 
borrower's (or student's) death.
    (6) In the case of a Federal Consolidation Loan that includes a 
Federal PLUS or Direct PLUS loan borrowed for a dependent who has died, 
the obligation of the borrower or any endorser to make any further 
payments on the portion of the outstanding balance of the Consolidation 
Loan attributable to the Federal PLUS or Direct PLUS loan is discharged 
as of the date of the dependent's death.
    (c)(1) Total and permanent disability. (i) A borrower's loan is 
discharged if the borrower becomes totally and permanently disabled, as 
defined in Sec. 682.200(b), and satisfies the eligibility requirements 
in this section.
    (ii) For a borrower who becomes totally and permanently disabled as 
described in paragraph (1) of the definition of that term in 
Sec. 682.200(b), the borrower's loan discharge application is processed 
in accordance with paragraphs (c)(2) through (c)(8) of this section.
    (iii) For a veteran who is totally and permanently disabled as 
described in paragraph (2) of the definition of that term in 
Sec. 682.200(b), the veteran's loan discharge application is processed 
in accordance with paragraph (c)(9) of this section.
    (iv) For purposes of this paragraph (c)--
    (A) A borrower's representative or a veteran's representative is a 
member of the borrower's family, the borrower's attorney, or another 
individual authorized to act on behalf of the borrower in connection 
with the borrower's total and permanent disability discharge 
application. References to a ``borrower'' or a ``veteran'' include, if 
applicable, the borrower's representative or the veteran's 
representative for purposes of applying for a total and permanent 
disability discharge, providing notifications or information to the 
Secretary, and receiving notifications from the Secretary;
    (B) References to ``the lender'' mean the guaranty agency if the 
guaranty agency is the holder of the loan at the time the borrower 
applies for a total and permanent disability discharge, except that the 
total and permanent disability discharge claim filing requirements 
applicable to a lender do not apply to the guaranty agency; and
    (C) References to ``the applicable guaranty agency'' mean the 
guaranty agency that guarantees the loan.
    (2) Discharge application process for a borrower who is totally and 
permanently disabled as described in paragraph (1) of the definition of 
that term in Sec. 682.200(b). (i) If the borrower notifies the lender 
that the borrower claims to be totally and permanently disabled as 
described in paragraph (1) of the definition of that term in 
Sec. 682.200(b), the lender must direct the borrower to notify the 
Secretary of the borrower's intent to submit an application for total 
and permanent disability discharge and provide the borrower with the 
information needed for the borrower to notify the Secretary.
    (ii) If the borrower notifies the Secretary of the borrower's intent 
to apply for a total and permanent disability discharge, the Secretary--
    (A) Provides the borrower with information needed for the borrower 
to apply for a total and permanent disability discharge;
    (B) Identifies all title IV loans owed by the borrower and notifies 
the lenders of the borrower's intent to apply for a total and permanent 
disability discharge;
    (C) Directs the lenders to suspend efforts to collect from the 
borrower for a period not to exceed 120 days; and

[[Page 97]]

    (D) Informs the borrower that the suspension of collection activity 
described in paragraph (c)(2)(ii)(C) of this section will end after 120 
days and collection will resume on the loans if the borrower does not 
submit a total and permanent disability discharge application to the 
Secretary within that time;
    (iii) If the borrower fails to submit an application for a total and 
permanent disability discharge to the Secretary within 120 days, 
collection resumes on the borrower's title IV loans, and the lender is 
deemed to have exercised forbearance of principal and interest from the 
date it suspended collection activity. The lender may capitalize, in 
accordance with Sec. 682.202(b), any interest accrued and not paid 
during that period, except that if the lender is a guaranty agency it 
may not capitalize accrued interest.
    (iv) The borrower must submit to the Secretary an application for a 
total and permanent disability discharge on a form approved by the 
Secretary. The application must contain--
    (A) A certification by a physician, who is a doctor of medicine or 
osteopathy legally authorized to practice in a State, that the borrower 
is totally and permanently disabled as described in paragraph (1) of the 
definition of that term in Sec. 682.200(b); or
    (B) An SSA notice of award for Social Security Disability Insurance 
(SSDI) or Supplemental Security Income (SSI) benefits indicating that 
the borrower's next scheduled disability review will be within five to 
seven years.
    (v) The borrower must submit the application described in paragraph 
(c)(2)(iv) of this section to the Secretary within 90 days of the date 
the physician certifies the application, if applicable.
    (vi) After the Secretary receives the application described in 
paragraph (c)(2)(iv) of this section, the Secretary notifies the holders 
of the borrower's title IV loans, that the Secretary has received a 
total and permanent disability discharge application from the borrower. 
The holders of the loans must notify the applicable guaranty agencies 
that the total and permanent disability discharge application has been 
received.
    (vii) If the application is incomplete, the Secretary notifies the 
borrower of the missing information and requests the missing information 
from the borrower or the physician who provided the certification, as 
appropriate. The Secretary does not make a determination of eligibility 
until the application is complete.
    (viii) The lender notification described in paragraph (c)(2)(vi) of 
this section directs the borrower's loan holders to suspend collection 
activity or maintain the suspension of collection activity on the 
borrower's title IV loans.
    (ix) After the Secretary receives the disability discharge 
application, the Secretary sends a notice to the borrower that--
    (A) States that the application will be reviewed by the Secretary;
    (B) Informs the borrower that the borrower's lenders will suspend 
collection activity or maintain the suspension of collection activity on 
the borrower's title IV loans while the Secretary reviews the borrower's 
application for a discharge; and
    (C) Explains the process for the Secretary's review of total and 
permanent disability discharge applications.
    (3) Secretary's review of total and permanent disability discharge 
application. (i) If, after reviewing the borrower's completed 
application, the Secretary determines that the physician's certification 
or the SSA notice of award for SSDI or SSI benefits supports the 
conclusion that the borrower is totally and permanently disabled, as 
described in paragraph (1) of the definition of that term in 
Sec. 682.200(b), the borrower is considered totally and permanently 
disabled--
    (A) As of the date the physician certified the borrower's 
application; or
    (B) As of the date the Secretary received the SSA notice of award 
for SSDI or SSI benefits.
    (ii) The Secretary may require the borrower to submit additional 
medical evidence if the Secretary determines that the borrower's 
application does not conclusively prove that the borrower is totally and 
permanently disabled as described in paragraph (1) of the definition of 
that term in Sec. 682.200(b). As part of the Secretary's

[[Page 98]]

review of the borrower's discharge application, the Secretary may 
require and arrange for an additional review of the borrower's condition 
by an independent physician at no expense to the borrower.
    (iii) After determining that the borrower is totally and permanently 
disabled as described in paragraph (1) of the definition of that term in 
Sec. 682.200(b), the Secretary notifies the borrower and the borrower's 
lenders that the application for a disability discharge has been 
approved. With this notification, the Secretary provides the date the 
physician certified the borrower's loan discharge application or the 
date the Secretary received the SSA notice of award for SSDI or SSI 
benefits and directs each lender to submit a disability claim to the 
guaranty agency so the loan can be assigned to the Secretary. The 
Secretary returns any payment received by the Secretary after the date 
the physician certified the borrower's loan discharge application or 
received the SSA notice of award for SSDI or SSI benefits to the person 
who made the payment.
    (iv) After the loan is assigned, the Secretary discharges the 
borrower's obligation to make further payments on the loan and notifies 
the borrower and the lender that the loan has been discharged. The 
notification to the borrower explains the terms and conditions under 
which the borrower's obligation to repay the loan will be reinstated, as 
specified in paragraph (c)(6)(i) of this section.
    (v) If the Secretary determines that the physician's certification 
or SSA notice of award for SSDI or SSI benefits provided by the borrower 
does not support the conclusion that the borrower is totally and 
permanently disabled as described in paragraph (1) of the definition of 
that term in Sec. 682.200(b), the Secretary notifies the borrower and 
the lender that the application for a disability discharge has been 
denied. The notification includes--
    (A) The reason or reasons for the denial;
    (B) A statement that the loan is due and payable to the lender under 
the terms of the promissory note and that the loan will return to the 
status that would have existed had the total and permanent disability 
discharge application not been received;
    (C) A statement that the lender will notify the borrower of the date 
the borrower must resume making payments on the loan;
    (D) An explanation that the borrower is not required to submit a new 
total and permanent disability discharge application if the borrower 
requests that the Secretary re-evaluate the application for discharge by 
providing, within 12 months of the date of the notification, additional 
information that supports the borrower's eligibility for discharge; and
    (E) An explanation that if the borrower does not request re-
evaluation of the borrower's prior discharge application within 12 
months of the date of the notification, the borrower must submit a new 
total and permanent disability discharge application to the Secretary if 
the borrower wishes the Secretary to re-evaluate the borrower's 
eligibility for a total and permanent disability discharge.
    (vi) If the borrower requests re-evaluation in accordance with 
paragraph (c)(3)(v)(D) of this section or submits a new total and 
permanent disability discharge application in accordance with paragraph 
(c)(3)(v)(E) of this section, the request must include new information 
regarding the borrower's disabling condition that was not provided to 
the Secretary in connection with the prior application at the time the 
Secretary reviewed the borrower's initial application for a total and 
permanent disability discharge.
    (4) Treatment of disbursements made during the period from the date 
of the physician's certification or the date the Secretary received the 
SSA notice of award for SSDI or SSI benefits until the date of 
discharge. If a borrower received a title IV loan or TEACH Grant before 
the date the physician certified the borrower's discharge application or 
before the date the Secretary received the SSA notice of award for SSDI 
or SSI benefits and a disbursement of that loan or grant is made during 
the period from the date of the physician's certification or the 
Secretary's receipt of the SSA notice of award for SSDI or SSI benefits 
until the date the Secretary

[[Page 99]]

grants a discharge under this section, the processing of the borrower's 
loan discharge request will be suspended until the borrower ensures that 
the full amount of the disbursement has been returned to the loan holder 
or to the Secretary, as applicable.
    (5) Receipt of new title IV loans or TEACH Grants after the date of 
the physician's certification or after the date the Secretary received 
the SSA notice of award for SSDI or SSI benefits. If a borrower receives 
a disbursement of a new title IV loan or receives a new TEACH Grant made 
on or after the date the physician certified the borrower's discharge 
application or the date the Secretary received the SSA notice of award 
for SSDI or SSI benefits and before the date the Secretary grants a 
discharge under this section, the Secretary denies the borrower's 
discharge request and collection resumes on the borrower's loans.
    (6) Conditions for reinstatement of a loan after a total and 
permanent disability discharge. (i) The Secretary reinstates the 
borrower's obligation to repay a loan that was discharged in accordance 
with paragraph (c)(3)(iii) of this section if, within three years after 
the date the Secretary granted the discharge, the borrower--
    (A) Has annual earnings from employment that exceed 100 percent of 
the poverty guideline for a family of two, as published annually by the 
United States Department of Health and Human Services pursuant to 42 
U.S.C. 9902(2);
    (B) Receives a new TEACH Grant or a new loan under the Perkins or 
Direct Loan programs, except for a Direct Consolidation Loan that 
includes loans that were not discharged; or
    (C) Fails to ensure that the full amount of any disbursement of a 
title IV loan or TEACH Grant received prior to the discharge date that 
is made is returned to the loan holder or to the Secretary, as 
applicable, within 120 days of the disbursement date; or
    (D) Receives a notice from the SSA indicating that the borrower is 
no longer disabled or that the borrower's continuing disability review 
will no longer be the five- to seven-year period indicated in the SSA 
notice of award for SSDI or SSI benefits.
    (ii) If the borrower's obligation to repay a loan is reinstated, the 
Secretary--
    (A) Notifies the borrower that the borrower's obligation to repay 
the loan has been reinstated;
    (B) Returns the loan to the status that would have existed if the 
total and permanent disability discharge application had not been 
received; and
    (C) Does not require the borrower to pay interest on the loan for 
the period from the date the loan was discharged until the date the 
borrower's obligation to repay the loan was reinstated.
    (iii) The Secretary's notification under paragraph (c)(6)(ii)(A) of 
this section will include--
    (A) The reason or reasons for the reinstatement;
    (B) An explanation that the first payment due date on the loan 
following reinstatement will be no earlier than 60 days after the date 
of the notification of reinstatement; and
    (C) Information on how the borrower may contact the Secretary if the 
borrower has questions about the reinstatement or believes that the 
obligation to repay the loan was reinstated based on incorrect 
information.
    (7) Borrower's responsibilities after a total and permanent 
disability discharge. During the three-year period described in 
paragraph (c)(6)(i) of this section, the borrower must--
    (i) Promptly notify the Secretary of any changes in the borrower's 
address or phone number;
    (ii) Promptly notify the Secretary if the borrower's annual earnings 
from employment exceed the amount specified in paragraph (c)(6)(i)(A) of 
this section;
    (iii) Provide the Secretary, upon request, with documentation of the 
borrower's annual earnings from employment, on a form approved by the 
Secretary; or
    (iv) Promptly notify the Secretary if the borrower receives a notice 
from the SSA indicating that the borrower is no longer disabled or that 
the borrower's continuing disability review will no longer be the five- 
to seven-year period indicated in the SSA notice of award for SSDI or 
SSI benefits.
    (8) Lender and guaranty agency actions. (i) If the Secretary 
approves the

[[Page 100]]

borrower's total and permanent disability discharge application--
    (A) The lender must submit a disability claim to the guaranty 
agency, in accordance with paragraph (g)(1) of this section;
    (B) If the claim satisfies the requirements of paragraph (g)(1) of 
this section and Sec. 682.406, the guaranty agency must pay the claim 
submitted by the lender;
    (C) After receiving a claim payment from the guaranty agency, the 
lender must return to the sender any payments received by the lender 
after the date the physician certified the borrower's loan discharge 
application or after the date the Secretary received the SSA notice of 
award for SSDI or SSI benefits as well as any payments received after 
claim payment from or on behalf of the borrower;
    (D) The Secretary reimburses the guaranty agency for a disability 
claim paid to the lender after the agency pays the claim to the lender; 
and
    (E) The guaranty agency must assign the loan to the Secretary within 
45 days of the date the guaranty agency pays the disability claim and 
receives the reimbursement payment, or within 45 days of the date the 
guaranty agency receives the notice described in paragraph (c)(3)(iii) 
of this section if a guaranty agency is the lender.
    (ii) If the Secretary does not approve the borrower's total and 
permanent disability discharge request, the lender must resume 
collection of the loan and is deemed to have exercised forbearance of 
payment of both principal and interest from the date collection activity 
was suspended. The lender may capitalize, in accordance with 
Sec. 682.202(b), any interest accrued and not paid during that period, 
except if the lender is a guaranty agency it may not capitalize accrued 
interest.
    (9) Discharge application process for veterans who are totally and 
permanently disabled as described in paragraph (2) of the definition of 
that term in Sec. 682.200(b)--(i) General. If a veteran notifies the 
lender that the veteran claims to be totally and permanently disabled as 
described in paragraph (2) of the definition of that term in 
Sec. 682.200(b), the lender must direct the veteran to notify the 
Secretary of the veteran's intent to submit an application for a total 
and permanent disability discharge and provide the veteran with the 
information needed for the veteran to apply for a total and permanent 
disability discharge to the Secretary.
    (ii) If the veteran notifies the Secretary of the veteran's intent 
to apply for a total and permanent disability discharge, the Secretary--
    (A) Provides the veteran with information needed for the veteran to 
apply for a total and permanent disability discharge;
    (B) Identifies all title IV loans owed by the veteran and notifies 
the lenders of the veteran's intent to apply for a total and permanent 
disability discharge;
    (C) Directs the lenders to suspend efforts to collect from the 
veteran for a period not to exceed 120 days; and
    (D) Informs the veteran that the suspension of collection activity 
described in paragraph (c)(9)(ii)(C) of this section will end after 120 
days and the lender will resume collection on the loans if the veteran 
does not submit a total and permanent disability discharge application 
to the Secretary within that time.
    (iii) If the veteran fails to submit an application for a total and 
permanent disability discharge to the Secretary within 120 days, 
collection resumes on the veteran's title IV loans and the lender is 
deemed to have exercised forbearance of principal and interest from the 
date it suspended collection activity. The lender may capitalize, in 
accordance with Sec. 682.202(b), any interest accrued and not paid 
during that period, except that if the lender is a guaranty agency it 
may not capitalize accrued interest.
    (iv) The veteran must submit to the Secretary an application for a 
total and permanent disability discharge on a form approved by the 
Secretary.
    (v) The application must be accompanied by documentation from the 
Department of Veterans Affairs showing that the Department of Veterans 
Affairs has determined that the veteran is unemployable due to a 
service-connected disability. The veteran will not be required to 
provide any additional documentation related to the veteran's 
disability.

[[Page 101]]

    (vi) After the Secretary receives the application and supporting 
documentation described in paragraphs (c)(9)(iv) and (c)(9)(v) of this 
section, the Secretary notifies the holders of the veteran's title IV 
loans, that the Secretary has received a total and permanent disability 
discharge application from the veteran. The holders of the loans must 
notify the applicable guaranty agencies that the total and permanent 
disability discharge application has been received.
    (vii) If the application is incomplete, the Secretary notifies the 
veteran of the missing information and requests the missing information 
from the veteran or the veteran's representative. The Secretary does not 
make a determination of eligibility until the application is complete.
    (viii) The lender notification described in paragraph (c)(9)(vi) of 
this section directs the lenders to suspend collection activity or 
maintain the suspension of collection activity on the veteran's title IV 
loans.
    (ix) After the Secretary receives the disability discharge 
application, the Secretary sends a notice to the veteran that--
    (A) States that the application will be reviewed by the Secretary;
    (B) Informs the veteran that the veteran's lenders will suspend 
collection activity on the veteran's title IV loans while the Secretary 
reviews the veteran's application for a discharge; and
    (C) Explains the process for the Secretary's review of total and 
permanent disability discharge applications.
    (x) After making a determination that the veteran is totally and 
permanently disabled as described in paragraph (2) of the definition of 
that term in Sec. 682.200(b), the Secretary notifies the veteran and the 
veteran's lenders that the application for a disability discharge has 
been approved. With this notification, the Secretary provides the 
effective date of the determination and directs each lender to submit a 
disability claim to the guaranty agency.
    (xi) If the Secretary determines, based on a review of the 
documentation from the Department of Veterans Affairs, that the veteran 
is not totally and permanently disabled as described in paragraph (2) of 
the definition of that term in Sec. 682.200(b), the Secretary notifies 
the veteran and the lender that the application for a disability 
discharge has been denied. The notification includes--
    (A) The reason or reasons for the denial;
    (B) An explanation that the loan is due and payable to the lender 
under the terms of the promissory note and that the loan will return to 
the status it was in at the time the veteran applied for a total and 
permanent disability discharge;
    (C) An explanation that the lender will notify the veteran of the 
date the veteran must resume making payments on the loan;
    (D) An explanation that the veteran is not required to submit a new 
total and permanent disability discharge application if the veteran 
requests that the Secretary re-evaluate the application for discharge by 
providing, within 12 months of the date of the notification, additional 
documentation from the Department of Veterans Affairs that supports the 
veteran's eligibility for discharge; and
    (E) Information on how the veteran may reapply for a total and 
permanent disability discharge in accordance with procedures described 
in paragraphs (c)(2) through (c)(8) of this section, if the 
documentation from the Department of Veterans Affairs does not indicate 
that the veteran is totally and permanently disabled as described in 
paragraph (2) of the definition of that term in Sec. 682.200(b), but 
indicates that the veteran may be totally and permanently disabled as 
described in paragraph (1) of the definition of that term.
    (xii)(A) If the Secretary approves the veteran's total and permanent 
disability discharge application based on documentation from the 
Department of Veterans Affairs the lender must submit a disability claim 
to the guaranty agency, in accordance with paragraph (g)(1) of this 
section.
    (B) If the claim meets the requirements of paragraph (g)(1) of this 
section and Sec. 682.406, the guaranty agency must pay the claim and 
discharge the loan.
    (C) The Secretary reimburses the guaranty agency for a disability 
claim

[[Page 102]]

after the agency pays the claim to the lender.
    (D) Upon receipt of the claim payment from the guaranty agency, the 
lender returns any payments received by the lender on or after the 
effective date of the determination by the Department of Veterans 
Affairs to the person who made the payments.
    (E) If the Secretary does not approve the veteran's total and 
permanent disability discharge application based on documentation from 
the Department of Veterans Affairs, the lender must resume collection 
and is deemed to have exercised forbearance of payment of both principal 
and interest from the date collection activity was suspended. The lender 
may capitalize, in accordance with Sec. 682.202(b), any interest accrued 
and not paid during that period, except that if the lender is a guaranty 
agency it may not capitalize accrued interest.
    (d) Closed school--(1) General. (i) The Secretary reimburses the 
holder of a loan received by a borrower on or after January 1, 1986, and 
discharges the borrower's obligation with respect to the loan in 
accordance with the provisions of paragraph (d) of this section, if the 
borrower (or the student for whom a parent received a PLUS loan) could 
not complete the program of study for which the loan was intended 
because the school at which the borrower (or student) was enrolled 
closed, or the borrower (or student) withdrew from the school not more 
than 120 days prior to the date the school closed. The Secretary may 
extend the 120-day period if the Secretary determines that exceptional 
circumstances related to a school's closing justify an extension. 
Exceptional circumstances for this purpose may include, but are not 
limited to: the school's loss of accreditation; the school's 
discontinuation of the majority of its academic programs; action by the 
State to revoke the school's license to operate or award academic 
credentials in the State; or a finding by a State or Federal government 
agency that the school violated State or Federal law.
    (ii) For purposes of the closed school discharge authorized by this 
section--
    (A) A school's closure date is the date that the school ceases to 
provide educational instruction in all programs, as determined by the 
Secretary;
    (B) The term ``borrower'' includes all endorsers on a loan; and
    (C) A ``school'' means a school's main campus or any location or 
branch of the main campus, regardless of whether the school or its 
location or branch is considered eligible.
    (2) Relief available pursuant to discharge. (i) Discharge under 
paragraph (d) of this section relieves the borrower of an existing or 
past obligation to repay the loan and any charges imposed or costs 
incurred by the holder with respect to the loan that the borrower is, or 
was otherwise obligated to pay.
    (ii) A discharge of a loan under paragraph (d) of this section 
qualifies the borrower for reimbursement of amounts paid voluntarily or 
through enforced collection on a loan obligation discharged under 
paragraph (d) of this section.
    (iii) A borrower who has defaulted on a loan discharged under 
paragraph (d) of this section is not regarded as in default on the loan 
after discharge, and is eligible to receive assistance under the Title 
IV, HEA programs.
    (iv) A discharge of a loan under paragraph (d) of this section must 
be reported by the loan holder to all credit reporting agencies to which 
the holder previously reported the status of the loan, so as to delete 
all adverse credit history assigned to the loan.
    (3) Borrower qualification for discharge. Except as provided in 
paragraph (d)(8) of this section, in order to qualify for a discharge of 
a loan under paragraph (d) of this section, a borrower must submit a 
written request and sworn statement to the holder of the loan. The 
statement need not be notarized, but must be made by the borrower under 
the penalty of perjury, and, in the statement, the borrower must state--
    (i) Whether the student has made a claim with respect to the 
school's closing with any third party, such as the holder of a 
performance bond or a tuition recovery program, and if so, the amount of 
any payment received by the borrower (or student) or credited to the 
borrower's loan obligation;

[[Page 103]]

    (ii) That the borrower (or the student for whom a parent received a 
PLUS loan)--
    (A) Received, on or after January 1, 1986, the proceeds of any 
disbursement of a loan disbursed, in whole or in part, on or after 
January 1, 1986 to attend a school;
    (B) Did not complete the educational program at that school because 
the school closed while the student was enrolled or on an approved leave 
of absence in accordance with Sec. 682.605(c), or the student withdrew 
from the school not more than 120 days before the school closed; and
    (C) Did not complete the program of study through a teach-out at 
another school or by transferring academic credits or hours earned at 
the closed school to another school;
    (iii) That the borrower agrees to provide, upon request by the 
Secretary or the Secretary's designee, other documentation reasonably 
available to the borrower that demonstrates, to the satisfaction of the 
Secretary or the Secretary's designee, that the student meets the 
qualifications in paragraph (d) of this section; and
    (iv) That the borrower agrees to cooperate with the Secretary or the 
Secretary's designee in enforcement actions in accordance with paragraph 
(d)(4) of this section, and to transfer any right to recovery against a 
third party in accordance with paragraph (d)(5) of this section.
    (4) Cooperation by borrower in enforcement actions. (i) In any 
judicial or administrative proceeding brought by the Secretary or the 
Secretary's designee to recover for amounts discharged under paragraph 
(d) of this section or to take other enforcement action with respect to 
the conduct on which those claims were based, a borrower who requests or 
receives a discharge under paragraph (d) of this section must cooperate 
with the Secretary or the Secretary's designee. At the request of the 
Secretary or the Secretary's designee, and upon the Secretary's or the 
Secretary's designee's tendering to the borrower the fees and costs as 
are customarily provided in litigation to reimburse witnesses, the 
borrower shall--
    (A) Provide testimony regarding any representation made by the 
borrower to support a request for discharge; and
    (B) Produce any documentation reasonably available to the borrower 
with respect to those representations and any sworn statement required 
by the Secretary with respect to those representations and documents.
    (ii) The Secretary revokes the discharge, or denies the request for 
discharge, of a borrower who--
    (A) Fails to provide testimony, sworn statements, or documentation 
to support material representations made by the borrower to obtain the 
discharge; or
    (B) Provides testimony, a sworn statement, or documentation that 
does not support the material representations made by the borrower to 
obtain the discharge.
    (5) Transfer to the Secretary of borrower's right of recovery 
against third parties. (i) Upon discharge under paragraph (d) of this 
section, the borrower is deemed to have assigned to and relinquished in 
favor of the Secretary any right to a loan refund (up to the amount 
discharged) that the borrower (or student) may have by contract or 
applicable law with respect to the loan or the enrollment agreement for 
the program for which the loan was received, against the school, its 
principals, affiliates and their successors, its sureties, and any 
private fund, including the portion of a public fund that represents 
funds received from a private party.
    (ii) The provisions of paragraph (d) of this section apply 
notwithstanding any provision of State law that would otherwise restrict 
transfer of such rights by the borrower (or student), limit or prevent a 
transferee from exercising those rights, or establish procedures or a 
scheme of distribution that would prejudice the Secretary's ability to 
recover on those rights.
    (iii) Nothing in this section shall be construed as limiting or 
foreclosing the borrower's (or student's) right to pursue legal and 
equitable relief regarding disputes arising from matters otherwise 
unrelated to the loan discharged.
    (6) Guaranty agency responsibilities--(i) Procedures applicable if a 
school closed on or after January 1, 1986, but prior to

[[Page 104]]

June 13, 1994. (A) If a borrower received a loan for attendance at a 
school with a closure date on or after January 1, 1986, but prior to 
June 13, 1994, the loan may be discharged in accordance with the 
procedures specified in paragraph (d)(6)(i) of this section.
    (B) If a loan subject to paragraph (d) of this section was 
discharged in part in accordance with the Secretary's ``Closed School 
Policy'' as authorized by section IV of Bulletin 89-G-159, the guaranty 
agency shall initiate the discharge of the remaining balance of the loan 
not later than August 13, 1994.
    (C) A guaranty agency shall review its records and identify all 
schools that appear to have closed on or after January 1, 1986 and prior 
to June 13, 1994, and shall identify the loans made to any borrower (or 
student) who appears to have been enrolled at the school on the school 
closure date or who withdrew not more than 120 days prior to the closure 
date.
    (D) A guaranty agency shall notify the Secretary immediately if it 
determines that a school not previously known to have closed appears to 
have closed, and, within 30 days of making that determination, notify 
all lenders participating in its program to suspend collection efforts 
against individuals with respect to loans made for attendance at the 
closed school, if the student to whom (or on whose behalf) a loan was 
made, appears to have been enrolled at the school on the closing date, 
or withdrew not more than 120 days prior to the date the school appears 
to have closed. Within 30 days after receiving confirmation of the date 
of a school's closure from the Secretary, the agency shall--
    (1) Notify all lenders participating in its program to mail a 
discharge application explaining the procedures and eligibility criteria 
for obtaining a discharge and an explanation of the information that 
must be included in the sworn statement (which may be combined) to all 
borrowers who may be eligible for a closed school discharge; and
    (2) Review the records of loans that it holds, identify the loans 
made to any borrower (or student) who appears to have been enrolled at 
the school on the school closure date or who withdrew not more than 120 
days prior to the closure date, and mail a discharge application and an 
explanation of the information that must be included in the sworn 
statement (which may be combined) to the borrower. The application shall 
inform the borrower of the procedures and eligibility criteria for 
obtaining a discharge.
    (E) If a loan identified under paragraph (d)(6)(i)(D)(2) of this 
section is held by the guaranty agency as a defaulted loan and the 
borrower's current address is known, the guaranty agency shall 
immediately suspend any efforts to collect from the borrower on any loan 
received for the program of study for which the loan was made (but may 
continue to receive borrower payments), and notify the borrower that the 
agency will provide additional information about the procedures for 
requesting a discharge after the agency has received confirmation from 
the Secretary that the school had closed.
    (F) If a loan identified under paragraph (d)(6)(i)(D)(2) of this 
section is held by the guaranty agency as a defaulted loan and the 
borrower's current address is unknown, the agency shall, by June 13, 
1995, further refine the list of borrowers whose loans are potentially 
subject to discharge under paragraph (d) of this section by consulting 
with representatives of the closed school, the school's licensing 
agency, accrediting agency, and other appropriate parties. Upon learning 
the new address of a borrower who would still be considered potentially 
eligible for a discharge, the guaranty agency shall, within 30 days 
after learning the borrower's new address, mail to the borrower a 
discharge application that meets the requirements of paragraph 
(d)(6)(i)(E) of this section.
    (G) If the guaranty agency determines that a borrower identified in 
paragraph (d)(6)(i)(E) or (F) of this section has satisfied all of the 
conditions required for a discharge, the agency shall notify the 
borrower in writing of that determination within 30 days after making 
that determination.
    (H) If the guaranty agency determines that a borrower identified in 
paragraph (d)(6)(i)(E) or (F) of this section does not qualify for a 
discharge, the agency shall notify the borrower in writing of that 
determination and the

[[Page 105]]

reasons for it within 30 days after the date the agency--
    (1) Made that determination based on information available to the 
guaranty agency;
    (2) Was notified by the Secretary that the school had not closed;
    (3) Was notified by the Secretary that the school had closed on a 
date that was more than 120 days after the borrower (or student) 
withdrew from the school;
    (4) Was notified by the Secretary that the borrower (or student) was 
ineligible for a closed school discharge for other reasons; or
    (5) Received the borrower's completed application and sworn 
statement.
    (I) If a borrower described in paragraph (d)(6)(i)(E) or (F) of this 
section fails to submit the written request and sworn statement 
described in paragraph (d)(3) of this section within 60 days of being 
notified of that option, the guaranty agency shall resume collection and 
shall be deemed to have exercised forbearance of payment of principal 
and interest from the date it suspended collection activity. The agency 
may capitalize, in accordance with Sec. 682.202(b), any interest accrued 
and not paid during that period.
    (J) A borrower's request for discharge may not be denied solely on 
the basis of failing to meet any time limits set by the lender, guaranty 
agency, or the Secretary.
    (ii) Procedures applicable if a school closed on or after June 13, 
1994. (A) A guaranty agency shall notify the Secretary immediately 
whenever it becomes aware of reliable information indicating a school 
may have closed. The designated guaranty agency in the state in which 
the school is located shall promptly investigate whether the school has 
closed and, within 30 days after receiving information indicating that 
the school may have closed, report the results of its investigation to 
the Secretary concerning the date of the school's closure and whether a 
teach-out of the closed school's program was made available to students.
    (B) If a guaranty agency determines that a school appears to have 
closed, it shall, within 30 days of making that determination, notify 
all lenders participating in its program to suspend collection efforts 
against individuals with respect to loans made for attendance at the 
closed school, if the student to whom (or on whose behalf) a loan was 
made, appears to have been enrolled at the school on the closing date, 
or withdrew not more than 120 days prior to the date the school appears 
to have closed. Within 30 days after receiving confirmation of the date 
of a school's closure from the Secretary, the agency shall--
    (1) Notify all lenders participating in its program to mail a 
discharge application explaining the procedures and eligibility criteria 
for obtaining a discharge and an explanation of the information that 
must be included in the sworn statement (which may be combined) to all 
borrowers who may be eligible for a closed school discharge; and
    (2) Review the records of loans that it holds, identify the loans 
made to any borrower (or student) who appears to have been enrolled at 
the school on the school closure date or who withdrew not more than 120 
days prior to the closure date, and mail a discharge application and an 
explanation of the information that must be included in the sworn 
statement (which may be combined) to the borrower. The application shall 
inform the borrower of the procedures and eligibility criteria for 
obtaining a discharge.
    (C) If a loan identified under paragraph (d)(6)(ii)(B)(2) of this 
section is held by the guaranty agency as a defaulted loan and the 
borrower's current address is known, the guaranty agency shall 
immediately suspend any efforts to collect from the borrower on any loan 
received for the program of study for which the loan was made (but may 
continue to receive borrower payments), and notify the borrower that the 
agency will provide additional information about the procedures for 
requesting a discharge after the agency has received confirmation from 
the Secretary that the school had closed.
    (D) If a loan identified under paragraph (d)(6)(ii)(B)(2) of this 
section is held by the guaranty agency as a defaulted loan and the 
borrower's current address is unknown, the agency shall, within one year 
after identifying the

[[Page 106]]

borrower, attempt to locate the borrower and further determine the 
borrower's potential eligibility for a discharge under paragraph (d) of 
this section by consulting with representatives of the closed school, 
the school's licensing agency, accrediting agency, and other appropriate 
parties. Upon learning the new address of a borrower who would still be 
considered potentially eligible for a discharge, the guaranty agency 
shall, within 30 days after learning the borrower's new address, mail to 
the borrower a discharge application that meets the requirements of 
paragraph (d)(6)(ii)(B) of this section.
    (E) If the guaranty agency determines that a borrower identified in 
paragraph (d)(6)(ii)(C) or (D) of this section has satisfied all of the 
conditions required for a discharge, the agency shall notify the 
borrower in writing of that determination within 30 days after making 
that determination.
    (F) If the guaranty agency determines that a borrower identified in 
paragraph (d)(6)(ii)(C) or (D) of this section does not qualify for a 
discharge, the agency shall notify the borrower in writing of that 
determination and the reasons for it within 30 days after the date the 
agency--
    (1) Made that determination based on information available to the 
guaranty agency;
    (2) Was notified by the Secretary that the school had not closed;
    (3) Was notified by the Secretary that the school had closed on a 
date that was more than 120 days after the borrower (or student) 
withdrew from the school;
    (4) Was notified by the Secretary that the borrower (or student) was 
ineligible for a closed school discharge for other reasons; or
    (5) Received the borrower's completed application and sworn 
statement.
    (G) Upon receipt of a closed school discharge claim filed by a 
lender, the agency shall review the borrower's request and supporting 
sworn statement in light of information available from the records of 
the agency and from other sources, including other guaranty agencies, 
state authorities, and cognizant accrediting associations, and shall 
take the following actions--
    (1) If the agency determines that the borrower satisfies the 
requirements for discharge under paragraph (d) of this section, it shall 
pay the claim in accordance with Sec. 682.402(h) not later than 90 days 
after the agency received the claim; or
    (2) If the agency determines that the borrower does not qualify for 
a discharge, the agency shall, not later than 90 days after the agency 
received the claim, return the claim to the lender with an explanation 
of the reasons for its determination.
    (H) If a borrower fails to submit the written request and sworn 
statement described in paragraph (d)(3) of this section within 60 days 
of being notified of that option, the lender or guaranty agency shall 
resume collection and shall be deemed to have exercised forbearance of 
payment of principal and interest from the date it suspended collection 
activity. The lender or guaranty agency may capitalize, in accordance 
with Sec. 682.202(b), any interest accrued and not paid during that 
period.
    (I) A borrower's request for discharge may not be denied solely on 
the basis of failing to meet any time limits set by the lender, guaranty 
agency, or the Secretary.
    (7) Lender responsibilities. (i) A lender shall comply with the 
requirements prescribed in paragraph (d) of this section. In the absence 
of specific instructions from a guaranty agency or the Secretary, if a 
lender receives information from a source it believes to be reliable 
indicating that an existing or former borrower may be eligible for a 
loan discharge under paragraph (d) of this section, the lender shall 
immediately notify the guaranty agency, and suspend any efforts to 
collect from the borrower on any loan received for the program of study 
for which the loan was made (but may continue to receive borrower 
payments).
    (ii) If the borrower fails to submit the written request and sworn 
statement described in paragraph (d)(3) of this section within 60 days 
after being notified of that option, the lender shall resume collection 
and shall be deemed to have exercised forbearance of payment of 
principal and interest from the date the lender suspended collection 
activity. The lender may capitalize, in

[[Page 107]]

accordance with Sec. 682.202(b), any interest accrued and not paid 
during that period.
    (iii) The lender shall file a closed school claim with the guaranty 
agency in accordance with Sec. 682.402(g) no later than 60 days after 
the lender receives the borrower's written request and sworn statement 
described in paragraph (d)(3) of this section. If a lender receives a 
payment made by or on behalf of the borrower on the loan after the 
lender files a claim on the loan with the guaranty agency, the lender 
shall forward the payment to the guaranty agency within 30 days of its 
receipt. The lender shall assist the guaranty agency and the borrower in 
determining whether the borrower is eligible for discharge of the loan.
    (iv) Within 30 days after receiving reimbursement from the guaranty 
agency for a closed school claim, the lender shall notify the borrower 
that the loan obligation has been discharged, and request that all 
consumer reporting agencies to which it previously reported the status 
of the loan delete all adverse credit history assigned to the loan.
    (v) Within 30 days after being notified by the guaranty agency that 
the borrower's request for a closed school discharge has been denied, 
the lender shall resume collection and notify the borrower of the 
reasons for the denial. The lender shall be deemed to have exercised 
forbearance of payment of principal and interest from the date the 
lender suspended collection activity, and may capitalize, in accordance 
with Sec. 682.202(b), any interest accrued and not paid during that 
period.
    (8) Discharge without an application. A borrower's obligation to 
repay an FFEL Program loan may be discharged without an application from 
the borrower if the--
    (i) Borrower received a discharge on a loan pursuant to 34 CFR 
674.33(g) under the Federal Perkins Loan Program, or 34 CFR 685.214 
under the William D. Ford Federal Direct Loan Program; or
    (ii) The Secretary or the guaranty agency, with the Secretary's 
permission, determines that the borrower qualifies for a discharge based 
on information in the Secretary or guaranty agency's possession.
    (e) False certification by a school of a student's eligibility to 
borrow and unauthorized disbursements--(1) General. (i) The Secretary 
reimburses the holder of a loan received by a borrower on or after 
January 1, 1986, and discharges a current or former borrower's 
obligation with respect to the loan in accordance with the provisions of 
paragraph (e) of this section, if the borrower's (or the student for 
whom a parent received a PLUS loan) eligibility to receive the loan was 
falsely certified by an eligible school. On or after July 1, 2006, the 
Secretary reimburses the holder of a loan, and discharges a borrower's 
obligation with respect to the loan in accordance with the provisions of 
paragraph (e) of this section, if the borrower's eligibility to receive 
the loan was falsely certified as a result of a crime of identity theft. 
For purposes of a false certification discharge, the term ``borrower'' 
includes all endorsers on a loan. A student's or other individual's 
eligibility to borrow shall be considered to have been falsely certified 
by the school if the school--
    (A) Certified the student's eligibility for a FFEL Program loan on 
the basis of ability to benefit from its training and the student did 
not meet the applicable requirements described in 34 CFR part 668 and 
section 484(d) of the Act, as applicable and as described in paragraph 
(e)(13) of this section; or
    (B) Signed the borrower's name without authorization by the borrower 
on the loan application or promissory note.
    (C) Certified the eligibility of an individual for an FFEL Program 
loan as a result of the crime of identity theft committed against the 
individual, as that crime is defined in Sec. 682.402(e)(14).
    (ii) The Secretary discharges the obligation of a borrower with 
respect to a loan disbursement for which the school, without the 
borrower's authorization, endorsed the borrower's loan check or 
authorization for electronic funds transfer, unless the student for whom 
the loan was made received the proceeds of the loan either by actual 
delivery of the loan funds or by a credit in the amount of the contested 
disbursement applied to charges owed to

[[Page 108]]

the school for that portion of the educational program completed by the 
student. However, the Secretary does not reimburse the lender with 
respect to any amount disbursed by means of a check bearing an 
unauthorized endorsement unless the school also executed the application 
or promissory note for that loan for the named borrower without that 
individual's consent.
    (iii) If a loan was made as a result of the crime of identity theft 
that was committed by an employee or agent of the lender, or if at the 
time the loan was made, an employee or agent of the lender knew of the 
identity theft of the individual named as the borrower--
    (A) The Secretary does not pay reinsurance, and does not reimburse 
the holder, for any amount disbursed on the loan; and
    (B) Any amounts received by a holder as interest benefits and 
special allowance payments with respect to the loan must be refunded to 
the Secretary, as provided in paragraphs (e)(8)(ii)(B)(4) and 
(e)(10)(ii)(D) of this section.
    (2) Relief available pursuant to discharge. (i) Discharge under 
paragraph (e)(1)(i) of this section relieves the borrower of an existing 
or past obligation to repay the loan certified by the school, and any 
charges imposed or costs incurred by the holder with respect to the loan 
that the borrower is, or was, otherwise obligated to pay.
    (ii) A discharge of a loan under paragraph (e) of this section 
qualifies the borrower for reimbursement of amounts paid voluntarily or 
through enforced collection on a loan obligation discharged under 
paragraph (e) of this section.
    (iii) A borrower who has defaulted on a loan discharged under 
paragraph (e) of this section is not regarded as in default on the loan 
after discharge, and is eligible to receive assistance under the Title 
IV, HEA programs.
    (iv) A discharge of a loan under paragraph (e) of this section is 
reported by the loan holder to all credit reporting agencies to which 
the holder previously reported the status of the loan, so as to delete 
all adverse or inaccurate credit history assigned to the loan.
    (v) Discharge under paragraph (e)(1)(ii) of this section qualifies 
the borrower for relief only with respect to the amount of the 
disbursement discharged.
    (3) Borrower qualification for discharge. Except as provided in 
paragraph (e)(15) of this section, to qualify for a discharge of a loan 
under paragraph (e) of this section, the borrower must submit to the 
holder of the loan a written request and a sworn statement. The 
statement need not be notarized, but must be made by the borrower under 
penalty of perjury, and, in the statement, the borrower must--
    (i) State whether the student has made a claim with respect to the 
school's false certification with any third party, such as the holder of 
a performance bond or a tuition recovery program, and if so, the amount 
of any payment received by the borrower (or student) or credited to the 
borrower's loan obligation;
    (ii) In the case of a borrower requesting a discharge based on 
defective testing of the student's ability to benefit, state that the 
borrower (or the student for whom a parent received a PLUS loan)--
    (A) Received, on or after January 1, 1986, the proceeds of any 
disbursement of a loan disbursed, in whole or in part, on or after 
January 1, 1986 to attend a school; and
    (B) Was admitted to that school on the basis of ability to benefit 
from its training and did not meet the applicable requirements for 
admission on the basis of ability to benefit as described in paragraph 
(e)(13) of this section;
    (iii) In the case of a borrower requesting a discharge because the 
school signed the borrower's name on the loan application or promissory 
note--
    (A) State that the signature on either of those documents was not 
the signature of the borrower; and
    (B) Provide five different specimens of his or her signature, two of 
which must be not earlier or later than one year before or after the 
date of the contested signature;
    (iv) In the case of a borrower requesting a discharge because the 
school, without authorization of the borrower, endorsed the borrower's 
name on the loan check or signed the authorization for electronic funds 
transfer or master check, the borrower shall--

[[Page 109]]

    (A) Certify that he or she did not endorse the loan check or sign 
the authorization for electronic funds transfer or master check, or 
authorize the school to do so;
    (B) Provide five different specimens of his or her signature, two of 
which must be not earlier or later than one year before or after the 
date of the contested signature; and
    (C) State that the proceeds of the contested disbursement were not 
received either through actual delivery of the loan funds or by a credit 
in the amount of the contested disbursement applied to charges owed to 
the school for that portion of the educational program completed by the 
student;
    (v) In the case of an individual who is requesting a discharge of a 
loan because the individual's eligibility was falsely certified as a 
result of a crime of identity theft committed against the individual--
    (A) Certify that the individual did not sign the promissory note, or 
that any other means of identification used to obtain the loan was used 
without the authorization of the individual claiming relief;
    (B) Certify that the individual did not receive or benefit from the 
proceeds of the loan with knowledge that the loan had been made without 
the authorization of the individual;
    (C) Provide a copy of a local, State, or Federal court verdict or 
judgment that conclusively determines that the individual who is named 
as the borrower of the loan was the victim of a crime of identity theft 
by a perpetrator named in the verdict or judgment;
    (D) If the judicial determination of the crime does not expressly 
state that the loan was obtained as a result of the crime, provide--
    (1) Authentic specimens of the signature of the individual, as 
provided in paragraph (e)(3)(iii)(B), or other means of identification 
of the individual, as applicable, corresponding to the means of 
identification falsely used to obtain the loan; and
    (2) A statement of facts that demonstrate, to the satisfaction of 
the Secretary, that eligibility for the loan in question was falsely 
certified as a result of the crime of identity theft committed against 
that individual.
    (vi) That the borrower agrees to provide upon request by the 
Secretary or the Secretary's designee, other documentation reasonably 
available to the borrower, that demonstrates, to the satisfaction of the 
Secretary or the Secretary's designee, that the student meets the 
qualifications in paragraph (e) of this section; and
    (vii) That the borrower agrees to cooperate with the Secretary or 
the Secretary's designee in enforcement actions in accordance with 
paragraph (e)(4) of this section, and to transfer any right to recovery 
against a third party in accordance with paragraph (e)(5) of this 
section.
    (4) Cooperation by borrower in enforcement actions. (i) In any 
judicial or administrative proceeding brought by the Secretary or the 
Secretary's designee to recover for amounts discharged under paragraph 
(e) of this section or to take other enforcement action with respect to 
the conduct on which those claims were based, a borrower who requests or 
receives a discharge under paragraph (e) of this section must cooperate 
with the Secretary or the Secretary's designee. At the request of the 
Secretary or the Secretary's designee, and upon the Secretary's or the 
Secretary's designee's tendering to the borrower the fees and costs as 
are customarily provided in litigation to reimburse witnesses, the 
borrower shall--
    (A) Provide testimony regarding any representation made by the 
borrower to support a request for discharge; and
    (B) Produce any documentation reasonably available to the borrower 
with respect to those representations and any sworn statement required 
by the Secretary with respect to those representations and documents.
    (ii) The Secretary revokes the discharge, or denies the request for 
discharge, of a borrower who--
    (A) Fails to provide testimony, sworn statements, or documentation 
to support material representations made by the borrower to obtain the 
discharge; or
    (B) Provides testimony, a sworn statement, or documentation that 
does not support the material representations made by the borrower to 
obtain the discharge.

[[Page 110]]

    (5) Transfer to the Secretary of borrower's right of recovery 
against third parties. (i) Upon discharge under paragraph (e) of this 
section, the borrower is deemed to have assigned to and relinquished in 
favor of the Secretary any right to a loan refund (up to the amount 
discharged) that the borrower (or student) may have by contract or 
applicable law with respect to the loan or the enrollment agreement for 
the program for which the loan was received, against the school, its 
principals, affiliates and their successors, its sureties, and any 
private fund, including the portion of a public fund that represents 
funds received from a private party.
    (ii) The provisions of paragraph (e) of this section apply 
notwithstanding any provision of state law that would otherwise restrict 
transfer of such rights by the borrower (or student), limit or prevent a 
transferee from exercising those rights, or establish procedures or a 
scheme of distribution that would prejudice the Secretary's ability to 
recover on those rights.
    (iii) Nothing in this section shall be construed as limiting or 
foreclosing the borrower's (or student's) right to pursue legal and 
equitable relief regarding disputes arising from matters otherwise 
unrelated to the loan discharged.
    (6) Guaranty agency responsibilities--general. (i) A guaranty agency 
shall notify the Secretary immediately whenever it becomes aware of 
reliable information indicating that a school may have falsely certified 
a student's eligibility or caused an unauthorized disbursement of loan 
proceeds, as described in paragraph (e)(3) of this section. The 
designated guaranty agency in the state in which the school is located 
shall promptly investigate whether the school has falsely certified a 
student's eligibility and, within 30 days after receiving information 
indicating that the school may have done so, report the results of its 
preliminary investigation to the Secretary.
    (ii) If the guaranty agency receives information it believes to be 
reliable indicating that a borrower whose loan is held by the agency may 
be eligible for a discharge under paragraph (e) of this section, the 
agency shall immediately suspend any efforts to collect from the 
borrower on any loan received for the program of study for which the 
loan was made (but may continue to receive borrower payments), and 
inform the borrower of the procedures for requesting a discharge.
    (iii) If the borrower fails to submit the written request and sworn 
statement described in paragraph (e)(3) of this section within 60 days 
of being notified of that option, the guaranty agency shall resume 
collection and shall be deemed to have exercised forbearance of payment 
of principal and interest from the date it suspended collection 
activity. The agency may capitalize, in accordance with Sec. 682.202(b), 
any interest accrued and not paid during that period.
    (iv) Upon receipt of a discharge claim filed by a lender or a 
request submitted by a borrower with respect to a loan held by the 
guaranty agency, the agency shall have up to 90 days to determine 
whether the discharge should be granted. The agency shall review the 
borrower's request and supporting sworn statement in light of 
information available from the records of the agency and from other 
sources, including other guaranty agencies, state authorities, and 
cognizant accrediting associations.
    (v) A borrower's request for discharge and sworn statement may not 
be denied solely on the basis of failing to meet any time limits set by 
the lender, the Secretary or the guaranty agency.
    (7) Guaranty agency responsibilities with respect to a claim filed 
by a lender based on the borrower's assertion that he or she did not 
sign the loan application or the promissory note that he or she was a 
victim of the crime of identity theft, or that the school failed to 
test, or improperly tested, the student's ability to benefit. (i) The 
agency shall evaluate the borrower's request and consider relevant 
information it possesses and information available from other sources, 
and follow the procedures described in paragraph (e)(7) of this section.
    (ii) If the agency determines that the borrower satisfies the 
requirements for discharge under paragraph (e) of this section, it 
shall, not later than 30 days after the agency makes that determination, 
pay the claim in accordance with Sec. 682.402(h) and--

[[Page 111]]

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

[[Page 112]]

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

[[Page 113]]

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

[[Page 114]]

    (B) Report to all credit reporting agencies to which the agency 
previously reported the status of the loan, so as to delete all adverse 
credit history assigned to the loan;
    (C) Refund to the borrower all amounts paid by the borrower to the 
lender or the agency with respect to the discharged loan amount, 
including any late fees or collection charges imposed by the lender or 
agency related to the discharged loan amount;
    (D) Notify the lender to whom a claim payment was made that the 
lender must refund to the Secretary, within 30 days--
    (1) All interest benefits and special allowance payments received 
from the Secretary with respect to the loan disbursement that was 
discharged; and
    (2) The amount of the borrower's payments that were refunded to the 
borrower by the guaranty agency under paragraph (e)(10)(ii)(C) of this 
section that represent borrower payments previously paid to the lender 
with respect to the loan disbursement that was discharged;
    (E) Notify the lender to whom a claim payment was made that the 
lender must, within 30 days, reimburse the agency for the amount of the 
loan that was discharged, minus the amount of borrower payments made to 
the lender that were refunded to the borrower by the guaranty agency 
under paragraph (e)(10)(ii)(C) of this section; and
    (F) Transfer to the lender the borrower's written assignment of any 
rights the borrower may have against third parties with respect to the 
loan disbursement that was discharged.
    (iii) In the case of a borrower who requests a discharge because he 
or she did not sign the electronic funds transfer or master check 
authorization, if the agency determines that the borrower meets the 
conditions for discharge, it shall immediately terminate any collection 
efforts against the borrower with respect to the discharged loan amount 
and any charges imposed or costs incurred by the agency related to the 
discharged loan amount that the borrower is, or was, otherwise obligated 
to pay, and within 30 days after making that determination--
    (A) Notify the borrower that his or her liability with respect to 
the amount of the contested disbursement of the loan has been 
discharged;
    (B) Refund to the borrower all amounts paid by the borrower to the 
lender or the agency with respect to the discharged loan amount, 
including any late fees or collection charges imposed by the lender or 
agency related to the discharged loan amount; and
    (C) Report to all credit reporting agencies to which the lender 
previously reported the status of the loan, so as to delete all adverse 
credit history assigned to the loan.
    (iv) The agency shall take the actions required under paragraphs 
(e)(9) (iii) through (v) if the agency determines that the borrower does 
not qualify for a discharge.
    (11) Guaranty agency responsibilities if a borrower requests a 
review by the Secretary. (i) Within 30 days after receiving the 
borrower's request for review under paragraph (e)(7)(iii)(B)(2), 
(e)(8)(iv)(B)(2), (e)(9)(iii)(B), or (e)(10)(iv) of this section, the 
agency shall forward the borrower's discharge request and all relevant 
documentation to the Secretary for his review.
    (ii) The Secretary notifies the agency and the borrower of a 
determination on review. If the Secretary determines that the borrower 
is not eligible for a discharge under paragraph (e) of this section, 
within 30 days after being so informed, the agency shall take the 
actions described in paragraphs (e)(8) (iv) through (vii) or (e)(9)(iii) 
through (v) of this section, as applicable.
    (iii) If the Secretary determines that the borrower meets the 
requirements for a discharge under paragraph (e) of this section, the 
agency shall, within 30 days after being so informed, take the actions 
required under paragraph (e)(7)(ii), (e)(8)(ii), (e)(8)(iii), 
(e)(9)(ii), (e)(10)(ii), or (e)(10)(iii) of this section, as applicable.
    (12) Lender Responsibilities. (i) If the lender is notified by a 
guaranty agency or the Secretary, or receives information it believes to 
be reliable from another source indicating that a current or former 
borrower may be eligible for a discharge under paragraph (e) of this 
section, the lender shall immediately suspend any efforts to collect 
from the borrower on any loan received for the program of study for 
which the loan

[[Page 115]]

was made (but may continue to receive borrower payments) and, within 30 
days of receiving the information or notification, inform the borrower 
of the procedures for requesting a discharge.
    (ii) If the borrower fails to submit the written request and sworn 
statement described in paragraph (e)(3) of this section within 60 days 
of being notified of that option, the lender shall resume collection and 
shall be deemed to have exercised forbearance of payment of principal 
and interest from the date the lender suspended collection activity. The 
lender may capitalize, in accordance with Sec. 682.202(b), any interest 
accrued and not paid during that period.
    (iii) The lender shall file a claim with the guaranty agency in 
accordance with Sec. 682.402(g) no later than 60 days after the lender 
receives the borrower's written request and sworn statement described in 
paragraph (e)(3) of this section. If a lender receives a payment made by 
or on behalf of the borrower on the loan after the lender files a claim 
on the loan with the guaranty agency, the lender shall forward the 
payment to the guaranty agency within 30 days of its receipt. The lender 
shall assist the guaranty agency and the borrower in determining whether 
the borrower is eligible for discharge of the loan.
    (iv) The lender shall comply with all instructions received from the 
Secretary or a guaranty agency with respect to loan discharges under 
paragraph (e) of this section.
    (v) The lender shall review a claim that the borrower did not 
endorse and did not receive the proceeds of a loan check. The lender 
shall take the actions required under paragraphs (e)(8)(ii)(A) and (B) 
of this section if it determines that the borrower did not endorse the 
loan check, unless the lender secures persuasive evidence that the 
proceeds of the loan were received by the borrower or the student for 
whom the loan was made, as provided in paragraph (e)(1)(ii). If the 
lender determines that the loan check was properly endorsed or the 
proceeds were received by the borrower or student, the lender may 
consider the borrower's objection to repayment as a statement of 
intention not to repay the loan, and may file a claim with the guaranty 
agency for reimbursement on that ground, but shall not report the loan 
to consumer reporting agencies as in default until the guaranty agency, 
or, as applicable, the Secretary, reviews the claim for relief. By 
filing such a claim, the lender shall be deemed to have agreed to the 
following--
    (A) If the guarantor or the Secretary determines that the borrower 
endorsed the loan check or the proceeds of the loan were received by the 
borrower or the student, any failure to satisfy due diligence 
requirements by the lender prior to the filing of the claim that would 
have resulted in the loss of reinsurance on the loan in the event of 
default will be waived by the Secretary; and
    (B) If the guarantor or the Secretary determines that the borrower 
did not endorse the loan check and that the proceeds of the loan were 
not received by the borrower or the student, the lender will comply with 
the requirements specified in paragraph (e)(8)(ii)(B) of this section.
    (vi) Within 30 days after being notified by the guaranty agency that 
the borrower's request for a discharge has been denied, the lender shall 
notify the borrower of the reasons for the denial and, if payments are 
due, resume collection against the borrower. The lender shall be deemed 
to have exercised forbearance of payment of principal and interest from 
the date the lender suspended collection activity, and may capitalize, 
in accordance with Sec. 682.202(b), any interest accrued and not paid 
during that period.
    (13) Requirements for certifying a borrower's eligibility for a 
loan. (i) For periods of enrollment beginning between July 1, 1987 and 
June 30, 1991, a student who had a general education diploma or received 
one before the scheduled completion of the program of instruction is 
deemed to have the ability to benefit from the training offered by the 
school.
    (ii) A student not described in paragraph (e)(13)(i) of this section 
is considered to have the ability to benefit from training offered by 
the school if the student--

[[Page 116]]

    (A) For periods of enrollment beginning prior to July 1, 1987, was 
determined to have the ability to benefit from the school's training in 
accordance with the requirements of 34 CFR 668.6, as in existence at the 
time the determination was made;
    (B) For periods of enrollment beginning between July 1, 1987 and 
June 30, 1996, achieved a passing grade on a test--
    (1) Approved by the Secretary, for periods of enrollment beginning 
on or after July 1, 1991, or by the accrediting agency for other 
periods; and
    (2) Administered substantially in accordance with the requirements 
for use of the test;
    (C) Successfully completed a program of developmental or remedial 
education provided by the school; or
    (D) For periods of enrollment beginning on or after July 1, 1996 
through June 30, 2000--
    (1) Obtained, within 12 months before the date the student initially 
receives title IV, HEA program assistance, a passing score specified by 
the Secretary on an independently administered test in accordance with 
subpart J of 34 CFR part 668; or
    (2) Enrolled in an eligible institution that participates in a State 
process approved by the Secretary under subpart J of 34 CFR part 668.
    (E) For periods of enrollment beginning on or after July 1, 2000--
    (1) Met either of the conditions described in paragraph 
(e)(13)(ii)(D) of this section; or
    (2) Was home schooled and met the requirements of 34 CFR 
668.32(e)(4).
    (iii) Notwithstanding paragraphs (e)(13)(i) and (ii) of this 
section, a student did not have the ability to benefit from training 
offered by the school if--
    (A) The school certified the eligibility of the student for a FFEL 
Program loan; and
    (B) At the time of certification, the student would not meet the 
requirements for employment (in the student's State of residence) in the 
occupation for which the training program supported by the loan was 
intended because of a physical or mental condition, age, or criminal 
record or other reason accepted by the Secretary.
    (iv) Notwithstanding paragraphs (e)(13)(i) and (ii) of this section, 
a student has the ability to benefit from the training offered by the 
school if the student received a high school diploma or its recognized 
equivalent prior to enrollment at the school.
    (14) Identity theft. (i) The unauthorized use of the identifying 
information of another individual that is punishable under 18 U.S.C. 
1028, 1029, or 1030, or substantially comparable State or local law.
    (ii) Identifying information includes, but is not limited to--
    (A) Name, Social Security number, date of birth, official State or 
government issued driver's license or identification number, alien 
registration number, government passport number, and employer or 
taxpayer identification number;
    (B) Unique biometric data, such as fingerprints, voiceprint, retina 
or iris image, or unique physical representation;
    (C) Unique electronic identification number, address, or routing 
code; or
    (D) Telecommunication identifying information or access device (as 
defined in 18 U.S.C. 1029(e)).
    (15) Discharge without an application. A borrower's obligation to 
repay all or a portion of an FFEL Program loan may be discharged without 
an application from the borrower if the Secretary, or the guaranty 
agency with the Secretary's permission, determines that the borrower 
qualifies for a discharge based on information in the Secretary or 
guaranty agency's possession.
    (f) Bankruptcy--(1) General. If a borrower files a petition for 
relief under the Bankruptcy Code, the Secretary reimburses the holder of 
the loan for unpaid principal and interest on the loan in accordance 
with paragraphs (h) through (k) of this section.
    (2) Suspension of collection activity. (i) If the lender is notified 
that a borrower has filed a petition for relief in bankruptcy, the 
lender must immediately suspend any collection efforts outside the 
bankruptcy proceeding against the borrower and--
    (A) Must suspend any collection efforts against any co-maker or 
endorser if the borrower has filed for relief

[[Page 117]]

under Chapters 12 or 13 of the Bankruptcy Code; or
    (B) May suspend any collection efforts against any co-maker or 
endorser if the borrower has filed for relief under Chapters 7 or 11 of 
the Bankruptcy Code.
    (ii) If the lender is notified that a co-maker or endorser has filed 
a petition for relief in bankruptcy, the lender must immediately suspend 
any collection efforts outside the bankruptcy proceeding against the co-
maker or endorser and--
    (A) Must suspend collection efforts against the borrower and any 
other parties to the note if the co-maker or endorser has filed for 
relief under Chapters 12 or 13 of the Bankruptcy Code; or
    (B) May suspend any collection efforts against the borrower and any 
other parties to the note if the co-maker or endorser has filed for 
relief under Chapters 7 or 11 of the Bankruptcy Code.
    (3) Determination of filing. The lender must determine that a 
borrower has filed a petition for relief in bankruptcy on the basis of 
receiving a notice of the first meeting of creditors or other proof of 
filing provided by the debtor's attorney or the bankruptcy court.
    (4) Proof of claim. (i) Except as provided in paragraph (f)(4)(ii) 
of this section, the holder of the loan shall file a proof of claim with 
the bankruptcy court within--
    (A) 30 days after the holder receives a notice of first meeting of 
creditors unless, in the case of a proceeding under chapter 7, the 
notice states that the borrower has no assets; or
    (B) 30 days after the holder receives a notice from the court 
stating that a chapter 7 no-asset case has been converted to an asset 
case.
    (ii) A guaranty agency that is a state guaranty agency, and on that 
basis may assert immunity from suit in bankruptcy court, and that does 
not assign any loans affected by a bankruptcy filing to another guaranty 
agency--
    (A) Is not required to file a proof of claim on a loan already held 
by the guaranty agency; and
    (B) May direct lenders not to file proofs of claim on loans 
guaranteed by that agency.
    (5) Filing of bankruptcy claim with the guaranty agency. (i) The 
lender shall file a bankruptcy claim on the loan with the guaranty 
agency in accordance with paragraph (g) of this section, if--
    (A) The borrower has filed a petition for relief under chapters 12 
or 13 of the Bankruptcy Code; or
    (B) The borrower has filed a petition for relief under chapters 7 or 
11 of the Bankruptcy Code before October 8, 1998 and the loan has been 
in repayment for more than seven years (exclusive of any applicable 
suspension of the repayment period) from the due date of the first 
payment until the date of the filing of the petition for relief; or
    (C) The borrower has begun an action to have the loan obligation 
determined to be dischargeable on grounds of undue hardship.
    (ii) In cases not described in paragraph (f)(5)(i) of this section, 
the lender shall continue to hold the loan notwithstanding the 
bankruptcy proceeding. Once the bankruptcy proceeding is completed or 
dismissed, the lender shall treat the loan as if the lender had 
exercised forbearance as to repayment of principal and interest accrued 
from the date of the borrower's filing of the bankruptcy petition until 
the date the lender is notified that the bankruptcy proceeding is 
completed or dismissed.
    (g) Claim procedures for a loan held by a lender--(1) Documentation. 
A lender shall provide the guaranty agency with the following 
documentation when filing a death, disability, closed school, false 
certification, or bankruptcy claim:
    (i) The original or a true and exact copy of the promissory note.
    (ii) The loan application, if a separate loan application was 
provided to the lender.
    (iii) In the case of a death claim, an original or certified death 
certificate, or other documentation supporting the discharge request 
that formed the basis for the determination of death.
    (iv) In the case of a disability claim, a copy of the notification 
described in paragraph (c)(3)(iii) or (c)(9)(ix) of this section in 
which the Secretary notifies the lender that the borrower is totally and 
permanently disabled.

[[Page 118]]

    (v) In the case of a bankruptcy claim--
    (A) Evidence that a bankruptcy petition has been filed, all 
pertinent documents sent to or received from the bankruptcy court by the 
lender, and an assignment to the guaranty agency of any proof of claim 
filed by the lender regarding the loan; and
    (B) A statement of any facts of which the lender is aware that may 
form the basis for an objection or exception to the discharge of the 
borrower's loan obligation in bankruptcy and all documents supporting 
those facts.
    (vi) In the case of a closed school claim, the documentation 
described in paragraph (d)(3) of this section, or any other 
documentation as the Secretary may require;
    (vii) In the case of a false certification claim, the documentation 
described in paragraph (e)(3) of this section.
    (2) Filing deadlines. A lender shall file a death, disability, 
closed school, false certification, or bankruptcy claim within the 
following periods:
    (i) Within 60 days of the date on which the lender determines that a 
borrower (or the student on whose behalf a parent obtained a PLUS loan) 
has died.
    (ii) Within 60 days of the date the lender received notification 
from the Secretary that the borrower is totally and permanently 
disabled, in accordance with paragraphs (c)(3)(iii) or (c)(9)(ix) of 
this section.
    (iii) In the case of a closed school claim, the lender shall file a 
claim with the guaranty agency no later than 60 days after the borrower 
submits to the lender the written request and sworn statement described 
in paragraph (d)(3) of this section or after the lender is notified by 
the Secretary or the Secretary's designee or by the guaranty agency to 
do so.
    (iv) In the case of a false certification claim, the lender shall 
file a claim with the guaranty agency no later than 60 days after the 
borrower submits to the lender the written request and sworn statement 
described in paragraph (e)(3) of this section or after the lender is 
notified by the Secretary or the Secretary's designee or by the guaranty 
agency to do so.
    (v) A lender shall file a bankruptcy claim with the guaranty agency 
by the earlier of--
    (A) 30 days after the date on which the lender receives notice of 
the first meeting of creditors or other information described in 
paragraph (f)(3) of this section; or
    (B) 15 days after the lender is served with a complaint or motion to 
have the loan determined to be dischargeable on grounds of undue 
hardship, or, if the lender secures an extension of time within which an 
answer may be filed, 25 days before the expiration of that extended 
period, whichever is later.
    (h) Payment of death, disability, closed school, false 
certification, and bankruptcy claims by the guaranty agency--(1) 
General. (i) Except as provided in paragraph (h)(1)(v) of this section, 
the guaranty agency shall review a death, disability, bankruptcy, closed 
school, or false certification claim promptly and shall pay the lender 
on an approved claim the amount of loss in accordance with paragraphs 
(h)(2) and (h)(3) of this section--
    (A) Not later than 45 days after the claim was filed by the lender 
for death, disability, and bankruptcy claims; and
    (B) Not later than 90 days after the claim was filed by the lender 
for closed school or false certification claims.
    (ii) In the case of a bankruptcy claim, the guaranty agency shall, 
upon receipt of the claim from the lender, immediately take those 
actions required under paragraph (i) of this section to oppose the 
discharge of the loan by the bankruptcy court.
    (iii) In the case of a closed school claim or a false certification 
claim based on the determination that the borrower did not sign the loan 
application, the promissory note, or the authorization for the 
electronic transfer of loan funds, or that the school failed to test, or 
improperly tested, the student's ability to benefit, the guaranty agency 
shall document its determination that the borrower is eligible for 
discharge under paragraphs (d) or (e) of this section and pay the 
borrower or the holder the amount determined under paragraph (h)(2) of 
this section.
    (iv) In reviewing a claim under this section, the issue of 
confirmation of subsequent loans under an MPN will

[[Page 119]]

not be reviewed and a claim will not be denied based on the absence of 
any evidence relating to confirmation in a particular loan file. 
However, if a court rules that a loan is unenforceable solely because of 
the lack of evidence of the confirmation process or processes, insurance 
benefits must be repaid.
    (v) In the case of a disability claim based on a veteran's discharge 
application processed in accordance with paragraph (c)(9) of this 
section, the guaranty agency must review the claim promptly and not 
later than 45 days after the claim was filed by the lender pay the claim 
or return the claim to the lender in accordance with paragraph 
(c)(9)(xi)(B) of this section.
    (2)(i) The amount of loss payable--
    (A) On a death or disability claim is equal to the sum of the 
remaining principal balance and interest accrued on the loan, collection 
costs incurred by the lender and applied to the borrower's account 
within 30 days of the date those costs were actually incurred, and 
unpaid interest up to the date the lender should have filed the claim.
    (B) On a bankruptcy claim is equal to the unpaid balance of 
principal and interest determined in accordance with paragraph (h)(3) of 
this section.
    (ii) The amount of loss payable to a lender on a closed school claim 
or on a false certification claim is equal to the sum of the remaining 
principal balance and interest accrued on the loan, collection costs 
incurred by the lender and applied to the borrower's account within 30 
days of the date those costs were actually incurred, and unpaid interest 
determined in accordance with paragraph (h)(3) of this section.
    (iii) In the case of a closed school or false certification claim 
filed by a lender on an outstanding loan owed by the borrower, on the 
same date that the agency pays a claim to the lender, the agency shall 
pay the borrower an amount equal to the amount paid on the loan by or on 
behalf of the borrower, less any school tuition refunds or payments 
received by the holder or the borrower from a tuition recovery fund, 
performance bond, or other third-party source.
    (iv) In the case of a claim filed by a lender based on a request 
received from a borrower whose loan had been repaid in full by, or on 
behalf of the borrower to the lender, on the same date that the agency 
notifies the lender that the borrower is eligible for a closed school or 
false certification discharge, the agency shall pay the borrower an 
amount equal to the amount paid on the loan by or on behalf of the 
borrower, less any school tuition refunds or payments received by the 
holder or the borrower from a tuition recovery fund, performance bond, 
or other third-party source.
    (v) In the case of a loan that has been included in a Consolidation 
Loan, the agency shall pay to the holder of the borrower's Consolidation 
Loan, an amount equal to--
    (A) The amount paid on the loan by or on behalf of the borrower at 
the time the loan was paid through consolidation;
    (B) The amount paid by the consolidating lender to the holder of the 
loan when it was repaid through consolidation; minus
    (C) Any school tuition refunds or payments received by the holder or 
the borrower from a tuition recovery fund, performance bond, or other 
third-party source if those refunds or payments were--
    (1) Received by the borrower or received by the holder and applied 
to the borrower's loan balance before the date the loan was repaid 
through consolidation; or
    (2) Received by the borrower or received by the Consolidation Loan 
holder on or after the date the consolidating lender made a payment to 
the former holder to discharge the borrower's obligation to that former 
holder.
    (3) Payment of interest. If the guarantee covers unpaid interest, 
the amount payable on an approved claim includes the unpaid interest 
that accrues during the following periods:
    (i) During the period before the claim is filed, not to exceed the 
period provided for in paragraph (g)(2) of this section for filing the 
claim.
    (ii) During a period not to exceed 30 days following the receipt 
date by the

[[Page 120]]

lender of a claim returned by the guaranty agency for additional 
documentation necessary for the claim to be approved by the guaranty 
agency.
    (iii) During the period required by the guaranty agency to approve 
the claim and to authorize payment or to return the claim to the lender 
for additional documentation not to exceed--
    (A) 45 days for death, disability, or bankruptcy claims; or
    (B) 90 days for closed school or false certification claims.
    (i) Guaranty agency participation in bankruptcy proceedings--(1) 
Undue hardship claims. (i) In response to a petition filed prior to 
October 8, 1998 with regard to any bankruptcy proceeding by the borrower 
for discharge under 11 U.S.C. 523(a)(8) on the grounds of undue 
hardship, the guaranty agency must, on the basis of reasonably available 
information, determine whether the first payment on the loan was due 
more than 7 years (exclusive of any applicable suspension of the 
repayment period) before the filing of that petition and, if so, process 
the claim.
    (ii) In all other cases, the guaranty agency must determine whether 
repayment under either the current repayment schedule or any adjusted 
schedule authorized under this part would impose an undue hardship on 
the borrower and his or her dependents.
    (iii) If the guaranty agency determines that repayment would not 
constitute an undue hardship, the guaranty agency must then determine 
whether the expected costs of opposing the discharge petition would 
exceed one-third of the total amount owed on the loan, including 
principal, interest, late charges, and collection costs. If the guaranty 
agency has determined that the expected costs of opposing the discharge 
petition will exceed one-third of the total amount of the loan, it may, 
but is not required to, engage in the activities described in paragraph 
(i)(1)(iv) of this section.
    (iv) The guaranty agency must use diligence and may assert any 
defense consistent with its status under applicable law to avoid 
discharge of the loan. Unless discharge would be more effectively 
opposed by not taking the following actions, the agency must--
    (A) Oppose the borrower's petition for a determination of 
dischargeability; and
    (B) If the borrower is in default on the loan, seek a judgment for 
the amount owed on the loan.
    (v) In opposing a petition for a determination of dischargeability 
on the grounds of undue hardship, a guaranty agency may agree to 
discharge of a portion of the amount owed on a loan if it reasonably 
determines that the agreement is necessary in order to obtain a judgment 
on the remainder of the loan.
    (2) Response by a guaranty agency to plans proposed under Chapters 
11, 12, and 13. The guaranty agency shall take the following actions 
when a petition for relief in bankruptcy under Chapters 11, 12, or 13 is 
filed:
    (i) The agency is not required to respond to a proposed plan that--
    (A) Provides for repayment of the full outstanding balance of the 
loan;
    (B) Makes no provision with regard to the loan or to general 
unsecured claims.
    (ii) In any other case, the agency shall determine, based on a 
review of its own records and documents filed by the debtor in the 
bankruptcy proceeding--
    (A) What part of the loan obligation will be discharged under the 
plan as proposed;
    (B) Whether the plan itself or the classification of the loan under 
the plan meets the requirements of 11 U.S.C. 1129, 1225, or 1325, as 
applicable; and
    (C) Whether grounds exist under 11 U.S.C. 1112, 1208, or 1307, as 
applicable, to move for conversion or dismissal of the case.
    (iii) If the agency determines that grounds exist to challenge the 
proposed plan, the agency shall, as appropriate, object to the plan or 
move to dismiss the case, if--
    (A) The costs of litigation of these actions are not reasonably 
expected to exceed one-third of the amount of the loan to be discharged 
under the plan; and
    (B) With respect to an objection under 11 U.S.C. 1325, the 
additional amount that may be recovered under the plan if an objection 
is successful

[[Page 121]]

can reasonably be expected to equal or exceed the cost of litigating the 
objection.
    (iv) The agency shall monitor the debtor's performance under a 
confirmed plan. If the debtor fails to make payments required under the 
plan or seeks but does not demonstrate entitlement to discharge under 11 
U.S.C. 1328(b), the agency shall oppose any requested discharge or move 
to dismiss the case if the costs of litigation together with the costs 
incurred for objections to the plan are not reasonably expected to 
exceed one-third of the amount of the loan to be discharged under the 
plan.
    (j) Mandatory purchase by a lender of a loan subject to a bankruptcy 
claim. (1) The lender shall repurchase from the guaranty agency a loan 
held by the agency pursuant to a bankruptcy claim paid to that lender, 
unless the guaranty agency sells the loan to another lender, promptly 
after the earliest of the following events:
    (i) The entry of an order denying or revoking discharge or 
dismissing a proceeding under any chapter.
    (ii) A ruling in a proceeding under chapter 7 or 11 that the loan is 
not dischargeable under 11 U.S.C. 523(a)(8) or other applicable law.
    (iii) The entry of an order granting discharge under chapter 12 or 
13, or confirming a plan of arrangement under chapter 11, unless the 
court determined that the loan is dischargeable under 11 U.S.C. 
523(a)(8) on grounds of undue hardship.
    (2) The lender may capitalize all outstanding interest accrued on a 
loan purchased under paragraph (j) of this section to cover any periods 
of delinquency prior to the bankruptcy action through the date the 
lender purchases the loan and receives the supporting loan documentation 
from the guaranty agency.
    (k) Claims for reimbursement from the Secretary on loans held by 
guarantee agencies. (1)(i) The Secretary reimburses the guaranty agency 
for its losses on bankruptcy claims paid to lenders after--
    (A) A determination by the court that the loan is dischargeable 
under 11 U.S.C. 523(a)(8) with respect to a proceeding initiated under 
chapter 7 or chapter 11; or
    (B) With respect to any other loan, after the agency pays the claim 
to the lender.
    (ii) The guaranty agency shall refund to the Secretary the full 
amount of reimbursement received from the Secretary on a loan that a 
lender repurchases under this section.
    (2) The Secretary pays a death, disability, bankruptcy, closed 
school, or false certification claim in an amount determined under 
Sec. 682.402(k)(5) on a loan held by a guaranty agency after the agency 
has paid a default claim to the lender thereon and received payment 
under its reinsurance agreement. The Secretary reimburses the guaranty 
agency only if--
    (i) The Secretary determines that the borrower (or each of the co-
makers of a PLUS loan) has become totally and permanently disabled since 
applying for the loan, or the guaranty agency determines that the 
borrower (or the student for whom a parent obtained a PLUS loan or each 
of the co-makers of a PLUS loan) has died, or has filed for relief in 
bankruptcy, in accordance with the procedures in paragraph (b), (c), or 
(f) of this section, or the student was unable to complete an 
educational program because the school closed, or the borrower's 
eligibility to borrow (or the student's eligibility in the case of a 
PLUS loan) was falsely certified by an eligible school. For purposes of 
this paragraph, references to the ``lender'' and ``guaranty agency'' in 
paragraphs (b) through (f) of this section mean the guaranty agency and 
the Secretary respectively;
    (ii) In the case of a Stafford, SLS, or PLUS loan, the Secretary 
determines that the borrower (or each of the co-makers of a PLUS loan) 
has become totally and permanently disabled since applying for the loan, 
the guaranty agency determines that the borrower (or the student for 
whom a parent obtained a PLUS loan, or each of the co-makers of a PLUS 
loan) has died, or has filed the petition for relief in bankruptcy 
within 10 years of the date the borrower entered repayment, exclusive of 
periods of deferment or periods of forbearance granted by the lender 
that

[[Page 122]]

extended the 10-year maximum repayment period, or the borrower (or the 
student for whom a parent received a PLUS loan) was unable to complete 
an educational program because the school closed, or the borrower's 
eligibility to borrow (or the student's eligibility in the case of a 
PLUS loan) was falsely certified by an eligible school;
    (iii) In the case of a Consolidation loan, the borrower (or one of 
the co-makers) has died, is determined by the Secretary to be totally 
and permanently disabled under Sec. 682.402(c), or has filed the 
petition for relief in bankruptcy within the maximum repayment period 
described in Sec. 682.209(h)(2), exclusive of periods of deferment or 
periods of forbearance granted by the lender that extended the maximum 
repayment period;
    (iv) The guaranty agency has not written off the loan in accordance 
with the procedures established by the agency under 
Sec. 682.410(b)(6)(x), except for closed school and false certification 
discharges; and
    (v) The guaranty agency has exercised due diligence in the 
collection of the loan in accordance with the procedures established by 
the agency under Sec. 682.410(b)(6)(x), until the borrower (or the 
student for whom a parent obtained a PLUS loan, or each of the co-makers 
of a PLUS loan) has died, or the borrower (or each of the co-makers of a 
PLUS loan) has become totally and permanently disabled or filed a 
Chapter 12 or Chapter 13 petition, or had the loan discharged in 
bankruptcy, or for closed school and false certification claims, the 
guaranty agency receives a request for discharge from the borrower or 
another party.
    (3) [Reserved]
    (4) Within 30 days of receiving reimbursement for a closed school or 
false certification claim, the guaranty agency shall pay--
    (i) The borrower an amount equal to the amount paid on the loan by 
or on behalf of the borrower, less any school tuition refunds or 
payments received by the holder, guaranty agency, or the borrower from a 
tuition recovery fund, performance bond, or other third-party source; or
    (ii) The amount determined under paragraph (h)(2)(iv) of this 
section to the holder of the borrower's Consolidation Loan.
    (5) The Secretary pays the guaranty agency a percentage of the 
outstanding principal and interest that is equal to the complement of 
the reinsurance percentage paid on the loan. This interest includes 
interest that accrues during--
    (i) For death or bankruptcy claims, the shorter of 60 days or the 
period from the date the guaranty agency determines that the borrower 
(or the student for whom a parent obtained a PLUS loan, or each of the 
co-makers of a PLUS loan) died, or filed a petition for relief in 
bankruptcy until the Secretary authorizes payment;
    (ii) For disability claims, the shorter of 60 days or the period 
from the date the Secretary makes a determination that the borrower 
became totally and permanently disabled until the Secretary authorizes 
payment; or
    (iii) For closed school or false certification claims, the period 
from the date on which the guaranty agency received payment from the 
Secretary on a default claim to the date on which the Secretary 
authorizes payment of the closed school or false certification claim.
    (l) Unpaid refund discharge--(1) Unpaid refunds in closed school 
situations. In the case of a school that has closed, the Secretary 
reimburses the guarantor of a loan and discharges a former or current 
borrower's (and any endorser's) obligation to repay that portion of an 
FFEL Program loan (disbursed, in whole or in part on or after January 1, 
1986) equal to the refund that should have been made by the school under 
applicable Federal law and regulations, including this section. Any 
accrued interest and other charges (late charges, collection costs, 
origination fees, and insurance premiums or Federal default fees) 
associated with the unpaid refund are also discharged.
    (2) Unpaid refunds in open school situations. In the case of a 
school that is open, the guarantor discharges a former or current 
borrower's (and any endorser's) obligation to repay that portion of an 
FFEL loan (disbursed, in whole or in part, on or after January 1, 1986) 
equal to the amount of the refund that should have been made by the 
school under applicable Federal law

[[Page 123]]

and regulations, including this section, if--
    (i) The borrower (or the student on whose behalf a parent borrowed) 
is not attending the school that owes the refund; and
    (ii) The guarantor receives documentation regarding the refund and 
the borrower and guarantor have been unable to resolve the unpaid refund 
within 120 days from the date the guarantor receivesa complete 
application in accordance with paragraph (l)(4) of this section. Any 
accrued interest and other charges (late charges, collection costs, 
origination fees, and insurance premiums or Federal default fees) 
associated with the amount of the unpaid refund amount are also 
discharged.
    (3) Relief to borrower (and any endorser) following discharge. (i) 
If a borrower receives a discharge of a portion of a loan under this 
section, the borrower is reimbursed for any amounts paid in excess of 
the remaining balance of the loan (including accrued interest, late 
charges, collection costs, origination fees, and insurance premiums or 
Federal default fees) owed by the borrower at the time of discharge.
    (ii) The holder of the loan reports the discharge of a portion of a 
loan under this section to all credit reporting agencies to which the 
holder of the loan previously reported the status of the loan.
    (4) Borrower qualification for discharge. To receive a discharge of 
a portion of a loan under this section, a borrower must submit a written 
application to the holder or guaranty agency except as provided in 
paragraph (l)(5)(iv) of this section. The application requests the 
information required to calculate the amount of the discharge and 
requires the borrower to sign a statement swearing to the accuracy of 
the information in the application. The statement need not be notarized 
but must be made by the borrower under penalty of perjury. In the 
statement, the borrower must--
    (i) State that the borrower (or the student on whose behalf a parent 
borrowed)--
    (A) Received the proceeds of a loan, in whole or in part, on or 
after January 1, 1986 to attend a school;
    (B) Did not attend, withdrew, or was terminated from the school 
within a timeframe that entitled the borrower to a refund; and
    (C) Did not receive the benefit of a refund to which the borrower 
was entitled either from the school or from a third party, such as a 
holder of a performance bond or a tuition recovery program.
    (ii) State whether the borrower has any other application for 
discharge pending for this loan; and
    (iii) State that the borrower--
    (A) Agrees to provide upon request by the Secretary or the 
Secretary's designee other documentation reasonably available to the 
borrower that demonstrates that the borrower meets the qualifications 
for an unpaid refund discharge under this section; and
    (B) Agrees to cooperate with the Secretary or the Secretary's 
designee in enforcement actions in accordance with paragraph (e) of this 
section and to transfer any right to recovery against a third party to 
the Secretary in accordance with paragraph (d) of this section.
    (5) Unpaid refund discharge procedures. (i) Except for the 
requirements of paragraph (l)(5)(iv) of this section related to an open 
school, if the holder or guaranty agency learns that a school did not 
pay a refund of loan proceeds owed under applicable law and regulations, 
the holder or the guaranty agency sends the borrower a discharge 
application and an explanation of the qualifications and procedures for 
obtaining a discharge. The holder of the loan also promptly suspends any 
efforts to collect from the borrower on any affected loan.
    (ii) If the borrower returns the application, specified in paragraph 
(l)(4) of this section, the holder or the guaranty agency must review 
the application to determine whether the application appears to be 
complete. In the case of a loan held by a lender, once the lender 
determines that the application appears complete, it must provide the 
application and all pertinent information to the guaranty agency 
including, if available, the borrower's last date of attendance. If the 
borrower returns the application within 60 days, the lender must extend 
the period during which

[[Page 124]]

efforts to collect on the affected loan are suspended to the date the 
lender receives either a denial of the request or the unpaid refund 
amount from the guaranty agency. At the conclusion of the period during 
which the collection activity was suspended, the lender may capitalize 
any interest accrued and not paid during that period in accordance with 
Sec. 682.202(b).
    (iii) If the borrower fails to return the application within 60 
days, the holder of the loan resumes collection efforts and grants 
forbearance of principal and interest for the period during which the 
collection activity was suspended. The holder may capitalize any 
interest accrued and not paid during that period in accordance with 
Sec. 682.202(b).
    (iv) The guaranty agency may, with the approval of the Secretary, 
discharge a portion of a loan under this section without an application 
if the guaranty agency determines, based on information in the guaranty 
agency's possession, that the borrower qualifies for a discharge.
    (v) If the holder of the loan or the guaranty agency determines that 
the information contained in its files conflicts with the information 
provided by the borrower, the guaranty agency must use the most reliable 
information available to it to determine eligibility for and the 
appropriate payment of the refund amount.
    (vi) If the holder of the loan is the guaranty agency and the agency 
determines that the borrower qualifies for a discharge of an unpaid 
refund, the guaranty agency must suspend any efforts to collect on the 
affected loan and, within 30 days of its determination, discharge the 
appropriate amount and inform the borrower of its determination. Absent 
documentation of the exact amount of refund due the borrower, the 
guaranty agency must calculate the amount of the unpaid refund using the 
unpaid refund calculation defined in paragraph (o) of this section.
    (vii) If the guaranty agency determines that a borrower does not 
qualify for an unpaid refund discharge, (or, if the holder is the lender 
and is informed by the guarantor that the borrower does not qualify for 
a discharge)--
    (A) Within 30 days of the guarantor's determination, the agency must 
notify the borrower in writing of the reason for the determination and 
of the borrower's right to request a review of the agency's 
determination. The guaranty agency must make a determination within 30 
days of the borrower's submission of additional documentation supporting 
the borrower's eligibility that was not considered in any prior 
determination. During the review period, collection activities must be 
suspended; and
    (B) The holder must resume collection if the determination remains 
unchanged and grant forbearance of principal and interest for any period 
during which collection activity was suspended under this section. The 
holder may capitalize any interest accrued and not paid during these 
periods in accordance with Sec. 682.202(b).
    (viii) If the guaranty agency determines that a current or former 
borrower at an open school may be eligible for a discharge under this 
section, the guaranty agency must notify the lender and the school of 
the unpaid refund allegation. The notice to the school must include all 
pertinent facts available to the guaranty agency regarding the alleged 
unpaid refund. The school must, no later than 60 days after receiving 
the notice, provide the guaranty agency with documentation 
demonstrating, to the satisfaction of the guarantor, that the alleged 
unpaid refund was either paid or not required to be paid.
    (ix) In the case of a school that does not make a refund or provide 
sufficient documentation demonstrating the refund was either paid or was 
not required, within 60 days of its receipt of the allegation notice 
from the guaranty agency, relief is provided to the borrower (and any 
endorser) if the guaranty agency determines the relief is appropriate. 
The agency must forward documentation of the school's failure to pay the 
unpaid refund to the Secretary.
    (m) Unpaid refund discharge procedures for a loan held by a lender. 
In the case of an unpaid refund discharge request, the lender must 
provide the guaranty agency with documentation related to the borrower's 
qualification

[[Page 125]]

for discharge as specified in paragraph (l)(4) of this section.
    (n) Payment of an unpaid refund discharge request by a guaranty 
agency--(1) General. The guaranty agency must review an unpaid refund 
discharge request promptly and must pay the lender the amount of loss as 
defined in paragraphs (l)(1) and (l)(2) of this section, related to the 
unpaid refund not later than 45 days after a properly filed request is 
made.
    (2) Determination of the unpaid refund discharge amount to the 
lender. The amount of loss payable to a lender on an unpaid refund 
includes that portion of an FFEL Program loan equal to the amount of the 
refund required under applicable Federal law and regulations, including 
this section, and including any accrued interest and other charges (late 
charges, collection costs, origination fees, and insurance premiums or 
Federal default fees) associated with the unpaid refund.
    (o)(1) Determination of amount eligible for discharge. The guaranty 
agency determines the amount eligible for discharge based on information 
showing the refund amount or by applying the appropriate refund formula 
to information that the borrower provides or that is otherwise available 
to the guaranty agency. For purposes of this section, all unpaid refunds 
are considered to be attributed to loan proceeds.
    (2) If the information in paragraph (o)(1) of this section is not 
available, the guaranty agency uses the following formulas to determine 
the amount eligible for discharge:
    (i) In the case of a student who fails to attend or whose withdrawal 
or termination date is before October 7, 2000 and who completes less 
than 60 percent of the loan period, the guaranty agency discharges the 
lesser of the institutional charges unearned or the loan amount. The 
guaranty agency determines the amount of the institutional charges 
unearned by--
    (A) Calculating the ratio of the amount of time in the loan period 
after the student's last day of attendance to the actual length of the 
loan period; and
    (B) Multiplying the resulting factor by the institutional charges 
assessed the student for the loan period.
    (ii) In the case of a student who fails to attend or whose 
withdrawal or termination date is on or after October 7, 2000 and who 
completes less than 60 percent of the loan period, the guaranty agency 
discharges the loan amount unearned. The guaranty agency determines the 
loan amount unearned by--
    (A) Calculating the ratio of the amount of time remaining in the 
loan period after the student's last day of attendance to the actual 
length of the loan period; and
    (B) Multiplying the resulting factor by the total amount of title IV 
grants and loans received by the student, or if unknown, the loan 
amount.
    (iii) In the case of a student who completes 60 percent or more of 
the loan period, the guaranty agency does not discharge any amount 
because a student who completes 60 percent or more of the loan period is 
not entitled to a refund.
    (p) Requests for reimbursement from the Secretary on loans held by 
guaranty agencies. The Secretary reimburses the guaranty agency for its 
losses on unpaid refund request payments to lenders or borrowers in an 
amount that is equal to the amount specified in paragraph (n)(2) of this 
section.
    (q) Payments received after the guaranty agency's payment of an 
unpaid refund request. (1) The holder must promptly return to the sender 
any payment on a fully discharged loan, received after the guaranty 
agency pays an unpaid refund request unless the sender is required to 
pay (as in the case of a tuition recovery fund) in which case, the 
payment amount must be forwarded to the Secretary. At the same time that 
the holder returns the payment, it must notify the borrower that there 
is no obligation to repay a loan fully discharged.
    (2) If the holder has returned a payment to the borrower, or the 
borrower's representative, with the notice described in paragraph (q)(1) 
of this section, and the borrower (or representative) continues to send 
payments to the holder, the holder must remit all of those payments to 
the Secretary.

[[Page 126]]

    (3) If the loan has not been fully discharged, payments must be 
applied to the remaining debt.
    (r) Payments received after the Secretary's payment of a death, 
disability, closed school, false certification, or bankruptcy claim (1) 
If the guaranty agency receives any payments from or on behalf of the 
borrower on or attributable to a loan that has been discharged in 
bankruptcy on which the Secretary previously paid a bankruptcy claim, 
the guaranty agency must return 100 percent of these payments to the 
sender. The guaranty agency must promptly return, to the sender, any 
payment on a cancelled or discharged loan made by the sender and 
received after the Secretary pays a closed school or false certification 
claim. At the same time that the agency returns the payment, it must 
notify the borrower that there is no obligation to repay a loan 
discharged on the basis of death, bankruptcy, false certification, or 
closing of the school.
    (2) If the guaranty agency receives any payments from or on behalf 
of the borrower on or attributable to a loan that has been assigned to 
the Secretary based on the determination that the borrower is eligible 
for a total and permanent disability discharge, the guaranty agency must 
promptly return these payments to the sender. At the same time that the 
agency returns the payments, it must notify the borrower that there is 
no obligation to make payments on the loan after it has been discharged 
due to a total and permanent disability, unless the loan is reinstated 
in accordance with paragraph (c) of this section, or the Secretary 
directs the borrower otherwise.
    (3) When the Secretary discharges the loan, the Secretary returns to 
the sender any payments received by the Secretary on the loan after the 
date the borrower became totally and permanently disabled.
    (4) The guaranty agency shall remit to the Secretary all payments 
received from a tuition recovery fund, performance bond, or other third 
party with respect to a loan on which the Secretary previously paid a 
closed school or false certification claim.
    (5) If the guaranty agency has returned a payment to the borrower, 
or the borrower's representative, with the notice described in 
paragraphs (r)(1) or (r)(2) of this section, and the borrower (or 
representative) continues to send payments to the guaranty agency, the 
agency must remit all of those payments to the Secretary.
    (s) Applicable suspension of the repayment period. For purposes of 
this section and 11 U.S.C. 523(a)(8)(A) with respect to loans guaranteed 
under the FFEL Program, an applicable suspension of the repayment 
period--
    (1) Includes any period during which the lender does not require the 
borrower to make a payment on the loan.
    (2) Begins on the date on which the borrower qualifies for the 
requested deferment as provided in Sec. 682.210(a)(5) or the lender 
grants the requested forbearance;
    (3) Closes on the later of the date on which--
    (i) The condition for which the requested deferment or forbearance 
was received ends; or
    (ii) The lender receives notice of the end of the condition for 
which the requested deferment or forbearance was received, if the 
condition ended earlier than represented by the borrower at the time of 
the request and the borrower did not notify timely the lender of the 
date on which the condition actually ended;
    (4) Includes the period between the end of the borrower's grace 
period and the first payment due date established by the lender in the 
case of a borrower who entered repayment without the knowledge of the 
lender;
    (5) Includes the period between the filing of the petition for 
relief and the date on which the proceeding is completed or dismissed, 
unless payments have been made during that period in amounts sufficient 
to meet the amount owed under the repayment schedule in effect when the 
petition was filed.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1070g, 1078, 1078-1, 1078-2, 1078-3, 1082, 1087)

[57 FR 60323, Dec. 18, 1992]

    Editorial Note: For Federal Register citations affecting 
Sec. 682.402, see the List of CFR Sections Affected, which appears in 
the Finding Aids section of the printed volume and at www.fdsys.gov.

[[Page 127]]


    Effective Date Note: At 81 FR 76079, Nov. 1, 2016, Sec. 682.402, 
eff. July 1, 2017, was amended:
    A. By revising paragraphs (d)(3);
    B. In paragraph (d)(6)(ii)(B)(1) and (2), by removing the words 
``sworn statement (which may be combined)'' and adding in their place 
the word ``application'';
    C. By revising paragraph (d)(6)(ii)(F) introductory text;
    D. In paragraph (d)(6)(ii)(F)(5) removing the words ``and sworn 
statement'';
    E. In paragraph (d)(6)(ii)(G) introductory text, by removing the 
words ``request and supporting sworn statement'' and adding, in their 
place, the words ``completed application'';
    F. By revising paragraph (d)(6)(ii)(H);
    G. By redesignating paragraph (d)(6)(ii)(I) as paragraph 
(d)(6)(ii)(J);
    H. By adding new paragraph (d)(6)(ii)(I) and paragraph 
(d)(6)(ii)(K);
    I. By revising paragraphs (d)(7)(ii) and (iii) and (d)(8); and
    J. In paragraph (e)(6)(iii), by removing the last sentence.
    At 82 FR 27621, June 16, 2017, the effective date was delayed 
indefinitely. For the convenience of the user, the added and revised 
text is set forth as follows:



Sec. 682.402  Death, disability, closed school, false certification, 
          unpaid refunds, and bankruptcy payments.

                                * * * * *

    (d) * * *
    (3) Borrower qualification for discharge. Except as provided in 
paragraph (d)(8) of this section, in order to qualify for a discharge of 
a loan under paragraph (d) of this section, a borrower must submit a 
completed closed school discharge application on a form approved by the 
Secretary. By signing the application, the borrower certifies--

                                * * * * *

    (6) * * *
    (ii) * * *
    (F) If the guaranty agency determines that a borrower identified in 
paragraph (d)(6)(ii)(C) or (D) of this section does not qualify for a 
discharge, the agency shall notify the borrower in writing of that 
determination and the reasons for it, the opportunity for review by the 
Secretary, and how to request such a review within 30 days after the 
date the agency--

                                * * * * *

    (H) If a borrower described in paragraph (d)(6)(ii)(E) or (F) of 
this section fails to submit the completed application within 60 days of 
being notified of that option, the lender or guaranty agency shall 
resume collection.
    (I) Upon resuming collection on any affected loan, the lender or 
guaranty agency provides the borrower another discharge application and 
an explanation of the requirements and procedures for obtaining a 
discharge.

                                * * * * *

    (K)(1) Within 30 days after receiving the borrower's request for 
review under paragraph (d)(6)(ii)(F) of this section, the agency shall 
forward the borrower's discharge request and all relevant documentation 
to the Secretary for review.
    (2) The Secretary notifies the agency and the borrower of the 
determination upon review. If the Secretary determines that the borrower 
is not eligible for a discharge under paragraph (d) of this section, 
within 30 days after being so informed, the agency shall take the 
actions described in paragraph (d)(6)(ii)(H) or (I) of this section, as 
applicable.
    (3) If the Secretary determines that the borrower meets the 
requirements for a discharge under paragraph (d) of this section, the 
agency shall, within 30 days after being so informed, take actions 
required under paragraphs (d)(6)(ii)(E) and (d)(6)(ii)(G)(1) of this 
section, and the lender shall take the actions described in paragraph 
(d)(7)(iv) of this section, as applicable.

                                * * * * *

    (7) * * *
    (i) * * *
    (ii) If the borrower fails to submit a completed application 
described in paragraph (d)(3) of this section within 60 days of being 
notified of that option, the lender shall resume collection and shall be 
deemed to have exercised forbearance of payment of principal and 
interest from the date the lender suspended collection activity. The 
lender may capitalize, in accordance with Sec. 682.202(b), any interest 
accrued and not paid during that period. Upon resuming collection, the 
lender provides the borrower with another discharge application and an 
explanation of the requirements and procedures for obtaining a 
discharge.
    (iii) The lender shall file a closed school claim with the guaranty 
agency in accordance with Sec. 682.402(g) no later than 60 days after 
the lender receives a completed application described in paragraph 
(d)(3) of this section from the borrower, or notification from the 
agency that the Secretary approved the borrower's appeal in accordance 
with paragraph (d)(6)(ii)(K)(3) of this section.

                                * * * * *

[[Page 128]]

    (8) Discharge without an application. (i) A borrower's obligation to 
repay a FFEL Program loan may be discharged without an application from 
the borrower if the--
    (A) Borrower received a discharge on a loan pursuant to 34 CFR 
674.33(g) under the Federal Perkins Loan Program, or 34 CFR 685.214 
under the William D. Ford Federal Direct Loan Program; or
    (B) Secretary or the guaranty agency, with the Secretary's 
permission, determines that the borrower qualifies for a discharge based 
on information in the Secretary or guaranty agency's possession.
    (ii) With respect to schools that closed on or after November 1, 
2013, a borrower's obligation to repay a FFEL Program loan will be 
discharged without an application from the borrower if the Secretary or 
guaranty agency determines that the borrower did not subsequently re-
enroll in any title IV-eligible institution within a period of three 
years after the school closed.

                                * * * * *



Sec. 682.403  [Reserved]



Sec. 682.404  Federal reinsurance agreement.

    (a) General. (1) The Secretary may enter into a reinsurance 
agreement with a guaranty agency that has a basic program agreement. 
Except as provided in paragraph (b) of this section, under a reinsurance 
agreement, the Secretary reimburses the guaranty agency for--
    (i) 95 percent of its losses on default claim payments to lenders on 
loans for which the first disbursement is made on or after October 1, 
1998;
    (ii) 98 percent of its losses on default claim payments to lenders 
for loans for which the first disbursement is made on or after October 
1, 1993, and before October 1, 1998; or
    (iii) 100 percent of its losses on default claim payments to 
lenders--
    (A) For loans for which the first disbursement is made prior to 
October 1, 1993;
    (B) For loans made under an approved lender-of-last-resort program;
    (C) For loans transferred under a plan approved by the Secretary 
from an insolvent guaranty agency or a guaranty agency that withdraws 
its participation in the FFEL Program;
    (D) For loans that meet the definition of exempt claims in paragraph 
(a)(2)(iii) of this section;
    (E) For a guaranty agency that entered into a basic program 
agreement under section 428(b) of the Act after September 30, 1976, or 
was not actively carrying on a loan guarantee program covered by a basic 
program agreement on October 1, 1976 for five consecutive fiscal years 
beginning with the first year of its operation.
    (2) For purposes of this section--
    (i) Losses means the amount of unpaid principal and accrued interest 
the agency paid on a default claim filed by a lender on a reinsured 
loan, minus payments made by or on behalf of the borrower after default 
but before the Secretary reimburses the agency;
    (ii) Default aversion assistance means the activities of a guaranty 
agency that are designed to prevent a default by a borrower who is at 
least 60 days delinquent and that are directly related to providing 
collection assistance to the lender.
    (iii) Exempt claims means claims with respect to loans for which it 
is determined that the borrower (or student on whose behalf a parent has 
borrowed), without the lender's or the institution's knowledge at the 
time the loan was made, provided false or erroneous information or took 
actions that caused the borrower or the student to be ineligible for all 
of a portion of the loan or for interest benefits on the loan.
    (3) A guaranty agency's loss on a loan that was outstanding when a 
reinsurance agreement was executed is covered by the reinsurance 
agreement only if the default on the loan occurs after the effective 
date of the agreement.
    (4) If a lender has requested default aversion assistance as 
described in paragraph (a)(2)(ii) of this section, the agency must, upon 
request of the school at which the borrower received the loan, notify 
the school of the lender's request. The guaranty agency may not charge 
the school or the school's agent for providing this notification and 
must accept a blanket request from the school to be notified whenever 
any of the school's current or former students are the subject of a 
default aversion assistance request. The agency must notify schools 
annually of the option to make this blanket request.

[[Page 129]]

    (b) Reduction in reinsurance rate. (1) If the total of reinsurance 
claims paid by the Secretary to a guaranty agency during any fiscal year 
reaches 5 percent of the amount of loans in repayment at the end of the 
preceding fiscal year, the Secretary's reinsurance payment on a default 
claim subsequently paid by the guaranty agency during that fiscal year 
equals--
    (i) 90 percent of its losses on default claim payments to lenders on 
loans for which the first disbursement is made before October 1, 1993 or 
transferred under a plan approved by the Secretary from an insolvent 
guaranty agency or a guaranty agency that withdraws its participation in 
the FFEL Program;
    (ii) 88 percent of its losses on default claim payments to lenders 
on loans for which the first disbursement is made on or after October 1, 
1993, and before October 1, 1998; or
    (iii) 85 percent of its losses on default claim payments to lenders 
on loans for which the first disbursement is made on or after October 1, 
1998.
    (2) If the total of reinsurance claims paid by the Secretary to a 
guaranty agency during any fiscal year reaches 9 percent of the amount 
of loans in repayment at the end of the preceding fiscal year, the 
Secretary's reinsurance payment on a default claim subsequently paid by 
the guaranty agency during that fiscal year equals--
    (i) 80 percent of its losses on default claim payments to lenders on 
loans for which the first disbursement is made before October 1, 1993 or 
transferred under a plan approved by the Secretary from an insolvent 
guaranty agency or a guaranty agency that withdraws its participation in 
the FFEL Program;
    (ii) 78 percent of its losses on default claim payments to lenders 
on loans for which the first disbursement is made on or after October 1, 
1993, and before October 1, 1998; or
    (iii) 75 percent of its losses on default claim payments to lenders 
on loans for which the first disbursement is made on or after October 1, 
1998.
    (3) For purposes of this section, the total of reinsurance claims 
paid by the Secretary to a guaranty agency during any fiscal year does 
not include amounts paid on claims by the guaranty agency--
    (i) On loans considered in default under Sec. 682.412(e);
    (ii) Under a policy established by the agency that addresses 
instances in which, for a non-school originated loan, a lender learns 
that the school terminated its teaching activities while a student was 
enrolled during the academic period covered by the loan;
    (iii) That were filed by lenders at the direction of the Secretary; 
or
    (iv) On loans made under a guaranty agency's approved lender-of-
last-resort program.
    (4) For purposes of this section, amount of loans in repayment 
means--
    (i) The sum of--
    (A) The original principal amount of all loans guaranteed by the 
agency; and
    (B) The original principal amount of any loans on which the 
guarantee was transferred to the agency from another agency;
    (ii) Minus the original principal amount of all loans on which--
    (A) The loan guarantee was canceled;
    (B) The loan guarantee was transferred to another agency;
    (C) The borrower has not yet reached the repayment period;
    (D) Payment in full has been made by the borrower;
    (E) The borrower was in deferment status at the time repayment was 
scheduled to begin and remains in deferment status;
    (F) Reinsurance coverage has been lost and cannot be regained; and
    (G) The agency paid claims, excluding the amount of those claims--
    (1) Paid under Sec. 682.412(e);
    (2) Paid under a policy established by the agency that addresses the 
condition identified in paragraph (b)(3)(ii) of this section; or
    (3) Paid at the direction of the Secretary.
    (c) Submission of reinsurance rate base data. The guaranty agency 
shall submit to the Secretary the quarterly report required by the 
Secretary for the previous quarter ending September 30 containing 
complete and accurate data in order for the Secretary to calculate the 
amount of loans in repayment at the end of the preceding fiscal year. 
The Secretary does not pay a reinsurance claim to the guaranty agency

[[Page 130]]

after the date the guarterly report is due until the quaranty agency 
submits a complete and accurate report.
    (d) Reinsurance fee. (1) Except for loans that were refinanced 
pursuant to section 428B(e)(2) and (3) of the Act, and all loans 
guaranteed on or after October 1, 1993, a guaranty agency shall pay to 
the Secretary during each fiscal year in quarterly installments a 
reinsurance fee equal to--
    (i) 0.25 percent of the total principal amount of the Stafford, SLS, 
and PLUS loans on which guarantees were issued by that agency during 
that fiscal year; or
    (ii) 0.5 percent of the total principal amount of the Stafford, SLS, 
and PLUS loans on which guarantees were issued by that agency during 
that fiscal year if the agency's reinsurance claims paid reach the 
amount described in paragraph (b)(1) of this section at any time during 
that fiscal year.
    (2) The agency that is the original guarantor of a loan shall pay 
the reinsurance fee to the Secretary even if the guaranty agency 
transfers its guarantee obligation on the loan to another guaranty 
agency.
    (3) The guaranty agency shall pay the reinsurance fee required by 
paragraph (d)(1) of this section due the Secretary for each calendar 
quarter ending March 31, June 30, September 30, and December 31, within 
90 days after the end of the applicable quarter or within 30 days after 
receiving written notice from the Secretary that the fees are due, 
whichever is earlier.
    (e) Initiation or extension of agreements. In deciding whether to 
enter into or extend a reinsurance agreement, or, if an agreement has 
been terminated, whether to enter into a new agreement, the Secretary 
considers the adequacy of--
    (1) Efforts by the guaranty agency and the lenders to which it 
provides guarantees to collect outstanding loans as required by 
Sec. 682.410(b) (6) or (7), and Sec. 682.411;
    (2) Efforts by the guaranty agency to make FFEL loans available to 
all eligible borrowers; and
    (3) Other relevant aspects of the guaranty agency's program 
operations.
    (f) Application of borrower payments. A payment made to a guaranty 
agency by a borrower on a defaulted loan must be applied first to the 
collection costs incurred to collect that amount and then to other 
incidental charges, such as late charges, then to accrued interest and 
then to principal.
    (g) Share of borrower payments returned to the Secretary. (1) After 
an agency pays a default claim to a holder using assets of the Federal 
Fund, the agency must pay to the Secretary the portion of payments 
received on those defaulted loans remaining after--
    (i) The agency deposits into the Federal Fund the amount of those 
payments equal to the applicable complement of the reinsurance 
percentage that was in effect at the time the claim was paid; and
    (ii) The agency has deducted an amount equal to--
    (A) 30 percent of borrower payments received before October 1, 1993;
    (B) 27 percent of borrower payments received on or after October 1, 
1993, and before October 1, 1998;
    (C) 24 percent of borrower payments received on or after October 1, 
1998, and before October 1, 2003; and
    (D) 23 percent of borrower payments received on or after October 1, 
2003.
    (E) 16 percent of borrower payments received on or after October 1, 
2007.
    (2) Unless the Secretary approves otherwise, the guaranty agency 
must pay to the Secretary the Secretary's share of borrower payments 
within 45 days of its receipt of the payments.
    (h) Account maintenance fee. A guaranty agency is paid an account 
maintenance fee based on the original principal amount of outstanding 
FFEL Program loans insured by the agency. For fiscal years 1999 and 
2000, the fee is 0.12 percent of the original principal amount of 
outstanding loans. For fiscal years 2000 through 2007, the fee is 0.10 
percent of the original principal amount of outstanding loans. After 
fiscal year 2007, the fee is 0.06 percent of the original principal 
amount of outstanding loans.
    (i) Loan processing and issuance fee. A guaranty agency is paid a 
loan processing and issuance fee based on the principal amount of FFEL 
Program loans originated during a fiscal year

[[Page 131]]

that are insured by the agency. The fee is paid quarterly. No payment is 
made for loans for which the disbursement checks have not been cashed or 
for which electronic funds transfers have not been completed. For fiscal 
years 1999 through 2003, the fee is 0.65 percent of the principal amount 
of loans originated. Beginning October 1, 2003, the fee is 0.40 percent.
    (j) Default aversion fee--(1) General. If a guaranty agency performs 
default aversion activities on a delinquent loan in response to a 
lender's request for default aversion assistance on that loan, the 
agency receives a default aversion fee. The fee may not be paid more 
than once on any loan. The lender's request for assistance must be 
submitted to the guaranty agency no earlier than the 60th day and no 
later than the 120th day of the borrower's delinquency. A guaranty 
agency may not restrict a lender's choice of the date during this period 
on which the lender submits a request for default aversion assistance.
    (2) Amount of fees transferred. No more frequently than monthly, a 
guaranty agency may transfer default aversion fees from the Federal Fund 
to its Operating Fund. The amount of the fees that may be transferred is 
equal to--
    (i) One percent of the unpaid principal and accrued interest owed on 
loans that were submitted by lenders to the agency for default aversion 
assistance; minus
    (ii) One percent of the unpaid principal and accrued interest owed 
by borrowers on default claims that--
    (A) Were paid by the agency for the same time period for which the 
agency transferred default aversion fees from its Federal Fund; and
    (B) For which default aversion fees have been received by the 
agency.
    (3) Calculation of fee. (i) For purposes of calculating the one 
percent default aversion fee described in paragraph (j)(2)(i) of this 
section, the agency must use the total unpaid principal and accrued 
interest owed by the borrower as of the date the default aversion 
assistance request is submitted by the lender.
    (ii) For purposes of paragraph (j)(2)(ii) of this section, the 
agency must use the total unpaid principal and accrued interest owed by 
the borrower as of the date the agency paid the default claim.
    (4) Prohibition against conflicts. If a guaranty agency contracts 
with an outside entity to perform any default aversion activities, that 
outside entity may not--
    (i) Hold or service the loan; or
    (ii) Perform collection activities on the loan in the event of 
default within 3 years of the claim payment date.
    (k) Other terms. The reinsurance agreement contains other terms and 
conditions that the Secretary finds necessary to--
    (1) Promote the purposes of the FFEL programs and to protect the 
United States from unreasonable risks of loss;
    (2) Ensure proper and efficient administration of the loan guarantee 
program; and
    (3) Ensure that due diligence will be exercised in the collection of 
loans.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 25746, May 17, 1994; 59 FR 61429, Nov. 30, 1994; 60 FR 31411, June 
15, 1995; 61 FR 60486, Nov. 27, 1996; 64 FR 18980, Apr. 16, 1999; 64 FR 
58628, Oct. 29, 1999; 71 FR 45707, Aug. 9, 2006; 72 FR 62006, Nov. 1, 
2007; 78 FR 65815, Nov. 1, 2013]



Sec. 682.405  Loan rehabilitation agreement.

    (a) General. (1) A guaranty agency that has a basic program 
agreement must enter into a loan rehabilitation agreement with the 
Secretary. The guaranty agency must establish a loan rehabilitation 
program for all borrowers with an enforceable promissory note for the 
purpose of rehabilitating defaulted loans, except for loans for which a 
judgment has been obtained, loans on which a default claim was filed 
under Sec. 682.412, and loans on which the borrower has been convicted 
of, or has pled nolo contendere or guilty to, a crime involving fraud in 
obtaining title IV, HEA program assistance, so that the loan may be 
purchased, if practicable, by an eligible lender and removed from 
default status.
    (2) A loan is considered to be rehabilitated only after--

[[Page 132]]

    (i) The borrower has made and the guaranty agency has received nine 
of the ten qualifying payments required under a monthly repayment 
agreement.
    (A) A qualifying payment is--
    (1) Made voluntarily;
    (2) In the full amount required; and
    (3) Received within 20 days of the due date for the payment, and
    (B) All nine payments are received within a 10-month period that 
begins with the month in which the first required due date falls and 
ends with the ninth consecutive calendar month following that month, and
    (ii) The loan has been sold to an eligible lender or assigned to the 
Secretary.
    (3)(i) If a borrower's loan is being collected by administrative 
wage garnishment while the borrower is also making monthly payments on 
the same loan under a loan rehabilitation agreement, the guaranty agency 
must continue collecting the loan by administrative wage garnishment 
until the borrower makes five qualifying monthly payments under the 
rehabilitation agreement, unless the guaranty agency is otherwise 
precluded from doing so under Sec. 682.410(b)(9).
    (ii) After the borrower makes the fifth qualifying monthly payment, 
the guaranty agency must, unless otherwise directed by the borrower, 
suspend the garnishment order issued to the borrower's employer.
    (iii) A borrower may only obtain the benefit of a suspension of 
administrative wage garnishment while also attempting to rehabilitate a 
defaulted loan once.
    (4) After the loan has been rehabilitated, the borrower regains all 
benefits of the program, including any remaining deferment eligibility 
under section 428(b)(1)(M) of the Act, from the date of the 
rehabilitation. Effective for any loan that is rehabilitated on or after 
August 14, 2008, the borrower cannot rehabilitate the loan again if the 
loan returns to default status following the rehabilitation.
    (b) Terms of agreement. In the loan rehabilitation agreement, the 
guaranty agency agrees to ensure that its loan rehabilitation program 
meets the following requirements at all times:
    (1) A borrower may request rehabilitation of the borrower's 
defaulted loan held by the guaranty agency. In order to be eligible for 
rehabilitation of the loan, the borrower must voluntarily make at least 
9 of the 10 payments required under a monthly repayment agreement.
    (i) Each payment must be--
    (A) Made voluntarily;
    (B) For the full amount required;
    (C) Received within 20 days of the due date for the payment; and
    (D) Reasonable and affordable.
    (ii) All 9 payments must be received within a 10-month period that 
begins with the month in which the first required due date falls and 
ends with the ninth consecutive calendar month following that month.
    (iii) The guaranty agency initially considers the borrower's 
reasonable and affordable payment amount to be an amount equal to 15 
percent of the amount by which the borrower's Adjusted Gross Income 
(AGI) exceeds 150 percent of the poverty guideline amount applicable to 
the borrower's family size and State, divided by 12, except that if this 
amount is less than $5, the borrower's monthly rehabilitation payment is 
$5.
    (iv) The guaranty agency or its agents may calculate the payment 
amount based on information provided orally by the borrower or the 
borrower's representative and provide the borrower with a rehabilitation 
agreement using that amount. The guaranty agency must request 
documentation from the borrower to confirm the borrower's AGI and family 
size. If the borrower does not provide the guaranty agency or its agents 
with any documentation requested by the guaranty agency to calculate or 
confirm the reasonable and affordable payment amount, within a 
reasonable time deadline set by the guaranty agency or its agent, the 
rehabilitation agreement provided is null and void.
    (v) The reasonable and affordable payment amount calculated under 
this section must not be--
    (A) A required minimum loan payment amount (e.g., $50) if the agency 
determines that a smaller amount is reasonable and affordable;

[[Page 133]]

    (B) A percentage of the borrower's total loan balance; or
    (C) Based on other criteria unrelated to the borrower's total 
financial circumstances.
    (vi) Within 15 business days of its determination of the borrower's 
loan rehabilitation payment amount, the guaranty agency must provide the 
borrower with a written rehabilitation agreement which includes the 
borrower's payment amount calculated under paragraph (b)(1)(iii), a 
prominent statement that the borrower may object orally or in writing to 
the payment amount, with the method and timeframe for raising such an 
objection, and an explanation of any other terms and conditions 
applicable to the required series of payments that must be made before 
the borrower's account can be considered for repurchase by an eligible 
lender or assignment to the Secretary (i.e., rehabilitated). To accept 
the agreement, the borrower must sign and return the agreement or accept 
the agreement electronically under a process provided by the agency. The 
agency may not impose any conditions unrelated to the amount or timing 
of the rehabilitation payments in the rehabilitation agreement. The 
written rehabilitation agreement must inform the borrower--
    (A) Of the effects of having the loans rehabilitated (e.g., removal 
of the record of default from the borrower's credit history and return 
to normal repayment);
    (B) Of the amount of any collection costs to be added to the unpaid 
principal of the loan when the loan is sold to an eligible lender or 
assigned to the Secretary, which may not exceed 16 percent of the unpaid 
principal and accrued interest on the loan at the time of the sale or 
assignment; and
    (C) That the rehabilitation agreement is null and void if the 
borrower fails to provide the documentation required to confirm the 
monthly payment calculated under paragraph (b)(1)(iii) of this section.
    (vii) If the borrower objects to the monthly payment amount 
determined under paragraph (b)(1)(iii) of this section, the guaranty 
agency or its agents must recalculate the payment amount based solely on 
information provided on a form approved by the Secretary and, if 
requested, supporting documentation from the borrower and other sources, 
and must consider--
    (A) The borrower's, and if applicable, the spouse's current 
disposable income, including public assistance payments, and other 
income received by the borrower and the spouse, such as welfare 
benefits, Social Security benefits, Supplemental Security Income, and 
workers' compensation. Spousal income is not considered if the spouse 
does not contribute to the borrower's household income;
    (B) Family size as defined in Sec. 682.215(a)(3); and
    (C) Reasonable and necessary expenses, which include--
    (1) Food;
    (2) Housing;
    (3) Utilities;
    (4) Basic communication expenses;
    (5) Necessary medical and dental costs;
    (6) Necessary insurance costs;
    (7) Transportation costs;
    (8) Dependent care and other work-related expenses;
    (9) Legally required child and spousal support;
    (10) Other title IV and non-title IV student loan payments; and
    (11) Other expenses approved by the Secretary.
    (viii) The guaranty agency must provide the borrower with a new 
written rehabilitation agreement confirming the borrower's recalculated 
reasonable and affordable payment amount within the timeframe specified 
in paragraph (b)(1)(vii) of this section. To accept the agreement, the 
borrower must sign and return the agreement or accept the agreement 
electronically under a process provided by the agency.
    (ix) The agency must include any payment made under 
Sec. 682.401(b)(1) in determining whether the 9 out of 10 payments 
required under paragraph (b)(1) of this section have been made.
    (x) A borrower may request that the monthly payment amount be 
adjusted due to a change in the borrower's total financial circumstances 
only upon providing the documentation specified in paragraph (b)(1)(vii) 
of this section.

[[Page 134]]

    (xi) Except as provided in paragraph (c) of this section, during the 
rehabilitation period, the guaranty agency must limit contact with the 
borrower on the loan being rehabilitated to collection activities that 
are required by law or regulation and to communications that support the 
rehabilitation.
    (2)(i) For the purposes of this section, payment in the full amount 
required means payment of an amount that is reasonable and affordable, 
based on the borrower's total financial circumstances, as agreed to by 
the borrower and the agency. Voluntary payments are those made directly 
by the borrower and do not include payments obtained by Federal offset, 
garnishment, income or asset execution, or after a judgment has been 
entered on a loan. A guaranty agency must attempt to secure a lender to 
purchase the loan at the end of the 9- or 10-month payment period as 
applicable.
    (ii) If the guaranty agency has been unable to sell the loan, the 
guaranty agency must assign the loan to the Secretary.
    (3) Upon the sale of a rehabilitated loan to an eligible lender or 
assignment to the Secretary--
    (i) The guaranty agency must, within 45 days of the sale or 
assignment--
    (A) Provide notice to the prior holder of such sale or assignment, 
and
    (B) Request that any consumer reporting agency to which the default 
was reported remove the record of default from the borrower's credit 
history.
    (ii) The prior holder of the loan must, within 30 days of receiving 
the notification from the guaranty agency, request that any consumer 
reporting agency to which the default claim payment or other equivalent 
record was reported remove such record from the borrower's credit 
history.
    (4)(i)An eligible lender purchasing a rehabilitated loan must 
establish a repayment schedule that meets the same requirements that are 
applicable to other FFEL Program loans of the same loan type as the 
rehabilitated loan and must permit the borrower to choose any 
statutorily available repayment plan for that loan type. The lender must 
treat the first payment made under the nine payments as the first 
payment under the applicable maximum repayment term, as defined under 
Sec. 682.209(a) or (e). For Consolidation loans, the maximum repayment 
term is based on the balance outstanding at the time of loan 
rehabilitation.
    (ii) [Reserved]
    (c) A guaranty agency must make available to the borrower--
    (1) During the loan rehabilitation period, information about 
repayment plans, including the income-based repayment plan, that may be 
available to the borrower upon rehabilitating the defaulted loan and how 
the borrower can select a repayment plan after the loan is purchased by 
an eligible lender or assigned to the Secretary; and
    (2) After the successful completion of the loan rehabilitation 
period, financial and economic education materials, including debt 
management information.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078-6)

[59 FR 33355, June 28, 1994, as amended at 60 FR 30788, June 12, 1995; 
64 FR 18980, Apr. 16, 1999; 64 FR 58965, Nov. 1, 1999; 66 FR 34764, June 
29, 2001; 67 FR 67080, Nov. 1, 2002; 68 FR 75429, Dec. 31, 2003; 71 FR 
45707, Aug. 9, 2006; 71 FR 64398, Nov. 1, 2006; 73 FR 63254, Oct. 23, 
2008; 74 FR 56000, Oct. 29, 2009; 78 FR 65815, Nov. 1, 2013; 80 FR 
67237, Oct. 30, 2015; 81 FR 76080, Nov. 1, 2016]

    Effective Date Note: At 81 FR 76080, Nov. 1, 2016, Sec. 682.405 was 
amended by adding paragraph (b)(4)(ii), eff. July 1, 2017. At 82 FR 
27621, June 16, 2017, the effective date was delayed indefinitely. For 
the convenience of the user, the added text is set forth as follows:



Sec. 682.405  Loan rehabilitation agreement.

                                * * * * *

    (b)(4) * * *
    (ii) The lender must not consider the purchase of a rehabilitated 
loan as entry into repayment or resumption of repayment for the purposes 
of interest capitalization under Sec. 682.202(b).

                                * * * * *

[[Page 135]]



Sec. 682.406  Conditions for claim payments from the Federal Fund and 
for reinsurance coverage.

    (a) A guaranty agency may make a claim payment from the Federal Fund 
and receive a reinsurance payment on a loan only if--
    (1) The lender exercised due diligence in making, disbursing, and 
servicing the loan as prescribed by the rules of the agency;
    (2) With respect to the reinsurance payment on the portion of a loan 
represented by a single disbursement of loan proceeds--
    (i) The check for the disbursement was cashed within 120 days after 
disbursement; or
    (ii) The proceeds of the disbursement made by electronic funds 
transfer or master check have been released from the restricted account 
maintained by the school within 120 days after disbursement;
    (3) The lender provided an accurate collection history and an 
accurate payment history to the guaranty agency with the default claim 
filed on the loan showing that the lender exercised due diligence in 
collecting the loan through collection efforts meeting the requirements 
of Sec. 682.411, including collection efforts against each endorser;
    (4) The loan was in default before the agency paid a default claim 
filed thereon;
    (5) The lender filed a default claim thereon with the guaranty 
agency within 90 days of default;
    (6) The lender resubmitted a properly documented default claim to 
the guaranty agency not later than 60 days from the date the agency had 
returned that claim due solely to inadequate documentation, except that 
interest accruing beyond the 30th day after the date the guaranty agency 
returned the claim is not reinsured unless the lender files a claim for 
loss on the loan with the guarantor together with all required 
documentation, prior to the 30th day;
    (7) The lender satisfied all conditions of guarantee coverage set by 
the agency, unless the agency reinstated guarantee coverage on the loan 
following the lender's failure to satisfy such a condition pursuant to 
written policies and procedures established by the agency;
    (8) The agency paid or returned to the lender for additional 
documentation a default claim thereon filed by the lender within 90 days 
of the date the lender filed the claim or, if applicable, the additional 
documentation, except that interest accruing beyond the 60th day after 
the date the lender originally filed the claim is not reinsured;
    (9) The agency submitted a request for the payment on a form 
required by the Secretary no later than 30 days following payment of a 
default claim to the lender;
    (10) The loan was legally enforceable by the lender when the agency 
paid a claim on the loan to the lender;
    (11) The agency exercised due diligence in collection of the loan in 
accordance with Sec. 682.410(b)(6);
    (12) The agency and lender, if applicable, complied with all other 
Federal requirements with respect to the loan including--
    (i) Payment of origination fees;
    (ii) For Consolidation loans disbursed on or after October 1, 1993, 
and prior to October 1, 1998, payment on a monthly basis, of an interest 
payment rebate fee calculated on an annual basis and equal to 1.05 
percent of the unpaid principal and accrued interest on the loan;
    (iii) For Consolidation loans for which the application was received 
by the lender on or after October 1, 1998 and prior to February 1, 1999, 
payment on a monthly basis, of an interest payment rebate fee calculated 
on an annual basis and equal to 0.62 percent of the unpaid principal and 
accrued interest on the loan;
    (iv) For Consolidation loans disbursed on or after February 1, 1999 
and prior to July 1, 2010, payment of an interest payment rebate fee in 
accordance with paragraph (a)(12)(ii) of this section; and
    (v) Compliance with all default aversion assistance requirements in 
Sec. 682.404(a)(2)(ii).
    (13) The agency assigns the loan to the Secretary, if so directed, 
in accordance with the requirements of Sec. 682.409; and
    (14) The guaranty agency certifies to the Secretary that diligent 
attempts have been made by the lender and the

[[Page 136]]

guaranty agency under Sec. 682.411(h) to locate the borrower through the 
use of effective skip-tracing techniques, including contact with the 
schools the student attended.
    (b) Notwithstanding paragraph (a) of this section, the Secretary may 
waive his right to refuse to make or require repayment of a reinsurance 
payment if, in the Secretary's judgment, the best interests of the 
United States so require. The Secretary's waiver policy for violations 
of paragraph (a)(3) or (a)(5) of this section is set forth in appendix D 
to this part.
    (c) In evaluating a claim for insurance or reinsurance, the issue of 
confirmation of subsequent loans under an MPN will not be reviewed and a 
claim will not be denied based on the absence of any evidence relating 
to confirmation in a particular loan file. However, if a court rules 
that a loan is unenforceable solely because of the lack of evidence of a 
confirmation process or processes, insurance and reinsurance benefits 
must be repaid.
    (d) A guaranty agency may not make a claim payment from the Federal 
Fund or receive a reinsurance payment on a loan if the agency determines 
or is notified by the Secretary that the lender offered or provided an 
improper inducement as described in paragraph (5)(i) of the definition 
of lender in Sec. 682.200(b).

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 25746, May 17, 1994; 59 FR 33356, June 28, 1994; 59 FR 61429, Nov. 
30, 1994; 61 FR 60486, Nov. 27, 1996; 64 FR 18980, Apr. 16, 1999; 64 FR 
58629, Oct. 29, 1999; 64 FR 58963, Nov. 1, 1999; 65 FR 65620, Nov. 1, 
2000; 66 FR 34764, June 29, 2001; 71 FR 45708, Aug. 9, 2006; 72 FR 
62006, Nov. 1, 2007; 78 FR 65816, Nov. 1, 2013]



Sec. 682.407  Discharge of student loan indebtedness for survivors of
victims of the September 11, 2001, attacks.

    (a) Definition of terms. As used in this section--
    (1) Eligible public servant means an individual who--
    (i) Served as a police officer, firefighter, other safety or rescue 
personnel, or as a member of the Armed Forces; and
    (ii)(A) Died due to injuries suffered in the terrorist attacks on 
September 11, 2001; or
    (B) Became permanently and totally disabled due to injuries suffered 
in the terrorist attacks on September 11, 2001.
    (2) Eligible victim means an individual who died due to injuries 
suffered in the terrorist attacks on September 11, 2001 or became 
permanently and totally disabled due to injuries suffered in the 
terrorist attacks on September 11, 2001.
    (3) Eligible parent means the parent of an eligible victim if--
    (i) The parent owes a FFEL PLUS Loan incurred on behalf of an 
eligible victim; or
    (ii) The parent owes a FFEL Consolidation Loan that was used to 
repay a FFEL or Direct Loan PLUS Loan incurred on behalf of an eligible 
victim.
    (4) Died due to injuries suffered in the terrorist attacks on 
September 11, 2001 means the individual was present at the World Trade 
Center in New York City, New York, at the Pentagon in Virginia, or at 
the Shanksville, Pennsylvania site at the time of or in the immediate 
aftermath of the terrorist-related aircraft crashes on September 11, 
2001, and the individual died as a direct result of these crashes.
    (5) Became permanently and totally disabled due to injuries suffered 
in the terrorist attacks on September 11, 2001 means the individual was 
present at the World Trade Center in New York City, New York, at the 
Pentagon in Virginia, or at the Shanksville, Pennsylvania site at the 
time of or in the immediate aftermath of the terrorist-related aircraft 
crashes on September 11, 2001 and the individual became permanently and 
totally disabled as a direct result of these crashes.
    (i) An individual is considered permanently and totally disabled 
if--
    (A) The disability is the result of a physical injury to the 
individual that was treated by a medical professional within 72 hours of 
the injury having been sustained or within 72 hours of the rescue;
    (B) The physical injury that caused the disability is verified by 
contemporaneous medical records created by

[[Page 137]]

or at the direction of the medical professional who provided the medical 
care; and
    (C) The individual is unable to work and earn money due to the 
disability and the disability is expected to continue indefinitely or 
result in death.
    (ii) If the injuries suffered due to the terrorist-related aircraft 
crashes did not make the individual permanently and totally disabled at 
the time of or in the immediate aftermath of the attacks, the individual 
may be considered to be permanently and totally disabled for purposes of 
this section if the individual's medical condition has deteriorated to 
the extent that the individual is permanently and totally disabled.
    (6) Immediate aftermath means, except in the case of an eligible 
public servant, the period of time from the aircraft crashes until 12 
hours after the crashes. With respect to eligible public servants, the 
immediate aftermath includes the period of time from the aircraft 
crashes until 96 hours after the crashes.
    (7) Present at the World Trade Center in New York City, New York, at 
the Pentagon in Virginia, or at the Shanksville, Pennsylvania site means 
physically present at the time of the terrorist-related aircraft crashes 
or in the immediate aftermath--
    (i) In the buildings portions of the buildings that were destroyed 
as a result of the terrorist-related aircraft crashes;
    (ii) In any area contiguous to the crash site that was sufficiently 
close to the site that there was a demonstrable risk of physical harm 
resulting from the impact of the aircraft or any subsequent fire, 
explosions, or building collapses. Generally, this includes the 
immediate area in which the impact occurred, fire occurred, portions of 
buildings fell, or debris fell upon and injured persons; or
    (iii) On board American Airlines flights 11 or 77 or United Airlines 
flights 93 or 175 on September 11, 2001.
    (b) September 11 survivors discharge. (1) The obligation of a 
borrower and any endorser to make any further payments on an eligible 
FFEL Program Loan is discharged if the borrower was, at the time of the 
terrorist attacks on September 11, 2001, and currently is, the spouse of 
an eligible public servant, unless the eligible public servant has died. 
If the eligible public servant has died, the borrower must have been the 
spouse of the eligible public servant at the time of the terrorist 
attacks on September 11, 2001 and until the date the eligible public 
servant died.
    (2) The obligation of a borrower to make any further payments 
towards the portion of a joint FFEL Consolidation Loan incurred on 
behalf of an eligible victim is discharged if the borrower was, at the 
time of the terrorist attacks on September 11, 2001, and currently is, 
the spouse of an eligible victim, unless the eligible victim has died. 
If the eligible victim has died, the borrower must have been the spouse 
of the eligible victim at the time of the terrorist attacks on September 
11, 2001 and until the date the eligible victim died.
    (3) If the borrower is an eligible parent--
    (i) The obligation of a borrower and any endorser to make any 
further payments on a FFEL PLUS Loan incurred on behalf of an eligible 
victim is discharged.
    (ii) The obligation of the borrower to make any further payments 
towards the portion of a FFEL Consolidation Loan that repaid a FFEL or 
Direct Loan PLUS Loan incurred on behalf of an eligible victim is 
discharged.
    (4) The parent of an eligible public servant may qualify for a 
discharge of a FFEL PLUS loan incurred on behalf of the eligible public 
servant, or the portion of a FFEL Consolidation Loan that repaid a FFEL 
or Direct PLUS Loan incurred on behalf of the eligible public servant, 
under the procedures, eligibility criteria, and documentation 
requirements described in this section for an eligible parent applying 
for a discharge of a loan incurred on behalf of an eligible victim.
    (c) Applying for discharge. (1) In accordance with the procedures in 
paragraphs (c)(2) through (c)(13) of this section, a discharge may be 
granted on--
    (i) A FFEL Program Loan owed by the spouse of an eligible public 
servant;
    (ii) A FFEL PLUS Loan incurred on behalf of an eligible victim;

[[Page 138]]

    (iii) The portion of a FFEL Consolidation Loan that repaid a PLUS 
loan incurred on behalf of an eligible victim; and
    (iv) The portion of a joint Consolidation Loan incurred on behalf of 
an eligible victim.
    (2) After being notified by the borrower that the borrower claims to 
qualify for a discharge under this section, the lender shall suspend 
collection activity on the borrower's eligible FFEL Program Loan and 
promptly request that the borrower submit a request for discharge on a 
form approved by the Secretary.
    (3) If the lender determines that the borrower does not qualify for 
a discharge under this section, or the lender does not receive the 
completed discharge request form from the borrower within 60 days of the 
borrower notifying the lender that the borrower claims to qualify for a 
discharge, the lender shall resume collection and shall be deemed to 
have exercised forbearance of payment of both principal and interest 
from the date the lender was notified by the borrower. The lender must 
notify the borrower that the application for the discharge has been 
denied, provide the basis for the denial, and inform the borrower that 
the lender will resume collection on the loan. The lender may 
capitalize, in accordance with Sec. 682.202(b), any interest accrued and 
not paid during this period.
    (4) If the lender determines that the borrower qualifies for a 
discharge under this section, the lender shall provide the guaranty 
agency with the following documentation--
    (i) The loan application, if a separate loan application was 
provided to the lender; and
    (ii) The completed discharge form, and all accompanying 
documentation supporting the discharge request that formed the basis for 
the determination that the borrower qualifies for a discharge.
    (5) The lender must file a discharge claim within 60 days of the 
date on which the lender determines that the borrower qualifies for a 
discharge.
    (6) The guaranty agency must review a discharge claim under this 
section promptly.
    (7) If the guaranty agency determines that the borrower does not 
qualify for a discharge under this section, the guaranty agency must 
return the claim to the lender with an explanation of the basis for the 
agency's denial of the claim. Upon receipt of the returned claim, the 
lender must notify the borrower that the application for the discharge 
has been denied, provide the basis for the denial, and inform the 
borrower that the lender will resume collection on the loan. The lender 
is deemed to have exercised forbearance of both principal and interest 
from the date collection activity was suspended until the next payment 
due date. The lender may capitalize, in accordance with Sec. 682.202(b), 
any interest accrued and not paid during this period.
    (8) If the guaranty agency determines that the borrower qualifies 
for a discharge, the guaranty agency pays the lender on an approved 
claim the amount of loss required under paragraph (c)(9) of this 
section. The guaranty agency shall pay the claim not later than 90 days 
after the claim was filed by the lender.
    (9) The amount of loss payable on a discharge claim is--
    (i) An amount equal to the sum of the remaining principal balance 
and interest accrued on the loan, unpaid collection costs incurred by 
the lender and applied to the borrower's account within 30 days of the 
date those costs were actually incurred, and unpaid interest up to the 
date the lender should have filed the claim; or
    (ii) In the case of a partial discharge of a Consolidation Loan, the 
amount specified in paragraph (c)(9)(i) of this section for the portion 
of the Consolidation Loan incurred on behalf of the eligible victim.
    (10) The amount payable on an approved claim includes the unpaid 
interest that accrues during the following periods:
    (i) During the period before the claim is filed, not to exceed 60 
days from the date the lender determines that the borrower qualifies for 
a discharge under this section.

[[Page 139]]

    (ii) During a period not to exceed 30 days following the date the 
lender receives a claim returned by the guaranty agency for additional 
documentation necessary for the claim to be approved by the guaranty 
agency.
    (iii) During the period required by the guaranty agency to approve 
the claim and to authorize payment or to return the claim to the lender 
for additional documentation, not to exceed 90 days.
    (11) After being notified that the guaranty agency has paid a 
discharge claim, the lender shall notify the borrower that the loan has 
been discharged or, in the case of a partial discharge of a 
Consolidation Loan, partially discharged. Except in the case of a 
partial discharge of a Consolidation Loan, the lender shall return to 
the sender any payments received by the lender after the date the 
guaranty agency paid the discharge claim.
    (12) The Secretary reimburses the guaranty agency for a discharge 
claim paid to the lender under this section after the agency pays the 
lender. Any failure by the lender to satisfy due diligence requirements 
prior to the filing of the claim that would have resulted in the loss of 
reinsurance on the loan in the event of default are waived by the 
Secretary, provided the loan was held by an eligible loan holder at all 
times.
    (13) Except in the case of a partial discharge of a Consolidation 
Loan, the guaranty agency shall promptly return to the sender any 
payment on a discharged loan made by the sender and received after the 
Secretary pays a discharge claim. At the same time that the agency 
returns the payment it shall notify the borrower that the loan has been 
discharged and that there is no further obligation to repay the loan.
    (14) A FFEL Program Loan owed by an eligible public servant or an 
eligible victim may be discharged under the procedures in Sec. 682.402 
for a discharge based on the death or total and permanent disability of 
the eligible public servant or eligible victim.
    (d) Documentation that an eligible public servant or eligible victim 
died due to injuries suffered in the terrorist attacks on September 11, 
2001. (1) Documentation that an eligible public servant died due to 
injuries suffered in the terrorist attacks on September 11, 2001 must 
include--
    (i) A certification from an authorized official that the individual 
was a member of the Armed Forces, or was employed as a police officer, 
firefighter, or other safety or rescue personnel, and was present at the 
World Trade Center in New York City, New York, at the Pentagon in 
Virginia, or at the Shanksville, Pennsylvania site at the time of the 
terrorist-related aircraft crashes or in the immediate aftermath of 
these crashes; and
    (ii) The inclusion of the individual on an official list of the 
individuals who died in the terrorist attacks on September 11, 2001.
    (2) If the individual is not included on an official list of the 
individuals who died in the terrorist attacks on September 11, 2001, the 
borrower must provide--
    (i) The certification described in paragraph (d)(1)(i) of this 
section;
    (ii) An original or certified copy of the individual's death 
certificate; and
    (iii) A certification from a physician or a medical examiner that 
the individual died due to injuries suffered in the terrorist attacks on 
September 11, 2001.
    (3) If the individual owed a FFEL Program Loan, a Direct Loan, or a 
Perkins Loan at the time of the terrorist attacks, documentation that 
the individual's loans were discharged by the lender, the Secretary, or 
the institution due to death may be substituted for the original or 
certified copy of a death certificate.
    (4) Documentation that an eligible victim died due to injuries 
suffered in the terrorist attacks on September 11, 2001 is the inclusion 
of the individual on an official list of the individuals who died in the 
terrorist attacks on September 11, 2001.
    (5) If the eligible victim is not included on an official list of 
the individuals who died in the terrorist attacks on September 11, 2001, 
the borrower must provide--
    (i) The documentation described in paragraphs (d)(2)(ii) or (d)(3), 
and (d)(2)(iii) of this section; and
    (ii) A certification signed by the borrower that the eligible victim 
was

[[Page 140]]

present at the World Trade Center in New York City, New York, at the 
Pentagon in Virginia, or at the Shanksville, Pennsylvania site at the 
time of the terrorist-related aircraft crashes or in the immediate 
aftermath of these crashes.
    (6) If the borrower is the spouse of an eligible public servant, and 
has been granted a discharge on a Perkins Loan, a Direct Loan, or a FFEL 
Program Loan held by another FFEL lender because the eligible public 
servant died due to injuries suffered in the terrorist attacks on 
September 11, 2001, documentation of the discharge may be used as an 
alternative to the documentation in paragraphs (d)(1) through (d)(3) of 
this section.
    (7) If the borrower is the spouse or parent of an eligible victim, 
and has been granted a discharge on a Direct Loan or on a FFEL Program 
Loan held by another FFEL lender because the eligible victim died due to 
injuries suffered in the terrorist attacks on September 11, 2001, 
documentation of the discharge may be used as an alternative to the 
documentation in paragraphs (d)(4) and (d)(5) of this section.
    (8) Under exceptional circumstances and on a case-by-case basis, the 
determination that an eligible public servant or an eligible victim died 
due to injuries suffered in the terrorist attacks on September 11, 2001 
may be based on other reliable documentation approved by the chief 
executive officer of the guaranty agency.
    (e) Documentation that an eligible public servant or eligible victim 
became permanently and totally disabled due to injuries suffered in the 
terrorist attacks on September 11, 2001. (1) Documentation that an 
eligible public servant became permanently and totally disabled due to 
injuries suffered in the terrorist attacks on September 11, 2001 must 
include--
    (i) A certification from an authorized official that the individual 
was a member of the Armed Forces or was employed as a police officer, 
firefighter or other safety or rescue personnel, and was present at the 
World Trade Center in New York City, New York, at the Pentagon in 
Virginia, or at the Shanksville, Pennsylvania site at the time of the 
terrorist-related aircraft crashes or in the immediate aftermath of 
these crashes;
    (ii) Copies of contemporaneous medical records created by or at the 
direction of a medical professional who provided medical care to the 
individual within 72 hours of the injury having been sustained or within 
24 hours of the rescue; and
    (iii) A certification by a physician, who is a doctor of medicine or 
osteopathy and legally authorized to practice in a state, that the 
individual became permanently and totally disabled due to injuries 
suffered in the terrorist attacks on September 11, 2001.
    (2) Documentation that an eligible victim became permanently and 
totally disabled due to injuries suffered in the terrorist attacks on 
September 11, 2001 must include--
    (i) The documentation described in paragraphs (e)(1)(ii) and 
(e)(1)(iii) of this section; and
    (ii) A certification signed by the borrower that the eligible victim 
was present at the World Trade Center in New York City, New York, at the 
Pentagon in Virginia, or at the Shanksville, Pennsylvania site at the 
time of the terrorist-related aircraft crashes or in the immediate 
aftermath of these crashes.
    (3) If the borrower is the spouse of an eligible public servant, and 
has been granted a discharge on a Perkins Loan, a Direct Loan, or a FFEL 
Program Loan held by another FFEL lender because the eligible public 
servant became permanently and totally disabled due to injuries suffered 
in the terrorist attacks on September 11, 2001, documentation of the 
discharge may be used as an alternative to the documentation in 
paragraph (e)(1) of this section.
    (4) If the borrower is the spouse or parent of an eligible victim, 
and has been granted a discharge on a Direct Loan or on a FFEL Program 
Loan held by another FFEL lender because the eligible victim became 
permanently and totally disabled due to injuries suffered in the 
terrorist attacks on September 11, 2001, documentation of the discharge 
may be used as an alternative to the documentation in paragraph (e)(2) 
of this section.

[[Page 141]]

    (f) Additional information. (1) A lender or guaranty agency may 
require the borrower to submit additional information that the lender or 
guaranty agency deems necessary to determine the borrower's eligibility 
for a discharge under this section.
    (2) To establish that the eligible public servant or eligible victim 
was present at the World Trade Center in New York City, New York, at the 
Pentagon in Virginia, or at the Shanksville, Pennsylvania site, such 
additional information may include but is not limited to--
    (i) Records of employment;
    (ii) Contemporaneous records of a federal, state, city, or local 
government agency;
    (iii) An affidavit or declaration of the eligible public servant's 
or eligible victim's employer; and
    (iv) A sworn statement (or an unsworn statement complying with 28 
U.S.C. 1746) regarding the presence of the eligible public servant or 
eligible victim at the site.
    (3) To establish that the disability of the eligible public servant 
or eligible victim is due to injuries suffered in the terrorist attacks 
on September 11, 2001, such additional information may include but is 
not limited to--
    (i) Contemporaneous medical records of hospitals, clinics, 
physicians, or other licensed medical personnel;
    (ii) Registries maintained by federal, state, or local governments; 
or
    (iii) Records of all continuing medical treatment.
    (4) To establish the borrower's relationship to the eligible public 
servant or eligible victim, such additional information may include but 
is not limited to--
    (i) Copies of relevant legal records including court orders, letters 
of testamentary or similar documentation;
    (ii) Copies of wills, trusts, or other testamentary documents; or
    (iii) Copies of approved joint Consolidation Loan applications or 
approved FFEL or Direct Loan PLUS loan applications.
    (g) Limitations on discharge. (1) Only outstanding Federal SLS 
Loans, Federal Stafford Loans, Federal PLUS Loans, and Federal 
Consolidation Loans for which amounts were owed on September 11, 2001, 
or outstanding Federal Consolidation Loans incurred to pay off loan 
amounts that were owed on September 11, 2001, are eligible for discharge 
under this section.
    (2)(i) Eligibility for a discharge under this section does not 
qualify a borrower for a refund of any payments made on the borrower's 
loan prior to the date the loan was discharged.
    (ii) A borrower may apply for a partial discharge of a joint 
Consolidation loan due to death or total and permanent disability under 
the procedures in Sec. 682.402(b) or (c). If the borrower is granted a 
partial discharge under the procedures in Sec. 682.402(b) or (c) the 
borrower may qualify for a refund of payments in accordance with 
Sec. 682.402(b)(5) or Sec. 682.402(c)(1)(i).
    (iii) A borrower may apply for a discharge of a PLUS loan due to the 
death of the student for whom the borrower received the PLUS loan under 
the procedures in Sec. 682.402(b). If a borrower is granted a discharge 
under the procedures in Sec. 682.402(b), the borrower may qualify for a 
refund of payments in accordance with Sec. 682.402(b)(5).
    (3) A determination by a lender or a guaranty agency that an 
eligible public servant or an eligible victim became permanently and 
totally disabled due to injuries suffered in the terrorist attacks on 
September 11, 2001 for purposes of this section does not qualify the 
eligible public servant or the eligible victim for a discharge based on 
a total and permanent disability under Sec. 682.402.
    (4) The spouse of an eligible public servant or eligible victim may 
not receive a discharge under this section if the eligible public 
servant or eligible victim has been identified as a participant or 
conspirator in the terrorist-related aircraft crashes on September 11, 
2001. An eligible parent may not receive a discharge on a FFEL PLUS Loan 
or on a Consolidation Loan that was used to repay a FFEL or Direct Loan 
PLUS Loan incurred on behalf of an individual who has been identified as 
a participant or conspirator in the terrorist-related aircraft crashes 
on September 11, 2001.

[71 FR 78080, Dec. 28, 2006, as amended at 72 FR 55053, Sept. 28, 2007; 
78 FR 65816, Nov. 1, 2013]

[[Page 142]]



Sec. 682.408  [Reserved]



Sec. 682.409  Mandatory assignment by guaranty agencies of defaulted 
loans to the Secretary.

    (a)(1) If the Secretary determines that action is necessary to 
protect the Federal fiscal interest, the Secretary directs a guaranty 
agency to promptly assign to the Secretary any loans held by the agency 
on which the agency has received payment under Sec. 682.402(f), 
682.402(k), or 682.404. The collection of unpaid loans owed by Federal 
employees by Federal salary offset is, among other things, deemed to be 
in the Federal fiscal interest. Unless the Secretary notifies an agency, 
in writing, that other loans must be assigned to the Secretary, an 
agency must assign any loan that meets all of the following criteria as 
of April 15 of each year:
    (i) The unpaid principal balance is at least $100.
    (ii) For each of the two fiscal years following the fiscal year in 
which these regulations are effective, the loan, and any other loans 
held by the agency for that borrower, have been held by the agency for 
at least four years; for any subsequent fiscal year such loan must have 
been held by the agency for at least five years.
    (iii) A payment has not been received on the loan in the last year.
    (iv) A judgment has not been entered on the loan against the 
borrower.
    (2) If the agency fails to meet a fiscal year recovery rate standard 
under paragraph (a)(2)(ii) of this section for a loan type, and the 
Secretary determines that additional assignments are necessary to 
protect the Federal fiscal interest, the Secretary may require the 
agency to assign in addition to those loans described in paragraph 
(a)(1) of this section, loans in amounts needed to satisfy the 
requirements of paragraph (a)(2)(iii) or (a)(3)(i) of this section.
    (i) Calculation of fiscal year loan type recovery rate. A fiscal 
year loan type recovery rate for an agency is determined by dividing the 
amount collected on defaulted loans, including collections by Federal 
Income Tax Refund Offset, for each loan program (i.e., the Stafford, 
PLUS, SLS, and Consolidation loan programs) by the agency for loans of 
that program (including payments received by the agency on loans under 
Sec. 682.401(b)(1) and Sec. 682.409 and the amounts of any loans 
purchased from the guaranty agency by an eligible lender) during the 
most recent fiscal year for which data are available by the total of 
principal and interest owed to an agency on defaulted loans for each 
loan program at the beginning of the same fiscal year, less accounts 
permanently assigned to the Secretary through the most recent fiscal 
year.
    (ii) Fiscal year loan type recovery rates standards. (A) If, in each 
of the two fiscal years following the fiscal year in which these 
regulations are effective, the fiscal year loan type recovery rate for a 
loan program for an agency is below 80 percent of the average recovery 
rate of all active guaranty agencies in each of the same two fiscal 
years for that program type, and the Secretary determines that 
additional assignments are necessary to protect the Federal fiscal 
interest, the Secretary may require the agency to make additional 
assignments in accordance with paragraph (a)(2)(iii) of this section.
    (B) In any subsequent fiscal year the loan type recovery rate 
standard for a loan program must be 90 percent of the average recovery 
rate of all active guaranty agencies.
    (iii) Non-achievement of loan type recovery rate standards.
    (A) Unless the Secretary determines under paragraph (a)(2)(iv) of 
this section that protection of the Federal fiscal interest requires 
that a lesser amount be assigned, upon notice from the Secretary, an 
agency with a fiscal year loan type recovery rate described in paragraph 
(a)(2)(ii) of this section must promptly assign to the Secretary a 
sufficient amount of defaulted loans, in addition to loans to be 
assigned in accordance with paragraph (a)(1) of this section, to cause 
the fiscal year loan type recovery rate of the agency that fiscal year 
to equal or exceed the average rate of all agencies described in 
paragraph (a)(2)(ii) of this section when recalculated to exclude from 
the denominator of the agency's fiscal year loan type recovery rate the 
amount of these additional loans.

[[Page 143]]

    (B) The Secretary, in consultation with the guaranty agency, may 
require the amount of loans to be assigned under paragraph (a)(2) of 
this section to include particular categories of loans that share 
characteristics that make the performance of the agency fall below the 
appropriate percentage of the loan type recovery rate as described in 
paragraph (a)(2)(ii) of this section.
    (iv) Calculation of loan type recovery rate standards. The 
Secretary, within 30 days after the date for submission of the second 
quarterly report from all agencies, makes available to all agencies a 
mid-year report, showing the recovery rate for each agency and the 
average recovery rate of all active guaranty agencies for each loan 
type. In addition, the Secretary, within 120 days after the beginning of 
each fiscal year, makes available a final report showing those rates and 
the average rate for each loan type for the preceding fiscal year.
    (3)(i) Determination that the protection of the Federal fiscal 
interest requires assignments. Upon petition by an agency submitted 
within 45 days of the notice required by paragraph (a)(2)(iii)(A) of 
this section, the Secretary may determine that protection of the Federal 
fiscal interest does not require assignment of all loans described in 
paragraph (a)(1) of this section or of loans in the full amount 
described in paragraph (a)(2)(iii) of this section only after review of 
the agency's petition. In making this determination, the Secretary 
considers all relevant information available to him (including any 
information and documentation obtained by the Secretary in reviews of 
the agency or submitted to the Secretary by the agency) as follows:
    (A) For each of the two fiscal years following the fiscal year in 
which these regulations are effective, the Secretary considers 
information presented by an agency with a fiscal year loan type recovery 
rate above the average rate of all active agencies to demonstrate that 
the protection of the Federal fiscal interest will be served if any 
amounts of loans of the loan type required to be assigned to the 
Secretary under paragraph (a)(1) of this section are retained by that 
agency. For any subsequent fiscal year, the Secretary considers 
information presented by an agency with a fiscal year recovery rate 10 
percent above the average rate of all active agencies.
    (B) The Secretary considers information presented by an agency that 
is required to assign loans under paragraph (a)(2) of this section to 
demonstrate that the protection of the Federal fiscal interest will be 
served if the agency demonstrates that its compliance with 
Sec. 682.401(b)(1) and Sec. 682.405 has reduced substantially its fiscal 
year loan type recovery rate or rates or if the agency is not required 
to assign amounts of loans that would otherwise have to be assigned.
    (C) The information provided by an agency pursuant to paragraphs 
(a)(3)(i)(A) and (B) of this section may include, but is not limited to 
the following:
    (1) The fiscal year loan type recovery rate within such school 
sectors as the Secretary may designate for the agency, and for all 
agencies.
    (2) The fiscal year loan type recovery rate for loans for the agency 
and for all agencies categorized by age of the loans as the Secretary 
may determine.
    (3) The performance of the agency, and all agencies, in default 
aversion.
    (4) The agency's performance on judgment enforcement.
    (5) The existence and use of any state or guaranty agency-specific 
collection tools.
    (6) The agency's level of compliance with Secs. 682.409 and 
682.410(b)(6).
    (7) Other factors that may affect loan repayment such as State or 
regional unemployment and natural disasters.
    (ii) Denial of an agency's petition. If the Secretary does not 
accept the agency's petition, the Secretary provides, in writing, to the 
agency the Secretary's reasons for concluding that the Federal fiscal 
interest is best protected by requiring the assignment.
    (b)(1) A guaranty agency that assigns a defaulted loan to the 
Secretary under this section thereby releases all rights and title to 
that loan. The Secretary does not pay the guaranty agency any 
compensation for a loan assigned under this section.
    (2) The guaranty agency does not share in any amounts received by 
the

[[Page 144]]

Secretary on a loan assigned under this section, regardless of the 
reinsurance percentage paid on the loan or the agency's previous 
collection costs.
    (c)(1) A guaranty agency must assign a loan to the Secretary under 
this section at the time, in the manner, and with the information and 
documentation that the Secretary requires. The agency must submit this 
information and documentation in the form (including magnetic media) and 
format specified by the Secretary.
    (2) The guaranty agency must execute an assignment to the United 
States of America of all right, title, and interest in the promissory 
note or judgment evidencing a loan assigned under this section. If more 
than one loan is made under an MPN, the assignment of the note only 
applies to the loan or loans being assigned to the Secretary.
    (3) If the agency does not provide the required information and 
documentation in the form and format required by the Secretary, the 
Secretary may, at his option--
    (i) Allow the agency to revise the agency's submission to include 
the required information and documentation in the specified form and 
format;
    (ii) In the case of an improperly formatted computer tape, reformat 
the tape and assess the cost of the activity against the agency;
    (iii) Reorganize the material submitted and assess the cost of that 
activity against the agency; or
    (iv) Obtain from other agency records and add to the agency's 
submission any information from the original submission, and assess the 
cost of that activity against the agency.
    (4) For each loan assigned, the agency shall submit to the Secretary 
the following documents associated for each loan, assembled in the order 
listed below:
    (i) The original or a true and exact copy of the promissory note.
    (ii) Any documentation of a judgment entered on the loan.
    (iii) A written assignment of the loan or judgment, unless this 
assignment is affixed to the promissory note.
    (iv) The loan application, if a separate application was provided to 
the lender.
    (v) A payment history for the loan, as described in 
Sec. 682.414(a)(1)(ii)(C).
    (vi) A collection history for the loan, as described in 
Sec. 682.414(a)(1)(ii)(D).
    (vii) The record of the lender's disbursement of Stafford and PLUS 
loan funds to the school for delivery to the borrower.
    (viii) If the MPN or promissory note was signed electronically, the 
name and location of the entity in possession of the original electronic 
MPN or promissory note.
    (5) The agency may submit copies of required documents in lieu of 
originals.
    (6) The Secretary may accept the assignment of a loan without all of 
the documents listed in paragraph (c)(4) of this section. If directed to 
do so, the agency must retain these documents for submission to the 
Secretary at some future date.
    (d)(1) If the Secretary determines that the agency has not submitted 
a document or record required by paragraph (c) of this section, and the 
Secretary decides to allow the agency an additional opportunity to 
submit the omitted document under paragraph (c)(3)(i) of this section, 
the Secretary notifies the agency and provides a reasonable period of 
time for the agency to submit the omitted record or document.
    (2) If the omitted document is not submitted within the time 
specified by the Secretary, the Secretary determines whether that 
omission impairs the Secretary's ability to collect the loan.
    (3) If the Secretary determines that the ability to collect the loan 
has been impaired under paragraph (d)(2) of this section, the Secretary 
assesses the agency the amount paid to the agency under the reinsurance 
agreement and accrued interest at the rate applicable to the borrower 
under Sec. 682.410(b)(3).

[[Page 145]]

    (4) The Secretary reassigns to the agency that portion of the loan 
determined to be unenforceable by the Department.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59 
FR 33356, June 28, 1994; 60 FR 30788, June 12, 1995; 64 FR 18980, Apr. 
16, 1999; 64 FR 58630, Oct. 29, 1999; 64 FR 58963, Nov. 1, 1999; 72 FR 
62006, Nov. 1, 2007; 78 FR 65816, Nov. 1, 2013]



Sec. 682.410  Fiscal, administrative, and enforcement requirements.

    (a) Fiscal requirements--(1) Reserve fund assets. A guaranty agency 
shall establish and maintain a reserve fund to be used solely for its 
activities as a guaranty agency under the FFEL Program (``guaranty 
activities''). The guaranty agency shall credit to the reserve fund--
    (i) The total amount of insurance premiums and Federal default fees 
collected;
    (ii) Funds received from a State for the agency's guaranty 
activities, including matching funds under section 422(a) of the Act;
    (iii) Federal advances obtained under sections 422(a) and (c) of the 
Act;
    (iv) Federal payments for default, bankruptcy, death, disability, 
closed schools, and false certification claims;
    (v) Supplemental preclaims assistance payments;
    (vi) Transitional support payments received under section 458(a) of 
the Act;
    (vii) Funds collected by the guaranty agency on FFEL Program loans 
on which a claim has been paid;
    (viii) Investment earnings on the reserve fund; and
    (ix) Other funds received by the guaranty agency from any source for 
the agency's guaranty activities.
    (2) Uses of reserve fund assets. A guaranty agency may use the 
assets of the reserve fund established under paragraph (a)(1) of this 
section to pay only--
    (i) Insurance claims;
    (ii) Costs that are reasonable, as defined under 
Sec. 682.410(a)(11)(iii), and that are ordinary and necessary for the 
agency to fulfill its responsibilities under the HEA, including costs of 
collecting loans, providing default aversion assistance, monitoring 
enrollment and repayment status, and carrying out any other guaranty 
activities. Those costs must be--
    (A) Allocable to the FFEL Program;
    (B) Not higher than the agency would incur under established 
policies, regulations, and procedures that apply to any comparable non-
Federal activities of the guaranty agency;
    (C) Not included as a cost or used to meet cost sharing or matching 
requirements of any other federally supported activity, except as 
specifically provided by Federal law;
    (D) Net of all applicable credits; and
    (E) Documented in accordance with applicable legal and accounting 
standards;
    (iii) The Secretary's equitable share of collections;
    (iv) Federal advances and other funds owed to the Secretary;
    (v) Reinsurance fees;
    (vi) Insurance premiums and Federal default fees related to 
cancelled loans;
    (vii) Borrower refunds, including those arising out of student or 
other borrower claims and defenses;
    (viii) (A) The repayment, on or after December 29, 1993, of amounts 
credited under paragraphs (a)(1)(ii) or (a)(1)(ix) of this section, if 
the agency provides the Secretary 30 days prior notice of the repayment 
and demonstrates that--
    (1) These amounts were originally received by the agency under 
appropriate contemporaneous documentation specifying that receipt was on 
a temporary basis only;
    (2) The objective for which these amounts were originally received 
by the agency has been fully achieved; and
    (3) Repayment of these amounts would not cause the agency to fail to 
comply with the minimum reserve levels provided by paragraph (a)(10) of 
this section, except that the Secretary may, for good cause, provide 
written permission for a payment that meets the other requirements of 
this paragraph (a)(2)(ix)(A).
    (B) The repayment, prior to December 29, 1993, of amounts credited 
under paragraphs (a)(1)(ii) or (a)(1)(ix) of this

[[Page 146]]

section, if the agency demonstrates that--
    (1) These amounts were originally received by the agency under 
appropriate contemporaneous documentation that receipt was on a 
temporary basis only; and
    (2) The objective for which these amounts were originally received 
by the agency has been fully achieved.
    (ix) Any other costs or payments ordinary and necessary to perform 
functions directly related to the agency's responsibilities under the 
HEA and for their proper and efficient administration;
    (x) Notwithstanding any other provision of this section, any other 
payment that was allowed by law or regulation at the time it was made, 
if the agency acted in good faith when it made the payment or the agency 
would otherwise be unfairly prejudiced by the nonallowability of the 
payment at a later time; and
    (xi) Any other amounts authorized or directed by the Secretary.
    (3) Accounting basis. Except as approved by the Secretary, a 
guaranty agency shall credit the items listed in paragraph (a)(1) of 
this section to its reserve fund upon their receipt, without any 
deferral for accounting purposes, and shall deduct the items listed in 
paragraph (a)(2) of this section from its reserve fund upon their 
payment, without any accrual for accounting purposes.
    (4) Accounting records. (i) The accounting records of a guaranty 
agency must reflect the correct amount of sources and uses of funds 
under paragraph (a) of this section.
    (ii) A guaranty agency may reverse prior credits to its reserve fund 
if--
    (A) The agency gives the Secretary prior notice setting forth a 
detailed justification for the action;
    (B) The Secretary determines that such credits were made erroneously 
and in good faith; and
    (C) The Secretary determines that the action would not unfairly 
prejudice other parties.
    (iii) A guaranty agency shall correct any other errors in its 
accounting or reporting as soon as practicable after the errors become 
known to the agency.
    (iv) If a general reconstruction of a guaranty agency's historical 
accounting records is necessary to make a change under paragraphs 
(a)(4)(ii) and (a)(4)(iii) of this section or any other retroactive 
change to its accounting records, the agency may make this 
reconstruction only upon prior approval by the Secretary and without any 
deduction from its reserve fund for the cost of the reconstruction.
    (5) Investments. The guaranty agency shall exercise the level of 
care required of a fiduciary charged with the duty of investing the 
money of others when it invests the assets of the reserve fund described 
in paragraph (a)(1) of this section. It may invest these assets only in 
low-risk securities, such as obligations issued or guaranteed by the 
United States or a State.
    (6) Development of assets. (i) If the guaranty agency uses in a 
substantial way for purposes other than the agency's guaranty activities 
any funds required to be credited to the reserve fund under paragraph 
(a)(1) of this section or any assets derived from the reserve fund to 
develop an asset of any kind and does not in good faith allocate a 
portion of the cost of developing and maintaining the developed asset to 
funds other than the reserve fund, the Secretary may require the agency 
to--
    (A) Correct this allocation under paragraph (a)(4)(iii) of this 
section; or
    (B) Correct the recorded ownership of the asset under paragraph 
(a)(4)(iii) of this section so that--
    (1) If, in a transaction with an unrelated third party, the agency 
sells or otherwise derives revenue from uses of the asset that are 
unrelated to the agency's guaranty activities, the agency promptly shall 
deposit into the reserve fund described in paragraph (a)(1) of this 
section a percentage of the sale proceeds or revenue equal to the fair 
percentage of the total development cost of the asset paid with the 
reserve fund monies or provided by assets derived from the reserve fund; 
or
    (2) If the agency otherwise converts the asset, in whole or in part, 
to a use unrelated to its guaranty activities, the agency promptly shall 
deposit into the reserve fund described in paragraph (a)(1) of this 
section a fair percentage of the fair market value or, in the case

[[Page 147]]

of a temporary conversion, the rental value of the portion of the asset 
employed for the unrelated use.
    (ii) If the agency uses funds or assets described in paragraph 
(a)(6)(i) of this section in the manner described in that paragraph and 
makes a cost and maintenance allocation erroneously and in good faith, 
it shall correct the allocation under paragraph (a)(4)(iii) of this 
section.
    (7) Third-party claims. If the guaranty agency has any claim against 
any other party to recover funds or other assets for the reserve fund, 
the claim is the property of the United States.
    (8) Related-party transactions. All transactions between a guaranty 
agency and a related organization or other person that involve funds 
required to be credited to the agency's reserve fund under paragraph 
(a)(1) of this section or assets derived from the reserve fund must be 
on terms that are not less advantageous to the reserve fund than would 
have been negotiated on an arm's-length basis by unrelated parties.
    (9) Scope of definition. The provisions of this Sec. 682.410(a) 
define reserve funds and assets for purposes of sections 422 and 428 of 
the Act. These provisions do not, however, affect the Secretary's 
authority to use all funds and assets of the agency pursuant to section 
428(c)(9)(F)(vi) of the Act.
    (10) Minimum reserve fund level. The guaranty agency must maintain a 
current minimum reserve level of not less than--
    (i) .5 percent of the amount of loans outstanding, for the fiscal 
year of the agency that begins in calendar year 1993;
    (ii) .7 percent of the amount of loans outstanding, for the fiscal 
year of the agency that begins in calendar year 1994;
    (iii) .9 percent of the amount of loans outstanding, for the fiscal 
year of the agency that begins in calendar year 1995; and
    (iv) 1.1 percent of the amount of loans outstanding, for each fiscal 
year of the agency that begins on or after January 1, 1996.
    (11) Definitions. For purposes of this section--
    (i) Reserve fund level means--
    (A) The total of reserve fund assets as defined in paragraph (a)(1) 
of this section;
    (B) Minus the total amount of the reserve fund assets used in 
accordance with paragraphs (a)(2) and (a)(3) of this section; and
    (ii) Amount of loans outstanding means--
    (A) The sum of--
    (1) The original principal amount of all loans guaranteed by the 
agency; and
    (2) The original principal amount of any loans on which the 
guarantee was transferred to the agency from another guarantor, 
excluding loan guarantees transferred to another agency pursuant to a 
plan of the Secretary in response to the insolvency of the agency;
    (B) Minus the original principal amount of all loans on which--
    (1) The loan guarantee was cancelled;
    (2) The loan guarantee was transferred to another agency;
    (3) Payment in full has been made by the borrower;
    (4) Reinsurance coverage has been lost and cannot be regained; and
    (5) The agency paid claims.
    (iii) Reasonable cost means a cost that, in its nature and amount, 
does not exceed that which would be incurred by a prudent person under 
the circumstances prevailing at the time the decision was made to incur 
the cost. The burden of proof is upon the guaranty agency, as a 
fiduciary under its agreements with the Secretary, to establish that 
costs are reasonable. In determining reasonableness of a given cost, 
consideration must be given to--
    (A) Whether the cost is of a type generally recognized as ordinary 
and necessary for the proper and efficient performance and 
administration of the guaranty agency's responsibilities under the HEA;
    (B) The restraints or requirements imposed by factors such as sound 
business practices, arms-length bargaining, Federal, State, and other 
laws and regulations, and the terms and conditions of the guaranty 
agency's agreements with the Secretary; and
    (C) Market prices of comparable goods or services.

[[Page 148]]

    (b) Administrative requirements--(1) Independent audits. The 
guaranty agency shall arrange for an independent financial and 
compliance audit of the agency's FFEL program as follows:
    (i) [Reserved]
    (ii) A guaranty agency must conduct an audit in accordance with 31 
U.S.C. 7502 and 2 CFR part 200, subpart F--Audit Requirements.\2\ If a 
nonprofit guaranty agency meets the criteria in 2 CFR part 200, subpart 
F--Audit Requirements to have a program specific audit, and chooses that 
option, the program-specific audit must meet the following requirements:
---------------------------------------------------------------------------

    \2\ None of the other regulations in 2 CFR part 200 apply to 
lenders. Only those requirements in subpart F-Audit Requirements, apply 
to lenders, as required under the Single Audit Act Amendments of 1996 
(31 U.S.C. Chapter 75).
---------------------------------------------------------------------------

    (2) Collection charges. Whether or not provided for in the 
borrower's promissory note and subject to any limitation on the amount 
of those costs in that note, the guaranty agency shall charge a borrower 
an amount equal to reasonable costs incurred by the agency in collecting 
a loan on which the agency has paid a default or bankruptcy claim. These 
costs may include, but are not limited to, all attorney's fees, 
collection agency charges, and court costs. Except as provided in 
Secs. 682.401(b)(18)(i) and 682.405(b)(1)(iv)(B), the amount charged a 
borrower must equal the lesser of--
    (i) The amount the same borrower would be charged for the cost of 
collection under the formula in 34 CFR 30.60; or
    (ii) The amount the same borrower would be charged for the cost of 
collection if the loan was held by the U.S. Department of Education.
    (3) Interest charged by guaranty agencies. (i) Except as provided in 
paragraph (b)(3)(ii) of this section, the guaranty agency shall charge 
the borrower interest on the amount owed by the borrower after the 
capitalization required under paragraph (b)(4) of this section has 
occurred at a rate that is the greater of--
    (A) The rate established by the terms of the borrower's original 
promissory note; or
    (B) In the case of a loan for which a judgment has been obtained, 
the rate provided for by State law.
    (ii) If the guaranty agency determines that the borrower is eligible 
for the interest rate limit of six percent under Sec. 682.202(a)(8), the 
interest rate described in paragraph (b)(3)(i) shall not exceed six 
percent.
    (4) Capitalization of unpaid interest. The guaranty agency shall 
capitalize any unpaid interest due the lender from the borrower at the 
time the agency pays a default claim to the lender.
    (5) Reports to consumer reporting agencies. (i) After the completion 
of the procedures in paragraph (b)(5)(ii) of this section, the guaranty 
agency shall, after it has paid a default claim, report promptly, but 
not less than sixty days after completion of the procedures in paragraph 
(b)(6)(ii) of this section, and on a regular basis, to all nationwide 
consumer reporting agencies--
    (A) The total amount of loans made to the borrower and the remaining 
balance of those loans;
    (B) The date of default;
    (C) Information concerning collection of the loan, including the 
repayment status of the loan;
    (D) Any changes or corrections in the information reported by the 
agency that result from information received after the initial report; 
and
    (E) The date the loan is fully repaid by or on behalf of the 
borrower or discharged by reason of the borrower's death, bankruptcy, 
total and permanent disability, or closed school or false certification.
    (ii) The guaranty agency, after it pays a default claim on a loan 
but before it reports the default to a consumer reporting agency or 
assesses collection costs against a borrower, shall, within the 
timeframe specified in paragraph (b)(6)(ii) of this section, provide the 
borrower with--
    (A) Written notice that meets the requirements of paragraph 
(b)(5)(vi) of this section regarding the proposed actions;
    (B) An opportunity to inspect and copy agency records pertaining to 
the loan obligation;

[[Page 149]]

    (C) An opportunity for an administrative review of the legal 
enforceability or past-due status of the loan obligation; and
    (D) An opportunity to enter into a repayment agreement on terms 
satisfactory to the agency.
    (iii) The procedures set forth in 34 CFR 30.20-30.33 (administrative 
offset) satisfy the requirements of paragraph (b)(5)(ii) of this 
section.
    (iv)(A) In response to a request submitted by a borrower, after the 
deadlines established under agency rules, for access to records, an 
administrative review, or for an opportunity to enter into a repayment 
agreement, the agency shall provide the requested relief but may 
continue reporting the debt to consumer reporting agencies until it 
determines that the borrower has demonstrated that the loan obligation 
is not legally enforceable or that alternative repayment arrangements 
satisfactory to the agency have been made with the borrower.
    (B) The deadline established by the agency for requesting 
administrative review under paragraph (b)(5)(ii)(C) of this section must 
allow the borrower at least 60 days from the date the notice described 
in paragraph (b)(5)(ii)(A) of this section is sent to request that 
review.
    (v) An agency may not permit an employee, official, or agent to 
conduct the administrative review required under this paragraph if that 
individual is--
    (A) Employed in an organizational component of the agency or its 
agent that is charged with collection of loan obligations; or
    (B) Compensated on the basis of collections on loan obligations.
    (vi) The notice sent by the agency under paragraph (b)(5)(ii)(A) of 
this section must--
    (A) Advise the borrower that the agency has paid a default claim 
filed by the lender and has taken assignment of the loan;
    (B) Identify the lender that made the loan and the school for 
attendance at which the loan was made;
    (C) State the outstanding principal, accrued interest, and any other 
charges then owing on the loan;
    (D) Demand that the borrower immediately begin repayment of the 
loan;
    (E) Explain the rate of interest that will accrue on the loan, that 
all costs incurred to collect the loan will be charged to the borrower, 
the authority for assessing these costs, and the manner in which the 
agency will calculate the amount of these costs;
    (F) Notify the borrower that the agency will report the default to 
all nationwide consumer reporting agencies to the detriment of the 
borrower's credit rating;
    (G) Explain the opportunities available to the borrower under agency 
rules to request access to the agency's records on the loan, to request 
an administrative review of the legal enforceability or past-due status 
of the loan, and to reach an agreement on repayment terms satisfactory 
to the agency to prevent the agency from reporting the loan as defaulted 
to consumer reporting agencies and provide deadlines and method for 
requesting this relief;
    (H) Unless the agency uses a separate notice to advise the borrower 
regarding other proposed enforcement actions, describe specifically any 
other enforcement action, such as offset against Federal or state income 
tax refunds or wage garnishment that the agency intends to use to 
collect the debt, and explain the procedures available to the borrower 
prior to those other enforcement actions for access to records, for an 
administrative review, or for agreement to alternative repayment terms;
    (I) Describe the grounds on which the borrower may object that the 
loan obligation as stated in the notice is not a legally enforceable 
debt owed by the borrower;
    (J) Describe any appeal rights available to the borrower from an 
adverse decision on administrative review of the loan obligation;
    (K) Describe any right to judicial review of an adverse decision by 
the agency regarding the legal enforceability or past-due status of the 
loan obligation;
    (L) Describe the collection actions that the agency may take in the 
future if those presently proposed do not result in repayment of the 
loan obligation, including the filing of a lawsuit against the borrower 
by the agency and

[[Page 150]]

assignment of the loan to the Secretary for the filing of a lawsuit 
against the borrower by the Federal Government; and
    (M) Inform the borrower of the options that are available to the 
borrower to remove the loan from default, including an explanation of 
the fees and conditions associated with each option.
    (vii) As part of the guaranty agency's response to a borrower who 
appeals an adverse decision resulting from the agency's administrative 
review of the loan obligation, the agency must provide the borrower with 
information on the availability of the Student Loan Ombudsman's office.
    (6) Collection efforts on defaulted loans. (i) A guaranty agency 
must engage in reasonable and documented collection activities on a loan 
on which it pays a default claim filed by a lender. For a non-paying 
borrower, the agency must perform at least one activity every 180 days 
to collect the debt, locate the borrower (if necessary), or determine if 
the borrower has the means to repay the debt.
    (ii) Within 45 days after paying a lender's default claim, the 
agency must send a notice to the borrower that contains the information 
described in paragraph (b)(5)(ii) of this section. During this time 
period, the agency also must notify the borrower, either in the notice 
containing the information described in paragraph (b)(5)(ii) of this 
section, or in a separate notice, that if he or she does not make 
repayment arrangements acceptable to the agency, the agency will 
promptly initiate procedures to collect the debt. The agency's 
notification to the borrower must state that the agency may 
administratively garnish the borrower's wages, file a civil suit to 
compel repayment, offset the borrower's State and Federal income tax 
refunds and other payments made by the Federal Government to the 
borrower, assign the loan to the Secretary in accordance with 
Sec. 682.409, and take other lawful collection means to collect the 
debt, at the discretion of the agency. The agency's notification must 
include a statement that borrowers may have certain legal rights in the 
collection of debts, and that borrowers may wish to contact counselors 
or lawyers regarding those rights.
    (iii) Within a reasonable time after all of the information 
described in paragraph (b)(6)(ii) of this section has been sent, the 
agency must send at least one notice informing the borrower that the 
default has been reported to all nationwide consumer reporting agencies 
and that the borrower's credit rating may thereby have been damaged.
    (iv) The agency must send a notice informing the borrower of the 
options that are available to remove the loan from default, including an 
explanation of the fees and conditions associated with each option. This 
notice must be sent within a reasonable time after the end of the period 
for requesting an administrative review as specified in paragraph 
(b)(5)(iv)(B) of this section or, if the borrower has requested an 
administrative review, within a reasonable time following the conclusion 
of the administrative review.
    (v) A guaranty agency must attempt an annual Federal offset against 
all eligible borrowers. If an agency initiates proceedings to offset a 
borrower's State or Federal income tax refunds and other payments made 
by the Federal Government to the borrower, it may not initiate those 
proceedings sooner than 60 days after sending the notice described in 
paragraph (b)(5)(ii)(A) of this section.
    (vi) A guaranty agency must initiate administrative wage garnishment 
proceedings against all eligible borrowers, except as provided in 
paragraph (b)(6)(vii) of this section, by following the procedures 
described in paragraph (b)(9) of this section.
    (vii) A guaranty agency may file a civil suit against a borrower to 
compel repayment only if the borrower has no wages that can be garnished 
under paragraph (b)(9) of this section, or the agency determines that 
the borrower has sufficient attachable assets or income that is not 
subject to administrative wage garnishment that can be used to repay the 
debt, and the use of litigation would be more effective in collection of 
the debt.
    (7) Special conditions for agency payment of a claim. (i) A guaranty 
agency may adopt a policy under which it pays

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a claim to a lender on a loan under the condition described in 
Sec. 682.404(b)(3)(ii).
    (ii) Upon the payment of a claim under a policy described in 
paragraph (b)(7)(i) of this section, the guaranty agency shall--
    (A) Perform the loan servicing functions required of a lender under 
Sec. 682.208, except that the agency is not required to follow the 
consumer reporting agency reporting requirements of that section;
    (B) Perform the functions of the lender during the repayment period 
of the loan, as required under Sec. 682.209;
    (C) If the borrower is delinquent in repaying the loan at the time 
the agency pays a claim thereon to the lender or becomes delinquent 
while the agency holds the loan, exercise due diligence in accordance 
with Sec. 682.411 in attempting to collect the loan from the borrower 
and any endorser or co-maker; and
    (D) After the date of default on the loan, if any, comply with 
paragraph (b)(6) of this section with respect to collection activities 
on the loan, with the date of default treated as the claim payment date 
for purposes of those paragraphs.
    (8) Preemption of State law. The provisions of paragraphs (b)(2), 
(5), and (6) of this section preempt any State law, including State 
statutes, regulations, or rules, that would conflict with or hinder 
satisfaction of the requirements of these provisions.
    (9) Administrative garnishment. (i) If a guaranty agency decides to 
garnish the disposable pay of a borrower who is not making payments on a 
loan held by the agency, on which the Secretary has paid a reinsurance 
claim, it must do so in accordance with the following procedures:
    (A) At least 30 days before the initiation of garnishment 
proceedings, the guaranty agency must mail to the borrower's last known 
address, a written notice described in paragraph (b)(9)(i)(B) of this 
section.
    (B) The notice must describe--
    (1) The nature and amount of the debt;
    (2) The intention of the agency to collect the debt through 
deductions from disposable pay;
    (3) An explanation of the borrower's rights;
    (4) The deadlines by which a borrower must exercise those rights; 
and
    (5) The consequences of failure to exercise those rights in a timely 
manner.
    (C) The guaranty agency must offer the borrower an opportunity to 
inspect and copy agency records related to the debt.
    (D) The guaranty agency must offer the borrower an opportunity to 
enter into a written repayment agreement with the agency under terms 
agreeable to the agency.
    (E)(1) The guaranty agency must offer the borrower an opportunity 
for a hearing in accordance with paragraphs (b)(9)(i)(F) through (J) of 
this section and other guidance provided by the Secretary, for any 
objection regarding the existence, amount, or enforceability of the 
debt, and any objection that withholding from the borrower's disposable 
pay in the amount or at the rate proposed in the notice would cause 
financial hardship to the borrower.
    (2) The borrower must request a hearing in writing. At the 
borrower's option, the hearing may be oral or written. The time and 
location of the hearing is established by the guaranty agency. An oral 
hearing may, at the borrower's option, be conducted either in-person or 
by telephone conference. The agency notifies the borrower of the process 
for arranging the time and location of an oral hearing. All telephonic 
charges are the responsibility of the agency. All travel expenses 
incurred by the borrower in connection with an in-person oral hearing 
are the responsibility of the borrower.
    (F)(1) If the borrower submits a written request for a hearing on 
the existence, amount, or enforceability of the debt--
    (i) The guaranty agency must provide evidence of the existence of 
the debt. If the agency provides evidence of the existence of the debt, 
the borrower must prove by the preponderance of the evidence that no 
debt exists, the debt is not enforceable under applicable law, the 
amount the guaranty agency claims the borrower owes is incorrect, 
including that any amount of collection costs assessed to the borrower 
exceeds the limits established under

[[Page 152]]

Sec. 682.410(b)(2), or the debt is not delinquent; and
    (ii) The borrower may raise any of the objections described in 
paragraph (b)(9)(i)(F)(1)(i) of this section not raised in the written 
request, but must do so before a hearing is completed. For purposes of 
this paragraph, a hearing is completed when the record is closed and the 
hearing official notifies the parties that no additional evidence or 
objections will be accepted.
    (2) If the borrower submits a written request for a hearing on an 
objection that withholding in the amount or at the rate that the agency 
proposed in its notice would cause financial hardship to the borrower 
and the borrower's spouse and dependents--
    (i) The borrower bears the burden of proving the claim of financial 
hardship by a preponderance of the credible evidence by providing 
credible documentation that the amount of wages proposed in the notice 
would leave the borrower unable to meet basic living expenses of the 
borrower, the borrower's spouse, and the borrower's dependents. The 
documentation must show the amount of the costs incurred for basic 
living expenses and the income available from any source to meet those 
expenses;
    (ii) The borrower's claim of financial hardship must be evaluated by 
comparing the amounts that the borrower proves are being incurred for 
basic living expenses against the amounts spent for basic living 
expenses by families of the same size as the borrower's. For the 
purposes of this section, the standards published by the Internal 
Revenue Service under 26 U.S.C. 7122(d)(2) (the ''Collection Financial 
Standards'') establish the average amounts spent for basic living 
expenses for families of the same size as the borrower's family;
    (iii) The amount that the borrower proves is incurred for a type of 
basic living expense is considered to be reasonable to the extent that 
the amount does not exceed the amount spent for that expense by families 
of the same size according to the Collection Financial Standards. If the 
borrower claims an amount for any basic living expense that exceeds the 
amount in the Collection Financial Standards, the borrower must prove 
that the amount claimed is reasonable and necessary;
    (iv) If the borrower's objection to the rate or amount proposed in 
the notice is upheld in part, the garnishment must be ordered at a 
lesser rate or amount, that is determined will allow the borrower to 
meet basic living expenses proven to be reasonable and necessary. If 
this financial hardship determination is made after a garnishment order 
is already in effect, the guaranty agency must notify the borrower's 
employer of any change required by the determination in the amount to be 
withheld or the rate of withholding under that order; and
    (v) A determination by a hearing official that financial hardship 
would result from garnishment is effective for a period not longer than 
six months after the date of the finding. After this period, the 
guaranty agency may require the borrower to submit current information 
regarding the borrower's family income and living expenses. If the 
borrower fails to submit current information within 30 days of this 
request, or the guaranty agency concludes from a review of the available 
evidence that garnishment should now begin or the rate or the amount of 
an outstanding withholding should be increased, the guaranty agency must 
notify the borrower and provide the borrower with an opportunity to 
contest the determination and obtain a hearing on the objection under 
the procedures in paragraph (b)(9)(i) of this section.
    (G) If the borrower's written request for a hearing is received by 
the guaranty agency on or before the 30th day following the date of the 
notice described in paragraph (b)(9)(i)(B) of this section, the guaranty 
agency may not issue a withholding order until the borrower has been 
provided the requested hearing and a decision has been rendered. The 
guaranty agency must provide a hearing to the borrower in sufficient 
time to permit a decision, in accordance with the procedures that the 
agency may prescribe, to be rendered within 60 days.
    (H) If the borrower's written request for a hearing is received by 
the guaranty agency after the 30th day following the date of the notice 
described in paragraph (b)(9)(i)(B) of this section,

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the guaranty agency must provide a hearing to the borrower in sufficient 
time that a decision, in accordance with the procedures that the agency 
may prescribe, may be rendered within 60 days, but may not delay 
issuance of a withholding order unless the agency determines that the 
delay in filing the request was caused by factors over which the 
borrower had no control, or the agency receives information that the 
agency believes justifies a delay or cancellation of the withholding 
order. If a decision is not rendered within 60 days following receipt of 
a borrower's written request for a hearing, the guaranty agency must 
suspend the order beginning on the 61st day after the hearing request 
was received until a hearing is provided and a decision is rendered.
    (I) The hearing official appointed by the agency to conduct the 
hearing may be any qualified individual, including an administrative law 
judge. Under no circumstance may the hearing official be under the 
supervision or control of the head of the guaranty agency or of a third-
party servicer or collection contractor employed by the agency. Payment 
of compensation by the guaranty agency, third-party servicer, or 
collection contractor employed by the agency to the hearing official for 
service as a hearing official does not constitute impermissible 
supervision or control under this paragraph. The guaranty agency must 
ensure that, except as needed to arrange for administrative matters 
pertaining to the hearing, including the type of hearing requested by 
the borrower, the time, place, and manner of conducting an oral hearing, 
and post-hearing matters such as issuance of a hearing decision, all 
oral communications between the hearing official and any representative 
of the guaranty agency or with the borrower are made within the hearing 
of the other party, and that copies of any written communication with 
either party are promptly provided to the other party. This paragraph 
does not preclude a hearing in the absence of one of the parties if the 
borrower is given proper notice of the hearing, both parties have agreed 
on the time, place, and manner of the hearing, and one of the parties 
fails to attend.
    (J) The hearing official must conduct any hearing as an informal 
proceeding, require witnesses in an oral hearing to testify under oath 
or affirmation, and maintain a summary record of any hearing. The 
hearing official must issue a final written decision at the earliest 
practicable date, but not later than 60 days after the guaranty agency's 
receipt of the borrower's hearing request. However--
    (1) The borrower may request an extension of that deadline for a 
reasonable period, as determined by the hearing official, for the 
purpose of submitting additional evidence or raising a new objection 
described in paragraph (b)(9)(i)(F)(1)(ii) of this section; and
    (2) The agency may request, and the hearing official must grant, a 
reasonable extension of time sufficient to enable the guaranty agency to 
evaluate and respond to any such additional evidence or any objections 
raised pursuant to paragraph (b)(9)(i)(F)(1)(ii) of this section.
    (K) An employer served with a garnishment order from the guaranty 
agency with respect to a borrower whose wages are not then subject to a 
withholding order of any kind must deduct and pay to the agency from a 
borrower's disposable pay an amount that does not exceed the smallest 
of--
    (1) The amount specified in the guaranty agency order;
    (2) The amount permitted by section 488A(a)(1) of the Act, which is 
15 percent of the borrower's disposable pay; or
    (3) The amount permitted by 15 U.S.C. 1673(a)(2), which is the 
amount by which the borrower's disposable pay exceeds 30 times the 
minimum wage.
    (L) If a borrower's pay is subject to more than one garnishment 
order--
    (1) Unless other Federal law requires a different priority, the 
employer must pay the agency the amount calculated under paragraph 
(b)(9)(i)(K) of this section before the employer complies with any later 
garnishment orders, except a family support withholding order;
    (2) If an employer is withholding from a borrower's pay based on a 
garnishment order served on the employer before the guaranty agency's 
order, or if a withholding order for family support is served on an 
employer at any

[[Page 154]]

time, the employer must comply with the agency's garnishment order by 
withholding an amount that is the lesser of--
    (i) The amount specified in the guaranty agency order; or
    (ii) The amount calculated under paragraph (b)(9)(i)(L)(3) of this 
section less the amount or amounts withheld under the garnishment order 
or orders that have priority over the agency's order; and
    (3) The cumulative withholding for all garnishment orders issued by 
guaranty agencies may not exceed, for an individual borrower, the amount 
permitted by 15 U.S.C. 1673, which is the lesser of 25 percent of the 
borrower's disposable pay or the amount by which the borrower's 
disposable pay exceeds 30 times the minimum wage. If a borrower owes 
debts to one or more guaranty agencies, each agency may issue a 
garnishment order to enforce each of those debts, but no single agency 
may order a total amount exceeding 15 percent of the disposable pay of a 
borrower to be withheld. The employer must honor these orders as 
provided in paragraphs (b)(9)(i)(L)(1) and (2) of this section.
    (M) Notwithstanding paragraphs (b)(9)(i)(K) and (L) of this section, 
an employer may withhold and pay a greater amount than required under 
the order if the borrower gives the employer written consent.
    (N) A borrower may, at any time, raise an objection to the amount or 
the rate of withholding specified in the guaranty agency's order to the 
borrower's employer on the ground of financial hardship. However, the 
guaranty agency is not required to consider such an objection and 
provide the borrower with a hearing until at least six months after the 
agency issued the most recent garnishment order, either one for which 
the borrower did not request a hearing or one that was issued after a 
hardship-related hearing determination. The agency may provide a hearing 
in extraordinary circumstances earlier than six months if the borrower's 
request for review shows that the borrower's financial circumstances 
have substantially changed after the garnishment notice because of an 
event such as injury, divorce, or catastrophic illness.
    (O) A garnishment order is effective until the guaranty agency 
rescinds the order or the agency has fully recovered the amounts owed by 
the borrower, including interest, late fees, and collections costs. If 
an employer is unable to honor a garnishment order because the amount 
available for garnishment is insufficient to pay any portion of the 
amount stated in the order, the employer must notify the agency and 
comply with the order when sufficient disposable pay is available. Upon 
full recovery of the debt, the agency must send the borrower's employer 
notification to stop wage withholding.
    (P) The guaranty agency must sue any employer for any amount that 
the employer, after receipt of the withholding order provided by the 
agency under paragraph (b)(9)(i)(R) of this section, fails to withhold 
from wages owed and payable to an employee under the employer's normal 
pay and disbursement cycle.
    (Q) The guaranty agency may not garnish the wages of a borrower whom 
it knows has been involuntarily separated from employment until the 
borrower has been reemployed continuously for at least 12 months. The 
borrower has the burden of informing the guaranty agency of the 
circumstances surrounding the borrower's involuntary separation from 
employment.
    (R) Unless the guaranty agency receives information that the agency 
believes justifies a delay or cancellation of the withholding order, it 
must send a withholding order to the employer within 20 days after the 
borrower fails to make a timely request for a hearing, or, if a timely 
request for a hearing is made by the borrower, within 20 days after a 
final decision is made by the agency to proceed with garnishment.
    (S) The notice given to the employer under paragraph (b)(9)(i)(R) of 
this section must contain only the information as may be necessary for 
the employer to comply with the withholding order and to ensure proper 
credit for payments received. At a minimum, the notice given to the 
employer includes the borrower's name, address, and Social Security 
Number, as well as instructions for withholding and information

[[Page 155]]

as to where the employer must send payments.
    (T)(1) A guaranty agency may use a third-party servicer or 
collection contractor to perform administrative activities associated 
with administrative wage garnishment, but may not allow such a party to 
conduct required hearings or to determine that a withholding order is to 
be issued. Subject to the limitations of paragraphs (b)(9)(i)(T)(2) and 
(3) of this section, administrative activities associated with 
administrative wage garnishment may include but are not limited to--
    (i) Identifying to the agency suitable candidates for wage 
garnishment pursuant to agency standards;
    (ii) Obtaining employment information for the purposes of 
garnishment;
    (iii) Sending candidates selected for garnishment by the agency 
notices prescribed by the agency;
    (iv) Negotiating alternative repayment arrangements with borrowers;
    (v) Responding to inquiries from notified borrowers;
    (vi) Receiving garnishment payments on behalf of the agency;
    (vii) Arranging for the retention of hearing officials and for the 
conduct of hearings on behalf of the agency;
    (viii) Providing information to borrowers or hearing officials on 
the process or conduct of hearings; and
    (ix) Sending garnishment orders and other communications to 
employers on behalf of the agency.
    (2) Only an authorized official of the agency may determine that an 
individual withholding order is to be issued. The guarantor must record 
the official's determination for each order it issues, including any 
order which it causes to be prepared or mailed by a third-party servicer 
or collection contractor. The guarantor must evidence the official's 
approval, either by including the official's signature on the order or, 
if the agency uses a form of withholding order that does not provide for 
execution by signature, by retaining in the agency's records the 
identity of the approving official, the date of the approval, the amount 
or rate of the order, the name and address of the employer to whom the 
order was issued, and the debt for which the order was issued.
    (3) The withholding order must identify the guaranty agency as the 
holder of the debt, as the issuer of the order, and as the sole party 
legally authorized to issue the withholding order. If a guaranty agency 
uses a third-party servicer or collection contractor to prepare and mail 
a withholding order that includes the name of the servicer or contractor 
that prepared or mailed the order, the guaranty agency must also ensure 
that the order contains no captions or representations that the servicer 
or contractor is the party that issued, or was empowered by Federal law 
or by the agency to issue, the withholding order.
    (U) As specified in section 488A(a)(8) of the Act, the borrower may 
seek judicial relief, including punitive damages, if the employer 
discharges, refuses to employ, or takes disciplinary action against the 
borrower due to the issuance of a withholding order.
    (V) A guaranty agency is required to suspend a garnishment order 
when the agency receives a borrower's fifth qualifying payment under a 
loan rehabilitation agreement with the agency, unless otherwise directed 
by the borrower, in accordance with Sec. 682.405(a)(3).
    (ii) For purposes of paragraph (b)(9) of this section--
    (A) ``Borrower'' includes all endorsers on a loan;
    (B) ``Day'' means calendar day;
    (C) ``Disposable pay'' means that part of a borrower's compensation 
for personal services, whether or not denominated as wages from an 
employer, that remains after the deduction of health insurance premiums 
and any amounts required by law to be withheld, and includes, but is not 
limited to, salary, bonuses, commissions, or vacation pay. ``Amounts 
required by law to be withheld'' include amounts for deductions such as 
Social Security taxes and withholding taxes, but do not include any 
amount withheld under a court order or other withholding order. All 
references to an amount of disposable pay refer to disposable pay 
calculated for a single week;
    (D) ``Employer'' means a person or entity that employs the services 
of another and that pays the latter's wages or salary and includes, but 
is not limited to, State and local governments,

[[Page 156]]

but does not include an agency of the Federal Government;
    (E) ``Financial hardship'' means an inability to meet basic living 
expenses for goods and services necessary for the survival of the 
borrower and the borrower's spouse and dependents;
    (F) ``Garnishment'' means the process of withholding amounts from an 
employee's disposable pay and paying those amounts to a creditor in 
satisfaction of a withholding order; and
    (G) ``Withholding order'' means any order for withholding or 
garnishment of pay issued by the guaranty agency and may also be 
referred to as ``wage garnishment order'' or ``garnishment order.''
    (10) Conflicts of interest. (i) A guaranty agency shall maintain and 
enforce written standards of conduct governing the performance of its 
employees, officers, directors, trustees, and agents engaged in the 
selection, award, and administration of contracts or agreements. The 
standards of conduct must, at a minimum, require disclosure of financial 
or other interests and must mandate disinterested decision-making. The 
standards must provide for appropriate disciplinary actions to be 
applied for violations of the standards by employees, officers, 
directors, trustees, or agents of the guaranty agency, and must include 
provisions to--
    (A) Prohibit any employee, officer, director, trustee, or agent from 
participating in the selection, award, or decision-making related to the 
administration of a contract or agreement supported by the reserve fund 
described in paragraph (a) of this section, if that participation would 
create a conflict of interest. Such a conflict would arise if the 
employee, officer, director, trustee, or agent, or any member of his or 
her immediate family, his or her partner, or an organization that 
employs or is about to employ any of those parties has a financial or 
ownership interest in the organization selected for an award or would 
benefit from the decision made in the administration of the contract or 
agreement. The prohibitions described in this paragraph do not apply to 
employees of a State agency covered by codes of conduct established 
under State law;
    (B) Ensure sufficient separation of responsibility and authority 
between its lender claims processing as a guaranty agency and its 
lending or loan servicing activities, or both, within the guaranty 
agency or between that agency and one or more affiliates, including 
independence in direct reporting requirements and such management and 
systems controls as may be necessary to demonstrate, in the independent 
audit required under Sec. 682.410(b)(1), that claims filed by another 
arm of the guaranty agency or by an affiliate of that agency receive no 
more favorable treatment than that accorded the claims filed by a lender 
or servicer that is not an affiliate or part of the guaranty agency; and
    (C) Prohibit the employees, officers, directors, trustees, and 
agents of the guaranty agency, his or her partner, or any member of his 
or her immediate family, from soliciting or accepting gratuities, 
favors, or anything of monetary value from contractors or parties to 
agreements, except that nominal and unsolicited gratuities, favors, or 
items may be accepted.
    (ii) Guaranty agency restructuring. If the Secretary determines that 
action is necessary to protect the Federal fiscal interest because of an 
agency's failure to meet the requirements of Sec. 682.410(b)(10)(i), the 
Secretary may require the agency to comply with any additional measures 
that the Secretary believes are appropriate, including the total 
divestiture of the agency's non-FFEL functions and the agency's 
interests in any affiliated organization.
    (c) Enforcement requirements. A guaranty agency shall take such 
measures and establish such controls as are necessary to ensure its 
vigorous enforcement of all Federal, State, and guaranty agency 
requirements, including agreements, applicable to its loan guarantee 
program, including, at a minimum, the following:
    (1) Conducting comprehensive biennial on-site program reviews, using 
statistically valid techniques to calculate liabilities to the Secretary 
that each review indicates may exist, of at least--
    (i)(A) Each participating lender whose dollar volume of FFEL loans

[[Page 157]]

held by the lender and guaranteed by the agency in the preceding year--
    (1) Equaled or exceeded two percent of the total of all loans 
guaranteed by the agency;
    (2) Was one of the ten largest lenders whose loans were guaranteed 
by the agency; or
    (3) Equaled or exceeded $10 million in the most recent fiscal year;
    (B) Each lender described in section 435(d)(1)(D) or (J) of the Act 
that is located in any State in which the agency is the principal 
guarantor, and, at the option of each guaranty agency, the Student Loan 
Marketing Association; and
    (C) Each school that participated in the guaranty agency's program, 
located in a State for which the guaranty agency is the principal 
guaranty agency, that has a cohort default rate, as described in subpart 
M of 34 CFR part 668, that includes FFEL Program loans, for either of 
the 2 immediately preceding fiscal years, as defined in 34 CFR 668.182, 
that exceeds 20 percent, unless the school is under a mandate from the 
Secretary under subpart M of 34 CFR part 668 to take specific default 
reduction measures or if the total dollar amount of loans entering 
repayment in each fiscal year on which the cohort default rate of over 
20 percent is based does not exceed $100,000; or
    (ii) The schools and lenders selected by the agency as an 
alternative to the reviews required by paragraphs (c)(1)(i)(A)-(C) of 
this section if the Secretary approves the agency's proposed alternative 
selection methodology.
    (2) Demanding prompt repayment by the responsible parties to 
lenders, borrowers, the agency, or the Secretary, as appropriate, of all 
funds found in those reviews to be owed by the participants with regard 
to loans guaranteed by the agency, whether or not the agency holds the 
loans, and monitoring the implementation by participants of corrective 
actions, including these repayments, required by the agency as a result 
of those reviews.
    (3) Referring to the Secretary for further enforcement action any 
case in which repayment of funds to the Secretary is not made in full 
within 60 days of the date of the agency's written demand to the school, 
lender, or other party for payment, together with all supporting 
documentation, any correspondence, and any other documentation submitted 
by that party regarding the repayment.
    (4) Undertaking or arranging with State or local law enforcement 
agencies for the prompt and thorough investigation of all allegations 
and indications of criminal or other programmatic misconduct by its 
program participants, including violations of Federal law or 
regulations.
    (5) Promptly referring to appropriate State and local regulatory 
agencies and to nationally recognized accrediting agencies and 
associations for investigation information received by the guaranty 
agency that may affect the retention or renewal of the license or 
accreditation of a program participant.
    (6) Promptly reporting all of the allegations and indications of 
misconduct having a substantial basis in fact, and the scope, progress, 
and results of the agency's investigations thereof to the Secretary.
    (7) Referring appropriate cases to State or local authorities for 
criminal prosecution or civil litigation.
    (8) Promptly notifying the Secretary of--
    (i) Any action it takes affecting the FFEL program eligibility of a 
participating lender or title IV eligibility of a school;
    (ii) Information it receives regarding an action affecting the FFEL 
program eligibility of a participating lender or title IV eligibility of 
a school taken by a nationally recognized accrediting agency, 
association, or a State licensing agency;
    (iii) Any judicial or administrative proceeding relating to the 
enforceability of FFEL loans guaranteed by the agency or in which 
tuition obligations of a school's students are directly at issue, other 
than a proceeding relating to a single borrower or student; and
    (iv) Any petition for relief in bankruptcy, application for 
receivership, or corporate dissolution proceeding brought by or against 
a school or lender participating in its loan guarantee program.

[[Page 158]]

    (9) Cooperating with all program reviews, investigations, and audits 
conducted by the Secretary relating to the agency's loan guarantee 
program.
    (10) Taking prompt action to protect the rights of borrowers and the 
Federal fiscal interest respecting loans that the agency has guaranteed 
when the agency learns that a school that participated in the FFEL 
Program or a holder of loans participating in the program is 
experiencing problems that threaten the solvency of the school or 
holder, including--
    (i) Conducting on-site program reviews;
    (ii) Providing training and technical assistance, if appropriate;
    (iii) Filing a proof of claim with a bankruptcy court for recovery 
of any funds due the agency and any refunds due to borrowers on FFEL 
loans that it has guaranteed when the agency learns that a school has 
filed a bankruptcy petition;
    (iv) Promptly notifying the Secretary that the agency has determined 
that a school or holder of loans is experiencing potential solvency 
problems; and
    (v) Promptly notifying the Secretary of the results of any actions 
taken by the agency to protect Federal funds involving such a school or 
holder.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1080a, 1082, 1087, 
1091a, and 1099)

[57 FR 60323, Dec. 18, 1992]

    Editorial Note: For Federal Register citations affecting 
Sec. 682.410, see the List of CFR Sections Affected, which appears in 
the Finding Aids section of the printed volume and at www.fdsys.gov.

    Effective Date Note: At 81 FR 76080, Nov. 1, 2016, Sec. 682.410 was 
amended in paragraph (b)(4) by adding, after the words ``to the 
lender'', the words and punctuation ``, but shall not capitalize any 
unpaid interest thereafter'' and by adding paragraph (b)(6)(viii), eff. 
July 1, 2017. At 82 FR 27621, June 16, 2017, the effective date was 
delayed indefinitely. For the convenience of the user, the added text is 
set forth as follows:



Sec. 682.410  Fiscal, administrative, and enforcement requirements.

                                * * * * *

    (b) * * *
    (6) * * *
    (viii) Upon notification by the Secretary that the borrower has made 
a borrower defense claim related to a loan that the borrower intends to 
consolidate into the Direct Loan Program for the purpose of seeking 
relief in accordance with Sec. 685.212(k), the guaranty agency must 
suspend all collection activities on the affected loan for the period 
designated by the Secretary.

                                * * * * *



Sec. 682.411  Lender due diligence in collecting guaranty agency loans.

    (a) General. In the event of delinquency on an FFEL Program loan, 
the lender must engage in at least the collection efforts described in 
paragraphs (c) through (n) of this section, except that in the case of a 
loan made to a borrower who is incarcerated, residing outside a State, 
Mexico, or Canada, or whose telephone number is unknown, the lender may 
send a forceful collection letter instead of each telephone effort 
required by this section.
    (b) Delinquency. (1) For purposes of this section, delinquency on a 
loan begins on the first day after the due date of the first missed 
payment that is not later made. The due date of the first payment is 
established by the lender but must occur by the deadlines specified in 
Sec. 682.209(a) or, if the lender first learns after the fact that the 
borrower has entered the repayment period, no later than 75 days after 
the day the lender so learns, except as provided in 
Sec. 682.209(a)(2)(v) and (a)(3)(ii)(E). If a payment is made late, the 
first day of delinquency is the day after the due date of the next 
missed payment that is not later made. A payment that is within five 
dollars of the amount normally required to advance the due date may 
nevertheless advance the due date if the lender's procedures allow for 
that advancement.
    (2) At no point during the periods specified in paragraphs (c), (d), 
and (e) of this section may the lender permit the occurrence of a gap in 
collection activity, as defined in paragraph (j) of this section, of 
more than 45 days (60 days in the case of a transfer).
    (3) As part of one of the collection activities provided for in this 
section, the lender must provide the borrower with

[[Page 159]]

information on the availability of the Student Loan Ombudsman's office.
    (c) 1-15 days delinquent. Except in the case in which a loan is 
brought into this period by a payment on the loan, expiration of an 
authorized deferment or forbearance period, or the lender's receipt from 
the drawee of a dishonored check submitted as a payment on the loan, the 
lender during this period must send at least one written notice or 
collection letter to the borrower informing the borrower of the 
delinquency and urging the borrower to make payments sufficient to 
eliminate the delinquency. The notice or collection letter sent during 
this period must include, at a minimum, a lender or servicer contact, a 
telephone number, and a prominent statement informing the borrower that 
assistance may be available if he or she is experiencing difficulty in 
making a scheduled repayment.
    (d) 16-180 days delinquent (16-240 days delinquent for a loan 
repayable in installments less frequently than monthly). (1) Unless 
exempted under paragraph (d)(4) of this section, during this period the 
lender must engage in at least four diligent efforts to contact the 
borrower by telephone and send at least four collection letters urging 
the borrower to make the required payments on the loan. At least one of 
the diligent efforts to contact the borrower by telephone must occur on 
or before, and another one must occur after, the 90th day of 
delinquency. Collection letters sent during this period must include, at 
a minimum, information for the borrower regarding deferment, 
forbearance, income-sensitive repayment, income-based repayment and loan 
consolidation, and other available options to avoid default.
    (2) At least two of the collection letters required under paragraph 
(d)(1) of this section must warn the borrower that, if the loan is not 
paid, the lender will assign the loan to the guaranty agency that, in 
turn, will report the default to each nationwide consumer reporting 
agency, and that the agency may institute proceedings to offset the 
borrower's State and Federal income tax refunds and other payments made 
by the Federal Government to the borrower or to garnish the borrower's 
wages, or to assign the loan to the Federal Government for litigation 
against the borrower.
    (3) Following the lender's receipt of a payment on the loan or a 
correct address for the borrower, the lender's receipt from the drawee 
of a dishonored check received as a payment on the loan, the lender's 
receipt of a correct telephone number for the borrower, or the 
expiration of an authorized deferment or forbearance period, the lender 
is required to engage in only--
    (i) Two diligent efforts to contact the borrower by telephone during 
this period, if the loan is less than 91 days delinquent (121 days 
delinquent for a loan repayable in installments less frequently than 
monthly) upon receipt of the payment, correct address, correct telephone 
number, or returned check, or expiration of the deferment or 
forbearance; or
    (ii) One diligent effort to contact the borrower by telephone during 
this period if the loan is 91-120 days delinquent (121-180 days 
delinquent for a loan repayable in installments less frequently than 
monthly) upon receipt of the payment, correct address, correct telephone 
number, or returned check, or expiration of the deferment or 
forbearance.
    (4) A lender need not attempt to contact by telephone any borrower 
who is more than 120 days delinquent (180 days delinquent for a loan 
repayable in installments less frequent than monthly) following the 
lender's receipt of--
    (i) A payment on the loan;
    (ii) A correct address or correct telephone number for the borrower;
    (iii) A dishonored check received from the drawee as a payment on 
the loan; or
    (iv) The expiration of an authorized deferment or forbearance.
    (e) 181-270 days delinquent (241-330 days delinquent for a loan 
repayable in installments less frequently than monthly). During this 
period the lender must engage in efforts to urge the borrower to make 
the required payments on the loan. These efforts must, at a minimum, 
provide information to the borrower regarding options to avoid default 
and the consequences of defaulting on the loan.

[[Page 160]]

    (f) Final demand. On or after the 241st day of delinquency (the 
301st day for loans payable in less frequent installments than monthly) 
the lender must send a final demand letter to the borrower requiring 
repayment of the loan in full and notifying the borrower that a default 
will be reported to each nationwide consumer reporting agency. The 
lender must allow the borrower at least 30 days after the date the 
letter is mailed to respond to the final demand letter and to bring the 
loan out of default before filing a default claim on the loan.
    (g) Collection procedures when borrower's telephone number is not 
available. Upon completion of a diligent but unsuccessful effort to 
ascertain the correct telephone number of a borrower as required by 
paragraph (m) of this section, the lender is excused from any further 
efforts to contact the borrower by telephone, unless the borrower's 
number is obtained before the 211th day of delinquency (the 271st day 
for loans repayable in installments less frequently than monthly).
    (h) Skip-tracing. (1) Unless the letter specified under paragraph 
(f) of this section has already been sent, within 10 days of its receipt 
of information indicating that it does not know the borrower's current 
address, the lender must begin to diligently attempt to locate the 
borrower through the use of effective commercial skip-tracing 
techniques. These efforts must include, but are not limited to, sending 
a letter to or making a diligent effort to contact each endorser, 
relative, reference, individual, and entity, identified in the 
borrower's loan file, including the schools the student attended. For 
this purpose, a lender's contact with a school official who might 
reasonably be expected to know the borrower's address may be with 
someone other than the financial aid administrator, and may be in 
writing or by phone calls. These efforts must be completed by the date 
of default with no gap of more than 45 days between attempts to contact 
those individuals or entities.
    (2) Upon receipt of information indicating that it does not know the 
borrower's current address, the lender must discontinue the collection 
efforts described in paragraphs (c) through (f) of this section.
    (3) If the lender is unable to ascertain the borrower's current 
address despite its performance of the activities described in paragraph 
(h)(1) of this section, the lender is excused thereafter from 
performance of the collection activities described in paragraphs (c) 
through (f) and (l)(1) through (l)(3) and (l)(5) of this section unless 
it receives communication indicating the borrower's address before the 
241st day of delinquency (the 301st day for loans payable in less 
frequent installments than monthly).
    (4) The activities specified by paragraph (m)(1)(i) or (ii) of this 
section (with references to the ``borrower'' understood to mean 
endorser, reference, relative, individual, or entity as appropriate) 
meet the requirement that the lender make a diligent effort to contact 
each individual identified in the borrower's loan file.
    (i) Default aversion assistance. Not earlier than the 60th day and 
no later than the 120th day of delinquency, a lender must request 
default aversion assistance from the guaranty agency that guarantees the 
loan.
    (j) Gap in collection activity. For purposes of this section, the 
term gap in collection activity means, with respect to a loan, any 
period--
    (1) Beginning on the date that is the day after--
    (i) The due date of a payment unless the lender does not know the 
borrower's address on that date;
    (ii) The day on which the lender receives a payment on a loan that 
remains delinquent notwithstanding the payment;
    (iii) The day on which the lender receives the correct address for a 
delinquent borrower;
    (iv) The day on which the lender completes a collection activity;
    (v) The day on which the lender receives a dishonored check 
submitted as a payment on the loan;
    (vi) The expiration of an authorized deferment or forbearance period 
on a delinquent loan; or
    (vii) The day the lender receives information indicating it does not 
know the borrower's current address; and

[[Page 161]]

    (2) Ending on the date of the earliest of--
    (i) The day on which the lender receives the first subsequent 
payment or completed deferment request or forbearance agreement;
    (ii) The day on which the lender begins the first subsequent 
collection activity;
    (iii) The day on which the lender receives written communication 
from the borrower relating to his or her account; or
    (iv) Default.
    (k) Transfer. For purposes of this section, the term transfer with 
respect to a loan means any action, including, but not limited to, the 
sale of the loan, that results in a change in the system used to monitor 
or conduct collection activity on a loan from one system to another.
    (l) Collection activity. For purposes of this section, the term 
collection activity with respect to a loan means--
    (1) Mailing or otherwise transmitting to the borrower at an address 
that the lender reasonably believes to be the borrower's current address 
a collection letter or final demand letter that satisfies the timing and 
content requirements of paragraph (c), (d), (e), or (f) of this section;
    (2) Making an attempt to contact the borrower by telephone to urge 
the borrower to begin or resume repayment;
    (3) Conducting skip-tracing efforts, in accordance with paragraph 
(h)(1) or (m)(1)(iii) of this section, to locate a borrower whose 
correct address or telephone number is unknown to the lender;
    (4) Mailing or otherwise transmitting to the guaranty agency a 
request for default aversion assistance available from the agency on the 
loan at the time the request is transmitted; or
    (5) Any telephone discussion or personal contact with the borrower 
so long as the borrower is apprised of the account's past-due status.
    (m) Diligent effort for telephone contact. (1) For purposes of this 
section, the term diligent effort with respect to telephone contact 
means--
    (i) A successful effort to contact the borrower by telephone;
    (ii) At least two unsuccessful attempts to contact the borrower by 
telephone at a number that the lender reasonably believes to be the 
borrower's correct telephone number; or
    (iii) An unsuccessful effort to ascertain the correct telephone 
number of a borrower, including, but not limited to, a directory 
assistance inquiry as to the borrower's telephone number, and sending a 
letter to or making a diligent effort to contact each reference, 
relative, and individual identified in the most recent loan application 
or most recent school certification for that borrower held by the 
lender. The lender may contact a school official other than the 
financial aid administrator who reasonably may be expected to know the 
borrower's address or telephone number.
    (2) If the lender is unable to ascertain the borrower's correct 
telephone number despite its performance of the activities described in 
paragraph (m)(1)(iii) of this section, the lender is excused thereafter 
from attempting to contact the borrower by telephone unless it receives 
a communication indicating the borrower's current telephone number 
before the 211th day of delinquency (the 271st day for loans repayable 
in installments less frequently than monthly).
    (3) The activities specified by paragraph (m)(1) (i) or (ii) of this 
section (with references to ``the borrower'' understood to mean 
endorser, reference, relative, or individual as appropriate), meet the 
requirement that the lender make a diligent effort to contact each 
endorser or each reference, relative, or individual identified on the 
borrower's most recent loan application or most recent school 
certification.
    (n) Due diligence for endorsers. (1) Before filing a default claim 
on a loan with an endorser, the lender must--
    (i) Make a diligent effort to contact the endorser by telephone; and
    (ii) Send the endorser on the loan two letters advising the endorser 
of the delinquent status of the loan and urging the endorser to make the 
required payments on the loan with at least one letter containing the 
information described in paragraph (d)(2) of this section (with 
references to ``the borrower'' understood to mean the endorser).
    (2) On or after the 241st day of delinquency (the 301st day for 
loans payable

[[Page 162]]

in less frequent installments than monthly) the lender must send a final 
demand letter to the endorser requiring repayment of the loan in full 
and notifying the endorser that a default will be reported to each 
nationwide consumer reporting agency. The lender must allow the endorser 
at least 30 days after the date the letter is mailed to respond to the 
final demand letter and to bring the loan out of default before filing a 
default claim on the loan.
    (3) Unless the letter specified under paragraph (n)(2) of this 
section has already been sent, upon receipt of information indicating 
that it does not know the endorser's current address or telephone 
number, the lender must diligently attempt to locate the endorser 
through the use of effective commercial skip-tracing techniques. This 
effort must include an inquiry to directory assistance.
    (o) Preemption. The provisions of this section--
    (1) Preempt any State law, including State statutes, regulations, or 
rules, that would conflict with or hinder satisfaction of the 
requirements or frustrate the purposes of this section; and
    (2) Do not preempt provisions of the Fair Credit Reporting Act that 
provide relief to a borrower while the lender determines the legal 
enforceability of a loan when the lender receives a valid identity theft 
report or notification from a consumer reporting agency that information 
furnished is a result of an alleged identity theft as defined in 
Sec. 682.402(e)(14).

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1080a, 1082, 1087)

[64 FR 58630, Oct. 29, 1999, as amended at 64 FR 58965, Nov. 1, 1999; 72 
FR 62006, Nov. 1, 2007; 73 FR 63254, Oct. 23, 2008; 78 FR 65820, Nov. 1, 
2013]



Sec. 682.412  Consequences of the failure of a borrower or student to
establish eligibility.

    (a) The lender shall immediately send to the borrower a final demand 
letter meeting the requirements of Sec. 682.411(f) when it learns and 
can substantiate that the borrower or the student on whose behalf a 
parent has borrowed, without the lender or school's knowledge at the 
time the loan was made, provided false or erroneous information or took 
actions that caused the student or borrower--
    (1) To be ineligible for all or a portion of a loan made under this 
part;
    (2) To receive a Stafford loan subject to payment of Federal 
interest benefits for which he or she was ineligible; or
    (3) To receive loan proceeds for a period of enrollment from which 
he or she has withdrawn or been expelled prior to the first day of 
classes or during which he or she failed to attend school and has not 
paid those funds to the school or repaid them to the lender.
    (b) The lender shall neither bill the Secretary for nor be entitled 
to interest benefits on a loan after it learns that one of the 
conditions described in paragraph (a) of this section exists with 
respect to the loan.
    (c) In the final demand letter transmitted under paragraph (a) of 
this section, the lender shall demand that within 30 days from the date 
the letter is mailed the borrower repay in full any principal amount for 
which the borrower is ineligible and any accrued interest, including 
interest and all special allowance paid by the Secretary.
    (d) If the borrower repays the amounts described in paragraph (c) of 
this section within the 30-day period, the lender shall--
    (1) On its next quarterly interest billing submitted under 
Sec. 682.305, refund to the Secretary the interest benefits and special 
allowance repaid by the borrower and all other interest benefits and 
special allowance previously paid by the Secretary on the ineligible 
portion of the loan; and
    (2) Treat that payment of the principal amount of the ineligible 
portion of the loan as a prepayment of principal.
    (e) If a borrower fails to comply with the terms of a final demand 
letter described in paragraph (a) of this section, the lender shall 
treat the entire loan as in default, and--
    (1) With its next quarterly interest billing submitted under 
Sec. 682.305, refund to the Secretary the amount of the interest 
benefits received from the Secretary on the ineligible portion of the

[[Page 163]]

loan, whether or not repaid by the borrower; and
    (2) Within the time specified in Sec. 682.406(a)(5), file a default 
claim thereon with the guaranty agency for the entire unpaid balance of 
principal and accrued interest.

(Approved by the Office of Management and Budget under control number 
1840-0538)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1087-1)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 60 
FR 61757, Dec. 1, 1995; 64 FR 58632, Oct. 29, 1999; 78 FR 65820, Nov. 1, 
2013]



Sec. 682.413  Remedial actions.

    (a)(1) The Secretary requires a lender and its third-party servicer 
administering any aspect of the FFEL programs under a contract with the 
lender to repay interest benefits and special allowance or other 
compensation received on a loan guaranteed by a guaranty agency, 
pursuant to paragraph (a)(2) of this section--
    (i) For any period beginning on the date of a failure by the lender 
or servicer, with respect to the loan, to comply with any of the 
requirements set forth in Sec. 682.406(a)(1)-(a)(6), (a)(9), and 
(a)(12);
    (ii) For any period beginning on the date of a failure by the lender 
or servicer, with respect to the loan, to meet a condition of guarantee 
coverage established by the guaranty agency, to the date, if any, on 
which the guaranty agency reinstated the guarantee coverage pursuant to 
policies and procedures established by the agency;
    (iii) For any period in which the lender or servicer, with respect 
to the loan, violates the requirements of subpart C of this part; and
    (iv) For any period beginning on the day after the Secretary's 
obligation to pay special allowance on the loan terminates under 
Sec. 682.302(d).
    (2) For purposes of this section, a lender and any applicable third-
party servicer shall be considered jointly and severally liable for the 
repayment of any interest benefits and special allowance paid as a 
result of a violation of applicable requirements by the servicer in 
administering the lender's FFEL programs.
    (3) For purposes of paragraph (a)(2) of this section, the relevant 
third-party servicer shall repay any outstanding liabilities under 
paragraph (a)(2) of this section only if--
    (i) The Secretary has determined that the servicer is jointly and 
severally liable for the liabilities; and
    (ii) (A) The lender has not repaid in full the amount of the 
liability within 30 days from the date the lender receives notice from 
the Secretary of the liability;
    (B) The lender has not made other satisfactory arrangements to pay 
the amount of the liability within 30 days from the date the lender 
receives notice from the Secretary of the liability; or
    (C) The Secretary is unable to collect the liability from the lender 
by offsetting the lender's bill to the Secretary for interest benefits 
or special allowance, if--
    (1) The bill is submitted after the 30 day period specified in 
paragraph (a)(3)(ii)(A) of this section has passed; and
    (2) The lender has not paid, or made satisfactory arrangements to 
pay, the liability.
    (b)(1) The Secretary requires a guaranty agency to repay reinsurance 
payments received on a loan if the lender, third-party servicer, if 
applicable, or the agency failed to meet the requirements of 
Sec. 682.406(a).
    (2) The Secretary may require a guaranty agency to repay reinsurance 
payments received on a loan or to assign FFEL loans to the Department if 
the agency fails to meet the requirements of Sec. 682.410.
    (c)(1) In addition to requiring repayment of reinsurance payments 
pursuant to paragraph (b) of this section, the Secretary may take one or 
more of the following remedial actions against a guaranty agency or 
third-party servicer administering any aspect of the FFEL programs under 
a contract with the guaranty agency, that makes an incomplete or 
incorrect statement in connection with any agreement entered into under 
this part or violates any applicable Federal requirement:
    (i) Require the agency to return payments made by the Secretary to 
the agency.

[[Page 164]]

    (ii) Withhold payments to the agency.
    (iii) Limit the terms and conditions of the agency's continued 
participation in the FFEL programs.
    (iv) Suspend or terminate agreements with the agency.
    (v) Impose a fine on the agency or servicer. For purposes of 
assessing a fine on a third-party servicer, a repeated mechanical 
systemic unintentional error shall be counted as one violation, unless 
the servicer has been cited for a similar violation previously and had 
failed to make the appropriate corrections to the system.
    (vi) Require repayment from the agency and servicer pursuant to 
paragraph (c)(2) of this section, of interest, special allowance, and 
reinsurance paid on Consolidation loan amounts attributed to 
Consolidation loans for which the required lender verification 
certification is not available.
    (vii) Require repayment from the agency or servicer, pursuant to 
paragraph (c)(2) of this section, of any related payments that the 
Secretary became obligated to make to others as a result of an 
incomplete or incorrect statement or a violation of an applicable 
Federal requirement.
    (2) For purposes of this section, a guaranty agency and any 
applicable third-party servicer shall be considered jointly and 
severally liable for the repayment of any interest benefits, special 
allowance, reinsurance paid, or other compensation on Consolidation loan 
amounts attributed to Consolidation loans as specified in 
Sec. 682.413(c)(1)(vi) as a result of a violation by the servicer 
administering any aspect of the FFEL programs under a contract with that 
guaranty agency.
    (3) For purposes of paragraph (c)(2) of this section, the relevant 
third-party servicer shall repay any outstanding liabilities under 
paragraph (c)(2) of this section only if--
    (i) The Secretary has determined that the servicer is jointly and 
severally liable for the liabilities; and
    (ii) (A) The guaranty agency has not repaid in full the amount of 
the liability within 30 days from the date the guaranty agency receives 
notice from the Secretary of the liability;
    (B) The guaranty agency has not made other satisfactory arrangements 
to pay the amount of the liability within 30 days from the date the 
guaranty agency receives notice from the Secretary of the liability; or
    (C) The Secretary is unable to collect the liability from the 
guaranty agency by offsetting the guaranty agency's first reinsurance 
claim to the Secretary, if--
    (1) The claim is submitted after the 30-day period specified in 
paragraph (c)(3)(ii)(A) of this section has passed; and
    (2) The guaranty agency has not paid, or made satisfactory 
arrangements to pay, the liability.
    (d)(1) The Secretary follows the procedures described in 34 CFR part 
668, subpart G, applicable to fine proceedings against schools, in 
imposing a fine against a lender, guaranty agency, or third-party 
servicer. References to ``the institution'' in those regulations shall 
be understood to mean the lender, guaranty agency, or third-party 
servicer, as applicable, for this purpose.
    (2) The Secretary also follows the provisions of section 432(g) of 
the Act in imposing a fine against a guaranty agency or lender.
    (e)(1)(i) The Secretary's decision to require repayment of funds, 
withhold funds, or to limit or suspend a lender, guaranty agency, or 
third party servicer from participation in the FFEL Program or to 
terminate a lender or third party from participation in the FFEL Program 
does not become final until the Secretary provides the lender, agency, 
or servicer with written notice of the intended action and an 
opportunity to be heard. The hearing is at a time and in a manner the 
Secretary determines to be appropriate to the resolution of the issues 
on which the lender, agency, or servicer requests the hearing.
    (ii) The Secretary's decision to terminate a guaranty agency's 
participation in the FFEL Program after September 24, 1998 does not 
become final until the Secretary provides the agency with written notice 
of the intended action and provides an opportunity for a hearing on the 
record.
    (2)(i) The Secretary may withhold payments from an agency or suspend

[[Page 165]]

an agreement with an agency prior to giving notice and an opportunity to 
be heard if the Secretary finds that emergency action is necessary to 
prevent substantial harm to Federal interests.
    (ii) The Secretary follows the notice and show cause procedures 
described in Sec. 682.704 applicable to emergency actions against 
lenders in taking an emergency action against a guaranty agency.
    (3) The Secretary follows the procedures in 34 CFR 30.20-30.32 in 
collecting a debt by offset against payments otherwise due a guaranty 
agency or lender.
    (f) Notwithstanding paragraphs (a)-(e) of this section, the 
Secretary may waive the right to require repayment of funds by a lender 
or agency if in the Secretary's judgment the best interests of the 
United States so require. The Secretary's waiver policy for violations 
of Sec. 682.406(a)(3) or (a)(5) is set forth in appendix D to this part.
    (g) The Secretary's final decision to require repayment of funds or 
to take other remedial action, other than a fine, against a lender or 
guaranty agency under this section is conclusive and binding on the 
lender or agency.
    (h) In any action to require repayment of funds or to withhold funds 
from a guaranty agency, or to limit, suspend, or terminate a guaranty 
agency based on a violation of section 428(b)(3) of the Act, if the 
Secretary finds that the guaranty agency provided or offered the 
prohibited payments or activities, the Secretary applies a rebuttable 
presumption that the payments or activities were offered or provided to 
secure applications for FFEL loans or to secure FFEL loan volume. To 
reverse the presumption, the guaranty agency must present evidence that 
the activities or payments were provided for a reason unrelated to 
securing applications for FFEL loans or securing FFEL loan volume.

    Note to Sec. 682.413: A decision by the Secretary under this section 
is subject to judicial review under 5 U.S.C. 706 and 41 U.S.C. 321-322.

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082, 1087-1, 1097)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22454, Apr. 29, 1994; 
59 FR 61190, Nov. 29, 1994; 61 FR 60487, Nov. 27, 1996; 64 FR 18981, 
Apr. 16, 1999; 64 FR 58632, Oct. 29, 1999; 72 FR 62006, Nov. 1, 2007; 78 
FR 65820, Nov. 1, 2013]



Sec. 682.414  Records, reports, and inspection requirements for guaranty
agency programs.

    (a) Records. (1)(i) The guaranty agency shall maintain current, 
complete, and accurate records of each loan that it holds, including, 
but not limited to, the records described in paragraph (a)(1)(ii) of 
this section. The records must be maintained in a system that allows 
ready identification of each loan's current status, updated at least 
once every 10 business days. Any reference to a guaranty agency under 
this section includes a third-party servicer that administers any aspect 
of the FFEL programs under a contract with the guaranty agency, if 
applicable.
    (ii) The agency shall maintain--
    (A) All documentation supporting the claim filed by the lender;
    (B) Notices of changes in a borrower's address;
    (C) A payment history showing the date and amount of each payment 
received from or on behalf of the borrower by the guaranty agency, and 
the amount of each payment that was attributed to principal, accrued 
interest, and collection costs and other charges, such as late charges;
    (D) A collection history showing the date and subject of each 
communication between the agency and the borrower or endorser relating 
to collection of a defaulted loan, each communication between the agency 
and a consumer reporting agency regarding the loan, each effort to 
locate a borrower whose address was unknown at any time, and each 
request by the lender for default aversion assistance on the loan;
    (E) Documentation regarding any wage garnishment actions initiated 
by the agency on the loan;
    (F) Documentation of any matters relating to the collection of the 
loan by tax-refund offset; and

[[Page 166]]

    (G) Any additional records that are necessary to document its right 
to receive or retain payments made by the Secretary under this part and 
the accuracy of reports it submits to the Secretary.
    (2) A guaranty agency must retain the records required for each loan 
for not less than 3 years following the date the loan is repaid in full 
by the borrower, or for not less than 5 years following the date the 
agency receives payment in full from any other source. However, in 
particular cases, the Secretary may require the retention of records 
beyond these minimum periods.
    (3) A guaranty agency shall retain a copy of the audit report 
required under Sec. 682.410(b) for not less than five years after the 
report is issued.
    (4)(i) The guaranty agency shall require a participating lender to 
maintain current, complete, and accurate records of each loan that it 
holds, including, but not limited to, the records described in paragraph 
(a)(4)(ii) of this section. The records must be maintained in a system 
that allows ready identification of each loan's current status.
    (ii) The lender shall keep--
    (A) A copy of the loan application if a separate application was 
provided to the lender;
    (B) A copy of the signed promissory note;
    (C) The repayment schedule;
    (D) A record of each disbursement of loan proceeds;
    (E) Notices of changes in a borrower's address and status as at 
least a half-time student;
    (F) Evidence of the borrower's eligibility for a deferment;
    (G) The documents required for the exercise of forbearance;
    (H) Documentation of the assignment of the loan;
    (I) A payment history showing the date and amount of each payment 
received from or on behalf of the borrower, and the amount of each 
payment that was attributed to principal, interest, late charges, and 
other costs;
    (J) A collection history showing the date and subject of each 
communication between the lender and the borrower or endorser relating 
to collection of a delinquent loan, each communication other than 
regular reports by the lender showing that an account is current, 
between the lender and a consumer reporting agency regarding the loan, 
each effort to locate a borrower whose address is unknown at any time, 
and each request by the lender for default aversion assistance on the 
loan;
    (K) Documentation of any MPN confirmation process or processes; and
    (L) Any additional records that are necessary to document the 
validity of a claim against the guarantee or the accuracy of reports 
submitted under this part.
    (iii) Except as provided in paragraph (a)(4)(iv) of this section, a 
lender must retain the records required for each loan for not less than 
3 years following the date the loan is repaid in full by the borrower, 
or for not less than five years following the date the lender receives 
payment in full from any other source. However, in particular cases, the 
Secretary or the guaranty agency may require the retention of records 
beyond this minimum period.
    (iv) A lender shall retain a copy of the audit report required under 
Sec. 682.305(c) for not less than five years after the report is issued.
    (5)(i) A guaranty agency or lender may store the records specified 
in paragraphs (a)(4)(ii)(C)-(L) of this section in accordance with 34 
CFR 668.24(d)(3)(i) through (iv).
    (ii) If a promissory note was signed electronically, the guaranty 
agency or lender must store it electronically and it must be retrievable 
in a coherent format.
    (iii) A lender or guaranty agency holding a promissory note must 
retain the original or a true and exact copy of the promissory note 
until the loan is paid in full or assigned to the Secretary. When a loan 
is paid in full by the borrower, the lender or guaranty agency must 
return either the original or a true and exact copy of the note to the 
borrower or notify the borrower that the loan is paid in full, and 
retain a copy for the prescribed period.
    (iv) If a lender made a loan based on an electronically signed MPN, 
the holder of the original electronically signed MPN must retain that 
original MPN for at least 3 years after all the

[[Page 167]]

loans made on the MPN have been satisfied.
    (6)(i) Upon the Secretary's request with respect to a particular 
loan or loans assigned to the Secretary and evidenced by an 
electronically signed promissory note, the guaranty agency and the 
lender that created the original electronically signed promissory note 
must cooperate with the Secretary in all activities necessary to enforce 
the loan or loans. The guaranty agency or lender must provide--
    (A) An affidavit or certification regarding the creation and 
maintenance of the electronic records of the loan or loans in a form 
appropriate to ensure admissibility of the loan records in a legal 
proceeding. This affidavit or certification may be executed in a single 
record for multiple loans provided that this record is reliably 
associated with the specific loans to which it pertains; and
    (B) Testimony by an authorized official or employee of the guaranty 
agency or lender, if necessary to ensure admission of the electronic 
records of the loan or loans in the litigation or legal proceeding to 
enforce the loan or loans.
    (ii) The affidavit or certification described in paragraph 
(a)(6)(i)(A) of this section must include, if requested by the 
Secretary--
    (A) A description of the steps followed by a borrower to execute the 
promissory note (such as a flow chart);
    (B) A copy of each screen as it would have appeared to the borrower 
of the loan or loans the Secretary is enforcing when the borrower signed 
the note electronically;
    (C) A description of the field edits and other security measures 
used to ensure integrity of the data submitted to the originator 
electronically;
    (D) A description of how the executed promissory note has been 
preserved to ensure that it has not been altered after it was executed;
    (E) Documentation supporting the lender's authentication and 
electronic signature process; and
    (F) All other documentary and technical evidence requested by the 
Secretary to support the validity or the authenticity of the 
electronically signed promissory note.
    (iii) The Secretary may request a record, affidavit, certification 
or evidence under paragraph (a)(6) of this section as needed to resolve 
any factual dispute involving a loan that has been assigned to the 
Secretary including, but not limited to, a factual dispute raised in 
connection with litigation or any other legal proceeding, or as needed 
in connection with loans assigned to the Secretary that are included in 
a Title IV program audit sample, or for other similar purposes. The 
guaranty agency must respond to any request from the Secretary within 10 
business days.
    (iv) As long as any loan made to a borrower under a MPN created by 
the lender is not satisfied, the holder of the original electronically 
signed promissory note is responsible for ensuring that all parties 
entitled to access to the electronic loan record, including the guaranty 
agency and the Secretary, have full and complete access to the 
electronic record.
    (b) Reports. A guaranty agency shall accurately complete and submit 
to the Secretary the following reports:
    (1) A report concerning the status of the agency's reserve fund and 
the operation of the agency's loan guarantee program at the time and in 
the manner that the Secretary may reasonably require. The Secretary does 
not pay the agency any funds, the amount of which are determined by 
reference to data in the report, until a complete and accurate report is 
received.
    (2) Annually, for each State in which it operates, a report of the 
total guaranteed loan volume, default volume, and default rate for each 
of the following categories of originating lenders on all loans 
guaranteed after December 31, 1980:
    (i) State or private nonprofit lenders.
    (ii) Commercial financial institutions (banks, savings and loan 
associations, and credit unions).
    (iii) All other types of lenders.
    (3) By July 1 of each year, a report on--
    (i) Its eligibility criteria for lenders;
    (ii) Its procedures for the limitation, suspension, and termination 
of lenders;
    (iii) Any actions taken in the preceding 12 months to limit, 
suspend, or

[[Page 168]]

terminate the participation of a lender in the agency's program; and
    (iv) The steps the agency has taken to ensure its compliance with 
Sec. 682.410(c), including the identity of any law enforcement agency 
with which the agency has made arrangements for that purpose.
    (4) A report to the Secretary of the borrower's enrollment and loan 
status information, or any Title IV loan-related data required by the 
Secretary, by the deadline date established by the Secretary.
    (5) Any other information concerning its loan insurance program 
requested by the Secretary.
    (c) Inspection requirements. (1) For purposes of examination of 
records, references to an institution in 34 CFR 668.24(f) (1) through 
(3) shall mean a guaranty agency or its agent.
    (2) A guaranty agency shall require in its agreement with a lender 
or in its published rules or procedures that the lender or its agent 
give the Secretary or the Secretary's designee and the guaranty agency 
access to the lender's records for inspection and copying in order to 
verify the accuracy of the information provided by the lender pursuant 
to Sec. 682.401(b) (12) and (13), and the right of the lender to receive 
or retain payments made under this part, or to permit the Secretary or 
the agency to enforce any right acquired by the Secretary or the agency 
under this part.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082, 1087)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59 
FR 22455, 22489, Apr. 29, 1994; 59 FR 33358, June 28, 1994; 59 FR 34964, 
July 7, 1994; 61 FR 60493, Nov. 27, 1996; 64 FR 58632, Oct. 29, 1999; 64 
FR 58963, Nov. 1, 1999; 65 FR 65621, Nov. 1, 2000; 66 FR 34764, June 29, 
2001; 67 FR 67080, Nov. 1, 2002; 72 FR 62007, Nov. 1, 2007; 78 FR 65820, 
Nov. 1, 2013]



Sec. 682.415  [Reserved]



Sec. 682.416  Requirements for third-party servicers and lenders
contracting with third-party servicers.

    (a) Standards for administrative capability. A third-party servicer 
is considered administratively responsible if it--
    (1) Provides the services and administrative resources necessary to 
fulfill its contract with a lender or guaranty agency, and conducts all 
of its contractual obligations that apply to the FFEL programs in 
accordance with FFEL programs regulations;
    (2) Has business systems including combined automated and manual 
systems, that are capable of meeting the requirements of part B of Title 
IV of the Act and with the FFEL programs regulations; and
    (3) Has adequate personnel who are knowledgeable about the FFEL 
programs.
    (b) Standards of financial responsibility. The Secretary applies the 
provisions of 34 CFR 668.15(b) (1)-(4) and (6)-(9) to determine that a 
third-party servicer is financially responsible under this part. 
References to ``the institution'' in those provisions shall be 
understood to mean the third-party servicer, for this purpose.
    (c) Special review of third-party servicer. (1) The Secretary may 
review a third-party servicer to determine that it meets the 
administrative capability and financial responsibility standards in this 
section.
    (2) In response to a request from the Secretary, the servicer shall 
provide evidence to demonstrate that it meets the administrative 
capability and financial responsibility standards in this section.
    (3) The servicer may also provide evidence of why administrative 
action is unwarranted if it is unable to demonstrate that it meets the 
standards of this section.
    (4) Based on the review of the materials provided by the servicer, 
the Secretary determines if the servicer meets the standards in this 
part. If the servicer does not, the Secretary may initiate an 
administrative proceeding under subpart G.
    (d) Past performance of third-party servicer or persons affiliated 
with servicer. Notwithstanding paragraphs (b) and (c) of this section, a 
third-party servicer is not financially responsible if--
    (1)(i) The servicer; its owner, majority shareholder, or chief 
executive officer; any person employed by the

[[Page 169]]

servicer in a capacity that involves the administration of a Title IV, 
HEA program or the receipt of Title IV, HEA program funds; any person, 
entity, or officer or employee of an entity with which the servicer 
contracts where that person, entity, or officer or employee of the 
entity acts in a capacity that involves the administration of a Title 
IV, HEA program or the receipt of Title IV, HEA program funds has been 
convicted of, or has pled nolo contendere or guilty to, a crime 
involving the acquisition, use, or expenditure of Federal, State, or 
local government funds, or has been administratively or judicially 
determined to have committed fraud or any other material violation of 
law involving such funds, unless--
    (A) The funds that were fraudulently obtained, or criminally 
acquired, used, or expended have been repaid to the United States, and 
any related financial penalty has been paid;
    (B) The persons who were convicted of, or pled nolo contendere or 
guilty to, a crime involving the acquisition, use, or expenditure of the 
funds are no longer incarcerated for that crime; and
    (C) At least five years have elapsed from the date of the 
conviction, nolo contendere plea, guilty plea, or administrative or 
judicial determination; or
    (ii) The servicer, or any principal or affiliate of the servicer (as 
those terms are defined in 34 CFR part 85), is--
    (A) Debarred or suspended under Executive Order (E.O.) 12549 (3 CFR, 
1986 Comp., p. 189) or the Federal Acquisition Regulations (FAR), 48 CFR 
part 9, subpart 9.4; or
    (B) Engaging in any activity that is a cause under 2 CFR 180.700 or 
180.800, as those sections are adopted at 2 CFR 3485.12 for debarment or 
suspension under E.O. 12549 (3 CFR, 1986 Comp., p. 189) or the FAR, 48 
CFR part 9, subpart 9.4; and
    (2) Upon learning of a conviction, plea, or administrative or 
judicial determination described in paragraph (d)(1) of this section, 
the servicer does not promptly remove the person, agency, or 
organization from any involvement in the administration of the 
servicer's participation in title IV, HEA programs, including, as 
applicable, the removal or elimination of any substantial control, as 
determined under 34 CFR 668.15, over the servicer.
    (e) Independent audits. (1) A third-party servicer shall arrange for 
an independent audit of its administration of the FFELP loan portfolio 
unless--
    (i) The servicer contracts with only one lender or guaranty agency; 
and
    (ii) The audit of that lender's or guaranty agency's FFEL programs 
involves every aspect of the servicer's administration of those FFEL 
programs.
    (2) The audit must--
    (i) Examine the servicer's compliance with the Act and applicable 
regulations;
    (ii) Examine the servicer's financial management of its FFEL program 
activities;
    (iii) Be conducted in accordance with the standards for audits 
issued by the United States General Accounting Office's (GAO's) 
Standards for Audit of Governmental Organizations, Programs, Activities, 
and Functions. (This publication is available from the Superintendent of 
Documents, U.S. Government Printing Office, Washington, DC 20402.) 
Procedures for audits are contained in an audit guide developed by and 
available from the Office of Inspector General of the Department of 
Education; and
    (iv) Except for the initial audit, be conducted at least annually 
and be submitted to the Secretary within six months of the end of the 
audit period. The initial audit must be an annual audit of the 
servicer's first full fiscal year beginning on or after July 1, 1994, 
and include any period from the beginning of the first full fiscal year. 
The audit report must be submitted to the Secretary within six months of 
the end of the audit period. Each subsequent audit must cover the 
servicer's activities for the one-year period beginning no later than 
the end of the period covered by the preceding audit.
    (3) A third-party servicer must conduct the audit required by this 
paragraph in accordance with 31 U.S.C. 7502 and 2 CFR part 200, subpart 
F--Audit Requirements.\3\
---------------------------------------------------------------------------

    \3\ None of the other regulations in 2 CFR part 200 apply to 
lenders. Only those requirements in subpart F-Audit Requirements, apply 
to lenders, as required under the Single Audit Act Amendments of 1996 
(31 U.S.C. Chapter 75).

---------------------------------------------------------------------------

[[Page 170]]

    (4) [Reserved]
    (f) Contract responsibilities. A lender that participates in the 
FFEL programs may not enter into a contract with a third-party servicer 
that the Secretary has determined does not meet the requirements of this 
section. The lender must provide the Secretary with the name and address 
of any third-party servicer with which the lender enters into a contract 
and, upon request by the Secretary, a copy of that contract. A third-
party servicer that is under contract with a lender to perform any 
activity for which the records in Sec. 682.414(a)(4)(ii) are relevant to 
perform the services for which the servicer has contracted shall 
maintain current, complete, and accurate records pertaining to each loan 
that the servicer is under contract to administer on behalf of the 
lender. The records must be maintained in a system that allows ready 
identification of each loan's current status.

(Approved by the Office of Management and Budget under control number 
1840-0537)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082; E.O. 12549 (3 
CFR, 1986 Comp., p. 189), 12689 (3 CFR, 1989 Comp., p. 235))

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22455, Apr. 29, 1994; 
59 FR 34964, July 7, 1994; 66 FR 34764, June 29, 2001; 68 FR 66615, Nov. 
26, 2003; 77 FR 18679, Mar. 28, 2012; 78 FR 65820, Nov. 1, 2013; 79 FR 
76105, Dec. 19, 2014]



Sec. 682.417  Determination of Federal funds or assets to be returned.

    (a) General. The procedures described in this section apply to a 
determination by the Secretary that--
    (1) A guaranty agency must return to the Secretary a portion of its 
Federal Fund that the Secretary has determined is unnecessary to pay the 
program expenses and contingent liabilities of the agency; and
    (2) A guaranty agency must require the return to the agency or the 
Secretary of Federal funds or assets within the meaning of section 
422(g)(1) of the Act held by or under the control of any other entity 
that the Secretary determines are necessary to pay the program expenses 
and contingent liabilities of the agency or that are required for the 
orderly termination of the guaranty agency's operations and the 
liquidation of its assets.
    (b) Return of unnecessary Federal funds. (1) The Secretary may 
initiate a process to recover unnecessary Federal funds under paragraph 
(a)(1) of this section if the Secretary determines that a guaranty 
agency's Federal Fund ratio under Sec. 682.410(a)(10) for each of the 
two preceding Federal fiscal years exceeded 2.0 percent.
    (2) If the Secretary initiates a process to recover unnecessary 
Federal funds, the Secretary requires the return of a portion of the 
Federal funds that the Secretary determines will permit the agency to--
    (i) Have a Federal Fund ratio of at least 2.0 percent under 
Sec. 682.410(a)(10) at the time of the determination; and
    (ii) Meet the minimum Federal Fund requirements under 
Sec. 682.410(a)(10) and retain sufficient additional Federal funds to 
perform its responsibilities as a guaranty agency during the current 
Federal fiscal year and the four succeeding Federal fiscal years.
    (3)(i) The Secretary makes a determination of the amount of Federal 
funds needed by the guaranty agency under paragraph (b)(2) of this 
section on the basis of financial projections for the period described 
in that paragraph. If the agency provides projections for a period 
longer than the period referred to in that paragraph, the Secretary may 
consider those projections.
    (ii) The Secretary may require a guaranty agency to provide 
financial projections in a form and on the basis of assumptions 
prescribed by the Secretary. If the Secretary requests the agency to 
provide financial projections, the agency must provide the projections 
within 60 days of the Secretary's request. If the agency does not 
provide the projections within the specified time period, the Secretary 
determines the amount of Federal funds needed by the agency on the basis 
of other information.
    (c) Notice. (1) The Secretary or an authorized Departmental official 
begins a proceeding to order a guaranty agency to return a portion of 
its Federal funds, or to direct the return of Federal funds or assets 
subject to return, by sending

[[Page 171]]

the guaranty agency a notice by certified mail, return receipt 
requested.
    (2) The notice--
    (i) Informs the guaranty agency of the Secretary's determination 
that Federal funds or assets must be returned;
    (ii) Describes the basis for the Secretary's determination and 
contains sufficient information to allow the guaranty agency to prepare 
and present an appeal;
    (iii) States the date by which the return of Federal funds or assets 
must be completed;
    (iv) Describes the process for appealing the determination, 
including the time for filing an appeal and the procedure for doing so; 
and
    (v) Identifies any actions that the guaranty agency must take to 
ensure that the Federal funds or assets that are the subject of the 
notice are maintained and protected against use, expenditure, transfer, 
or other disbursement after the date of the Secretary's determination, 
and the basis for requiring those actions. The actions may include, but 
are not limited to, directing the agency to place the Federal funds in 
an escrow account. If the Secretary has directed the guaranty agency to 
require the return of Federal funds or assets held by or under the 
control of another entity, the guaranty agency must ensure that the 
agency's claims to those funds or assets and the collectability of the 
agency's claims will not be compromised or jeopardized during an appeal. 
The guaranty agency must also comply with all other applicable 
regulations relating to the use of Federal funds and assets.
    (d) Appeal. (1) A guaranty agency may appeal the Secretary's 
determination that Federal funds or assets must be returned by filing a 
written notice of appeal within 20 days of the date of the guaranty 
agency's receipt of the notice of the Secretary's determination. If the 
agency files a notice of appeal, the requirement that the return of 
Federal funds or assets be completed by a particular date is suspended 
pending completion of the appeal process. If the agency does not file a 
notice of appeal within the period specified in this paragraph, the 
Secretary's determination is final.
    (2) A guaranty agency must submit the information described in 
paragraph (d)(4) of this section within 45 days of the date of the 
guaranty agency's receipt of the notice of the Secretary's determination 
unless the Secretary agrees to extend the period at the agency's 
request. If the agency does not submit that information within the 
prescribed period, the Secretary's determination is final.
    (3) A guaranty agency's appeal of a determination that Federal funds 
or assets must be returned is considered and decided by a Departmental 
official other than the official who issued the determination or a 
subordinate of that official.
    (4) In an appeal of the Secretary's determination, the guaranty 
agency must--
    (i) State the reasons the guaranty agency believes the Federal funds 
or assets need not be returned;
    (ii) Identify any evidence on which the guaranty agency bases its 
position that Federal funds or assets need not be returned;
    (iii) Include copies of the documents that contain this evidence;
    (iv) Include any arguments that the guaranty agency believes support 
its position that Federal funds or assets need not be returned; and
    (v) Identify the steps taken by the guaranty agency to comply with 
the requirements referred to in paragraph (c)(2)(v) of this section.
    (5)(i) In its appeal, the guaranty agency may request the 
opportunity to make an oral argument to the deciding official for the 
purpose of clarifying any issues raised by the appeal. The deciding 
official provides this opportunity promptly after the expiration of the 
period referred to in paragraph (d)(2) of this section.
    (ii) The agency may not submit new evidence at or after the oral 
argument unless the deciding official determines otherwise. A transcript 
of the oral argument is made a part of the record of the appeal and is 
promptly provided to the agency.
    (6) The guaranty agency has the burden of production and the burden 
of persuading the deciding official that the Secretary's determination 
should be modified or withdrawn.

[[Page 172]]

    (e) Third-party participation. (1) If the Secretary issues a 
determination under paragraph (a)(1) of this section, the Secretary 
promptly publishes a notice in the Federal Register announcing the 
portion of the Federal Fund to be returned by the agency and providing 
interested persons an opportunity to submit written information relating 
to the determination within 30 days after the date of publication. The 
Secretary publishes the notice no earlier than five days after the 
agency receives a copy of the determination.
    (2) If the guaranty agency to which the determination relates files 
a notice of appeal of the determination, the deciding official may 
consider any information submitted in response to the Federal Register 
notice. All information submitted by a third party is available for 
inspection and copying at the offices of the Department of Education in 
Washington, D.C., during normal business hours.
    (f) Adverse information. If the deciding official considers 
information in addition to the evidence described in the notice of the 
Secretary's determination that is adverse to the guaranty agency's 
position on appeal, the deciding official informs the agency and 
provides it a reasonable opportunity to respond to the information 
without regard to the period referred to in paragraph (d)(2) of this 
section.
    (g) Decision. (1) The deciding official issues a written decision on 
the guaranty agency's appeal within 45 days of the date on which the 
information described in paragraphs (d)(4) and (d)(5)(ii) of this 
section is received, or the oral argument referred to in paragraph 
(d)(5) of this section is held, whichever is later. The deciding 
official mails the decision to the guaranty agency by certified mail, 
return receipt requested. The decision of the deciding official becomes 
the final decision of the Secretary 30 days after the deciding official 
issues it. In the case of a determination that a guaranty agency must 
return Federal funds, if the deciding official does not issue a decision 
within the prescribed period, the agency is no longer required to take 
the actions described in paragraph (c)(2)(v) of this section.
    (2) A guaranty agency may not seek judicial review of the 
Secretary's determination to require the return of Federal funds or 
assets until the deciding official issues a decision.
    (3) The deciding official's written decision includes the basis for 
the decision. The deciding official bases the decision only on evidence 
described in the notice of the Secretary's determination and on 
information properly submitted and considered by the deciding official 
under this section. The deciding official is bound by all applicable 
statutes and regulations and may neither waive them nor rule them 
invalid.
    (h) Collection of Federal funds or assets. (1) If the deciding 
official's final decision requires the guaranty agency to return Federal 
funds, or requires the guaranty agency to require the return of Federal 
funds or assets to the agency or to the Secretary, the decision states a 
new date for compliance with the decision. The new date is no earlier 
than the date on which the decision becomes the final decision of the 
Secretary.
    (2) If the guaranty agency fails to comply with the decision, the 
Secretary may recover the Federal funds from any funds due the agency 
from the Department without any further notice or procedure and may take 
any other action permitted or authorized by law to compel compliance.

(Approved by the Office of Management and Budget under control number 
1845-0020)

[64 FR 58632, Oct. 29, 1999]



Sec. 682.418  [Reserved]



Sec. 682.419  Guaranty agency Federal Fund.

    (a) Establishment and control. A guaranty agency must establish and 
maintain a Federal Student Loan Reserve Fund (referred to as the 
``Federal Fund'') to be used only as permitted under paragraph (c) of 
this section. The assets of the Federal Fund and the earnings on those 
assets are, at all times, the property of the United States. The 
guaranty agency must exercise the level of care required of a fiduciary 
charged with the duty of protecting, investing, and administering the 
money of others.

[[Page 173]]

    (b) Deposits. The agency must deposit into the Federal Fund--
    (1) All funds, securities, and other liquid assets of the reserve 
fund that existed under Sec. 682.410;
    (2) The total amount of insurance premiums or Federal default fees 
collected;
    (3) Federal payments for default, bankruptcy, death, disability, 
closed school, false certification, and other claims;
    (4) Federal payments for supplemental preclaims assistance 
activities performed before October 1, 1998;
    (5) 70 percent of administrative cost allowances received on or 
after October 1, 1998 for loans upon which insurance was issued before 
October 1, 1998;
    (6) All funds received by the guaranty agency from any source on 
FFEL Program loans on which a claim has been paid, within 48 hours of 
receipt of those funds, minus the portion the agency is authorized to 
deposit in its Operating Fund;
    (7) Investment earnings on the Federal Fund;
    (8) Revenue derived from the Federal portion of a nonliquid asset; 
and
    (9) Other funds received by the guaranty agency from any source that 
are specifically designated for deposit in the Federal Fund.
    (c) Uses. A guaranty agency may use the assets of the Federal Fund 
only--
    (1) To pay insurance claims;
    (2) To transfer default aversion fees to the agency's Operating 
Fund;
    (3) To transfer account maintenance fees to the agency's Operating 
Fund, if directed by the Secretary;
    (4) To refund payments made by or on behalf of a borrower on a loan 
that has been discharged in accordance with Sec. 682.402;
    (5) To pay the Secretary's share of borrower payments, in accordance 
with Sec. 682.404(g);
    (6) For transfers to the agency's Operating Fund, pursuant to 
section 422A(f) of the Act;
    (7) To refund insurance premiums or Federal default fees related to 
loans cancelled or refunded, in whole or in part;
    (8) To return to the Secretary portions of the Federal Fund required 
to be returned by the Act; and
    (9) For any other purpose authorized by the Secretary.
    (d) Prohibition against prepayment. A guaranty agency may not prepay 
obligations of the Federal Fund unless it demonstrates, to the 
satisfaction of the Secretary, that the prepayment is in the best 
interests of the United States.
    (e) Minimum Federal Fund level. The guaranty agency must maintain a 
minimum Federal Fund level equal to at least 0.25 percent of its insured 
original principal amount of loans outstanding.
    (f) Definitions. For purposes of this section--
    (1) Federal Fund level means the total of Federal Fund assets 
identified in paragraph (b) of this section plus the amount of funds 
transferred from the Federal Fund that are in the Operating Fund, using 
an accrual basis of accounting.
    (2) Original principal amount of loans outstanding means--
    (i) The sum of--
    (A) The original principal amount of all loans guaranteed by the 
agency; and
    (B) The original principal amount of any loans on which the 
guarantee was transferred to the agency from another guarantor, 
excluding loan guarantees transferred to another agency pursuant to a 
plan of the Secretary in response to the insolvency of the agency;
    (ii) Minus the original principal amount of all loans on which--
    (A) The loan guarantee was cancelled;
    (B) The loan guarantee was transferred to another agency;
    (C) Payment in full has been made by the borrower;
    (D) Reinsurance coverage has been lost and cannot be regained; and
    (E) The agency paid claims.

(Authority: 20 U.S.C. 1072-1)

[64 FR 58634, Oct. 29, 1999, as amended at 71 FR 45708, Aug. 9, 2006; 78 
FR 65820, Nov. 1, 2013]



Secs. 682.420-682.422  [Reserved]



Sec. 682.423  Guaranty agency Operating Fund.

    (a) Establishment and control. A guaranty agency must establish and 
maintain an Operating Fund in an account

[[Page 174]]

separate from the Federal Fund. Except for funds that may have been 
transferred from the Federal Fund, the Operating Fund is considered the 
property of the guaranty agency.
    (b) Deposits. The guaranty agency must deposit into the Operating 
Fund--
    (1) Amounts authorized by the Secretary to be transferred from the 
Federal Fund;
    (2) Account maintenance fees;
    (3) Loan processing and issuance fees;
    (4) Default aversion fees;
    (5) 30 percent of administrative cost allowances received on or 
after October 1, 1998 for loans upon which insurance was issued before 
October 1, 1998;
    (6) The portion of the amounts collected on defaulted loans that 
remains after the Secretary's share of collections has been paid and the 
complement of the reinsurance percentage has been deposited into the 
Federal Fund;
    (7) The agency's share of the payoff amounts received from the 
consolidation or rehabilitation of defaulted loans; and
    (8) Other receipts as authorized by the Secretary.
    (c) Uses. A guaranty agency may use the Operating Fund for--
    (1) Guaranty agency-related activities, including--
    (i) Application processing;
    (ii) Loan disbursement;
    (iii) Enrollment and repayment status management;
    (iv) Default aversion activities;
    (v) Default collection activities;
    (vi) School and lender training;
    (vii) Financial aid awareness and related outreach activities; and
    (viii) Compliance monitoring; and
    (2) Other student financial aid-related activities for the benefit 
of students, as selected by the guaranty agency.

(Authority: 20 U.S.C. 1072-2)

[64 FR 58635, Oct. 29, 1999, as amended at 78 FR 65820, Nov. 1, 2013]

Subpart E [Reserved]



    Subpart F_Requirements, Standards, and Payments for Schools That 
                    Participated in the FFEL Program



Secs. 682.600-682.602  [Reserved]



Sec. 682.603  Certification by a school that participated in the FFEL
Program in connection with a loan application.

    (a) A school shall certify that the information it provides in 
connection with a loan application about the borrower and, in the case 
of a parent borrower, the student for whom the loan is intended, is 
complete and accurate. Except as provided in 34 CFR part 668, subpart E, 
a school may rely in good faith upon statements made by the borrower 
and, in the case of a parent borrower of a PLUS loan, the student and 
the parent borrower.
    (b) The information to be provided by the school about the borrower 
pertains to--
    (1) The borrower's eligibility for a loan, as determined in 
accordance with Sec. 682.201 and Sec. 682.204;
    (2) For a subsidized Stafford loan, the student's eligibility for 
interest benefits as determined in accordance with Sec. 682.301; and
    (3) The schedule for disbursement of the loan proceeds, which must 
reflect the delivery of the loan proceeds as set forth in section 428G 
of the Act.
    (c) Except as provided in paragraph (e) of this section, in 
certifying a loan, a school must certify a loan for the lesser of the 
borrower's request or the loan limits determined under Sec. 682.204.
    (d) Before certifying a PLUS loan application for a graduate or 
professional student borrower, the school must determine the borrower's 
eligibility for a Stafford loan. If the borrower is eligible for a 
Stafford loan but has not requested the maximum Stafford loan amount for 
which the borrower is eligible, the school must--
    (1) Notify the graduate or professional student borrower of the 
maximum Stafford loan amount that he or she is eligible to receive and 
provide the borrower with a comparison of--
    (i) The maximum interest rate for a Stafford loan and the maximum 
interest rate for a PLUS loan;

[[Page 175]]

    (ii) Periods when interest accrues on a Stafford loan and periods 
when interest accrues on a PLUS loan; and
    (iii) The point at which a Stafford loan enters repayment and the 
point at which a PLUS loan enters repayment; and
    (2) Give the graduate or professional student borrower the 
opportunity to request the maximum Stafford loan amount for which the 
borrower is eligible.
    (e) A school may not certify a Stafford or PLUS loan, or a 
combination of loans, for a loan amount that--
    (1) The school has reason to know would result in the borrower 
exceeding the annual or maximum loan amounts in Sec. 682.204; or
    (2) Exceeds the student's estimated cost of attendance for the 
period of enrollment, less--
    (i) The student's estimated financial assistance for that period; 
and
    (ii) In the case of a Subsidized Stafford loan, the borrower's 
expected family contribution for that period.
    (f)(1)(i) The minimum period of enrollment for which a school may 
certify a loan application is--
    (A) At a school that measures academic progress in credit hours and 
uses a semester, trimester, or quarter system, or has terms that are 
substantially equal in length with no term less than nine weeks in 
length, a single term (e.g., a semester or quarter); or
    (B) Except as provided in paragraphs (f)(1)(ii) or (iii) of this 
section, at a school that measures academic progress in clock hours, or 
measures academic progress in credit hours but does not use a semester, 
trimester, or quarter system and does not have terms that are 
substantially equal in length with no term less than nine weeks in 
length, the lesser of--
    (1) The length of the student's program (or the remaining portion of 
that program if the student has less than the full program remaining) at 
the school; or
    (2) The academic year as defined by the school in accordance with 34 
CFR 668.3.
    (ii) For a student who transfers into a school with credit or clock 
hours from another school, and the prior school certified or originated 
a loan for a period of enrollment that overlaps the period of enrollment 
at the new school, the new school may certify a loan for the remaining 
portion of the program or academic year. In this case the school may 
certify a loan for an amount that does not exceed the remaining balance 
of the student's annual loan limit.
    (iii) For a student who completes a program at a school, where the 
student's last loan to complete that program had been for less than an 
academic year, and the student then begins a new program at the same 
school, the school may certify a loan for the remainder of the academic 
year. In this case the school may certify a loan for an amount that does 
not exceed the remaining balance of the student's annual loan limit at 
the loan level associated with the new program.
    (2) May not, for first-time borrowers, assign through award 
packaging or other methods, a borrower's loan to a particular lender;
    (3) May refuse to certify a Stafford or PLUS loan or may reduce the 
borrower's determination of need for the loan if the reason for that 
action is documented and provided to the borrower in writing, provided 
that--
    (i) The determination is made on a case-by-case basis; and
    (ii) The documentation supporting the determination is retained in 
the student's file; and
    (4) May not, under paragraph (f)(1), (2), and (3) of this section, 
engage in any pattern or practice that results in a denial of a 
borrower's access to FFEL loans because of the borrower's race, sex, 
color, religion, national origin, age, handicapped status, income, or 
selection of a particular lender or guaranty agency.
    (g) The maximum period for which a school may certify a loan 
application is--
    (1) Generally an academic year, as defined by 34 CFR 668.3, except 
that a guaranty agency may allow a school to use a longer period of 
time, corresponding to the period to which the agency applies the annual 
loan limits; or
    (2) For a defaulted borrower who has regained eligibility under 
Sec. 682.401(b)(1),

[[Page 176]]

the academic year in which the borrower regained eligibility.
    (h) In certifying a Stafford or Unsubsidized Stafford loan amount in 
accordance with Sec. 682.204--
    (1) A program of study must be considered at least one full academic 
year if--
    (i) The number of weeks of instructional time is at least 30 weeks; 
and
    (ii) The number of clock hours is a least 900, the number of 
semester or trimester hours is at least 24, or the number of quarter 
hours is at least 36;
    (2) A program of study must be considered two-thirds (2/3) of an 
academic year if--
    (i) The number of weeks of instructional time is at least 20 weeks; 
and
    (ii) The number of clock hours is at least 600, the number of 
semester or trimester hours is at least 16, or the number of quarter 
hours is at least 24;
    (3) A program of study must be considered one-third (\1/3\) of an 
academic year if--
    (i) The number of weeks of instructional time is at least 10 weeks; 
and
    (ii) The number of clock hours is at least 300, the number of 
semester or trimester hours is at least 8, or the number of quarter 
hours is at least 12; and
    (4) In prorating a loan amount for a student enrolled in a program 
of study with less than a full academic year remaining, the school need 
not recalculate the amount of the loan if the number of hours for which 
an eligible student is enrolled changes after the school certifies the 
loan.
    (i)(1) If a school measures academic progress in an educational 
program in credit hours and uses either standard terms (semesters, 
trimesters, or quarters) or nonstandard terms that are substantially 
equal in length, and each term is at least nine weeks of instructional 
time in length, a student is considered to have completed an academic 
year and progresses to the next annual loan limit when the academic year 
calendar period has elapsed.
    (2) If a school measures academic progress in an educational program 
in credit hours and uses nonstandard terms that are not substantially 
equal in length or each term is not at least nine weeks of instructional 
time in length, or measures academic progress in credit hours and does 
not have academic terms, a student is considered to have completed an 
academic year and progresses to the next annual loan limit at the later 
of--
    (i) The student's completion of the weeks of instructional time in 
the student's academic year; or
    (ii) The date, as determined by the school, that the student has 
successfully completed the academic coursework in the student's academic 
year.
    (3) If a school measures academic progress in an educational program 
in clock hours, a student is considered to have completed an academic 
year and progresses to the next annual loan limit at the later of--
    (i) The student's completion of the weeks of instructional time in 
the student's academic year; or
    (ii) The date, as determined by the school, that the student has 
successfully completed the clock hours in the student's academic year.
    (4) For purposes of this section, terms in a loan period are 
substantially equal in length if no term in the loan period is more than 
two weeks of instructional time longer than any other term in that loan 
period.
    (j)(1) A school must cease certifying loans based on the exceptions 
in section 428G(a)(3) of the Act no later than--
    (i) 30 days after the date the school receives notification from the 
Secretary of an FFEL cohort default rate, calculated under subpart M of 
34 CFR part 668, that causes the school to no longer meet the 
qualifications outlined in those paragraphs; or
    (ii) October 1, 2002.
    (2) A school must cease certifying loans based on the exceptions in 
section 428G(a)(3) of the Act no later than 30 days after the date the 
school receives notification from the Secretary of an FFEL cohort 
default rate, calculated under subpart M of 34 CFR part 668, that causes 
the school to no longer meet the qualifications outlined in those 
paragraphs.
    (k) A school may not assess the borrower, or the student in the case 
of a parent PLUS loan, a fee for the completion or certification of any 
FFEL

[[Page 177]]

Program form or information or for providing any information necessary 
for a student or parent to receive a loan under part B of the Act or any 
benefits associated with such a loan.
    (l) Pursuant to paragraph (b)(3) of this section, a school may not 
request the disbursement by the lender for loan proceeds earlier than 
the period specified in 34 CFR 668.167.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59 
FR 33358, June 28, 1994; 59 FR 61722, Dec. 1, 1994; 60 FR 61757, Dec. 1, 
1995; 61 FR 60609, Nov. 29, 1996; 64 FR 18981, Apr. 16, 1999; 64 FR 
58963, Nov. 1, 1999; 65 FR 65650, Nov. 1, 2000; 66 FR 34764, June 29, 
2001; 67 FR 67080, Nov. 1, 2002; 68 FR 75429, Dec. 31, 2003; 71 FR 
45709, Aug. 9, 2006; 72 FR 62007, 62031, Nov. 1, 2007; 78 FR 65820, Nov. 
1, 2013]



Sec. 682.604  Required exit counseling for borrowers.

    (a) Exit counseling. (1) A school must ensure that exit counseling 
is conducted with each Stafford Loan borrower and graduate or 
professional student PLUS Loan borrower either in person, by audiovisual 
presentation, or by interactive electronic means. In each case, the 
school must ensure that this counseling is conducted shortly before the 
student borrower ceases at least half-time study at the school, and that 
an individual with expertise in the title IV programs is reasonably 
available shortly after the counseling to answer the student borrower's 
questions. As an alternative, in the case of a student borrower enrolled 
in a correspondence program or a study-abroad program that the home 
institution approves for credit, written counseling materials may be 
provided by mail within 30 days after the student borrower completes the 
program. If a student borrower withdraws from school without the 
school's prior knowledge or fails to complete an exit counseling session 
as required, the school must, within 30 days after learning that the 
student borrower has withdrawn from school or failed to complete the 
exit counseling as required, ensure that exit counseling is provided 
through interactive electronic means, by mailing written counseling 
materials to the student borrower at the student borrower's last known 
address, or by sending written counseling materials to an email address 
provided by the student borrower that is not an email address associated 
with the school sending the counseling materials.
    (2) The exit counseling must--
    (i) Inform the student borrower of the average anticipated monthly 
repayment amount based on the student borrower's indebtedness or on the 
average indebtedness of student borrowers who have obtained Stafford 
loans, PLUS Loans, or student borrowers who have obtained both Stafford 
and PLUS loans, depending on the types of loans the student borrower has 
obtained, for attendance at the same school or in the same program of 
study at the same school;
    (ii) Review for the student borrower available repayment plan 
options, including standard, graduated, extended, income sensitive and 
income-based repayment plans, including a description of the different 
features of each plan and sample information showing the average 
anticipated monthly payments, and the difference in interest paid and 
total payments under each plan;
    (iii) Explain to the borrower the options to prepay each loan, to 
pay each loan on a shorter schedule, and to change repayment plans;
    (iv) Provide information on the effects of loan consolidation 
including, at a minimum--
    (A) The effects of consolidation on total interest to be paid, fees 
to be paid, and length of repayment;
    (B) The effects of consolidation on a borrower's underlying loan 
benefits, including grace periods, loan forgiveness, cancellation, and 
deferment opportunities;
    (C) The options of the borrower to prepay the loan and to change 
repayment plans; and
    (D) That borrower benefit programs may vary among different lenders;
    (v) Include debt-management strategies that are designed to 
facilitate repayment;
    (vi) Explain to the borrower the use of a Master Promissory Note;

[[Page 178]]

    (vii) Emphasize to the student borrower the seriousness and 
importance of the repayment obligation the borrower has assumed;
    (viii) Emphasize to the student borrower that the full amount of the 
loan (other than a loan made or originated by the school) must be repaid 
in full even if the student borrower does not complete the program, does 
not complete the program within the regular time for program completion, 
is unable to obtain employment upon completion, or is otherwise 
dissatisfied with or does not receive the educational or other services 
that the student borrower purchased from the school;
    (ix) Describe the likely consequences of default, including adverse 
credit reports, delinquent debt collection procedures under Federal law, 
and litigation;
    (x) Provide--
    (A) A general description of the terms and conditions under which a 
borrower may obtain full or partial forgiveness or discharge of 
principal and interest, defer repayment of principal or interest, or be 
granted forbearance on a title IV loan, including forgiveness benefits 
or discharge benefits available to a FFEL borrower who consolidates his 
or her loan into the Direct Loan program; and
    (B) A copy, either in print or by electronic means, of the 
information the Secretary makes available pursuant to section 485(d) of 
the HEA;
    (xi) Require the student borrower to provide current information 
concerning name, address, social security number, references, and 
driver's license number and State of issuance, as well as the student 
borrower's expected permanent address, the address of the student 
borrower's next of kin, and the name and address of the student 
borrower's expected employer (if known). The school must ensure that 
this information is provided to the guaranty agency or agencies listed 
in the student borrower's records within 60 days after the student 
borrower provides the information;
    (xii) Review for the student borrower information on the 
availability of the Student Loan Ombudsman's office;
    (xiii) Inform the student borrower of the availability of title IV 
loan information in the National Student Loan Data System (NSLDS) and 
how NSLDS can be used to obtain title IV loan status information; and
    (xiv) A general description of the types of tax benefits that may be 
available to borrowers.
    (3) If exit counseling is conducted by electronic interactive means, 
the school must take reasonable steps to ensure that each student 
borrower receives the counseling materials, and participates in and 
completes the counseling.
    (4) The school must maintain documentation substantiating the 
school's compliance with this section for each student borrower.
    (5)(i) For students who have received both FFEL Program and Direct 
Loan Program loans for attendance at a school, the school's compliance 
with the exit counseling requirements in 34 CFR 685.304(b) satisfies the 
requirements of this section if the school ensures that the exit 
counseling also provides the borrower with the information described in 
paragraphs (a)(2)(i) and (a)(2)(ii) of this section.
    (ii) A student's completion of electronic interactive exit 
counseling offered by the Secretary satisfies the requirements of this 
section, and for students who have also received Direct Loan Program 
loans for attendance at the school, the requirements of 34 CFR 
685.304(b).
    (b) [Reserved]

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1082, 1085, 1092, 1094)

[57 FR 60323, Dec. 18, 1992]

    Editorial Note: For Federal Register citations affecting 
Sec. 682.604, see the List of CFR Sections Affected, which appears in 
the Finding Aids section of the printed volume and at www.fdsys.gov.



Sec. 682.605  Determining the date of a student's withdrawal.

    (a) Except in the case of a student who does not return for the next 
scheduled term following a summer break, which includes any summer term 
or terms in which classes are offered but students are not generally 
required to

[[Page 179]]

attend, a school must follow the procedures in Sec. 668.22(b) or (c), as 
applicable, for determining the student's date of withdrawal. In the 
case of a student who does not return from a summer break, the school 
must follow the procedures in Sec. 668.22(b) or (c), as applicable, 
except that the school shall determine the student's withdrawal date no 
later than 30 days after the first day of the next scheduled term.
    (b) The school must use the withdrawal date determined under 
Sec. 668.22(b) or (c), as applicable for the purpose of reporting to the 
lender and the Secretary the date that the student has withdrawn from 
the school.
    (c) For the purpose of a school's reporting to a lender and the 
Secretary, a student's withdrawal date is the month, day and year of the 
withdrawal date.

(Approved by the Office of Management and Budget under control number 
1845-0020)

[60 FR 61757, Dec. 1, 1995, as amended at 64 FR 58965, 59043, Nov. 1, 
1999; 78 FR 65822, Nov. 1, 2013]



Sec. 682.606  [Reserved]



Sec. 682.607  Payment of a refund or a return of title IV, HEA program
funds to a lender upon a student's withdrawal.

    (a) General. By applying for a FFEL loan, a borrower authorizes the 
school to pay directly to the lender that portion of a refund or return 
of title IV, HEA program funds from the school that is allocable to the 
loan upon the borrower's withdrawal. A school--
    (1) Must pay that portion of the student's refund or return of title 
IV, HEA program funds that is allocable to a FFEL loan to--
    (i) The original lender; or
    (ii) A subsequent holder, if the loan has been transferred and the 
school knows the new holder's identity; and
    (2) Must provide simultaneous written notice to the borrower if the 
school makes a payment of a refund or a return of title IV, HEA program 
funds to a lender on behalf of that student.
    (b) Allocation of a refund or returned title IV, HEA program funds. 
In determining the portion of a refund or the return of title IV, HEA 
program funds upon a student's withdrawal for an academic period that is 
allocable to a FFEL loan received by the borrower for that academic 
period, the school must follow the procedures established in part 668 
for allocating a refund or return of title IV, HEA program funds.
    (c) Timely payment. A school must pay a refund or a return of title 
IV, HEA program funds that is due in accordance with the timeframe in 
Sec. 668.22(j).

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1082, 1094)

[64 FR 59043, Nov. 1, 1999]



Sec. 682.608  [Reserved]



Sec. 682.609  Remedial actions.

    (a) The Secretary may require a school to repay funds paid to other 
program participants by the Secretary. The Secretary also may require a 
school to purchase from the holder of a FFEL loan that portion of the 
loan that is unenforceable, that the borrower was ineligible to receive, 
or for which the borrower was ineligible to receive interest benefits 
contrary to the school's certification, and to make arrangements 
acceptable to the Secretary for reimbursement of the amounts the 
Secretary will be obligated to pay to program participants respecting 
that loan in the future. The repayment of funds and purchase of loans 
may be required if the Secretary determines that the payment to program 
participants, the unenforceability of the loan, or the disbursement of 
loan amounts for which the borrower was ineligible or for which the 
borrower was ineligible for interest benefits, resulted in whole or in 
part from--
    (1) The school's violation of a Federal statute or regulation; or
    (2) The school's negligent or willful false certification.
    (b) In requiring a school to repay funds to the Secretary or to 
another party or to purchase loans from a holder in connection with an 
audit or program review, the Secretary follows the procedures described 
in 34 CFR part 668, subpart H.
    (c) Notwithstanding paragraph (a) of this section, the Secretary may 
waive the right to require repayment of funds or repurchase of loans by 
a school if, in

[[Page 180]]

the Secretary's judgment, the best interest of the United States so 
requires.
    (d) The Secretary may impose a fine or take an emergency action 
against a school or limit, suspend, or terminate a school's 
participation in the FFEL programs, in accordance with 34 CFR part 668, 
subpart G.
    (e) A school shall comply with any emergency action, limitation, 
suspension, or termination imposed by a guaranty agency in accordance 
with the agency's standards and procedures. A school shall repay funds 
to the Secretary or other party or purchase loans from a holder if a 
guaranty agency determines that the school improperly received or 
retained the funds in violation of a Federal law or regulation or a 
guaranty agency rule or regulation.

(Authority: 20 U.S.C. 1077, 1078 , 1078-1, 1078-2, 1082, 1094)



Sec. 682.610  Administrative and fiscal requirements for schools that
participated in the FFEL Program.

    (a) General. Each school shall--
    (1) Establish and maintain proper administrative and fiscal 
procedures and all necessary records as set forth in the regulations in 
this part and in 34 CFR part 668;
    (2) Follow the record retention and examination provisions in this 
part and in 34 CFR 668.24; and
    (3) Submit all reports required by this part and 34 CFR part 668 to 
the Secretary.
    (b) Loan record requirements. In addition to records required by 34 
CFR part 668, for each Stafford, SLS, or PLUS loan received by or on 
behalf of its students, a school must maintain--
    (1) A copy of the loan certification or data electronically 
submitted to the lender, that includes the amount of the loan and the 
period of enrollment for which the loan was intended;
    (2) The cost of attendance, estimated financial assistance, and 
estimated family contribution used to calculate the loan amount;
    (3) For loans delivered to the school by check, the date the school 
endorsed each loan check, if required;
    (4) The date or dates of delivery of the loan proceeds by the school 
to the student or to the parent borrower;
    (5) For loans delivered by electronic funds transfer or master 
check, a copy of the borrower's required written authorization, if it 
was not provided in the loan application or MPN, to deliver the initial 
and subsequent disbursements of each FFEL Program loan; and
    (6) Documentation of any MPN confirmation process or processes the 
school may have used.
    (c) Enrollment reporting process. (1) Upon receipt of an enrollment 
report from the Secretary, a school must update all information included 
in the report and return the report to the Secretary--
    (i) In the manner and format prescribed by the Secretary; and
    (ii) Within the timeframe specified by the Secretary.
    (2) Unless it expects to submit its next updated enrollment report 
to the Secretary within the next 60 days, a school must notify the 
Secretary within 30 days after the date that the school discovers that--
    (i) A loan under title IV of the Act was made to or on behalf of a 
student who was enrolled or accepted for enrollment at the school, and 
the student has ceased to be enrolled on at least a half-time basis or 
failed to enroll on at least a half-time basis for the period for which 
the loan was intended; or
    (ii) A student who is enrolled at the school and who received a loan 
under title IV of the Act has changed his or her permanent address.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1082, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 61 
FR 60493, Nov. 27, 1996; 64 FR 58965, Nov. 1, 1999; 66 FR 34764, June 
29, 2001; 78 FR 65822, Nov. 1, 2013]



Sec. 682.611  [Reserved]



  Subpart G_Limitation, Suspension, or Termination of Lender or Third-
       Party Servicer Eligibility and Disqualification of Lenders



Sec. 682.700  Purpose and scope.

    (a) This subpart governs the limitation, suspension, or termination 
by the

[[Page 181]]

Secretary of the eligibility of an otherwise eligible lender to 
participate in the FFEL programs or the eligibility of a third-party 
servicer to enter into a contract with an eligible lender to administer 
any aspect of the lender's FFEL programs. The regulations in this 
subpart apply to a lender or third-party servicer that violates any 
statutory provision governing the FFEL programs or any regulations, 
special arrangements, agreements, or limitations entered into under the 
authority of statutes applicable to Title IV of the HEA prescribed under 
the FFEL programs. These regulations apply to lenders that participate 
only in a guaranty agency program, lenders that participate in the FFEL 
programs, and third-party servicers that administer aspects of a 
lender's FFELP portfolio. These regulations also govern the Secretary's 
disqualification of a lender from participation in the FFEL programs 
under section 432(h)(2) of the Act.
    (b) This subpart does not apply--
    (1)(i) To a determination that an organization fails to meet the 
definition of ``eligible lender'' in section 435(d)(1) of the Act or the 
definition of ``lender'' in Sec. 682.200, for any reason other than a 
violation of the prohibitions in section 435(d)(5) of the Act; or
    (ii) To a determination that an organization fails to meet the 
standards in Sec. 682.416; or
    (2) To an administrative action by the Department of Education based 
on any alleged violation of--
    (i) The Family Educational Rights and Privacy Act of 1974 (section 
438 of the General Education Provisions Act), which is governed by 34 
CFR part 99;
    (ii) Title VI of the Civil Rights Act of 1964, which is governed by 
34 CFR parts 100 and 101;
    (iii) Section 504 of the Rehabilitation Act of 1973 (relating to 
discrimination on the basis of handicap), which is governed by 34 CFR 
part 104; or
    (iv) Title IX of the Education Amendments of 1972 (relating to sex 
discrimination), which is governed by 34 CFR part 106.
    (c) This subpart does not supplant any rights or remedies that the 
Secretary may have against participating lenders under other 
authorities.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22456, Apr. 29, 1994; 
78 FR 65822, Nov. 1, 2013]



Sec. 682.701  Definitions of terms used in this subpart.

    The following definitions apply to terms used in this subpart:
    Designated Departmental Official: An official of the Department of 
Education to whom the Secretary has delegated the responsibility for 
initiating and pursuing disqualification or limitation, suspension, or 
termination proceedings.
    Disqualification. The removal of a lender's eligibility for an 
indefinite period of time by the Secretary on review of limitation, 
suspension, or termination action taken against the lender by a guaranty 
agency.
    Limitation. The continuation of a lender's or third-party servicer's 
eligibility subject to compliance with special conditions established by 
agreement with the Secretary or a guaranty agency, as applicable, or 
imposed as the result of a limitation or termination proceeding.
    Suspension. The removal of a lender's eligibility, or a third-party 
servicer's eligibility to contract with a lender or guaranty agency, for 
a specified period of time or until the lender or servicer fulfills 
certain requirements.
    Termination. (1) The removal of a lender's eligibility for an 
indefinite period of time--
    (i) By a guaranty agency; or
    (ii) By the Secretary, based on an action taken by the Secretary, or 
a designated Departmental official under Sec. 682.706; or
    (2) The removal of a third-party servicer's eligibility to contract 
with a lender or guaranty agency for an indefinite period of time by the 
Secretary based on an action taken by the Secretary, or a designated 
Departmental official under Sec. 682.706.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22457, Apr. 29, 1994; 
78 FR 65822, Nov. 1, 2013]

[[Page 182]]



Sec. 682.702  Effect on participation.

    (a) Limitation, suspension, or termination proceedings by the 
Secretary do not affect a lender's responsibilities or rights to 
benefits and claim payments that are based on the lender's prior 
participation in the program, except as provided in Sec. 682.709.
    (b) A limitation imposes on a lender--
    (1) A limit on the number or total amount of loans that a lender may 
purchase or hold under the FFEL Program; or
    (2) Other reasonable requirements or conditions, including those 
described in Sec. 682.709.
    (c) A limitation imposes on a third-party servicer--
    (1) A limit on the number of loans or accounts or total amount of 
loans that the servicer may service;
    (2) A limit on the number of loans or accounts or total amount of 
loans that the servicer is administering under its contract with a 
lender or guaranty agency; or
    (3) Other reasonable requirements or conditions, including those 
described in Sec. 682.709.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22457, Apr. 29, 1994; 
78 FR 65822, Nov. 1, 2013]



Sec. 682.703  Informal compliance procedure.

    (a) The Secretary may use the informal compliance procedure in 
paragraph (b) of this section if the Secretary receives a complaint or 
other reliable information indicating that a lender or third-party 
servicer may be in violation of applicable laws, regulations, special 
arrangements, agreements, or limitations entered into under the 
authority of statutes applicable to Title IV of the HEA.
    (b) Under the informal compliance procedure, the Secretary gives the 
lender or servicer a reasonable opportunity to--
    (1) Respond to the complaint or information; and
    (2) Show that the violation has been corrected or submit an 
acceptable plan for correcting the violation and preventing its 
recurrence.
    (c) The Secretary does not delay limitation, suspension, or 
termination procedures during the informal compliance procedure if--
    (1) The delay would harm the FFEL programs; or
    (2) The informal compliance procedure will not result in correction 
of the alleged violation.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22457, Apr. 29, 1994]



Sec. 682.704  Emergency action.

    (a) The Secretary, or a designated Departmental official, may take 
emergency action to withhold payment of interest benefits and special 
allowance to a lender if the Secretary--
    (1) Receives reliable information that the lender or a third-party 
servicer with which the lender contracts is in violation of applicable 
laws, regulations, special arrangements, agreements, or limitations 
entered into under the authority of statutes applicable to Title IV of 
the HEA pertaining to the lender's portfolio of loans;
    (2) Determines that immediate action is necessary to prevent the 
likelihood of substantial losses by the Federal Government, parent 
borrowers, or students; and
    (3) Determines that the likelihood of loss exceeds the importance of 
following the procedures for limitation, suspension, or termination.
    (b) The Secretary begins an emergency action by notifying the lender 
or third-party servicer, by certified mail, return receipt requested, of 
the action and the basis for the action.
    (c) The action becomes effective on the date the notice is mailed to 
the lender or third-party servicer.
    (d)(1) An emergency action does not exceed 30 days unless a 
limitation, suspension, or termination proceeding is begun before that 
time expires.
    (2) If a limitation, suspension, or termination proceeding is begun 
before the expiration of the 30-day period--
    (i) The emergency action may be extended until completion of the 
proceeding, including any appeal to the Secretary; and
    (ii) Upon the written request of the lender or third-party servicer, 
the Secretary may provide the lender or

[[Page 183]]

servicer with an opportunity to demonstrate that the emergency action is 
unwarranted.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22457, Apr. 29, 1994; 
78 FR 65822, Nov. 1, 2013]



Sec. 682.705  Suspension proceedings.

    (a) Scope. (1) A suspension by the Secretary removes a lender's 
eligibility under the FFEL programs or a third-party servicer's ability 
to enter into contracts with eligible lenders, and the Secretary does 
not guarantee or reinsure a new loan serviced by the servicer during a 
period not to exceed 60 days from the date the suspension becomes 
effective, unless--
    (i) The lender or servicer and the Secretary agree to an extension 
of the suspension period, if the lender or third-party servicer has not 
requested a hearing; or
    (ii) The Secretary begins a limitation or a termination proceeding.
    (2) If the Secretary begins a limitation or a termination proceeding 
before the suspension period ends, the Secretary may extend the 
suspension period until the completion of that proceeding, including any 
appeal to the Secretary.
    (b) Notice. (1) The Secretary, or a designated Departmental 
official, begins a suspension proceeding by sending the lender or 
servicer a notice by certified mail with return receipt requested.
    (2) The notice--
    (i) Informs the lender or servicer of the Secretary's intent to 
suspend the lender's or servicer's eligibility for a period not to 
exceed 60 days;
    (ii) Describes the consequences of a suspension;
    (iii) Identifies the alleged violations on which the proposed 
suspension is based;
    (iv) States the proposed date the suspension becomes effective, 
which is at least 20 days after the date of mailing of the notice;
    (v) Informs the lender or servicer that the suspension will not take 
effect on the proposed date if the Secretary receives at least five days 
prior to that date a request for an oral hearing or written material 
showing why the suspension should not take effect; and
    (vi) Asks the lender or servicer to correct voluntarily any alleged 
violations.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[59 FR 22457, Apr. 29, 1994, as amended at 60 FR 33058, June 26, 1995; 
66 FR 34764, June 29, 2001; 68 FR 66615, Nov. 26, 2003; 72 FR 62009, 
Nov. 1, 2007; 78 FR 65822, Nov. 1, 2013]



Sec. 682.706  Limitation or termination proceedings.

    (a) Notice. (1) The Secretary, or a designated Departmental 
official, begins a limitation or termination proceeding, whether a 
suspension proceeding has begun, by sending the lender or third-party 
servicer a notice by certified mail with return receipt requested.
    (2) The notice--
    (i) Informs the lender or servicer of the Secretary's intent to 
limit or terminate the lender's or servicer's eligibility;
    (ii) Describes the consequences of a limitation or termination;
    (iii) Identifies the alleged violations on which the proposed 
limitation or termination is based;
    (iv) States the limits which may be imposed, in the case of a 
limitation proceeding;
    (v) States the proposed date the limitation or termination becomes 
effective, which is at least 20 days after the date of mailing of the 
notice;
    (vi) Informs the lender or servicer that the limitation or 
termination will not take effect on the proposed date if the Secretary 
receives, at least five days prior to that date, a request for an oral 
hearing or written material showing why the limitation or termination 
should not take effect;
    (vii) Asks the lender or servicer to correct voluntarily any alleged 
violations; and
    (viii) Notifies the lender or servicer that the Secretary may 
collect any amount owed by means of offset against amounts owed to the 
lender by the Department and other Federal agencies.
    (b) Hearing. (1) If the lender or servicer does not request an oral 
hearing but submits written material, the Secretary, or a designated 
Departmental official, considers the material and--

[[Page 184]]

    (i) Dismisses the proposed limitation or termination; or
    (ii) Notifies the lender or servicer of the date the limitation or 
termination becomes effective.
    (2) If the lender or servicer requests a hearing within the time 
specified in paragraph (a)(2)(vi) of this section, the Secretary 
schedules the date and place of the hearing. The date is at least 15 
days after receipt of the request from the lender or servicer. No 
proposed limitation or termination takes effect until a hearing is held.
    (3) The hearing is conducted by a presiding officer who--
    (i) Ensures that a written record of the hearing is made;
    (ii) Considers relevant written material presented before the 
hearing and other relevant evidence presented during the hearing; and
    (iii) Issues an initial decision, based on findings of fact and 
conclusions of law, that may limit or terminate the lender's or 
servicer's eligibility if the presiding officer is persuaded that the 
limitation or termination is warranted by the evidence.
    (4) The formal rules of evidence do not apply, and no discovery, as 
provided in the Federal Rules of Civil Procedure (28 U.S.C. appendix), 
is required.
    (5) The presiding officer shall base findings of fact only on 
evidence presented at or before the hearing and matters given official 
notice.
    (6) If a termination action is brought against a lender or third-
party servicer and the presiding officer concludes that a limitation is 
more appropriate, the presiding officer may issue a decision imposing 
one or more limitations on a lender or third-party servicer rather than 
terminating the lender's or servicer's eligibility.
    (7) In a termination action against a lender or third-party servicer 
based on a debarment under Executive Order 12549 or under the Federal 
Acquisition Regulation (FAR), 48 CFR part 9, subpart 9.4 that does not 
meet the standards described in 2 CFR 3485.612(d), the presiding 
official finds that the debarment constitutes prima facie evidence that 
cause for debarment and termination under this subpart exists.
    (8) The initial decision of the presiding officer is mailed to the 
lender or servicer.
    (9) Any time schedule specified in this section may be shortened 
with the approval of the presiding officer and the consent of the lender 
or servicer and the Secretary or designated Departmental official.
    (10) The presiding officer's initial decision automatically becomes 
the Secretary's final decision 20 days after it is issued and received 
by both parties unless the lender, servicer, or designated Departmental 
official appeals the decision to the Secretary within this period.
    (c) Notwithstanding the other provisions of this section, if a 
lender or a lender's owner or officer or third-party servicer or 
servicer's owner or officer, respectively, is convicted of or pled nolo 
contendere or guilty to a crime involving the unlawful acquisition, use, 
or expenditure of FFEL program funds, that conviction or guilty plea is 
grounds for terminating the lender's or servicer's eligibility, 
respectively, to participate in the FFEL programs.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[59 FR 22458, Apr. 29, 1994, as amended at 60 FR 33058, June 25, 1995; 
72 FR 62009, Nov. 1, 2007; 77 FR 18679, Mar. 28, 2012; 78 FR 65822, Nov. 
1, 2013]



Sec. 682.707  Appeals in a limitation or termination proceeding.

    (a) If the lender, third-party servicer, or designated Departmental 
official appeals the initial decision of the presiding officer in 
accordance with Sec. 682.706(b)(10)--
    (1) An appeal is made to the Secretary by submitting to the 
Secretary and the opposing party within 15 days of the date of the 
appealing party's receipt of the presiding officer's decision, a brief 
or other written material explaining why the decision of the presiding 
officer should be overturned or modified; and
    (2) The opposing party shall submit its brief or other written 
material to the Secretary and the appealing party within 15 days of its 
receipt of the brief or written material of the appealing party.
    (b) The Secretary issues a final decision affirming, modifying, or 
reversing

[[Page 185]]

the initial decision, including a statement of the reasons for the 
Secretary's decision.
    (c) Any party submitting material to the Secretary shall provide a 
copy to each party that participates in the hearing.
    (d) If the presiding officer's initial decision would limit or 
terminate the lender's or servicer's eligibility, it does not take 
effect pending the appeal unless the Secretary determines that a stay of 
the date it becomes effective would seriously and adversely affect the 
FFEL programs or student or parent borrowers.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22458, Apr. 29, 1994; 
66 FR 34765, June 29, 2001]



Sec. 682.708  Evidence of mailing and receipt dates.

    (a) All mailing dates and receipt dates referred to in this subpart 
must be substantiated by the original receipts from the U.S. Postal 
Service.
    (b) If a lender or third-party servicer refuses to accept a notice 
mailed under this subpart, the Secretary considers the notice as being 
received on the date that the lender or servicer refuses to accept the 
notice.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22459, Apr. 29, 1994]



Sec. 682.709  Reimbursements, refunds, and offsets.

    (a) As part of a limitation or termination proceeding, the 
Secretary, or a designated Departmental official, may require a lender 
or third-party servicer to take reasonable corrective action to remedy a 
violation of applicable laws, regulations, special arrangements, 
agreements, or limitations entered into under the authority of statutes 
applicable to Title IV of the HEA.
    (b) The corrective action may include payment to the Secretary or 
recipients designated by the Secretary of any funds, and any interest 
thereon, that the lender, or, in the case of a third-party servicer, the 
servicer or the lender that has a contract with a third-party servicer, 
improperly received, withheld, disbursed, or caused to be disbursed. A 
third-party servicer may be held liable up to the amounts specified in 
Sec. 682.413(a)(2).
    (c) If a final decision requires a lender, a lender that has a 
contract with a third-party servicer, or a third-party servicer to 
reimburse or make any payment to the Secretary, the Secretary may, 
without further notice or opportunity for a hearing, proceed to offset 
or arrange for another Federal agency to offset the amount due against 
any interest benefits, special allowance, or other payments due to the 
lender, the lender that has a contract with the third-party servicer, or 
the third-party servicer. A third-party servicer may be held liable up 
to the amounts specified in Sec. 682.413(a)(2).
    (d) In any action under this part based on a violation of the 
prohibitions in section 435(d)(5) of the Act, if the Secretary, the 
designated Department official, or the hearing official finds that the 
lender provided or offered the payments or activities described in 
paragraph (5)(i) of the definition of ``lender'' in Sec. 682.200(b), the 
Secretary or the official applies a rebuttable presumption that the 
payments or activities were offered or provided to secure applications 
for FFEL loans. To reverse the presumption, the lender must present 
evidence that the activities or payments were provided for a reason 
unrelated to securing applications for FFEL loans or securing FFEL loan 
volume.

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

[59 FR 22459, Apr. 29, 1994, as amended at 78 FR 65822, Nov. 1, 2013]



Sec. 682.710  Removal of limitation.

    (a) A lender or third-party servicer may request removal of a 
limitation imposed by the Secretary in accordance with the regulations 
in this subpart at any time more than 12 months after the date the 
limitation becomes effective.
    (b) The request must be in writing and must show that the lender or 
servicer has corrected any violations on which the limitation was based.
    (c) Within 60 days after receiving the request, the Secretary--
    (1) Grants the request;
    (2) Denies the request; or

[[Page 186]]

    (3) Grants the request subject to other limitations.
    (d)(1) If the Secretary denies the request or establishes other 
limitations, the lender or servicer, upon request, is given an 
opportunity to show why all limitations should be removed.
    (2) A lender or third-party servicer may continue to participate in 
the FFEL programs, subject to any limitation imposed by the Secretary 
under paragraph (c)(3) of this section, pending a decision by the 
Secretary on a request under paragraph (d)(1) of this section.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22459, Apr. 29, 1994]



Sec. 682.711  Reinstatement after termination.

    (a) A lender or third-party servicer whose eligibility has been 
terminated by the Secretary in accordance with the procedures of this 
subpart may request reinstatement of its eligibility after the later 
of--
    (1) Eighteen months from the effective date of the termination; or
    (2) The expiration of the period of debarment under Executive Order 
12459 or the Federal Acquisition Regulation (FAR), 48 CFR part 9, 
subpart 9.4.
    (b) The request must be in writing and must show that--
    (1) The lender or servicer has corrected any violations on which the 
termination was based; and
    (2) The lender or servicer meets all requirements for eligibility.
    (c) Within 60 days after receiving a request for reinstatement, the 
Secretary--
    (1) Grants the request;
    (2) Denies the request; or
    (3) Grants the request subject to limitations.
    (d)(1) If the Secretary denies the lender's or servicer's request or 
allows reinstatement subject to limitations, the lender or servicer, 
upon request, is given an opportunity to show why its eligibility should 
be reinstated and all limitations removed.
    (2) A lender or third-party servicer whose eligibility to 
participate in the FFEL programs is reinstated subject to limitations 
imposed by the Secretary pursuant to paragraph (c)(3) of this section, 
may participate in those programs, subject to those limitations, pending 
a decision by the Secretary on a request under paragraph (d)(1) of this 
section.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 22459, Apr. 29, 1994; 59 FR 34964, July 7, 1994; 60 FR 33058, June 
26, 1995; 64 FR 58965, Nov. 1, 1999; 78 FR 65822, Nov. 1, 2013]



Sec. 682.712  Disqualification review of limitation, suspension, and 
termination actions taken by guarantee agencies against lenders.

    (a) The Secretary reviews a limitation, suspension, or termination 
action taken by a guaranty agency against a lender participating in the 
FFEL programs to determine if national disqualification is appropriate. 
Upon completion of the Secretary's review, the Secretary notifies the 
guaranty agency and the lender of the Secretary's decision by mail.
    (b) The Secretary disqualifies a lender from participation in the 
FFEL programs if--
    (1) The lender waives review by the Secretary; or
    (2) The Secretary conducts the review and determines that the 
limitation, suspension, or termination was imposed in accordance with 
section 428(b)(1)(U) of the Act.
    (c)(1) Disqualification by the Secretary continues until the 
Secretary is satisfied that--
    (i) The lender has corrected the failure that led to the limitation, 
suspension, or termination; and
    (ii) There are reasonable assurances that the lender will comply 
with the requirements of the FFEL programs in the future.
    (2) Revocation of disqualification by the Secretary does not remove 
any limitation, suspension, or termination imposed by the agency whose 
action resulted in the disqualification.
    (d) A guaranty agency shall refer a limitation, suspension, or 
termination action that it takes against a lender to the Secretary 
within 30 days of its final decision to limit, suspend, or terminate

[[Page 187]]

the lender's eligibility to participate in the agency's program.
    (e) The Secretary reviews an agency's limitation, suspension, or 
termination of a lender's eligibility only when the guaranty agency's 
action is final, e.g, the lender is not entitled to any further appeals 
within the guaranty agency. A subsequent court challenge to an agency's 
action does not by itself affect the timing of the Secretary's review.
    (f) The guaranty agency's notice to the Secretary regarding a 
termination action must include a certified copy of the administrative 
record compiled by the agency with regard to the action. The record must 
include certified copies of the following documents:
    (1) The guaranty agency's letter initiating the action.
    (2) The lender's response.
    (3) The transcript of the agency's hearing.
    (4) The decision of the agency's hearing officer.
    (5) The decision of the agency on appeal from the hearing officer's 
decision, if any.
    (6) The regulations and written procedures of the agency under which 
the action was taken.
    (7) The audit or lender review report or documented basis that led 
to the action.
    (8) All other documents relevant to the action.
    (g) The guaranty agency's referral notice to the Secretary regarding 
a limitation or suspension action must include--
    (1) The documents described in paragraph (f) of this section; and
    (2) Documents describing and substantiating the existence of one or 
more of the circumstances described in paragraph (i) of this section.
    (h)(1) Within 60 days of the Secretary's receipt of a referral 
notice described in paragraph (f) or (g) of this section, the Secretary 
makes an initial assessment, based on the agency's record, as to whether 
the agency's action appears to comply with section 428(b)(1)(U) of the 
Act.
    (2) In the case of a referral notice described in paragraph (g) of 
this section, the Secretary also determines whether one or more of the 
circumstances described in paragraph (i) of this section exist.
    (3) If the Secretary concludes that the agency's action appears to 
comply with section 428(b)(1)(U) of the Act and, if applicable, one or 
more of the circumstances described in paragraph (i) of this section 
exist, the Secretary notifies the lender that the Secretary will review 
the guaranty agency's action to determine whether to disqualify the 
lender from further participation in the FFEL programs and affords the 
lender an opportunity--
    (i) To waive the review and be disqualified immediately; or
    (ii) To request a review.
    (i) In the case of an action by an agency that limits or suspends a 
lender's eligibility to participate in the agency's program, the agency 
shall provide the Secretary with a referral as described in paragraph 
(g) of this section only if--
    (1) The lender has not corrected the violation. A violation is 
corrected if, among other things, the lender has satisfied fully all 
liabilities incurred by the lender as a result of the violation, 
including its liability to the Secretary, or the lender has arranged to 
satisfy those liabilities in a manner acceptable to the parties to whom 
the liabilities are owed;
    (2) The lender has not provided satisfactory assurances to the 
agency of future compliance with program requirements; or
    (3) The guaranty agency determines that special circumstances 
warrant disqualification of the lender from the FFEL programs for a 
significant period, notwithstanding the agency's decision not to 
terminate the lender's eligibility to participate in the agency's 
program.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 64 
FR 58965, Nov. 1, 1999; 78 FR 65822, Nov. 1, 2013]



Sec. 682.713  [Reserved]

Subpart H [Reserved]

[[Page 188]]



               Sec. Appendixes A-C to Part 682 [Reserved]



Sec. Appendix D to Part 682--Policy for Waiving the Secretary's Right To 
   Recover or Refuse To Pay Interest Benefits, Special Allowance, and 
  Reinsurance on Stafford, Plus, Supplemental Loans for Students, and 
  Consolidation Program Loans Involving Lenders' Violations of Federal 
 Regulations Pertaining to Due Diligence in Collection or Timely Filing 
                      of Claims [Bulletin 88-G-138]

    Note: The following is a reprint of Bulletin 88-G-138, issued on 
March 11, 1988, with modifications made to reflect changes in the 
program regulations. For a loan that has lost reinsurance prior to 
December 1, 1992, this policy applies only through November 30, 1995. 
For a loan that loses reinsurance on or after December 1, 1992, this 
policy applies until 3 years after the default claim filing deadline. 
For the purpose of determining the 3-year deadline, reinsurance is lost 
on the later of (a) 3 years from the last date the claim could have been 
filed for claim payment with the guaranty agency for a claim that was 
not filed; or (b) 3 years from the date the guaranty agency rejected the 
claim, for a claim that was filed. These deadlines are extended by 
periods during which collection activities are suspended due to the 
filing of a bankruptcy petition.

                              Introduction

    (1) This letter sets forth the circumstances under which the 
Secretary, pursuant to sections 432(a)(5) and (6) of the Higher 
Education Act of 1965 and 34 CFR 682.406(b) and 682.413(f), will waive 
certain of the Secretary's rights and claims with respect to Stafford 
Loans, PLUS, Supplemental Loans for Students (SLS), and Consolidation 
Program loans made under a guaranty agency program that involve 
violations of Federal regulations pertaining to due diligence in 
collection or timely filing. (These programs are collectively referred 
to in this letter as the FFEL Program.) This policy applies to due 
diligence violations on loans for which the first day of delinquency 
occurred on or after March 10, 1987 (the effective date of the November 
10, 1986 due diligence regulations) and to timely filing violations 
occurring on or after December 26, 1986, whether or not the affected 
loans have been submitted as claims to the guaranty agency.
    (2) The Secretary has been implementing a variety of regulatory and 
administrative actions to minimize defaults in the FFEL Program. As a 
part of this effort, the Secretary published final regulations on 
November 10, 1986, requiring lenders and guaranty agencies to undertake 
specific due diligence activities to collect delinquent and defaulted 
loans, and establishing deadlines for the filing of claims by lenders 
with guaranty agencies. In recognition of the time required for agencies 
and lenders to modify their internal procedures, the Secretary delayed 
for four months the date by which lenders were required to comply with 
the new due diligence requirements. Thus, Sec. 682.411 of the 
regulations, which established minimum due diligence procedures that a 
lender must follow in order for a guaranty agency to receive reinsurance 
on a loan, became effective for loans for which the first day of 
delinquency occurred on or after March 10, 1987. The regulations make 
clear that compliance with these minimum requirements, and with the new 
timely filing deadlines, is a condition for an agency's receiving or 
retaining reinsurance payments made by the Secretary on a loan. See 34 
CFR 682.406(a)(3), (a)(5), (a)(6), and 682.413(b). The regulations also 
specify that a lender must comply with Sec. 682.411 and with the 
applicable filing deadline as a condition for its right to receive or 
retain interest benefits and special allowance on a loan for certain 
periods. See 34 CFR 682.300(b)(2)(vii), 682.302(d)(1)(iv), 
682.413(a)(1).
    (3) The Department has received inquiries regarding the procedures 
by which a lender may cure a violation of Sec. 682.411 regarding 
diligent loan collection, or of the 90-day deadline for the filing of 
default claims found in Sec. 682.406(a)(3) and (a)(5), in order to 
reinstate the agency's right to reinsurance and the lender's right to 
interest benefits and special allowance. Preliminarily, please note 
that, absent an exercise of the Secretary's waiver authority, a guaranty 
agency may not receive or retain reinsurance payments on a loan on which 
the lender has violated the Federal due diligence or timely filing 
requirements, even if the lender has followed a cure procedure 
established by the agency. Under Secs. 682.406(b) and 682.413(f), the 
Secretary--not the guaranty agency--decides whether to reinstate 
reinsurance coverage on a loan involving such a violation or any other 
violation of Federal regulations. A lender's violation of a guaranty 
agency's requirement that affects the agency's guarantee coverage also 
affects reinsurance coverage. See Secs. 682.406(a)(7) and 682.413(b). As 
Secs. 682.406(a)(7) and 682.413(b) make clear, a guaranty agency's cure 
procedures are relevant to reinsurance coverage only insofar as they 
allow for cure of violations of requirements established by the agency 
affecting the loan insurance it provides to lenders. In addition, all 
those requirements must be submitted to the Secretary for review and 
approval under 34 CFR 682.401(c).

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    (4) References throughout this letter to ``due diligence and timely 
filing'' rules, requirements, and violations should be understood to 
mean only the Federal rules cited above, unless the context clearly 
requires otherwise.

                                A. Scope

    This letter outlines the Secretary's waiver policy regarding certain 
violations of Federal due diligence or timely filing requirements on a 
loan insured by a guaranty agency. Unless your agency receives 
notification to the contrary, or the lender's violation involves fraud 
or other intentional misconduct, you may treat as reinsured any 
otherwise reinsured loan involving such a violation that has been cured 
in accordance with this letter.

          B. Duty of a Guaranty Agency To Enforce Its Standards

    As noted above, a lender's violation of a guaranty agency's 
requirement that affects the agency's guarantee coverage also affects 
reinsurance coverage. Thus, as a general rule, an agency that fails to 
enforce such a requirement and pays a default claim involving a 
violation is not eligible to receive reinsurance on the underlying loan. 
However, in light of the waiver policy outlined below, which provides 
more stringent cure procedures for violations occurring on or after May 
1, 1988 than for pre-May 1, 1988 violations, some guaranty agencies with 
more stringent policies than the policy outlined below for the pre-May 1 
violations have indicated that they wish to relax their own policies for 
violations of agency rules during that period. While the Secretary does 
not encourage any agency to do so, the Secretary will permit an agency 
to take either of the following approaches to its enforcement of its own 
due diligence and timely filing rules for violations occurring before 
May 1, 1988.
    (1) The agency may continue to enforce its rules, even if they 
result in the denial of guarantee coverage by the agency on otherwise 
reinsurable loans; or
    (2) The agency may decline to enforce its rules as to any loan that 
would be reinsured under the retrospective waiver policy outlined below. 
In other words, for violations of a guaranty agency's due diligence and 
timely filing rules occurring before May 1, 1988, a guaranty agency is 
authorized, but not required, to retroactively revise its own due 
diligence and timely filing standards to treat as guaranteed any loan 
amount that is reinsured under the retrospective enforcement policy 
outlined in section I.C.1. However, for any violation of an agency's due 
diligence or timely filing rules occurring on or after May 1, 1988, the 
agency must resume enforcing those rules in accordance with their terms, 
in order to receive reinsurance payments on the underlying loan. For 
these post-April 30 violations, and for any other violation of an 
agency's rule affecting its guarantee coverage, the Secretary will treat 
as reinsured all loans on which the agency has engaged in, and 
documented, a case-by-case exercise of reasonable discretion allowing 
for guarantee coverage to be continued or reinstated notwithstanding the 
violation. But any agency that otherwise fails, or refuses, to enforce 
such a rule does so without the benefit of reinsurance coverage on the 
affected loans, and the lenders continue to be ineligible for interest 
benefits and special allowance thereon.

                            C. Due Diligence

    Under 34 CFR 682.200, default on a FFEL Program loan occurs when a 
borrower fails to make a payment when due, provided this failure 
persists for 270 days for loans payable in monthly installments, or for 
330 days for loans payable in less frequent installments. The 270/330-
day default period applies regardless of whether payments were missed 
consecutively or intermittently. For example, if the borrower, on a loan 
payable in monthly installments, makes his January 1st payment on time, 
his February 1st payment two months late (April 1st), his March 1st 
payment 3 months late (June 1st), and makes no further payments, the 
delinquency period begins on February 2nd, with the first delinquency, 
and default occurs on December 27th, when the April payment becomes 270 
days past due. The lender must treat the payment made on April 1st as 
the February 1st payment, since the February 1st payment had not been 
made prior to that time. Similarly, the lender must treat the payment 
made on June 1st as the March 1st payment, since the March payment had 
not been made prior to that time.

    Note: Lenders are strongly encouraged to exercise forbearance, prior 
to default, for the benefit of borrowers who have missed payments 
intermittently but have otherwise indicated willingness to repay their 
loans. See 34 CFR 682.211. The forbearance process helps to reduce the 
incidence of default, and serves to emphasize for the borrower the 
importance of compliance with the repayment obligation.

                            D. Timely Filing

    (1) The 90-day filing period applicable to FFEL Program default 
claims is described in 34 CFR 682.406(a)(5). The 90-day filing period 
begins at the end of the 270/330-day default period. The lender 
ordinarily must file a default claim on a loan in default by the end of 
the filing period. However, the lender may, but need not, file a claim 
on that loan before the 360th day of delinquency (270-day default period 
plus 90-day filing period) if the borrower brings the account less than 
270 days

[[Page 190]]

delinquent before the 360th day. Thus, in the above example, if the 
borrower makes the April 1st payment on December 28th, that payment 
makes the loan 241 days delinquent, and the lender may, but need not, 
file a default claim on the loan at that time. If, however, the loan 
again becomes 270 days delinquent, the lender must file a default claim 
within 90 days thereafter (unless the loan is again brought to less than 
270 days delinquent prior to the end of that 90-day period). In other 
words, the Secretary will permit a lender to treat payments made during 
the filing period as curing the default if those payments are sufficient 
to make the loan less than 270 days delinquent.
    (2) Section I of this letter outlines the Secretary's waiver policy 
for due diligence and timely filing violations. As noted above, to the 
extent that it results in the imposition of a lesser sanction than that 
available to the Secretary by statute or regulation, this policy 
reflects the exercise of the Secretary's authority to waive the 
Secretary's rights and claims in this area. Section II discusses the 
issue of the due date of the first payment on a loan and the application 
of the waiver policy to that issue. Section III provides guidance on 
several issues related to due diligence and timely filing as to which 
clarification has been requested by some program participants.

                            I. Waiver Policy

                             A. Definitions

    The following definitions apply to terms used throughout this 
letter:
    Full payment means payment by the borrower, or another person (other 
than the lender) on the borrower's behalf, in an amount at least as 
great as the monthly payment amount required under the existing terms of 
the loan, exclusive of any forbearance agreement in force at the time of 
the default. (For example, if the original repayment schedule or 
agreement called for payments of $50 per month, but a forbearance 
agreement was in effect at the time of default that allowed the borrower 
to pay $25 per month for a specified time, and the borrower defaulted in 
making the reduced payments, a full payment would be $50, or two $25 
payments in accordance with the original repayment schedule or 
agreement.) In the case of a payment made by cash, money order, or other 
means that do not identify the payor that is received by a lender after 
the date of this letter, that payment may constitute a full payment only 
if a senior officer of the lender or servicing agent certifies that the 
payment was not made by or on behalf of the lender or servicing agent.
    Earliest unexcused violation means:
    (a) In cases when reinsurance is lost due to a failure to timely 
establish a first payment due date, the earliest unexcused violation 
would be the 46th day after the date the first payment due date should 
have been established.
    (b) In cases when reinsurance is lost due to a gap of 46 days, the 
earliest unexcused violation date would be the 46th day following the 
last collection activity.
    (c) In cases when reinsurance is lost due to three or more due 
diligence violations of 6 days or more, the earliest unexcused violation 
would be the day after the date of default.
    (d) In cases when reinsurance is lost due to a timely filing 
violation, the earliest unexcused violation would be the day after the 
filing deadline.
    Reinstatement with respect to reinsurance coverage means the 
reinstatement of the guaranty agency's right to receive reinsurance 
payments on the loan after the date of reinstatement. Upon reinstatement 
of reinsurance, the borrower regains the right to receive forbearance or 
deferments, as appropriate. Reinstatement with respect to reinsurance on 
a loan also includes reinstatement of the lender's right to receive 
interest and special allowance payments on that loan.
    Gap in collection activity on a loan means:
    (a) The period between the initial delinquency and the first 
collection activity;
    (b) The period between collection activities (a request for 
preclaims assistance is considered a collection activity);
    (c) The period between the last collection activity and default; or
    (d) The period between the date a lender discovers a borrower has 
``skipped'' and the lender's first skip-tracing activity.

    Note: The concept of ``gap'' is used herein simply as one measure of 
collection activity. This definition applies to loans subject to the 
FFEL and PLUS programs regulations published on or after November 10, 
1986. For those loans, not all gaps are violations of the due diligence 
rules.

    Violation with respect to the due diligence requirements in 
Sec. 682.411 means the failure to timely complete a required diligent 
phone contact effort, the failure to timely send a required letter 
(including a request for preclaims assistance), or the failure to timely 
engage in a required skip-tracing activity. If during the delinquency 
period a gap of more than 45 days occurs (more than 60 days for loans 
with a transfer), the lender must satisfy the requirement outlined in 
I.D.1. for reinsurance to be reinstated. The day after the 45-day gap 
(or 60 for loans with a transfer) will be considered the date that the 
violation occurred.
    Transfer means any action, including, but not limited to, the sale 
of the loan, that results in a change in the system used to monitor or 
conduct collection activity on a loan from one system to another.

[[Page 191]]

    B. General
    1. Resumption of Interest and Special Allowance Billing on Loans 
Involving Due Diligence or Timely Filing Violations. For any loan on 
which a cure is required under this letter in order for the agency to 
receive any reinsurance payment, the lender may resume billing for 
interest and special allowance on the loan only for periods following 
its completion of the required cure procedure.
    2. Reservation of the Secretary's Right to Strict Enforcement. While 
this letter describes the Secretary's general waiver policy, the 
Secretary retains the option of refusing to permit or recognize cures, 
or of insisting on strict enforcement of the remedies established by 
statute or regulation, in cases where, in the Secretary's judgment, a 
lender has committed an excessive number of severe violations of due 
diligence or timely filing rules and in cases where the best interests 
of the United States otherwise require strict enforcement. More 
generally, this bulletin states the Secretary's general policy and is 
not intended to limit in any way the authority and discretion afforded 
the Secretary by statute or regulation.
    3. Interest, Special Allowance, and Reinsurance Repayment Required 
as a Condition for Exercise of the Secretary's Waiver Authority. The 
Secretary's waiver of the right to recover or refuse to pay reinsurance, 
interest benefits, or special allowance payments, and recognition of 
cures for due diligence and timely filing violations, are conditioned on 
the following:
    a. The guaranty agency and lender must ensure that the lender repays 
all interest benefits and special allowance received on loans involving 
violations occurring prior to May 1, 1988, for which the lender is 
ineligible under the waiver policy for the ``retrospective period'' 
described in section I.C.1., or under the waiver policy for timely 
filing violations described in section I.E.1., by an adjustment to one 
of the next three quarterly billings for interest benefits and special 
allowance submitted by the lender in a timely manner after May 1, 1988. 
The guaranty agency's responsibility in this regard is satisfied by 
receipt of a certification from the lender that this repayment has been 
made in full.
    b. The guaranty agency, on or before October 1, 1988, must repay all 
reinsurance received on loans involving violations occurring prior to 
May 1, 1988, for which the agency is ineligible under the waiver policy 
for the ``retrospective period'' described in section I.C.1., or under 
the waiver policy for timely filing violations described in section 
I.E.1. Pending completion of the repayment described above, a lender or 
guaranty agency may submit billings to the Secretary on loans that are 
eligible for reinsurance under the waiver policy in this letter until it 
learns that repayment in full will not be made, or until the deadline 
for a repayment has passed without it being made, whichever is earlier. 
Of course, a lender or guaranty agency is prohibited from billing the 
Secretary for program payments on any loan amount that is not eligible 
for reinsurance under the waiver policy outlined in this letter. In 
addition to the repayments required above, any amounts received in the 
future in violation of this prohibition must immediately be repaid to 
the Secretary.
    4. Applicability of the Waiver Policy to Particular Classes of 
Loans. The policy outlined in this letter applies only to a loan for 
which the first day of the 180/240-day or 270/330-day default period (as 
applicable) that ended with default by the borrower occurred on or after 
March 10, 1987, or, in the case of a timely filing violation, December 
26, 1986, and that involves violations only of the due diligence or 
timely filing requirements or both. For a loan that has lost reinsurance 
prior to December 1, 1992, this policy applies only through November 30, 
1995. For a loan that loses reinsurance on or after December 1, 1992, 
this policy applies until 3 years after the default claim filing 
deadline.
    5. Excuse of Certain Due Diligence Violations. Except as noted in 
section II, if a loan has due diligence violations but was later cured 
and brought current, those violations will not be considered in 
determining whether a loan was serviced in accordance with 34 CFR 
682.411. Guarantors must review the due diligence for the 180/240 or 
270/330-day period (as applicable) prior to the default date ensuring 
the due date of the first payment not later made is the correct payment 
due date for the borrower.
    6. Excuse of Timely Filing Violations Due to Performance of a 
Guaranty Agency's Cure Procedures. If, prior to May 1, 1988, and prior 
to the filing deadline, a lender commenced the performance of collection 
activities specifically required by the guaranty agency to cure a due 
diligence violation on a loan, the Secretary will excuse the lender's 
timely filing violation if the lender completes the additional 
activities within the time period permitted by the guaranty agency and 
files a default claim on the loan not more than 45 days after completing 
the additional activities.
    7. Treatment of Accrued Interest on ``Cured'' Claims. For any loan 
involving any violation of the due diligence or timely filing rules for 
which a ``cure'' is required under section I.C. or I.E., for the agency 
to receive a reinsurance payment, the Secretary will not reimburse the 
guaranty agency for any unpaid interest accruing after the date of the 
earliest unexcused violation occurring after the last payment received 
before the cure is accomplished, and prior to the date of reinstatement 
of reinsurance coverage. The lender may capitalize unpaid interest 
accruing on

[[Page 192]]

the loan from the date of the earliest unexcused violation to the date 
of the reinstatement of reinsurance coverage. However, if the agency 
later files a claim for reinsurance on that loan, the agency must deduct 
this capitalized interest from the amount of the claim. Some cures will 
not reinstate coverage. For treatment of accrued interest in those 
cases, see section I.E.1.c.
    C. Waiver Policy for Violations of the Federal Due Diligence in 
Collection Requirements (34 CFR 682.411)
    A violation of the due diligence in collection rules occurs when a 
lender fails to meet the requirements found in 34 CFR 682.411. However, 
if a lender makes all required calls and sends all required letters 
during any of the delinquency periods described in that section, the 
lender is considered to be in compliance with that section for that 
period, even if the letters were sent before the calls were made. The 
special provisions for transfers apply whenever the violation(s) and, if 
applicable, the gap, were due to a transfer, as defined in section I.A.
    1. Retrospective Period. For one or more due diligence violations 
occurring during the period March 10, 1987-April 30, 1988--
    a. There will be no reduction or recovery by the Secretary of 
payments to the lender or guaranty agency if no gap of 46 days or more 
(61 days or more for a transfer) exists.
    b. If a gap of 46-60 days (61-75 days for a transfer) exists, 
principal will be reinsured, but accrued interest, interest benefits, 
and special allowance otherwise payable by the Secretary for the 
delinquency period are limited to amounts accruing through the date of 
default.
    c. If a gap of 61 days or more (76 days or more for a transfer) 
exists, the borrower must be located after the gap, either by the agency 
or the lender, in order for reinsurance on the loan to be reinstated. 
(See section I.E.1.d., for a description of acceptable evidence of 
location.) In addition, if the loan is held by the lender or after March 
15, 1988, the lender must follow the steps described in section I.E.1., 
or receive a full payment or a new signed repayment agreement, in order 
for the loan to again be eligible for reinsurance. The lender must repay 
all interest benefits and special allowance received for the period 
beginning with its earliest unexcused violation, occurring after the 
last payment received before the cure is accomplished, and ending with 
the date, if any, that reinsurance on the loan is reinstated.
    2. Prospective Period. For due diligence violations occurring on or 
after May 1, 1988 based on due dates prior to October 6, 1998--
    a. There will be no reduction or recovery by the Secretary of 
payments to the lender or guaranty agency if there is no violation of 
Federal requirements of 6 days or more (21 days or more for a transfer.)
    b. If there exist not more than two violations of 6 days or more 
each (21 days or more for a transfer), and no gap of 46 days or more (61 
days or more for a transfer) exists, principal will be reinsured, but 
accrued interest, interest benefits, and special allowance otherwise 
payable by the Secretary for the delinquency period will be limited to 
amounts accruing through the date of default. However, the lender must 
complete all required activities before the claim filing deadline, 
except that a preclaims assistance request must be made before the 240th 
day of delinquency. If the lender fails to make this request by the 
240th day, the Secretary will not pay any accrued interest, interest 
benefits, and special allowance for the most recent 180 days prior to 
default. If the lender fails to complete any other required activity 
before the claim filing deadline, accrued interest, interest benefits, 
and special allowance otherwise payable by the Secretary for the 
delinquency period will be limited to amounts accruing through the 90th 
day before default.
    c. If there exist three violations of 6 days or more each (21 days 
or more for a transfer) and no gap of 46 days or more (61 days or more 
for a transfer), the lender must satisfy the requirements outlined in 
I.E.1., or receive a full payment or a new signed repayment agreement in 
order for reinsurance on the loan to be reinstated. The Secretary does 
not pay any interest benefits or special allowance for the period 
beginning with the lender's earliest unexcused violation occurring after 
the last payment received before the cure is accomplished, and ending 
with the date, if any, that reinsurance on the loan is reinstated.
    d. If there exist more than three violations of 6 days or more each 
(21 days or more for a transfer) of any type, or a gap of 46 days (61 
days for a transfer) or more and at least one violation, the lender must 
satisfy the requirement outlined in section I.D.1., for reinsurance on 
the loan to be reinstated. The Secretary does not pay any interest 
benefits or special allowance for the period beginning with the lender's 
earliest unexcused violation occurring after the last payment received 
before the cure is accomplished, and ending with the date, if any, that 
reinsurance on the loan is reinstated.
    3. Post 1998 Amendments. For due diligence violations based on due 
dates on or after October 6, 1998--
    a. There will be no reduction or recovery by the Secretary of 
payments to the lender or guaranty agency if there is no violation of 
Federal requirements of 6 days or more (21 days or more for a transfer).
    b. If there exist not more than two violations of 6 days or more 
each (21 days or more for a transfer), and no gap of 46 days or more (61 
days or more for a transfer) exists, principal will be reinsured, but 
accrued interest,

[[Page 193]]

interest benefits, and special allowance otherwise payable by the 
Secretary for the delinquency period will be limited to amounts accruing 
through the date of default. However, the lender must complete all 
required activities before the claim filing deadline, except that a 
default aversion assistance request must be made before the 330th day of 
delinquency. If the lender fails to make this request by the 330th day, 
the Secretary will not pay any accrued interest, interest benefits, and 
special allowance for the most recent 270 days prior to default. If the 
lender fails to complete any other required activity before the claim 
filing deadline, accrued interest, interest benefits, and special 
allowance otherwise payable by the Secretary for the delinquency period 
will be limited to amounts accruing through the 90th day before default.
    c. If there exist three violations of 6 days or more each (21 days 
or more for a transfer) and no gap of 46 days or more (61 days or more 
for a transfer), the lender must satisfy the requirements outlined in 
I.E.1. or receive a full payment or a new signed repayment agreement in 
order for reinsurance on the loan to be reinstated. The Secretary does 
not pay any interest benefits or special allowance for the period 
beginning with the lender's earliest unexcused violation occurring after 
the last payment received before the cure is accomplished, and ending 
with the date, if any, that reinsurance on the loan is reinstated.
    d. If there exist more than three violations of 6 days or more each 
(21 days or more for a transfer) of any type, or a gap of 46 days (61 
days for a transfer) or more and at least one violation, the lender must 
satisfy the requirement outlined in section I.D.1. for reinsurance on 
the loan to be reinstated. The Secretary does not pay any interest 
benefits or special allowance for the period beginning with the lender's 
earliest unexcused violation occurring after the last payment received 
before the cure is accomplished and ending with the date, if any, that 
reinsurance on the loan is reinstated.
    D. Reinstatement of Reinsurance Coverage for Certain Egregious Due 
Diligence Violations.
    1. Cures. In the case of a loan involving violations described in 
section I.C.2.d. or I.C.3.d., the lender may utilize either of the two 
procedures described in section I.D.1.a or I.D.1.b. for obtaining 
reinstatement of reinsurance coverage on the loan.
    a. After the violations occur, the lender obtains a new repayment 
agreement signed by the borrower. The repayment agreement must comply 
with the repayment period limitations set out in 34 CFR 682.209(a)(8) 
and 682.209(h)(2); or
    b. After the violations occur, the lender obtains one full payment. 
If the borrower later defaults, the guaranty agency must obtain evidence 
of this payment (e.g., a copy of the check) from the lender.
    2. Borrower Deemed Current as of Date of Cure. On the date the 
lender receives a new signed repayment agreement or the curing payment 
under section I.D.1., reinsurance coverage on the loan is reinstated, 
and the borrower must be deemed by the lender to be current in repaying 
the loan and entitled to all rights and benefits available to borrowers 
who are not in default. The lender must then follow the collection and 
timely filing requirements applicable to the loan.
    E. Cures for Timely Filing Violations and Certain Due Diligence 
Violations
    1. Default Claims.
    a. Reinstatement of Insurance Coverage. Except as noted in section 
I.B.6., in order to obtain reinstatement of reinsurance coverage on a 
loan in the case of a timely filing violation, a due diligence violation 
described in section I.C.2.c. or I.C.3.c., or a due diligence violation 
described in section I.C.1.c. where the lender holds the loan on or 
after March 15, 1988, the lender must first locate the borrower after 
the gap, or after the date of the last violation, as applicable. (See 
section I.E.1.d. for description of acceptable evidence of location.) 
Within 15 days thereafter, the lender must send to the borrower, at the 
address at which the borrower was located, (i) a new repayment 
agreement, to be signed by the borrower, that complies with the ten-year 
repayment limitations in 34 CFR 682.209(a)(7), along with (ii) a 
collection letter indicating in strong terms the seriousness of the 
borrower's delinquency and its potential effect on his or her credit 
rating if repayment is not commenced or resumed. If, within 15 days 
after the lender sends these items, the borrower fails to make a full 
payment or to sign and return the new repayment agreement, the lender 
must, within 5 days thereafter, diligently attempt to contact the 
borrower by telephone. Within 5-10 days after completing these efforts, 
the lender must again diligently attempt to contact the borrower by 
telephone. Finally, within 5-10 days after completing these efforts, the 
lender must send a forceful collection letter indicating that the entire 
unpaid balance of the loan is due and payable, and that, unless the 
borrower immediately contacts the lender to arrange repayment, the 
lender will be filing a default claim with the guaranty agency.
    b. Borrower Deemed Current Under Certain Circumstances. If, at any 
time on or before the 30th day after the lender completes the additional 
collection efforts described in section I.E.1.a., or the 270th day of 
delinquency, whichever is later, the lender receives a full payment or a 
new signed repayment agreement, reinsurance coverage on the loan is 
reinstated on the date the lender receives the full payment or new 
agreement. The borrower must be deemed by the lender to be

[[Page 194]]

current in repaying the loan and entitled to all rights and benefits 
available to borrowers who are not in default. In the case of a timely 
filing violation on a loan for which the borrower is deemed current 
under this paragraph, the lender is ineligible to receive interest 
benefits and special allowance accruing from the date of the violation 
to the date of reinstatement of reinsurance coverage on the loan.
    c. Borrower Deemed in Default Under Certain Circumstances. If the 
borrower does not make a full payment, or sign and return the new 
repayment agreement, on or before the 30th day after the lender 
completes the additional collection efforts described in section 
I.E.1.a., or the 270th day of delinquency, whichever is later, the 
lender must deem the borrower to be in default. The lender must then 
file a default claim on the loan, accompanied by acceptable evidence of 
location (see section I.E.1.d.), within 30 days after the end of the 30-
day period. Reinsurance coverage, and therefore the lender's right to 
receive interest benefits and special allowance, is not reinstated on a 
loan involving these circumstances. However, the Secretary will honor 
reinsurance claims submitted in accordance with this paragraph on the 
outstanding principal balance of those loans, on unpaid interest as 
provided in section I.B.7., and for reimbursement of eligible 
supplemental preclaims assistance costs. In the case of a timely filing 
violation on a loan for which the borrower is deemed in default under 
this paragraph, the lender is ineligible to receive interest benefits 
and special allowance accruing from the date of the violation.
    d. Acceptable Evidence of Location. Only the following documentation 
is acceptable as evidence that the lender has located the borrower:
    (1) A postal receipt signed by the borrower not more than 15 days 
prior to the date on which the lender sent the new repayment agreement, 
indicating acceptance of correspondence from the lender by the borrower 
at the address shown on the receipt; or
    (2) Documentation submitted by the lender showing--
    (i) The name, identification number, and address of the lender;
    (ii) The name and Social Security number of the borrower; and
    (iii) A signed certification by an employee or agent of the lender, 
that--
    (A) On a specified date, he or she spoke with or received written 
communication (attached to the certification) from the borrower on the 
loan underlying the default claim, or a parent, spouse, sibling, 
roommate, or neighbor of the borrower;
    (B) The address and, if available, telephone number of the borrower 
were provided to the lender in the telephone or written communication; 
and
    (C) In the case of a borrower whose address or telephone number was 
provided to the lender by someone other than the borrower, the new 
repayment agreement and the letter sent by the lender pursuant to 
section I.E.1.a., had not been returned undelivered as of 20 days after 
the date those items were sent, for due diligence violations described 
in section I.C.1.c. where the lender holds the loan on the date of this 
letter, and as of the date the lender filed a default claim on the cured 
loan, for all other violations.
    2. Death, Disability, and Bankruptcy Claims. The Secretary will 
honor a death or disability claim on an otherwise eligible loan 
notwithstanding the lender's failure to meet the 60-day timely filing 
requirement (See 34 CFR 682.402(g)(2)(i)). However, the Secretary will 
not reimburse the guaranty agency if, before the date the lender 
determined that the borrower died or was totally and permanently 
disabled, the lender had violated the Federal due diligence or timely 
filing requirements applicable to that loan, except in accordance with 
the waiver policy described above. Interest that accrued on the loan 
after the expiration of the 60-day filing period remains ineligible for 
reimbursement by the Secretary, and the lender must repay all interest 
and special allowance received on the loan for periods after the 
expiration of the 60-day filing period. The Secretary has determined 
that, in the vast majority of cases, the failure of a lender to comply 
with the timely filing requirement applicable to bankruptcy claims 
(Sec. 682.402(g)(2)(iv)) causes irreparable harm to the guaranty 
agency's ability to contest the discharge of the loan by the court, or 
to otherwise collect from the borrower. Therefore, the Secretary has 
decided not to excuse violations of the timely filing requirement 
applicable to bankruptcy claims, except when the lender can demonstrate 
that the bankruptcy action has concluded and that the loan has not been 
discharged in bankruptcy or, if previously discharged, has been the 
subject of a reversal of the discharge. In that case, the lender must 
return the borrower to the appropriate status that existed prior to the 
filing of the bankruptcy claim unless the status has changed due solely 
to passage of time. In the latter case, the lender must place the 
borrower in the status that would exist had no bankruptcy claim been 
filed. If the borrower is delinquent after the loan is determined 
nondischargeable, the lender should grant administrative forbearance to 
bring the borrower's account current as provided in Sec. 682.211(f)(4) 
and Sec. 682.402(f)(5)(ii) and (f)(6). The Secretary will not reimburse 
the guaranty agency for interest for the period beginning on the filing 
deadline for the bankruptcy claim and ending on the date the loan 
becomes eligible again for reinsurance. Reinsurance is reinstated on the 
date the bankruptcy action concludes and the loan is not

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discharged or on the date a previous discharge is reversed.
    II. Due Date of First Payment. Section 682.411(b)(1) refers to the 
``due date of the first missed payment not later made'' as one way to 
determine the first day of delinquency on a loan. Section 682.209(a)(3) 
states that, generally, the repayment period on an FFEL Program loan 
begins some number of months after the month in which the borrower 
ceases at least half-time study. Where the borrower enters the repayment 
period with the lender's knowledge, the first payment due date may be 
set by the lender, provided it falls within a reasonable time after the 
first day of the month in which the repayment period begins. In this 
situation, the Secretary generally permits a lender to allow the 
borrower up to 45 days from the first day of repayment to make the first 
payment (unless the lender establishes the first day of repayment under 
Sec. 682.209(a)(3)(ii)(E)).
    1. In cases where the lender learns that the borrower has entered 
the repayment period after the fact, current Sec. 682.411 treats the 
30th day after the lender receives this information as the first day of 
delinquency. In the course of discussion with lenders, the Secretary has 
learned that many lenders have not been using the 30th day after receipt 
of notice that the repayment period has begun (``the notice'') as the 
first payment due date. In recognition of this apparently widespread 
practice, the Secretary has decided that, both retrospectively and 
prospectively, a lender should be allowed to establish a first payment 
due date within 60 days after receipt of the notice, to capitalize 
interest accruing up to the first payment due date, and to exercise 
forbearance with respect to the period during which the borrower was in 
the repayment period but made no payment. In effect, this means that, if 
the lender sends the borrower a coupon book, billing notice, or other 
correspondence establishing a new first payment due date, on or before 
the 60th day after receipt of the notice, the lender is deemed to have 
exercised forbearance up to the new first payment due date. The new 
first payment due date must fall no later than 75 days after receipt of 
the notice (unless the lender establishes the first day of repayment 
under Sec. 682.209(a)(3)(ii)(E)). In keeping with the 5-day tolerance 
permitted under section I.C.2.a., for the ``prospective period,'' or 
section I.C.3.a., for the ``post 1998 amendment period,'' a lender that 
sends the above-described material on or before the 65th day after 
receipt of the notice will be held harmless. However, a lender that does 
so on the 66th day will have failed by more than 5 days to send both of 
the collection letters required by Sec. 682.411(c) to be sent within the 
first 30 days of delinquency and will thus have committed two violations 
of more than five days of that rule.
    2. If the lender fails to send the material establishing a new first 
payment due date on or before the 65th day after receipt of the notice, 
it may thereafter send material establishing a new first payment due 
date falling not more than 45 days after the materials are sent and will 
be deemed to have exercised forbearance up to the new first payment due 
date. However, all violations and gaps occurring prior to the date on 
which the material is sent are subject to the waiver policies described 
in section I for violations falling in either the retrospective or 
prospective periods. This is an exception to the general policy set 
forth in section I.B.5., that only violations occurring during the most 
recent 180 or 270 days (as applicable) of the delinquency period on a 
loan are relevant to the Secretary's examination of due diligence.
    Please Note: References to the ``65th day after receipt of the 
notice'' and ``66th day'' in the preceding paragraphs should be amended 
to read ``95th day'' and ``96th day'' respectively for lenders subject 
to Sec. 682.209(a)(3)(ii)(E).
    III. Questions and Answers
    The waiver policy outlined in this letter was developed after 
extensive discussion and consultation with participating lenders and 
guaranty agencies. In the course of these discussions, lenders and 
agencies raised a number of questions regarding the due diligence rules 
as applied to various circumstances. The Secretary's responses to these 
questions follow.
    Note: The answer to questions 1 and 4 are applicable only to loans 
subject to Sec. 682.411 of the FFEL and PLUS program regulations 
published on or after November 10, 1986.
    1. Q: Section 682.411 of the program regulations requires the lender 
to make ``diligent efforts to contact the borrower by telephone'' during 
each 30-day period of delinquency beginning after the 30th day of 
delinquency. What must a lender do to comply with this requirement?
    A: Generally speaking, one actual telephone contact with the 
borrower, or two attempts to make such contact on different days and at 
different times, will satisfy the ``diligent efforts'' requirement for 
any of the 30-day delinquency periods described in the rule. However, 
the ``diligent efforts'' requirement is intended to be a flexible one, 
requiring the lender to act on information it receives in the course of 
attempting telephone contact regarding the borrower's actual telephone 
number, the best time to call to reach the borrower, etc. For instance, 
if the lender is told during its second telephone contact attempt that 
the borrower can be reached at another number or at a different time of 
day, the lender must then attempt to reach the borrower by telephone at 
that number or that time of day.

[[Page 196]]

    2. Q: What must a lender do when it receives conflicting information 
regarding the date a borrower ceased at least half-time study?
    A: A lender must promptly attempt to reconcile conflicting 
information regarding a borrower's in-school status by making inquiries 
of appropriate parties, including the borrower's school. Pending 
reconciliation, the lender may rely on the most recent credible 
information it has.
    3. Q: If a loan is transferred from one lender to another, is the 
transferee held responsible for information regarding the borrower's 
status that is received by the transferor but is not passed on to the 
transferee?
    A: No. A lender is responsible only for information received by its 
agents and employees. However, if the transferee has reason to believe 
that the transferor has received additional information regarding the 
loan, the transferee must make a reasonable inquiry of the transferor as 
to the nature and substance of that information.
    4. Q: What are a lender's due diligence responsibilities where a 
check received on a loan is dishonored by the bank on which it was 
drawn?
    A: Upon receiving notice that a check has been dishonored, the 
lender must treat the payment as having never been made for purposes of 
determining the number of days that the borrower is delinquent at that 
time. The lender must then begin (or resume) attempting collection on 
the loan in accordance with Sec. 682.411, commencing with the first 30-
day delinquency period described in Sec. 682.411 that begins after the 
30-day delinquency period in which the notice of dishonor is received. 
The same result occurs when the lender successfully obtains a delinquent 
borrower's correct address through skip-tracing, or when a delinquent 
borrower leaves deferment or forbearance status.

[64 FR 58636, Oct. 29, 1999, as amended at 66 FR 34765, June 29, 2001; 
78 FR 65823, Nov. 1, 2013]



PART 685_WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM--Table of Contents



                       Subpart A_Purpose and Scope

Sec.
685.100  The William D. Ford Federal Direct Loan Program.
685.101  Participation in the Direct Loan Program.
685.102  Definitions.
685.103  Applicability of subparts.

                      Subpart B_Borrower Provisions

685.200  Borrower eligibility.
685.201  Obtaining a loan.
685.202  Charges for which Direct Loan Program borrowers are 
          responsible.
685.203  Loan limits.
685.204  Deferment.
685.205  Forbearance.
685.206  Borrower responsibilities and defenses.
685.207  Obligation to repay.
685.208  Repayment plans.
685.209  Income-contingent repayment plans.
685.210  Choice of repayment plan.
685.211  Miscellaneous repayment provisions.
685.212  Discharge of a loan obligation.
685.213  Total and permanent disability discharge.
685.214  Closed school discharge.
685.215  Discharge for false certification of student eligibility or 
          unauthorized payment.
685.216  Unpaid refund discharge.
685.217  Teacher loan forgiveness program.
685.218  Discharge of student loan indebtedness for survivors of victims 
          of the September 11, 2001, attacks.
685.219  Public Service Loan Forgiveness Program.
685.220  Consolidation.
685.221  Income-based repayment plan.
685.222  Borrower defenses.
685.223  Severability.

Appendix A to Subpart B of Part 685--Examples of Borrower Relief

Subpart C_Requirements, Standards, and Payments for Direct Loan Program 
                                 Schools

685.300  Agreements between an eligible school and the Secretary for 
          participation in the Direct Loan Program.
685.301  Origination of a loan by a Direct Loan Program school.
685.302  [Reserved]
685.303  Processing loan proceeds.
685.304  Counseling borrowers.
685.305  Determining the date of a student's withdrawal.
685.306  Payment of a refund or return of title IV, HEA program funds to 
          the Secretary.
685.307  Withdrawal procedure for schools participating in the Direct 
          Loan Program.
685.308  Remedial actions.
685.309  Administrative and fiscal control and fund accounting 
          requirements for schools participating in the Direct Loan 
          Program.
685.310  Severability.

Subpart D [Reserved]

    Authority: 20 U.S.C 1070g, 1087a, et seq., unless otherwise noted.

    Source: 59 FR 61690, Dec. 1, 1994, unless otherwise noted.

[[Page 197]]



                       Subpart A_Purpose and Scope



Sec. 685.100  The William D. Ford Federal Direct Loan Program.

    (a) Under the William D. Ford Federal Direct Loan (Direct Loan) 
Program (formerly known as the Federal Direct Student Loan Program), the 
Secretary makes loans to enable a student or parent to pay the costs of 
the student's attendance at a postsecondary school. This part governs 
the Federal Direct Stafford/Ford Loan Program, the Federal Direct 
Unsubsidized Stafford/Ford Loan Program, the Federal Direct PLUS 
Program, and the Federal Direct Consolidation Loan Program. The 
Secretary makes loans under the following program components:
    (1)(i) Federal Direct Stafford/Ford Loan Program (Direct Subsidized 
Loan Program), which provides loans to undergraduate, graduate, and 
professional students. Loans made under this program are referred to as 
Direct Subsidized Loans. Except as provided in paragraph (a)(1)(ii) of 
this section, the Secretary subsidizes the interest while the borrower 
is in an in-school, grace, or deferment period. Graduate and 
professional students are not eligible to receive Direct Subsidized 
Loans for any period of enrollment beginning on or after July 1, 2012.
    (ii) The Secretary does not subsidize the interest that accrues 
during the grace period on any Direct Subsidized Loan for which the 
first disbursement is made on or after July 1, 2012 and before July 1, 
2014.
    (2) Federal Direct Unsubsidized Stafford/Ford Loan Program (Direct 
Unsubsidized Loan Program), which provides loans to undergraduate, 
graduate and professional students. Loans made under this program are 
referred to as Direct Unsubsidized Loans. The borrower is responsible 
for the interest that accrues during any period.
    (3) Federal Direct PLUS Program (Direct PLUS Loan Program), which 
provides loans to parents of dependent students and to graduate or 
professional students. Loans made under this program are referred to as 
Direct PLUS Loans. The borrower is responsible for the interest that 
accrues during any period.
    (4) Federal Direct Consolidation Loan Program (Direct Consolidation 
Loan Program), which provides loans to borrowers to consolidate certain 
Federal educational loans. Loans made under this program are referred to 
as Direct Consolidation Loans.
    (b) The Secretary makes a Direct Subsidized Loan, a Direct 
Unsubsidized Loan, or a Direct PLUS Loan only to a student or a parent 
of a student enrolled in a school that participates in the Direct Loan 
Program.
    (c) The Secretary makes a Direct Consolidation Loan only to a 
borrower who is consolidating at least one loan made under the Direct 
Loan Program or the Federal Family Education Loan (FFEL) Program.

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 71 FR 45709, Aug. 9, 2006; 78 
FR 65823, Nov. 1, 2013]



Sec. 685.101  Participation in the Direct Loan Program.

    (a) Colleges, universities, graduate and professional schools, 
vocational schools, and proprietary schools may participate in the 
Direct Loan Program. Participation in the Direct Loan Program enables an 
eligible student or parent to obtain a loan to pay for the student's 
cost of attendance at the school.
    (b)(1) An eligible undergraduate student who is enrolled at a school 
participating in the Direct Loan Program may borrow under the Direct 
Subsidized Loan and Direct Unsubsidized Loan programs.
    (2) An eligible graduate or professional student enrolled at a 
school participating in the Direct Loan Program may borrow under the 
Direct Subsidized Loan, Direct Unsubsidized Loan, and Direct PLUS Loan 
programs, except that a graduate or professional student may not borrow 
under the Direct Subsidized Loan Program for any period of enrollment 
beginning on or after July 1, 2012.
    (3) An eligible parent of an eligible dependent student enrolled at 
a school

[[Page 198]]

participating in the Direct Loan Program may borrow under the Direct 
PLUS Loan Program.

(Authority: 20 U.S.C. 1087a et seq.)

[78 FR 65823, Nov. 1, 2013]



Sec. 685.102  Definitions.

    (a)(1) The definitions of the following terms used in this part are 
set forth in the Student Assistance General Provisions, 34 CFR part 668:

Academic year
Campus-based programs
Dependent student
Disbursement
Eligible program
Eligible student
Enrolled
Expected family contribution (EFC)
Federal Consolidation Loan Program
Federal Pell Grant Program
Federal Perkins Loan Program
Federal PLUS Program
Federal Supplemental Educational Opportunity Grant Program
Federal Work-Study Program
Full-time student
Graduate or professional student
Half-time student
Independent student
One-third of an academic year
Parent
Payment period
Teacher Education Assistance for College and Higher Education (TEACH) 
Grant Program
TEACH Grant
Two-thirds of an academic year
Undergraduate student
U.S. citizen or national
William D. Ford Federal Direct Loan (Direct Loan) Program

    (2) The following definitions are set forth in the regulations for 
Institutional Eligibility under the Higher Education Act of 1965, as 
amended, 34 CFR part 600:

Accredited
Clock hour
Correspondence course
Credit hour
Educational program
Eligible institution
Federal Family Education Loan (FFEL) Program
Foreign institution
Institution of higher education
Nationally recognized accrediting agency or association
Preaccredited
Secretary
State

    (b) The following definitions also apply to this part:
    Act: The Higher Education Act of 1965, as amended, 20 U.S.C. 1071 et 
seq.
    Default: The failure of a borrower and endorser, if any, to make an 
installment payment when due, or to meet other terms of the promissory 
note, if the Secretary finds it reasonable to conclude that the borrower 
and endorser, if any, no longer intend to honor the obligation to repay, 
provided that this failure persists for 270 days.
    Endorser: An individual who signs a promissory note and agrees to 
repay the loan in the event that the borrower does not.
    Estimated financial assistance. (1) The estimated amount of 
assistance for a period of enrollment that a student (or a parent on 
behalf of a student) will receive from Federal, State, institutional, or 
other sources, such as scholarships, grants, net earnings from need-
based employment, or loans, including but not limited to--
    (i) Except as provided in paragraph (2)(iii) of this definition, 
national service education awards or post-service benefits under title I 
of the National and Community Service Act of 1990 (AmeriCorps).
    (ii) Except as provided in paragraph (2)(vii) of this definition, 
veterans' education benefits;
    (iii) Any educational benefits paid because of enrollment in a 
postsecondary education institution, or to cover postsecondary education 
expenses;
    (iv) Fellowships or assistantships, except non-need-based employment 
portions of such awards;
    (v) Insurance programs for the student's education; and
    (vi) The estimated amount of other Federal student financial aid, 
including but not limited to a Federal Pell Grant, campus-based aid, and 
the gross amount (including fees) of subsidized and unsubsidized Federal 
Stafford Loans, Direct Subsidized and Unsubsidized Loans, and Federal 
PLUS or Direct PLUS Loans.
    (2) Estimated financial assistance does not include--
    (i) Those amounts used to replace the expected family contribution 
(EFC), including the amounts of any TEACH

[[Page 199]]

Grants, unsubsidized Federal Stafford Loans or Direct Unsubsidized 
Loans, Federal PLUS or Direct PLUS Loans, and non-federal non-need-based 
loans, including private, state-sponsored, and institutional loans. 
However, if the sum of the amounts received that are being used to 
replace the student's EFC exceed the EFC, the excess amount must be 
treated as estimated financial assistance;
    (ii) Federal Perkins loan and Federal Work-Study funds that the 
student has declined;
    (iii) For the purpose of determining eligibility for a Direct 
Subsidized Loan, national service education awards or post-service 
benefits under title I of the National and Community Service Act of 1990 
(AmeriCorps);
    (iv) Any portion of the estimated financial assistance described in 
paragraph (1) of this definition that is included in the calculation of 
the student's EFC;
    (v) Non-need-based employment earnings;
    (vi) Assistance not received under a title IV, HEA program, if that 
assistance is designated to offset all or a portion of a specific amount 
of the cost of attendance and that component is excluded from the cost 
of attendance as well. If that assistance is excluded from either 
estimated financial assistance or cost of attendance, it must be 
excluded from both;
    (vii) Federal veterans' education benefits paid under--
    (A) Chapter 103 of title 10, United States Code (Senior Reserve 
Officers' Training Corps);
    (B) Chapter 106A of title 10, United States Code (Educational 
Assistance for Persons Enlisting for Active Duty);
    (C) Chapter 1606 of title 10, United States Code (Selected Reserve 
Educational Assistance Program);
    (D) Chapter 1607 of title 10, United States Code (Educational 
Assistance Program for Reserve Component Members Supporting Contingency 
Operations and Certain Other Operations);
    (E) Chapter 30 of title 38, United States Code (All-Volunteer Force 
Educational Assistance Program, also known as the ``Montgomery GI Bill--
active duty'');
    (F) Chapter 31 of title 38, United States Code (Training and 
Rehabilitation for Veterans with Service-Connected Disabilities);
    (G) Chapter 32 of title 38, United States Code (Post-Vietnam Era 
Veterans' Educational Assistance Program);
    (H) Chapter 33 of title 38, United States Code (Post 9/11 
Educational Assistance);
    (I) Chapter 35 of title 38, United States Code (Survivors' and 
Dependents' Educational Assistance Program);
    (J) Section 903 of the Department of Defense Authorization Act, 1981 
(10 U.S.C. 2141 note) (Educational Assistance Pilot Program);
    (K) Section 156(b) of the ``Joint Resolution making further 
continuing appropriations and providing for productive employment for 
the fiscal year 1983, and for other purposes'' (42 U.S.C. 402 note) 
(Restored Entitlement Program for Survivors, also known as ``Quayle 
benefits'');
    (L) The provisions of chapter 3 of title 37, United States Code, 
related to subsistence allowances for members of the Reserve Officers 
Training Corps; and
    (M) Any program that the Secretary may determine is covered by 
section 480(c)(2) of the HEA; and
    (viii) Iraq and Afghanistan Service Grants made under section 420R 
of the HEA.
    Federal Direct Consolidation Loan Program (Direct Consolidation Loan 
Program): (1) A loan program authorized by title IV, part D of the Act 
that provides loans to borrowers who consolidate certain Federal 
educational loan(s), and one of the components of the Direct Loan 
Program. Loans made under this program are referred to as Direct 
Consolidation Loans.
    (2) The term ``Direct Subsidized Consolidation Loan'' refers to the 
portion of a Direct Consolidation Loan attributable to certain 
subsidized title IV education loans that were repaid by the 
consolidation loan. Interest is not charged to the borrower during 
deferment periods, or, for a borrower whose consolidation application 
was received before July 1, 2006, during in-school and grace periods.

[[Page 200]]

    (3) The term ``Direct Unsubsidized Consolidation Loan'' refers to 
the portion of a Direct Consolidation Loan attributable to unsubsidized 
title IV education loans, certain subsidized title IV education loans, 
and certain other Federal education loans that were repaid by the 
consolidation loan. The borrower is responsible for the interest that 
accrues during any period.
    (4) In the case of a Direct Consolidation Loan that entered 
repayment prior to July 1, 2006, the term ``Direct PLUS Consolidation 
Loan'' refers to the portion of a Direct Consolidation Loan attributable 
to Direct PLUS Loans, Direct PLUS Consolidation Loans, Federal PLUS 
Loans, and Parent Loans for Undergraduate Students that were repaid by 
the consolidation loan. The borrower is responsible for the interest 
that accrues during any period.
    Federal Direct PLUS Program (Direct PLUS Loan Program): A loan 
program authorized by title IV, Part D of the Act that is one of the 
components of the Federal Direct Loan Program. The Federal Direct PLUS 
Program provides loans to parents of dependent students attending 
schools that participate in the Direct Loan Program. The Federal Direct 
PLUS Program also provides loans to graduate or professional students 
attending schools that participate in the Direct Loan Program. The 
borrower is responsible for the interest that accrues during any period. 
Loans made under this program are referred to as Direct PLUS Loans.
    Federal Direct Stafford/Ford Loan Program (Direct Subsidized Loan 
Program): A loan program authorized by title IV, part D of the Act that 
provides loans to undergraduate, graduate, and professional students 
attending Direct Loan Program schools, and one of the components of the 
Direct Loan Program. The Secretary subsidizes the interest while the 
borrower is in an in-school, grace, or deferment period, except that the 
Secretary does not subsidize the interest that accrues during the grace 
period on a loan for which the first disbursement is made on or after 
July 1, 2012 and before July 1, 2014. Loans made under this program are 
referred to as Direct Subsidized Loans. Graduate and professional 
students are not eligible to receive Direct Subsidized Loans for any 
period of enrollment beginning on or after July 1, 2012.
    Federal Direct Unsubsidized Stafford/Ford Loan Program (Direct 
Unsubsidized Loan Program): A loan program authorized by title IV, part 
D of the Act that provides loans to undergraduate, graduate, and 
professional students attending Direct Loan Program schools, and one of 
the components of the Direct Loan Program. The borrower is responsible 
for the interest that accrues during any period. Loans made under this 
program are referred to as Direct Unsubsidized Loans.
    Federal Insured Student Loan Program: The loan program authorized by 
title IV, part B of the Act under which the Secretary directly insures 
lenders against losses.
    Federal Stafford Loan Program: The loan program authorized by title 
IV, part B of the Act which encouraged the making of subsidized and 
unsubsidized loans to undergraduate, graduate, and professional students 
and is one of the Federal Family Education Loan programs.
    Grace period: A six-month period that begins on the day after a 
Direct Subsidized Loan borrower, a Direct Unsubsidized Loan borrower, 
or, in some cases, a Direct Consolidation Loan borrower whose 
consolidation application was received before July 1, 2006, ceases to be 
enrolled as at least a half-time student at an eligible institution and 
ends on the day before the repayment period begins.
    Guaranty agency: A State or private nonprofit organization that has 
an agreement with the Secretary under which it will administer a loan 
guarantee program under the Act.
    Holder: The entity that owns a loan. For a FFEL Program loan, the 
term ``holder'' refers to an eligible lender owning a FFEL Program loan, 
including a Federal or State agency or an organization or corporation 
acting on behalf of such an agency and acting as a conservator, 
liquidator, or receiver of an eligible lender.
    Interest rate: The annual interest rate that is charged on a loan, 
under title IV, part D of the Act.
    Lender: As used in this part, the term ``lender'' has the meaning 
specified in

[[Page 201]]

section 435(d) of the Act for purposes of the FFEL Program.
    Loan fee: A fee, payable by the borrower, that is used to help 
defray the costs of the Direct Loan Program.
    Master Promissory Note (MPN): (1) A promissory note under which the 
borrower may receive loans for a single academic year or multiple 
academic years.
    (2) For MPNs processed by the Secretary before July 1, 2003, loans 
may no longer be made under an MPN after the earliest of--
    (i) The date the Secretary or the school receives the borrower's 
written notice that no further loans may be disbursed;
    (ii) One year after the date of the borrower's first anticipated 
disbursement if no disbursement is made during that twelve-month period; 
or
    (iii) Ten years after the date of the first anticipated 
disbursement, except that a remaining portion of a loan may be disbursed 
after this date.
    (3) For MPNs processed by the Secretary on or after July 1, 2003, 
loans may no longer be made under an MPN after the earliest of--
    (i) The date the Secretary or the school receives the borrower's 
written notice that no further loans may be made;
    (ii) One year after the date the borrower signed the MPN or the date 
the Secretary receives the MPN, if no disbursements are made under that 
MPN; or
    (iii) Ten years after the date the borrower signed the MPN or the 
date the Secretary receives the MPN, except that a remaining portion of 
a loan may be disbursed after this date.
    (4) Unless the Secretary determines otherwise, a school may use a 
single MPN as the basis for all loans borrowed by a student or parent 
borrower for attendance at that school. If a school is not authorized by 
the Secretary for multi-year use of the MPN, a student or parent 
borrower must sign a new MPN for each academic year.
    Nationwide consumer reporting agency: A consumer reporting agency as 
defined in 15 U.S.C. 1681a(p).
    Payment data: An electronic record that is provided to the Secretary 
by an institution showing student disbursement information.
    Period of enrollment: The period for which a Direct Subsidized, 
Direct Unsubsidized, or Direct PLUS Loan is intended. The period of 
enrollment must coincide with one or more bona fide academic terms 
established by the school for which institutional charges are generally 
assessed (e.g., a semester, trimester, or quarter in weeks of 
instructional time; an academic year; or the length of the program of 
study in weeks of instructional time). The period of enrollment is also 
referred to as the loan period.
    Satisfactory repayment arrangement: (1) For the purpose of regaining 
eligibility under section 428F(b) of the HEA, the making of six 
consecutive, voluntary, on-time, full monthly payments on a defaulted 
loan. A borrower may only obtain the benefit of this paragraph with 
respect to renewed eligibility once.
    (2) For the purpose of consolidating a defaulted loan under 
Sec. 685.220(d)(1)(ii)(A)(3)--
    (i) The making of three consecutive, voluntary, on-time, full 
monthly payments on a defaulted loan prior to consolidation; or
    (ii) Agreeing to repay the Direct Consolidation Loan under one of 
the income-contingent repayment plans described in Sec. 685.209 or the 
income-based repayment plan described in Sec. 685.221.
    (3) For the purpose of paragraph (2)(i) of this definition, the 
required monthly payment amount may not be more than is reasonable and 
affordable based on the borrower's total financial circumstances. ``On-
time'' means a payment made within 20 days of the scheduled due date, 
and voluntary payments are payments made directly by the borrower and do 
not include payments obtained by Federal offset, garnishment, or income 
or asset execution.
    (4) A borrower has not used the one opportunity to renew eligibility 
for title IV assistance if the borrower makes six consecutive, on-time, 
voluntary, full monthly payments under an agreement to rehabilitate a 
defaulted loan, but does not receive additional title IV assistance 
prior to defaulting on that loan again.

[[Page 202]]

    Substantial gainful activity: A level of work performed for pay or 
profit that involves doing significant physical or mental activities, or 
a combination of both.
    Totally and permanently disabled: The condition of an individual 
who--
    (1) Is unable to engage in any substantial gainful activity by 
reason of any medically determinable physical or mental impairment 
that--
    (i) Can be expected to result in death;
    (ii) Has lasted for a continuous period of not less than 60 months; 
or
    (iii) Can be expected to last for a continuous period of not less 
than 60 months; or
    (2) Has been determined by the Secretary of Veterans Affairs to be 
unemployable due to a service-connected disability.

(Authority: 20 U.S.C. 1070g, 1087a, et seq.)

[59 FR 61690, Dec. 1, 1994]

    Editorial Note: For Federal Register citations affecting 
Sec. 685.102, see the List of CFR Sections Affected, which appears in 
the Finding Aids section of the printed volume and at www.fdsys.gov.



Sec. 685.103  Applicability of subparts.

    (a) Subpart A contains general provisions regarding the purpose and 
scope of the Direct Loan Program.
    (b) Subpart B contains provisions regarding borrowers in the Direct 
Loan Program.
    (c) Subpart C contains certain requirements regarding schools in the 
Direct Loan Program.
    (d) Subpart D contains provisions regarding school eligibility for 
participation and origination in the Direct Loan Program.

(Authority: 20 U.S.C. 1087a et seq.)



                      Subpart B_Borrower Provisions



Sec. 685.200  Borrower eligibility.

    (a) Student Direct Subsidized or Direct Unsubsidized borrower. (1) A 
student is eligible to receive a Direct Subsidized Loan, a Direct 
Unsubsidized Loan, or a combination of these loans, if the student meets 
the following requirements:
    (i) The student is enrolled, or accepted for enrollment, on at least 
a half-time basis in a school that participates in the Direct Loan 
Program.
    (ii) The student meets the requirements for an eligible student 
under 34 CFR part 668.
    (iii) In the case of an undergraduate student who seeks a Direct 
Subsidized Loan or a Direct Unsubsidized Loan at a school that 
participates in the Federal Pell Grant Program, the student has received 
a determination of Federal Pell Grant eligibility for the period of 
enrollment for which the loan is sought.
    (iv) In the case of a borrower whose previous loan or TEACH Grant 
service obligation was discharged due to total and permanent disability, 
the student--
    (A) In the case of a borrower whose prior loan under title IV of the 
Act or TEACH Grant service obligation was discharged after a final 
determination of total and permanent disability, the borrower--
    (1) Obtains a certification from a physician that the borrower is 
able to engage in substantial gainful activity; and
    (2) Signs a statement acknowledging that neither the new Direct Loan 
the borrower receives nor any previously discharged loan on which the 
borrower is required to resume payment in accordance with paragraph 
(a)(1)(iv)(B) of this section can be discharged in the future on the 
basis of any impairment present when the new loan is made, unless that 
impairment substantially deteriorates;
    (B) In the case of a borrower who receives a new Direct Loan, other 
than a Direct Consolidation Loan, within three years of the date that 
any previous title IV loan or TEACH Grant service obligation was 
discharged due to a total and permanent disability in accordance with 
Sec. 685.213(b)(4)(iii), 34 CFR 674.61(b)(3)(v), 34 CFR 
682.402(c)(3)(iv), or 34 CFR 686.42(b) based on a discharge request 
received on or after July 1, 2010, the borrower resumes repayment on the 
previously discharged loan in accordance with Sec. 685.213(b)(7), 34 CFR 
674.61(b)(6), or 34 CFR 682.402(c)(6), or acknowledges that he or she is 
once again subject to the terms of the TEACH Grant agreement to serve 
before receiving the new loan; and

[[Page 203]]

    (C) In the case of a borrower whose prior loan under title IV of the 
Act was conditionally discharged after an initial determination that the 
borrower was totally and permanently disabled based on a discharge 
request received prior to July 1, 2010--
    (1) The suspension of collection activity on the prior loan has been 
lifted;
    (2) The borrower complies with the requirement in paragraph 
(a)(1)(iv)(A)(1) of this section;
    (3) The borrower signs a statement acknowledging that neither the 
new Direct Loan the borrower receives nor the loan that has been 
conditionally discharged prior to a final determination of total and 
permanent disability can be discharged in the future on the basis of any 
impairment present when the borrower applied for a total and permanent 
disability discharge or when the new loan is made, unless that 
impairment substantially deteriorates; and
    (4) The borrower signs a statement acknowledging that the suspension 
of collection activity on the prior loan will be lifted.
    (v) In the case of a student who was enrolled in a program of study 
prior to July 1, 2012 and who seeks a loan but does not have a 
certificate of graduation from a school providing secondary education or 
the recognized equivalent of such a certificate, the student meets the 
requirements under 34 CFR 668.32(e)(2), (3), (4), or (5).
    (2)(i) A Direct Subsidized Loan borrower must--
    (A) Demonstrate financial need in accordance with title IV, part F 
of the Act; and
    (B) In the case of a first-time borrower as defined in paragraph 
(f)(1)(i) of this section, not have met or exceeded the limitations on 
the receipt of Direct Subsidized Loans described in paragraph (f) of 
this section.
    (ii) The Secretary considers a member of a religious order, group, 
community, society, agency, or other organization who is pursuing a 
course of study at an institution of higher education to have no 
financial need as that term is used in paragraph (a)(2)(i)(A) of this 
section if that organization--
    (A) Has as its primary objective the promotion of ideals and beliefs 
regarding a Supreme Being;
    (B) Requires its members to forego monetary or other support 
substantially beyond the support it provides; and
    (C)(1) Directs the member to pursue the course of study; or
    (2) Provides subsistence support to its members.
    (b) Student PLUS borrower. (1) The student is enrolled, or accepted 
for enrollment, on at least a half-time basis in a school that 
participates in the Direct Loan Program.
    (2) The student meets the requirements for an eligible student under 
34 CFR part 668.
    (3) The student meets the requirements of paragraphs (a)(1)(iv) and 
(a)(1)(v) of this section, if applicable.
    (4) The student has received a determination of his or her annual 
loan maximum eligibility under the Direct Unsubsidized Loan Program and, 
for periods of enrollment beginning before July 1, 2012, the Direct 
Subsidized Loan Program; and
    (5) The student meets the requirements that apply to a parent under 
paragraphs (c)(2)(viii)(A) through (G) of this section.
    (c) Parent PLUS borrower--(1) Definitions. The following definitions 
apply to this paragraph (c):
    (i) Charged off means a debt that a creditor has written off as a 
loss, but that is still subject to collection action.
    (ii) In collection means a debt that has been placed with a 
collection agency by a creditor or that is subject to more intensive 
efforts by a creditor to recover amounts owed from a borrower who has 
not responded satisfactorily to the demands routinely made as part of 
the creditor's billing procedures.
    (2) Eligibility. A parent is eligible to receive a Direct PLUS Loan 
if the parent meets the following requirements:
    (i) The parent is borrowing to pay for the educational costs of a 
dependent undergraduate student who meets the requirements for an 
eligible student under 34 CFR part 668.
    (ii) The parent provides his or her and the student's social 
security number.

[[Page 204]]

    (iii) The parent meets the requirements pertaining to citizenship 
and residency that apply to the student under 34 CFR 668.33.
    (iv) The parent meets the requirements concerning defaults and 
overpayments that apply to the student in 34 CFR 668.32(g).
    (v) The parent complies with the requirements for submission of a 
Statement of Educational Purpose that apply to the student under 34 CFR 
part 668, except for the completion of a Statement of Selective Service 
Registration Status.
    (vi) The parent meets the requirements that apply to a student under 
paragraph (a)(1)(iv) of this section.
    (vii) The parent has completed repayment of any title IV, HEA 
program assistance obtained by fraud, if the parent has been convicted 
of, or has pled nolo contendere or guilty to, a crime involving fraud in 
obtaining title IV, HEA program assistance.
    (viii)(A) The parent--
    (1) Does not have an adverse credit history;
    (2) Has an adverse credit history, but has obtained an endorser who 
does not have an adverse credit history, and completes PLUS loan 
counseling offered by the Secretary; or
    (3) Has an adverse credit history but documents to the satisfaction 
of the Secretary that extenuating circumstances exist and completes PLUS 
loan counseling offered by the Secretary.
    (B) For purposes of this paragraph (c), an adverse credit history 
means that the parent--
    (1) Has one or more debts with a total combined outstanding balance 
greater than $2,085, as may be adjusted by the Secretary in accordance 
with paragraphs (c)(2)(viii)(C) and (D) of this section, that are 90 or 
more days delinquent as of the date of the credit report, or that have 
been placed in collection or charged off, as defined in paragraph (c)(1) 
of this section, during the two years preceding the date of the credit 
report; or
    (2) Has been the subject of a default determination, bankruptcy 
discharge, foreclosure, repossession, tax lien, wage garnishment, or 
write-off of a debt under title IV of the Act during the five years 
preceding the date of the credit report.
    (C) The Secretary increases the amount specified in paragraph 
(c)(2)(viii)(B)(1) of this section, or its inflation-adjusted 
equivalent, when the Secretary determines that an inflation adjustment 
to that amount would result in an increase of $100 or more.
    (D) In making the inflation adjustment described in paragraph 
(c)(2)(viii)(C) of this section, the Secretary:
    (1) Uses the annual average percent change of the All Items Consumer 
Price Index for All Urban Consumers (CPI-U), before seasonal adjustment, 
as the measurement of inflation; and
    (2) If the adjustment calculated under paragraph (c)(2)(viii)(D)(1) 
of this section is equal to or greater than $100, adding the adjustment 
to $2,085 threshold amount, or its inflation-adjusted equivalent, and 
rounding up to the nearest $5.
    (E) The Secretary will publish a notice in the Federal Register 
announcing any increase to the amount specified in paragraph 
(c)(2)(viii)(B)(1) of this section.
    (F) For purposes of this paragraph (c), the Secretary does not 
consider the absence of a credit history as an adverse credit history 
and does not deny a Direct PLUS loan on that basis.
    (G) For purposes of this paragraph (c), the Secretary may determine 
that extenuating circumstances exist based on documentation that may 
include, but is not limited to--
    (1) An updated credit report for the parent; or
    (2) A statement from the creditor that the parent has repaid or made 
satisfactory arrangements to repay a debt that was considered in 
determining that the parent has an adverse credit history.
    (3) For purposes of paragraph (c)(2) of this section, a ``parent'' 
includes the individuals described in the definition of ``parent'' in 34 
CFR 668.2 and the spouse of a parent who remarried, if that spouse's 
income and assets would have been taken into account when calculating a 
dependent student's expected family contribution.
    (d) Defaulted Perkins, FFEL, and Direct Loan program borrowers. 
Except as

[[Page 205]]

noted in Sec. 685.220(d)(1)(ii)(A)(3), in the case of a student or 
parent borrower who is currently in default on a Perkins, FFEL, or 
Direct Loan program loan, the borrower must make satisfactory repayment 
arrangements, as described in paragraph (1) of the definition of that 
term under Sec. 685.102(b), on the defaulted loan.
    (e) Use of loan proceeds to replace expected family contribution. 
The amount of a Direct Unsubsidized Loan, a Direct PLUS loan, or a non-
federal non-need based loan, including a private, state-sponsored, or 
institution loan, obtained for a loan period may be used to replace the 
expected family contribution for that loan period.
    (f) Limitations on eligibility for Direct Subsidized Loans and 
borrower responsibility for accruing interest for first-time borrowers 
on or after July 1, 2013--(1) Definitions. The following definitions 
apply to this paragraph:
    (i) First-time borrower means an individual who has no outstanding 
balance of principal or interest on a Direct Loan Program or FFEL 
Program loan on July 1, 2013, or on the date the borrower obtains a 
Direct Loan Program loan after July 1, 2013.
    (ii) Maximum eligibility period is a period of time, measured in 
academic years, equal to 150 percent of the length of the educational 
program, as published by the institution, in which the borrower is 
currently enrolled.
    (iii) Subsidized usage period is, except as provided in paragraph 
(f)(4) of this section, a period of time measured in academic years and 
rounded to the nearest tenth of a year calculated as the--

                  Number of days in the borrower's loan
                   period for a Direct Subsidized Loan
------------------------------------------------------------------------
   Number of days in the academic year for annual loan limit purposes
                     for which the borrower receives
                       the Direct Subsidized Loan
 

    (iv) Remaining eligibility period is the difference, measured in 
academic years, between the borrower's maximum eligibility period and 
the sum of the borrower's subsidized usage periods, except as provided 
in paragraphs (f)(7)(ii) and (f)(7)(iii) of this section.
    (2) Loss of eligibility for Direct Subsidized Loans. A first-time 
borrower is not eligible for additional Direct Subsidized Loans when the 
borrower has no remaining eligibility period. Such a borrower may still 
receive Direct Unsubsidized Loans for which the borrower is otherwise 
eligible.
    (3) Borrower responsibility for accruing interest. (i) 
Notwithstanding any provision of this part that provides for the 
borrower to not be responsible for accruing interest on a Direct 
Subsidized Loan or on the portion of a Direct Consolidation Loan that 
repaid a Direct Subsidized Loan, and except as provided in paragraphs 
(f)(6)(v) and (f)(7)(iv) of this section, a first-time borrower becomes 
responsible for the interest that accrues on a previously received 
Direct Subsidized Loan or on the portion of a Direct Consolidation Loan 
that repaid a Direct Subsidized Loan beginning on the date--
    (A) The borrower has no remaining eligibility period; and
    (B) The borrower attends any undergraduate program or preparatory 
coursework on at least a half-time basis at an eligible institution that 
participates in the title IV, HEA programs.
    (ii) The borrower continues to be responsible for the interest that 
accrues on the portion of a Direct Consolidation Loan that repaid a 
Direct Subsidized Loan for which the borrower previously became 
responsible for accruing interest in accordance with paragraph (f)(3)(i) 
of this section.
    (iii) For any loan for which the borrower becomes responsible for 
accruing interest in accordance with paragraph (f)(3)(i) of this 
section, the borrower is responsible for only the interest that accrues 
after the borrower meets the criteria in paragraph (f)(3)(i) of this 
section and unpaid interest is capitalized in the same manner as for a 
Direct Unsubsidized Loan.
    (iv) A borrower who completes an undergraduate program and who has 
not become responsible for accruing interest on Direct Subsidized Loans 
as a result of attendance in that program does not become responsible 
for accruing interest under paragraph (f)(3)(i) of this section on any 
Direct Subsidized Loans received for attendance in any program prior to 
completing that undergraduate program and for which the

[[Page 206]]

borrower has not previously become responsible for accruing interest, 
regardless of subsequent attendance in any other program.
    (4) Exceptions to the calculation of subsidized usage periods. (i) 
For a first-time borrower who receives a Direct Subsidized Loan in an 
amount that is equal to the full annual loan limit for a loan period 
that is less than a full academic year in length, the subsidized usage 
period is one year.
    (ii) For a first-time borrower who is enrolled on a half-time or 
three-quarter-time basis, the borrower's prorated subsidized usage 
period is calculated by multiplying the borrower's subsidized usage 
period by 0.5 or 0.75, respectively.
    (5) Subsequent attendance in programs of greater duration. A first-
time borrower who subsequently attends a program that is longer than the 
program the borrower previously attended--
    (i) Is eligible for a Direct Subsidized Loan if the borrower's 
remaining eligibility period is greater than zero; and
    (ii) Regains eligibility for Direct Subsidized Loans if the borrower 
previously lost eligibility for Direct Subsidized Loans in accordance 
with paragraph (f)(2) of this section.
    (6) Treatment of preparatory coursework. For first-time borrowers 
who receive a Direct Subsidized Loan under 34 CFR 668.32(a)(1)(ii) who 
are enrolled for no longer than one 12-month period in a course of study 
necessary for enrollment in an eligible program--
    (i) Direct Subsidized Loans received for such preparatory coursework 
are included in the calculation of the borrower's subsidized usage 
period;
    (ii) The maximum eligibility period for preparatory coursework 
necessary for enrollment in an undergraduate program is the maximum 
eligibility period for the undergraduate program for which the 
preparatory coursework is required;
    (iii) The maximum eligibility period for preparatory coursework 
necessary for enrollment in a graduate or professional program is the 
maximum eligibility period for the undergraduate program for which the 
borrower most recently received a Direct Subsidized Loan;
    (iv) For enrollment in preparatory coursework necessary for 
enrollment in an undergraduate program, the borrower becomes responsible 
for accruing interest as described in paragraph (f)(3) of this section 
only if the borrower has no remaining eligibility period in the program 
for which the coursework is required; and
    (v) Enrollment in preparatory coursework necessary for enrollment in 
a graduate or professional program does not result in a borrower 
becoming responsible for accruing interest as described in paragraph 
(f)(3) of this section.
    (7) Treatment of teacher certification programs for which an 
institution does not award an academic credential. For first-time 
borrowers who receive a Direct Subsidized Loan under 34 CFR 
668.32(a)(1)(iii) who are enrolled at an eligible institution in a 
program necessary for a professional credential or certification from a 
State that is required for employment as a teacher in an elementary or 
secondary school in that State but for which the institution awards no 
academic credential--
    (i) The borrower's maximum eligibility period for Direct Subsidized 
Loans is a period of time equal to 150 percent of the length of the 
teacher certification program, as published by the institution, in which 
the borrower is currently enrolled;
    (ii) For purposes of determining a borrower's remaining eligibility 
period for such teacher certification programs, only Direct Subsidized 
Loans the borrower received for enrollment in such programs are included 
in the borrower's subsidized usage period;
    (iii) For purposes of determining a borrower's remaining eligibility 
period for programs other than a teacher certification program for which 
an institution does not award an academic credential, any Direct 
Subsidized Loans that the borrower received for enrollment in such a 
teacher certification program are not included in a borrower's 
subsidized usage period; and
    (iv) Enrollment in such a teacher certification program does not 
result in a borrower becoming responsible for accruing interest on any 
Direct Subsidized Loan under paragraph (f)(3) of this section.
    (8) Special admission degree programs. (i) For purposes of 
calculating the

[[Page 207]]

maximum eligibility period, a bachelor's degree program that requires an 
associate degree or the successful completion of at least two years of 
postsecondary coursework as a prerequisite for admission has a program 
length of four years.
    (ii) For purposes of calculating the maximum eligibility period, a 
selective admission associate degree program that requires an associate 
degree or the successful completion of at least two years of 
postsecondary coursework as a prerequisite for admission has a program 
length of four years. For purposes of this paragraph (f)(8)(ii), a 
selective admission associate degree program--
    (A) Admits only a selected number of applicants based on additional 
competitive criteria which may include entrance exam scores, class rank, 
grade point average, written essays, or recommendation letters; and
    (B) Provides the academic qualifications necessary for a profession 
that requires licensure or a certification by the State.

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994]

    Editorial Note: For Federal Register citations affecting 
Sec. 685.200, see the List of CFR Sections Affected, which appears in 
the Finding Aids section of the printed volume and at www.fdsys.gov.

    Effective Date Note: At 81 FR 76080, Nov. 1, 2016, Sec. 685.200 was 
amended by adding paragraphs (f)(3)(v) and (f)(4)(iii), eff. July 1, 
2017. At 82 FR 27621, June 16, 2017, the effective date was delayed 
indefinitely. For the convenience of the user, the added text is set 
forth as follows:



Sec. 685.200  Borrower eligibility.

                                * * * * *

    (f) * * *
    (3) * * *
    (v) A borrower who receives a closed school, false certification, 
unpaid refund, or defense to repayment discharge that results in a 
remaining eligibility period greater than zero is no longer responsible 
for the interest that accrues on a Direct Subsidized Loan or on the 
portion of a Direct Consolidation Loan that repaid a Direct Subsidized 
Loan unless the borrower once again becomes responsible for the interest 
that accrues on a previously received Direct Subsidized Loan or on the 
portion of a Direct Consolidation Loan that repaid a Direct Subsidized 
Loan, for the life of the loan, as described in paragraph (f)(3)(i) of 
this section.
    (4) * * *
    (iii) For a first-time borrower who receives a closed school, false 
certification, unpaid refund, or defense to repayment discharge on a 
Direct Subsidized Loan or a portion of a Direct Consolidation Loan that 
is attributable to a Direct Subsidized Loan, the Subsidized Usage Period 
is reduced. If the Direct Subsidized Loan or a portion of a Direct 
Consolidation Loan that is attributable to a Direct Subsidized Loan is 
discharged in full, the Subsidized Usage Period of those loans is zero 
years. If the Direct Subsidized Loan or a portion of a Direct 
Consolidation Loan that is attributable to a Direct Subsidized Loan is 
discharged in part, the Subsidized Usage Period may be reduced if the 
discharge results in the inapplicability of paragraph (f)(4)(i) of this 
section.

                                * * * * *



Sec. 685.201  Obtaining a loan.

    (a) Application for a Direct Subsidized Loan or a Direct 
Unsubsidized Loan. (1) To obtain a Direct Subsidized Loan or a Direct 
Unsubsidized Loan, a student must complete a Free Application for 
Federal Student Aid and submit it in accordance with instructions in the 
application.
    (2) If the student is eligible for a Direct Subsidized Loan or a 
Direct Unsubsidized Loan, the school in which the student is enrolled 
must perform the following functions:
    (i) Create a loan origination record and transmit the record to the 
Secretary.
    (ii) Ensure that the loan is supported by a completed Master 
Promissory Note (MPN) and, if applicable, transmit the MPN to the 
Secretary.
    (iii) In accordance with 34 CFR 668.162, draw down funds or receive 
funds from the Secretary, and disburse the funds to the student.
    (b) Application for a Direct PLUS Loan. (1) For a parent to obtain a 
Direct PLUS Loan, the parent must complete the Direct PLUS Loan MPN and 
the dependent student on whose behalf the parent is borrowing must 
complete a Free Application for Federal Student Aid and submit it in 
accordance with instructions in the application.
    (2) For a graduate or professional student to apply for a Direct 
PLUS Loan, the student must complete a

[[Page 208]]

Free Application for Federal Student Aid and submit it in accordance 
with instructions in the application. The graduate or professional 
student must also complete the Direct PLUS Loan MPN.
    (3) For either a parent or student PLUS borrower, as applicable, the 
school must complete its portion of the Direct PLUS Loan MPN and, if 
applicable, submit it to the Secretary. The Secretary makes a 
determination as to whether the parent or graduate or professional 
student has an adverse credit history. The school performs the functions 
described in paragraph (a)(2) of this section.
    (c) Application for a Direct Consolidation Loan. (1) To obtain a 
Direct Consolidation Loan, the applicant must complete the application 
and promissory note and submit it to the Secretary. The application and 
promissory note sets forth the terms and conditions of the Direct 
Consolidation Loan and informs the applicant how to contact the 
Secretary. The Secretary answers questions regarding the process of 
applying for a Direct Consolidation Loan and provides information about 
the terms and conditions of both Direct Consolidation Loans and the 
types of loans that may be consolidated.
    (2) Once the applicant has submitted the completed application and 
promissory note to the Secretary, the Secretary makes the Direct 
Consolidation Loan under the procedures specified in Sec. 685.220.

(Authority: 20 U.S.C. 1087a et seq., 1091a)

[64 FR 58965, Nov. 1, 1999, as amended at 65 FR 65629, Nov. 1, 2000; 71 
FR 45711, Aug. 9, 2006; 78 FR 65825, Nov. 1, 2013]



Sec. 685.202  Charges for which Direct Loan Program borrowers are
responsible.

    (a) Interest--(1) Interest rate for Direct Subsidized Loans and 
Direct Unsubsidized Loans first disbursed before July 1, 1995. During 
all periods, the interest rate during any twelve-month period beginning 
on July 1 and ending on June 30 is determined on the June 1 immediately 
preceding that period. The interest rate is equal to the bond equivalent 
rate of 91-day Treasury bills auctioned at the final auction held prior 
to that June 1 plus 3.1 percentage points, but does not exceed 8.25 
percent.
    (2) Interest rate for Direct Subsidized Loans and Direct 
Unsubsidized Loans first disbursed on or after July 1, 1995, and before 
July 1, 1998. (i) During the in-school, grace, and deferment periods. 
The interest rate during any twelve-month period beginning on July 1 and 
ending on June 30 is determined on the June 1 immediately preceding that 
period. The interest rate is equal to the bond equivalent rate of 91-day 
Treasury bills auctioned at the final auction held prior to that June 1 
plus 2.5 percentage points, but does not exceed 8.25 percent.
    (ii) During all other periods. The interest rate during any twelve-
month period beginning on July 1 and ending on June 30 is determined on 
the June 1 immediately preceding that period. The interest rate is equal 
to the bond equivalent rate of 91-day Treasury bills auctioned at the 
final auction held prior to that June 1 plus 3.1 percentage points, but 
does not exceed 8.25 percent.
    (3) Interest Rate for Direct Subsidized Loans and Direct Subsidized 
Loans first disbursed on or after July 1, 1998, and before July 1, 2006. 
(i) During the in-school, grace, and deferment periods. The interest 
rate during any twelve-month period beginning on July 1 and ending on 
June 30 is determined on the June 1 immediately preceding that period. 
The interest rate is equal to the bond equivalent rate of 91-day 
Treasury bills auctioned at the final auction held prior to that June 1 
plus 1.7 percentage points, but does not exceed 8.25 percent.
    (ii) During all other periods. The interest rate during any twelve-
month period beginning on July 1 and ending on June 30 is determined on 
the June 1 immediately preceding that period. The interest rate is equal 
to the bond equivalent rate of 91-day Treasury bills auctioned at the 
final auction held prior to that June 1 plus 2.3 percentage points, but 
does not exceed 8.25 percent.
    (4) Interest rate for Direct Subsidized Loans made to undergraduate 
students for which the first disbursement is made on or after July 1, 
2006, and before July 1,

[[Page 209]]

2013. For a loan for which the first disbursement is made:
    (i) On or after July 1, 2006, and before July 1, 2008, the interest 
rate is 6.8 percent on the unpaid principal balance of the loan.
    (ii) On or after July 1, 2008, and before July 1, 2009, the interest 
rate is 6 percent on the unpaid principal balance of the loan.
    (iii) On or after July 1, 2009, and before July 1, 2010, the 
interest rate is 5.6 percent on the unpaid principal balance of the 
loan.
    (iv) On or after July 1, 2010, and before July 1, 2011, the interest 
rate is 4.5 percent on the unpaid principal balance of the loan.
    (v) On or after July 1, 2011, and before July 1, 2013, the interest 
rate is 3.4 percent on the unpaid balance of the loan.
    (5) Interest rate for Direct Subsidized Loans made to graduate or 
professional students for which the first disbursement is made on or 
after July 1, 2006, and before July 1, 2012. The interest rate is 6.8 
percent.
    (6) Interest rate for Direct Unsubsidized Loans first disbursed on 
or after July 1, 2006, and before July 1, 2013. The interest rate is 6.8 
percent.
    (7) Interest rate for Direct Subsidized Loans and Direct 
Unsubsidized Loans made to undergraduate students for which the first 
disbursement is made on or after July 1, 2013. The interest rate for 
loans first disbursed during any 12-month period beginning on July 1 and 
ending on June 30 is determined on the June 1 preceding that period and 
is a fixed rate for the life of the loan. The interest rate is the 
lesser of--
    (i) A rate equal to the high yield of the 10-year Treasury note 
auctioned at the final auction held prior to the June 1 preceding the 
12-month period, plus 2.05 percentage points, or
    (ii) 8.25 percent.
    (8) Interest rate for Direct Unsubsidized Loans made to graduate or 
professional students for which the first disbursement is made on or 
after July 1, 2013. The interest rate for loans first disbursed during 
any 12-month period beginning on July 1 and ending on June 30 is 
determined on the June 1 preceding that period and is a fixed rate for 
the life of the loan. The interest rate is the lesser of--
    (i) A rate equal to the high yield of the 10-year Treasury note 
auctioned at the final auction held prior to the June 1 preceding the 
12-month period, plus 3.6 percentage points, or
    (ii) 9.5 percent.
    (9) Interest rate for Direct PLUS Loans. (i) Direct PLUS Loans first 
disbursed before July 1, 1998. (A) Interest rates for periods ending 
before July 1, 2001. During all periods, the interest rate during any 
twelve-month period beginning on July 1 and ending on June 30 is 
determined on the June 1 preceding that period. The interest rate is 
equal to the bond equivalent rate of 52-week Treasury bills auctioned at 
the final auction held prior to that June 1 plus 3.1 percentage points, 
but does not exceed 9 percent.
    (B) Interest rates for periods beginning on or after July 1, 2001. 
During all periods, the interest rate during any twelve-month period 
beginning on July 1 and ending on June 30 is determined on the June 26 
preceding that period. The interest rate is equal to the weekly average 
1-year constant maturity Treasury yield, as published by the Board of 
Governors of the Federal Reserve System, for the last calendar week 
ending on or before that June 26 plus 3.1 percentage points, but does 
not exceed 9 percent.
    (ii) Direct PLUS Loans first disbursed on or after July 1, 1998, and 
before July 1, 2006. During all periods, the interest rate during any 
twelve-month period beginning on July 1 and ending on June 30 is 
determined on the June 1 preceding that period. The interest rate is 
equal to the bond equivalent rate of 91-day Treasury bills auctioned at 
the final auction held prior to that June 1 plus 3.1 percentage points, 
but does not exceed 9 percent.
    (iii) Direct PLUS Loans first disbursed on or after July 1, 2006, 
and before July 1, 2013. The interest rate is 7.9 percent.
    (iv) Direct PLUS Loans first disbursed on or after July 1, 2013. The 
interest rate for loans first disbursed during any 12-month period 
beginning on July 1 and ending on June 30 is determined on the June 1 
preceding that period and is a fixed rate for the life of the loan. The 
interest rate is the lesser of--
    (A) A rate equal to the high yield of the 10-year Treasury note 
auctioned at

[[Page 210]]

the final auction held prior to the June 1 preceding the 12-month 
period, plus 4.6 percentage points, or
    (B) 10.5 percent.
    (10) Interest rate for Direct Consolidation Loans--(i) Interest rate 
for Direct Subsidized Consolidation Loans and Direct Unsubsidized 
Consolidation Loans. (A) Loans first disbursed before July 1, 1995. The 
interest rate is the rate established for Direct Subsidized Loans and 
Direct Unsubsidized Loans in paragraph (a)(1) of this section.
    (B) Loans first disbursed on or after July 1, 1995, and before July 
1, 1998. The interest rate is the rate established for Direct Subsidized 
Loans and Direct Unsubsidized Loans in paragraph (a)(2) of this section.
    (C) Loans for which the first disbursement is made on or after July 
1, 1998, and prior to October 1, 1998, and loans for which the 
disbursement is made on or after October 1, 1998, for which the 
consolidation application was received by the Secretary before October 
1, 1998. The interest rate is the rate established for Direct Subsidized 
Loans and Direct Unsubsidized Loans in paragraph (a)(3) of this section.
    (D) Loans for which the consolidation application is received by the 
Secretary on or after October 1, 1998, and before February 1, 1999. 
During all periods, the interest rate during any twelve-month period 
beginning on July 1 and ending on June 30 is determined on the June 1 
immediately preceding that period. The interest rate is equal to the 
bond equivalent rate of 91-day Treasury bills auctioned at the final 
auction held prior to that June 1 plus 2.3 percentage points, but does 
not exceed 8.25 percent.
    (E) Loans for which the consolidation application is received by the 
Secretary on or after February 1, 1999, and before July 1, 2013. During 
all periods, the interest rate is based on the weighted average of the 
interest rates on the loans being consolidated, rounded to the nearest 
higher one-eighth of one percent, but does not exceed 8.25 percent.
    (F) Loans for which the consolidation application is received by the 
Secretary on or after July 1, 2013. During all periods, the interest 
rate is based on the weighted average of the interest rates on the loans 
being consolidated, rounded to the nearest higher one-eighth of one 
percent.
    (ii) Interest rate for Direct PLUS Consolidation Loans. (A) Loans 
first disbursed before July 1, 1998. The interest rate is the rate 
established for Direct PLUS Loans in paragraph (a)(9)(i) of this 
section.
    (B) Loans for which the first disbursement is made on or after July 
1, 1998, and prior to October 1, 1998, and loans for which the 
disbursement is made on or after October 1, 1998, for which the 
consolidation application was received by the Secretary before October 
1, 1998. The interest rate is the rate established for Direct PLUS Loans 
in paragraph (a)(9)(ii) of this section.
    (C) Loans for which the consolidation application is received by the 
Secretary on or after October 1, 1998, and before February 1, 1999. 
During all periods, the interest rate during any twelve-month period 
beginning on July 1 and ending on June 30 is determined on the June 1 
immediately preceding that period. The interest rate is equal to the 
bond equivalent rate of 91-day Treasury bills auctioned at the final 
auction held prior to that June 1 plus 2.3 percentage points, but does 
not exceed 8.25 percent.
    (D) Loans for which the consolidation application is received by the 
Secretary on or after February 1, 1999, and before July 1, 2006. During 
all periods, the interest rate is based on the weighted average of the 
interest rates on the loans being consolidated, rounded to the nearest 
higher one-eighth of one percent, but does not exceed 8.25 percent.
    (11) Applicability of the Servicemembers Civil Relief Act (SCRA)(50 
U.S.C. 527, App. sec. 207). Notwithstanding paragraphs (a)(1) through 
(10) of this section, upon the Secretary's receipt of evidence of the 
borrower's military service, the maximum interest rate under 50 U.S.C. 
527, App. section 207(a), on Direct Loan Program loans made prior to the 
borrower entering military service status is six percent while the 
borrower is in military service. For purposes of this paragraph, the 
interest rate includes any other charges or fees applied to the loan. 
For purposes of this paragraph (a)(11), the term ``military service'' 
means--

[[Page 211]]

    (i) In the case of a servicemember who is a member of the Army, 
Navy, Air Force, Marine Corps, or Coast Guard--
    (A) Active duty, meaning full-time duty in the active military 
service of the United States. Such term includes full-time training 
duty, annual training duty, and attendance, while in the active military 
service, at a school designated as a service school by law or by the 
Secretary of the military department concerned. Such term does not 
include full-time National Guard duty.
    (B) In the case of a member of the National Guard, including service 
under a call to active service, which means service on active duty or 
full-time National Guard duty, authorized by the President or the 
Secretary of Defense for a period of more than 30 consecutive days for 
purposes of responding to a national emergency declared by the President 
and supported by Federal funds;
    (ii) In the case of a servicemember who is a commissioned officer of 
the Public Health Service or the National Oceanic and Atmospheric 
Administration, active service; and
    (iii) Any period during which a servicemember is absent from duty on 
account of sickness, wounds, leave, or other lawful cause.
    (b) Capitalization. (1) The Secretary may add unpaid accrued 
interest to the borrower's unpaid principal balance. This increase in 
the principal balance of a loan is called ``capitalization.''
    (2) For a Direct Unsubsidized Loan, a Direct Unsubsidized 
Consolidation Loan that qualifies for a grace period under the 
regulations that were in effect for consolidation applications received 
before July 1, 2006, a Direct PLUS Loan, or for a Direct Subsidized Loan 
for which the first disbursement is made on or after July 1, 2012, and 
before July 1, 2014, the Secretary may capitalize the unpaid interest 
that accrues on the loan when the borrower enters repayment.
    (3) Notwithstanding Sec. 685.208(l)(5) and Sec. 685.209(b)(3)(iv), 
for a Direct Loan not eligible for interest subsidies during periods of 
deferment, and for all Direct Loans during periods of forbearance, the 
Secretary capitalizes the unpaid interest that has accrued on the loan 
upon the expiration of the deferment or forbearance.
    (4) Except as provided in paragraph (b)(3) of this section and in 
Secs. 685.208(l)(5) and 685.209(b)(3)(iv), the Secretary annually 
capitalizes unpaid interest when the borrower is paying under the 
alternative repayment plan or the income-contingent repayment plan 
described in Sec. 685.209(b) and the borrower's scheduled payments do 
not cover the interest that has accrued on the loan.
    (5) The Secretary may capitalize unpaid interest when the borrower 
defaults on the loan.
    (c) Loan fee for Direct Subsidized, Direct Unsubsidized, and Direct 
PLUS Loans. The Secretary--
    (1)(i) For a Direct Subsidized or Direct Unsubsidized loan first 
disbursed prior to February 8, 2006, charges a borrower a loan fee not 
to exceed 4 percent of the principal amount of the loan;
    (ii) For a Direct Subsidized or Direct Unsubsidized loan first 
disbursed on or after February 8, 2006, but before July 1, 2007, charges 
a borrower a loan fee not to exceed 3 percent of the principal amount of 
the loan;
    (iii) For a Direct Subsidized or Direct Unsubsidized loan first 
disbursed on or after July 1, 2007, but before July 1, 2008, charges a 
borrower a loan fee not to exceed 2.5 percent of the principal amount of 
the loan;
    (iv) For a Direct Subsidized or Direct Unsubsidized loan first 
disbursed on or after July 1, 2008, but before July 1, 2009, charges the 
borrower a loan fee not to exceed 2 percent of the principal amount of 
the loan;
    (v) For a Direct Subsidized or Direct Unsubsidized loan first 
disbursed on or after July 1, 2009, but before July 1, 2010, charges the 
borrower a loan fee not to exceed 1.5 percent of the principal amount of 
the loan;
    (vi) For a Direct Subsidized or Direct Unsubsidized loan first 
disbursed on or after July 1, 2010, charges the borrower a loan fee not 
to exceed 1 percent of the principal amount of the loan; and
    (vii) Charges a borrower a loan fee of four percent of the principal 
amount of the loan on a Direct PLUS loan.
    (2) Deducts the loan fee from the proceeds of the loan;

[[Page 212]]

    (3) In the case of a loan disbursed in multiple installments, 
deducts a pro rated portion of the fee from each disbursement; and
    (4) Applies to a borrower's loan balance the portion of the loan fee 
previously deducted from the loan that is attributable to any portion of 
the loan that is--
    (i) Repaid or returned within 120 days of disbursement, unless--
    (A) The borrower has no Direct Loans in repayment status and has 
requested, in writing, that the repaid or returned funds be used for a 
different purpose; or
    (B) The borrower has a Direct Loan in repayment status, in which 
case the payment is applied in accordance with Sec. 685.211(a) unless 
the borrower has requested, in writing, that the repaid or returned 
funds be applied as a cancellation of all or part of the loan; or
    (ii) Returned by a school in order to comply with the Act or with 
applicable regulations.
    (d) Late charge. (1) The Secretary may require the borrower to pay a 
late charge of up to six cents for each dollar of each installment or 
portion thereof that is late under the circumstances described in 
paragraph (d)(2) of this section.
    (2) The late charge may be assessed if the borrower fails to pay all 
or a portion of a required installment payment within 30 days after it 
is due.
    (e)(1) Collection charges before default. Notwithstanding any 
provision of State law, the Secretary may require that the borrower or 
any endorser pay costs incurred by the Secretary or the Secretary's 
agents in collecting installments not paid when due. These charges do 
not include routine collection costs associated with preparing letters 
or notices or with making personal contacts with the borrower (e.g., 
local and long-distance telephone calls).
    (2) Collection charges after default. If a borrower defaults on a 
Direct Loan, the Secretary assesses collection costs on the basis of 34 
CFR 30.60.

(Authority: 20 U.S.C. 1087a et seq., 1091a)

[59 FR 61690, Dec. 1, 1994, as amended at 61 FR 29900, June 12, 1996; 62 
FR 63434, Nov. 28, 1997; 64 FR 46254, Aug. 24, 1999; 66 FR 34765, June 
29, 2001; 71 FR 45711, Aug. 9, 2006; 72 FR 62009, Nov. 1, 2007; 74 FR 
56001, Oct. 29, 2009; 77 FR 66135, Nov. 1, 2012; 78 FR 28986, May 16, 
2013; 78 FR 65825, Nov. 1, 2013; 80 FR 67238, Oct. 30, 2015]



Sec. 685.203  Loan limits.

    (a) Direct Subsidized Loans. (1) In the case of an undergraduate 
student who has not successfully completed the first year of a program 
of undergraduate education, the total amount the student may borrow for 
any academic year of study under the Direct Subsidized Loan Program may 
not exceed the following:
    (i) $3,500 for a program of study of at least a full academic year 
in length.
    (ii) For a one-year program of study with less than a full academic 
year remaining, the amount that is the same ratio to $3,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.000

    (iii) For a program of study that is less than a full academic year 
in length, the amount that is the same ratio to $3,500 as the lesser of 
the--

[[Page 213]]

[GRAPHIC] [TIFF OMITTED] TR01NO99.001

    (2) In the case of an undergraduate student who has successfully 
completed the first year of an undergraduate program but has not 
successfully completed the second year of an undergraduate program, the 
total amount the student may borrow for any academic year of study under 
the Direct Subsidized Loan Program may not exceed the following:
    (i) $4,500 for a program of study of at least a full academic year 
in length.
    (ii) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $4,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.002

    (3) In the case of an undergraduate student who has successfully 
completed the first and second years of a program of study of 
undergraduate education but has not successfully completed the remainder 
of the program, the total amount the student may borrow for any academic 
year of study under the Direct Subsidized Loan Program may not exceed 
the following:
    (i) $5,500 for a program of study of at least an academic year in 
length.
    (ii) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $5,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.003

    (4) In the case of a student who has an associate or baccalaureate 
degree which is required for admission into a program and who is not a 
graduate or professional student, the total amount the student may 
borrow for any academic year of study may not exceed the amounts in 
paragraph (a)(3) of this section.
    (5) In the case of a graduate or professional student for periods of 
enrollment beginning before July 1, 2012, the total amount the student 
may borrow for any academic year of study under the Direct Subsidized 
Loan Program may not exceed $8,500.
    (6) In the case of a student enrolled for no longer than one 
consecutive 12-month period in a course of study necessary for 
enrollment in a program leading to a degree or a certificate, the total 
amount the student may borrow for any academic year of study under the 
Direct Subsidized Loan Program may not exceed the following:
    (i) $2,625 for coursework necessary for enrollment in an 
undergraduate degree or certificate program.
    (ii) $5,500 for coursework necessary for enrollment in a graduate or 
professional degree or certification program for a student who has 
obtained a baccalaureate degree.

[[Page 214]]

    (7) In the case of a student who has obtained a baccalaureate degree 
and is enrolled or accepted for enrollment in coursework necessary for a 
professional credential or certification from a State that is required 
for employment as a teacher in an elementary or secondary school in that 
State, the total amount the student may borrow for any academic year of 
study under the Direct Subsidized Loan Program may not exceed $5,500.
    (8) Except as provided in paragraph (a)(4) of this section, an 
undergraduate student who is enrolled in a program that is one academic 
year or less in length may not borrow an amount for any academic year of 
study that exceeds the amounts in paragraph (a)(1) of this section.
    (9) Except as provided in paragraph (a)(4) of this section--
    (i) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has not successfully 
completed the first year of that program may not borrow an amount for 
any academic year of study that exceeds the amounts in paragraph (a)(1) 
of this section.
    (ii) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has successfully completed 
the first year of that program, but has not successfully completed the 
second year of the program, may not borrow an amount for any academic 
year of study that exceeds the amounts in paragraph (a)(2) of this 
section.
    (b) Direct Unsubsidized Loans. (1) In the case of a dependent 
undergraduate student, except as provided in paragraph (c)(3) of this 
section, the total amount a student may borrow for any academic year of 
study under the Direct Unsubsidized Loan Program is the same as the 
amount determined under paragraph (a) of this section, less any amount 
received under the Direct Subsidized Loan Program, plus--
    (i) $2,000 for a program of study of at least a full academic year 
in length.
    (ii) For a program of study that is one academic year or more in 
length with less than a full academic year remaining, the amount that is 
the same ratio to $2,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO13.004

    (iii) For a program of study that is less than a full academic year 
in length, the amount that is the same ratio to $2,000 as the lesser of 
the--

[[Page 215]]

[GRAPHIC] [TIFF OMITTED] TR01NO13.005

    (2)(i) In the case of an independent undergraduate student or 
certain dependent undergraduate students under the conditions specified 
in paragraph (c)(1)(ii) of this section, except as provided in paragraph 
(c)(3) of this section, the total amount the student may borrow for any 
period of enrollment under the Direct Unsubsidized Loan Program may not 
exceed the amounts determined under paragraph (a) of this section less 
any amount received under the Direct Subsidized Loan Program in 
combination with the amounts determined under paragraph (c) of this 
section.
    (ii) In the case of a graduate or professional student for a period 
of enrollment beginning before July 1, 2012, the total amount the 
student may borrow for any academic year of study under the Direct 
Unsubsidized Loan Program may not exceed the amount determined under 
paragraph (a)(5) of this section, less any amount received under the 
Direct Subsidized Loan Program.
    (iii) In the case of a graduate or professional student for a period 
of enrollment beginning on or after July 1, 2012, the total amount the 
student may borrow for any academic year of study under the Direct 
Unsubsidized Loan Program may not exceed $8,500.
    (c) Additional eligibility for Direct Unsubsidized Loans. (1)(i) An 
independent undergraduate student, graduate or professional student, and 
certain dependent undergraduate students may borrow amounts under the 
Direct Unsubsidized Loan Program in addition to any amount borrowed 
under paragraph (b) of this section, except as provided in paragraph 
(c)(3) for certain dependent undergraduate students.
    (ii) In order for a dependent undergraduate student to receive this 
additional loan amount, the financial aid administrator must determine 
that the student's parent likely will be precluded by exceptional 
circumstances from borrowing under the Direct PLUS Loan Program and the 
student's family is otherwise unable to provide the student's expected 
family contribution. The financial aid administrator must base the 
determination on a review of the family financial information provided 
by the student and consideration of the student's debt burden and must 
document the determination in the school's file.
    (iii) ``Exceptional circumstances'' under paragraph (c)(1)(ii) of 
this section include but are not limited to circumstances in which the 
student's parent receives only public assistance or disability benefits, 
the parent is incarcerated, the parent has an adverse credit history, or 
the parent's whereabouts are unknown. A parent's refusal to borrow a 
Direct PLUS Loan does not constitute ``exceptional circumstances.''
    (2) The additional amount that a student described in paragraph 
(c)(1)(i) of

[[Page 216]]

this section may borrow under the Direct Unsubsidized Loan Program for 
any academic year of study may not exceed the following:
    (i) In the case of a student who has not successfully completed the 
first year of a program of undergraduate education--
    (A) $6,000 for a program of study of at least a full academic year 
in length.
    (B) For a one-year program of study with less than a full academic 
year remaining, the amount that is the same ratio to $6,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.005

    (C) For a program of study that is less than a full academic year in 
length, an amount that is the same ratio to $6,000 as the lesser of 
the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.006

    (ii) In the case of a student who has completed the first year of a 
program of undergraduate education but has not successfully completed 
the second year of a program of undergraduate education--
    (A) $6,000 for a program of study of at least a full academic year 
in length.
    (B) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $6,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.007

    (iii) In the case of a student who has successfully completed the 
second year of a program of undergraduate education but has not 
completed the remainder of the program of study--
    (A) $7,000 for a program of study of at least a full academic year 
in length.
    (B) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $7,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.008

    (iv) In the case of a student who has an associate or baccalaureate 
degree which is required for admission into a program and who is not a 
graduate or

[[Page 217]]

professional student, the total amount the student may borrow for any 
academic year of study may not exceed the amounts in paragraph 
(c)(2)(iii) of this section.
    (v) In the case of a graduate or professional student, $12,000.
    (vi) In the case of a student enrolled for no longer than one 
consecutive 12-month period in a course of study necessary for 
enrollment in a program leading to a degree or a certificate--
    (A) $6,000 for coursework necessary for enrollment in an 
undergraduate degree or certificate program.
    (B) $7,000 for coursework necessary for enrollment in a graduate or 
professional degree or certification program for a student who has 
obtained a baccalaureate degree.
    (vii) In the case of a student who has obtained a baccalaureate 
degree and is enrolled or accepted for enrollment in coursework 
necessary for a professional credential or certification from a State 
that is required for employment as a teacher in an elementary or 
secondary school in that State, $7,000.
    (viii) Except as provided in paragraph (c)(2)(iv) of this section, 
an undergraduate student who is enrolled in a program that is one 
academic year or less in length may not borrow an amount for any 
academic year of study that exceeds the amounts in paragraph (c)(2)(i) 
of this section.
    (ix) Except as provided in paragraph (c)(2)(iv) of this section--
    (A) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has not successfully 
completed the first year of that program may not borrow an amount for 
any academic year of study that exceeds the amounts in paragraph 
(c)(2)(i) of this section.
    (B) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has successfully completed 
the first year of that program, but has not successfully completed the 
second year of the program, may not borrow an amount for any academic 
year of study that exceeds the amounts in paragraph (c)(2)(ii) of this 
section.
    (3) A dependent undergraduate student who qualifies for additional 
Direct Unsubsidized Loan amounts under this section in accordance with 
paragraph (c)(1)(ii) is not eligible to receive the additional Direct 
Unsubsidized Loan amounts provided under paragraph (b)(1)(ii) of this 
section.
    (d) Aggregate limits for subsidized loans. The aggregate unpaid 
principal amount of all Direct Subsidized Loans and Subsidized Federal 
Stafford Loans made to a student but excluding the amount of capitalized 
interest may not exceed the following:
    (1) $23,000 in the case of any student who has not successfully 
completed a program of study at the undergraduate level.
    (2) $65,500 in the case of a graduate or professional student, 
including loans for undergraduate study.
    (e) Aggregate limits for unsubsidized loans. The total amount of 
Direct Unsubsidized Loans, Unsubsidized Federal Stafford Loans, and 
Federal SLS Loans, excluding the amount of capitalized interest, may not 
exceed the following:
    (1) For a dependent undergraduate student, $31,000 minus any Direct 
Subsidized Loan and Subsidized Federal Stafford Loan amounts, unless the 
student qualifies under paragraph (c) of this section for additional 
eligibility or qualified for that additional eligibility under the 
Federal SLS Program.
    (2) For an independent undergraduate or a dependent undergraduate 
who qualifies for additional eligibility under paragraph (c) of this 
section or qualified for this additional eligibility under the Federal 
SLS Program, $57,500 minus any Direct Subsidized Loan and Subsidized 
Federal Stafford Loan amounts.
    (3) For a graduate or professional student, $138,500, including any 
loans for undergraduate study, minus any Direct Subsidized Loan, 
Subsidized Federal Stafford Loan, and Federal SLS Program loan amounts.
    (f) Direct PLUS Loans annual limit. The total amount of all Direct 
PLUS Loans that a parent or parents may borrow on behalf of each 
dependent student, or that a graduate or professional student may 
borrow, for any academic year of study may not exceed the cost of 
attendance minus other estimated financial assistance for the student.

[[Page 218]]

    (g) Direct PLUS Loans aggregate limit. The total amount of all 
Direct PLUS Loans that a parent or parents may borrow on behalf of each 
dependent student, or that a graduate or professional student may 
borrow, for enrollment in an eligible program of study may not exceed 
the student's cost of attendance minus other estimated financial 
assistance for that student for the entire period of enrollment.
    (h) Loan limit period. The annual loan limits apply to an academic 
year, as defined in 34 CFR 668.3.
    (i) Treatment of Direct Consolidation Loans and Federal 
Consolidation Loans. The percentage of the outstanding balance on Direct 
Consolidation Loans or Federal Consolidation Loans counted against a 
borrower's aggregate loan limits is calculated as follows:
    (1) For Direct Subsidized Loans, the percentage equals the 
percentage of the original amount of the Direct Consolidation Loan or 
Federal Consolidation Loan attributable to the Direct Subsidized and 
Subsidized Federal Stafford Loans.
    (2) For Direct Unsubsidized Loans, the percentage equals the 
percentage of the original amount of the Direct Consolidation Loan or 
Federal Consolidation Loan attributable to the Direct Unsubsidized, 
Federal SLS, and Unsubsidized Federal Stafford Loans.
    (j) Maximum loan amounts. In no case may a Direct Subsidized, Direct 
Unsubsidized, or Direct PLUS Loan amount exceed the student's estimated 
cost of attendance for the period of enrollment for which the loan is 
intended, less--
    (1) The student's estimated financial assistance for that period; 
and
    (2) In the case of a Direct Subsidized Loan, the borrower's expected 
family contribution for that period.
    (k) Any TEACH Grants that have been converted to Direct Unsubsidized 
Loans are not counted against any annual or aggregate loan limits under 
this section.

(Authority: 20 U.S.C. 1070g, 1087a, et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 64 FR 58966, Nov. 1, 1999; 67 
FR 67081, Nov. 1, 2002; 68 FR 75430, Dec. 31, 2003; 71 FR 45711, Aug. 9, 
2006; 71 FR 64399, Nov. 1, 2006; 73 FR 35495, June 23, 2008; 74 FR 
56001, Oct. 29, 2009; 78 FR 65827, Nov. 1, 2013]



Sec. 685.204  Deferment.

    (a) General. (1) A Direct Subsidized Loan or Direct Subsidized 
Consolidation Loan borrower who meets the requirements described in 
paragraphs (b), (d), (e), (f), (g), (h), (i), or (j) of this section is 
eligible for a deferment during which periodic installments of principal 
and interest need not be paid.
    (2) A Direct Unsubsidized Loan, Direct Unsubsidized Consolidation 
Loan, Direct PLUS Loan, or Direct PLUS Consolidation Loan borrower who 
meets the requirements described in paragraphs (b) through (j) of this 
section is eligible for a deferment during which periodic installments 
of principal need not be paid but interest does accrue and is 
capitalized or paid by the borrower. At or before the time a deferment 
is granted, the Secretary provides information, including an example, to 
assist the borrower in understanding the impact of capitalization of 
accrued, unpaid interest on the borrower's loan principal and on the 
total amount of interest to be paid over the life of the loan.
    (3) A borrower whose loan is in default is not eligible for a 
deferment, unless the borrower has made payment arrangements 
satisfactory to the Secretary.
    (4)(i) To receive a deferment, except as provided for in-school 
deferments under paragraphs (b)(2)(ii) through (iv) of this section, the 
borrower must request the deferment and, except as provided in paragraph 
(a)(5)(i) of this section, provide the Secretary with all information 
and documents required to establish eligibility for the deferment.
    (ii) In the case of a military service deferment under paragraph (h) 
of this section, a borrower's representative may request the deferment 
and provide the required information and documents on behalf of the 
borrower. If the Secretary grants a military service deferment based on 
a request from a borrower's representative, the Secretary notifies the 
borrower that the deferment has been granted and that the borrower has 
the option to cancel the deferment and continue to make payments on the 
loan. The Secretary may also notify the borrower's representative of the 
outcome of the deferment request.

[[Page 219]]

    (5)(i) After receiving a borrower's written or verbal request for a 
deferment, the Secretary may grant a graduate fellowship deferment under 
paragraph (d), a rehabilitation training deferment under paragraph (e), 
an unemployment deferment under paragraph (f), an economic hardship 
deferment under paragraph (g), a military service deferment under 
paragraph (h), or a post-active duty student deferment under paragraph 
(i) of this section if the Secretary confirms that the borrower has 
received a deferment on a FFEL Program loan for the same reason and 
during the same time period.
    (ii) The Secretary will grant a deferment based on the information 
obtained under paragraph (a)(5)(i) of this section when determining a 
borrower's eligibility for a deferment, unless the Secretary, as of the 
date of the determination, has information indicating that the borrower 
does not qualify for the deferment. The Secretary will resolve any 
discrepant information before granting a deferment under paragraph 
(a)(5)(i) of this section.
    (iii) If the Secretary grants a deferment under paragraph (a)(5)(i) 
of this section, the Secretary notifies the borrower that the deferment 
has been granted and that the borrower has the option to cancel the 
deferment and continue to make payments on the loan.
    (b) In-school deferment. (1) A Direct Loan borrower is eligible for 
a deferment during any period during which--
    (i) The borrower is carrying at least one-half the normal full-time 
work load for the course of study that the borrower is pursuing, as 
determined by the eligible school the borrower is attending; and
    (ii) The borrower is not serving in a medical internship or 
residency program, except for a residency program in dentistry.
    (2) For the purpose of paragraph (b)(1) of this section, the 
Secretary processes a deferment when--
    (i) The borrower submits a request to the Secretary along with 
documentation verifying the borrower's eligibility;
    (ii) The Secretary receives information from the borrower's school 
indicating that the borrower is eligible to receive a new loan;
    (iii) The Secretary receives student status information from the 
borrower's school, either directly or indirectly, indicating that the 
borrower is enrolled on at least a half-time basis; or
    (iv) The Secretary confirms a borrower's half-time enrollment status 
through the use of the National Student Loan Data System if requested to 
do so by the school the borrower is attending.
    (3)(i) Upon notification by the Secretary that a deferment has been 
granted based on paragraph (b)(2)(ii), (iii), or (iv) of this section, 
the borrower has the option to cancel the deferment and continue to make 
payments on the loan.
    (ii) If the borrower elects to cancel the deferment and continue to 
make payments on the loan, the borrower has the option to make the 
principal and interest payments that were deferred. If the borrower does 
not make the payments, the Secretary applies a deferment for the period 
in which payments were not made and capitalizes the interest.
    (c) In-school deferments for Direct PLUS Loan borrowers with loans 
first disbursed on or after July 1, 2008. (1)(i) A student Direct PLUS 
Loan borrower is eligible for a deferment on a Direct PLUS Loan first 
disbursed on or after July 1, 2008 during the six-month period that 
begins on the day after the student ceases to be enrolled on at least a 
half-time basis at an eligible institution.
    (ii) If the Secretary grants an in-school deferment to a student 
Direct PLUS Loan borrower in accordance with Sec. 685.204(b)(2)(ii), 
(iii), or (iv), the deferment period for a Direct PLUS Loan first 
disbursed on or after July 1, 2008 includes the six-month post-
enrollment period described in paragraph (c)(1)(i) of this section.
    (2) A parent Direct PLUS Loan borrower is eligible for a deferment 
on a Direct PLUS Loan first disbursed on or after July 1, 2008--
    (i) Upon the request of the borrower, during the period when the 
student on whose behalf the loan was obtained is

[[Page 220]]

enrolled at an eligible institution on at least a half-time basis; and
    (ii) Upon the request of the borrower, during the six-month period 
that begins on the later of the day after the student on whose behalf 
the loan was obtained ceases to be enrolled on at least a half-time 
basis or, if the parent borrower is also a student, the day after the 
parent borrower ceases to be enrolled on at least a half-time basis.
    (d) Graduate fellowship deferment. (1) A Direct Loan borrower is 
eligible for a deferment during any period in which an authorized 
official of the borrower's graduate fellowship program certifies that 
the borrower is pursuing a course of study pursuant to an eligible 
graduate fellowship program in accordance with paragraph (d)(2) of this 
section.
    (2)(i) To qualify for a deferment under paragraph (d)(1) of this 
section, a borrower must--
    (A) Hold at least a baccalaureate degree conferred by an institution 
of higher education;
    (B) Have been accepted or recommended by an institution of higher 
education for acceptance on a full-time basis into an eligible graduate 
fellowship program, as defined in paragraph (d)(2)(ii) of this section; 
and
    (C) Not be serving in a medical internship or residency program, 
except for a residency program in dentistry.
    (ii) An eligible graduate fellowship program is a fellowship program 
that--
    (A) Provides sufficient financial support to graduate fellows to 
allow for full-time study for at least six months;
    (B) Requires a written statement from each applicant explaining the 
applicant's objectives before the award of that financial support;
    (C) Requires a graduate fellow to submit periodic reports, projects, 
or evidence of the fellow's progress; and
    (D) In the case of a course of study at a foreign university, 
accepts the course of study for completion of the fellowship program.
    (e) Rehabilitation training program deferment. (1) A Direct Loan 
borrower is eligible for a deferment during any period in which an 
authorized official of the borrower's rehabilitation training program 
certifies that the borrower is pursuing an eligible rehabilitation 
training program for individuals with disabilities in accordance with 
paragraph (e)(2) of this section.
    (2) For purposes of paragraph (e)(1) of this section, an eligible 
rehabilitation training program for disabled individuals is a program 
that--
    (i) Is licensed, approved, certified, or otherwise recognized as 
providing rehabilitation training to disabled individuals by--
    (A) A State agency with responsibility for vocational rehabilitation 
programs;
    (B) A State agency with responsibility for drug abuse treatment 
programs;
    (C) A State agency with responsibility for mental health services 
programs;
    (D) A State agency with responsibility for alcohol abuse treatment 
programs; or
    (E) The Department of Veterans Affairs; and
    (ii) Provides or will provide the borrower with rehabilitation 
services under a written plan that--
    (A) Is individualized to meet the borrower's needs;
    (B) Specifies the date on which the services to the borrower are 
expected to end; and
    (C) Is structured in a way that requires a substantial commitment by 
the borrower to his or her rehabilitation. The Secretary considers a 
substantial commitment by the borrower to be a commitment of time and 
effort that normally would prevent an individual from engaging in full-
time employment, either because of the number of hours that must be 
devoted to rehabilitation or because of the nature of the 
rehabilitation. For the purpose of this paragraph, full-time employment 
involves at least 30 hours of work per week and is expected to last at 
least three months.
    (f) Unemployment deferment. (1) A Direct Loan borrower is eligible 
for a deferment during periods that, collectively, do not exceed three 
years in which the borrower is seeking and unable to find full-time 
employment.
    (2) A borrower qualifies for an unemployment deferment by--
    (i) Providing evidence of eligibility for unemployment benefits to 
the Secretary; or

[[Page 221]]

    (ii) Providing to the Secretary a written certification, or an 
equivalent as approved by the Secretary, that--
    (A) The borrower has registered with a public or private employment 
agency, if one is available to the borrower within a 50-mile radius of 
the borrower's current address; and
    (B) For all requests beyond the initial request, the borrower has 
made at least six diligent attempts during the preceding six-month 
period to secure full-time employment.
    (3) For purposes of obtaining an unemployment deferment under 
paragraph (f)(2)(ii) of this section, the following rules apply:
    (i) A borrower may qualify for an unemployment deferment whether or 
not the borrower has been previously employed.
    (ii) An unemployment deferment is not justified if the borrower 
refuses to seek or accept employment in kinds of positions or at salary 
and responsibility levels for which the borrower feels overqualified by 
virtue of education or previous experience.
    (iii) Full-time employment involves at least 30 hours of work a week 
and is expected to last at least three months.
    (iv) The initial period of unemployment deferment may be granted for 
a period of unemployment beginning up to six months before the date the 
Secretary receives the borrower's request, and may be granted for up to 
six months after that date.
    (4) The Secretary does not grant an unemployment deferment beyond 
the date that is six months after the date the borrower provides 
evidence of the borrower's eligibility for unemployment insurance 
benefits under paragraph (f)(2)(i) of this section or the date the 
borrower provides the written certification, or an approved equivalent, 
under paragraph (f)(2)(ii) of this section.
    (g) Economic hardship deferment. (1)(i) A Direct Loan borrower is 
eligible for a deferment during periods that, collectively, do not 
exceed three years in which the borrower has experienced or will 
experience an economic hardship in accordance with paragraph (g)(2) of 
this section.
    (ii) An economic hardship deferment is granted for periods of up to 
one year at a time, except that a borrower who receives a deferment 
under paragraph (g)(2)(iv) of this section may receive an economic 
hardship deferment for the lesser of the borrower's full term of service 
in the Peace Corps or the borrower's remaining period of economic 
hardship deferment eligibility under the 3-year maximum.
    (2) A borrower qualifies for an economic hardship deferment if the 
borrower--
    (i) Has been granted an economic hardship deferment under either the 
FFEL or the Federal Perkins Loan programs for the period of time for 
which the borrower has requested an economic hardship deferment for his 
or her Direct Loan;
    (ii) Is receiving payment under a Federal or State public assistance 
program, such as Aid to Families with Dependent Children, Supplemental 
Security Income, Food Stamps, or State general public assistance;
    (iii) Is working full-time (as defined in paragraph (g)(3)(iii) of 
this section) and has a monthly income (as defined in paragraph 
(g)(3)(iv) of this section) that does not exceed the greater of (as 
calculated on a monthly basis)--
    (A) The minimum wage rate described in section 6 of the Fair Labor 
Standards Act of 1938; or
    (B) An amount equal to 150 percent of the poverty guideline 
applicable to the borrower's family size (as defined in paragraph 
(g)(3)(v) of this section) as published annually by the Department of 
Health and Human Services pursuant to 42 U.S.C. 9902(2). If a borrower 
is not a resident of a State identified in the poverty guidelines, the 
poverty guideline to be used for the borrower is the poverty guideline 
(for the relevant family size) used for the 48 contiguous States; or
    (iv) Is serving as a volunteer in the Peace Corps.
    (3) The following rules apply to a deferment granted under paragraph 
(g)(2)(iii) of this section:
    (i) For an initial period of deferment, the Secretary requires the 
borrower to submit evidence showing the amount of the borrower's monthly 
income.
    (ii) To qualify for a subsequent period of deferment that begins 
less than one year after the end of a period of

[[Page 222]]

deferment under paragraph (g)(2)(iii) of this section, the Secretary 
requires the borrower to submit evidence showing the amount of the 
borrower's monthly income or a copy of the borrower's most recently 
filed Federal income tax return.
    (iii) A borrower is considered to be working full-time if the 
borrower is expected to be employed for at least three consecutive 
months at 30 hours per week.
    (iv) A borrower's monthly income is the gross amount of income 
received by the borrower from employment and from other sources, or one-
twelfth of the borrower's adjusted gross income, as recorded on the 
borrower's most recently filed Federal income tax return.
    (v) Family size means the number that is determined by counting the 
borrower, the borrower's spouse, and the borrower's children, including 
unborn children who will be born during the period covered by the 
deferment, if the children receive more than half their support from the 
borrower. A borrower's family size includes other individuals if, at the 
time the borrower requests the economic hardship deferment, the other 
individuals--
    (A) Live with the borrower; and
    (B) Receive more than half their support from the borrower and will 
continue to receive this support from the borrower for the year the 
borrower certifies family size. Support includes money, gifts, loans, 
housing, food, clothes, car, medical and dental care, and payment of 
college costs.
    (h) Military service deferment. (1) A Direct Loan borrower is 
eligible for a deferment during any period in which the borrower is--
    (i) Serving on active duty during a war or other military operation 
or national emergency, as defined in paragraph (h)(5) of this section; 
or
    (ii) Performing qualifying National Guard duty during a war or other 
military operation or national emergency, as defined in paragraph (h)(5) 
of this section.
    (2) For a borrower whose active duty service includes October 1, 
2007, or begins on or after that date, the deferment period ends 180 
days after the demobilization date for each period of the service 
described in paragraphs (h)(1)(i) and (h)(1)(ii) of this section.
    (3) Without supporting documentation, the military service deferment 
will be granted to an otherwise eligible borrower for a period not to 
exceed the initial 12 months from the date the qualifying eligible 
service began based on a request from the borrower or the borrower's 
representative.
    (4) The provisions of paragraph (h) of this section do not authorize 
the refunding of any payments made by or on behalf of a borrower during 
a period for which the borrower qualified for a military service 
deferment.
    (5) As used in paragraph (h) of this section--
    (i) Serving on active duty during a war or other military operation 
or national emergency means service by an individual who is--
    (A) A Reserve of an Armed Force ordered to active duty under 10 
U.S.C. 12301(a), 12301(g), 12302, 12304, or 12306;
    (B) A retired member of an Armed Force ordered to active duty under 
10 U.S.C. 688 for service in connection with a war or other military 
operation or national emergency, regardless of the location at which 
such active duty service is performed; or
    (C) Any other member of an Armed Force on active duty in connection 
with such emergency or subsequent actions or conditions who has been 
assigned to a duty station at a location other than the location at 
which the member is normally assigned;
    (ii) Qualifying National Guard duty during a war or other operation 
or national emergency means service as a member of the National Guard on 
full-time National Guard duty, as defined in 10 U.S.C. 101(d)(5) under a 
call to active service authorized by the President or the Secretary of 
Defense for a period of more than 30 consecutive days under 32 U.S.C. 
502(f) in connection with a war, other military operation, or national 
emergency declared by the President and supported by Federal funds;
    (iii) Active duty means active duty as defined in 10 U.S.C. 
101(d)(1) except that it does not include active duty for training or 
attendance at a service school;

[[Page 223]]

    (iv) Military operation means a contingency operation as defined in 
10 U.S.C. 101(a)(13); and
    (v) National emergency means the national emergency by reason of 
certain terrorist attacks declared by the President on September 14, 
2001, or subsequent national emergencies declared by the President by 
reason of terrorist attacks.
    (i) Post-active duty student deferment. (1) A Direct Loan borrower 
is eligible for a deferment for 13 months following the conclusion of 
the borrower's active duty military service and any applicable grace 
period if--
    (i) The borrower is a member of the National Guard or other reserve 
component of the Armed Forces of the United States or a member of such 
forces in retired status; and
    (ii) The borrower was enrolled on at least a half-time basis in a 
program of instruction at an eligible institution at the time, or within 
six months prior to the time, the borrower was called to active duty.
    (2) As used in paragraph (i)(1) of this section, ``active duty'' 
means active duty as defined in 10 U.S.C. 101(d)(1) for at least a 30-
day period, except that--
    (i) Active duty includes active State duty for members of the 
National Guard under which a Governor activates National Guard personnel 
based on State statute or policy and the activities of the National 
Guard are paid for with State funds;
    (ii) Active duty includes full-time National Guard duty under which 
a Governor is authorized, with the approval of the President or the U.S. 
Secretary of Defense, to order a member to State active duty and the 
activities of the National Guard are paid for with Federal funds;
    (iii) Active duty does not include active duty for training or 
attendance at a service school; and
    (iv) Active duty does not include employment in a full-time, 
permanent position in the National Guard unless the borrower employed in 
such a position is reassigned to active duty under paragraph (i)(2)(i) 
of this section or full-time National Guard duty under paragraph 
(i)(2)(ii) of this section.
    (3) If the borrower returns to enrolled student status on at least a 
half-time basis during the grace period or the 13-month deferment 
period, the deferment expires at the time the borrower returns to 
enrolled student status on at least a half-time basis.
    (4) If a borrower qualifies for both a military service deferment 
and a post-active duty student deferment, the 180-day post-
demobilization military service deferment period and the 13-month post-
active duty student deferment period apply concurrently.
    (j) Additional deferments for Direct Loan borrowers with FFEL 
Program loans made before July 1, 1993. If, at the time of application 
for a borrower's first Direct Loan, a borrower has an outstanding 
balance of principal or interest owing on any FFEL Program loan that was 
made, insured, or guaranteed prior to July 1, 1993, the borrower is 
eligible for a deferment during--
    (1) The periods described in paragraphs (b) through (i) of this 
section; and
    (2) The periods described in 34 CFR 682.210(b), including those 
periods that apply to a ``new borrower'' as that term is defined in 34 
CFR 682.210(b)(7).

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)

[78 FR 65829, Nov. 1, 2013]



Sec. 685.205  Forbearance.

    (a) General. ``Forbearance'' means permitting the temporary 
cessation of payments, allowing an extension of time for making 
payments, or temporarily accepting smaller payments than previously 
scheduled. The borrower has the option to choose the form of 
forbearance. Except as provided in paragraph (b)(9) of this section, if 
payments of interest are forborne, they are capitalized. The Secretary 
grants forbearance if the borrower or endorser intends to repay the loan 
but requests forbearance and provides sufficient documentation to 
support this request, and--
    (1) The Secretary determines that, due to poor health or other 
acceptable reasons, the borrower or endorser is currently unable to make 
scheduled payments;
    (2) The borrower's payments of principal are deferred under 
Sec. 685.204 and

[[Page 224]]

the Secretary does not subsidize the interest benefits on behalf of the 
borrower;
    (3) The borrower is in a medical or dental internship or residency 
that must be successfully completed before the borrower may begin 
professional practice or service, or the borrower is serving in a 
medical or dental internship or residency program leading to a degree or 
certificate awarded by an institution of higher education, a hospital, 
or a health care facility that offers postgraduate training;
    (4) The borrower is serving in a national service position for which 
the borrower is receiving a national service education award under title 
I of the National and Community Service Act of 1990;
    (5)(i) The borrower is performing the type of service that would 
qualify the borrower for loan forgiveness under the requirements of the 
teacher loan forgiveness program in Sec. 685.217.
    (ii) Before a forbearance is granted under Sec. 685.205(a)(5)(i), 
the borrower must--
    (A) Submit documentation for the period of the annual forbearance 
request showing the beginning and ending dates that the borrower is 
expected to perform, for that year, the type of service described in 
Sec. 685.217(c); and
    (B) Certify the borrower's intent to satisfy the requirements of 
Sec. 685.217(c).
    (iii) The Secretary grants forbearance under paragraph (a)(5) of 
this section only if the Secretary believes, at the time of the 
borrower's annual request, that the expected forgiveness amount under 
Sec. 685.217(d) will satisfy the anticipated remaining outstanding 
balance on the borrower's loan at the time of the expected forgiveness;
    (6) For not more than three years during which the borrower or 
endorser--
    (i) Is currently obligated to make payments on loans under title IV 
of the Act; and
    (ii) The sum of these payments each month (or a proportional share 
if the payments are due less frequently than monthly) is equal to or 
greater than 20 percent of the borrower's or endorser's total monthly 
gross income.
    (7) The borrower is a member of the National Guard who qualifies for 
a post-active duty student deferment, but does not qualify for a 
military service or other deferment, and is engaged in active State duty 
for a period of more than 30 consecutive days, beginning--
    (i) On the day after the grace period expires for a Direct 
Subsidized Loan or Direct Unsubsidized Loan that has not entered 
repayment; or
    (ii) On the day after the borrower ceases enrollment on at least a 
half-time basis, for a Direct Loan in repayment.
    (8)(i) The Secretary may grant a forbearance to permit a borrower or 
endorser to resume honoring the agreement to repay the debt after 
default. The terms of the forbearance agreement in this situation must 
include a new agreement to repay the debt signed by the borrower or 
endorser or a written or oral affirmation of the borrower's or 
endorser's obligation to repay the debt.
    (ii) If the forbearance is based on the borrower's or endorser's 
oral affirmation of the obligation to repay the debt, the forbearance 
period is limited to 120 days, such a forbearance is not granted 
consecutively, and the Secretary will--
    (A) Orally review with the borrower the terms and conditions of the 
forbearance, including the consequences of interest capitalization, and 
all other repayment options available to the borrower;
    (B) Send a notice to the borrower or endorser that confirms the 
terms of the forbearance and the borrower's or endorser's affirmation of 
the obligation to repay the debt and that includes information on all 
other repayment options available to the borrower; and
    (C) Retain a record of the terms of the forbearance and affirmation 
in the borrower's or endorser's file.
    (iii) For purposes of this section, an ``affirmation'' means an 
acknowledgement of the loan by the borrower or endorser in a legally 
binding manner. The form of the affirmation may include, but is not 
limited to, the borrower's or endorser's--
    (A) New signed repayment agreement or schedule, or another form of 
signed agreement to repay the debt;

[[Page 225]]

    (B) Oral acknowledgement and agreement to repay the debt documented 
by the Secretary in the borrower's or endorser's file and confirmed by 
the Secretary in a notice to the borrower; or
    (C) A payment made on the loan by the borrower or endorser.
    (9)(i) The borrower is performing the type of service that would 
qualify the borrower for a partial repayment of his or her loan under 
the Student Loan Repayment Programs administered by the Department of 
Defense under 10 U.S.C. 2171, 2173, 2174, or any other student loan 
repayment programs administered by the Department of Defense.
    (ii) To receive a forbearance under this paragraph, the borrower 
must submit documentation showing the time period during which the 
Department of Defense considers the borrower to be eligible for a 
partial repayment of his or her loan under a student loan repayment 
program.
    (b) Administrative forbearance. In certain circumstances, the 
Secretary grants forbearance without requiring documentation from the 
borrower. These circumstances include but are not limited to--
    (1) A properly granted period of deferment for which the Secretary 
learns the borrower did not qualify;
    (2) The period for which payments are overdue at the beginning of an 
authorized deferment or forbearance period;
    (3) The period beginning when the borrower entered repayment without 
the Secretary's knowledge until the first payment due date was 
established;
    (4) The period prior to a borrower's filing of a bankruptcy 
petition;
    (5) A period after the Secretary receives reliable information 
indicating that the borrower (or the student in the case of a Direct 
PLUS Loan obtained by a parent borrower) has died, or the borrower has 
become totally and permanently disabled, until the Secretary receives 
documentation of death or total and permanent disability;
    (6) Periods necessary for the Secretary to determine the borrower's 
eligibility for discharge--
    (i) Under Sec. 685.214;
    (ii) Under Sec. 685.215;
    (iii) Under Sec. 685.216;
    (iv) Under Sec. 685.217; or
    (v) Due to the borrower's or endorser's (if applicable) bankruptcy;
    (7) A period of up to three years in cases where the effect of a 
variable interest rate on a fixed-amount or graduated repayment schedule 
causes the extension of the maximum repayment term;
    (8) A period during which the Secretary has authorized forbearance 
due to a national military mobilization or other local or national 
emergency;
    (9) A period of up to 60 days necessary for the Secretary to collect 
and process documentation supporting the borrower's request for a 
deferment, forbearance, change in repayment plan, or consolidation loan. 
Interest that accrues during this period is not capitalized; or
    (10) For Direct PLUS Loans first disbursed before July 1, 2008, to 
align repayment with a borrower's Direct PLUS Loans that were first 
disbursed on or after July 1, 2008, or with Direct Subsidized Loans or 
Direct Unsubsidized Loans that have a grace period in accordance with 
Sec. 685.207(b) or (c). The Secretary notifies the borrower that the 
borrower has the option to cancel the forbearance and continue paying on 
the loan.
    (c) Period of forbearance. (1) The Secretary grants forbearance for 
a period of up to one year.
    (2) The forbearance is renewable, upon request of the borrower, for 
the duration of the period in which the borrower meets the condition 
required for the forbearance.

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 61 FR 29900, June 12, 1996; 64 
FR 58968, Nov. 1, 1999; 65 FR 65629, Nov. 1, 2000; 66 FR 34765, June 29, 
2001; 68 FR 75430, Dec. 31, 2003; 71 FR 45712, Aug. 9, 2006; 73 FR 
63255, Oct. 23, 2008; 74 FR 56003, Oct. 29, 2010; 78 FR 65832, Nov. 1, 
2013]

    Effective Date Note: At 81 FR 76080, Nov. 1, 2016, Sec. 685.205 was 
amended by revising paragraph (b)(6), eff. July 1, 2017. At 82 FR 27621, 
June 16, 2017, the effective date was delayed indefinitely. For the 
convenience of the user, the revised text is set forth as follows:

[[Page 226]]



Sec. 685.205  Forbearance.

                                * * * * *

    (b) * * *
    (6) Periods necessary for the Secretary to determine the borrower's 
eligibility for discharge--
    (i) Under Sec. 685.206(c);
    (ii) Under Sec. 685.214;
    (iii) Under Sec. 685.215;
    (iv) Under Sec. 685.216;
    (v) Under Sec. 685.217;
    (vi) Under Sec. 685.222; or
    (vii) Due to the borrower's or endorser's (if applicable) 
bankruptcy;

                                * * * * *



Sec. 685.206  Borrower responsibilities and defenses.

    (a) The borrower must give the school the following information as 
part of the origination process for a Direct Subsidized, Direct 
Unsubsidized, or Direct PLUS Loan:
    (1) A statement, as described in 34 CFR part 668, that the loan will 
be used for the cost of the student's attendance.
    (2) Information demonstrating that the borrower is eligible for the 
loan.
    (3) Information concerning the outstanding FFEL Program and Direct 
Loan Program loans of the borrower and, for a parent borrower, of the 
student, including any Federal Consolidation Loan or Direct 
Consolidation Loan.
    (4) A statement authorizing the school to release to the Secretary 
information relevant to the student's eligibility to borrow or to have a 
parent borrow on the student's behalf (e.g., the student's enrollment 
status, financial assistance, and employment records).
    (b)(1) The borrower must promptly notify the Secretary of any change 
of name, address, student status to less than half-time, employer, or 
employer's address; and
    (2) The borrower must promptly notify the school of any change in 
address during enrollment.
    (c) Borrower defenses. (1) In any proceeding to collect on a Direct 
Loan, the borrower may assert as a defense against repayment, any act or 
omission of the school attended by the student that would give rise to a 
cause of action against the school under applicable State law. These 
proceedings include, but are not limited to, the following:
    (i) Tax refund offset proceedings under 34 CFR 30.33.
    (ii) Wage garnishment proceedings under section 488A of the Act.
    (iii) Salary offset proceedings for Federal employees under 34 CFR 
part 31.
    (iv) Consumer reporting agency reporting proceedings under 31 U.S.C. 
3711(f).
    (2) If the borrower's defense against repayment is successful, the 
Secretary notifies the borrower that the borrower is relieved of the 
obligation to repay all or part of the loan and associated costs and 
fees that the borrower would otherwise be obligated to pay. The 
Secretary affords the borrower such further relief as the Secretary 
determines is appropriate under the circumstances. Further relief may 
include, but is not limited to, the following:
    (i) Reimbursing the borrower for amounts paid toward the loan 
voluntarily or through enforced collection.
    (ii) Determining that the borrower is not in default on the loan and 
is eligible to receive assistance under title IV of the Act.
    (iii) Updating reports to consumer reporting agencies to which the 
Secretary previously made adverse credit reports with regard to the 
borrower's Direct Loan.
    (3) The Secretary may initiate an appropriate proceeding to require 
the school whose act or omission resulted in the borrower's successful 
defense against repayment of a Direct Loan to pay to the Secretary the 
amount of the loan to which the defense applies. However, the Secretary 
does not initiate such a proceeding after the period for the retention 
of records described in Sec. 685.309(c) unless the school received 
actual notice of the claim during that period.

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 60 FR 33345, June 28, 1995; 64 
FR 58972, Nov. 1, 1999; 78 FR 65832, Nov. 1, 2013]

[[Page 227]]


    Effective Date Note: At 81 FR 76080, Nov. 1, 2016, Sec. 685.206 was 
amended by revising paragraph (c), eff. July 1, 2017. At 82 FR 27621, 
June 16, 2017, the effective date was delayed indefinitely. For the 
convenience of the user, the revised text is set forth as follows:



Sec. 685.206  Borrower responsibilities and defenses.

                                * * * * *

    (c) Borrower defenses. (1) For loans first disbursed prior to July 
1, 2017, the borrower may assert a borrower defense under this 
paragraph. A ``borrower defense'' refers to any act or omission of the 
school attended by the student that relates to the making of the loan 
for enrollment at the school or the provision of educational services 
for which the loan was provided that would give rise to a cause of 
action against the school under applicable State law, and includes one 
or both of the following:
    (i) A defense to repayment of amounts owed to the Secretary on a 
Direct Loan, in whole or in part.
    (ii) A claim to recover amounts previously collected by the 
Secretary on the Direct Loan, in whole or in part.
    (2) The order of objections for defaulted Direct Loans are as 
described in Sec. 685.222(a)(6). A borrower defense claim under this 
section must be asserted, and will be resolved, under the procedures in 
Sec. 685.222(e) to (k).
    (3) For an approved borrower defense under this section, except as 
provided in paragraph (c)(4) of this section, the Secretary may initiate 
an appropriate proceeding to collect from the school whose act or 
omission resulted in the borrower defense the amount of relief arising 
from the borrower defense, within the later of--
    (i) Three years from the end of the last award year in which the 
student attended the institution; or
    (ii) The limitation period that State law would apply to an action 
by the borrower to recover on the cause of action on which the borrower 
defense is based.
    (4) The Secretary may initiate a proceeding to collect at any time 
if the institution received notice of the claim before the end of the 
later of the periods described in paragraph (c)(3) of this section. For 
purposes of this paragraph, notice includes receipt of--
    (i) Actual notice from the borrower, from a representative of the 
borrower, or from the Department;
    (ii) A class action complaint asserting relief for a class that may 
include the borrower; and
    (iii) Written notice, including a civil investigative demand or 
other written demand for information, from a Federal or State agency 
that has power to initiate an investigation into conduct of the school 
relating to specific programs, periods, or practices that may have 
affected the borrower.

                                * * * * *



Sec. 685.207  Obligation to repay.

    (a) Obligation of repayment in general. (1) A borrower is obligated 
to repay the full amount of a Direct Loan, including the principal 
balance, fees, any collection costs charged under Sec. 685.202(e), and 
any interest not subsidized by the Secretary, unless the borrower is 
relieved of the obligation to repay as provided in this part.
    (2) The borrower's repayment of a Direct Loan may also be subject to 
the deferment provisions in Sec. 685.204, the forbearance provisions in 
Sec. 685.205, the discharge provisions in Sec. 685.212, and the loan 
forgiveness provisions in Secs. 685.217 and 685.219.
    (3) A borrower's first payment on a Direct Loan is due within 60 
days of the beginning date of the repayment period as determined in 
accordance with paragraph (b), (c), (d), or (e) of this section.
    (b) Direct Subsidized Loan repayment. (1) During the period in which 
a borrower is enrolled at an eligible school on at least a half-time 
basis, the borrower is in an ``in-school'' period and is not required to 
make payments on a Direct Subsidized Loan unless--
    (i) The loan entered repayment before the in-school period began; 
and
    (ii) The borrower has not been granted a deferment under 
Sec. 685.204(b).
    (2)(i) When a borrower ceases to be enrolled at an eligible school 
on at least a half-time basis, a six-month grace period begins, unless 
the grace period has been previously exhausted.
    (ii)(A) Any borrower who is a member of a reserve component of the 
Armed Forces named in section 10101 of title 10, United States Code and 
is called or ordered to active duty for a period of more than 30 days is 
entitled to have the active duty period excluded from the six-month 
grace period. The excluded period includes the time necessary for the 
borrower to resume enrollment at the next available regular enrollment 
period. Any single excluded period may not exceed 3 years.

[[Page 228]]

    (B) Any borrower who is in a grace period when called or ordered to 
active duty as specified in paragraph (b)(2)(ii)(A) of this section is 
entitled to a full six-month grace period upon completion of the 
excluded period.
    (iii) During a grace period, the borrower is not required to make 
any principal payments on a Direct Subsidized Loan.
    (3)(i) A borrower is not obligated to pay interest on a Direct 
Subsidized Loan during periods when the borrower is enrolled at an 
eligible school on at least a half-time basis unless the borrower is 
required to make payments on the loan during those periods under 
paragraph (b)(1) of this section.
    (ii) Except as provided in paragraph (b)(3)(iii) of this section, a 
borrower is not obligated to pay interest on a Direct Subsidized Loan 
during grace periods.
    (iii) In the case of a Direct Subsidized Loan for which the first 
disbursement is made on or after July 1, 2012 and before July 1, 2014, a 
borrower is responsible for the interest that accrues during the grace 
period.
    (4) The repayment period for a Direct Subsidized Loan begins the day 
after the grace period ends. A borrower is obligated to repay the loan 
under paragraph (a) of this section during the repayment period.
    (c) Direct Unsubsidized Loan repayment. (1) During the period in 
which a borrower is enrolled at an eligible school on at least a half-
time basis, the borrower is in an ``in-school'' period and is not 
required to make payments of principal on a Direct Unsubsidized Loan 
unless--
    (i) The loan entered repayment before the in-school period began; 
and
    (ii) The borrower has not been granted a deferment under 
Sec. 685.204.
    (2)(i) When a borrower ceases to be enrolled at an eligible school 
on at least a half-time basis, a six-month grace period begins, unless 
the grace period has been previously exhausted.
    (ii)(A) Any borrower who is a member of a reserve component of the 
Armed Forces named in section 10101 of title 10, United States Code and 
is called or ordered to active duty for a period of more than 30 days is 
entitled to have the active duty period excluded from the six-month 
grace period. The excluded period includes the time necessary for the 
borrower to resume enrollment at the next available regular enrollment 
period. Any single excluded period may not exceed 3 years.
    (B) Any borrower who is in a grace period when called or ordered to 
active duty as specified in paragraph (c)(2)(ii)(A) of this section is 
entitled to a full six-month grace period upon completion of the 
excluded period.
    (iii) During a grace period, the borrower is not required to make 
any principal payments on a Direct Unsubsidized Loan.
    (3) A borrower is responsible for the interest that accrues on a 
Direct Unsubsidized Loan during in-school and grace periods. Interest 
begins to accrue on the day the first installment is disbursed. Interest 
that accrues may be capitalized or paid by the borrower.
    (4) The repayment period for a Direct Unsubsidized Loan begins the 
day after the grace period ends. A borrower is obligated to repay the 
loan under paragraph (a) of this section during the repayment period.
    (d) Direct PLUS Loan repayment. The repayment period for a Direct 
PLUS Loan begins on the day the loan is fully disbursed. Interest begins 
to accrue on the day the first installment is disbursed. A borrower is 
obligated to repay the loan under paragraph (a) of this section during 
the repayment period.
    (e) Direct Consolidation Loan repayment. (1) Except as provided in 
paragraphs (e)(2) and (e)(3) of this section, the repayment period for a 
Direct Consolidation Loan begins and interest begins to accrue on the 
day the loan is made. The borrower is obligated to repay the loan under 
paragraph (a) of this section during the repayment period.
    (2) In the case of a borrower whose consolidation application was 
received before July 1, 2006, a borrower who obtains a Direct Subsidized 
Consolidation Loan during an in-school period will be subject to the 
repayment provisions in paragraph (b) of this section.
    (3) In the case of a borrower whose consolidation application was 
received

[[Page 229]]

before July 1, 2006, a borrower who obtains a Direct Unsubsidized 
Consolidation Loan during an in-school period will be subject to the 
repayment provisions in paragraph (c) of this section.
    (f) Determining the date on which the grace period begins for a 
borrower in a correspondence program. For a borrower of a Direct 
Subsidized or Direct Unsubsidized Loan who is a correspondence student, 
the grace period specified in paragraphs (b)(2) and (c)(2) of this 
section begins on the earliest of--
    (1) The day after the borrower completes the program;
    (2) The day after withdrawal as determined pursuant to 34 CFR 
668.22; or
    (3) 60 days following the last day for completing the program as 
established by the school.

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 64 FR 58968, Nov. 1, 1999; 68 
FR 75430, Dec. 31, 2003; 71 FR 45712, Aug. 9, 2006; 78 FR 65832, Nov. 1, 
2013]



Sec. 685.208  Repayment plans.

    (a) General--(1) Borrowers who entered repayment before July 1, 
2006. (i) A Direct Subsidized Loan, a Direct Unsubsidized Loan, a Direct 
Subsidized Consolidation Loan, or a Direct Unsubsidized Consolidation 
Loan may be repaid under--
    (A) The standard repayment plan in accordance with paragraph (b) of 
this section;
    (B) The extended repayment plan in accordance with paragraph (d) of 
this section;
    (C) The graduated repayment plan in accordance with paragraph (f) of 
this section;
    (D) The income-contingent repayment plans in accordance with 
paragraph (k)(2) or (3) of this section; or
    (E) The income-based repayment plan in accordance with paragraph (m) 
of this section.
    (ii) A Direct PLUS Loan or a Direct PLUS Consolidation Loan may be 
repaid under--
    (A) The standard repayment plan in accordance with paragraph (b) of 
this section;
    (B) The extended repayment plan in accordance with paragraph (d) of 
this section; or
    (C) The graduated repayment plan in accordance with paragraph (f) of 
this section.
    (2) Borrowers entering repayment on or after July 1, 2006. (i) A 
Direct Subsidized Loan, a Direct Unsubsidized Loan, or a Direct PLUS 
Loan that was made to a graduate or professional student borrower may be 
repaid under--
    (A) The standard repayment plan in accordance with paragraph (b) of 
this section;
    (B) The extended repayment plan in accordance with paragraph (e) of 
this section;
    (C) The graduated repayment plan in accordance with paragraph (g) of 
this section;
    (D) The income-contingent repayment plans in accordance with 
paragraph (k) of this section; or
    (E) The income-based repayment plan in accordance with paragraph (m) 
of this section.
    (ii) A Direct PLUS Loan that was made to a parent borrower may be 
repaid under--
    (A) The standard repayment plan in accordance with paragraph (b) of 
this section;
    (B) The extended repayment plan in accordance with paragraph (e) of 
this section; or
    (C) The graduated repayment plan in accordance with paragraph (g) of 
this section.
    (iii) A Direct Consolidation Loan that did not repay a parent Direct 
PLUS Loan or a parent Federal PLUS Loan may be repaid under--
    (A) The standard repayment plan in accordance with paragraph (c) of 
this section;
    (B) The extended repayment plan in accordance with paragraph (e) of 
this section;
    (C) The graduated repayment plan in accordance with paragraph (h) of 
this section;
    (D) The income-contingent repayment plans in accordance with 
paragraph (k) of this section; or
    (E) The income-based repayment plan in accordance with paragraph (m) 
of this section.
    (iv) A Direct Consolidation Loan that repaid a parent Direct PLUS 
Loan or a parent Federal PLUS Loan may be repaid under--

[[Page 230]]

    (A) The standard repayment plan in accordance with paragraph (c) of 
this section;
    (B) The extended repayment plan in accordance with paragraph (e) of 
this section;
    (C) The graduated repayment plan in accordance with paragraph (h) of 
this section; or
    (D) The income-contingent repayment plan in accordance with 
paragraph (k)(2) of this section.
    (v) No scheduled payment may be less than the amount of interest 
accrued on the loan between monthly payments, except under the income-
contingent repayment plans, the income-based repayment plan, or an 
alternative repayment plan.
    (3) The Secretary may provide an alternative repayment plan in 
accordance with paragraph (l) of this section.
    (4) All Direct Loans obtained by one borrower must be repaid 
together under the same repayment plan, except that--
    (i) A borrower of a Direct PLUS Loan or a Direct Consolidation Loan 
that is not eligible for repayment under an income-contingent repayment 
plan or the income-based repayment plan may repay the Direct PLUS Loan 
or Direct Consolidation Loan separately from other Direct Loans obtained 
by the borrower; and
    (ii) A borrower of a Direct PLUS Consolidation Loan that entered 
repayment before July 1, 2006, may repay the Direct PLUS Consolidation 
Loan separately from other Direct Loans obtained by that borrower.
    (5) Except as provided in Sec. 685.209 and Sec. 685.221 for the 
income-contingent repayment plans and the income-based repayment plan, 
the repayment period for any of the repayment plans described in this 
section does not include periods of authorized deferment or forbearance.
    (b) Standard repayment plan for all Direct Subsidized Loan, Direct 
Unsubsidized Loan, and Direct PLUS Loan borrowers, regardless of when 
they entered repayment, and for Direct Consolidation Loan borrowers who 
entered repayment before July 1, 2006. (1) Under this repayment plan, a 
borrower must repay a loan in full within ten years from the date the 
loan entered repayment by making fixed monthly payments.
    (2) A borrower's payments under this repayment plan are at least $50 
per month, except that a borrower's final payment may be less than $50.
    (3) The number of payments or the fixed monthly repayment amount may 
be adjusted to reflect changes in the variable interest rate identified 
in Sec. 685.202(a).
    (c) Standard repayment plan for Direct Consolidation Loan borrowers 
entering repayment on or after July 1, 2006. (1) Under this repayment 
plan, a borrower must repay a loan in full by making fixed monthly 
payments over a repayment period that varies with the total amount of 
the borrower's student loans, as described in paragraph (j) of this 
section.
    (2) A borrower's payments under this repayment plan are at least $50 
per month, except that a borrower's final payment may be less than $50.
    (d) Extended repayment plan for all Direct Loan borrowers who 
entered repayment before July 1, 2006. (1) Under this repayment plan, a 
borrower must repay a loan in full by making fixed monthly payments 
within an extended period of time that varies with the total amount of 
the borrower's loans, as described in paragraph (i) of this section.
    (2) A borrower makes fixed monthly payments of at least $50, except 
that a borrower's final payment may be less than $50.
    (3) The number of payments or the fixed monthly repayment amount may 
be adjusted to reflect changes in the variable interest rate identified 
in Sec. 685.202(a).
    (e) Extended repayment plan for all Direct Loan borrowers entering 
repayment on or after July 1, 2006. (1) Under this repayment plan, a new 
borrower with more than $30,000 in outstanding Direct Loans accumulated 
on or after October 7, 1998 must repay either a fixed annual or 
graduated repayment amount over a period not to exceed 25 years from the 
date the loan entered repayment. For this repayment plan, a new borrower 
is defined as an individual who has no outstanding principal or interest 
balance on a Direct Loan as of October 7,

[[Page 231]]

1998, or on the date the borrower obtains a Direct Loan on or after 
October 7, 1998.
    (2) A borrower's payments under this plan are at least $50 per 
month, and will be more if necessary to repay the loan within the 
required time period.
    (3) The number of payments or the monthly repayment amount may be 
adjusted to reflect changes in the variable interest rate identified in 
Sec. 685.202(a).
    (f) Graduated repayment plan for all Direct Loan borrowers who 
entered repayment before July 1, 2006. (1) Under this repayment plan, a 
borrower must repay a loan in full by making payments at two or more 
levels within a period of time that varies with the total amount of the 
borrower's loans, as described in paragraph (i) of this section.
    (2) The number of payments or the monthly repayment amount may be 
adjusted to reflect changes in the variable interest rate identified in 
Sec. 685.202(a).
    (3) No scheduled payment under this repayment plan may be less than 
the amount of interest accrued on the loan between monthly payments, 
less than 50 percent of the payment amount that would be required under 
the standard repayment plan described in paragraph (b) of this section, 
or more than 150 percent of the payment amount that would be required 
under the standard repayment plan described in paragraph (b) of this 
section.
    (g) Graduated repayment plan for Direct Subsidized Loan, Direct 
Unsubsidized Loan, and Direct PLUS Loan borrowers entering repayment on 
or after July 1, 2006. (1) Under this repayment plan, a borrower must 
repay a loan in full by making payments at two or more levels over a 
period of time not to exceed ten years from the date the loan entered 
repayment.
    (2) The number of payments or the monthly repayment amount may be 
adjusted to reflect changes in the variable interest rate identified in 
Sec. 685.202(a).
    (3) A borrower's payments under this repayment plan may be less than 
$50 per month. No single payment under this plan will be more than three 
times greater than any other payment.
    (h) Graduated repayment plan for Direct Consolidation Loan borrowers 
entering repayment on or after July 1, 2006. (1) Under this repayment 
plan, a borrower must repay a loan in full by making monthly payments 
that gradually increase in stages over the course of a repayment period 
that varies with the total amount of the borrower's student loans, as 
described in paragraph (j) of this section.
    (2) A borrower's payments under this repayment plan may be less than 
$50 per month. No single payment under this plan will be more than three 
times greater than any other payment.
    (i) Repayment period for the extended and graduated plans described 
in paragraphs (d) and (f) of this section, respectively. Under these 
repayment plans, if the total amount of the borrower's Direct Loans is--
    (1) Less than $10,000, the borrower must repay the loans within 12 
years of entering repayment;
    (2) Greater than or equal to $10,000 but less than $20,000, the 
borrower must repay the loans within 15 years of entering repayment;
    (3) Greater than or equal to $20,000 but less than $40,000, the 
borrower must repay the loans within 20 years of entering repayment;
    (4) Greater than or equal to $40,000 but less than $60,000, the 
borrower must repay the loans within 25 years of entering repayment; and
    (5) Greater than or equal to $60,000, the borrower must repay the 
loans within 30 years of entering repayment.
    (j) Repayment period for the standard and graduated repayment plans 
described in paragraphs (c) and (h) of this section, respectively. Under 
these repayment plans, if the total amount of the Direct Consolidation 
Loan and the borrower's other student loans, as defined in 
Sec. 685.220(i), is--
    (1) Less than $7,500, the borrower must repay the Consolidation Loan 
within 10 years of entering repayment;
    (2) Equal to or greater than $7,500 but less than $10,000, the 
borrower must repay the Consolidation Loan within 12 years of entering 
repayment;
    (3) Equal to or greater than $10,000 but less than $20,000, the 
borrower must repay the Consolidation Loan within 15 years of entering 
repayment;

[[Page 232]]

    (4) Equal to or greater than $20,000 but less than $40,000, the 
borrower must repay the Consolidation Loan within 20 years of entering 
repayment;
    (5) Equal to or greater than $40,000 but less than $60,000, the 
borrower must repay the Consolidation Loan within 25 years of entering 
repayment; and
    (6) Equal to or greater than $60,000, the borrower must repay the 
Consolidation Loan within 30 years of entering repayment.
    (k) Income-contingent repayment plans. (1) Under the income-
contingent repayment plan described in Sec. 685.209(a), the required 
monthly payment for a borrower who has a partial financial hardship is 
limited to no more than 10 percent of the amount by which the borrower's 
AGI exceeds 150 percent of the poverty guideline applicable to the 
borrower's family size, divided by 12. The Secretary determines annually 
whether the borrower continues to qualify for this reduced monthly 
payment based on the amount of the borrower's eligible loans, AGI, and 
poverty guideline.
    (2) Under the income-contingent repayment plan described in 
Sec. 685.209(b), a borrower's monthly repayment amount is generally 
based on the total amount of the borrower's Direct Loans, family size, 
and AGI reported by the borrower for the most recent year for which the 
Secretary has obtained income information.
    (3) Under the income-contingent repayment plan described in 
Sec. 685.209(c), a borrower's required monthly payment is limited to no 
more than 10 percent of the amount by which the borrower's AGI exceeds 
150 percent of the poverty guideline applicable to the borrower's family 
size, divided by 12, unless the borrower's monthly payment amount is 
adjusted in accordance with Sec. 685.209(c)(4)(vi)(E).
    (4) For the income-contingent repayment plan described in 
Sec. 685.209(b), the regulations in effect at the time a borrower enters 
repayment and selects the income-contingent repayment plan or changes 
into the income-contingent repayment plan from another plan govern the 
method for determining the borrower's monthly repayment amount for all 
of the borrower's Direct Loans, unless--
    (i) The Secretary amends the regulations relating to a borrower's 
monthly repayment amount under the income-contingent repayment plan; and
    (ii) The borrower submits a written request that the amended 
regulations apply to the repayment of the borrower's Direct Loans.
    (5) Provisions governing the income-contingent repayment plans are 
in Sec. 685.209.
    (l) Alternative repayment. (1) The Secretary may provide an 
alternative repayment plan for a borrower who demonstrates to the 
Secretary's satisfaction that the terms and conditions of the repayment 
plans specified in paragraphs (b) through (h) of this section are not 
adequate to accommodate the borrower's exceptional circumstances.
    (2) The Secretary may require a borrower to provide evidence of the 
borrower's exceptional circumstances before permitting the borrower to 
repay a loan under an alternative repayment plan.
    (3) If the Secretary agrees to permit a borrower to repay a loan 
under an alternative repayment plan, the Secretary notifies the borrower 
in writing of the terms of the plan. After the borrower receives 
notification of the terms of the plan, the borrower may accept the plan 
or choose another repayment plan.
    (4) A borrower must repay a loan under an alternative repayment plan 
within 30 years of the date the loan entered repayment, not including 
periods of deferment and forbearance.
    (5) If the amount of a borrower's monthly payment under an 
alternative repayment plan is less than the accrued interest on the 
loan, the unpaid interest is capitalized until the outstanding principal 
amount is 10 percent greater than the original principal amount. After 
the outstanding principal amount is 10 percent greater than the original 
principal amount, interest continues to accrue but is not capitalized. 
For purposes of this paragraph, the original principal amount is the 
amount owed by the borrower when the borrower enters repayment.

[[Page 233]]

    (m) Income-based repayment plan. (1) Under this repayment plan, the 
required monthly payment for a borrower who has a partial financial 
hardship is limited to no more than 15 percent or, for a new borrower as 
of July 1, 2014, as defined in Sec. 685.221(a)(4), 10 percent of the 
amount by which the borrower's AGI exceeds 150 percent of the poverty 
guideline applicable to the borrower's family size, divided by 12. The 
Secretary determines annually whether the borrower continues to qualify 
for this reduced monthly payment based on the amount of the borrower's 
eligible loans, AGI, and poverty guideline.
    (2) The specific provisions governing the income-based repayment 
plan are in Sec. 685.221.

(Authority: 20 U.S.C. 1087a et seq.)

[71 FR 45712, Aug. 9, 2006, as amended at 71 FR 64400, Nov. 1, 2006; 73 
FR 63255, Oct. 23, 2008; 77 FR 66135, Nov. 1, 2012; 78 FR 65833, Nov. 1, 
2013; 80 FR 67238, Oct. 30, 2015]



Sec. 685.209  Income-contingent repayment plans.

    (a) Pay As You Earn repayment plan: The Pay As You Earn repayment 
plan is an income-contingent repayment plan for eligible new borrowers.
    (1) Definitions. As used in this section, other than as expressly 
provided for in paragraph (c) of this section--
    (i) Adjusted gross income (AGI) means the borrower's adjusted gross 
income as reported to the Internal Revenue Service. For a married 
borrower filing jointly, AGI includes both the borrower's and spouse's 
income. For a married borrower filing separately, AGI includes only the 
borrower's income;
    (ii) Eligible loan, for purposes of determining whether a borrower 
has a partial financial hardship in accordance with paragraph (a)(1)(v) 
of this section or adjusting a borrower's monthly payment amount in 
accordance with paragraph (a)(2)(ii) of this section, means any 
outstanding loan made to a borrower under the Direct Loan Program or the 
FFEL Program except for a defaulted loan, a Direct PLUS Loan or Federal 
PLUS Loan made to a parent borrower, or a Direct Consolidation Loan or 
Federal Consolidation Loan that repaid a Direct PLUS Loan or Federal 
PLUS Loan made to a parent borrower;
    (iii) Eligible new borrower means an individual who--
    (A) Has no outstanding balance on a Direct Loan Program loan or a 
FFEL Program loan as of October 1, 2007, or who has no outstanding 
balance on such a loan on the date he or she receives a new loan after 
October 1, 2007; and
    (B)(1) Receives a disbursement of a Direct Subsidized Loan, Direct 
Unsubsidized Loan, or student Direct PLUS Loan on or after October 1, 
2011; or
    (2) Receives a Direct Consolidation Loan based on an application 
received on or after October 1, 2011, except that a borrower is not 
considered an eligible new borrower if the Direct Consolidation Loan 
repays a loan that would otherwise make the borrower ineligible under 
paragraph (a)(1)(iii)(A) of this section;
    (iv) Family size means the number that is determined by counting the 
borrower, the borrower's spouse, and the borrower's children, including 
unborn children who will be born during the year the borrower certifies 
family size, if the children receive more than half their support from 
the borrower. A borrower's family size includes other individuals if, at 
the time the borrower certifies family size, the other individuals--
    (A) Live with the borrower; and
    (B) Receive more than half their support from the borrower and will 
continue to receive this support from the borrower for the year the 
borrower certifies family size. Support includes money, gifts, loans, 
housing, food, clothes, car, medical and dental care, and payment of 
college costs;
    (v) Partial financial hardship means a circumstance in which--
    (A) For an unmarried borrower or a married borrower who files an 
individual Federal tax return, the annual amount due on all of the 
borrower's eligible loans, as calculated under a standard repayment plan 
based on a 10-year repayment period, using the greater of the amount due 
at the time the borrower initially entered repayment or at the time the 
borrower elects the Pay As You Earn repayment

[[Page 234]]

plan, exceeds 10 percent of the difference between the borrower's AGI 
and 150 percent of the poverty guideline for the borrower's family size; 
or
    (B) For a married borrower who files a joint Federal tax return with 
his or her spouse, the annual amount due on all of the borrower's 
eligible loans and, if applicable, the spouse's eligible loans, as 
calculated under a standard repayment plan based on a 10-year repayment 
period, using the greater of the amount due at the time the loans 
initially entered repayment or at the time the borrower or spouse elects 
the Pay As You Earn repayment plan, exceeds 10 percent of the difference 
between the borrower's and spouse's AGI, and 150 percent of the poverty 
guideline for the borrower's family size; and
    (vi) Poverty guideline refers to the income categorized by State and 
family size in the poverty guidelines published annually by the United 
States Department of Health and Human Services pursuant to 42 U.S.C. 
9902(2). If a borrower is not a resident of a State identified in the 
poverty guidelines, the poverty guideline to be used for the borrower is 
the poverty guideline (for the relevant family size) used for the 48 
contiguous States.
    (2) Terms of the Pay As You Earn repayment plan. (i) A borrower may 
select the Pay As You Earn repayment plan only if the borrower has a 
partial financial hardship. The borrower's aggregate monthly loan 
payments are limited to no more than 10 percent of the amount by which 
the borrower's AGI exceeds 150 percent of the poverty guideline 
applicable to the borrower's family size, divided by 12.
    (ii) The Secretary adjusts the calculated monthly payment if--
    (A) Except for borrowers provided for in paragraph (a)(2)(ii)(B) of 
this section, the total amount of the borrower's eligible loans are not 
Direct Loans, in which case the Secretary determines the borrower's 
adjusted monthly payment by multiplying the calculated payment by the 
percentage of the total outstanding principal amount of the borrower's 
eligible loans that are Direct Loans;
    (B) Both the borrower and borrower's spouse have eligible loans and 
filed a joint Federal tax return, in which case the Secretary 
determines--
    (1) Each borrower's percentage of the couple's total eligible loan 
debt;
    (2) The adjusted monthly payment for each borrower by multiplying 
the calculated payment by the percentage determined in paragraph 
(a)(2)(ii)(B)(1) of this section; and
    (3) If the borrower's loans are held by multiple holders, the 
borrower's adjusted monthly Direct Loan payment by multiplying the 
payment determined in paragraph (a)(2)(ii)(B)(2) of this section by the 
percentage of the total outstanding principal amount of the borrower's 
eligible loans that are Direct Loans;
    (C) The calculated amount under paragraph (a)(2)(i), (a)(2)(ii)(A), 
or (a)(2)(ii)(B) of this section is less than $5.00, in which case the 
borrower's monthly payment is $0.00; or
    (D) The calculated amount under paragraph (a)(2)(i), (a)(2)(ii)(A), 
or (a)(2)(ii)(B) of this section is equal to or greater than $5.00 but 
less than $10.00, in which case the borrower's monthly payment is 
$10.00.
    (iii) If the borrower's monthly payment amount is not sufficient to 
pay the accrued interest on the borrower's Direct Subsidized loan or the 
subsidized portion of a Direct Consolidation Loan, the Secretary does 
not charge the borrower the remaining accrued interest for a period not 
to exceed three consecutive years from the established repayment period 
start date on that loan under the Pay As You Earn repayment plan. Any 
period during which the Secretary has previously not charged the 
borrower accrued interest on an eligible loan under the income-based 
repayment plan or the Revised Pay As You Earn repayment plan counts 
toward the maximum three years of subsidy a borrower is eligible to 
receive under the Pay As You Earn repayment plan. On a Direct 
Consolidation Loan that repays loans on which the Secretary has not 
charged the borrower accrued interest, the three-year period includes 
the period for which the Secretary did not charge the borrower accrued 
interest on the underlying loans. This three-year period does not 
include any period during

[[Page 235]]

which the borrower receives an economic hardship deferment.
    (iv)(A) Except as provided in paragraph (a)(2)(iii) of this section, 
accrued interest is capitalized--
    (1) When a borrower is determined to no longer have a partial 
financial hardship; or
    (2) At the time a borrower chooses to leave the Pay As You Earn 
repayment plan.
    (B)(1) The amount of accrued interest capitalized under paragraph 
(a)(2)(iv)(A)(1) of this section is limited to 10 percent of the 
original principal balance at the time the borrower entered repayment 
under the Pay As You Earn repayment plan.
    (2) After the amount of accrued interest reaches the limit described 
in paragraph (a)(2)(iv)(B)(1) of this section, interest continues to 
accrue, but is not capitalized while the borrower remains on the Pay As 
You Earn repayment plan.
    (v) If the borrower's monthly payment amount is not sufficient to 
pay any of the principal due, the payment of that principal is postponed 
until the borrower chooses to leave the Pay As You Earn repayment plan 
or no longer has a partial financial hardship.
    (vi) The repayment period for a borrower under the Pay As You Earn 
repayment plan may be greater than 10 years.
    (3) Payment application and prepayment. (i) The Secretary applies 
any payment made under the Pay As You Earn repayment plan in the 
following order:
    (A) Accrued interest.
    (B) Collection costs.
    (C) Late charges.
    (D) Loan principal.
    (ii) The borrower may prepay all or part of a loan at any time 
without penalty, as provided under Sec. 685.211(a)(2).
    (iii) If the prepayment amount equals or exceeds a monthly payment 
amount of $10.00 or more under the repayment schedule established for 
the loan, the Secretary applies the prepayment consistent with the 
requirements of Sec. 685.211(a)(3).
    (iv) If the prepayment amount exceeds a monthly payment amount of 
$0.00 under the repayment schedule established for the loan, the 
Secretary applies the prepayment consistent with the requirements of 
paragraph (a)(3)(i) of this section.
    (4) Changes in the payment amount. (i) If a borrower no longer has a 
partial financial hardship, the borrower may continue to make payments 
under the Pay As You Earn repayment plan, but the Secretary recalculates 
the borrower's monthly payment. The Secretary also recalculates the 
monthly payment for a borrower who chooses to stop making income-
contingent payments. In either case, as a result of the recalculation--
    (A) The maximum monthly amount that the Secretary requires the 
borrower to repay is the amount the borrower would have paid under the 
standard repayment plan based on a 10-year repayment period using the 
amount of the borrower's eligible loans that was outstanding at the time 
the borrower began repayment on the loans under the Pay As You Earn 
repayment plan; and
    (B) The borrower's repayment period based on the recalculated 
payment amount may exceed 10 years.
    (ii) A borrower who no longer wishes to repay under the Pay As You 
Earn repayment plan may change to a different repayment plan in 
accordance with Sec. 685.210(b).
    (5) Eligibility documentation, verification, and notifications. 
(i)(A) The Secretary determines whether a borrower has a partial 
financial hardship to qualify for the Pay As You Earn repayment plan for 
the year the borrower selects the plan and for each subsequent year that 
the borrower remains on the plan. To make this determination, the 
Secretary requires the borrower to provide documentation, acceptable to 
the Secretary, of the borrower's AGI.
    (B) If the borrower's AGI is not available, or if the Secretary 
believes that the borrower's reported AGI does not reasonably reflect 
the borrower's current income, the borrower must provide other 
documentation to verify income.
    (C) The borrower must annually certify the borrower's family size. 
If the borrower fails to certify family size, the Secretary assumes a 
family size of one for that year.

[[Page 236]]

    (ii) After making a determination that a borrower has a partial 
financial hardship to qualify for the Pay As You Earn repayment plan for 
the year the borrower initially elects the plan and for each subsequent 
year that the borrower has a partial financial hardship, the Secretary 
sends the borrower a written notification that provides the borrower 
with--
    (A) The borrower's scheduled monthly payment amount, as calculated 
under paragraph (a)(2) of this section, and the time period during which 
this scheduled monthly payment amount will apply (annual payment 
period);
    (B) Information about the requirement for the borrower to annually 
provide the information described in paragraph (a)(5)(i) of this 
section, if the borrower chooses to remain on the Pay As You Earn 
repayment plan after the initial year on the plan, and an explanation 
that the borrower will be notified in advance of the date by which the 
Secretary must receive this information;
    (C) An explanation of the consequences, as described in paragraphs 
(a)(5)(i)(C) and (a)(5)(vii) of this section, if the borrower does not 
provide the required information; and
    (D) Information about the borrower's option to request, at any time 
during the borrower's current annual payment period, that the Secretary 
recalculate the borrower's monthly payment amount if the borrower's 
financial circumstances have changed and the income amount that was used 
to calculate the borrower's current monthly payment no longer reflects 
the borrower's current income. If the Secretary recalculates the 
borrower's monthly payment amount based on the borrower's request, the 
Secretary sends the borrower a written notification that includes the 
information described in paragraphs (a)(5)(ii)(A) through (a)(5)(ii)(D) 
of this section.
    (iii) For each subsequent year that a borrower who currently has a 
partial financial hardship remains on the Pay As You Earn repayment 
plan, the Secretary notifies the borrower in writing of the requirements 
in paragraph (a)(5)(i) of this section no later than 60 days and no 
earlier than 90 days prior to the date specified in paragraph 
(a)(5)(iii)(A) of this section. The notification provides the borrower 
with--
    (A) The date, no earlier than 35 days before the end of the 
borrower's annual payment period, by which the Secretary must receive 
all of the documentation described in paragraph (a)(5)(i) of this 
section (annual deadline); and
    (B) The consequences if the Secretary does not receive the 
information within 10 days following the annual deadline specified in 
the notice, including the borrower's new monthly payment amount as 
determined under paragraph (a)(4)(i) of this section, the effective date 
for the recalculated monthly payment amount, and the fact that unpaid 
accrued interest will be capitalized at the end of the borrower's 
current annual payment period in accordance with paragraph (a)(2)(iv) of 
this section.
    (iv) Each time the Secretary makes a determination that a borrower 
no longer has a partial financial hardship for a subsequent year that 
the borrower wishes to remain on the plan, the Secretary sends the 
borrower a written notification that provides the borrower with--
    (A) The borrower's recalculated monthly payment amount, as 
determined in accordance with paragraph (a)(4)(i) of this section;
    (B) An explanation that unpaid interest will be capitalized in 
accordance with paragraph (a)(2)(iv) of this section; and
    (C) Information about the borrower's option to request, at any time, 
that the Secretary redetermine whether the borrower has a partial 
financial hardship, if the borrower's financial circumstances have 
changed and the income amount used to determine that the borrower no 
longer has a partial financial hardship does not reflect the borrower's 
current income, and an explanation that the borrower will be notified 
annually of this option. If the Secretary determines that the borrower 
again has a partial financial hardship, the Secretary recalculates the 
borrower's monthly payment in accordance with paragraph (a)(2)(i) of 
this section and sends the borrower a written notification that includes 
the information described in paragraphs

[[Page 237]]

(a)(5)(ii)(A) through (a)(5)(ii)(D) of this section.
    (v) For each subsequent year that a borrower who does not currently 
have a partial financial hardship remains on the Pay As You Earn 
repayment plan, the Secretary sends the borrower a written notification 
that includes the information described in paragraph (a)(5)(iv)(C) of 
this section.
    (vi) If a borrower who is currently repaying under another repayment 
plan selects the Pay As You Earn repayment plan but does not provide the 
documentation described in paragraphs (a)(5)(i)(A) or (a)(5)(i)(B) of 
this section, or if the Secretary determines that the borrower does not 
have a partial financial hardship, the borrower remains on his or her 
current repayment plan.
    (vii) The Secretary designates the repayment option described in 
paragraph (a)(4)(i) of this section if a borrower who is currently 
repaying under the Pay As You Earn repayment plan remains on the plan 
for a subsequent year but the Secretary does not receive the 
documentation described in paragraphs (a)(5)(i)(A) and (a)(5)(i)(B) of 
this section within 10 days of the specified annual deadline, unless the 
Secretary is able to determine the borrower's new monthly payment amount 
before the end of the borrower's current annual payment period.
    (viii) If the Secretary receives the documentation described in 
paragraphs (a)(5)(i)(A) and (a)(5)(i)(B) of this section within 10 days 
of the specified annual deadline--
    (A) The Secretary promptly determines the borrower's new scheduled 
monthly payment amount and maintains the borrower's current scheduled 
monthly payment amount until the new scheduled monthly payment amount is 
determined.
    (1) If the new monthly payment amount is less than the borrower's 
previously calculated Pay As You Earn repayment plan monthly payment 
amount, and the borrower made payments at the previously calculated 
amount after the end of the most recent annual payment period, the 
Secretary makes the appropriate adjustment to the borrower's account. 
Notwithstanding the requirements of Sec. 685.211(a)(3), unless the 
borrower requests otherwise, the Secretary applies the excess payment 
amounts made after the end of the most recent annual payment period in 
accordance with the requirements of Sec. 685.209(a)(3)(i).
    (2) If the new monthly payment amount is equal to or greater than 
the borrower's previously calculated Pay As You Earn repayment plan 
monthly payment amount, and the borrower made payments at the previously 
calculated payment amount after the end of the most recent annual 
payment period, the Secretary does not make any adjustment to the 
borrower's account.
    (3) Any payments that the borrower continued to make at the 
previously calculated payment amount after the end of the prior annual 
payment period and before the new monthly payment amount is calculated 
are considered to be qualifying payments for purposes of Sec. 685.219, 
provided that the payments otherwise meet the requirements described in 
Sec. 685.219(c)(1).
    (B) The new annual payment period begins on the day after the end of 
the most recent annual payment period.
    (ix)(A) If the Secretary receives the documentation described in 
paragraphs (a)(5)(i)(A) and (a)(5)(i)(B) of this section more than 10 
days after the specified annual deadline and the borrower's monthly 
payment amount is recalculated in accordance with paragraph (a)(4)(i) of 
this section, the Secretary grants forbearance with respect to payments 
that are overdue or would be due at the time the new calculated Pay As 
You Earn repayment plan monthly payment amount is determined, if the new 
monthly payment amount is $0.00 or is less than the borrower's 
previously calculated income-based monthly payment amount. Interest that 
accrues during the portion of this forbearance period that covers 
payments that are overdue after the end of the prior annual payment 
period is not capitalized.
    (B) Any payments that the borrower continued to make at the 
previously calculated payment amount after the end of the prior annual 
payment period and before the new monthly payment amount is calculated 
are considered to be qualifying payments for purposes of Sec. 685.219, 
provided that the payments

[[Page 238]]

otherwise meet the requirements described in Sec. 685.219(c)(1).
    (6) Loan forgiveness. (i) To qualify for loan forgiveness after 20 
years, a borrower must have participated in the Pay As You Earn 
repayment plan and satisfied at least one of the following conditions 
during that period:
    (A) Made reduced monthly payments under a partial financial hardship 
as provided in paragraph (a)(2)(i) or (a)(2)(ii) of this section, 
including a monthly payment amount of $0.00, as provided under paragraph 
(a)(2)(ii)(C) of this section.
    (B) Made reduced monthly payments after the borrower no longer had a 
partial financial hardship or stopped making income-contingent payments 
as provided in paragraph (a)(4)(i) of this section.
    (C) Made monthly payments under any repayment plan, that were not 
less than the amount required under the Direct Loan standard repayment 
plan described in Sec. 685.208(b) with a 10-year repayment period.
    (D) Made monthly payments under the Direct Loan standard repayment 
plan described in Sec. 685.208(b) for the amount of the borrower's loans 
that were outstanding at the time the borrower first selected the Pay As 
You Earn repayment plan.
    (E) Made monthly payments under the income-contingent repayment plan 
described in paragraph (b) of this section, the Revised Pay As You Earn 
repayment plan described in paragraph (c) of this section, or the 
income-based repayment plan described in Sec. 685.221, including a 
calculated monthly payment amount of $0.00.
    (F) Made monthly payments under the alternative repayment plan 
described in paragraph (c)(4)(v) of this section prior to changing to a 
repayment plan described under this section or Sec. 685.221;
    (G) Received an economic hardship deferment on eligible Direct 
Loans.
    (ii) As provided under paragraph (a)(6)(v) of this section, the 
Secretary cancels any outstanding balance of principal and accrued 
interest on Direct loans for which the borrower qualifies for 
forgiveness if the Secretary determines that--
    (A) The borrower made monthly payments under one or more of the 
repayment plans described in paragraph (a)(6)(i) of this section, 
including a monthly payment amount of $0.00, as provided under paragraph 
(a)(2)(ii)(C) of this section; and
    (B)(1) The borrower made those monthly payments each year for a 20-
year period; or
    (2) Through a combination of monthly payments and economic hardship 
deferments, the borrower has made the equivalent of 20 years of 
payments.
    (iii) For a borrower who qualifies for the Pay As You Earn repayment 
plan, the beginning date for the 20-year period is--
    (A) If the borrower made payments under the income-contingent 
repayment plan described in paragraph (b) of this section, the Revised 
Pay As You Earn repayment plan described in paragraph (c) of this 
section, or the income-based repayment plan described in Sec. 685.221, 
the earliest date the borrower made a payment on the loan under one of 
those plans at any time after October 1, 2007; or
    (B) If the borrower did not make payments under the income-
contingent repayment plan described in paragraph (b) of this section, 
the Revised Pay As You Earn repayment plan described in paragraph (c) of 
this section, or the income-based repayment plan described in 
Sec. 685.221--
    (1) For a borrower who has an eligible Direct Consolidation Loan, 
the date the borrower made a payment or received an economic hardship 
deferment on that loan, before the date the borrower qualified for the 
Pay As You Earn repayment plan. The beginning date is the date the 
borrower made the payment or received the deferment after October 1, 
2007;
    (2) For a borrower who has one or more other eligible Direct Loans, 
the date the borrower made a payment or received an economic hardship 
deferment on that loan. The beginning date is the date the borrower made 
that payment or received the deferment on that loan after October 1, 
2007;
    (3) For a borrower who did not make a payment or receive an economic 
hardship deferment on the loan under

[[Page 239]]

paragraph (a)(6)(iii)(B)(1) or (a)(6)(iii)(B)(2) of this section, the 
date the borrower made a payment on the loan under the Pay As You Earn 
repayment plan;
    (4) If the borrower consolidates his or her eligible loans, the date 
the borrower made a payment on the Direct Consolidation Loan that met 
the requirements of paragraph (a)(6)(i) of this section; or
    (5) If the borrower did not make a payment or receive an economic 
hardship deferment on the loan under paragraph (a)(6)(iii)(A) or 
(a)(6)(iii)(B) of this section, the date the borrower made a payment on 
the loan under the Pay As You Earn repayment plan.
    (iv) Any payments made on a defaulted loan are not made under a 
qualifying repayment plan and are not counted toward the 20-year 
forgiveness period.
    (v)(A) When the Secretary determines that a borrower has satisfied 
the loan forgiveness requirements under paragraph (a)(6) of this section 
on an eligible loan, the Secretary cancels the outstanding balance and 
accrued interest on that loan. No later than six months prior to the 
anticipated date that the borrower will meet the forgiveness 
requirements, the Secretary sends the borrower a written notice that 
includes--
    (1) An explanation that the borrower is approaching the date that he 
or she is expected to meet the requirements to receive loan forgiveness;
    (2) A reminder that the borrower must continue to make the 
borrower's scheduled monthly payments; and
    (3) General information on the current treatment of the forgiveness 
amount for tax purposes, and instructions for the borrower to contact 
the Internal Revenue Service for more information.
    (B) The Secretary determines when a borrower has met the loan 
forgiveness requirements in paragraph (a)(6) of this section and does 
not require the borrower to submit a request for loan forgiveness.
    (C) After determining that a borrower has satisfied the loan 
forgiveness requirements, the Secretary--
    (1) Notifies the borrower that the borrower's obligation on the 
loans is satisfied;
    (2) Provides the borrower with the information described in 
paragraph (a)(6)(v)(A)(3) of this section; and
    (3) Returns to the sender any payment received on a loan after loan 
forgiveness has been granted.
    (b) Income-contingent repayment plan: The income-contingent 
repayment (ICR) plan is an income-contingent repayment plan under which 
a borrower's monthly payment amount is generally based on the total 
amount of the borrower's Direct Loans, family size, and AGI.
    (1) Repayment amount calculation. (i) The amount the borrower would 
repay is based upon the borrower's Direct Loan debt when the borrower's 
first loan enters repayment, and this basis for calculation does not 
change unless the borrower obtains another Direct Loan or the borrower 
and the borrower's spouse obtain approval to repay their loans jointly 
under paragraph (b)(2)(ii) of this section. If the borrower obtains 
another Direct Loan, the amount the borrower would repay is based on the 
combined amounts of the loans when the last loan enters repayment. If 
the borrower and the borrower's spouse repay the loans jointly, the 
amount the borrowers would repay is based on both borrowers' Direct Loan 
debts at the time they enter joint repayment.
    (ii) The annual amount payable by a borrower under the ICR plan is 
the lesser of--
    (A) The amount the borrower would repay annually over 12 years using 
standard amortization multiplied by an income percentage factor that 
corresponds to the borrower's AGI as shown in the income percentage 
factor table in a notice published annually by the Secretary in the 
Federal Register; or
    (B) 20 percent of discretionary income.
    (iii)(A) For purposes of paragraph (b) of this section, 
discretionary income is defined as a borrower's AGI minus the amount of 
the poverty guideline, as defined in paragraph (b)(1)(iii)(B) of this 
section, for the borrower's family size as defined in 
Sec. 685.209(a)(1)(iv).

[[Page 240]]

    (B) For purposes of paragraph (b) of this section, the term 
``poverty guideline'' refers to the income categorized by State and 
family size in the poverty guidelines published annually by the United 
States Department of Health and Human Services pursuant to 42 U.S.C. 
9902(2). If a borrower is not a resident of a State identified in the 
poverty guidelines, the poverty line to be used for the borrower is the 
poverty guideline (for the relevant family size) used for the 48 
contiguous States.
    (iv) For exact incomes not shown in the income percentage factor 
table in the annual notice published by the Secretary, an income 
percentage factor is calculated, based upon the intervals between the 
incomes and income percentage factors shown on the table.
    (v) Each year, the Secretary recalculates the borrower's annual 
payment amount based on changes in the borrower's AGI, the variable 
interest rate, the income percentage factors in the table in the annual 
notice published by the Secretary, and updated HHS Poverty Guidelines 
(if applicable).
    (vi) If a borrower's monthly payment is calculated to be greater 
than $0 but less than or equal to $5.00, the amount payable by the 
borrower is $5.00.
    (vii) For purposes of the annual recalculation described in 
paragraph (b)(1)(v) of this section, after periods in which a borrower 
makes payments that are less than interest accrued on the loan, the 
payment amount is recalculated based upon unpaid accrued interest and 
the highest outstanding principal loan amount (including amount 
capitalized) calculated for that borrower while paying under the ICR 
plan.
    (viii) For each calendar year, the Secretary publishes in the 
Federal Register a revised income percentage factor table reflecting 
changes based on inflation. This revised table is developed by changing 
each of the dollar amounts contained in the table by a percentage equal 
to the estimated percentage changes in the Consumer Price Index (as 
determined by the Secretary) between December 1995 and the December next 
preceding the beginning of such calendar year.
    (ix) Examples of the calculation of monthly repayment amounts and 
tables that show monthly repayment amounts for borrowers at various 
income and debt levels are included in the annual notice published by 
the Secretary.
    (x) At the beginning of the repayment period under the ICR plan, the 
borrower must make monthly payments of the amount of interest that 
accrues on the borrower's Direct Loan until the Secretary calculates the 
borrower's monthly payment amount on the basis of the borrower's income.
    (2) Treatment of married borrowers. (i)(A) For a married borrower 
who files a joint Federal tax return with his or her spouse, the AGI for 
both spouses is used to calculate the monthly payment amount under the 
ICR plan.
    (B) For a married borrower who files a Federal income tax return 
separately from his or her spouse, only the borrower's AGI is used to 
determine the monthly payment amount under the ICR plan.
    (ii) Married borrowers may repay their loans jointly. The 
outstanding balances on the loans of each borrower are added together to 
determine the borrowers' payback rate under paragraph (b)(1) of this 
section.
    (iii) The amount of the payment applied to each borrower's debt is 
the proportion of the payments that equals the same proportion as that 
borrower's debt to the total outstanding balance, except that the 
payment is credited toward outstanding interest on any loan before any 
payment is credited toward principal.
    (3) Other features of the ICR plan--(i) Alternative documentation of 
income. If a borrower's AGI is not available or if, in the Secretary's 
opinion, the borrower's reported AGI does not reasonably reflect the 
borrower's current income, the Secretary may use other documentation of 
income provided by the borrower to calculate the borrower's monthly 
repayment amount.
    (ii) Adjustments to repayment obligations. The Secretary may 
determine that special circumstances, such as a loss of employment by 
the borrower or the borrower's spouse, warrant an adjustment to the 
borrower's repayment obligations.

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    (iii) Repayment period. (A) The maximum repayment period under the 
ICR plan is 25 years.
    (B) The repayment period includes--
    (1) Periods in which the borrower makes payments under the ICR plan 
on loans that are not in default;
    (2) Periods in which the borrower makes reduced monthly payments 
under the income-based repayment plan or a recalculated reduced monthly 
payment after the borrower no longer has a partial financial hardship or 
stops making income-based payments, as provided in 
Sec. 685.221(d)(1)(i);
    (3) Periods in which the borrower made monthly payments under the 
Pay As You Earn repayment plan or the Revised Pay As You Earn repayment 
plan;
    (4) Periods in which the borrower made monthly payments under the 
alternative repayment plan described in paragraph (c)(4)(v) of this 
section prior to changing to a repayment plan described under this 
section or Sec. 685.221;
    (5) Periods in which the borrower made monthly payments under the 
standard repayment plan after leaving the income-based repayment plan as 
provided in Sec. 685.221(d)(2);
    (6) Periods in which the borrower makes payments under the standard 
repayment plan described in Sec. 685.208(b);
    (7) For borrowers who entered repayment before October 1, 2007, and 
if the repayment period is not more than 12 years, periods in which the 
borrower makes monthly payments under the extended repayment plans 
described in Sec. 685.208(d) and (e), or the standard repayment plan 
described in Sec. 685.208(c);
    (8) Periods after October 1, 2007, in which the borrower makes 
monthly payments under any other repayment plan that are not less than 
the amount required under the standard repayment plan described in 
Sec. 685.208(b); or
    (9) Periods of economic hardship deferment.
    (C) If a borrower repays more than one loan under the ICR plan, a 
separate repayment period for each loan begins when that loan enters 
repayment.
    (D) If a borrower has not repaid a loan in full at the end of the 
25-year repayment period under the ICR plan, the Secretary cancels the 
outstanding balance and accrued interest on that loan. No later than six 
months prior to the anticipated date that the borrower will meet the 
forgiveness requirements, the Secretary sends the borrower a written 
notification that includes--
    (1) An explanation that the borrower is approaching the date that he 
or she is expected to meet the requirements to receive loan forgiveness;
    (2) A reminder that the borrower must continue to make the 
borrower's scheduled monthly payments; and
    (3) General information on the current treatment of the forgiveness 
amount for tax purposes, and instructions for the borrower to contact 
the Internal Revenue Service for more information.
    (E) The Secretary determines when a borrower has met the loan 
forgiveness requirements under paragraph (b)(3)(iii)(D) of this section 
and does not require the borrower to submit a request for loan 
forgiveness. After determining that a borrower has satisfied the loan 
forgiveness requirements, the Secretary--
    (1) Notifies the borrower that the borrower's obligation on the 
loans is satisfied;
    (2) Provides the information described in paragraph 
(b)(3)(iii)(D)(3) of this section; and
    (3) Returns to the sender any payment received on a loan after loan 
forgiveness has been granted.
    (iv) Limitation on capitalization of interest. If the amount of a 
borrower's monthly payment is less than the accrued interest, the unpaid 
interest is capitalized until the outstanding principal amount is 10 
percent greater than the original principal amount. After the 
outstanding principal amount is 10 percent greater than the original 
amount, interest continues to accrue but is not capitalized. For 
purposes of this paragraph, the original amount is the amount owed by 
the borrower when the borrower enters repayment.
    (v) Notification of terms and conditions. When a borrower elects or 
is required by the Secretary to repay a loan under the ICR plan, and for 
each subsequent year that the borrower remains on the plan, the 
Secretary sends the borrower a written notification that provides the

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terms and conditions of the plan, including--
    (A) The borrower's scheduled monthly payment amount as calculated 
under paragraph (b)(1) or (b)(3)(vi)(D) of this section, as applicable, 
and the time period during which this scheduled monthly payment will 
apply (annual payment period);
    (B) Information about the requirement for the borrower to annually 
provide the information described in paragraph (b)(3)(vi)(A) of this 
section, if the borrower chooses to remain on the ICR plan after the 
initial year on the plan, and an explanation that the borrower will be 
notified in advance of the date by which the Secretary must receive the 
information;
    (C) That if the borrower believes that special circumstances warrant 
an adjustment to the borrower's repayment obligations, as described in 
paragraph (b)(3)(ii) of this section, the borrower may contact the 
Secretary at any time during the borrower's current annual payment 
period and obtain the Secretary's determination as to whether an 
adjustment is appropriate; and
    (D) An explanation of the consequences, as described in paragraph 
(b)(3)(vi)(D) of this section, if the borrower does not provide the 
required information.
    (vi) Documentation of income and certification of family size. (A) 
For the initial year that a borrower selects the ICR plan and for each 
subsequent year that the borrower remains on the plan, the borrower 
must--
    (1) Provide to the Secretary, for purposes of calculating a monthly 
repayment amount and servicing and collecting the borrower's loan, 
acceptable documentation, as determined by the Secretary, of the 
borrower's AGI or alternative documentation of income in accordance with 
paragraph (b)(3)(i) of this section; and
    (2) Certify the borrower's family size. If the borrower fails to 
certify family size, the Secretary assumes a family size of one for the 
year.
    (B) For each subsequent year that a borrower remains on the ICR 
plan, the Secretary notifies the borrower in writing of the requirements 
described in paragraph (b)(3)(vi)(A) of this section no later than 60 
days and no earlier than 90 days prior to the date specified in 
paragraph (b)(3)(vi)(B)(1) of this section. The notification provides 
the borrower with--
    (1) The date, no earlier than 35 days before the end of the 
borrower's annual payment period, by which the Secretary must receive 
the documentation described in paragraph (b)(3)(vi)(A) of this section 
(annual deadline); and
    (2) The consequences if the Secretary does not receive the 
information within 10 days following the annual deadline specified in 
the notice, including the borrower's new monthly payment amount as 
determined under paragraph (b)(3)(vi)(D) of this section, and the 
effective date for the recalculated monthly payment amount.
    (C) The Secretary designates the standard repayment plan for a 
borrower who initially selects the ICR plan but does not comply with the 
requirement in paragraph (b)(3)(vi)(A)(1) of this section.
    (D) If, during a subsequent year that a borrower remains on the ICR 
plan, the Secretary does not receive the documentation described in 
paragraph (b)(3)(vi)(A)(1) of this section within 10 days of the 
specified annual deadline, the Secretary recalculates the borrower's 
required monthly payment amount, unless the Secretary is able to 
determine the borrower's new monthly payment amount before the end of 
the borrower's current annual payment period. The maximum recalculated 
monthly amount the Secretary requires the borrower to repay is the 
amount the borrower would have paid under the standard repayment plan 
based on a 10-year repayment period using the amount of the borrower's 
loans that was outstanding at the time the borrower began repayment 
under the ICR plan. The repayment period based on the recalculated 
payment may exceed 10 years.
    (E) If the Secretary receives the documentation described in 
paragraph (b)(3)(vi)(A)(1) of this section within 10 days of the 
specified annual deadline--
    (1) The Secretary promptly determines the borrower's new scheduled 
monthly payment amount and maintains the borrower's current scheduled 
monthly payment amount until the

[[Page 243]]

new scheduled monthly payment amount is determined.
    (i) If the new calculated monthly payment amount is less than the 
borrower's previously calculated monthly payment amount, and the 
borrower made payments at the previously calculated amount after the end 
of the most recent annual payment period, the Secretary makes the 
appropriate adjustment to the borrower's account. Notwithstanding 
Sec. 685.211(a)(3), the Secretary applies the excess payment amounts 
made after the end of the most recent annual payment period in 
accordance with the requirements of Sec. 685.211(a)(1), unless the 
borrower requests otherwise.
    (ii) If the new monthly payment amount is equal to or greater than 
the borrower's previously calculated monthly payment amount, and the 
borrower made payments at the previously calculated payment amount after 
the end of the most recent annual payment period, the Secretary does not 
make any adjustment to the borrower's account.
    (iii) Any payments the borrower continued to make at the previously 
calculated payment amount after the end of the prior annual payment 
period and before the new monthly payment amount is calculated are 
considered to be qualifying payments for purposes of Sec. 685.219, 
provided that the payments otherwise meet the requirements described in 
Sec. 685.219(c)(1).
    (2) The new annual payment period begins on the day after the end of 
the most recent annual payment period.
    (F)(1) If the Secretary receives the documentation described in 
paragraph (b)(3)(vi)(A)(1) of this section more than 10 days after the 
specified annual deadline and the borrower's monthly payment amount is 
recalculated in accordance with paragraph (b)(3)(vi)(D) of this section, 
the Secretary grants forbearance with respect to payments that are 
overdue or would be due at the time the new calculated monthly payment 
amount is determined, if the new monthly payment amount is $0.00 or is 
less than the borrower's previously calculated monthly payment amount. 
Interest that accrues during the portion of this forbearance period that 
covers payments that are overdue after the end of the prior annual 
payment period is not capitalized.
    (2) Any payments that the borrower continued to make at the 
previously calculated payment amount after the end of the prior annual 
payment period and before the new monthly payment amount is calculated 
are considered to be qualifying payments for purposes of Sec. 685.219, 
provided that the payments otherwise meet the requirements described in 
Sec. 685.219(c)(1).
    (G) If a borrower defaults and the Secretary designates the ICR plan 
for the borrower but the borrower fails to comply with the requirements 
in paragraph (b)(3)(vi)(A) of this section, the Secretary mails a notice 
to the borrower establishing a repayment schedule for the borrower.
    (c) Revised Pay As You Earn repayment plan. The Revised Pay As You 
Earn repayment plan (REPAYE plan) is an income-contingent repayment plan 
under which a borrower's monthly payment amount is based on the 
borrower's AGI and family size.
    (1) Definitions. As used in this paragraph (c)--
    (i) Adjusted gross income (AGI) means the borrower's adjusted gross 
income as reported to the Internal Revenue Service. For a married 
borrower filing jointly, AGI includes both the borrower's and spouse's 
income and is used to calculate the monthly payment amount. For a 
married borrower filing separately, the AGI for each spouse is combined 
to calculate the monthly payment amount, unless the borrower certifies, 
on a form approved by the Secretary, that the borrower is--
    (A) Separated from his or her spouse; or
    (B) Unable to reasonably access the income information of his or her 
spouse.
    (ii) Eligible loan, for purposes of adjusting a borrower's monthly 
payment amount in accordance with paragraph (c)(2)(ii) of this section, 
means any outstanding loan made to a borrower under the Direct Loan 
Program or the FFEL Program except for a defaulted loan, a Direct PLUS 
Loan or Federal PLUS Loan made to a parent borrower, or a Direct 
Consolidation Loan or Federal Consolidation Loan that repaid a

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Direct PLUS Loan or Federal PLUS Loan made to a parent borrower;
    (iii) Family size means the number that is determined by counting 
the borrower, the borrower's spouse, and the borrower's children, 
including unborn children who will be born during the year the borrower 
certifies family size, if the children receive more than half their 
support from the borrower. Family size does not include the borrower's 
spouse if the borrower is separated from his or her spouse, or if the 
borrower is filing separately and is unable to reasonably access the 
spouse's income information. A borrower's family size includes other 
individuals if, at the time the borrower certifies family size, the 
other individuals--
    (A) Live with the borrower; and
    (B) Receive more than half their support from the borrower and will 
continue to receive this support from the borrower for the year the 
borrower certifies family size. Support includes money, gifts, loans, 
housing, food, clothes, car, medical and dental care, and payment of 
college costs; and
    (iv) Poverty guideline refers to the income categorized by State and 
family size in the poverty guidelines published annually by the United 
States Department of Health and Human Services pursuant to 42 U.S.C. 
9902(2). If a borrower is not a resident of a State identified in the 
poverty guidelines, the poverty guideline to be used for the borrower is 
the poverty guideline (for the relevant family size) used for the 48 
contiguous States.
    (2) Terms of the Revised Pay As You Earn repayment plan. (i) The 
aggregate monthly loan payments of a borrower who selects the REPAYE 
plan are limited to no more than 10 percent of the amount by which the 
borrower's AGI exceeds 150 percent of the poverty guideline applicable 
to the borrower's family size, divided by 12, unless the borrower's 
monthly payment amount is adjusted in accordance with paragraph 
(c)(4)(vi)(E) of this section.
    (ii) The Secretary adjusts the calculated monthly payment if--
    (A) Except for borrowers provided for in paragraph (c)(2)(ii)(B) of 
this section, the borrower's eligible loans are not solely Direct Loans, 
in which case the Secretary determines the borrower's adjusted monthly 
payment by multiplying the calculated payment by the percentage of the 
total outstanding principal amount of the borrower's eligible loans that 
are Direct Loans;
    (B) Except in the case of a married borrower filing separately whose 
spouse's income is excluded in accordance with paragraph (c)(1)(i)(A) or 
(B) of this section, both the borrower and borrower's spouse have 
eligible loans, in which case the Secretary determines--
    (1) Each borrower's percentage of the couple's total eligible loan 
debt;
    (2) The adjusted monthly payment for each borrower by multiplying 
the calculated payment by the percentage determined in paragraph 
(c)(2)(ii)(B)(1) of this section; and
    (3) If the borrower's loans are held by multiple holders, the 
borrower's adjusted monthly Direct Loan payment by multiplying the 
payment determined in paragraph (c)(2)(ii)(B)(2) of this section by the 
percentage of the total outstanding principal amount of the borrower's 
eligible loans that are Direct Loans;
    (C) The calculated amount under paragraph (c)(2)(i) or (c)(2)(ii)(A) 
or (B) of this section is less than $5.00, in which case the borrower's 
monthly payment is $0.00; or
    (D) The calculated amount under paragraph (c)(2)(i) or (c)(2)(ii)(A) 
or (B) of this section is equal to or greater than $5.00 but less than 
$10.00, in which case the borrower's monthly payment is $10.00.
    (iii) If the borrower's monthly payment amount is not sufficient to 
pay the accrued interest on the borrower's loan--
    (A) Except as provided in paragraph (c)(2)(iii)(B) of this section, 
for a Direct Subsidized Loan or the subsidized portion of a Direct 
Consolidation Loan, the Secretary does not charge the borrower the 
remaining accrued interest for a period not to exceed three consecutive 
years from the established repayment period start date on that loan 
under the REPAYE plan. Following this three-year period, the Secretary 
charges the borrower 50 percent of the remaining accrued interest on the 
Direct Subsidized Loan or the subsidized portion of a Direct 
Consolidation Loan.

[[Page 245]]

    (B) For a Direct Unsubsidized Loan, a Direct PLUS Loan made to a 
graduate or professional student, the unsubsidized portion of a Direct 
Consolidation Loan, or for a Direct Subsidized Loan or the subsidized 
portion of a Direct Consolidation Loan for which the borrower has become 
responsible for accruing interest in accordance with Sec. 685.200(f)(3), 
the Secretary charges the borrower 50 percent of the remaining accrued 
interest.
    (C) The three-year period described in paragraph (c)(2)(iii)(A) of 
this section--
    (1) Does not include any period during which the borrower receives 
an economic hardship deferment;
    (2) Includes any prior period of repayment under the income-based 
repayment plan or the Pay As You Earn repayment plan; and
    (3) For a Direct Consolidation Loan, includes any period in which 
the underlying loans were repaid under the income-based repayment plan 
or the Pay As You Earn repayment plan.
    (iv) Any unpaid accrued interest is capitalized at the time a 
borrower leaves the REPAYE plan.
    (v) If the borrower's monthly payment amount is not sufficient to 
pay any of the principal due, the payment of that principal is postponed 
until the borrower leaves the REPAYE plan.
    (vi) A borrower who no longer wishes to repay under the REPAYE plan 
may change to a different repayment plan in accordance with 
Sec. 685.210(b). A borrower who changes to a different repayment plan in 
accordance with this paragraph or paragraph (c)(4)(vi)(C) of this 
section may return to the REPAYE plan pursuant to the requirements in 
paragraphs (c)(4)(vi)(D) and (E) of this section.
    (3) Payment application and prepayment. (i) The Secretary applies 
any payment made under the REPAYE plan in the following order:
    (A) Accrued interest.
    (B) Collection costs.
    (C) Late charges.
    (D) Loan principal.
    (ii) The borrower may prepay all or part of a loan at any time 
without penalty, as provided under Sec. 685.211(a)(2).
    (iii) If the prepayment amount equals or exceeds a monthly payment 
amount of $10.00 or more under the repayment schedule established for 
the loan, the Secretary applies the prepayment consistent with the 
requirements of Sec. 685.211(a)(3).
    (iv) If the prepayment amount exceeds a monthly payment amount of 
$0.00 under the repayment schedule established for the loan, the 
Secretary applies the prepayment consistent with the requirements of 
paragraph (c)(3)(i) of this section.
    (4) Eligibility documentation, verification, and notifications. 
(i)(A) For the year the borrower initially selects the REPAYE plan and 
for each subsequent year that the borrower remains on the plan, the 
Secretary determines the borrower's monthly payment amount for that 
year. To make this determination, the Secretary requires the borrower to 
provide documentation, acceptable to the Secretary, of the borrower's 
AGI.
    (B) If the borrower's AGI is not available, or if the Secretary 
believes that the borrower's reported AGI does not reasonably reflect 
the borrower's current income, the borrower must provide other 
documentation to verify income.
    (C) Unless otherwise directed by the Secretary, the borrower must 
annually certify the borrower's family size. If the borrower fails to 
certify family size, the Secretary assumes a family size of one for that 
year.
    (ii) After making the determination described in paragraph 
(c)(4)(i)(A) of this section for the initial year that the borrower 
selects the REPAYE plan and for each subsequent year that the borrower 
remains on the plan, the Secretary sends the borrower a written 
notification that provides the borrower with--
    (A) The borrower's scheduled monthly payment amount, as calculated 
under paragraph (c)(2) of this section, and the time period during which 
this scheduled monthly payment amount will apply (annual payment 
period);
    (B) Information about the requirement for the borrower to annually 
provide the information described in paragraph (c)(4)(i) of this 
section, if the borrower chooses to remain on the REPAYE plan after the 
initial year on the plan, and an explanation that the

[[Page 246]]

borrower will be notified in advance of the date by which the Secretary 
must receive this information;
    (C) An explanation of the consequences, as described in paragraphs 
(c)(4)(i)(C) and (c)(4)(v) and (vi) of this section, if the borrower 
does not provide the required information; and
    (D) Information about the borrower's option to request, at any time 
during the borrower's current annual payment period, that the Secretary 
recalculate the borrower's monthly payment amount if the borrower's 
financial circumstances have changed and the income amount that was used 
to calculate the borrower's current monthly payment no longer reflects 
the borrower's current income. If the Secretary recalculates the 
borrower's monthly payment amount based on the borrower's request, the 
Secretary sends the borrower a written notification that includes the 
information described in paragraphs (c)(4)(ii)(A) through (D) of this 
section.
    (iii) For each subsequent year that a borrower remains on the REPAYE 
plan, the Secretary notifies the borrower in writing of the requirements 
in paragraph (c)(4)(i) of this section no later than 60 days and no 
earlier than 90 days prior to the date specified in paragraph 
(c)(4)(iii)(A) of this section. The notification provides the borrower 
with--
    (A) The date, no earlier than 35 days before the end of the 
borrower's annual payment period, by which the Secretary must receive 
all of the documentation described in paragraph (c)(4)(i) of this 
section (annual deadline); and
    (B) The consequences if the Secretary does not receive the 
information within 10 days following the annual deadline specified in 
the notice, as described in paragraphs (c)(2)(iv) and (c)(4)(v) of this 
section.
    (iv) If a borrower who is currently repaying under another repayment 
plan selects the REPAYE plan but does not provide the documentation 
described in paragraph (c)(4)(i)(A) or (B) of this section, the borrower 
remains on his or her current repayment plan.
    (v) Except as provided in paragraph (c)(4)(vii) of this section, if 
a borrower who is currently repaying under the REPAYE plan remains on 
the plan for a subsequent year but the Secretary does not receive the 
documentation described in paragraph (c)(4)(i)(A) or (B) of this section 
within 10 days of the specified annual deadline, the Secretary removes 
the borrower from the REPAYE plan and places the borrower on an 
alternative repayment plan under which the borrower's required monthly 
payment is the amount necessary to repay the borrower's loan in full 
within the earlier of--
    (A) Ten years from the date the borrower begins repayment under the 
alternative repayment plan; or
    (B) The ending date of the 20- or 25-year period as described in 
paragraphs (c)(5)(i) and (ii) of this section.
    (vi) If the Secretary places the borrower on an alternative 
repayment plan in accordance with paragraph (c)(4)(v) of this section, 
the Secretary sends the borrower a written notification containing the 
borrower's new monthly payment amount and informing the borrower that--
    (A) The borrower has been placed on an alternative repayment plan;
    (B) The borrower's monthly payment amount has been recalculated in 
accordance with paragraph (c)(4)(v) of this section;
    (C) The borrower may change to another repayment plan in accordance 
with Sec. 685.210(b);
    (D) The borrower may return to the REPAYE plan if he or she provides 
the documentation, as described in paragraph (c)(4)(i)(A) or (B) of this 
section, necessary for the Secretary to calculate the borrower's current 
REPAYE plan monthly payment amount and the monthly amount the borrower 
would have been required to pay under the REPAYE plan during the period 
when the borrower was on the alternative repayment plan or any other 
repayment plan;
    (E) If the Secretary determines that the total amount of the 
payments the borrower was required to make while on the alternative 
repayment plan or any other repayment plan is less than the total amount 
the borrower would have been required to make under the REPAYE plan 
during that period, the Secretary will adjust the borrower's monthly 
REPAYE plan payment

[[Page 247]]

amount to ensure that the difference between the two amounts is paid in 
full by the end of the 20- or 25-year period described in paragraphs 
(c)(5)(i) and (ii) of this section;
    (F) If the borrower returns to the REPAYE plan or changes to the Pay 
As You Earn repayment plan described in paragraph (a) of this section, 
the income-contingent repayment plan described in paragraph (b) of this 
section, or the income-based repayment plan described in Sec. 685.221, 
any payments that the borrower made under the alternative repayment plan 
after the borrower was removed from the REPAYE plan will count toward 
forgiveness under the REPAYE plan or the other repayment plans under 
paragraph (a) or (b) of this section or Sec. 685.221; and
    (G) Payments made under the alternative repayment plan described in 
paragraph (c)(4)(v) of this section will not count toward public service 
loan forgiveness under Sec. 685.219.
    (vii) The Secretary does not take the action described in paragraph 
(c)(4)(v) of this section if the Secretary receives the documentation 
described in paragraph (c)(4)(i)(A) or (B) of this section more than 10 
days after the specified annual deadline, but is able to determine the 
borrower's new monthly payment amount before the end of the borrower's 
current annual payment period.
    (viii) If the Secretary receives the documentation described in 
paragraph (c)(4)(i)(A) or (B) of this section within 10 days of the 
specified annual deadline--
    (A) The Secretary promptly determines the borrower's new scheduled 
monthly payment amount and maintains the borrower's current scheduled 
monthly payment amount until the new scheduled monthly payment amount is 
determined.
    (1) If the new monthly payment amount is less than the borrower's 
previously calculated REPAYE plan monthly payment amount, and the 
borrower made payments at the previously calculated amount after the end 
of the most recent annual payment period, the Secretary makes the 
appropriate adjustment to the borrower's account. Notwithstanding the 
requirements of Sec. 685.211(a)(3), unless the borrower requests 
otherwise, the Secretary applies the excess payment amounts made after 
the end of the most recent annual payment period in accordance with the 
requirements of paragraph (c)(3)(i) of this section.
    (2) If the new monthly payment amount is equal to or greater than 
the borrower's previously calculated REPAYE plan monthly payment amount, 
and the borrower made payments at the previously calculated payment 
amount after the end of the most recent annual payment period, the 
Secretary does not make any adjustment to the borrower's account.
    (3) Any payments that the borrower continued to make at the 
previously calculated payment amount after the end of the prior annual 
payment period and before the new monthly payment amount is calculated 
are considered to be qualifying payments for purposes of Sec. 685.219, 
provided that the payments otherwise meet the requirements described in 
Sec. 685.219(c)(1).
    (B) The new annual payment period begins on the day after the end of 
the most recent annual payment period.
    (5) Loan forgiveness. (i) A borrower who meets the requirements 
specified in paragraph (c)(5)(iii) of this section may qualify for loan 
forgiveness after 20 or 25 years, as determined in accordance with 
paragraph (c)(5)(ii) of this section.
    (ii)(A) A borrower whose loans being repaid under the REPAYE plan 
include only loans the borrower received as an undergraduate student or 
a consolidation loan that repaid only loans the borrower received as an 
undergraduate student may qualify for forgiveness after 20 years.
    (B) A borrower whose loans being repaid under the REPAYE plan 
include a loan the borrower received as a graduate or professional 
student or a consolidation loan that repaid a loan received as a 
graduate or professional student may qualify for forgiveness after 25 
years.
    (iii) The Secretary cancels any remaining outstanding balance of 
principal and accrued interest on a borrower's Direct Loans that are 
being repaid under the REPAYE plan after--

[[Page 248]]

    (A) The borrower has made the equivalent of 240 or 300, as 
applicable, qualifying monthly payments as defined in paragraph 
(c)(5)(iv) of this section; and
    (B) Twenty or 25 years, as applicable, have elapsed, beginning on 
the date determined in accordance with paragraph (c)(5)(v) of this 
section.
    (iv) For the purpose of paragraph (c)(5)(iii)(A) of this section, a 
qualifying monthly payment is--
    (A) A monthly payment under the REPAYE plan, including a monthly 
payment amount of $0.00, as provided under paragraph (c)(2)(ii)(C) of 
this section;
    (B) A monthly payment under the Pay As You Earn repayment plan 
described in paragraph (a) of this section, the income-contingent 
repayment plan described in paragraph (b) of this section, or the 
income-based repayment plan described in Sec. 685.221, including a 
monthly payment amount of $0.00;
    (C) A monthly payment made under--
    (1) The Direct Loan standard repayment plan described in 
Sec. 685.208(b);
    (2) The alternative repayment plan described in paragraphs (c)(4)(v) 
of this section prior to changing to a repayment plan described in 
paragraph (a), (b), or (c) of this section or Sec. 685.221;
    (3) Any other Direct Loan repayment plan, if the amount of the 
payment was not less than the amount required under the Direct Loan 
standard repayment plan described in Sec. 685.208(b); or
    (D) A month during which the borrower was not required to make a 
payment due to receiving an economic hardship deferment on his or her 
eligible Direct Loans.
    (v) For a borrower who makes payments under the REPAYE plan, the 
beginning date for the 20-year or 25-year repayment period is--
    (A) If the borrower made payments under the Pay As You Earn 
repayment plan described in paragraph (a) of this section, the income-
contingent repayment plan described in paragraph (b) of this section, or 
the income-based repayment plan described in Sec. 685.221, the earliest 
date the borrower made a payment on the loan under one of those plans; 
or
    (B) If the borrower did not make payments under the Pay As You Earn 
repayment plan described in paragraph (a) of this section, the income-
contingent repayment plan described in paragraph (b) of this section, or 
the income-based repayment plan described in Sec. 685.221--
    (1) For a borrower who has an eligible Direct Consolidation Loan, 
the date the borrower made a qualifying monthly payment on the 
consolidation loan, before the date the borrower began repayment under 
the REPAYE plan;
    (2) For a borrower who has one or more other eligible Direct Loans, 
the date the borrower made a qualifying monthly payment on that loan, 
before the date the borrower began repayment under the REPAYE plan;
    (3) For a borrower who did not make a qualifying monthly payment on 
the loan under paragraph (c)(5)(v)(B)(1) or (2) of this section, the 
date the borrower made a payment on the loan under the REPAYE plan;
    (4) If the borrower consolidates his or her eligible loans, the date 
the borrower made a qualifying monthly payment on the Direct 
Consolidation Loan; or
    (5) If the borrower did not make a qualifying monthly payment on the 
loan under paragraph (c)(5)(v)(A) or (B) of this section, the date the 
borrower made a payment on the loan under the REPAYE plan.
    (vi) Any payments made on a defaulted loan are not qualifying 
monthly payments and are not counted toward the 20-year or 25-year 
forgiveness period.
    (vii)(A) When the Secretary determines that a borrower has satisfied 
the loan forgiveness requirements under paragraph (c)(5) of this section 
on an eligible loan, the Secretary cancels the outstanding balance and 
accrued interest on that loan. No later than six months prior to the 
anticipated date that the borrower will meet the forgiveness 
requirements, the Secretary sends the borrower a written notice that 
includes--
    (1) An explanation that the borrower is approaching the date that he 
or she is expected to meet the requirements to receive loan forgiveness;
    (2) A reminder that the borrower must continue to make the 
borrower's scheduled monthly payments; and

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    (3) General information on the current treatment of the forgiveness 
amount for tax purposes, and instructions for the borrower to contact 
the Internal Revenue Service for more information.
    (B) The Secretary determines when a borrower has met the loan 
forgiveness requirements in paragraph (c)(5) of this section and does 
not require the borrower to submit a request for loan forgiveness.
    (C) After determining that a borrower has satisfied the loan 
forgiveness requirements, the Secretary--
    (1) Notifies the borrower that the borrower's obligation on the 
loans is satisfied;
    (2) Provides the borrower with the information described in 
paragraph (c)(5)(vii)(A)(3) of this section; and
    (3) Returns to the sender any payment received on a loan after loan 
forgiveness has been granted.

(Approved by the Office of Management and Budget under control number 
1845-0021)


(Authority: 20 U.S.C. 1087a et seq.)

[77 FR 66136, Nov. 1, 2012, as amended at 80 FR 67238, Oct. 30, 2015; 81 
FR 76081, Nov. 1, 2016]



Sec. 685.210  Choice of repayment plan.

    (a) Initial selection of a repayment plan. (1) Before a Direct Loan 
enters into repayment, the Secretary provides the borrower a description 
of the available repayment plans and requests the borrower to select 
one. A borrower may select a repayment plan before the loan enters 
repayment by notifying the Secretary of the borrower's selection in 
writing.
    (2) If a borrower does not select a repayment plan, the Secretary 
designates the standard repayment plan described in Sec. 685.208(b) or 
(c) for the borrower, as applicable.
    (b) Changing repayment plans. (1) A borrower may change repayment 
plans at any time after the loan has entered repayment by notifying the 
Secretary. However, a borrower who is repaying a defaulted loan under an 
income-contingent repayment plan or the income-based repayment plan in 
accordance with Sec. 685.211(d)(3)(ii), or who is repaying a Direct 
Consolidation Loan under the income-contingent repayment plan or the 
income-based repayment plan in accordance with 
Sec. 685.220(d)(1)(ii)(A)(3) may not change to another repayment plan 
unless--
    (i) The borrower was required to and did make a payment under the 
income-contingent repayment plan or income-based repayment plan in each 
of the prior three months; or
    (ii) The borrower was not required to make payments but made three 
reasonable and affordable payments in each of the prior three months; 
and
    (iii) The borrower makes and the Secretary approves a request to 
change plans.
    (2)(i) A borrower may not change to a repayment plan that has a 
maximum repayment period of less than the number of years the loan has 
already been in repayment, except that a borrower may change to either 
the income-contingent or income-based repayment plan at any time.
    (ii) If a borrower changes repayment plans, the repayment period is 
the period provided under the borrower's new repayment plan, calculated 
from the date the loan initially entered repayment. However, if a 
borrower changes to the income-contingent repayment plan under 
Sec. 685.209(a), the income-contingent repayment plan under 
Sec. 685.209(b), the income-contingent repayment plan under 
Sec. 685.209(c), or the income-based repayment plan under Sec. 685.221, 
the repayment period is calculated as described in 
Sec. 685.209(a)(6)(iii), Sec. 685.209(b)(3)(iii), Sec. 685.209(c)(5)(v), 
or Sec. 685.221(f)(3), respectively.

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 65 FR 65629, Nov. 1, 2000; 68 
FR 75430, Dec. 31, 2003; 73 FR 63256, Oct. 23, 2008; 77 FR 66142, Nov. 
1, 2012; 78 FR 65833, Nov. 1, 2013; 80 FR 67242, Oct. 30, 2015]



Sec. 685.211  Miscellaneous repayment provisions.

    (a) Payment application and prepayment. (1) Except as provided for 
the income-contingent repayment plan under Sec. 685.209(a)(3) or the 
income-based repayment plan under Sec. 685.221(c)(1), the Secretary 
applies any payment first to any accrued charges and collection costs, 
then to any outstanding interest, and then to outstanding principal.

[[Page 250]]

    (2) A borrower may prepay all or part of a loan at any time without 
penalty. If a borrower pays any amount in excess of the amount due, the 
excess amount is a prepayment.
    (3) If a prepayment equals or exceeds the monthly repayment amount 
under the borrower's repayment plan, the Secretary--
    (i) Applies the prepaid amount according to paragraph (a)(1) of this 
section;
    (ii) Advances the due date of the next payment unless the borrower 
requests otherwise; and
    (iii) Notifies the borrower of any revised due date for the next 
payment.
    (4) If a prepayment is less than the monthly repayment amount, the 
Secretary applies the prepayment according to paragraph (a)(1) of this 
section.
    (b) Repayment incentives. To encourage on-time repayment, the 
Secretary may reduce the interest rate for a borrower who repays a loan 
under a system or on a schedule that meets requirements specified by the 
Secretary.
    (c) Refunds and returns of title IV, HEA program funds from schools. 
The Secretary applies any refund or return of title IV, HEA program 
funds that the Secretary receives from a school under Sec. 668.22 
against the borrower's outstanding principal and notifies the borrower 
of the refund or return.
    (d) Default--(1) Acceleration. If a borrower defaults on a Direct 
Loan, the entire unpaid balance and accrued interest are immediately due 
and payable.
    (2) Collection charges. If a borrower defaults on a Direct Loan, the 
Secretary assesses collection charges in accordance with 
Sec. 685.202(e).
    (3) Collection of a defaulted loan. (i) The Secretary may take any 
action authorized by law to collect a defaulted Direct Loan including, 
but not limited to, filing a lawsuit against the borrower, reporting the 
default to nationwide consumer reporting agencies, requesting the 
Internal Revenue Service to offset the borrower's Federal income tax 
refund, and garnishing the borrower's wages.
    (ii) If a borrower defaults on a Direct Subsidized Loan, a Direct 
Unsubsidized Loan, a Direct Consolidation Loan, or a student Direct PLUS 
Loan, the Secretary may designate the income-contingent repayment plan 
or the income-based repayment plan for the borrower.
    (e) Ineligible borrowers. (1) The Secretary determines that a 
borrower is ineligible if, at the time the loan was made and without the 
school's or the Secretary's knowledge, the borrower (or the student on 
whose behalf a parent borrowed) provided false or erroneous information, 
has been convicted of, or has pled nolo contendere or guilty to, a crime 
involving fraud in obtaining title IV, HEA program funds, or took 
actions that caused the borrower or student--
    (i) To receive a loan for which the borrower is wholly or partially 
ineligible;
    (ii) To receive interest benefits for which the borrower was 
ineligible; or
    (iii) To receive loan proceeds for a period of enrollment for which 
the borrower was not eligible.
    (2) If the Secretary makes the determination described in paragraph 
(e)(1) of this section, the Secretary sends an ineligible borrower a 
demand letter that requires the borrower to repay some or all of a loan, 
as appropriate. The demand letter requires that within 30 days from the 
date the letter is mailed, the borrower repay any principal amount for 
which the borrower is ineligible and any accrued interest, including 
interest subsidized by the Secretary, through the previous quarter.
    (3) If a borrower fails to comply with the demand letter described 
in paragraph (e)(2) of this section, the borrower is in default on the 
entire loan.
    (4) A borrower may not consolidate a loan under Sec. 685.220 for 
which the borrower is wholly or partially ineligible.
    (f) Rehabilitation of defaulted loans. (1) A defaulted Direct Loan, 
except for a loan on which a judgment has been obtained, is 
rehabilitated if the borrower makes 9 voluntary, reasonable and 
affordable monthly payments within 20 days of the due date during 10 
consecutive months. The Secretary determines the amount of a borrower's 
reasonable and affordable payment on the basis of a borrower's total 
financial circumstances.
    (i) The Secretary initially considers the borrower's reasonable and 
affordable payment amount to be an amount

[[Page 251]]

equal to 15 percent of the amount by which the borrower's AGI exceeds 
150 percent of the poverty guideline amount applicable to the borrower's 
family size and State, divided by 12, except that if this amount is less 
than $5, the borrower's monthly rehabilitation payment is $5.
    (ii) The Secretary may calculate the payment amount based on 
information provided orally by the borrower or the borrower's 
representative and provide the borrower with a rehabilitation agreement 
using that amount. The Secretary requires the borrower to provide 
documentation to confirm the borrower's AGI and family size. If the 
borrower does not provide the Secretary with any documentation requested 
by the Secretary to calculate or confirm the reasonable and affordable 
payment amount within a reasonable time deadline set by the Secretary, 
the rehabilitation agreement provided is null and void.
    (iii) A reasonable and affordable payment amount is not--
    (A) A required minimum loan payment amount (e.g., $50) if the 
Secretary determines that a smaller amount is reasonable and affordable;
    (B) A percentage of the borrower's total loan balance; or
    (C) Based on other criteria unrelated to the borrower's total 
financial circumstances.
    (iv) Within 15 business days of the Secretary's determination of the 
borrower's loan rehabilitation payment amount, the Secretary provides 
the borrower with a written rehabilitation agreement which includes the 
borrower's reasonable and affordable payment amount, a prominent 
statement that the borrower may object orally or in writing to the 
reasonable and affordable payment amount with the method and timeframe 
for raising such an objection, a statement that the rehabilitation is 
null and void if the borrower does not provide the documentation 
required to calculate the reasonable and affordable payment amount, and 
an explanation of any other terms and conditions applicable to the 
required series of payments that must be made. To accept the agreement, 
the borrower must sign and return the agreement or accept the agreement 
electronically under a process provided by the Secretary. The Secretary 
does not impose any other conditions unrelated to the amount or timing 
of the rehabilitation payments in the rehabilitation agreement. The 
written rehabilitation agreement informs the borrower of the effects of 
having the loans rehabilitated (e.g., removal of the record of default 
from the borrower's credit history and return to normal repayment).
    (2) The Secretary provides the borrower with a written statement 
confirming the borrower's reasonable and affordable payment amount, as 
determined by the Secretary, and explaining any other terms and 
conditions applicable to the required series of payments that must be 
made before the borrower's account can be rehabilitated. The statement 
informs the borrower that the borrower may object to the terms and 
conditions of the rehabilitation agreement, and explains the method and 
timeframe for objecting to the terms and conditions of the 
rehabilitation agreement.
    (3) If the borrower objects to the monthly payment amount determined 
under paragraph (f)(1) of this section, the Secretary recalculates the 
payment based solely on information provided on a form approved by the 
Secretary and, if requested, supporting documentation from the borrower 
and other sources, and considers--
    (i) The borrower's, and if applicable, the spouse's current 
disposable income, including public assistance payments, and other 
income received by the borrower and the spouse, such as welfare 
benefits, Social Security benefits, Supplemental Security Income, and 
workers' compensation. Spousal income is not considered if the spouse 
does not contribute to the borrower's household income;
    (ii) Family size as defined in Sec. 685.221(a)(3); and
    (iii) Reasonable and necessary expenses, which include--
    (A) Food;
    (B) Housing;
    (C) Utilities;
    (D) Basic communication expenses;
    (E) Necessary medical and dental costs;
    (F) Necessary insurance costs;
    (G) Transportation costs;

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    (H) Dependent care and other work-related expenses;
    (I) Legally required child and spousal support;
    (J) Other title IV and non-title IV student loan payments; and
    (K) Other expenses approved by the Secretary.
    (4) The Secretary provides the borrower with a new written 
rehabilitation agreement confirming the borrower's recalculated 
reasonable and affordable payment amount. To accept the agreement, the 
borrower must sign and return the agreement or accept the agreement 
electronically under a process provided by the Secretary.
    (5) The Secretary includes any payment made under paragraph (1) of 
the definition of ``satisfactory repayment arrangement'' in 
Sec. 685.102(b) in determining whether the 9 out of 10 payments required 
under paragraph (f)(1) of this section have been made.
    (6) A borrower may request that the monthly payment amount be 
adjusted due to a change in the borrower's total financial circumstances 
only upon providing the documentation specified in paragraph (f)(3) of 
this section.
    (7) During the rehabilitation period, the Secretary limits contact 
with the borrower on the loan being rehabilitated to collection 
activities that are required by law or regulation and to communications 
that support the rehabilitation.
    (8) If a defaulted loan is rehabilitated, the Secretary instructs 
any consumer reporting agency to which the default was reported to 
remove the default from the borrower's credit history.
    (9) A defaulted Direct Loan on which a judgment has been obtained 
may not be rehabilitated.
    (10) A Direct Loan obtained by fraud for which the borrower has been 
convicted of, or has pl