[Federal Register Volume 59, Number 229 (Wednesday, November 30, 1994)] [Unknown Section] [Page 0] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 94-29263] [[Page Unknown]] [Federal Register: November 30, 1994] _______________________________________________________________________ Part IV Department of Education _______________________________________________________________________ 34 CFR Part 682 Federal Family Education Loan Program; Final Rule DEPARTMENT OF EDUCATION 34 CFR Part 682 RIN 1840-AC09 Federal Family Education Loan Program AGENCY: Department of Education. ACTION: Final Regulations. ----------------------------------------------------------------------- SUMMARY: The Secretary amends the Federal Family Education Loan (FFEL) Program regulations. The FFEL Program consists of the Federal Stafford, Federal Supplemental Loans for Students (SLS), Federal PLUS, and the Federal Consolidation Loan Programs. These amendments are needed to implement certain changes made to the Higher Education Act of 1965, as amended (HEA), by the Omnibus Budget Reconciliation Act of 1993 (OBRA), enacted August 10, 1993, and by the Higher Education Technical Amendments of 1993, enacted December 20, 1993. These regulations also amend the FFEL Program regulations to permit a lender to issue a ``master check'' to an institution for purposes of disbursing Federal Stafford loan proceeds to an institution, to prohibit a subsequent holder of a loan to bill the Secretary for any applicable interest benefits or special allowance on a loan for which origination fees have not been paid, and to limit the collection charges that may be assessed a borrower with a defaulted loan that is paid off through loan consolidation. These regulations also clarify a change made to the HEA by the Improving America's Schools Act of 1994 (Pub. L. 103-382). EFFECTIVE DATE: These regulations take effect July 1, 1995. However, affected parties do not have to comply with the information collection requirements in Secs. 682.305, 682.401, 682.404, and 682.603 until the Department of Education publishes in the Federal Register the control number assigned by the Office of Management and Budget (OMB) to these information collection requirements. Publication of the control number notifies the public that OMB has approved these information collection requirements under the Paperwork Reduction Act of 1980. FOR FURTHER INFORMATION CONTACT: Mr. Douglas D. Laine, Program Specialist, Federal Family Education Loan Program Section, Loans Branch, U.S. Department of Education, 600 Independence Avenue, SW., room 4310, Regional Office Building 3, Washington, DC 20202-5343, telephone: (202) 708-8242. Individuals who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1-800-877-8339 between 8 a.m. and 8 p.m., Eastern time, Monday through Friday. SUPPLEMENTARY INFORMATION: Background The FFEL Program regulations (34 CFR Part 682) govern the Federal Stafford Loan Program, the Federal Unsubsidized Stafford Loan Program, the Federal SLS Program, the Federal PLUS Program, and the Federal Consolidation Loan Program (formerly the Guaranteed Student Loan programs). The Secretary is amending 34 CFR Part 682 to implement changes made to the HEA by the Omnibus Budget Reconciliation Act of 1993 (OBRA) (Pub. L. 103-66) and the Higher Education Technical Amendments of 1993 (the Technical Amendments) (Pub. L. 103-208). These amendments reflect changes made to the HEA by OBRA, such as the payment of lender referral fees to guaranty agencies, the reduction of the reinsurance coverage and reinsurance rates for a guaranty agency's losses on default claims and the reduction of insurance coverage a guaranty agency may pay on default claims. These amendments also reflect changes to the HEA made by the Technical Amendments, such as a lender's obligation to rebate excess interest on certain Federal Stafford loans to either the borrower or the Secretary and require lenders to convert the interest rates on certain Federal Stafford loans to a variable interest rate. These amendments also permit a lender to disburse Federal Stafford loan proceeds to a school via a master check, prohibit a subsequent holder of a loan to bill the Secretary for any applicable interest benefits or special allowance on a loan for which origination fees have not been paid, and limit the collection charges that may be assessed a borrower with a defaulted loan that is paid off through loan consolidation. These amendments also exclude loans made under a guaranty agency's lender-of-last-resort program from the guaranty agency's reinsurance percentage determined under Sec. 682.404. On October 13, 1994, the Secretary published a notice of proposed rulemaking (NPRM) for the FFEL Program in the Federal Register (59 FR 52038). The NPRM included a discussion of the issues surrounding the proposed changes which will not be repeated here. The following list summarizes those issues and identifies the pages of the preamble to the NPRM on which a discussion may be found:Returning excess interest to certain Stafford loan borrowers or the Secretary and converting the interest rate on certain Federal Stafford loans to a variable interest rate (page 52038); Disbursement of a Federal Stafford loan via a master check (page 52038); The obligation of an originating lender to pay origination fees to the Secretary (page 52039); Payment of a lender referral fee to each guaranty agency with whom the Secretary has a lender referral agreement in an amount equal to 0.5 percent of the principal amount of a loan made as a result of the agency's referral services (page 52039); The limitation of a guaranty agency to paying 98 percent of the unpaid principal balance of each loan on default claims on loans disbursed on or after October 1, 1993 (page 52039); The limitation of collection charges and late fees a guaranty agency may guarantee when a defaulted loan is consolidated (page 52039); and The rates at which the Secretary will reinsure a guaranty agency's default claims (page 52039). Substantive Revisions to the Notice of Proposed Rulemaking The Secretary has decided not to issue proposed section 682.418 which would implement section 428(n) of the HEA (State Share of Default Costs). As discussed below, the Secretary has determined that further consideration of the regulations is necessary. The final regulations have been revised to clarify that a borrower's loan proceeds disbursed via a master check are treated, for operational purposes, the same way as loan proceeds are treated that are disbursed via electronic funds transfer. These technical changes are reflected throughout the regulations. The final regulations have been revised to provide that a loan made under a guaranty agency's lender-of-last-resort program are not included in the guaranty agency's reinsurance rate determined under Sec. 682.404. Analysis of Comments and Changes In response to the Secretary's invitation in the NPRM, 129 parties submitted comments on the proposed regulations. An analysis of the comments and changes made to the regulations that differ from the NPRM follows. Major issues are grouped according to subject, with the reference to the appropriate sections of the regulations. Other substantive issues are discussed under the section of the regulations to which they pertain. Technical and other minor changes, and suggested changes the Secretary is not legally authorized to make under the applicable statutory authority are generally not addressed. General Comments: Some commenters noted that the proposed regulations did not reflect other changes made to the HEA as a result of OBRA and the Technical Amendments. The commenters expressed concern that the Department's decision not to reflect these statutory changes in the regulations would result in a delay in their implementation under the master calendar provisions of the HEA. Discussion: The Secretary agrees that the statutory changes noted by the commenters should be incorporated into the FFEL regulations and is preparing a regulations package of technical corrections and self- implementing changes that the Department plans to publish shortly. As self-implementing provisions of the statute, these requirements are currently in effect. Changes: None. Comments: Many commenters asked the Secretary not to implement proposed section 682.418, which would implement the requirement in section 428(n) of the HEA, which requires States to pay a share of the costs of defaults in the FFEL Program. Many of the commenters raised concerns or questions about a number of the proposed regulatory provisions. In addition, some commenters informed the Secretary that the implementation of this rule in fiscal year 1995 would not give the States enough time to appropriate money to pay their fees and to enact laws under which they could pass a portion of their fees on to schools. Further, the commenters argued that the States would not be able to develop any criteria for exceptional mitigating circumstances that could be approved by the Secretary before the fee is due to the Secretary. In addition, many commenters argued that the formula prescribed by section 428(n) of the HEA would impose undue penalties on States and schools. Discussion: Based on the comments received in response to the NPRM, the Secretary has determined that more time is needed to review and address the concerns raised by the commenters regarding implementation of section 428(n) of the HEA. Therefore, the Secretary has decided not to issue regulations implementing that provision at this time. The Secretary will further evaluate the statutory requirements and pursue further rulemaking during 1995 to implement section 428(n) of the HEA for fiscal year 1996. Moreover, the Secretary will exercise his authority under section 432(a)(5) and (6) of the HEA to waive any fee a State would be responsible to pay under section 428(n) of the HEA for fiscal year 1995. Changes: The Secretary has decided that more time is needed to review the concerns raised by the commenters and, therefore, is not publishing the final rule to implement section 428(n) of the HEA in these regulations. The Secretary expects to fully implement this provision in fiscal year 1996 and will publish the final regulations at a later date. Section 682.202 Permissible Charges by Lenders to Borrowers Comments: Many commenters suggested that the Secretary calculate a borrower's refund of excess interest paid on a Federal Stafford loan based on the ending principal balance of the loan for the quarter instead of the daily principal balance. The commenter noted that using the average daily principal balance of the loan for the quarter would be more burdensome to a lender than using the ending principal balance. Other commenters noted that the guidance in the regulations was not consistent with guidance the Department has previously issued. Discussion: The Secretary is aware that using the average daily principal balance of a loan for a quarter requires a lender to track more information than if the lender used the ending principal balance of the loan. The Secretary is also aware that the regulatory provisions differ from the guidance the Department has issued with respect to rebates of excess interest. However, these regulations reflect the provisions that are contained in section 427A(i) of the HEA. The Secretary does not have the authority to change these statutory requirements. Changes: None. Comments: Many commenters suggested that the Secretary extend the 30-day period to credit the refund to 45 or 60 days. The commenters believed that a lender with a large volume of loans for which a refund was required may not be able to make the appropriate refunds within 30 days from the last day of the calendar year in which the quarter falls. Discussion: The Secretary realizes that a lender that has a large number of loans for which a rebate is required may have difficulty making the appropriate refunds within the 30-day period. However, the 30-day time period is expressly mandated by section 427(i)(5) of the HEA. The Secretary does not have the authority to change this statutory requirement. Changes: None. Section 682.207 Due Diligence in Disbursing a Loan Comments: A commenter suggested that a school, when receiving FFEL proceeds via check, should be given the option to receive those proceeds via a master check or individual checks. The commenter pointed out that the disbursement of FFEL Program loan proceeds via a master check will place the extra administrative burden and costs associated with processing the master check and cutting individual checks to borrowers at a school in cases when a school would otherwise endorse an individual loan check and deliver it to the borrower. Discussion: The Secretary agrees with the commenter that disbursement of a loan proceeds via a master could impose such a burden. The Secretary agrees with the commenter that a school should be provided the authority to choose if it wishes loan proceeds to be disbursed via a master check. Changes: A change has been made. The final regulations provide that FFEL Program loan proceeds may be disbursed via a master check if both the lender and school agree to the use of a master check. Comments: Many commenters suggested that the Secretary should require a school to obtain a borrower's written authorization to release FFEL Program loan proceeds that are disbursed via a master check. The commenters believed that this is a necessary control to ensure that the borrowers are aware they are receiving their loan proceeds. Discussion: The Secretary agrees with the commenters that requiring the borrower's written authorization for the release of the initial and any subsequent disbursement of each FFEL loan to be made is a necessary control to ensure that a borrower is aware he or she is receiving the loan proceeds. Changes: A change has been made. The final regulations have been amended in Sec. 682.604 to require a borrower's written authorization for the release of his or her loan proceeds via a master check. Section 682.305 Procedures for Payment of Interest Benefits and Special Allowance Comments: Many commenters suggested that the Secretary notify a guaranty agency, or a new holder of a loan, that the originating lender has failed to pay the origination fees. The commenters argued that a guaranty agency or a new holder will not know if the origination fees have been paid on a loan. Discussion: The Secretary does not agree with the commenters. The Secretary believes that the most practical way for a lender or guaranty agency to find out if the origination fees have been paid on a loan is through the lender selling the loan or the lender that is submitting the claim. It would not be practicable for the Secretary to verify if the origination fees have been paid on a loan every time a loan is sold or a default claim is filed. The Secretary is not informed by lenders when a loan is sold. Changes: None. Comments: Many commenters believed that a guaranty agency should not be penalized by loss of eligibility for reinsurance on a loan because a lender did not pay the origination fees. The commenters believed that the lender should be held responsible and be penalized for failing to pay the origination fees on loans that it has made. Discussion: The Secretary does not agree with the commenters. It has been the longstanding policy of the Secretary that an FFEL Program loan is not eligible for reinsurance if the lender or agency has failed to comply with all Federal requirements with respect to the loan. However, the Secretary agrees with the commenters that a lender that fails to pay the origination fees should be penalized for failing to do so. The Secretary will take whatever action necessary against a lender to ensure that the origination fees are promptly being paid. Changes: None. Comments: Many commenters suggested that the Secretary amend this provision to permit a lender that purchases a loan to pay the origination fees to the Secretary. The commenters argued that many originating lenders sell their loans upon disbursement and have contractual agreements with the purchasing lenders that provide that the purchasing lender will pay the origination fees. Discussion: The Secretary does not believe that such an amendment is necessary. The Secretary has promulgated this rule because, in many cases, such origination fees are not being paid to the Secretary. The Secretary believes that it is necessary to hold an originating lender responsible for such fees because this will decrease the incidence of origination fees not being paid to the Secretary. A purchasing lender may reimburse the originating lender for the origination fees. Changes: None. Section 682.401 Basic Program Agreement Comments: Many commenters suggested that the Secretary provide in the regulations that a guaranty agency may (generally) not insure less than 98 percent of the unpaid principal balance of loans insured under its program. The commenters suggested this change because they believed this reflected the language of the HEA. Discussion: The Secretary does not agree with the commenters. The Secretary believes that Congress intended to bar a guaranty agency from paying lenders more than 98 percent of the unpaid principal and accrued interest on default claims filed on loans made on or after October 1, 1993. The Secretary believes therefore it would be a misuse of a guaranty agency's reserve fund to pay more than 98 percent of the unpaid principal and interest on a defaulted loan. Changes: None. Comments: Many commenters suggested that the Secretary's limitation of collection costs that may be included in a Federal Consolidation Loan to 18.5 percent was unreasonable. The commenters believed that 18.5 percent would not cover the collection costs incurred on some loans. The commenters also argued that this provision debilitates the deterring effect collection costs have with respect to a borrower repaying his or her loan. Discussion: The Secretary does not agree with the commenters that limiting collection costs to 18.5 percent of the borrower's outstanding balance is unreasonable. The Secretary wishes to clarify that this provision is intended to encourage a borrower with a defaulted loan to consolidate the loan in order to get the loan out of default and reestablish his or her eligibility for student financial aid. The Secretary believes that limiting the collection costs that may be included in a Federal Consolidation loan will provide an incentive for a borrower to get out of default. Changes: None. Waiver of Proposed Rulemaking In addition to the changes made to part 682 based on public comment on the notice of proposed rulemaking, the Secretary has revised the regulations to include changes made by the Improving America's Schools Act of 1994 (Pub. L. 103-382), enacted subsequent to publication of the notice of proposed rulemaking. It is the practice of the Secretary to offer interested parties the opportunity to comment on proposed regulations in accordance with the Administrative Procedure Act, 5 U.S.C. 553. However, since these changes merely incorporate statutory changes into the regulations, public comment could have no effect. Therefore, the Secretary has determined pursuant to 5 U.S.C. 553(b)(B) that public comment on the regulations is unnecessary and contrary to the public interest. Executive Order 12866 These final regulations have been reviewed in accordance with Executive Order 12866. Under the terms of the order the Secretary has assessed the potential costs and benefits of this regulatory action. The potential costs associated with these regulations are those resulting from statutory requirements and those determined by the Secretary to be necessary for administering the Title IV, HEA programs effectively and efficiently. In assessing the potential costs and benefits--both quantitative and qualitative--of these proposed regulations, the Secretary has determined that the benefits of these regulations justify the costs. The Secretary has also determined that this regulatory action does not unduly interfere with State, local, and tribal governments in the exercise of their governmental functions. Assessment of Educational Impact In the NPRM, the Secretary requested comments on whether the proposed regulations would require transmission of information that is being gathered by, or is available from, any other agency or authority of the United States. Based on the response to the proposed rules and on its own review, the Department has determined that the regulations in this document do not require transmission of information that is being gathered by, or is available from, any other agency or authority of the United States. List of Subjects in 34 CFR Part 682 Administrative practice and procedure, Colleges and universities, Education, Loan programs--education, Reporting and recordkeeping requirements, Student aid, Vocational education. Dated: November 22, 1994. Richard W. Riley, Secretary of Education. (Catalog of Federal Domestic Assistance Number 84.032, Federal Family Education Loan Program) The Secretary proposes to amend part 682 of title 34 of the Code of Federal Regulations as follows: PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAMS 1. The authority citation for part 682 continues to read as follows: Authority: 20 U.S.C. 1071 to 1087-2, unless otherwise noted. 2. Section 682.202 is amended by adding new paragraphs (a)(6) and (a)(7) to read as follows: Sec. 682.202 Permissible charges by lenders to borrowers. * * * * * (a) * * * (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 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)(6)(ii) of this section for any period prior to 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. * * * * * 3. Section 682.207 is amended by removing the word ``or'' at the end of paragraph (b)(1)(ii)(A); removing the semicolon at the end of paragraph (b)(1)(ii)(B), and adding, in its place, a period and a new sentence; and removing the semicolon at the end of paragraph (b)(1)(v)(B)(1), and adding, in its place, a period and a new sentence; by adding a new paragraph (b)(1)(ii)(C) to read as follows: Sec. 682.207 Due diligence in disbursing a loan. * * * * * (b)(1) * * * (ii) * * * (B) * * * A disbursement made by electronic funds transfer must be accompanied by a list of the names, social security numbers, and loan amounts of the borrowers who are receiving a portion of the disbursement; or (C) If the school and the lender agree, a master check from the lender to the eligible institution to a separate account maintained by the school as trustee for the lender. A disbursement made by a master check must be accompanied by a list of the names, social security numbers, and loan amounts of the borrowers who are receiving a portion of the disbursement; * * * * * (v) * * * (B) * * * (1) * * * A disbursement made by electronic funds transfer or master check must be accompanied by a list of the names, social security numbers, and loan amounts of the borrowers who are receiving a portion of the disbursement and the names and social security numbers of the students on whose behalf the parents are borrowing. 4. Section 682.300 is amended by revising paragraph (b)(2)(ii)(B), paragraph (c)(3)(ii), and paragraphs (c)(4) (i) and (ii) to read as follows: Sec. 682.300 Payment of interest benefits on Stafford and Consolidation Loans. * * * * * (b) * * * (2) * * * (ii) * * * (B) The proceeds of the disbursement made by electronic funds transfer or master check in accordance with Sec. 682.207(b)(1)(ii) (B) and (C) have not been released from the restricted account maintained by the school on or before that date; * * * * * (c) * * * (3) * * * (ii) In the case of a loan disbursed by electronic funds transfer or master check, 3 days prior to the first day of the period of enrollment or, if the loan is disbursed after the first day of the period of enrollment, 3 days after disbursement. (4) * * * (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. 5. Section 682.302 is amended by revising paragraphs (b)(3) (i) and (ii) and paragraph (d)(1)(vi)(B) to read as follows: Sec. 682.302 Payment of special allowance on FFEL loans. * * * * * (b) * * * (3) * * * (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. * * * * * (d) * * * (1) * * * (vi) * * * (B) the loan proceeds disbursed by electronic funds transfer or master check in accordance with Sec. 682.207(b)(1)(ii) (B) and (C) have not been released from the restricted account maintained by the school on or before that date; or 6. Section 682.305 is amended by revising paragraph (a)(4) to read as follows: Sec. 682.305 Procedures for payment of interest benefits and special allowance. (a) * * * (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. * * * * * 7. Section 682.401 is amended by revising paragraph (b)(10)(vi)(B)(3); adding new paragraphs (b)(10)(iii) and (b)(27); and by revising paragraph (b)(14) to read as follows: Sec. 682.401 Basic program agreement. * * * * * (b) * * * (10) * * * (vi) * * * (B) * * * (3) The loan proceeds disbursed by electronic funds transfer or master check in accordance with Sec. 682.207(b)(1)(ii) (B) and (C) have not been released from the restricted account maintained by the school. (11) * * * (iii) The Secretary will pay a lender referral fee to each guaranty agency with whom the Secretary has a lender referral agreement, an amount equal to 0.5 percent of the principal amount of a loan made as a result of the agency's referral service. * * * * * (14) 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; and (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. * * * * * (27) Collection Charges and Late Fees on Defaulted FFEL loans being Consolidated. A guaranty agency may not guarantee collection charges or late fees that exceed 18.5 percent of the outstanding principal and interest on a defaulted FFEL Program loan that is included in a Federal Consolidation loan. * * * * * 8. Section 682.402 is amended by revising paragraphs (e)(3)(iv) introductory text, (e)(3)(iv)(A), the heading of paragraph (e)(8), paragraph (e)(8)(iii) introductory text, the heading of paragraph (e)(10) and paragraph (e)(10)(iii) introductory text to read as follows: Sec. 682.402 Death, disability, closed school, false certification, and bankruptcy payments. * * * * * (e) * * * (3) * * * (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-- (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; * * * * * (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. * * * * * (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-- * * * * * (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. * * * * * (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-- * * * * * 9. Section 682.404 is amended by revising paragraphs (a)(1), (b)(1), and (b)(2), by removing paragraph (b)(4), by redesignating paragraph (b)(5) as paragraph (b)(4), by removing the period at the end of paragraph (b)(3)(iii) and adding a semi-colon in its place, and adding a new paragraph (b)(3)(iv). Sec. 682.404 Federal reinsurance agreement. (a) General. (1)(i) 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 98 percent of its losses on default claim payments to lenders. (ii) Notwithstanding paragraph (a)(1)(i) of this section, the Secretary reimburses a guaranty agency for 100 percent of its losses on default claim payments-- (A) For loans 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 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. * * * * * (b) * * * (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 for loans 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; or (ii) 88 percent of its losses for loans made on or after October 1, 1993. (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 for loans 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; or (ii) 78 percent of its losses for loans made on or after October 1, 1993. (3) * * * (iv) On loans made under a guaranty agency's approved lender-of- last-resort program. * * * * * 10. Section 682.406 is amended by revising paragraph (a)(2)(ii) to read as follows: Sec. 682.406 Conditions of reinsurance coverage. (a) * * * (2) * * * (ii) The proceeds of the disbursement made by electronic funds transfer or master check in accordance with Sec. 682.207(b)(1)(ii) (B) and (C) have been released from the restricted account maintained by the school within 120 days after disbursement; 11. Section 682.407 is removed and reserved. 12. Section 682.604 is amended by revising paragraph (c)(3) introductory text to read as follows. Sec. 682.604 Processing the borrower's loan proceeds and counseling borrowers * * * * * (c) * * * (3) If the loan proceeds are disbursed by electronic funds transfer to an account of the school in accordance with Sec. 682.207(b)(1)(ii)(B), or by master check in accordance with Sec. 682.207(b)(1)(ii)(C), the school must, unless authorization was provided in the loan application, not more than 30 days prior to the first day of classes of the period of enrollment for which the loan is intended, obtain the student's, or in the case of a Federal PLUS loan, the parent borrower's written authorization for the release of the initial and any subsequent disbursement of each FFEL loan to be made, and after the student has registered either-- * * * * * (Authority: 20 U.S.C. 1078) [FR Doc. 94-29263 Filed 11-29-94; 8:45 am] BILLING CODE 4000-01-P