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 PUBLIC LAW 99-498—OCT. 17, 1986

100 STAT. 1367

"(g) DEFINITIONS.—For the purpose of subsections (a) and (d) of this section— "(1) the term 'period of instruction' shall, at the discretion of the lender, be any academic year, semester, trimester, quarter, or other academic period; or shall be the period for which the loan is made as determined by the institution of higher education; and "(2) the term 'period of enrollment' shall be the period for which the loan is made as determined by the institution of higher education and shall coincide with academic terms such as academic year, semester, trimester, quarter, or other academic period as defined by such institution.

" '

"FEDERAL PAYMENTS TO REDUCE STUDENT INTEREST COSTS "SEC. 428. (a) FEDERAL INTEREST SUBSIDIES.— "(1) TYPES OF LOANS THAT QUALIFY.—Each student who

i

20 USC 1078. has

received a loan for study at an eligible institution— "(A) which is insured by the Secretary under this part; or "(B) which is insured under a program of a State or of a nonprofit private institution or organization which was contracted for, and paid to the student, within the period specified in paragraph (5), and which— "(i) in the case of a loan insured prior to July 1, 1967, was made by an eligible lender and is insured under a program which meets the requirements of subparagraph (E) of subsection (b)(1) and provides that repayment of such loan shall be in installments beginning not earlier than 60 days after the student ceases to pursue a course of study (as described in subparagraph (D) of subsection (b)(1)) at an eligible institution, or "(ii) in the case of a loan insured after June 30, 1967, was made by an eligible lender and is insured under a program covered by an agreement made pursuant to subsection (b), shall be entitled to have paid on his or her behalf and for his or her account to the holder of the loan a portion of the interest on such loan under circumstances described in paragraph (2). "(2) ADDITIONAL REQUIREMENTS TO RECEIVE SUBSIDY.—(A) Each student qualifying for a portion of an interest payment under paragraph (1) shall— "(i) have provided to the lender a statement from the eligible institution, at which the student has been accepted for enrollment, or at which the student is in attendance, which— "(I) sets forth such student's estimated cost of attendance (as determined under section 472); and "(II) sets forth such student's estimated financial assistance; and "(ii) meet the requirements of subparagraph (B). "(B) For the purpose of clause (ii) of subparagraph (A), a student shall qualify for a portion of an interest payment under paragraph (1) if the eligible institution has provided the lender with a statement evidencing a determination of need for a loan (as determined under part F of this title) and the amount of such need, subject to the provisions of subparagraph (D). "(C) For the purpose of paragraph (1) and this paragraph—

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 100 STAT. 1368 lo (b

PUBLIC LAW 99-498—OCT. 17, 1986 "

"(i) a student's estimated financial assistance means, for the period for which the loan is sought, the amount of 1" If assistance such student will receive under subpart 1 of part A (as determined in accordance with section 484(b)), subpart 2 of part A, and parts C and E of this title, and any amount '•Jly-i paid the student under chapters 32, 34, and 35 of title 38, 38 USC 1601 et United States Code, plus other scholarship, grant, or loan seq., 1651 et seq., assistance; and 1700 et seq. "(jj) ^.j^g determination of need and of the amount of a loan by an eligible institution under subparagraph (B) with respect to a student shall be calculated by subtracting from the estimated cost of attendance at the eligible institution the total of the expected family contribution with respect to such student plus any estimated financial assistance reasonably available to such student. --' ' "(D) An eligible institution may not, in carrying out the provisions of subparagraphs (A) and (B) of this paragraph, provide a statement which permits the student to receive any loan under this part in excess of the maximum amount applicable to such loan. "(E) For the purpose of subparagraphs (B) and (C) of this paragraph, any loan obtained by a student under section 428A or a parent under section 428B of this Act or under any Statesponsored or private loan program for an academic year for which the determination is made may be used to offset the expected family contribution of the student for that year. "(F) Except as provided in subparagraph (D), an eligible institution may not, in carrying out the provisions of subparagraphs (A) and (B) of this paragraph, refuse to provide to any eligible lender which has an agreement under subsection (b) of this section with any guaranty agency, a statement which permits a student to receive any loan under this part. "(3) AMOUNT OF INTEREST SUBSIDY.—(A)(i) Subject to section 438(c), the portion of the interest on a loan which a student is entitled to have paid, on behalf of and for the account of the student, to the holder of the loan pursuant to paragraph (1) of this subsection shall be equal to the total amount of the interest on the unpaid principal amount of the loan— "(I) which accrues prior to the beginning of the repay190 ment period of the loan, or "(II) which accrues during a period in which principal need not be paid (whether or not such principal is in fact paid) by reason of a provision described in subsection (b)(l)(M) of this section or in section 427(a)(2)(C). "(ii) Such portion of the interest on a loan shall not exceed, for any period, the amount of the interest on that loan which is payable by the student after taking into consideration the amount of any interest on that loan which the student is entitled to have paid on his or her behalf for that period under any State or private loan insurance program. "(iii) The holder of a loan with respect to which payments are required to be made under this section shall be deemed to have a contractual right, as against the United States, to receive from the Secretary the portion of interest which has been so 1.. determined without administrative delay after the receipt by the Secretary of an accurate and complete request for payment li? pursuant to paragraph (4). ,
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license: Creative Commons - Attribution Share-Alike - https://creativecommons.org/licenses/by-sa/4.0/


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 PUBLIC LAW 99-498—OCT. 17, 1986

100 STAT. 1369

"(iv) The Secretary shall pay this portion of the interest to the holder of the loan on behalf of and for the account of the borrower at such times as may be specified in regulations in force when the applicable agreement entered into pursuant to subsection (b) was made, or, if the loan was made by a State or is insured under a program which is not covered by such an agreement, at such times as may be specified in regulations in force at the time the loan was paid to the student. "(B) If— "(i) a State student loan insurance program is covered by an agreement under subsection (b), "(ii) a statute of such State limits the interest rate on loans insured by such program to a rate which is less than the applicable interest rate under this part, and ij;• "(iii) the Secretary determines that subsection (d) does G -> not make such statutory limitation inapplicable and that such statutory limitation threatens to impede the carrying f out of the purpose of this part, then the Secretary may pay an administrative cost allowance to the holder of each loan which is insured under such program and which is made during the period beginning on the 60th day after the date of enactment of the Higher Education Amendments of 1968 and ending 120 days after the adjournment of such State's first regular legislative session which adjourns after January 1, 1969. Such administrative cost allowance shall be paid over the term of the loan in an amount per year (determined by the Secretary) which shall not exceed 1 percent of the unpaid principal balance of the loan. "(4) SUBMISSION OF STATEMENTS BY HOLDERS ON AMOUNT OF

PAYMENT.—Each holder of a loan with respect to which payments of interest are required to be made by the Secretary shall submit to the Secretary, at such time or times and in such manner as the Secretary may prescribe, statements containing such information as may be required by or pursuant to regulation for the purpose of enabling the Secretary to determine the amount of the payment which he must make with respect to that loan. "(5) DURATION OF AUTHORITY TO MAKE INTEREST SUBSIDIZED

LOANS.—The period referred to in subparagraph (B) of paragraph (1) of this subsection shall begin on the date of enactment of this Act and end at the close of September 30, 1992, except that, in the case of a loan made or insured under a student loan or loan insurance program to enable a student who has obtained a prior loan made or insured under such program to continue his or her education program, such period shall end at the close of September 30, 1997. "(6)

ASSESSMENT OF BORROWER'S FINANCIAL CONDITION NOT

PROHIBITED OR REQUIRED.—Nothing in this or any other Act shall be construed to prohibit or require, unless otherwise specifically provided by law, a lender to evaluate the total financial situation of a student making application for a loan under this part, or to counsel a student with respect to any such loan, or to make a decision based on such evaluation and counseling with respect to the dollar amount of any such loan. "(b) INSURANCE PROGRAM AGREEMENTS TO QUALIFY LOANS FOR INTEREST SUBSIDIES,—

State and local governments,

20 USC lOOl ^°^-

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Page:United States Statutes at Large Volume 100 Part 2.djvu/268

 100 STAT. 1370 State and local

governments.

. ^

PUBLIC LAW 99-498—OCT. 17, 1986 "(1) REQUIREMENTS OF INSURANCE PROGRAM.—Any State OF

any nonprofit private institution or organization may enter ir:to an agreement with the Secretary for the purpose of entitling students who receive loans which are insured under a student loan insurance program of that State, institution, or organization to have made on their behalf the payments provided for in subsection (a) if the Secretary determines that the student loan insurance program— "(A) authorizes the insurance in any academic year or its X'- ' • equivalent (as determined under regulations of the Secretary) for any student who is carrying at an eligible ri. 5 institution at least one-half the normal full-time academic r;;. workload (as determined by the institution) in any amount up to a maximum of— "(i) $2,625, in the case of a student who has not successfully completed the first or second year of a program of undergraduate education; "(ii) $4,000, in the case of a student who has successo;o.r.;;v fuUy completed such first and second year but who has not successfully completed the remainder of a program of undergraduate education; and "(iii) $7,500, in the case of a graduate or professional ,,..r student (as defined in regulations of the Secretary); .';;! except in cases where the Secretary determines, pursuant to regulations, that a higher amount is warranted in order to carry out the purpose of this part with respect to students engaged in specialized training requiring exceptionally high costs of education, but the annual insurable limit per student shall not be deemed to be exceeded by a line of credit under which actual payments by the lender to the borrower will not be made in any years in excess of the , annual limit; ' *' "(B) provides that the aggregate insured unpaid principal amount for all such insured loans made to any student shall be any amount up to a maximum of— "(i) $17,250, in the case of any student who has not successfully completed a program of undergraduate education; and '"' '"^ "(ii) $54,750, in the case of any graduate or professional student (as defined by regulations of the Sec• retary and including any loans which are insured by the Secretary under this part, or by a guaranty agency, made to such student before the student became a graduate or professional student); except that the Secretary may increase the limit applicable to students who are pursuing programs which the Secretary determines are exceptionally expensive; "(C) authorizes the insurance of loans to any individual student for at least 6 academic years of study or their equivalent (as determined under regulations of the Secretary); "(D) provides that (i) the student borrower shall be entitled to accelerate without penalty the whole or any part of an insured loan, (ii) except as provided in subparagraph (M) of this paragraph, the repayment period of any insured loan may not exceed 10 years, and (iii) the note or other written evidence of any loan, may contain such reasonable provi-

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 PUBLIC LAW 99-498—OCT. 17, 1986

100 STAT. 1371

sions relating to repayment in the event of default by the borrower as may be authorized by regulations of the Secretary in effect at the time such note or written evidence was executed; "(E) subject to subparagraphs (D) and (L) of this paragraph and except as provided by subparagraph (M) of this paragraph, provides that repayment of loans shall be in installments over a period of not less than 5 years (unless the student, during the 6 months preceding the start of the repayment period, specifically requests that repayment be made over a shorter period) nor more than 10 years beginning 6 months after the month in which the student ceases . „^ t^ to carry at least one-half the normal full-time academic workload as determined by the institution; "(F) authorizes interest on the unpaid balance of the loan at a yearly rate not in excess (exclusive of any premium for insurance which may be passed on to the borrower) of the rate required by section 427A; "(G) insures not less than 100 percent of the unpaid principal of loans insured under the program; "(H) provides for collection of a single insurance premium equal to not more than 3 percent of the principal amount of the loan, by deduction proportionately from each installment payment of the proceeds of the loan to the borrower, and insures that the proceeds of the premium will not be used for incentive payments to lenders; "(I) provides that the benefits of the loan insurance pro:f^ gram will not be denied any student who is eligible for interest benefits under subsection (a)(1) and (2); "(J) provides that a student may obtain insurance under the program for a loan for any year of study at an eligible institution; "(K) in the case of a State program, provides that such State and local State program is administered by a single State agency, or governments. by one or more nonprofit private institutions or organizations under supervision of a single State agency; "(L) provides that the total of the payments by borrower— "(i) during any year of any repayment period with respect to the aggregate amount of all loans to that borrower which are insured under this part shall not, unless the borrower and the lender otherwise agree, be less than $600 or the balance of all such loans (together with interest thereon), whichever amount is less, except that, in the case of a husband and wife, both of whom have such loans outstanding, the total of the combined payments for such a couple during any year snail not be less than $600 or the balance of all such loans, whichever is less; and "(ii) for a monthly or other similar payment period with respect to the aggregate of all loans held by the lender may, when the amount of a monthly or other ^' similar payment is not a multiple of $5, be rounded to the next highest whole dollar amount that is a multiple of $5;

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Page:United States Statutes at Large Volume 100 Part 2.djvu/270

 100 STAT. 1372

Armed Forces.

Voluntarism. 22 USC 2501 note.

42 USC 4951 note.

26 USC 501.

29 USC 206.

PUBLIC LAW 99-498—OCT. 17, 1986 "(M) provides that periodic installments of principal need not be paid, but interest shall accrue and be paid, during any period— "(i) during which the borrower (I) is pursuing a fulltime course of study as determined by an eligible institution, (II) is pursuing at least a half-time course of study (as determined by such institution) for which the student has obtained a loan under this part, or (III) is pursuing a course of study pursuant to a graduate fellowship program approved by the Secretary, or pursuant to a rehabilitation training program for disabled individuals approved by the Secretary; "(ii) not in excess of 3 years during which the borrower is a member of the Armed Forces of the United States, is an active duty member of the National Oceanic and Atmospheric Administration Corps, or is an officer in the Commissioned Corps of the Public Health Service; "(iii) not in excess of 3 years during which the borj rower is in service as a volunteer under the Peace Corps Act; "(iv) not in excess of 3 years during which the borrower is in service as a full-time volunteer under the Domestic Volunteer Service Act of 1973; "(v) not in excess of 3 years during which the borrower is in service, comparable to the service referred to in clauses (iii) and (iv), as a full-time volunteer for an organization which is exempt from taxation under section 501(c)(3) of the Internal Revenue Code of 1954; "(vi) not in excess of 3 years during which the borrower is engaged as a full-time teacher in a public or private elementary or secondary school in a teacher shortage area established by the Secretary pursuant to paragraph (4) of this subsection; "(vii) not in excess of 2 years during which the borrower is serving an internship, the successful completion of which is required in order to receive professional recognition required to begin professional ' ^ practice or service; "(viii) not in excess of 3 years during which the ''" borrower is temporarily totally disabled, as established by sworn affidavit of a qualified physician, or during which the borrower is unable to secure employment by reason of the care required by a dependent who is so disabled; "(ix) not in excess of 24 months, at the request of the borrower, during which the borrower is seeking and unable to find full-time employment; "(x) not in excess of 6 months of parental leave; and "(xi) not in excess of 12 months for mothers with preschool age children who are just entering or reentering the work force and who are compensated at a rate not exceeding $1 in excess of the rate prescribed under section 6 of the Fair Labor Standards Act of 1938; "(N) provides that funds borrowed by a student are disbursed to the institution by check or other means that is payable to and requires the endorsement or other certifi-

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 PUBLIC LAW 99-498—OCT. 17, 1986

100 STAT. 1373

cation by such student, except nothing in this title shall be interpreted to allow the Secretary to require checks to be made co-payable to the institution and the borrower or to prohibit the disbursement of loan proceeds by means other than by check; "(O) provides that the proceeds of any loan made for any period of enrollment that ends more than 180 days (or 6 months) after the date disbursement is scheduled to occur, and for an amount of more than $1,000— "(i) will be disbursed directly by the lender in two or more installments, none of which exceeds one-half of the loan, with the second installment being dispensed after not less than one-third of such period (except as necessary to permit the second installment to be disbursed at the beginning of the second semester, quarter, or similar division of such period of enrollment), or "(ii) will be disbursed in such installments pursuant to the escrow provisions of subsection (i) of this section, but all loans issued for the same period of enrollment shall be considered as a single loan for the purpose of this subparagraph and the requirements of this subparagraph shall not apply in the case of a loan made under section 428A, 428B, or 4280, or made to a student to cover the cost of attendance at an eligible institution outside the United States; "(P) requires the borrower and the institution at which the borrower is in attendance to promptly notify the holder of the loan, directly or through the guaranty agency, concerning any change of address or status; "(Q) provides for the guarantee of loans made to students and parents under sections 428A and 428B; "(R) with respect to lenders which are eligible institutions, provides for the insurance of loans by only such institutions as are located within the geographic area served by such guaranty agency; "(S) provides no restrictions with respect to the insurance State and local of loans for students who are otherwise eligible for loans governments, under such program if such a student is accepted for enrollment in or is attending an eligible institution within the State, or if such a student is a legal resident of the State and is accepted for enrollment in or is attending an eligible institution outside that State; "(T) provides no restrictions with respect to eligible institutions which are more onerous than eligibility requirements for institutions under the Federal student loan insurance program as in effect on January I. 1985, unless— "(i) that institution is ineligible under regulations for the limitation, suspension, or termination of eligible institutions under the Federal student loan insurance program or is ineligible pursuant to criteria issued under the student loan insurance program which are substantially the same as regulations with respect to such eligibility issued under the Federal student loan insurance program; or

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Page:United States Statutes at Large Volume 100 Part 2.djvu/272

 100 STAT. 1374 state and local governments,

PUBLIC LAW 99-498—OCT. 17, 1986

' "?' • -

'i

"(ii) there is a State constitutional prohibition affecting the eligibility of such an institution; and "(U) provides (i) for the eligibihty of all lenders described in section 435(d)(1) under reasonable criteria, unless (I) that lender is eliminated as a lender under regulations for the limitation, suspension, or termination of a lender under the Federal student loan insurance program or is eliminated as a lender pursuant to criteria issued under the student loan insurance program which are substantially the same as regulations with respect to such eligibility as a lender issued under the Federal student loan insurance program, or (II) there is a State constitutional prohibition affecting the eligibility of a lender, and (ii) assurances that the guaranty agency will report to the Secretary concerning changes in such criteria, including any procedures in effect under such program to limit, suspend, or terminate lenders. "(2) CONTENTS OF INSURANCE PROGRAM AGREEMENT.—Such an

agreement shall— "(A) provide that the holder of any such loan will be required to submit to the Secretary, at such time or times and in such manner as the Secretary may prescribe, statements containing such information as may be required by or pursuant to regulation for the purpose of enabling the ,^ Secretary to determine the amount of the payment which must be made with respect to that loan; "(B) include such other provisions as may be necessary to protect the United States from the risk of unreasonable loss ,, and promote the purpose of this part, including such provisions as may be necessary for the purpose of section 437, ? '^*' i^ and as are agreed to by the Secretary and the guaranty agency, as the case may be; "(C) provide for making such reports, in such form and containing such information, as the Secretary may reason^^ ably require to carry out the Secretary's functions under this part, and for keeping such records and for affording such access thereto as the Secretary may find necessary to assure the correctness and verification of such reports; "(D) provide for— "(i) conducting, except as provided in clause (ii), financial and compliance audits of the guaranty agency at least once every 2 years and covering the period since the most recent audit, conducted by a qualified, independent organization or person in accordance with standards established by the Comptroller General for the audit of governmental organizations, programs, and functions, and as prescribed in regulations of the Secretary, the results of which shall be submitted to ^.^ the Secretary; or i^' ""• "' "(ii) vvith regard to a guaranty program of a State which is audited under chapter 75 of title 31, United 31 USC 7501 et States Code, deeming such audit to satisfy the requireseq. ments of clause (i) for the period of time covered by such audit; and "(E) provide that any guaranty agency may transfer • ii. loans which are insured under this part to any other guaranty agency with the approval of the holder of the loan and such other guaranty agency.

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 PUBLIC LAW 99-498—OCT. 17, 1986

100 STAT. 1375

"(3) RESTRICTIONS ON INDUCEMENTS, MAILINGS, AND ADVERTIS-

ING.—A guaranty agency shall not— "(A) offer, directly or indirectly, premiums, payments, or other inducements to any educational institution or its employees in order to secure applicants for loans under this part; "(B) conduct unsolicited mailings to students enrolled in secondary school of student loan application forms; or "(C) conduct fraudulent or misleading advertising concerning loan availability. "(4) TARGETED TEACHER DEFERMENT RULE.—(A) The deferment State and local for service as a teacher in a public or nonprofit private ele- governments, mentary or secondary school shall be for service as such a teacher in shortage areas prescribed by the Secretary, in consultation with the chief State school officer or, in the case of nonprofit private elementary or secondary schools, with appropriate officials of the nonprofit private schools in each State in accordance with this subparagraph. "(B) For the purpose of this paragraph, the term 'shortage areas' means (i) geographic areas of the State in which there is a shortage of elementary and secondary school teachers, and (ii) an area of shortage of elementary and secondary school teachers in specific grade levels and in specific academic, instructional, subject matter, and discipline classifications. In carrying out the provisions of this subparagraph, the Secretary shall give special consideration to areas in which emergency certification of individuals in a State is being used to correct teacher shortages; and to States which have retirement laws permitting early retirement. "(5) SPECIAL RULE.—For the purpose of paragraph (1)(M) of this subsection, the Secretary shall approve any course of study at a foreign university that is accepted for the completion of a recognized international fellowship program by the administrator of such a program. "(6) GUARANTY AGENCY INFORMATION TRANSFERS.—(A) Prior to the implementation of section 485B, any guaranty agency may request information regarding loans made after January 1, 1987, to students who are residents of the State for which the agency is the designated guarantor, from any other guaranty agency insuring loans to such students. "(B) Upon a request pursuant to subparagraph (A), a guaranty agency shall provide— "(i) the name and the social security number of the borrower; and "(ii) the amount borrowed, the cumulative amount borrowed, the income reported on the loan application, and the purposes and the cost of attendance of the borrower. "(C) Any costs associated with fulfilling the request of a guaranty agency for information on students shall be paid by the guaranty agency requesting the information. '(c) GUARANTY AGREEMENTS FOR REIMBURSING LOSSES.— "(1) AUTHORITY TO ENTER INTO AGREEMENTS.—(A)

The Secretary may enter into a guaranty agreement with any guaranty agency, whereby the Secretary shall undertake to reimburse it, under such terms and conditions as the Secretary may establish, with respect to losses (resulting from the default of the student borrower) on the unpaid balance of the principal and

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Page:United States Statutes at Large Volume 100 Part 2.djvu/274

 100 STAT. 1376

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"-

PUBLIC LAW 99-498—OCT. 17, 1986

i' accrued interest of any insured loan, including the administrative costs of supplemental preclaim assistance for default prevention as defined in paragraph (6)(C). The guaranty agency shall be deemed to have a contractual right against the United States, during the life of such loan, to receive reimbursement . according to the provisions of this subsection. Upon receipt of an •* accurate and complete request by a guaranty agency for reimbursement with respect to such losses, the Secretary shall 1' pay promptly and without administrative delay. Except as provided in subparagraph (B) of this paragraph and in paragraph ' (7), the amount to be paid a guaranty agency as reimbursement ' under this subsection shall be equal to 100 percent of the amount expended by it in discharge of its insurance obligation incurred under its loan insurance program. In no case shall a guaranty agency file a claim under this subsection for reimbursement with respect to losses prior to 270 days after the '' loan becomes delinquent with respect to any installment thereon. "(B) Notwithstanding subparagraph (A)— "(i) if, for any fiscal year, the amount of such reimbursement payments by the Secretary under this subsection exceeds 5 percent of the loans which are insured by such guaranty agency under such program and which were in repayment at the end of the preceding fiscal year, the amount to be paid as reimbursement under this subsection for such excess shall be equal to 90 percent of the amount of .-,. such excess; and "(ii) if, for any fiscal year, the amount of such reimburse,.:' ment payments exceeds 9 percent of such loans, the amount ^ to be paid as reimbursement under this subsection for such J. excess shall be equal to 80 percent of the amount of such excess. "(C) For the purpose of this subsection, the amount of loans of ,,. a guaranty agency which are in repayment shall be the original J principal amount of loans made by a lender which are insured " "(i) the amount the insurer has been required to pay to discharge its insurance obligations under this part; "(ii) the original principal amount of loans insured by it which have been fully repaid; and "(iii) the original principal amount insured on those loans '^di 'x for which payment of the first installment of principal has not become due pursuant to subsection (b)(1)(E) of this section or such first installment need not be paid pursuant i{ to subsection (b)(l)(M) of this section. "(2) CONTENTS OF GUARANTY AGREEMENTS.—The guaranty
 * • by such a guaranty agency reduced by—

'"> agreement— "(A) shall set forth such administrative and fiscal procedures as may be necessary to protect the United States from the risk of unreasonable loss thereunder, to ensure •&' proper and efficient administration of the loan insurance program, and to assure that due diligence will b*^ exercised ft in the collection of loans insured under the program, Oi including a requirement that each beneficiary of insurance €>.l''. on the loan submit proof that reasonable a t t e m p t s were H' .' m a d e to locate the borrower (when the location of the

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 PUBLIC LAW 99-498—OCT. 17, 1986

100 STAT. 1377

borrower is unknown) and proof that contact was made with the borrower (when the location is known); "(B) shall provide for making such reports, in such form and containing such information, as the Secretary may reasonably require to carry out the Secretary's functions under this subsection, and for keeping such records and for affording such access thereto as the Secretary may find necessary to assure the correctness and verification of such reports; "(C) shall set forth adequate assurances that, with respect State and local to so much of any loan insured under the loan insurance governments. program as may be guaranteed by the Secretary pursuant to this subsection, the undertaking of the Secretary under the guaranty agreement is acceptable in full satisfaction of State law or regulation requiring the maintenance of a reserve; "(D) shall provide that if, after the Secretary has made payment under the guaranty agreement pursuant to paragraph (1) of this subsection with respect to any loan, any payments are made in discharge of the obligation incurred by the borrower with respect to such loan (including any payments of interest accruing on such loan after such payment by the Secretary), there shall be paid over to the Secretary (for deposit in the fund established by section 431) such proportion of the amounts of such payments as is determined (in accordance with paragraph (6)) to represent his equitable share thereof, but (i) shall provide for subrogation of the United States to the rights of any insurance beneficiary only to the extent required for the purpose of paragraph (8); and (ii) except as the Secretary may otherwise by or pursuant to regulation provide, amounts so paid by a borrower on such a loan shall be first applied in reduction of principal owing on such loan; "(E) shall set forth adequate assurance that an amount equal to each payment made under paragraph (1) will be promptly deposited in or credited to the accounts maintained for the purpose of section 422(c); "(F) set forth adequate assurances that the guaranty agency will not engage in any pattern or practice which results in a denial of a borrower's access to loans under this part because of the borrower's race, sex, color, religion, national origin, age, handicapped status, income, attendance at a particular eligible institution within the area served by the guaranty agency, length of the borrower's educational program, or the borrower's academic year in school; and "(G) may include such other provisions as may be necessary to promote the purpose of this part. "(3) FORBEARANCE.—To the extent provided in regulations of the Secretary, a guaranty agreement under this subsection may contain provisions which permit such forbearance for the benefit of the student borrower as may be agreed upon by the parties to an insured loan and approved by the insurer. Such regulations shall not preclude guaranty agencies from permitting the parties to such a loan from entering into a forbearance agreement solely because the loan is in default.

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Page:United States Statutes at Large Volume 100 Part 2.djvu/276

 100 STAT. 1378

PUBLIC LAW 99-498—OCT. 17, 1986

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"(4) DEFINITIONS.—For the purpose of this subsection, the terms 'insurance beneficiary' and 'default' have the meanings assigned to them by section 435. "(5) APPLICABILITY TO EXISTING LOANS.—In the case of any guaranty agreement with a guaranty agency, the Secretary may, in accordance with the terms of this subsection, undertake to guarantee loans described in paragraph (1) which are insured by such guaranty agency and are outstanding on the date of execution of the guaranty agreement, but only with respect to defaults occurring after the execution of such guaranty agreement or, if later, after its effective date. "(6) SECRETARY'S EQUITABLE SHARE.—(A) For the purpose of paragraph (2)(D), the Secretary's equitable share of payments made by the borrower shall be that portion of the payments remaining after the guaranty agency with which the Secretary has an agreement under this subsection has deducted from such payments— "(i) a percentage amount equal to the complement of the reinsurance percentage in effect when payment under the guaranty agreement was made with respect to the loan; and "(ii) an amount equal to 30 percent of such payments (subject to subparagraph (D) of this paragraph) for costs related to the student loan insurance program, including the administrative costs of collection of loans reimbursed under this subsection, the administrative costs of preclaims assistance for default prevention, the administrative costs of supplemental preclaims assistance for default prevention, and the administrative costs of monitoring the enrollment and repayment status of students (as such terms are defined in subparagraph (B) or (C) of this paragraph). "(B) For the purpose of this paragraph and subsection (f) of this section, the term— "(i) 'administrative costs of collection of loans' means any administrative costs incurred by a guaranty agency which are directly related to the collection of the loan on which a default claim has been paid to the participating lender, including the attributable compensation of collection personnel (and in the case of personnel who perform several functions for such an agency only the portion of the compensation attributable to the collection activity), attorney's fees, fees paid to collection agencies, postage, equipment, supplies, telephone and similar charges, but does not include the overhead costs of such agency whether or not attributable; "(ii) 'administrative costs of preclaim assistance for default prevention' means any administrative costs incurred by a guaranty agency which are directly related to providing collection assistance to the lender on a delinquent loan, prior to the loan's being legally in a default status, including the attributable compensation of appropriate personnel (and in the case of personnel who perform several functions for such an agency only the portion of compensation attributable to the collection activity), fees paid to locate a missing borrower, postage, equipment, supplies, telephone and similar charges, but does not include the overhead costs of such agency whether or not attributable; and

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 PUBLIC LAW 99-498—OCT. 17, 1986

100 STAT. 1379

"(iii) 'administrative costs of monitoring the enrollment and repayment status of students' means any administrative costs by a guaranty agency which are directly related to ascertaining the student's enrollment status, prompt notification to the lender of such status, an audit of the note or written agreement to determine if the provisions of that note or agreement are consistent with the records of the guaranty agency as to the principal amount of the loan guaranteed, and an examination of the note or agreement to assure that the repayment provisions are consistent with the provisions of this part, subject to such additional criteria as the Secretary may by regulation prescribe. "(C)(i) For the purpose of this paragraph, 'administrative costs of supplemental preclaims assistance' means (subject to divisions (ii) through (iv)) any administrative costs— "(I) incurred by a guaranty agency in connection with a loan on which the guarantor has exercised preclaims assistance required or permitted under paragraph (2)(A) of this subsection and subsection (f), and which has been in delinquent status for at least 120 days; and "(II) which are directly related to providing collection assistance to the lender on a delinquent loan, prior to a claim being filed with the guaranty agency, including the attributable compensation of appropriate personnel (and in the case of personnel who perform several functions, only the portion of compensation attributable to the collection assistance), fees paid to locate a missing borrower, postage, equipment, supplies, telephone, and similar charges, but does not include overhead costs, "(ii) The administrative costs for which reimbursement is authorized under this subparagraph must be clearly supplemental to the preclaim assistance for default prevention which the guaranty agency is required or permitted to provide pursuant to paragraph (2)(A) of this subsection and subsection (f). "(iii) The services associated with carrying out this subparagraph may be provided by the guaranty agency directly or under contract, except that such services may not be carried out by an organization or entity (other than the guaranty agency)— "(I) that is the holder or servicer of the loan or an organization or entity that owns or controls the holder or servicer of the loan; "(II) that is owned or controlled by the same corporation, partnership, association, or individual that owns or controls the holder or servicer of the loan; or "(III) that is an organization or entity that has a contract with a guaranty agency to perform collection activities with respect to the same loans in the event of default, "(iv) The costs for each delinquent loan associated with carrying out this subparagraph may not exceed 2 percent of the outstanding principal balance of each such loan subject to the supplemental preclaims assistance authorized by this subparagraph or $100, whichever is less. "(D) In the case of a State which enacts a garnishment law that complies with the requirements of section 428E, subparagraph (A)(ii) shall be applied by substituting '35 percent' for '30 percent'.

Contracts.

State and local governments.

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Page:United States Statutes at Large Volume 100 Part 2.djvu/278

 100 STAT. 1380

PUBLIC LAW 99-498—OCT. 17, 1986

>

"(7) N E W PROGRAMS ELIGIBLE FOR lOO PERCENT REINSURANCE.—

(A) Notwithstanding paragraph (1)(B), the amount to be paid a guaranty agency for any fiscal year— "(i) which begins on or after October 1, 1977; and "(ii) which is either the fiscal year in which such guaranty agency begins to actively carry on a student loan insurance program which is subject to a guaranty agreement under subsection (b) of this section, or is one of the 4 succeeding fiscal years, shall be 100 percent of the amount expended by such guaranty agency in discharge of its insurance obligation insured under such program. "(B) The Secretary shall continuously monitor the operations of those guaranty agencies to which the provisions of subparagraph (A) are applicable and revoke the application of such subparagraph to any such guaranty agency which the Secretary determines has not exercised reasonable prudence in the administration of such program. "(8) ASSIGNMENT TO PROTECT FEDERAL FISCAL INTEREST.—If the

^ '""

Secretary determines that the protection of the Federal fiscal interest so requires, a guaranty agency shall assign to the Secretary any loan of which it is the holder and for which the Secretary has made a payment pursuant to paragraph (1) of this subsection. "(9) REINSURANCE FEES.—(A) Any guaranty agency which has entered into an agreement with the Secretary pursuant to this subsection shall pay to the Secretary during each fiscal year a reinsurance fee in an amount equal to— "(i) 0.25 percent of the total principal amount of the loans upon which insurance was issued by such agency during such fiscal year, in any fiscal year other than a fiscal year described in clause (ii); or "(ii) 0.5 percent of the total principal amount of the loans upon which insurance was issued by such agency during such fiscal year, in any fiscal year with respect to which the Secretary reimbursed the agency for any losses (resulting from the default of the borrower) pursuant to paragraph (I)(B) of this subsection. "(B) The amount to be paid pursuant to subparagraph (A) may be paid from any funds available to the guaranty agency. "(C) When the Secretary first reimburses a guaranty agency pursuant to paragraph (1)(B) of this subsection, the Secretary shall notify such agency of the exact date of such reimbursement. "(d) USURY LAWS INAPPUCABLE.—No provision of any law of

the

United States (other than this Act) or of any State (other than a statute applicable principally to such State's student loan insurance program) which limits the rate or amount of interest payable on loans shall apply to a loan— "(1) which bears interest (exclusive of any premium for insurance) on the unpaid principal balance at a rate not in excess of the rate specified in this part; and "(2) which is insured (i) by the United States under this part, or (ii) by a guaranty agency under a program covered by an agreement made pursuant to subsection (b) of this section. "(e) PAYMENTS FOR LENDER REFERRAL SERVICES.—

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Page:United States Statutes at Large Volume 100 Part 2.djvu/279

 PUBLIC LAW 99-498—OCT. 17, 1986

100 STAT. 1381

"(1) IN GENERAL.—The Secretary shall make payments in accordance with this paragraph to a guaranty agency in any State which provides a lender referral service for students who meet the requirements of paragraph (2). "(2) STUDENT ELIGIBILITY.—A student is eligible to apply for lender referral services to a guaranty agency in a State if— "(A) such student is either a resident of such State or is accepted for enrollment in or is attending an eligible institution in such State; and "(B) such student has sought and was unable to find a lender willing to make a loan under this part. "(3) AMOUNT OF PAYMENT.—The amount which the Secretary shall pay to any eligible guaranty agency under this paragraph shall be equal to one-half of 1 percent of the total principal amount of the loans (upon which insurance was issued under this part) to a student described in paragraph (2) who subsequently obtained such loans because of such agency's referral service. "(4) INCENTIVE FEES TO LENDERS.—Nothing in this or any law shall prohibit an agency from using all or any portion of the funds received under this part for the payment of incentive fees to lenders who agree to participate in a lender referral service. "(5) AUTHORIZATION OF APPROPRIATIONS.—There is authorized to be appropriated such sums as are necessary to carry out the provisions of this paragraph. '(f) PAYMENTS OF CERTAIN COSTS.— "(1) PAYMENTS BASED ON INSURANCE PROGRAM AGREEMENT.—

(A) The Secretary shall make payments in accordance with the provisions of this paragraph to any guaranty agency for the purposes of— "(i) the administrative cost of promotion of commercial lender participation; "(ii) the administrative costs of collection of loans; "(iii) the administrative costs of preclaims assistance for default prevention; "(iv) the administrative costs of monitoring the enrollment and repayment status of students; or "(v) other such costs related to the student loan insurance program subject to such agreement. "(B) The total amount of payments for any fiscal year made under this paragraph shall be equal to 1 percent of the total principal amount of the loans upon which insurance was issued under this part during such fiscal year by such guaranty agency. The guaranty agency shall be deemed to have a contractual right against the United States to receive payments according to the provisions of this subparagraph. Payments shall be made promptly and without administrative delay to any guaranty agency submitting an accurate and complete application therefor under this subparagraph. "(2) APPLICATIONS FOR PAYMENTS.—No payment may be made under paragraph (1) of this subsection unless the guaranty agency submits to the Secretary an application at such time, at least annually, in such manner, and containing or accompanied by such information, as the Secretary may reasonably require. Each such application shall— "(A) set forth assurances that the student loan insurance program subject to the guaranty agreement complies with

State and local governments.

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Page:United States Statutes at Large Volume 100 Part 2.djvu/280

 100 STAT. 1382

PUBLIC LAW 99-498—OCT. 17, 1986

„.,

, P

^ State and local

governments.

State and local

governments.

subparagraphs (A), (B),(G),(R),(S),(T), and (U) of subsection (b)(1); "(B) contain provisions designed to demonstrate the capability of carrying out a necessary and successful program of collection of and preclaim assistance for the loan program subject to that agreement; "(C) set forth an estimate of the costs which are eligible for payment under the provisions of this subsection; "(D) provide for such administrative and fiscal procedures, including an audit, as are necessary to carry out the provisions of this subsection; and "(E) set forth assurances that the guaranty agency will furnish such data and information, including where necessary estimates, as the Secretary may reasonably require, to carry out the provisions of this subsection.

"(g) ACTION ON INSURANCE PROGRAM AND GUARANTY A G R E E -

MENTS.—If a nonprofit private institution or organization— "(1) applies to enter into an agreement with the Secretary under subsections (b) and (c) with respect to a student loan insurance program to be carried on in a State with which the Secretary does not have an agreement under subsection (b), and "(2) as provided in the application, undertakes to meet the requirements of section 422(c)(6)(B)(i), (ii), and (iii), the Secretary shall consider and act upon such application within 180 days, and shall forthwith notify the Committee on Labor and Human Resources of the Senate and the Committee on Education and Labor of the House of Representatives of his actions. "(h) LENDING BY GUARANTY AGENCIES.—

"(1) LENDING FROM SALLIE MAE ADVANCES.—From SUmS advanced by the Association pursuant to section 439(p), each guaranty agency or an eligible lender in a State described in section 435(d)(1)(D) or (F) of the Act is authorized to make loans directly to students otherwise unable to obtain loans under this part. "(2) AMOUNT OF ADVANCES.—(A) Each guaranty agency or an eligible lender in a State described in section 435(d)(1)(D) or (F) which has an application approved under section 439(p)(2) may receive advances under section 439(p) for each fiscal year in an amount necessary to meet the demand for loans under this section. The amount such agency or lender is eligible to receive may not exceed 25 percent of the average of the loans guaranteed by that agency or lender for the 3 years preceding the fiscal year for which the determination is made. Whenever the determination required by the preceding sentence cannot be made because the agency or lender does not have 3 years previous experience, the amount such agency or lender is eligible to receive may not exceed 25 percent of the loans guaranteed under a program of a State of comparable size. "(B) Each guaranty agency and each eligible lender in a State described in section 435(d)(1)(D) or (F) shall repay advances made under section 439(p) in accordance with agreements entered into between the Association and such agency or lender. "(3) LOAN TERM, CONDITIONS, AND BENEFITS.—Loans made pursuant to this subsection shall have the same terms, conditions, and benefits as all other loans made under this part, "(i) MULTIPLE DISBURSEMENT OF LOANS.—

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Page:United States Statutes at Large Volume 100 Part 2.djvu/281

 PUBLIC LAW 99-498—OCT. 17, 1986

100 STAT. 1383

"(1) ESCROW ACCOUNTS ADMINISTERED BY ESCROW AGENT.—Any

state and local

guaranty agency or eligible lender (hereafter in this subsection governments. referred to as the 'escrow agent') may enter into an agreement with any other eligible lender that is not an eligible institution or an agency or instrumentality of the State (hereafter in this subsection referred to as the 'lender') for the purpose of au., thorizing multiple disbursements of the proceeds of a loan to a ' student. Such agreement shall provide that the lender will pay the proceeds of such loans into an escrow account to be administered by the escrow agent in accordance with the provisions of paragraph (2) of this subsection. Such agreement may allow the lender to make pa3mtients into the escrow account in amounts that do not exceed the sum of the amounts required for disbursement of initial or subsequent installments to borrowers and to make such payments not more than 45 days prior to the date of the disbursement of such installment to such borrowers. Such agreement shall require the lender to notify promptly the eligible institution when funds are escrowed under this subsec^, f tion for a student at such institution. "(2) AUTHORITY OF ESCROW AGENT.—Each escrow agent entering into an agreement under paragraph (1) of this subsection is authorized to— "(A) make the disbursements in accordance with the note evidencing the loan; "(B) commingle the proceeds of all loans paid to the escrow agent pursuant to the escrow agreement entered into under such paragraph (1); "(C) invest the proceeds of such loans in obligations of the Federal Government or obligations which are insured or guaranteed by the Federal Government; "(D) retain interest or other earnings on such investment; and "(E) return to the lender undisbursed funds when the student ceases to carry at an eligible institution at least one-half of the normal full-time academic workload as determined by the institution. "(j) LENDERS-OF-LAST-RESORT.—In each State, the guaranty agency State and local or an eligible lender in the State described in section 435(d)(1)(D) of governments, this Act shall make loans directly, or through an agreement with an eligible lender or lenders, to students eligible to receive interest benefits paid on their behalf under subsection (a) of this section who are otherwise unable to obtain loans under this part. Loans made under this subsection shall not exceed the amount of the need of the borrower, as determined under subsection (a)(2)(B), nor be less than $200. "(k) INFORMATION ON DEFAULTS.— "(1) PROVISION OF INFORMATION TO ELIGIBLE INSTITUTIONS.—In

order to notify eligible institutions of former students who are in default of their continuing obligation to repay student loans, each guaranty agency may, upon the request of an eligible institution, furnish information with respect to students who were enrolled at the eligible institution and who are in default on the repayment of any loan made, insured, or guaranteed under this part. The information authorized to be furnished under this subsection may include the names and addresses of such students.

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Page:United States Statutes at Large Volume 100 Part 2.djvu/282

 100 STAT. 1384 .pi., ry,

v„,

,

PUBLIC LAW 99-498—OCT. 17, 1986 '

"(2)

PUBLIC DISSEMINATION NOT AUTHORIZED.—Nothing

in

paragraph (1) of this subsection shall be construed to authorize public dissemination of the information described in paragraph (1). "SUPPLEMENTAL LOANS FOR STUDENTS

20 USC 1078-1.

428A. (a) AUTHORITY TO BORROW.—Graduate and professional students (as defined by regulations of the Secretary) and undergraduate independent students shall be eligible to borrow funds under this section in amounts specified in subsection (b), and unless otherwise specified in subsections (c) and (d), loans under this section shall have the same terms, conditions, and benefits as all other loans made under this part, "SEC.

"(b) LIMITATIONS ON AMOUNTS OF LOANS.— "(1) ANNUAL LIMIT.—Subject to paragraphs

Insurance.

(2) and (3), the maximum amount a student may borrow in any academic year or its equivalent (as defined by regulation by the Secretary) is $4,000. "(2) AGGREGATE LIMIT.—The aggregate insured principal amount for insured loans made to any student under this section, exclusive of interest capitalized under subsection (c), shall not exceed $20,000. "(3) LIMITATION BASED ON NEED.—Any loan under this section may be counted as part of the expected family contribution in the determination of need under this title, but no loans may be made to any student under this section which would cause the student's combined loans for any academic year to exceed the student's estimated cost of attendance minus such student's estimated financial assistance as certified by the eligible institution under section 428(a)(2)(A) of this part. The annual insurable limit on account of the student shall not be deemed to be exceeded by a line of credit under which actual payments to the borrower will not be made in any year in excess of the annual limit.

"(c) PAYMENT OF PRINCIPAL AND INTEREST.—

"(1) COMMENCEMENT OF REPAYMENT.—Repayment of principal

.-

on loans made under this section shall commence not later than 60 days after the date such loan is disbursed by the lender, subject to deferral pursuant to sections 427(a)(2)(C) and 428(b)(l)(M). "(2) CAPITAUZATION OF INTEREST.—Interest on loans made under this section for which payments of principal and interest are deferred under sections 427(a)(2)(C)(i) and 428(b)(l)(M)(i) shall, if agreed upon by the borrower and the lender (A) be paid quarterly or (B) be added to the principal amount of the loan on a quarterly basis by the lender. Such capitalization of interest shall not be deemed to exceed the annual insurable limit on account of the student. "(3) SUBSIDIES PROHIBITED.—No payments to reduce interest costs shall be paid pursuant to section 428(a) of this part on loans made pursuant to this section. "(4) APPLICABLE RATES OF INTEREST.—Interest on loans made pursuant to this section shall be at the applicable rate of interest provided in section 427A(c). "(5) AMORTIZATION.—The amount of the periodic payment and the repayment schedule for any loan made pursuant to this section shall be established by assuming an interest rate equal

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Page:United States Statutes at Large Volume 100 Part 2.djvu/283

 PUBLIC LAW 99-498—OCT. 17, 1986

100 STAT. 1385

to the applicable rate of interest at the time the repayment of the principal amount of the loan commences. At the option of the lender, the note or other written evidence of the loan may require that— "(A) the amount of the periodic payment will be adjusted annually, or "(B) the period of repayment of principal will be lengthened or shortened, in order to reflect adjustments in interest rates occurring as a consequence of section 427A(c)(4). "(d) REFINANCING.— "(1) REFINANCING TO SECURE COMBINED PAYMENT.—An eligible

lender may consolidate loans held by it which are made under this section to a borrower, including loans which were made under section 428B as in effect prior to the enactment of the Higher Education Amendments of 1986, under a single repayment schedule which provides for a single principal payment and a single payment of interest, and shall calculate the repayment period for each included loan from the date of the commencement of repayment of the most recent included loan. Unless the borrower complies with the requirements of paragraph (2), such consolidated loan shall bear interest at the weighted average of the rates of all included loans. The extension of any repayment period of an included loan pursuant to this paragraph shall be reported to the Secretary or guaranty agency insuring the loan, as the case may be, but no additional insurance premiums shall be payable with respect to any such extension. The extension of the repayment period of any included loan shall not require the formal extension of the promissory note evidencing the included loan or the execution of a new promissory note, but shall be treated as an administrative forbearance of the repayment terms of the included loan. "(2) REFINANCING TO SECURE VARIABLE INTEREST RATE.—An

eligible lender may reissue a loan which was made under section 428B as in effect prior to the enactment of the Higher Education Amendments of 1986 in order to permit the borrower to obtain the interest rate provided under section 427A(c)(4). A lender offering to reissue a loan for such purpose may charge a borrower an amount not to exceed $100 to cover the administrative costs of reissuing such loan, not more than one-half of which shall be paid to the guarantor of the loan being reissued to recover costs of reissuance. Reissuance of a loan under this paragraph shall not affect any insurance applicable with respect to the loan, and no additional insurance fee may be charged to the borrower with respect to the loan. "(3) REFINANCING BY DISCHARGE OF PREVIOUS LOAN.—A borrower who has applied to an original lender for reissuance of a loan under paragraph (2) and who is denied such reissuance may obtain a loan from another lender for the purpose of discharging the loan from such original lender. A loan made for such purpose— "(A) shall bear interest at the applicable rate of interest provided under section 427A(c)(4); "(B) shall not result in the extension of the duration of ' the note (other than as permitted under subsection (c)(5)(B));

....

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Page:United States Statutes at Large Volume 100 Part 2.djvu/284

 100 STAT. 1386

PUBLIC LAW 99-498—OCT. 17, 1986

i'

-

K -,

"(C) may be subject to an additional insurance fee but shall not be subject to the administrative cost charge permitted by paragraph (2) of this subsection; and "(D) shall be applied to discharge the borrower from any remaining obligation to the original lender with respect to the original loan.

"(4)

CERTIFICATION IN UEU OF PROMISSORY NOTE PRESEN-

TATION.—Each new lender may accept certification from the original lender of the borrower's original loan in lieu of presentation of the original promissory note. "(5) NOTIFICATION TO BORROWERS OF AVAILABILITY OF REFINANCING OPTIONS.—Each holder of a loan made under this

section or under section 428B as in effect prior to the date of enactment of this Act shall, not later than January 1, 1987, in the case of loans made before the date of enactment of this Act, notify the borrower of such loan— "(A) of the refinancing options for which the borrower is eligible under this subsection; "(B) of those options which will be made available by the holder; and "(C) that, with respect to any option that the holder will not make available, the holder will, to the extent practicable, refer the borrower to an eligible lender offering such option. "PLUS LOANS

20 USC 1078-2.

,V

/

428B. (a) AUTHORITY TO BORROW.—Parents of a dependent student shall be eligible to borrow funds under this section in amounts specified in subsection (b), and unless otherwise specified in subsections (c) and (d), such loans -shall have the same terms, conditions, and benefits as all other loans made under this part. Whenever necessary to carry out the provisions of this section, the terms 'student' and 'borrower' as used in this part shall include a parent borrower under this section, but such a parent borrower shall not be eligible for any deferment pursuant to section 427(a)(2)(C) or 428(b)(l)(M) except for the deferments allowed (with respect to the student) under clauses (i), (viii), and (ix) of such sections. "SEC.

"(b) LIMITATIONS ON AMOUNTS OF LOANS.— "(1) ANNUAL LIMIT.—Subject to paragraphs

'5

(2) and (3), the maximum amount parents may borrow for one student in any academic year or its equivalent (as defined by regulation of the Secretary) is $4,000. "(2) AGGREGATE LIMIT.—The aggregate insured principal amount for insured loans made to parents on account of a student shall not exceed $20,000. "(3) LIMITATION BASED ON NEED.—Any loan under this section may be counted as part of the expected family contribution in the determination of need under this title, but no loan may be made to any parent under this section which would cause the combined loans of the parent and the student for any academic year to exceed the student's estimated cost of attendance minus such student's estimated financial assistance as certified by the eligible institution under section 428(a)(2)(A) of this part. The annual insurable limit on account of any student shall not be deemed to be exceeded by a line of credit under which actual

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Page:United States Statutes at Large Volume 100 Part 2.djvu/285

 PUBLIC LAW 99-498—OCT. 17, 1986

100 STAT. 1387

payments to the borrower will not be made in any year in excess of the annual limit. "(c) PAYMENT OF PRINCIPAL AND INTEREST.—

"(1) COMMENCEMENT OF REPAYMENT.—Repayment of principal

on loans made under this section shall commence not later than 60 days after the date such loan is disbursed by the lender, subject to deferral pursuant to sections 427(a)(2)(C)(i), (viii), and (ix) and 428(b)(l)(M)(i), (viii), and (ix). "(2) CAPITALIZATION OF INTEREST.—Interest on loans made under this section for which payments of principal and interest are deferred under sections 427(a)(2)(C)(i) and 428(b)(l)(M)(i) shall, if agreed upon by the borrower and the lender (A) be paid quarterly or (B) be added to the principal amount of the loan on a quarterly basis by the lender. Such capitalization of interest shall not be deemed to exceed the annual insurable limit on account of the student. "(3) SUBSIDIES PROHIBITED.—No payments to reduce interest costs shall be paid pursuant to section 428(a) of this part on loans made pursuant to this section. "(4) APPLICABLE RATES OF INTEREST.—Interest on loans made pursuant to this section shall be at the applicable rate of interest provided in section 427A(c). "(5) AMORTIZATION.—The amount of the periodic payment and the repayment schedule for any loan made pursuant to this section shall be established by assuming an interest rate equal to the applicable rate of interest at the time the repayment of the principal amount of the loan commences. At the option of the lender, the note or other written evidence of the loan may require that— "(A) the amount of the periodic payment will be adjusted annually, or "(B) the period of repayment of principal will be lengthened or shortened, in order to reflect adjustments in interest rates occurring as a consequence of section 427A(c)(4). "(d) REFINANCING.— "(1) REFINANCING TO SECURE COMBINED PAYMENT.—An eligible

lender may consolidate loans held by it which are made under this section to a borrower, including loans which were made under section 428B as in effect prior to the enactment of the Higher Education Amendments of 1986, under a single repayment schedule which provides for a single principal payment and a single payment of interest, and shall calculate the repayment period for each included loan from the date of the commencement of repayment of the most recent included loan. Unless the borrower complies with the requirements of paragraph (2), such consolidated loan shall bear interest at the weighted average of the rates of all included loans. The extension of any repayment period of an included loan pursuant to this paragraph shall be reported to the Secretary or guaranty agency insuring the loan, as the case may be, but no additional insurance premiums shall be payable with respect to any such extension. The extension of the repayment period of any included loan shall not require the formal extension of the promissory note evidencing the included loan or the execution of a new promissory note, but shall be treated as an administrative forbearance of the repa5mient terms of the included loan.

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Page:United States Statutes at Large Volume 100 Part 2.djvu/286

 100 STAT. 1388

PUBLIC LAW 99-498—OCT. 17, 1986 "'

"(2) REFINANCING TO SECURE VARIABLE INTEREST RATE.—An

eligible lender may reissue a loan which was made under section 428B as in effect prior to the enactment of the Higher Education Amendments of 1986 in order to permit the borrower to obtain the interest rate provided under section 427A(c)(4). A lender offering to reissue a loan for such purpose may charge a borrower an amount not to exceed $100 to cover the administrative costs of reissuing such loan, not more than one-half of which shall be paid to the guarantor of the loan being reissued to cover costs of reissuance. Reissuance of a loan under this paragraph shall not affect any insurance applicable with respect to the loan, and no additional insurance fee may be charged to the borrower with respect to the loan. "(3) REFINANCING BY DISCHARGE OF PREVIOUS LOAN.—A borrower who has applied to an original lender for reissuance of a loan under paragraph (2) and who is denied such reissuance may obtain a loan from another lender for the purpose of discharging the loan from such original lender. A loan made for such purpose— "(A) shall bear interest at the applicable rate of interest ' • provided under section 427A(c)(4); "(B) shall not result in the extension of the duration of the note (other than as permitted under subsection (c)(5)(B)); "(C) may be subject to an additional insurance fee but shall not be subject to the administrative cost charge permitted by paragraph (2) of this subsection; and "(D) shall be applied to discharge the borrower from any remaining obligation to the original lender with respect to the original loan. -

"(4)

CERTIFICATION IN U E U OF PROMISSORY NOTE PRESEN-

TATION.—Each new lender may accept certification from the original lender of the borrower's original loan in lieu of presentation of the original promissory note. "(5) NOTIFICATION TO BORROWERS OF AVAILABILITY OF REFINANCING OPTIONS.—Each holder of a loan made under this

section or under section 428B as in effect prior to the date of enactment of this Act shall, not later than January 1, 1987, in the case of loans made before the date of enactment of this Act, notify the borrower of such loan— "(A) of the refinancing options for which the borrower is eligible under this subsection; "(B) of those options which will be made available by the holder; and "(C) that, with respect to any option that the holder will not make available, the holder will, to the extent practicable, refer the borrower to an eligible lender offering such option. "CONSOUDATION LOANS

20 USC 1078-3.

" S E C 428C. (a) AGREEMENTS WITH ELIGIBLE LENDERS.— "(1) AGREEMENT REQUIRED FOR INSURANCE COVERAGE.—For

the purpose of providing loans to eligible borrowers for consolidation of their obligations with respect to eligible student loans, the Secretary or a guaranty agency shall enter into agreements in accordance with subsection (b) with the following eligible lenders:

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Page:United States Statutes at Large Volume 100 Part 2.djvu/287

 PUBLIC LAW 99-498—OCT. 17, 1986

100 STAT. 1389

"(A) the Student Loan Marketing Association; "(B) State agencies described in subparagraphs (D) and (F) of section 435(d)(l); and "(C) other eligible lenders described in subparagraphs (A), (B), (C), and (E) of such section. "(2) INSURANCE COVERAGE OF CONSOLIDATION LOANS.—Except Contracts, as provided in section 429(e), no contract of insurance under this part shall apply to a consolidation loan unless such loan is made under an agreement pursuant to this section and is covered by a certificate issued in accordance with subsection (b)(2). Loans covered by such a certificate that is issued by a guaranty agency shall be considered to be insured loans for the purposes of reimbursements under section 428(c), but no payment shall be made with respect to such loans under section 428(f) to any such agency. "(3) DEFINITION OF ELIGIBLE BORROWER.—(A) For the purpose

of this section, the term 'eligible borrower' means a borrower who, at the time of application for a consolidation loan— "(i) has an outstanding indebtedness on eligible student loans, at the time of application for a consolidation loan, of not less than $5,000; "(ii) is in repayment status, or in a grace period preceding repayment, and is not delinquent with respect to any required payment on such indebtedness by more than 90 days; and "(iii) is not a parent borrower under section 428B. "(B) An individual's status as an eligible borrower under this section terminates upon receipt of a consolidation loan under this section except with respect to loans received under this title after the date of receipt of the consolidation loan. Loans made under this section shall, to the extent used to discharge loans made under this part, be counted against the applicable limitations on aggregate indebtedness contained in sections 425(a)(2) and 428(b)(l)(B). "(4) DEFINITION OF ELIGIBLE STUDENT LOANS.—For the purpose

of paragraph (1), the term 'eligible student loans' means loans— "(A) made, insured, or guaranteed under this part; "(B) made under part E of this title; or "(C) made under subpart II of part C of title VII of the Public Health Service Act. "(b) CONTENTS OF AGREEMENTS, CERTIFICATES OF INSURANCE, AND LOAN NOTES.—

"(1) AGREEMENTS WITH LENDERS.—Any lender described in

subparagraph (A), (B), or (C) of subsection (a)(1) who wishes to ,, make consolidation loans under this section shall enter into an agreement with the Secretary or a guaranty agency which provides— "(A) that, in the case of all lenders described in subsection (a)(D, the lender will make a consolidation loan to an eligible borrower (on request of that borrower) only if the 9^. borrower certifies that the borrower has no other application pending for a loan under this section and (i) the lender « holds an outstanding loan of that borrower which is selected by the borrower for consolidation under this section, or (ii) the borrower certifies that the borrower has sought and has been unable to obtain a consolidation loan from the

42 USC 294m.

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Page:United States Statutes at Large Volume 100 Part 2.djvu/288

 100 STAT. 1390

siiii:' O

PUBLIC LAW 99-498—OCT. 17, 1986

holders of the outstanding loans of that borrower (which ha& X are so selected for consolidation); "(B) that each consolidation loan made by the lender will •A) • bear interest, and be subject to repayment, in accordance with subsection (c); 'i '(C) that each consolidation loan will be made, notwithstanding any other provision of this part limiting the annual or aggregate principal amount for all insured loans made to a borrower, in an amount (i) which is not less than the minimum amount required for eligibility of the borrower under subsection (a)(2), and (ii) which is equal to the sum of the unpaid principal and accrued unpaid interest and late charges of all loans received by the eligible borrower under this title which are selected by the borrower for consolidation; £,,,,.. "(D) that the proceeds of each consolidation loan will be ,'X paid by the lender to the holder or holders of the loans so selected to discharge the liability on such loans; "(E) such other terms and conditions as the Secretary or the guaranty agency may specifically require of the lender to carry out this section. "(2) ISSUANCE OF CERTIFICATE OF COMPREHENSIVE INSURANCE

COVERAGE.—The Secretary shall issue a certificate of comprehensive insurance coverage under section 429(b) to a lender which has entered into an agreement with the Secretary under paragraph (1) of this subsection. The guaranty agency may issue a certificate of comprehensive insurance coverage to a lender with which it has an agreement under such paragraph. The Secretary shall not issue a certificate to a lender described in subparagraph (B) or (C) of subsection (a)(1) unless the Secretary determines that such lender has first applied to, and has been denied a certificate of insurance by, the guaranty agency which "(3) CONTENTS OF CERTIFICATE.—A certificate issued under paragraph (2) shall, at a minimum, provide— Sc "(A) that all consolidation loans made by such lender in conformity with the requirements of this section will be insured by the Secretary or the guaranty agency (whichever is applicable) against loss of principal and interest; ?«3 K "(B) that a consolidation loan will not be insured unless >?• J S^ i ^ the lender has determined to its satisfaction, in accordance an A ' with reasonable and prudent business practices, for each loan being consolidated— { 1 "(i) that the loan is a legal, valid, and binding obligai• tion of the borrower; lii "(ii) that each such loan was made and serviced in n: compliance with applicable laws and regulations; and "(iii) in the case of loans under this part, that the . V insurance on such loan is in full force and effect; "(C) the effective date and expiration date of the certificate; "(D) the aggregate amount to which the certificate 1^ applies; -^f. "(E) the reporting requirements of the Secretary on the lender and an identification of the office of the Department of Education or of the guaranty agency which will process claims and perform other related administrative functions;
 * insures the preponderance of its loans (by value).

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Page:United States Statutes at Large Volume 100 Part 2.djvu/289

 PUBLIC LAW 99-498—OCT. 17, 1986

100 STAT. 1391

"(F) the alternative repayment terms which will be offered to borrowers by the lender; "(G) that, if the lender prior to the expiration of the certificate no longer proposes to make consolidation loans, the lender will so notify the issuer of the certificate in order that the certificate may be terminated (without affecting the insurance on any consolidation loan made prior to such termination); and "(H) the terms upon which the issuer of the certificate may limit, suspend, or terminate the lender's authority to make consolidation loans under the certificate (without affecting the insurance on any consolidation loan made prior to such limitation, suspension, or termination). "(4) TERMS AND CONDITIONS OF LOANS.—A consolidation loan made pursuant to this section shall be insurable by the Secretary or a guaranty agency pursuant to paragraph (2) only if the loan is made to an eligible borrower who has agreed to notify the holder of the loan promptly concerning any change of address and the loan is evidenced by a note or other written agreement which— "(A) is made without security and without endorsement, except that if the borrower is a minor and such note or other written agreement executed by him or her would not, under applicable law, create a binding obligation, endorsement may be required; "(B) provides for the payment of interest and the repayment of principal in accordance with subsection (c) of this section; "(C) provides that periodic installments of principal need not be paid, but interest shall accrue and be paid, during any period for which the borrower would be eligible for a deferral under clause (i), (viii), or (ix) of section 428(b)(l)(M), and that any such period shall not be included in determining the repayment period pursuant to subsection (c)(2) of this section; "(D) entitles the borrower to accelerate without penalty repayment of the whole or any part of the loan; and "(E)(i) contains a notice of the system of disclosure concerning such loan to credit bureau organizations under section 430A, and (ii) provides that the lender on request of the borrower will provide information on the repayment status of the note to such organizations. '(c) PAYMENT OF PRINCIPAL AND INTEREST.— "(1) INTEREST RATES.—(A) Consolidation loans

made under this section shall bear interest at rates determined under subparagraph (B) or (C). For the purposes of payment of special allowances under section 438(b)(2), the interest rate required by this subsection is the applicable interest rate with respect to a consolidation loan. "(B) Except as provided in subparagraph (C), a consolidation loan shall bear interest at an annual rate on the unpaid principal balance of the loan which is equal to the weighted average of the interest rates on the loans consolidated, rounded to the nearest whole percent. "(C) A consolidation loan shall bear interest at an annual rate on the unpaid principal balance of the loan equal to not less than 9 percent.

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Page:United States Statutes at Large Volume 100 Part 2.djvu/290

 100 STAT. 1392

PUBLIC LAW 99-498—OCT. 17, 1986

-hi

"(2) REPAYMENT SCHEDULES.—(A) Notwithstanding any other provision of this part, to the extent authorized by its certificate of insurance under subsection (b)(2)(F) and approved by the issuer of such certificate, the lender of a consolidation loan shall establish repayment terms as will promote the objectives of this section, which may include the establishment of graduated or income sensitive repayment schedules. Such repayment terms shall require that if the sum of the consolidation loan and the amount outstanding on other student loans to the individual— "(i) is equal to or greater than $5,000 but less than $7,500, then such consolidation loan shall be repaid in not more than 10 years; "(ii) is equal to or greater than $7,500 but less than ».? $10,000, then such consolidation loan shall be repaid in not more than 12 years; "(iii) is equal to or greater than $10,000 but less than $20,000, then such consolidation loan shall be repaid in not more than 15 years; -jiij. "(iv) is equal to or greater than $20,000 but less than $45,000, then such consolidation loan shall be repaid in not more than 20 years; or "(v) is more than $45,000, then such consolidation loan shall be repaid in not more than 25 years. "(B) Unless a consolidation loan under subparagraph (A)(ii) will be used to discharge at least $5,000 of loans made under this part, such loan shall be repaid in accordance with subparagraph (A)(i). "(C) The amount outstanding on other student loans which may be counted for the purpose of subparagraph (A) may not exceed the amount of the consolidation loan. "(3) ADDITIONAL REPAYMENT REQUIREMENTS.—Notwithstand-

ing paragraph (2)— "(A) a repayment schedule established with respect to a i,, consolidation loan shall require that the minimum installment payment equal to not less than the accrued unpaid V 4f, -; interest; and "(B) the lender of a consolidation loan may, with respect to repayment on the loan, when the amount of a monthly or other similar payment on the loan is not a multiple of $5, round the payment to the next highest whole dollar amount that is a multiple of $5. "(4) COMMENCEMENT OF REPAYMENT.—Repayment of a consoli-

dation loan shall commence within 60 days after all holders have, pursuant to subsection (b)(1)(D), discharged the liability of the borrower on the loans selected for consolidation. "(5) INSURANCE PREMIUMS PROHIBITED.—No insurance premium shall be charged to the borrower on any consolidation loan, and no insurance premium shall be payable by the lender to the Secretary with respect to any such loan. "(d) TERMINATION OF AUTHORITY.—The authority to make loans under this section expires at the close of September 30, 1992. Nothing in this section shall be construed to authorize the Secretary to promulgate rules or regulations governing the terms or conditions of the agreements and certificates under subsection (b). Loans made under this section which are insured by the Secretary shall be considered to be new loans made to students for the purpose of section 424(a).

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Page:United States Statutes at Large Volume 100 Part 2.djvu/291

 PUBLIC LAW 99-498—OCT. 17, 1986

100 STAT. 1393

"COMMINGUNG OF FUNDS

"SEC. 428D. Notwithstanding any other provision of this part regarding permissible uses of funds from any source, funds received by a guaranty agency under any provision of this part may be commingled with funds received under any other provision of this part and may be used to carry out the purposes of such other provision, except that— "(1) the total amount expended for the purposes of such other provision shall not exceed the amount the guaranty agency would otherwise be authorized to expend; and "(2) the authority to commingle such funds shall not relieve such agency of any accounting or auditing obligations under this part.

20 USC 1078-4.

"STATE GARNISHMENT LAW REQUIREMENTS

428E. (a) REQUIREMENTS FOR ADDITIONAL COST PAYMENTS.— A garnishment law complies with the requirements of this section if such law— "(1) provides that the amount deducted for any pay period may not exceed 10 percent of disposable pay, except that a greater percentage may be deducted upon the written consent of the individual involved; "(2) provides the individual with a minimum of 30 days written notice, informing such individual of the nature and amount of the indebtedness determined by such agency to be due, the intention of the agency to initiate proceedings to collect the debt through deductions from pay, and an explanation of the rights of the individual under such law; "(3) provides the individual with an opportunity to inspect and copy records relating to the debts; "(4) provides the individual with an opportunity to enter into a written agreement with the agency, under terms agreeable to the head of the agency or his designee, to establish a schedule for the repayment of the debt; "(5) provides the individual with an opportunity for a hearing in accordance with subsection Ob) on the determination of the agency concerning the existence or the amount of the debt, and in the case of an individual whose repayment schedule is established other than by a written agreement pursuant to paragraph (4), concerning the terms of the repayment schedule, but does not permit additional administrative or judicial procedures that would delay collection of the debt (such as reduction of the debt to a judgment); "(6) provides that the employer will be held liable to the agency for any amount which such employer fails to withhold l from wages due an employee following receipt by such employer of proper notice under paragraph (2), but such employer shall not be required to vary the normal pay and disbursement cycles in order to comply with this paragraph; and "(7) provides for the imposition of a fine against any employer who discharges from employment, refuses to employ, or takes disciplinary action against any individual subject to wage withholding required by this section because of the existence of such withholding and the obligations or additional obligations which it imposes upon the employer. "SEC.

20 USC 1078-5.

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Page:United States Statutes at Large Volume 100 Part 2.djvu/292

 100 STAT. 1394

'

PUBLIC LAW 99-498—OCT. 17, 1986

"(b) HEARING REQUIREMENTS.—A hearing described in subsection (a)(5) shall be provided if the individual, on or before the 15th day following receipt of the notice described in subsection (a)(2), and in accordance with such procedures as the head of the agency may prescribe, files a petition requesting such a hearing. The timely filing of a petition for hearing shall stay the commencement of collection proceedings. A hearing under subsection (a)(5) may not be conducted by an individual under the supervision or control of the head of the agency, except that nothing in this sentence shall be construed to prohibit the appointment of an administrative law judge. The hearing official shall issue a final decision at the earliest practicable date, but not later than 60 days after the filing of the petition requesting the hearing. "(c) NOTICE REQUIREMENTS.—The notice given to the employer pursuant to subsection (a)(2) shall contain only such information as may be necessary for the employer to comply with the withholding order. "(d) DEFINITION.—For the purpose of this section, the term 'disposable pay' means that part of pay of any individual remaining after the deduction of any amounts required by law to be withheld. "REHABIUTATION OF DEFAULTED LOANS

20 USC 1078-6.

428F. (a) AUTHORITY TO ESTABLISH PILOT PROGRAM.—The Secretary shall, in accordance with the requirements of this section, establish a pilot program to test the feasibility of rehabilitating defaulted loans under this part. Such pilot program shall be commenced within 3 months after the date of enactment of this section and shall be completed not later than 3 years after such date. The Secretary shall submit a report on the results of such pilot program within 3 months after its completion. "(b) ELIGIBILITY FOR PILOT PROGRAM.—The loans which shall be eligible for rehabilitation under this section shall be only those loans which are made to borrowers who, at the time of default on the loan, are unemployed or institutionalized. "SEC.

"(c) METHOD OF REHABIUTATION.— "(1) SALE OF LOAN PURSUANT TO AGREEMENT.—Upon securing

consecutive payments for 12 months of amounts owed on a loan for which the Secretary has made a payment under section 428(c)(1), the guaranty agency (pursuant to an agreement with the Secretary) or the Secretary shall, if practicable, sell the rehabilitated loan to an eligible lender, other than an eligible lender who has been found by the guaranty agency or the "(2) TERMS OF AGREEMENT.—Such agreement between the
 * ^ Secretary to have substantially failed to exercise the due diligence required of lenders under this part.

guaranty agency and the Secretary shall provide— "(A) for the repa3anent by the agency to the Secretary of 81.5 percent of the amount of the principal balance outstanding at the time of such sale multiplied by a percentage amount equal to the reinsurance percentage in effect when payment under the guaranty agreement was made with respect to the loan; and "(B) for the reinstatement by the Secretary (I) of the obligation to reimburse such agency for the amount expended by it in discharge of its insurance obligation under its loan insurance program, and (II) of the obligation to pay

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Page:United States Statutes at Large Volume 100 Part 2.djvu/293

 PUBLIC LAW 99-498—OCT. 17, 1986

100 STAT. 1395

to the holder of the rehabilitated loan a special allowance pursuant to section 438. "(3) PROCEEDS OF SALES OFFSET AGAINST DEFAULT CLAIMS.—

Amounts received by the Secretary pursuant to the sale of rehabilitated loans by a guaranty agency under this paragraph shall be deducted from the calculations of the amount of claims for reimbursement filed by the agency under section 428(c)(1) for the fiscal year in which the amount was received, notwithstanding the fact that the default occurred in a prior fiscal year. "(4) EFFECT OF REHABILITATION ON BORROWER ELIGIBILITY.—

Any borrower whose loan is rehabilitated under this subsection shall not be precluded by section 484 from receiving additional assistance under this title (for which he or she is otherwise eligible) on the basis of defaulting on the loan prior to rehabilitation. "(5) APPLICABILITY OF OTHER TERMS, CONDITIONS, AND BENE-

FITS.—A loan which is rehabilitated under this paragraph shall be subject to the same terms and conditions and qualify for the same benefits and privileges as other loans made under this part. "CERTIFICATE OF FEDERAL LOAN INSURANCE—EFFECTIVE DATE OF INSURANCE 'SEC. 429. (a) LOAN-BY-LOAN INSURANCE.— "(1) AUTHORITY TO ISSUE CERTIFICATES ON APPLICATION.—If,

upon application by an eligible lender, made upon such form, containing such information, and supported by such evidence as the Secretary may require, and otherwise in conformity with this section, the Secretary finds that the applicant has made a loan to an eligible student which is insurable under the provisions of this part, he may issue to the applicant a certificate of insurance covering the loan and setting forth the amount and terms of the insurance. "(2) EFFECTIVENESS OF CERTIFICATE.—Insurance evidenced by a

certificate of insurance pursuant to subsection (a)(1) shall become effective upon the date of issuance of the certificate, except that the Secretary is authorized, in accordance with regulations, to issue commitments with respect to proposed loans, or with respect to lines (or proposed lines) of credit, submitted by eligible lenders, and in that event, upon compliance with subsection (a)(1) by the lender, the certificate of insurance may be issued effective as of the date when any loan, or any payment by the lender pursuant to a line of credit, to be covered by such insurance was made. Such insurance shall cease to be effective upon 60 days' default by the lender in the payment of any installment of the premiums payable pursuant to subsection (c). "(3) CONTENTS OF APPLICATIONS.—An application submitted pursuant to subsection (a)(l) shall contain (A) an agreement by the applicant to pay, in accordance with regulations, the premiums fixed by the Secretary pursuant to subsection (c), and (B) an agreement by the applicant that if the loan is covered by insurance the applicant will submit such supplementary reports and statement during the effective period of the loan agreement, upon such forms, at such times, and containing such

71-194 0 - 8 9 - 1 1

 * QL. 3 Part 2

20 USC 1079.

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Page:United States Statutes at Large Volume 100 Part 2.djvu/294

 100 STAT. 1396

PUBLIC LAW 99-498—OCT. 17, 1986 information as the Secretary may prescribe by or pursuant to regulation. "(b) COMPREHENSIVE INSURANCE COVERAGE CERTIFICATE.— "(1) ESTABLISHMENT OF SYSTEM BY REGULATION.—In

.,. _ ^, ' " ^"

lieu of requiring a separate insurance application and issuing a separate certificate of insurance for each student loan made by an eligible lender as provided in subsection (a), the Secretary may, in accordance with regulations consistent with section 424, issue to any eligible lender applying therefor a certificate of comprehensive insurance coverage which shall, without further action by the Secretary, insure all insurable loans made by that lender, on or after the date of the certificate and before a specified cutoff date, within the limits of an aggregate maximum amount stated in the certificate. Such regulations may provide for conditioning such insurance, with respect to any loan, upon compliance by the lender with such requirements (to be stated or incorporated by reference in the certificate) as in the Secretary's judgment will best achieve the purpose of this subsection while protecting the United States from the risk of unreasonable loss and promoting the objectives of this part, including (but not limited to) provisions as to the reporting of such loans and information relevant thereto to the Secretary and as to the payment of initial and other premiums and the effect of default therein, and including provision for confirmation by the Secretary from time to time (through endorsement of the certificate) of the coverage of specific new loans by such certificate, which confirmation shall be incontestable by the Secretary in the absence of fraud or misrepresentation of fact or patent error. "(2) UNCOVERED LOANS.—If the holder of a certificate of comprehensive insurance coverage issued under this subsection grants to a student a line of credit extending beyond the cutoff date specified in that certificate, loans or payments thereon made by the holder after that date pursuant to the line of credit shall not be deemed to be included in the coverage of that certificate except as may be specifically provided therein; but, subject to the limitations of section 424, the Secretary may, in accordance with regulations, make commitments to insure such future loans or payments, and such commitments may be honored either as provided in subsection (a) or by inclusion of such insurance on comprehensive coverage under the subsection for the period or periods in which such future loans or payments are made. "(c) CHARGES FOR FEDERAL INSURANCE.—The Secretary shall, pursuant to regulations, charge for insurance on each loan under this part a premium in an amount not to exceed one-fourth of 1 percent per year of the unpaid principal amount of such loan (excluding interest added to principal), payable in advance, at such times and in such manner as may be prescribed by the Secretary. Such regulations may provide that such premium shall not be payable, or if paid shall be refundable, with respect to any period after default in the payment of principal or interest or after the borrower has died or becomes totally and permanently disabled, if (1) notice of such default or other event has been duly given, and (2) requests for payment of the loss insured against has been made or the Secretary has made such payment on his own motion pursuant to section 430(a).

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Page:United States Statutes at Large Volume 100 Part 2.djvu/295

 PUBLIC LAW 99-498—OCT. 17, 1986

100 STAT. 1397

"(d) AssiGNABiliTY OF INSURANCE.—The rights of an eligible lender arising under insurance evidenced by a certificate of insurance issued to it under this section may be assigned as security by such lender only to another eligible lender, and subject to regulation by the Secretary. "(e) C!oNSOUDATiON NOT TO AFFECT INSURANCE.—The consolidation of the obligations of two or more federally insured loans obtained by a student borrower in any fiscal year into a single obligation evidenced by a single instrument of indebtedness shall not affect the insurance by the United States. If the loans thus consolidated are covered by separate certificates of insurance issued under subsection (a), the Secretary may upon surrender of the original certificates issue a new certificate of insurance in accordance with that subsection upon the consolidated obligation; if they are covered by a single comprehensive certificate issued under subsection (b), the Secretary may amend that certificate accordingly. "DEFAULT OF STUDENT UNDER FEDERAL LOAN INSURANCE PROGRAM

430. (a) NOTICE TO SECRETARY AND PAYMENT OF Loss.—Upon default by the student borrower on any loan covered by Federal loan insurance pursuant to this part, and prior to the commencement of suit or other enforcement proceedings upon security for that loan, the insurance beneficiary shall promptly notify the Secretary, and the Secretary shall if requested (at that time or after further collection efforts) by the beneficiary, or may on the Secretary's own motion, if the insurance is still in effect, pay to the beneficiary the amount of the loss sustained by the insured upon that loan as soon as that amount has been determined. The 'amount of the loss' on any loan shall, for the purposes of this subsection and subsection (b), be deemed to be an amount equal to the unpaid balance of the principal amount and accrued interest, including interest accruing from the date of submission of a valid default claim (as determined by the Secretary) to the date on which payment is authorized by the Secretary, reduced to the extent required by section 425(b). Such beneficiary shall be required to meet the standards of due diligence in the collection of the loan and shall be required to submit proof that reasonable attempts were made to locate the borrower (when the location of the borrower is unknown) and proof that contact was made with the borrower (when the location is known). The Secretary shall make the determination required to carry out the provisions of this section not later than 90 days after the notification by the insurance beneficiary and shall make payment in full on the amount of the beneficiary's loss pending completion of the due diligence investigation. "(b) EFFECT OF PAYMENT OF Loss.—Upon payment of the amount of the loss pursuant to subsection (a), the United States shall be subrogated for all of the rights of the holder of the obligation upon the insured loan and shall be entitled to an assignment of the note or other evidence of the insured loan by the insurance beneficiary. If the net recovery made by the Secretary on a loan after deduction of the cost of that recovery (including reasonable administrative costs and collection costs, to the extent set forth in regulations issued by the Secretary) exceeds the amount of the loss, the excess shall be paid over to the insured. The Secretary may, in attempting to make recovery on such loans, contract with private business concerns. State student loan insurance agencies, or State guaranty agencies. "SEC.

20 USC 1080.

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Contracts.

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