[Federal Register Volume 59, Number 82 (Friday, April 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-10250]
[[Page Unknown]]
[Federal Register: April 29, 1994]
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Part IX
Department of Education
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34 CFR Part 682
Federal Family Education Loan Program; Final Rule
DEPARTMENT OF EDUCATION
34 CFR Part 682
RIN 1840-AB83
Federal Family Education Loan Program
AGENCY: Department of Education.
ACTION: Final regulations.
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SUMMARY: The Secretary amends the regulations governing the Federal
Family Education Loan (FFEL) Program. The FFEL Program consists of the
Federal Stafford, Federal Supplemental Loans for Students (SLS),
Federal PLUS, and the Federal Consolidation Loan programs. These
amendments are needed to implement changes made to the Higher Education
Act of 1965, as amended (HEA), by the Higher Education Amendments of
1992, and certain technical changes made by the Cash Management
Improvement Act Amendments of 1992, the Omnibus Budget Reconciliation
Act of 1993, and the Higher Education Technical Amendments of 1993. The
regulations amend the FFEL Program loan discharge provisions and
enhance the ability of lenders and guaranty agencies to service and
collect FFEL Program loans.
DATES: These regulations take effect either 45 days after publication
in the Federal Register or later if the Congress takes certain
adjournments, with the exception of Secs. 682.202, 682.208, 682.402,
682.410, and 682.411. These sections will become effective after the
information collection requirements contained in these sections have
been submitted by the Department of Education and approved by the
Office of Management and Budget under the Paperwork Reduction Act of
1980.
If you want to know the effective date of these regulations, call
or write the Department of Education contact person. A document
announcing the effective date will be published in the Federal
Register.
Subject to approval under the Paperwork Reduction Act, the
following applicability dates also apply to certain provisions of these
regulations:
Section 682.202(c), which reduces the amount of the origination fee
charged on an FFEL Program loan, applies to loans for which the first
disbursement is made on or after July 1, 1994, if the period of
enrollment for which the loan is intended either includes that date or
begins on or after that date.
Section 682.202(d), which reduces the amount of the insurance
premium charged on an FFEL Program loan, applies to loans for which the
first disbursement is made on or after July 1, 1994, if the period of
enrollment for which the loan is intended either includes that date or
begins on or after that date.
Section 682.410(b)(5)-(7), which requires guaranty agencies to warn
defaulters that they may be subject to administrative wage garnishment
and offset against federal or state income tax refunds, applies to
claims paid by the agency on or after 120 days following the date of
publication.
Section 682.411, which requires lenders to warn delinquent
borrowers that they may be subject to administrative wage garnishment
and offset against federal or state income tax refunds if they default
on their loans, applies to loans on which the first day of delinquency
is on or after 120 days following the date of publication.
FOR FURTHER INFORMATION CONTACT: George Harris, Senior Program
Specialist, Loans Branch, Division of Policy Development, Policy,
Training, and Analysis Service, U.S. Department of Education, 400
Maryland Avenue, SW. (Room 4310, ROB-3), Washington, DC 20202-5449.
Telephone: (202) 708-8242. Individuals who use a telecommunications
device for the deaf (TDD) may call the Federal Information Relay
Service (FIRS) at 1-800-877-8339 between 8 a.m. and 8 p.m., Eastern
time, Monday through Friday.
SUPPLEMENTARY INFORMATION: The Secretary is amending 34 CFR part 682 to
implement changes made to the HEA by Public Law 102-325, enacted July
23, 1992, as well as certain changes added by Public Law 103-66,
enacted August 10, 1993 and Public Law 103-208, enacted December 20,
1993. These regulations seek to improve the efficiency of federal
student aid programs, and, by so doing, to improve their capacity to
enhance opportunities for postsecondary education.
On January 14, 1994, the Secretary published a notice of proposed
rulemaking (NPRM) for part 682 in the Federal Register (59 FR 2486).
The NPRM included a discussion of the major issues surrounding the
proposed changes which will not be repeated here. The following list
summarizes those issues and identifies the pages of the preamble to the
NPRM on which a discussion of those issues may be found:
Amendment to Sec. 682.208 to provide for borrower
notification when there is a servicing change (page 2488);
Addition to Sec. 682.402 to implement loan discharges if
the student could not complete the educational program because the
school closed (page 2491);
Addition to Sec. 682.402 to implement loan discharges if
the student's eligibility to borrow was falsely certified by the school
(pages 2488-2490);
Addition to Sec. 682.410 to implement administrative wage
garnishment of borrowers who owe defaulted loans (page 2491).
Executive Order 12866
These regulations have been reviewed in accordance with Executive
Order 12866. Under the terms of the order the Secretary has assessed
the potential costs and benefits of this regulatory action.
The potential costs associated with the regulations are those
resulting from statutory requirements and those determined by the
Secretary to be necessary for administering this program effectively
and efficiently, as discussed in those sections of the preamble that
relate to specific sections of the regulations.
In assessing the potential costs and benefits--both quantitative
and qualitative--of these regulations, the Secretary has determined
that the benefits of the regulations justify the costs, and do not
interfere with State, local, and tribal governments in the exercise of
their governmental functions. Substantive revisions to the Notice of
Proposed Rulemaking.
Section 682.202 Permissible Charges by Lenders to Borrowers
The Secretary has incorporated into the regulations the
changes made by Public Law 103-66 and Public Law 103-208 to origination
fees and insurance premiums. Section 682.202(a)(6) of the proposed
regulations, which discussed the refund of excess interest paid on
Stafford loans, has been deleted. Those refund provisions were
substantially amended by Public Law 103-208, and will be the subject of
future proposed regulations.
Section 682.208 Due Diligence in Servicing a Loan
The Secretary has incorporated into the regulations the
changes made by Public Law 103-208 to the notification requirements
that apply to the sale or transfer of a loan.
Section 682.402 Death, Disability, Closed School, False Certification,
and Bankruptcy Payments
The Secretary has expanded the definition of what
constitutes a school's ``false certification of a student's eligibility
to borrow'' to include cases where a school signed a putative
borrower's name on the loan application or the promissory note. The
Secretary will also provide relief under these procedures to borrowers
who demonstrate that the school, without authorization by the borrower,
endorsed the borrower's loan check or signed the borrower's
authorization for electronic funds transfer, if the student did not
receive the loan proceeds, either by actual delivery of the funds or by
application of the loan proceeds to institutional charges owed to the
school.
The Secretary has partially deleted the requirement that,
as a condition of eligibility for a closed school or false
certification discharge, a borrower must assign to and relinquish in
favor of the Secretary any right to a loan refund (up to the amount
discharged) from any public fund. However, a borrower will still be
required to assign to and relinquish in favor of the Secretary any
right to a loan refund (up to the amount discharged) from any private
fund, including the portion of a public fund that represents funds
received from a private party.
The Secretary has deleted the requirement for the student
to certify that, as a condition of eligibility for a false
certification discharge, he or she was certified by the school on the
application for the loan as an eligible student.
Section 682.410 Fiscal, Administrative, and Enforcement Requirements
The regulations have been revised to incorporate the
Secretary's guidance sent to guaranty agencies in July 1993 concerning
(Pub. L. 102-589). That guidance explained that a guaranty agency was
no longer required to assign loans to the Secretary for federal income
tax refund offsets.
The Secretary has deleted the provision of the proposed
regulations that would have made a self-employed borrower subject to
wage garnishment.
Analysis of Comments and Changes
In response to the Secretary's invitation in the NPRM, 40 parties
submitted comments on the proposed regulations. An analysis of the
comments and of the changes made to the regulations as a result of
those comments follows.
Major issues are grouped according to subject, with references to
the appropriate sections of the regulations. Other substantive issues
are discussed under the section of the regulations to which they
pertain. Technical and other minor changes, and suggested changes the
Secretary is not legally authorized to make under the applicable
statutory authority, are not addressed.
Section 682.202 Permissible Charges by Lenders to Borrowers
1. Comment: A number of commenters noted that Public Law 103-66 and
Public Law 103-208 made changes to the statute upon which the NPRM was
based. The commenters recommended that regulatory provisions applying
to borrower interest rates, refunds of excess interest paid,
origination fees, and insurance premiums, should be updated to reflect
current law. Some commenters recommended that a separate NPRM be issued
to address the complex changes made by Public Law 103-208 to the
provisions that mandate the refunding of excess interest.
Discussion: To the extent that such changes can be readily made,
the Secretary agrees that they should be. The Secretary has decided to
issue a new notice of proposed rulemaking to implement the changes
affecting the refund of excess interest paid, which had been the
subject of Sec. 682.202(a)(6) of the proposed regulations.
Change: The final regulations have been amended to incorporate the
changes made by Public Law 103-208 to loan origination fees and
insurance premiums. Interest rate changes will be in a subsequent NPRM.
Section 682.202(a)(6) of the proposed regulations has been deleted,
however, the Secretary has reserved that paragraph in these final
regulations as the location for future regulations relating to the
refunding of excess interest that is required by section 427A(i) of the
HEA.
Section 682.202(c)(2)
2. Comment: Some commenters objected to the requirement that a
lender must charge an unsubsidized Federal Stafford Loan borrower a 6.5
percent origination/insurance fee. The commenters believed that the
lender should have an option to charge the borrower a lesser amount, as
is permitted for a subsidized Federal Stafford Loan.
Discussion: Prior to Public Law 103-66, section 428H(f)(1) of the
HEA required the lender to charge an unsubsidized Federal Stafford Loan
borrower a 6.5 percent origination/insurance fee. Public Law 103-66
split the combined origination/insurance fee into two separate
components: a 3 percent origination fee that is required to be charged
to the borrower, and a 1 percent insurance premium that may be charged
to the borrower. The origination and insurance fees applicable to a
subsidized Federal Stafford Loan were also reduced by Public Law 103-66
to 3 percent and 1 percent respectively. However, the HEA continues to
permit a lender to charge a subsidized Federal Stafford Loan borrower a
lesser amount than the maximum loan origination fee, whereas no similar
option exists for an unsubsidized Federal Stafford Loan origination
fee.
Change: The final regulations have been revised to incorporate the
reduced fees resulting from Public Law 103-66.
Section 682.202(c)(4)
3. Comment: Some commenters noted a conflict between
Sec. 682.202(c)(1) which stated that a lender may charge a borrower an
origination fee on a subsidized Stafford loan, whereas
Sec. 682.202(c)(4) mandated that the lender shall deduct a pro rata
portion of such fee from each disbursement of the loan proceeds.
Discussion: The Secretary agrees with the commenters.
Change: Section 682.202(c)(4) has been amended to clarify that the
pro rata deduction requirement applies only if the lender has chosen to
charge an origination fee to the borrower.
Section 682.208 Due Diligence in Servicing a Loan
4. Comment: A number of commenters favored an expansion in the
notification requirements pertaining to an assignment of a loan or a
change in the identity of the party to whom the borrower sends payments
or communications concerning the loan. The commenters believed that the
notice required to be sent by the holder of the loan should apply to
all borrowers, and not be limited to only those borrowers in the grace
or repayment periods. Some commenters also noted that Public Law 103-
208 made two changes to section 428(b)(2)(F) of the HEA: (1) The
transferee (instead of the transferor) is now required to notify the
guaranty agency when a loan is sold or transferred; and (2) the
transferor and the transferee may now notify the borrower of the sale
or transfer of a loan either jointly or separately (instead of only
separately).
Discussion: Section 428(b)(2)(F) of the HEA states that the
notification requirements ``* * * shall only apply if the borrower is
in the grace period * * * or is in repayment status.''
Change: No changes are made with respect to the commenters' first
comment. The final regulations have been revised to incorporate the
notification changes resulting from Public Law 103-208.
Section 682.402 Death, Disability, Closed School, False Certification,
and Bankruptcy Payments
Section 682.402(a)
5. Comment: A number of commenters objected to the requirement
that, in general, the borrower's loan must be a legally enforceable
debt under applicable law by the holder of the loan to qualify a
guaranty agency for a reinsurance payment under the closed school and
false certification discharge provisions. The commenters believed that
students should have their loans discharged, and the Secretary should
reimburse guaranty agencies for such discharges, even if the borrower's
debt is legally unenforceable by the holder of the loan. Of particular
concern to some commenters were cases where the school signed the
borrower's name on the loan documents or check. While the commenters
generally recognized that the borrower technically does not owe the
amount of the unenforceable debt, they were concerned that borrowers
may not have the resources to pursue a legal or administrative
determination of loan enforceability. The commenters also believed that
even if the borrower did pursue that avenue, it could take many years
to reach a resolution, during which the borrower would be subject to
collection activity, damaged credit rating, and if in default, would be
considered to be ineligible for additional federal student financial
aid.
In a related area, some commenters expressed concern that, under
current federal regulations, a borrower would not receive a closed
school or false certification discharge if federal reinsurance on the
loan had been lost because of violations of due diligence or other
programmatic requirements committed by the lender or the guarantor. The
commenters believed that Congress intended to help a borrower who was
victimized by a school's closing or false certification of eligibility
to borrow, events that are beyond the control of the borrower.
Discussion: The Secretary is persuaded that the term ``falsely
certified,'' as used in section 437(c)(1) of the HEA, should be defined
to include certain cases where a school signed the borrower's name on
the loan application or promissory note. The definition of the term
``falsely certified'' is extensively discussed in response to comment
48. Because of the similarity of such cases to those involving the
execution of the application or note by the school in the name of the
borrower, the Secretary concluded that cases in which the school
improperly endorsed the borrower's signature on the loan check or the
authorization for electronic funds transfer should also be addressed
under these regulatory procedures, although such misconduct is not by
itself a false certification. Under these final regulations, therefore,
the Secretary will provide relief to borrowers in cases of unauthorized
endorsements, but except for the instances in which the school both
falsely created a loan application or promissory note for a student and
then endorsed the student's name on the loan check, the lender is
responsible for ensuring the authenticity of a borrower's signature on
the lender's loan check, and should continue to bear the risk of an
improper endorsement. In those instances, although a borrower may under
the procedure as modified here receive a discharge of any obligation to
repay that portion of a loan disbursed by a check which he or she
neither endorsed nor received the proceeds of, the lender will not be
permitted to receive or retain a claim payment for that amount. Because
the Secretary considers the lender to have not had routine access to
the written authorization for electronic funds transfer, on the other
hand, the lender would not have occasion to know of an unauthorized
execution of that authorization in the name of the borrower, and would
not be held at risk for such unauthorized disbursements under these
procedures.
The Secretary also agrees that the loss of federal reinsurance on
the loan due to violations of due diligence or other programmatic
requirements committed by the lender or the guarantor should not
prevent an eligible borrower from receiving a closed school or false
certification discharge. In such cases, the Secretary will use his
authority pursuant to Sec. 682.406(b) to waive his right to refuse to
make a reinsurance payment on the loan. Thus, (except in the case of a
falsely endorsed check, as noted above) a lender may receive a claim
payment and a guaranty agency may receive a reinsurance payment on a
loan for which an eligible borrower would qualify for a closed school
or false certification discharge, even though violations of program
requirements committed by the lender or guarantor may have otherwise
sufficed to cause federal reinsurance on the loan to have been lost.
During the last few years, Congress and the Secretary have taken
steps to combat unscrupulous individuals and program participants who
have used the FFEL Program to exploit innocent students and taxpayers.
The discharge of loans owed by the innocent victims is consistent with
those actions. The Department intends to pursue the individuals and
organizations who caused this situation so that the taxpayer can be
reimbursed, and future students are protected.
Change: As will be further discussed in response to comment 48, the
Secretary has expanded the definition of what constitutes a school's
``false certification of a student's eligibility to borrow'' to include
a loan for which the school signed the name of an innocent victim on
the application for the loan or the promissory note. The regulations
will also provide relief in cases in which the borrower signed the loan
application or promissory note, but the school signed the borrower's
name on a loan check or authorization for electronic funds transfer,
providing that the student did not receive, directly or indirectly, the
benefits of the loan proceeds disbursed by that loan check or by virtue
of the authorization for electronic funds transfer signed by the
school.
6. Comment: Some commenters believed that information concerning
closed school or false certification discharges should be made
available to the borrower at the time the loan is made or while the
student is in school. The commenters believed that this important
information may be easily overlooked by or not reach the borrower after
the school has closed or the student has withdrawn.
Discussion: This information is made available to the student in
the common application/promissory note used by all guaranty agencies.
In addition, if a borrower has questions concerning his or her loan
obligation, a lender is required under Sec. 682.208(c)(1) to respond
within 30 days after receipt of an inquiry from the borrower or any
endorser on a loan.
Change: None.
Section 682.402(b)(1)
7. Comment: Some commenters believed that the regulations should
state that a discharge of a Federal PLUS or Federal Consolidation Loan
because of a borrower's death would apply only if both co-makers of the
loan died.
Discussion: This was stated in Sec. 682.402(a)(2) of the proposed
regulations. Section Sec. 682.402(b)(1) addresses the loan obligation
of an individual borrower who dies.
Change: None.
8. Comment: Some commenters recommended that the regulations state
that the discharge of a Federal PLUS Loan because of the student's
death applies only to student deaths occurring on or after July 23,
1992.
Discussion: The Secretary agrees that clarification is needed to
reflect the effective date of section 437(d) of the HEA.
Change: The final regulations have been revised accordingly.
Section 682.402(c)(1)
9. Comment: Some commenters objected to the requirement that a
Federal Consolidation Loan borrower must provide the disbursement dates
of the underlying loans if the borrower requests a loan discharge for
total and permanent disability based on a condition that pre-dated the
Consolidation Loan. The commenters believed that this information is
present in the borrower's Consolidation Loan file and the borrower
should not be required to submit information already in the possession
of the lender.
Discussion: The regulations are designed to cover all cases,
including those in which the information may not be present in the
borrower's loan file, and it may be necessary in some cases, for the
borrower to provide this documentation. For example, the lender's
information may be incomplete or destroyed due to fire, flood, theft,
etc. However, in other cases where the lender already possesses this
information in the borrower's loan file, the Secretary agrees that the
borrower should not be required to provide the same documentation.
Change: Section 682.402(c)(1) has been revised to specify that the
borrower's requirement to provide such documentation only applies if
the lender does not already possess it.
Section 682.402(d)(1)(i)
10. Comment: Some commenters were confused by references to ``the
loan'' and thought that a borrower with multiple loans would not be
completely covered under the closed school loan discharge provisions.
Discussion: In general, regulatory language is more precise if it
is based on the singular form of a noun. In the case of a closed school
loan discharge, this permits each loan to be evaluated individually,
and not be dependent on factors associated only with other loans. If
the borrower qualifies for a discharge of more than one loan, then each
loan will be discharged.
Change: None.
11. Comment: Some commenters believed that a borrower should be
eligible for a closed school loan discharge for the portion of a
Federal Consolidation Loan that repaid a loan that would have otherwise
been discharged under the closed school provisions.
Discussion: The Secretary agrees with the commenters. The Secretary
has been given authority pursuant to section 437(c)(1) of the HEA to
``* * * discharge the borrower's liability on the loan * * *'' if the
student could not complete the program in which the student was
enrolled because of the school's closure. Because section 437(c)
provides for discharge of loans because of events that occur before the
borrower enters repayment, the borrower's liability on the loan is the
amount outstanding at that time, before the borrower enters repayment.
If the borrower repays some or all of that amount, the discharge would
be ineffective unless it includes relief from that liability through
reimbursement for the amounts paid on the loan, and those amounts
include amounts borrowed through a Consolidation Loan. The Secretary
believes that the borrower's Consolidation Loan should be credited for
the amount of the closed school loan discharge that would have been
applicable to the borrower's loan before it was consolidated.
Change: The final regulations have been revised accordingly.
12. Comment: Some commenters believed that the 90-day period prior
to a school's closing during which a student who withdrew would be
eligible for a loan discharge is too short for many students who
attended correspondence schools. The commenters noted that such
students frequently are considered ``withdrawn'' as of the date of the
last lesson submitted by the student if the student did not submit the
next scheduled lesson in accordance with the schedule of lessons
established under Sec. 682.602. However, the school may not have been
considered to have officially closed until more than 90 days have
elapsed from the date the student would be considered to have withdrawn
under Sec. 682.605(b)(3). The commenters observed that in many cases,
it was the school that withdrew from the student by its failure to
grade lessons or provide subsequent lessons, or to otherwise
communicate with a student who attempted to learn if the school was
still operating. The commenters believed that correspondence students,
unlike other students who attended a school at a school's actual
location, are not in a position to see an obvious deterioration in the
school's ability to provide education to students.
Discussion: The Secretary believes that the 90-day period generally
is sufficient for all categories of students. The Secretary notes that
correspondence students may actually be in a better position than other
students to realize that a school's ability to provide training and
services is deteriorating. The absence of communication from a
correspondence school to a student is an unmistakable sign that the
school is not fulfilling its part of the enrollment agreement with the
student. Other types of schools may be able to effectively camouflage
their deteriorating capabilities and prevent students from seeing the
true state of the school's fiscal and administrative situation, but a
correspondence school student cannot be so easily deceived. The lack of
communication from a school is a clear fact that speaks for itself.
However, the Secretary agrees with the commenters that in some unique
circumstances an extension of the 90-day period may be appropriate.
Change: The final regulations have been revised to include a
provision for the Secretary to extend the 90-day period if he believes
an extension is appropriate in a particular case.
Section 682.402(d)(1)(ii)(A)
13. Comment: Some commenters noted that schools that close will
frequently phase-out their operations by sequentially eliminating
individual programs even though the school remains open. The commenters
believed that by linking a borrower's eligibility for a loan discharge
to the date that the school ceased to provide educational instruction
in all programs, the regulations would penalize a borrower who withdrew
from school because of a terminated or deteriorated program earlier
than 90 days before the school officially closed.
Discussion: The Secretary has been given authority pursuant to
section 437(c)(1) of the HEA to discharge the borrower's liability on
the loan if the student could not complete the program ``* * * due to
the closure of the institution.* * *'' The Secretary has no authority
to discharge the borrower's loan obligation if the student's program
was terminated but the school did not close.
Change: None.
14. Comment: Some commenters did not understand the reference to
``the designated agency in the state in which the school is located.''
The commenters asked if the agency making the determination that a
school had closed would be the guaranty agency, the state school
licensing agency, or some other agency.
Discussion: The Secretary understands the commenters' concerns and
has concluded that he is in the best position to evaluate the
information provided by various sources concerning whether a school has
closed and the date of closure. Therefore, the determination of a
school's closure date will be made by the Secretary and communicated to
FFEL Program participants.
Change: The regulation has been amended to read ``A school's
closure date is the date that the school ceases to provide educational
instruction in all programs, as determined by the Secretary;''
Section 682.402(d)(1)(ii)(C)
15. Comment: Some commenters recommended that the regulations
clarify that only a loan made for attendance at an eligible school
could be discharged under the closed school loan discharge provisions.
Some commenters also wanted the regulations to make it clear that the
discharge provisions would apply only if the branch or location of the
school where the student actually attended was itself ``eligible.''
Discussion: The closed school loan discharge authorized in section
437(c)(1) of the HEA is not restricted only to a loan made for
attendance at an eligible school. The Secretary believes that Congress
was aware of instances in which a school or its branch may have lost
eligibility, but the school continued to certify loan applications
under an eligible school identification code. The Secretary believes
this is the reason why there is no requirement in section 437(c)(1) of
the HEA that links a borrower's eligibility for a closed school loan
discharge to only a loan certified by an eligible school.
Change: None.
Section 682.402(d)(2)(iv)
16. Comment: Some commenters recommended that the regulations
require the holder of a loan discharged under the closed school loan
discharge provision to forward the original promissory note marked
``canceled'' or ``satisfied in full'' to the borrower within 30 days
after discharging the borrower's loan obligation.
Discussion: A loan that is discharged due to the borrower's death,
permanent and total disability, or bankruptcy, is considered ``paid in
full'' for the purposes of Sec. 682.414(a)(2). The Secretary will add a
closed school loan discharge to the definition of the term ``paid in
full'' found in Sec. 682.414(a)(2), but does not believe it is
necessary to otherwise amend the requirements pertaining to the return
of promissory notes (found in Sec. 682.414(a)(4) of the current
regulations) in the manner recommended by the commenters. The return of
a borrower's promissory note pursuant to a closed school discharge does
not need to be accomplished any differently than the return of a
borrower's promissory note pursuant to any other type of discharge.
Change: Section 682.414(a)(2) has been amended to add a closed
school loan discharge.
Section 682.402(d)(3)
17. Comment: Some commenters recommended that the Secretary
prescribe a standardized form for the closed school loan discharge
application and associated sworn statement from the borrower.
Discussion: The Secretary agrees that this would be helpful.
Pursuant to the requirements of section 432(l) of the HEA, the
Secretary will consult with FFEL participants to develop a standardized
form.
Change: None.
18. Comment: Some commenters objected to the requirement that a
borrower who requests a closed school loan discharge must submit the
sworn statement described in the regulations. The commenters believed
the sworn statement is unnecessary in cases where the holder of the
loan or the guaranty agency has reliable information in their
possession showing that the borrower was in attendance at the school
when it closed or within 90 days before it closed. The commenters
believed the borrower's loan obligation should be discharged based on
those existing records.
Discussion: The Secretary believes the borrower's sworn statement
is necessary to adequately protect the interests of the taxpayers. The
information provided on the borrower's sworn statement is not limited
to the isolated historical record of the borrower's attendance at the
closed school. For example, the borrower must state whether he or she
took advantage of a teach-out or transferred academic credits from the
closed school to another school. The borrower must also agree to
cooperate with the Secretary or the Secretary's designee in enforcement
actions in accordance with Sec. 682.402(d)(4). This information, and
the borrower's agreement to cooperate, will not be in the possession of
the guaranty agency and must be obtained in the borrower's sworn
statement.
Change: None.
Section 682.402(d)(3)(ii)(A)
19. Comment: Some commenters requested clarification of whether the
closed school loan discharge applied to a loan that was partially
disbursed on or after January 1, 1986.
Discussion: The Secretary has been given authority pursuant to
section 437(c)(1) of the HEA to discharge the borrower's liability on a
loan ``* * * received, on or after January 1, 1986 ``* * *'' if the
student could not complete the program due to the closure of the
school. For purposes of the closed school loan discharge, the Secretary
will consider the borrower's entire loan eligible if any part of it was
disbursed by the lender on or after January 1, 1986.
Change: The final regulations have been revised to incorporate this
clarification.
Section 682.402(d)(3)(ii)(C)
20. Comment: Some commenters believed that a borrower who was
unable to transfer all of the academic credits or hours earned at the
closed school to another school should qualify for a partial loan
discharge.
Discussion: If a student chooses to transfer any amount of academic
credits or hours earned at the closed school to another school, and as
a result of that action is able to complete the program of study that
the student was enrolled in at the closed school, the student would not
meet the requirement contained in section 437(c)(1) of the HEA that
restricts a closed school loan discharge to a student ``* * * unable to
complete the program* * *'' because of the school's closing. Thus,
there would be no statutory basis for discharging the borrower's loan
obligation.
Change: None.
21. Comment: Some commenters believed that a borrower who
transferred academic credits or hours earned at the closed school to
another school should not qualify for a discharge if the borrower
enrolled in a different program of study at the new school or enrolled
in a similar program but quickly withdrew.
Discussion: The Secretary believes that the borrower is entitled to
a loan discharge under the HEA in any case in which a student's program
of education is disrupted by the closing of the school to the extent
that the student does not, for any reason, complete the program. The
presumption must be that the school's closing directly hindered the
student's achievement of his or her educational goals.
Change: None.
22. Comment: Some commenters recommended that the regulations
define the term ``teach-out at another school.'' The commenters
believed that the absence of a definition would result in widespread
confusion as to what constitutes a ``teach-out'' for purposes of a
closed school loan discharge. The commenters suggested that the key
elements of a teach-out are: (a) No charges additional to the original
program cost; (b) identity of subject matter taught; (c) geographic
proximity between the original and teach-out schools; (d) demonstrated
compatibility of program structure and scheduling (e.g., student is
able to begin the teach-out within a reasonable time after the school
closure, and the completion dates, class times, and instructional
methodology are comparable); and (e) review and approval by the state
licensing agency.
Discussion: The Secretary believes that a prescriptive regulatory
definition of ``teach-out'' is unnecessary. The Secretary notes that
because a student may decline to complete the program through a teach-
out at another school for any reason, it is therefore reasonable to
conclude that a student who chooses to participate in a teach-out and
completes the program, has demonstrated an acceptance of those teach-
out conditions. In short, a student can be protected from being forced
to accept what he or she believes to be an onerous teach-out condition
by simply declining the teach-out. A student who, even though
inconvenienced, chooses to complete his or her program through a teach-
out, has received value from the loan and needs no loan discharge.
The Secretary asks interested parties to submit information to him
concerning the actual costs paid by students who completed their
programs through teach-outs. The Secretary will evaluate those costs to
determine if the regulations should be revised in the future to permit
a discharge based on certain circumstances.
Change: None.
Section 682.402(d)(3)(iv)
23. Comment: Some commenters, while believing that borrower
cooperation is important in an enforcement action undertaken against a
school or other related parties, were concerned that a borrower may be
unable to take time away from work, home, or other activities to travel
to multiple court appearances needed to assist the Secretary or his
designee in the enforcement action. The commenters believed that a
borrower should be required to assist in an enforcement action only to
the extent practicable for the borrower.
Discussion: It would not be in the interests of the Secretary or
the taxpayer to make unreasonable demands on the borrower when pursuing
an enforcement action. It would equally not be in the interests of the
Secretary or the taxpayer to create an opportunity for a borrower to
frustrate the Secretary's enforcement action by claiming that he or she
was unavailable to testify. The use of the word ``cooperate'' in the
regulations implies a process of two or more parties reasonably working
together toward a common goal, and needs no further elaboration.
Change: None.
Section 682.402(d)(5)(i)
24. Comment: Some commenters opposed the requirement that a
borrower must assign to and relinquish in favor of the Secretary any
right to a loan refund (up to the amount discharged) from any private
or public fund. The commenters were particularly concerned with the
effect they believed this requirement would have upon state tuition
recovery funds. The commenters also believed that the Secretary has no
statutory right to any claim against a state tuition recovery fund
because the HEA fails to specifically provide the secretary with that
right. The commenters noted that section 437(c)(2) of the HEA limits
the assignment to the Secretary of a borrower's right to a loan refund
only to the borrower's rights ``* * * against the institution and its
affiliates and principals.'' The commenters contended that there is no
indication that Congress intended the Secretary to have access to state
funds or to require states to participate economically in closed school
loan discharges. The commenters believed that the HEA's omission of
state tuition recovery funds (or any other private or public fund)
reflects the principal of statutory construction ``expressio unius est
exclusio alterius'' (the expression of one thing is the exclusion of
another).
Discussion: The Secretary believes that the statutory authority
permitting the assignment to the Secretary of a borrower's right to
recover a loan refund from the school, its affiliates, or principals
clearly contemplates the recovery of refunds from private funds. A
private fund is funded by parties who are directly or indirectly
associated with the school, and the HEA intends that the Secretary
shall have a legal claim to a private tuition recovery fund in the
event of a school closure. Although they may be categorized as ``public
funds,'' it is the Secretary's understanding that many state tuition
recovery funds rely in whole, or in part, on private funding provided
by a school, its owners, or affiliates. Therefore, the Secretary
believes that a borrower's assignment of recovery rights against a
public fund is applicable only to the extent that a state tuition
recovery fund or any other such public fund contains private money. The
public money in those funds should not be considered.
Change: The final regulations have been revised to exclude the
portion of a public fund that represents public money.
25. Comment: Some commenters questioned why a borrower must assign
to and relinquish in favor of the Secretary any right to a loan refund
(up to the amount discharged) with respect to the enrollment agreement
for the program for which the loan was received. The commenters
believed that the assignment of a borrower's rights pursuant to the
enrollment agreement would not gain anything for the Secretary. They
were concerned that the borrower would be forced to surrender some
rights (unspecified) unnecessarily, despite the statement in
Sec. 682.402(d)(5)(iii) that permits the borrower (or student) to
pursue legal and equitable relief regarding disputes arising from
matters otherwise unrelated to the loan discharged.
Discussion: The requirement that the borrower must assign to and
relinquish in favor of the Secretary any right to a loan refund (up to
the amount discharged) does not preclude the borrower from pursuing
legal action against the school or any related party with respect to
the terms of the student's enrollment agreement with the school, or
with respect to any other grievance the student may have against the
school or those parties.
Change: None.
Section 682.402(d)(6)(i) and (ii)
26. Comment: Some commenters believed it was confusing to link
guaranty agency requirements to a date other than the actual date that
a school closed.
Discussion: In some cases, a guaranty agency may not become aware
of a school's closure until significantly after the date the school
actually closed. Therefore, the only workable way to create timeframes
for guaranty agencies to perform certain actions, such as notifying
lenders to suspend collection efforts, would be to tie those timeframes
to the date that the agency first became aware, or was notified by the
Secretary, that a school had closed.
Change: None.
Section 682.402(d)(6)(i)(C)
27. Comment: Some commenters asked why August 29, 1994 was proposed
as the effective date for this provision.
Discussion: As a requirement for publishing the NPRM in the Federal
Register, a specific date had to be used instead of a generic reference
such as ``prior to the effective date of these regulations.''
Therefore, August 29, 1994 was the Secretary's estimation (made prior
to the date the NPRM was published) of when the final regulations would
be effective.
Change: This date, and all other dates based on it, will be revised
when the actual effective date is known.
Section 682.402(d)(6)(i)(D)
28. Comment: Some commenters believed that the regulations should
require a guaranty agency to provide loan-specific information to
lenders so that lenders can more effectively suspend collection efforts
against individuals with respect to loans made at closed schools. The
commenters noted that a lender would not be able to identify a PLUS
borrower if the guarantor notified the lender of the school code and
closure date only.
Discussion: The Secretary believes that because the loan
application retained by the lender will have the name of the school and
the period of enrollment for which the loan was made, the lender should
be able to determine which individuals it should suspend collection
efforts against once the lender is notified of the date a school
closed. The Secretary encourages a guaranty agency to provide
assistance to a lender that believes it is unable to identify the
appropriate PLUS borrowers.
Change: None.
Section 682.402(d)(6)(i)(E)
29. Comment: Some commenters recommended that a guaranty agency be
required to suspend collection activities on loans that it holds for
borrowers who the agency believes may be eligible for a closed school
loan discharge. The commenters noted that this is a requirement in the
analogous regulation in Sec. 682.402(e)(6)(iv) and (v) with respect to
false certification discharges.
Discussion: The Secretary had intended that this requirement would
be in the NPRM.
Change: The regulations have been amended to require a guaranty
agency to take the same actions with respect to a borrower who may be
eligible for a closed school loan discharge as the agency is required
to take under Sec. 682.402(e)(6)(iv) and (v) with respect to a borrower
who may be eligible for a false certification discharge.
30. Comment: Some commenters noted that Sec. 682.402(d)(6)(i) of
the proposed regulations did not specify what a guaranty agency would
be required to do upon the receipt of a complete application from a
borrower whose loan is held by the guaranty agency. The commenters
recommended that the procedures required under Sec. 682.402(d)(6)(ii)
should also apply to Sec. 682.402(d)(6)(i).
Discussion: The Secretary agrees that the requirement for notifying
the borrower that he or she does not qualify for a loan discharge
should be in both Sec. 682.402(d)(6)(i) and Sec. 682.402(d)(6)(ii).
Change: The final regulations have been revised to add this
requirement.
Section 682.402(d)(6)(i)(F)
31. Comment: Some commenters objected to the requirement that a
guaranty agency must consult with representatives of the closed school,
the school's licensing agency, the accrediting agency, and other
appropriate parties to learn the current address of borrowers whose
loans are held by the guaranty agency, and who have been identified as
potentially eligible for a closed school loan discharge. The commenters
believed that the skiptracing efforts required under Sec. 682.410(b)(6)
are more likely to be successful than contacts with the closed school
and its related agencies.
Discussion: The Secretary believes that special efforts should be
made to contact borrowers who may be eligible for a closed school loan
discharge, but whose current address is unknown. Therefore, the
interests of fairness to all borrowers justifies the additional
skiptracing efforts required by the regulations.
Change: None.
Section 682.402(d)(6)(ii)(C)
32. Comment: Some commenters believed that a guaranty agency should
not be the party that mails a discharge application to a borrower
identified under this subparagraph of the regulations. Instead, the
commenters believed it would be more appropriate for the guaranty
agency to mail the application package to the lender or servicer, who
would then mail it to the borrower. The commenters believed that this
change would assist the lender in determining when to cease collections
and would also avoid any borrower confusion.
Discussion: This provision of the proposed regulations requires a
guaranty agency to ``* * * review its records of loans that it holds *
* *'' (emphasis added). The lender is not the holder of loans held by
the guaranty agency. The guaranty agency will mail the application
package to a borrower whose loan is held by the agency. For loans held
by a lender, the lender will mail the application package to the
borrower.
Change: None.
Section 682.402(d)(6)(ii)(D)
33. Comment: Some commenters noted that, in the case of a loan held
by the guaranty agency, the proposed regulations did not require the
guaranty agency to inform a borrower that the borrower's loan
obligation has been discharged.
Discussion: The Secretary agrees with the commenters.
Change: The final regulations have been revised to require a
guaranty agency, in the case of a borrower whose loan is held by the
agency, to send written notification to the borrower no later than 30
days after the agency determines that the borrower has satisfied all of
the conditions required for discharge of the loan.
Section 682.402(d)(6)(ii)(E)
34. Comment: Some commenters believed it is counterproductive to
set time limits that the borrower must meet if there is no penalty
incurred by a borrower who fails to comply with those time limits. The
commenters recommended a deletion of the prohibition against a borrower
being denied a closed school loan discharge solely on the basis of the
borrower's failure to meet any time limits set by the lender, guaranty
agency, or Secretary.
Discussion: There are no time-driven requirements with respect to
the submission of information that a borrower must meet to qualify for
a closed school loan discharge. Perhaps the commenters misinterpreted
the lender's requirement in Sec. 682.402(d)(7)(ii) to resume collection
efforts against a borrower who failed to submit, within 60 days, the
written request and sworn statement necessary for loan discharge.
However, that requirement only has the effect of reactivating
collection efforts, and does not disqualify the borrower from later
submitting a complete application for loan discharge.
Change: None.
Section 682.402(d)(7)(i)
35. Comment: Some commenters believed that a lender should not be
permitted to suspend collection efforts against a borrower for whom the
lender has received reliable information from a source other than a
guaranty agency or the Secretary indicating that the borrower may be
eligible for a closed school loan discharge.
Discussion: The Secretary does not believe that either he or a
guaranty agency will always be the first to know that a specific
borrower may be eligible for a closed school loan discharge. For
example, the school itself could notify the lender that it had closed,
or a legal aid group working on behalf of students could notify the
lender of students who it believed were eligible. The Secretary
believes that it would be in the best interests of the borrower to
permit a lender to exercise its judgment concerning the reliability of
the sources of information it receives.
Change: None.
Section 682.402(d)(7)(ii)
36. Comment: Some commenters believed that a lender that resumes
collection activity against a borrower who fails to submit the
documentation required for a closed school loan discharge should be
required to grant forbearance to the borrower to absolve the borrower
of any delinquency status existing on the loan, including delinquency
that occurred before the date the lender suspended collection activity.
The commenters believed that the borrower's delinquency is generally
the result of the borrower's inability to pay due to circumstances
caused by the school.
Discussion: The Secretary believes there is no reason to conclude
that a borrower who did not qualify for a closed school loan discharge
should, nevertheless, be presumed to have been harmed by the school to
the extent that the borrower could not comply with the terms of his or
her repayment agreement with the lender.
Change: None.
37. Comment: Some commenters believed the 60-day administrative
forbearance period permitted while a lender awaited the borrower's
submission of documentation is too short. The commenters believed that
up to 90 days would be necessary to address the borrower's questions
and for the borrower to submit documentation to the lender.
Discussion: A 60-day period is the standard administrative
forbearance period permitted for purposes of awaiting documentation for
other purposes e.g., death, disability, or bankruptcy cancellations.
The Secretary believes that 60 days is more than adequate for the
borrower to submit the request for discharge and sworn statement for a
closed school discharge.
Change: None.
Section 682.402(d)(7)(iii)
38. Comment: Some commenters objected to the requirement that a
payment received by the lender from or on behalf of the borrower after
the lender filed a claim on the loan with the guaranty agency must be
forwarded to the guaranty agency within 30 days of its receipt. The
commenters contended that the guaranty agency is not the legal holder
of the loan until it pays a claim, and therefore has no right to the
payment.
Discussion: The Secretary sees no benefit in having the borrower's
payment in the possession of the party that has forwarded other loan
related documents to the guaranty agency. The Secretary is aware of at
least two ways for a lender to forward the borrower's payment to a
guaranty agency so that it can be applied to the borrower's outstanding
loan balance: the lender could cash the borrower's check and forward
its own check payable to the guaranty agency on behalf of the borrower,
or the lender could forward the borrower's original check to the agency
and the agency could hold the check until it paid the lender's claim.
Change: None.
Section 682.402(d)(7)(iv)
39. Comment: Some commenters believed that in the case of a claim
filed by a lender, the guaranty agency, not the lender, should notify
the borrower that a closed school loan discharge has been granted.
Discussion: The borrower had an obligation to repay the loan to the
lender. The borrower has no obligation to repay the loan (it has been
discharged) to the guaranty agency. The borrower should be informed by
the party to whom the borrower had been obligated (the lender, if the
claim was filed by the lender, or the guaranty agency, if the
borrower's loan was held by the guaranty agency) that the borrower's
obligation to repay the loan to that party has been discharged.
Change: None.
40. Comment: Some commenters noted that the proposed regulations
did not specify the actions that a lender must take when it is informed
by a guaranty agency that a borrower's request for a closed school
discharge has been denied.
Discussion: The Secretary had intended that the procedures that
applied in the case of a false certification request would apply to a
closed school claim also.
Change: The final regulations have been revised to specify in
Sec. 682.402(d)(7)(v) the responsibilities of a lender when it is
notified by a guaranty agency that a borrower's request for a closed
school discharge has been denied.
Section 682.402(e) False Certification by a School of a Student's
Eligibility to Borrow
41. Comment: Some commenters requested the Secretary to
specifically state in the regulations what the effect of a false
certification discharge would be on a school's cohort default rate.
Discussion: This issue would be more appropriately addressed in the
definition of a school's cohort default rate in 34 CFR Part 668. While
the Secretary does not believe that a school that falsely certified a
borrower's eligibility should be allowed to benefit from that false
certification by having its default rate reduced as a consequence, he
is studying this issue to determine the appropriate treatment of such
cases, and will make a decision when information concerning actual
cases of false certification discharges is available.
Change: None.
Section 682.402(e)(1)
42. Comment: Some commenters believed that a parent should not have
a Federal PLUS Loan discharged if the school falsely certified the
eligibility of the student for whom the parent obtained the PLUS Loan.
The commenters believed that only loans obtained directly by the
student should be discharged under this section.
Discussion: Section 437(c)(1) of the HEA was amended by (Pub. L.
103-208) to permit a parent to receive a discharge of a PLUS Loan if
the school falsely certified the eligibility of the student for whom
the parent obtained the PLUS Loan.
Change: None.
43. Comment: Some commenters requested clarification of whether the
false certification discharge applied to a loan that was partially
disbursed on or after January 1, 1986.
Discussion: The Secretary has been given authority pursuant to
section 437(c)(1) of the HEA to discharge the borrower's liability on a
loan ``* * * received, on or after January 1, 1986 * * *'' if the
student's eligibility to borrow was falsely certified by the school.
For purposes of the false certification discharge, the Secretary will
consider the borrower's entire loan eligible if any part of it was
disbursed by the lender on or after January 1, 1986.
Change: The final regulations have been revised to incorporate this
clarification.
44. Comment: Some commenters objected to the restriction that a
false certification discharge would only apply if the false
certification was made by an ``eligible'' institution. The commenters
believed that the HEA intended the false certification discharge
provision to apply to certifications made by both ``eligible'' and
``ineligible'' schools.
Discussion: This was discussed in detail on page 2490 of the NPRM
published on January 14, 1994 (FR 59, No. 10). The Secretary has been
given authority pursuant to section 437(c)(1) of the HEA to discharge
the borrower's liability on a loan if the student's eligibility to
borrow ``* * * was falsely certified by the eligible institution * * *.
'' (emphasis added.) The statute prescribes the scope of the discharge
for false certification under section 437(c) as extending to those
instances in which the ``student's eligibility to borrow under this
part was falsely certified by the eligible institution * * *.'' 20
U.S.C. 1087(c)(1).
The commenters proposal would have the effect of ignoring this
language, which on its face limits relief to individuals whose personal
eligibility status was falsely certified, rather than to those who
contend that they were ineligible because the school at which they were
enrolled was not an ``eligible institution.'' This limitation embodies
a congressional choice to exclude those grounds that were really
challenges to the eligibility status of the school itself, and nothing
in the language or the legislative history suggests that this
limitation is inadvertent or unintended. Moreover, institutional
eligibility rests directly and indirectly on a host of qualifications.
The lack of one or more of these qualities in a school mistakenly
determined to be eligible by the Department would, under the
commenters' view, suffice to make eligible for discharge all borrowers
enrolled at the institution while the deficiency persisted--a period
that could stretch over several years--regardless of whether that
deficiency related to the adequacy of the training and skills provided
to the borrower.
The text itself and the legislative history show no intention of
such a broad and costly view of the discharge provision. The Secretary
does not, however, consider borrowers who attended schools that
allegedly lacked eligibility to be barred by that alleged deficiency
from relief under the false certification provision, but merely that
the falsity on which they would seek relief must relate to a
certification about their personal eligibility, and not that of the
allegedly ineligible institution. The Secretary does not have the
authority to discharge a loan that was made to a borrower for
attendance at an ineligible school.
Change: None.
Section 682.402(e)(2)(ii)
45. Comment: Some commenters noted that lenders and guaranty
agencies generally are not required to keep loan records longer than
five years after the date a loan is paid in full. In light of the
borrower's statutory right to a false certification discharge for loans
received on or after January 1, 1986, the commenters recommended that
the regulations prescribe the procedures to be followed by lenders and
guaranty agencies who learn of borrowers who claim to have repaid their
loans in full more than five years ago, but for whom the lender or
guaranty agency has no existing records.
Discussion: In these cases, the Secretary expects the lender and
guaranty agency will examine records reasonably available to them from
other sources. If the lender or guaranty agency are unable to locate
records of a loan paid in full more than five years ago, it would be
the responsibility of a borrower who requests a loan discharge to
provide the required documentation needed for a discharge of the loan.
Change: None.
Section 682.402(e)(2)(iv)
46. Comment: Some commenters recommended that the regulations
require the holder of a loan discharged under the false certification
discharge provision to forward the original promissory note marked
``canceled'' or ``satisfied in full'' to the borrower within 30 days
after discharging the borrower's loan obligation.
Discussion: The discussion following comment 16 also applies to a
false certification discharge.
Change: Section 682.414(a)(2) has been amended to add a false
certification discharge.
Section 682.402(e)(3)
47. Comment: Some commenters recommended that the Secretary
prescribe a standardized form for the false certification discharge
application and associated sworn statement from the borrower.
Discussion: The discussion following comment 17 also applies to a
false certification discharge.
Change: None.
Section 682.402(e)(3)(ii)(B)
48. Comment: Some commenters objected to the proposed regulation
that would limit a false certification discharge to only those cases
where a student admitted to a school on the basis of a purported
ability to benefit from the school's training did not meet the
applicable requirements for admission on the basis of ability to
benefit. The commenters believed that the HEA did not envision any
restriction as to what would constitute a school's false certification
of a student's eligibility to borrow under the FFEL Program. Other
commenters believed that some restrictions should apply, and proposed
additional acts and certifications of a school that should be construed
as false certifications. Some commenters were pleased with the
regulations as written, and recommended no changes.
Discussion: The additional acts and certifications by a school that
the commenters proposed were the same as those discussed in the NPRM
published on January 14, 1994 (FR 59, No. 10). For the reasons stated
on pages 2488-2490 of the NPRM, and for the additional reasons
discussed earlier in response to comment 5, the Secretary believes that
the term ``falsely certified,'' when used for purposes of a false
certification discharge, applies to cases involving a school's invalid
certification that a student had the ability to benefit from the
training offered by the school, or cases where the school signed a
person's name on the loan application or the promissory note, and
certain cases where the school wrongfully endorsed a person's name on
the loan check, or the borrower's authorization for electronically
transferring loan proceeds.
The Secretary believes that if the school rather than the student
signed a person's name on the loan application or the promissory note,
the putative borrower is not aware that a loan was being applied for
and had no intention of entering into an agreement to repay a loan.
Therefore, it is reasonable to conclude that a borrower who did not
sign the application or promissory note could not have completely
understood that a check later presented for endorsement would represent
the proceeds of such a loan, and would not have intended to signify by
endorsing such a check or authorization to release funds that he or she
agreed to become obligated to repay a loan. A school that signed a
person's name on a precursory document (the loan application or the
promissory note) effectively prevented the person from being fully
aware of the relationship normally apparent to a borrower who first
completes an application for a loan and later receives a loan
disbursement as a result of that application.
The Secretary understands that in some cases, an unscrupulous
school may obtain the valid signature of a borrower on the loan
application or promissory note and will later sign the student's name
on the loan check or the authorization for electronic funds transfer.
However, despite these actions, a student could have materially
benefitted from the loan proceeds by a reduction of the charges owed to
the school or by otherwise receiving proceeds of the loan delivered by
the school. The Secretary believes that a person who signed the loan
application and promissory note should be considered an individual who
was aware that he or she requested a loan. Therefore, if the borrower
(or student on whose behalf a parent borrowed a PLUS Loan) was enrolled
at the school during the period of time that the loan (or an
installment thereof) was intended to cover, and someone other than the
borrower signed the borrower's name on a loan check or authorization
for electronic funds transfer, causing the loan proceeds to be applied
to the student's account to satisfy a liability for tuition and other
charges owed to the school, or to be delivered to the borrower, it is
reasonable to conclude that the borrower by that action received the
proceeds of the loan he or she had applied. Because that borrower
obtained the benefits of the loan disbursement, even though the
borrower realized that he or she did not sign the loan check or the
authorization for electronic funds transfer, that borrower would be
legally obligated with respect to that disbursement. In this case, the
Secretary does not believe that a loan discharge was contemplated by
Congress. However, if it is determined that the borrower or student did
not benefit from the loan proceeds, the Secretary believes that the
borrower should be relieved of any obligation to repay the amount of
the loan proceeds transmitted as a result of a falsely signed loan
check or authorization for electronic funds transfer, and that such
relief can be included in the procedures adopted for discharges under
section 437(c) of the HEA.
The Secretary is concerned with the plight of students who have
been misled by unscrupulous schools, or who have been harmed by a
school's failure to fulfill its obligations (such as the payment of a
refund to the student). Practices of this sort are violations of 34 CFR
part 668, subpart F, which governs misrepresentations by schools. The
Secretary will take a broad range of sanctions against schools to
enforce these provisions. The Secretary also notes that recent changes
made to Title IV, Part H of the HEA will reduce the incidence of school
malfeasance. Further, the Secretary will determine if relief can be
provided to such students in future regulations or legislative
amendments. However, not all cases of school malfeasance can currently
be classified as a school's ``false certification of a student's
eligibility to borrow'' that would permit a borrower to receive a loan
discharge under the HEA. For example, although misrepresentations
regarding the school's educational program or its financial or
administrative capability, including the school's placement services or
the quality of the school's facilities, faculty, or equipment, may well
have induced the student to enroll at the school, those representations
are not part of the process of ``certification'' of the student's
eligibility to borrow.
Change: The final regulations have been revised to permit false
certification discharges in cases where the school, without the
authorization of the individual, signed a person's name on the loan
application or the promissory note. In addition, the regulations
provide relief where the school, without borrower authorization,
endorsed the borrower's name on a loan check or authorization for
electronic funds transfer, providing that the student did not receive,
directly or indirectly, the benefits of the loan proceeds disbursed by
that loan check or authorization for electronic funds transfer that was
signed by the school. The regulations will include provisions for a
borrower to appeal to the Secretary if the borrower disagrees with a
guaranty agency's decision that the signatures in question were signed
by the borrower.
Section 682.402(e)(3)(ii)(C)
49. Comment: Some commenters believed it was unnecessary for the
student to certify that he or she was certified by the school on the
application for the loan as an eligible student. The commenters
believed that this information is seldom known to students because they
may never see or understand what the school wrote on the application.
The commenters noted that the student could generally deduce that the
school had made such a certification by the fact that a lender made the
loan, but believe that the same deduction could just as easily be made
by a guaranty agency or the Secretary.
Discussion: The Secretary agrees with the commenters.
Change: The final regulations have been revised to delete this
requirement.
Section 682.402(e)(3)(ii)(D)
50. Comment: Some commenters believed there is no statutory
justification for denying a false certification discharge if the
student was able to obtain employment in the occupation for which the
student's program was intended to provide training.
Discussion: In the case of a discharge based on a school's
defective certification that the student had the ability to benefit
from the school's training, this was discussed in detail on pages 2488-
2490 of the NPRM published on January 14, 1994 (FR 59, No. 10). The
Secretary believes that the ability of a student to obtain employment
in the occupation for which the student's program was intended to
provide training is evidence that the student was able to benefit from
the education received, even though the school may have improperly
tested, or failed to test, the student's ability to benefit from the
school's training.
Change: None.
51. Comment: Some commenters questioned what would constitute a
student's ``reasonable attempt to obtain employment'' and questioned
whether it would be fair to expect the student to be able to document,
or even remember such attempts that may have been made many years ago.
Discussion: In the absence of evidence to the contrary, a student
who states that he or she made a ``reasonable attempt to obtain
employment'' will be presumed to have done so. The student is simply
being asked to sign a statement to that effect.
Change: None.
Section 682.402(e)(3)(iv)
52. Comment: Some commenters, while believing that borrower
cooperation is important in an enforcement action undertaken against a
school or other related parties, were concerned that a borrower may be
unable to take time away from work, home, or other activities to travel
to multiple court appearances needed to assist the Secretary or his
designee in the enforcement action. The commenters believed that a
borrower should be required to assist in an enforcement action only to
the extent practicable for the borrower.
Discussion: The discussion following comment 23 also applies to a
false certification discharge.
Change: None.
Section 682.402(e)(5)(i)
53. Comment: Some commenters opposed the requirement that a
borrower must assign to and relinquish in favor of the Secretary any
right to a loan refund (up to the amount discharged) from any private
or public fund. The commenters were particularly concerned with the
effect they believed this requirement would have upon state tuition
recovery funds. The commenters also believed that the Secretary has no
statutory right to any claim against a state tuition recovery fund
because the HEA fails to specifically provide the secretary with that
right. The commenters noted that the section 437(c)(2) of the HEA
limits the assignment to the Secretary of a borrower's right to a loan
refund only to the borrower's rights ``* * * against the institution
and its affiliates and principals.'' The commenters contend that there
is no indication that Congress intended the Secretary to have access to
state funds or to require states to participate economically in false
certification discharges. The commenters believed that the HEA's
omission of state tuition recovery funds (or any other private or
public fund) reflects the principal of statutory construction
``expressio unius est exclusio alterius'' (the expression of one thing
is the exclusion of another).
Discussion: The discussion following comment 24 also applies to a
false certification discharge.
Change: The final regulations have been revised to exclude the
portion of a public fund that represents public money.
54. Comment: Some commenters questioned why a borrower must assign
to and relinquish in favor of the Secretary any right to a loan refund
(up to the amount discharged) with respect to the enrollment agreement
for the program for which the loan was received. The commenters
believed that the assignment of a borrower's rights pursuant to the
enrollment agreement would not gain anything for the Secretary. They
were concerned that the borrower would be forced to surrender some
rights (unspecified) unnecessarily, despite the statement in
Sec. 682.402(e)(5)(iii) that permits the borrower (or student) to
pursue legal and equitable relief regarding disputes arising from
matters otherwise unrelated to the loan discharged.
Discussion: The discussion following comment 25 also applies to a
false certification discharge.
Change: None.
Section 682.402(e)(6)(i)
55. Comment: Some commenters objected to the requirement that a
guaranty agency must review records available from sources other than
the guarantor after receiving a false certification claim from a lender
or a discharge request from a borrower. The commenters believed this
requirement is logistically unrealistic and unnecessarily complicates
and delays the processing of a false certification claim.
Discussion: The Secretary believes that the guaranty agency is in
the best position to consult with other knowledgeable parties
concerning a school's alleged false certification of a student's
eligibility to borrow. The Secretary believes that the 90-day time
period allows sufficient time for an agency to examine the lender's
false certification claim in light of the information available to the
agency and to either pay or return the claim to the lender.
Change: None.
Section 682.402(e)(7)(ii)
56. Comment: Some commenters believed that a lender that resumes
collection activity against a borrower who fails to submit the
documentation required for a false certification discharge should be
required to grant forbearance to the borrower to absolve the borrower
of any delinquency status existing on the loan, including delinquency
that occurred before the date the lender suspended collection activity.
The commenters believed that the borrower's delinquency is generally
the result of the borrower's inability to pay due to circumstances
caused by the school.
Discussion: The discussion following comment 36 also applies to a
false certification discharge.
Change: None.
Section 682.402(e)(7)(iii)
57. Comment: Some commenters objected to the requirement that a
payment received by the lender from or on behalf of the borrower after
the lender filed a claim on the loan with the guaranty agency must be
forwarded to the guaranty agency within 30 days of its receipt. The
commenters contended that the guaranty agency is not the legal holder
of the loan until it pays a claim, and therefore has no right to the
payment.
Discussion: The discussion following comment 38 also applies to a
false certification discharge.
Change: None.
Section 682.402(e)(7)(iv)
58. Comment: Some commenters believed the guaranty agency, not the
lender, should notify the borrower that a false certification discharge
has been granted.
Discussion: The discussion following comment 39 also applies to a
false certification discharge.
Change: None.
Section 682.402(l)(3)
59. Comment: Some commenters believed that any payments received by
a guaranty agency from or on behalf of a borrower whose loan obligation
has been discharged should be returned to the borrower or the party who
made the payment.
Discussion: If a borrower, or a borrower's representative remits a
payment for a loan obligation that has been discharged, even though he
or she previously has had the payment returned with a notice that the
obligation has been discharged and no further payments are required,
the Secretary believes it is reasonable to conclude that a subsequent
payment from that individual is an indication that he or she has
expressed a desire to repay the discharged loan. The Secretary does not
believe that the borrower's (or his or her representative's) desire to
repay the loan should be frustrated or the taxpayer denied the recovery
of such payments.
Change: None.
Section 682.410(b)(6)(i)
60. Comment: Some commenters believed the proposed regulations
would prohibit a guaranty agency from attempting an annual IRS offset
against a borrower if the agency had initiated wage garnishment
procedures against the borrower.
Discussion: Under the proposed regulations, a guaranty agency was
required to attempt an annual IRS offset against a borrower who owed a
defaulted loan if the agency had not attempted to garnish the
borrower's wages. Conversely, if an agency had initiated wage
garnishment procedures against the borrower, it was not required to
attempt an annual IRS offset, but could do so if it decided that it
would be an appropriate action to take in addition to wage garnishment.
Based on Public Law 102-589, the Secretary will now require a guaranty
agency to attempt an annual IRS tax refund offset against both
categories of borrowers.
Change: The final regulations have been revised to incorporate this
requirement.
Section 682.410(b)(6)(vii)(B)
61. Comment: Some commenters noted that the Secretary's guidance to
guaranty agencies in July 1993 concerning Public Law 102-589 explained
that the law no longer required the Secretary to hold a loan to be
collected by IRS offset, therefore, a guaranty agency was no longer
required to assign a loan temporarily to the Secretary in order to
allow the Secretary to collect the loan by federal income tax refund
offset. The commenters recommended that references to such assignments
be deleted from the regulations.
Discussion: The Secretary agrees with the commenters.
Change: Sections 682.410(b)(5)(vi)(H) and (L),
Sec. 682.410(b)(6)(i), (iii), (iv)(B), (vii)(A)-(D), (viii)(A), (xii),
and Sec. 682.410(b)(7(iv)(B) of the final regulations have been
revised, renumbered, or deleted to remove references to such
assignments.
Section 682.410(b)(10)(i)
62. Comment: Some commenters objected to the requirement that a
guaranty agency must follow the procedures prescribed in the
regulations if it decided to garnish the wages of a borrower who owed a
defaulted loan. The commenters believed that a guaranty agency that
possessed authority under state law to effect a garnishment should be
permitted to garnish the borrower's wages under the state's wage
garnishment procedures.
Discussion: The procedures that a guaranty agency must follow when
attempting to garnish a borrower's wages are mandated by section 488A
of the HEA. Those procedures supersede any state garnishment laws that
do not comply with the requirements of the national wage garnishment
authority established by the HEA.
Change: None.
63. Comment: Some commenters asked if the wage garnishment
procedures would apply against borrowers and employers who were subject
to tribal laws. The commenters noted that section 488A(a) of the HEA
does not refer to tribal laws, but simply states that the garnishment
provisions of the HEA apply ``* * * (N)otwithstanding any provision of
State law * * *.'' The commenters observed that because of the
difficulty and low success ratio of obtaining a judgment through tribal
courts, most creditors no longer even make the attempt.
Discussion: Section 488A(a) of the HEA preempts state laws that
might prohibit garnishment to collect student loan debts; it does not
preempt such laws of a foreign nation. Certain tribes of American
Indians are considered to have the same relationship with the United
States as do foreign nations. Therefore, the laws of those tribes are
not preempted by the wage garnishment provisions of the HEA.
Change: None.
Section 682.410(b)(10)(i)(A)
64. Comment: Some commenters believed the regulations should
specify that the amount of a borrower's wages that may be garnished is
the lesser of 10 percent of the borrower's disposable pay or the amount
allowed by 15 U.S.C. 1673.
Discussion: The Secretary agrees with the commenters.
Change: The final regulations have been revised to incorporate this
clarification.
65. Comment: Some commenters believed the regulations should
specify the deductions from a borrower's wages that would take
precedence over a wage garnishment order.
Discussion: Only a borrower's disposable pay is subject to
garnishment. Since ``disposable pay'' is defined as that part of a
borrower's compensation from an employer remaining after the deduction
of any amounts required by law to be withheld, any such deductions
``take precedence'' and will affect the amount recovered from the
borrower through garnishment. The Secretary has no authority to modify
the withholding orders issued by other entities legally empowered to
garnish the borrower's pay for other purposes.
Change: None.
Section 682.410(b)(10)(i)(D)
66. Comment: Some commenters believed that a guaranty agency should
be permitted to automatically garnish the wages of a borrower who
failed to maintain the terms of a repayment agreement with the guaranty
agency. The commenters believed that it is unnecessary to provide
further notice or appeal opportunities to a borrower who has broken the
terms of the repayment agreement. Similarly, other commenters believed
that a guaranty agency should be permitted to proceed with wage
garnishment against a borrower who has defaulted on a loan without
being required to offer a repayment opportunity to the borrower. The
commenters believed that a borrower who has defaulted on a loan has
already had numerous opportunities to repay the loan. Some commenters
suggested that a borrower be limited to only one repayment opportunity.
Discussion: All attempted garnishments must be preceded by a notice
to the borrower of the guaranty agency's intention to initiate
garnishment proceedings and an explanation of the borrower's rights,
including the right to a hearing. The due process protection afforded
the borrower under the HEA's garnishment rules renders previous
repayment arrangements between the borrower and the agency irrelevant.
Each garnishment action must be able to stand on its own as far as
compliance with the requirements of the statute and regulations is
concerned.
Change: None.
67. Comment: Some commenters believed that the wage garnishment
provisions of the HEA applied only to a borrower who entered into a
repayment agreement with the guaranty agency and then later failed to
comply with the terms of that agreement. The commenters believed there
is no statutory authority to garnish the wages of a borrower simply
because the borrower has defaulted on the loan obligation and has not
made arrangements with the guaranty agency to repay the debt.
Discussion: The HEA permits a guaranty agency to garnish the pay of
a borrower who ``* * * is not currently making required repayment under
a repayment agreement * * *.'' A borrower who owes a defaulted loan and
has simply refused to make any repayment arrangement with a guaranty
agency would certainly fit that description. Otherwise, borrowers could
shield themselves from wage garnishment by refusing to enter into
agreements to repay their loans to guaranty agencies. The HEA and the
regulations are not designed to provide incentives to borrowers who
refuse to repay their debts.
Change: None.
68. Comment: Some commenters believed that the terms of the
repayment agreement opportunity that a guaranty agency must offer a
borrower prior to wage garnishment must be similar to the terms offered
to a borrower under the loan rehabilitation program, that is, the
borrower may not be required to pay more than a reasonable and
affordable amount.
Discussion: Section 488A(a)(4) of the HEA states that an individual
subject to wage garnishment shall be provided an opportunity to enter
into a written agreement with the guaranty agency under terms agreeable
to the guaranty agency. Unlike other areas of the HEA that contain
provisions mandating that the borrower's payment be ``reasonable and
affordable,'' the wage garnishment section of the HEA contains no such
requirement. The Secretary believes this is because Congress realized
that a borrower who has not repaid his or her loan will have had
numerous opportunities to have done so prior to the initiation of a
wage garnishment proceeding. For example, the borrower will have
already declined the opportunity to make payments under the loan
rehabilitation program.
However, since it would make no sense to demand a payment amounts
from a borrower who could document that he or she was unable to pay
those amounts, the Secretary encourages a guaranty agency, even at this
late point, to attempt to accommodate a borrower who expresses a
willingness to repay the loan but who is unable to do so under the
terms proposed by the guaranty agency because of a documented hardship
explained by the borrower.
Change: None.
Section 682.410(b)(10)(i)(E)
69. Comment: Some commenters believed a guaranty agency should be
permitted to include a notice to the borrower about wage garnishment
with the agency's other notices to the borrower about hearing
opportunities available to the borrower with respect to IRS offset
procedures and credit bureau reporting. The commenters recommended that
a guaranty agency not be required to provide the borrower with an
opportunity for a hearing more than once every 12 months. The
commenters also believed that if the borrower had received a hearing
and unsuccessfully contested the existence or the amount of the debt,
the borrower need not be provided another hearing on those issues.
Discussion: As permitted under Sec. 682.410(b)(5)(vi)(H), a
guaranty agency may send a combined notice, or separate notices to a
borrower concerning credit bureau reporting, IRS offset, wage
garnishment, and any other enforcement action that may be taken to
collect the debt. However, each garnishment proceeding taken against a
borrower must comply with the notice and due process requirements that
are unique to wage garnishment.
Change: None.
Section 682.410(b)(10)(i)(F)
70. Comment: Some commenters objected to the requirement that a
guaranty agency must sue an employer who fails to comply with a
garnishment order. The commenters note that section 488A(a)(6) of the
HEA provides an option by stating that a guaranty agency ``* * * may
sue the employer.'' Other commenters recommended that the regulations
permit a guaranty agency to decline to sue an employer who fails to
comply with the wage garnishment order if the agency can demonstrate
that the expected cost and probability of success of the litigation did
not justify a lawsuit.
Discussion: The statutory language provides the authority for a
guaranty agency to sue the employer. A guaranty agency is not required
to garnish the wages of borrowers who owe defaulted loans, but if an
agency chooses to do so, it must follow the garnishment procedures
prescribed in these regulations. In order to protect the interests of
borrowers and taxpayers, the Secretary believes a guaranty agency
should make use of the full extent of the statutory authority available
to it under the HEA to compel an employer to comply with a wage
garnishment order. The Secretary cannot envision any realistic
probability that an agency would be unsuccessful in its suit against an
employer that was in clear violation of the garnishment order. Given
the expectation of such success, the Secretary believes the agency's
litigation efforts and costs would be minimal. Accordingly, this would
be part of the agency's normal performance of its role of ensuring the
maximum collection of defaulted loans, and the Secretary may refuse to
make reinsurance payments, or may recover reinsurance payments already
made to an agency that fails to sue an employer that was in clear
violation of the garnishment order.
Change: None.
71. Comment: Some commenters did not believe that a self-employed
borrower should be considered an ``employer'' for wage garnishment
purposes. The commenters believed that garnishment should be considered
a proceeding to seize the wages of a debtor paid by another party.
Discussion: The Secretary agrees with the commenters.
Change: The reference to a self-employed borrower in
Sec. 682.410(b)(10)(i)(F) has been deleted from the final regulations.
Section 682.410(b)(10)(i)(G)
72. Comment: Some commenters were opposed to the qualified
prohibition in the regulations that prevents a guaranty agency from
garnishing the wages of a borrower whom it knows has been involuntarily
separated from employment until the borrower has been reemployed
continuously for at least 12 months. The commenters believed that the
proposed regulations appear to condone garnishment as long as the
guarantor is not aware that the borrower has been involuntarily
separated from employment and has not been reemployed continuously for
at least 12 months. They believed that the HEA does not permit
garnishment under any circumstances until a borrower who has been
involuntarily separated from employment has been reemployed
continuously for at least 12 months.
Discussion: The borrower will be informed of his or her rights
with respect to wage garnishment in the notice sent to the borrower at
least 30 days before the initiation of garnishment proceedings. That
notice will include information about the exception provided for a
borrower who has been involuntarily separated from employment.
Note: All garnishments initiated by guaranty agencies on or
after March 1, 1994 must comply with the standardized administrative
wage garnishment procedures approved by the Secretary on February 1,
1994. As part of those standardized procedures, a guaranty agency
must send a notice to the borrower prior to initiating garnishment.
The standardized notice fully explains the exception for
involuntarily separated borrowers and includes a simple form for the
borrower to fill out to request this exception.
If a borrower who meets the conditions necessary for this exception
wishes to take advantage of it, the borrower will be able to do so
quite easily, either before the garnishment proceedings are initiated,
or during the hearing available to the borrower. If the borrower
chooses not to divulge information concerning an involuntary
separation, and there is no reasonable expectation that the guaranty
agency should have known about the borrower's undisclosed involuntary
separation, the Secretary believes that a resulting garnishment of the
borrower's wages should not be invalidated if the borrower later
contests the garnishment on those grounds or if the agency later learns
that the borrower would have been eligible for the exception.
Change: None.
Section 682.410(b)(10)(i)(I)
73. Comment: Some commenters believed the withholding notice sent
to a borrower's employer should inform the employer that the HEA
prohibits wage garnishment if the borrower has not been reemployed
continuously for at least 12 months.
Discussion: All information relating to the borrower's rights will
be disclosed to the borrower. The borrower's employer needs to know
only that information necessary for the employer to comply with the
withholding order.
Change: None.
Section 682.410(b)(10)(i)(J)
74. Comment: Some commenters believed that, to avoid a
misunderstanding, the regulations should state that the location of a
borrower's wage garnishment hearing is established by the guaranty
agency.
Discussion: The Secretary agrees with the commenters.
Change: The final regulations have been revised to incorporate this
clarification.
75. Comment: Some commenters believed that a wage garnishment
hearing held by a guaranty agency should be a taped hearing held in a
location accessible to the borrower. The commenters also believed that
the borrower should be given the right to appeal any adverse decision
of the guaranty agency to the Secretary, and the borrower should be
informed of that right.
Discussion: The regulations require a guaranty agency to provide a
hearing by a telephone conference with a borrower who requests that
type of hearing. All telephonic costs associated with the hearing will
be the responsibility of the guaranty agency. The Secretary believes
this option reasonably accommodates borrowers who either choose to or
who are unable to attend an in-person hearing with the guaranty agency.
The Secretary sees no reason to compel a guaranty agency to tape the
hearing, but would not object if an agency wished to do so. The
Secretary does not intend to second-guess an agency's decisions about
wage garnishments on a case-by-case basis. However, if the Secretary
learns that a guaranty agency has failed to comply with procedures
prescribed by the HEA and the regulations, or has failed to adhere to
the standardized procedures required of all agencies (see note included
in the discussion for Sec. 682.410(b)(10)(i)(G) above), the Secretary
will take appropriate action.
Change: None.
Section 682.410(b)(10)(i)(K)
76. Comment: Some commenters believed that the regulations should
clarify that, absent evidence to the contrary, the borrower shall be
deemed to have received the notice of intent to garnish five days after
its mailing date. The commenters believed this would prevent disputes
about the date the borrower received the notice.
Discussion: The Secretary agrees with the commenters.
Change: The final regulations have been revised to incorporate this
clarification in this paragraph, and the associated paragraph
682.410(b)(10)(i)(L).
Section 682.410(b)(10)(i)(L)
77. Comment: Some commenters opposed the requirement that a
guaranty agency must provide a hearing to a borrower whose written
request for the hearing is received later than 15 days after the
borrower received a notice of withholding. The commenters believed
there is no statutory support for any exception to what they perceive
to be a rigid 15-day deadline for a borrower to make such a request.
Discussion: The commenters are incorrect. Section 488A(b) of the
HEA specifically requires a guaranty agency to provide a hearing upon a
borrower's request, even if the borrower's request is not made timely.
Although the agency is not required to delay the issuance of a
withholding order to the borrower's employer, the agency could do so,
as explained in comment 78, if the agency believes a delay would be
appropriate.
Change: None.
78. Comment: Some commenters believed that even though a borrower's
written request for a hearing is submitted late, there could
nevertheless be valid reasons why the guaranty agency should not issue
a withholding order to the borrower's employer. The commenters believed
that this section of the regulations conflicted with
Sec. 682.410(b)(10)(i)(H) which permits a guaranty agency to delay or
cancel the withholding order if the agency receives information that it
believes justifies the delay or cancellation.
Discussion: The Secretary agrees with the commenters.
Change: The final regulations have been revised to permit a
guaranty agency to exercise this option.
Section 682.410(b)(10)(i)(M)
79. Comment: Some commenters believed that the regulations should
clarify that guaranty agencies may use alternative types of hearing
examiners and are not limited to appointing only an administrative law
judge.
Discussion: The Secretary did not intend that the regulations be
interpreted in the limited manner that some commenters have done, or in
a manner that the commenters believe that other parties will do. A
guaranty agency's hearing official may be any qualified individual,
including an administrative law judge, who is not under the supervision
or control of the head of the guaranty agency.
Change: The final regulations have been revised to incorporate this
clarification.
Assessment of Educational Impact
The Secretary particularly requests comments on whether the
proposed regulations in this document would require transmission of
information that is being gathered by or is available from any other
agency or authority of the United States.
List of Subjects in 34 CFR Part 682
Administrative practice and procedure, Colleges and universities,
Education, Loan programs--education, Reporting and recordkeeping
requirements, Student aid, Vocational education.
(Catalog of Federal Domestic Assistance Numbers: 84.032 Federal
Family Education Loan Program)
Dated: April 21, 1994.
Richard W. Riley,
Secretary of Education.
The Secretary amends part 682 of title 34 of the Code of Federal
Regulations as follows:
PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM
1. The authority citation for part 682 continues to read as
follows:
Authority: 20 U.S.C. 1071 to 1087-2, unless otherwise noted.
2. Section 682.202 is amended by adding paragraph (a) introductory
text, revising paragraphs (a)(1) through (a)(4), and revising
paragraphs (c) and (d) to read as follows:
Sec. 682.202 Permissible charges by lenders to borrowers.
* * * * *
(a) Interest. The applicable interest rates for FFEL Program loans
are given in paragraphs (a)(1) through (a)(4) of this section.
(1) Stafford Loan Program. (i) If the borrower, on the date the
promissory note evidencing the loan is signed, has an outstanding
balance of principal or interest on a previous Stafford loan, the
interest rate is the applicable interest rate on that previous Stafford
loan.
(ii) If the borrower, on the date the promissory note evidencing
the loan is signed, has no outstanding balance on any FFEL Program
loan, and the first disbursement is made--
(A) Prior to October 1, 1992, for a loan covering a period of
instruction beginning on or after July 1, 1988, the interest rate is 8
percent until 48 months elapse after the repayment period begins, and
10 percent thereafter; or
(B) On or after October 1, 1992, the interest rate is a variable
rate, applicable to each July 1-June 30 period, that equals the lesser
of--
(1) The bond equivalent rate of the 91-day Treasury bills auctioned
at the final auction prior to the June 1 immediately preceding the July
1-June 30 period, plus 3.10 percent; or
(2) 9 percent.
(iii) For a Stafford loan for which the first disbursement is made
before October 1, 1992--
(A) If the borrower, on the date the promissory note evidencing the
loan is signed, has no outstanding balance on a Stafford loan but has
an outstanding balance of principal or interest on a PLUS or SLS loan
made for a period of enrollment beginning before July 1, 1988, or on a
Consolidation loan that repaid a loan made for a period of enrollment
beginning before July 1, 1988, the interest rate is 8 percent; or
(B) If the borrower, on the date the promissory note evidencing the
loan is signed, has an outstanding balance of principal or interest on
a PLUS or SLS loan made for a period of enrollment beginning on or
after July 1, 1988, or on a Consolidation loan that repaid a loan made
for a period of enrollment beginning on or after July 1, 1988, the
interest rate is 8 percent until 48 months elapse after the repayment
period begins, and 10 percent thereafter.
(iv) For a Stafford loan for which the first disbursement is made
on or after October 1, 1992, if the borrower, on the date the
promissory note evidencing the loan is signed, has no outstanding
balance on a Stafford loan but has an outstanding balance of principal
or interest on a PLUS, SLS, or Consolidation loan, the interest rate is
8 percent.
(2) PLUS Program. (i) For a combined repayment schedule under
Sec. 682.209(d), the interest rate is the weighted average of the rates
of all loans included under that schedule.
(ii) For a loan disbursed on or after July 1, 1987 but prior to
October 1, 1992, and for any loan made under Sec. 682.209 (e) or (f),
the interest rate is a variable rate, applicable to each July 1-June 30
period, that equals the lesser of--
(A) The bond equivalent rate of the 52-week Treasury bills
auctioned at the final auction prior to the June 1 immediately
preceding the July 1-June 30 period, plus 3.25 percent; or
(B) 12 percent.
(iii) For a loan disbursed on or after October 1, 1992, the
interest rate is a variable rate, applicable to each July 1-June 30
period, that equals the lesser of--
(A) The bond equivalent rate of the 52-week Treasury bills
auctioned at the final auction prior to the June 1 immediately
preceding the July 1-June 30 period, plus 3.10 percent; or
(B) 10 percent.
(3) SLS Program. (i) For a combined repayment schedule under
Sec. 682.209(d), the interest rate is the weighted average of the rates
of all loans included under that schedule.
(ii) For a loan disbursed on or after July 1, 1987 but prior to
October 1, 1992, and for any loan made under Sec. 682.209 (e) or (f),
the interest rate is a variable rate, applicable to each July 1-June 30
period, that equals the lesser of--
(A) The bond equivalent rate of the 52-week Treasury bills
auctioned at the final auction prior to the June 1 immediately
preceding the July 1-June 30 period, plus 3.25 percent; or
(B) 12 percent.
(iii) For a loan disbursed on or after October 1, 1992, the
interest rate is a variable rate, applicable to each July 1-June 30
period, that equals the lesser of--
(A) The bond equivalent rate of the 52-week Treasury bills
auctioned at the final auction prior to the June 1 immediately
preceding the July 1-June 30 period, plus 3.10 percent; or
(B) 11 percent.
(4) Consolidation Program. A Consolidation Program loan bears
interest at the rate that is the greater of--
(i) The weighted average of interest rates on the loans
consolidated, rounded to the nearest whole percent; or
(ii) 9 percent.
* * * * *
(c) Fees for FFEL Program loans. A lender--
(1) May charge a borrower an origination fee on a subsidized
Stafford loan not to exceed the maximum rate specified by federal
statute;
(2) Shall charge a borrower an origination fee on an unsubsidized
Stafford loan of 3 percent of the principal amount of the loan;
(3) Shall charge a borrower an origination fee on an SLS or a PLUS
loan of 3 percent of the principal amount of the loan;
(4) Shall deduct a pro rata portion of the fee (if charged) from
each disbursement; and
(5) Shall refund by a credit against the borrower's loan balance
the portion of the fee previously deducted from the loan that is
attributable to any portion of the loan that is--
(i) Returned by the school to the lender;
(ii) Repaid within 120 days of disbursement; or
(iii) Not delivered within 120 days of disbursement.
(d) Insurance Premium. A lender may charge the borrower the amount
of the insurance premium paid by the lender to the guarantor up to 1
percent of the principal amount of the loan, if that charge is provided
for in the promissory note.
* * * * *
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079,
1082, 1087-1, 1091a)
3. Section 682.208 is amended by revising paragraphs (e)(1) and
(e)(2), and adding new paragraphs (e)(4), (e)(5), and (h) to read as
follows:
Sec. 682.208 Due diligence in servicing a loan.
* * * * *
(e)(1) If the assignment of a Stafford, PLUS, or SLS loan is to
result in a change in the identity of the party to whom the borrower
must send subsequent payments, the assignor and assignee of the loan
shall, no later than 45 days from the date the assignee acquires a
legally enforceable right to receive payment from the borrower on the
assigned loan, provide, either jointly or separately, a notice to the
borrower of--
(i) The assignment;
(ii) The identity of the assignee;
(iii) The name and address of the party to whom subsequent payments
or communications must be sent; and
(iv) The telephone numbers of both the assignor and the assignee.
(2) If the assignor and assignee separately provide the notice
required by paragraph (e)(1) of this section, each notice must indicate
that a corresponding notice will be sent by the other party to the
assignment.
* * * * *
(4) The assignee, or the assignor on behalf of the assignee, shall
notify the guaranty agency that guaranteed the loan within 45 days of
the date the assignee acquires a legally enforceable right to receive
payment from the borrower on the loan of--
(i) The assignment; and
(ii) The name and address of the assignee, and the telephone number
of the assignee that can be used to obtain information about the
repayment of the loan.
(5) The requirements of this paragraph (e), as to borrower
notification, apply if the borrower is in a grace period or has entered
the repayment period.
* * * * *
(h) Notifying the borrower about a servicing change. If an FFEL
Program loan has not been assigned, but there is a change in the
identity of the party to whom the borrower must send subsequent
payments or direct any communications concerning the loan, the holder
of the loan shall, no later than 45 days after the date of the change,
provide notice to the borrower of the name, telephone number, and
address of the party to whom subsequent payments or communications must
be sent. The requirements of this paragraph apply if the borrower is in
a grace period or has entered the repayment period.
* * * * *
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079,
1080, 1082, 1085)
4. Section 682.402 is amended by revising the heading; by revising
paragraph (a); by revising paragraphs (b) and (c)(1); by redesignating
paragraphs (d), (e), (f), (g), (h), (i), (j), and (k) as paragraphs
(f), (g), (h), (i), (j), (k), (l), and (m), respectively; by further
redesignating newly designated paragraphs (g)(2)(ii), (h)(2)(ii) and
(k)(3) as paragraphs (g)(2)(iv), (h)(2)(iii), and (k)(5), respectively;
by adding new paragraphs (d), (e), (g)(1)(vi), (g)(1)(vii), (g)(2)(ii),
(g)(2)(iii), (h)(1)(iii), (h)(2)(ii), (h)(2)(iv), (h)(2)(v), (k)(4),
and (m)(5); by revising newly redesignated paragraphs (f)(2) and
(f)(3), (f)(4) introductory text, (g) heading, (g)(1) introductory
text, (g)(1)(i), (g)(2) introductory text, (g)(2)(i), (h) heading,
(h)(2)(iii), (h)(3)(i), (h)(3)(ii), (i)(2) heading and introductory
text, (i)(2)(iv), (j) heading, (j)(1) introductory text, (j)(2),
(k)(2), (k)(5), (l), and (m) introductory text; by removing the word
``and'' at the end of paragraph (m)(3)(ii); by adding and reserving
paragraph (k)(3); and by removing the period at the end of paragraph
(m)(4), and adding in its place, a semicolon, to read as follows:
Sec. 682.402 Death, disability, closed school, false certification,
and bankruptcy payments.
(a) General. (1) Rules governing the payment of claims based on
filing for relief in bankruptcy, and discharge of loans due to death,
total and permanent disability, attendance at a school that closes, and
false certification by a school of a borrower's eligibility for a loan,
are set forth in this section.
(2) If a PLUS loan was obtained by two parents as co-makers, or a
Consolidation loan was obtained by a married couple, and only one of
the borrowers dies, becomes totally and permanently disabled, has
collection of his or her loan obligation stayed by a bankruptcy filing,
or has that obligation discharged in bankruptcy, the other borrower
remains obligated to repay the loan.
(3) Except for a borrower's loan obligation discharged by the
Secretary under the false certification discharge provision of
paragraphs (e)(1)(ii) of this section, a loan qualifies for payment
under this section only to the extent that the loan is legally
enforceable under applicable law by the holder of the loan.
(4) For purposes of this section--
(i) The legal enforceability of a loan is conclusively determined
on the basis of a ruling by a court or administrative tribunal of
competent jurisdiction with respect to that loan, or a ruling with
respect to another loan in a judgment that collaterally estops the
holder from contesting the enforceability of the loan;
(ii) A loan is conclusively determined to be legally unenforceable
to the extent that the guarantor determines, pursuant to an objection
presented in a proceeding conducted in connection with credit bureau
reporting, tax refund offset, wage garnishment, or in any other
administrative proceeding, that the loan is not legally enforceable;
and
(iii) If an objection has been raised by the borrower or another
party about the legal enforceability of the loan and no determination
has been made under paragraph (a)(4) (i) or (ii) of this section, the
Secretary may authorize the payment of a claim under this section under
conditions the Secretary considers appropriate. If the Secretary
determines in that or any other case that a claim was paid under this
section with respect to a loan that was not a legally enforceable
obligation of the borrower, the recipient of that payment must refund
that amount of the payment to the Secretary.
(b) Death. (1) If an individual borrower dies, or, on or after July
23, 1992 the student for whom a parent received a PLUS loan dies, the
obligation of the borrower and any endorser to make any further
payments on the loan is discharged.
(2) In determining that a borrower (or student) has died, the
lender may rely on a death certificate or other proof of death that is
acceptable under applicable state law. If a death certificate or other
acceptable proof of death is not available, the borrower's obligation
on the loan can be discharged only if the guaranty agency determines
that other evidence establishes that the borrower (or student) has
died.
(3) After receiving information indicating that the borrower (or
student) has died, the lender, if it believes the information to be
reliable, shall suspend any collection activity against the borrower
and promptly request that the borrower's representative (or the
student's parent in the case of a PLUS loan) provide the documentation
described in paragraph (b)(2) of this section. During the suspension of
collection activity, which may not exceed 60 days, the lender shall
diligently attempt to obtain documentation verifying the borrower's (or
student's) death. If, despite diligent attempts, the lender is not able
to confirm the borrower's (or student's) death within 60 days, the
lender shall resume collection activity from the point that it had been
discontinued and is deemed to have exercised forbearance as to
repayment of the loan during the period when collection activity was
suspended.
(4) Once the lender has determined under paragraph (b)(2) of this
section that the borrower (or student) has died, the lender may not
attempt to collect on the loan from the borrower's estate or from any
endorser.
(5) The lender shall return to the sender any payments received
from the estate or paid on behalf of the borrower after the date of the
borrower's (or student's) death.
(c) Total and permanent disability. (1) If the lender determines
that an individual borrower is totally and permanently disabled, the
obligation of the borrower and any endorser to make any further
payments on the loan is discharged. A borrower is not considered
totally and permanently disabled on the basis of a condition that
existed at the time he or she applied for the loan, unless the
borrower's condition has substantially deteriorated later, so as to
render the borrower totally and permanently disabled. In the case of a
Consolidation loan, the borrower must certify that the condition did
not exist prior to the time the borrower applied for each of the
underlying loans, unless the condition has substantially deteriorated,
so as to render the borrower totally and permanently disabled. If the
condition existed prior to the date the Consolidation loan was made,
the borrower must provide the lender with the disbursement dates of the
underlying loans if the information does not already appear in the
borrower's loan file possessed by the lender.
* * * * *
(d) Closed school.--(1) General. (i) The Secretary reimburses the
holder of a loan received by a borrower on or after January 1, 1986,
and discharges the borrower's obligation with respect to the loan in
accordance with the provisions of paragraph (d) of this section, if the
borrower (or the student for whom a parent received a PLUS loan) could
not complete the program of study for which the loan was intended
because the school at which the borrower (or student) was enrolled,
closed, or the borrower (or student) withdrew from the school not more
than 90 days prior to the date the school closed. This 90-day period
may be extended if the Secretary determines that exceptional
circumstances related to a school's closing would justify an extension.
(ii) For purposes of the closed school discharge authorized by this
section--
(A) A school's closure date is the date that the school ceases to
provide educational instruction in all programs, as determined by the
Secretary;
(B) The term ``borrower'' includes all endorsers on a loan; and
(C) A ``school'' means a school's main campus or any location or
branch of the main campus, regardless of whether the school or its
location or branch is considered eligible.
(2) Relief available pursuant to discharge. (i) Discharge under
paragraph (d) of this section relieves the borrower of an existing or
past obligation to repay the loan and any charges imposed or costs
incurred by the holder with respect to the loan that the borrower is,
or was otherwise obligated to pay.
(ii) A discharge of a loan under paragraph (d) of this section
qualifies the borrower for reimbursement of amounts paid voluntarily or
through enforced collection on a loan obligation discharged under
paragraph (d) of this section.
(iii) A borrower who has defaulted on a loan discharged under
paragraph (d) of this section is not regarded as in default on the loan
after discharge, and is eligible to receive assistance under the Title
IV, HEA programs.
(iv) A discharge of a loan under paragraph (d) of this section must
be reported by the loan holder to all credit reporting agencies to
which the holder previously reported the status of the loan, so as to
delete all adverse credit history assigned to the loan.
(3) Borrower qualification for discharge. In order to qualify for
discharge of a loan under paragraph (d) of this section a borrower
shall submit to the holder of the loan a written request and sworn
statement. The statement need not be notarized, but must be made by the
borrower under penalty of perjury, and, in the statement, the borrower
shall state--
(i) Whether the student has made a claim with respect to the
school's closing with any third party, such as the holder of a
performance bond or a tuition recovery program, and if so, the amount
of any payment received by the borrower (or student) or credited to the
borrower's loan obligation;
(ii) That the borrower (or the student for whom a parent received a
PLUS loan)--
(A) Received, on or after January 1, 1986, the proceeds of any
disbursement of a loan disbursed, in whole or in part, on or after
January 1, 1986 to attend a school;
(B) Did not complete the educational program at that school because
the school closed while the student was enrolled or on an approved
leave of absence in accordance with Sec. 682.605(c), or the student
withdrew from the school not more than 90 days before the school
closed; and
(C) Did not complete the program of study through a teach-out at
another school or by transferring academic credits or hours earned at
the closed school to another school;
(iii) That the borrower agrees to provide, upon request by the
Secretary or the Secretary's designee, other documentation reasonably
available to the borrower that demonstrates, to the satisfaction of the
Secretary or the Secretary's designee, that the student meets the
qualifications in paragraph (d) of this section; and
(iv) That the borrower agrees to cooperate with the Secretary or
the Secretary's designee in enforcement actions in accordance with
paragraph (d)(4) of this section, and to transfer any right to recovery
against a third party in accordance with paragraph (d)(5) of this
section.
(4) Cooperation by borrower in enforcement actions. (i) In any
judicial or administrative proceeding brought by the Secretary or the
Secretary's designee to recover for amounts discharged under paragraph
(d) of this section or to take other enforcement action with respect to
the conduct on which those claims were based, a borrower who requests
or receives a discharge under paragraph (d) of this section must
cooperate with the Secretary or the Secretary's designee. At the
request of the Secretary or the Secretary's designee, and upon the
Secretary's or the Secretary's designee's tendering to the borrower the
fees and costs as are customarily provided in litigation to reimburse
witnesses, the borrower shall--
(A) Provide testimony regarding any representation made by the
borrower to support a request for discharge; and
(B) Produce any documentation reasonably available to the borrower
with respect to those representations and any sworn statement required
by the Secretary with respect to those representations and documents.
(ii) The Secretary revokes the discharge, or denies the request for
discharge, of a borrower who--
(A) Fails to provide testimony, sworn statements, or documentation
to support material representations made by the borrower to obtain the
discharge; or
(B) Provides testimony, a sworn statement, or documentation that
does not support the material representations made by the borrower to
obtain the discharge.
(5) Transfer to the Secretary of borrower's right of recovery
against third parties. (i) Upon discharge under paragraph (d) of this
section, the borrower is deemed to have assigned to and relinquished in
favor of the Secretary any right to a loan refund (up to the amount
discharged) that the borrower (or student) may have by contract or
applicable law with respect to the loan or the enrollment agreement for
the program for which the loan was received, against the school, its
principals, affiliates and their successors, its sureties, and any
private fund, including the portion of a public fund that represents
funds received from a private party.
(ii) The provisions of paragraph (d) of this section apply
notwithstanding any provision of State law that would otherwise
restrict transfer of such rights by the borrower (or student), limit or
prevent a transferee from exercising those rights, or establish
procedures or a scheme of distribution that would prejudice the
Secretary's ability to recover on those rights.
(iii) Nothing in this section shall be construed as limiting or
foreclosing the borrower's (or student's) right to pursue legal and
equitable relief regarding disputes arising from matters otherwise
unrelated to the loan discharged.
(6) Guaranty agency responsibilities--(i) Procedures applicable if
a school closed on or after January 1, 1986, but prior to June 13,
1994. (A) If a borrower received a loan for attendance at a school with
a closure date on or after January 1, 1986, but prior to June 13, 1994,
the loan may be discharged in accordance with the procedures specified
in paragraph (d)(6)(i) of this section.
(B) If a loan subject to paragraph (d) of this section was
discharged in part in accordance with the Secretary's ``Closed School
Policy'' as authorized by section IV of Bulletin 89-G-159, the guaranty
agency shall initiate the discharge of the remaining balance of the
loan not later than August 13, 1994.
(C) A guaranty agency shall review its records and identify all
schools that appear to have closed on or after January 1, 1986 and
prior to June 13, 1994, and shall identify the loans made to any
borrower (or student) who appears to have been enrolled at the school
on the school closure date or who withdrew not more than 90 days prior
to the closure date.
(D) A guaranty agency shall notify the Secretary immediately if it
determines that a school not previously known to have closed appears to
have closed, and, within 30 days of making that determination, notify
all lenders participating in its program to suspend collection efforts
against individuals with respect to loans made for attendance at the
closed school, if the student to whom (or on whose behalf) a loan was
made, appears to have been enrolled at the school on the closing date,
or withdrew not more than 90 days prior to the date the school appears
to have closed. Within 30 days after receiving confirmation of the date
of a school's closure from the Secretary, the agency shall--
(1) Notify all lenders participating in its program to mail a
discharge application explaining the procedures and eligibility
criteria for obtaining a discharge and an explanation of the
information that must be included in the sworn statement (which may be
combined) to all borrowers who may be eligible for a closed school
discharge; and
(2) Review the records of loans that it holds, identify the loans
made to any borrower (or student) who appears to have been enrolled at
the school on the school closure date or who withdrew not more than 90
days prior to the closure date, and mail a discharge application and an
explanation of the information that must be included in the sworn
statement (which may be combined) to the borrower. The application
shall inform the borrower of the procedures and eligibility criteria
for obtaining a discharge.
(E) If a loan identified under paragraph (d)(6)(i)(D)(2) of this
section is held by the guaranty agency as a defaulted loan and the
borrower's current address is known, the guaranty agency shall
immediately suspend any efforts to collect from the borrower on any
loan received for the program of study for which the loan was made (but
may continue to receive borrower payments), and notify the borrower
that the agency will provide additional information about the
procedures for requesting a discharge after the agency has received
confirmation from the Secretary that the school had closed.
(F) If a loan identified under paragraph (d)(6)(i)(D)(2) of this
section is held by the guaranty agency as a defaulted loan and the
borrower's current address is unknown, the agency shall, by June 13,
1995, further refine the list of borrowers whose loans are potentially
subject to discharge under paragraph (d) of this section by consulting
with representatives of the closed school, the school's licensing
agency, accrediting agency, and other appropriate parties. Upon
learning the new address of a borrower who would still be considered
potentially eligible for a discharge, the guaranty agency shall, within
30 days after learning the borrower's new address, mail to the borrower
a discharge application that meets the requirements of paragraph
(d)(6)(i)(E) of this section.
(G) If the guaranty agency determines that a borrower identified in
paragraph (d)(6)(i)(E) or (F) of this section has satisfied all of the
conditions required for a discharge, the agency shall notify the
borrower in writing of that determination within 30 days after making
that determination.
(H) If the guaranty agency determines that a borrower identified in
paragraph (d)(6)(i)(E) or (F) of this section does not qualify for a
discharge, the agency shall notify the borrower in writing of that
determination and the reasons for it within 30 days after the date the
agency--
(1) Made that determination based on information available to the
guaranty agency;
(2) Was notified by the Secretary that the school had not closed;
(3) Was notified by the Secretary that the school had closed on a
date that was more than 90 days after the borrower (or student)
withdrew from the school;
(4) Was notified by the Secretary that the borrower (or student)
was ineligible for a closed school discharge for other reasons; or
(5) Received the borrower's completed application and sworn
statement.
(I) If a borrower described in paragraph (d)(6)(i)(E) or (F) of
this section fails to submit the written request and sworn statement
described in paragraph (d)(3) of this section within 60 days of being
notified of that option, the guaranty agency shall resume collection
and shall be deemed to have exercised forbearance of payment of
principal and interest from the date it suspended collection activity.
The agency may capitalize, in accordance with Sec. 682.202(b), any
interest accrued and not paid during that period.
(J) A borrower's request for discharge may not be denied solely on
the basis of failing to meet any time limits set by the lender,
guaranty agency, or the Secretary.
(ii) Procedures applicable if a school closed on or after June 13,
1994. (A) A guaranty agency shall notify the Secretary immediately
whenever it becomes aware of reliable information indicating a school
may have closed. The designated guaranty agency in the state in which
the school is located shall promptly investigate whether the school has
closed and, within 30 days after receiving information indicating that
the school may have closed, report the results of its investigation to
the Secretary concerning the date of the school's closure and whether a
teach-out of the closed school's program was made available to
students.
(B) If a guaranty agency determines that a school appears to have
closed, it shall, within 30 days of making that determination, notify
all lenders participating in its program to suspend collection efforts
against individuals with respect to loans made for attendance at the
closed school, if the student to whom (or on whose behalf) a loan was
made, appears to have been enrolled at the school on the closing date,
or withdrew not more than 90 days prior to the date the school appears
to have closed. Within 30 days after receiving confirmation of the date
of a school's closure from the Secretary, the agency shall--
(1) Notify all lenders participating in its program to mail a
discharge application explaining the procedures and eligibility
criteria for obtaining a discharge and an explanation of the
information that must be included in the sworn statement (which may be
combined) to all borrowers who may be eligible for a closed school
discharge; and
(2) Review the records of loans that it holds, identify the loans
made to any borrower (or student) who appears to have been enrolled at
the school on the school closure date or who withdrew not more than 90
days prior to the closure date, and mail a discharge application and an
explanation of the information that must be included in the sworn
statement (which may be combined) to the borrower. The application
shall inform the borrower of the procedures and eligibility criteria
for obtaining a discharge.
(C) If a loan identified under paragraph (d)(6)(ii)(B)(2) of this
section is held by the guaranty agency as a defaulted loan and the
borrower's current address is known, the guaranty agency shall
immediately suspend any efforts to collect from the borrower on any
loan received for the program of study for which the loan was made (but
may continue to receive borrower payments), and notify the borrower
that the agency will provide additional information about the
procedures for requesting a discharge after the agency has received
confirmation from the Secretary that the school had closed.
(D) If a loan identified under paragraph (d)(6)(ii)(B)(2) of this
section is held by the guaranty agency as a defaulted loan and the
borrower's current address is unknown, the agency shall, within one
year after identifying the borrower, attempt to locate the borrower and
further determine the borrower's potential eligibility for a discharge
under paragraph (d) of this section by consulting with representatives
of the closed school, the school's licensing agency, accrediting
agency, and other appropriate parties. Upon learning the new address of
a borrower who would still be considered potentially eligible for a
discharge, the guaranty agency shall, within 30 days after learning the
borrower's new address, mail to the borrower a discharge application
that meets the requirements of paragraph (d)(6)(ii)(B) of this section.
(E) If the guaranty agency determines that a borrower identified in
paragraph (d)(6)(ii)(C) or (D) of this section has satisfied all of the
conditions required for a discharge, the agency shall notify the
borrower in writing of that determination within 30 days after making
that determination.
(F) If the guaranty agency determines that a borrower identified in
paragraph (d)(6)(ii)(C) or (D) of this section does not qualify for a
discharge, the agency shall notify the borrower in writing of that
determination and the reasons for it within 30 days after the date the
agency--
(1) Made that determination based on information available to the
guaranty agency;
(2) Was notified by the Secretary that the school had not closed;
(3) Was notified by the Secretary that the school had closed on a
date that was more than 90 days after the borrower (or student)
withdrew from the school;
(4) Was notified by the Secretary that the borrower (or student)
was ineligible for a closed school discharge for other reasons; or
(5) Received the borrower's completed application and sworn
statement.
(G) Upon receipt of a closed school discharge claim filed by a
lender, the agency shall review the borrower's request and supporting
sworn statement in the light of information available from the records
of the agency and from other sources, including other guaranty
agencies, state authorities, and cognizant accrediting associations,
and shall take the following actions--
(1) If the agency determines that the borrower satisfies the
requirements for discharge under paragraph (d) of this section, it
shall pay the claim in accordance with Sec. 682.402(h) not later than
90 days after the agency received the claim; or
(2) If the agency determines that the borrower does not qualify for
a discharge, the agency shall, not later than 90 days after the agency
received the claim, return the claim to the lender with an explanation
of the reasons for its determination.
(H) If a borrower fails to submit the written request and sworn
statement described in paragraph (d)(3) of this section within 60 days
of being notified of that option, the lender or guaranty agency shall
resume collection and shall be deemed to have exercised forbearance of
payment of principal and interest from the date it suspended collection
activity. The lender or guaranty agency may capitalize, in accordance
with Sec. 682.202(b), any interest accrued and not paid during that
period.
(I) A borrower's request for discharge may not be denied solely on
the basis of failing to meet any time limits set by the lender,
guaranty agency, or the Secretary.
(7) Lender responsibilities. (i) A lender shall comply with the
requirements prescribed in paragraph (d) of this section. In the
absence of specific instructions from a guaranty agency or the
Secretary, if a lender receives information from a source it believes
to be reliable indicating that an existing or former borrower may be
eligible for a loan discharge under paragraph (d) of this section, the
lender shall immediately notify the guaranty agency, and suspend any
efforts to collect from the borrower on any loan received for the
program of study for which the loan was made (but may continue to
receive borrower payments).
(ii) If the borrower fails to submit the written request and sworn
statement described in paragraph (d)(3) of this section within 60 days
after being notified of that option, the lender shall resume collection
and shall be deemed to have exercised forbearance of payment of
principal and interest from the date the lender suspended collection
activity. The lender may capitalize, in accordance with
Sec. 682.202(b), any interest accrued and not paid during that period.
(iii) The lender shall file a closed school claim with the guaranty
agency in accordance with Sec. 682.402(g) no later than 60 days after
the lender receives the borrower's written request and sworn statement
described in paragraph (d)(3) of this section. If a lender receives a
payment made by or on behalf of the borrower on the loan after the
lender files a claim on the loan with the guaranty agency, the lender
shall forward the payment to the guaranty agency within 30 days of its
receipt. The lender shall assist the guaranty agency and the borrower
in determining whether the borrower is eligible for discharge of the
loan.
(iv) Within 30 days after receiving reimbursement from the guaranty
agency for a closed school claim, the lender shall notify the borrower
that the loan obligation has been discharged, and request that all
credit bureaus to which it previously reported the status of the loan
delete all adverse credit history assigned to the loan.
(v) Within 30 days after being notified by the guaranty agency that
the borrower's request for a closed school discharge has been denied,
the lender shall resume collection and notify the borrower of the
reasons for the denial. The lender shall be deemed to have exercised
forbearance of payment of principal and interest from the date the
lender suspended collection activity, and may capitalize, in accordance
with Sec. 682.202(b), any interest accrued and not paid during that
period.
(e) False certification by a school of a student's eligibility to
borrow and unauthorized disbursements.--(1) General. (i) The Secretary
reimburses the holder of a loan received by a borrower on or after
January 1, 1986, and discharges a current or former borrower's
obligation with respect to the loan in accordance with the provisions
of paragraph (e) of this section, if the borrower's (or the student for
whom a parent received a PLUS loan) eligibility to receive the loan was
falsely certified by an eligible school. For purposes of a false
certification discharge, the term ``borrower'' includes all endorsers
on a loan. A student's eligibility to borrow shall be considered to
have been falsely certified by the school if the school--
(A) Admitted the student on the basis of ability to benefit from
its training and the student did not meet the applicable requirements
for admission on the basis of ability to benefit as described in
paragraph (e)(13) of this section; or
(B) Signed the borrower's name without authorization by the
borrower on the loan application or promissory note.
(ii) The Secretary discharges the obligation of a borrower with
respect to a loan disbursement for which the school, without the
borrower's authorization, endorsed the borrower's loan check or
authorization for electronic funds transfer, unless the student for
whom the loan was made received the proceeds of the loan either by
actual delivery of the loan funds or by a credit in the amount of the
contested disbursement applied to charges owed to the school for that
portion of the educational program completed by the student. However,
the Secretary does not reimburse the lender with respect to any amount
disbursed by means of a check bearing an unauthorized endorsement
unless the school also executed the application or promissory note for
that loan for the named borrower without that individual's consent.
(2) Relief available pursuant to discharge. (i) Discharge under
paragraph (e)(1)(i) of this section relieves the borrower of an
existing or past obligation to repay the loan certified by the school,
and any charges imposed or costs incurred by the holder with respect to
the loan that the borrower is, or was, otherwise obligated to pay.
(ii) A discharge of a loan under paragraph (e) of this section
qualifies the borrower for reimbursement of amounts paid voluntarily or
through enforced collection on a loan obligation discharged under
paragraph (e) of this section.
(iii) A borrower who has defaulted on a loan discharged under
paragraph (e) of this section is not regarded as in default on the loan
after discharge, and is eligible to receive assistance under the Title
IV, HEA programs.
(iv) A discharge of a loan under paragraph (e) of this section is
reported by the loan holder to all credit reporting agencies to which
the holder previously reported the status of the loan, so as to delete
all adverse credit history assigned to the loan.
(v) Discharge under paragraph (e)(1)(ii) of this section qualifies
the borrower for relief only with respect to the amount of the
disbursement discharged.
(3) Borrower qualification for discharge. In order to qualify for
discharge of a loan under paragraph (e) of this section the borrower
shall submit to the holder of the loan a written request and a sworn
statement. The statement need not be notarized, but must be made by the
borrower under penalty of perjury, and, in the statement, the borrower
shall--
(i) State whether the student has made a claim with respect to the
school's false certification with any third party, such as the holder
of a performance bond or a tuition recovery program, and if so, the
amount of any payment received by the borrower (or student) or credited
to the borrower's loan obligation;
(ii) In the case of a borrower requesting a discharge based on the
school's defective testing of the student's ability to benefit, state
that the borrower (or the student for whom a parent received a PLUS
loan)--
(A) Received, on or after January 1, 1986, the proceeds of any
disbursement of a loan disbursed, in whole or in part, on or after
January 1, 1986 to attend a school;
(B) Was admitted to that school on the basis of ability to benefit
from its training and did not meet the applicable requirements for
admission on the basis of ability to benefit as described in paragraph
(e)(13) of this section; and
(C) Withdrew from the school and did not find employment in the
occupation for which the program was intended to provide training, or
completed the training program for which the loan was made and made a
reasonable attempt to obtain employment in the occupation for which the
program was intended to provide training, and--
(1) Was not able to find employment in that occupation; or
(2) Obtained employment in that occupation only after receiving
additional training that was not provided by the school that certified
the loan;
(iii) In the case of a borrower requesting a discharge because the
school signed the borrower's name on the loan application or promissory
note--
(A) State that the signature on either of those documents was not
the signature of the borrower; and
(B) Provide five different specimens of his or her signature, two
of which must be not earlier or later than one year before or after the
date of the contested signature;
(iv) In the case of a borrower requesting a discharge because the
school, without authorization of the borrower, endorsed the borrower's
name on the loan check or signed the authorization for electronic funds
transfer, the borrower shall--
(A) Certify that he or she did not endorse the loan check or sign
the authorization for electronic funds transfer, or authorize the
school to do so;
(B) Provide five different specimens of his or her signature, two
of which must be not earlier or later than one year before or after the
date of the contested signature; and
(C) State that the proceeds of the contested disbursement were not
received either through actual delivery of the loan funds or by a
credit in the amount of the contested disbursement applied to charges
owed to the school for that portion of the educational program
completed by the student;
(v) That the borrower agrees to provide upon request by the
Secretary or the Secretary's designee, other documentation reasonably
available to the borrower, that demonstrates, to the satisfaction of
the Secretary or the Secretary's designee, that the student meets the
qualifications in paragraph (e) of this section; and
(vi) That the borrower agrees to cooperate with the Secretary or
the Secretary's designee in enforcement actions in accordance with
paragraph (e)(4) of this section, and to transfer any right to recovery
against a third party in accordance with paragraph (e)(5) of this
section.
(4) Cooperation by borrower in enforcement actions. (i) In any
judicial or administrative proceeding brought by the Secretary or the
Secretary's designee to recover for amounts discharged under paragraph
(e) of this section or to take other enforcement action with respect to
the conduct on which those claims were based, a borrower who requests
or receives a discharge under paragraph (e) of this section must
cooperate with the Secretary or the Secretary's designee. At the
request of the Secretary or the Secretary's designee, and upon the
Secretary's or the Secretary's designee's tendering to the borrower the
fees and costs as are customarily provided in litigation to reimburse
witnesses, the borrower shall--
(A) Provide testimony regarding any representation made by the
borrower to support a request for discharge; and
(B) Produce any documentation reasonably available to the borrower
with respect to those representations and any sworn statement required
by the Secretary with respect to those representations and documents.
(ii) The Secretary revokes the discharge, or denies the request for
discharge, of a borrower who--
(A) Fails to provide testimony, sworn statements, or documentation
to support material representations made by the borrower to obtain the
discharge; or
(B) Provides testimony, a sworn statement, or documentation that
does not support the material representations made by the borrower to
obtain the discharge.
(5) Transfer to the Secretary of borrower's right of recovery
against third parties. (i) Upon discharge under paragraph (e) of this
section, the borrower is deemed to have assigned to and relinquished in
favor of the Secretary any right to a loan refund (up to the amount
discharged) that the borrower (or student) may have by contract or
applicable law with respect to the loan or the enrollment agreement for
the program for which the loan was received, against the school, its
principals, affiliates and their successors, its sureties, and any
private fund, including the portion of a public fund that represents
funds received from a private party.
(ii) The provisions of paragraph (e) of this section apply
notwithstanding any provision of state law that would otherwise
restrict transfer of such rights by the borrower (or student), limit or
prevent a transferee from exercising those rights, or establish
procedures or a scheme of distribution that would prejudice the
Secretary's ability to recover on those rights.
(iii) Nothing in this section shall be construed as limiting or
foreclosing the borrower's (or student's) right to pursue legal and
equitable relief regarding disputes arising from matters otherwise
unrelated to the loan discharged.
(6) Guaranty agency responsibilities--general. (i) A guaranty
agency shall notify the Secretary immediately whenever it becomes aware
of reliable information indicating that a school may have falsely
certified a student's eligibility or caused an unauthorized
disbursement of loan proceeds, as described in paragraph (e)(3) of this
section. The designated guaranty agency in the state in which the
school is located shall promptly investigate whether the school has
falsely certified a student's eligibility and, within 30 days after
receiving information indicating that the school may have done so,
report the results of its preliminary investigation to the Secretary.
(ii) If the guaranty agency receives information it believes to be
reliable indicating that a borrower whose loan is held by the agency
may be eligible for a discharge under paragraph (e) of this section,
the agency shall immediately suspend any efforts to collect from the
borrower on any loan received for the program of study for which the
loan was made (but may continue to receive borrower payments), and
inform the borrower of the procedures for requesting a discharge.
(iii) If the borrower fails to submit the written request and sworn
statement described in paragraph (e)(3) of this section within 60 days
of being notified of that option, the guaranty agency shall resume
collection and shall be deemed to have exercised forbearance of payment
of principal and interest from the date it suspended collection
activity. The agency may capitalize, in accordance with
Sec. 682.202(b), any interest accrued and not paid during that period.
(iv) Upon receipt of a discharge claim filed by a lender or a
request submitted by a borrower with respect to a loan held by the
guaranty agency, the agency shall have up to 90 days to determine
whether the discharge should be granted. The agency shall review the
borrower's request and supporting sworn statement in light of
information available from the records of the agency and from other
sources, including other guaranty agencies, state authorities, and
cognizant accrediting associations.
(v) A borrower's request for discharge and sworn statement may not
be denied solely on the basis of failing to meet any time limits set by
the lender or the guaranty agency.
(7) Guaranty agency responsibilities with respect to a claim filed
by a lender based on the borrower's assertion that he or she did not
sign the loan application or the promissory note, or that the school
failed to test, or improperly tested, the student's ability to benefit.
(i) The agency shall evaluate the borrower's request and consider
relevant information it possesses and information available from other
sources, and follow the procedures described in paragraph (e)(7) of
this section.
(ii) If the agency determines that the borrower satisfies the
requirements for discharge under paragraph (e) of this section, it
shall, not later than 30 days after the agency makes that
determination, pay the claim in accordance with Sec. 682.402(h) and--
(A) Notify the borrower that his or her liability with respect to
the amount of the loan has been discharged, and that the lender has
been informed of the actions required under paragraph (e)(7)(ii)(C) of
this section;
(B) Refund to the borrower all amounts paid by the borrower to the
lender or the agency with respect to the discharged loan amount,
including any late fees or collection charges imposed by the lender or
agency related to the discharged loan amount; and
(C) Notify the lender that the borrower's liability with respect to
the amount of the loan has been discharged, and that the lender must--
(1) Immediately terminate any collection efforts against the
borrower with respect to the discharged loan amount and any charges
imposed or costs incurred by the lender related to the discharged loan
amount that the borrower is, or was, otherwise obligated to pay; and
(2) Within 30 days, report to all credit reporting agencies to
which the lender previously reported the status of the loan, so as to
delete all adverse credit history assigned to the loan.
(iii) If the agency determines that the borrower does not qualify
for a discharge, it shall, within 30 days after making that
determination--
(A) Notify the lender that the borrower's liability on the loan is
not discharged and that, depending on the borrower's decision under
paragraph (e)(7)(iii)(B) of this section, the loan shall either be
returned to the lender or paid as a default claim; and
(B) Notify the borrower that the borrower does not qualify for
discharge, and state the reasons for that conclusion. The agency shall
advise the borrower that he or she remains obligated to repay the loan
and warn the borrower of the consequences of default, and explain that
the borrower will be considered to be in default on the loan unless the
borrower submits a written statement to the agency within 30 days
stating that the borrower--
(1) Acknowledges the debt and, if payments are due, will begin or
resume making those payments to the lender; or
(2) Requests the Secretary to review the agency's decision.
(iv) Within 30 days after receiving the borrower's written
statement described in paragraph (e)(7)(iii)(B)(1) of this section, the
agency shall return the claim file to the lender and notify the lender
to resume collection efforts if payments are due.
(v) Within 30 days after receiving the borrower's request for
review by the Secretary, the agency shall forward the claim file to the
Secretary for his review and take the actions required under paragraph
(e)(11) of this section.
(vi) The agency shall pay a default claim to the lender within 30
days after the borrower fails to return either of the written
statements described in paragraph (e)(7)(iii)(B) of this section.
(8) Guaranty agency responsibilities with respect to a claim filed
by a lender based only on the borrower's assertion that he or she did
not sign the loan check or the authorization for the electronic
transfer of loan funds. (i) The agency shall evaluate the borrower's
request and consider relevant information it possesses and information
available from other sources, and follow the procedures described in
paragraph (e)(8) of this section.
(ii) If the agency determines that a borrower who asserts that he
or she did not endorse the loan check satisfies the requirements for
discharge under paragraph (e)(3)(iv) of this section, it shall, within
30 days after making that determination--
(A) Notify the borrower that his or her liability with respect to
the amount of the contested disbursement of the loan has been
discharged, and that the lender has been informed of the actions
required under paragraph (e)(8)(ii)(B) of this section;
(B) Notify the lender that the borrower's liability with respect to
the amount of the contested disbursement of the loan has been
discharged, and that the lender must--
(1) Immediately terminate any collection efforts against the
borrower with respect to the discharged loan amount and any charges
imposed or costs incurred by the lender related to the discharged loan
amount that the borrower is, or was, otherwise obligated to pay;
(2) Within 30 days, report to all credit reporting agencies to
which the lender previously reported the status of the loan, so as to
delete all adverse credit history assigned to the loan;
(3) Refund to the borrower, within 30 days, all amounts paid by the
borrower with respect to the loan disbursement that was discharged,
including any charges imposed or costs incurred by the lender related
to the discharged loan amount; and
(4) Refund to the Secretary, within 30 days, all interest benefits
and special allowance payments received from the Secretary with respect
to the loan disbursement that was discharged; and
(C) Transfer to the lender the borrower's written assignment of any
rights the borrower may have against third parties with respect to a
loan disbursement that was discharged because the borrower did not sign
the loan check.
(iii) If the agency determines that a borrower who asserts that he
or she did not sign the electronic funds transfer authorization
satisfies the requirements for discharge under paragraph (e)(3)(iv) of
this section, it shall, within 30 days after making that determination,
pay the claim in accordance with Sec. 682.402(h) and--
(A) Notify the borrower that his or her liability with respect to
the amount of the contested disbursement of the loan has been
discharged, and that the lender has been informed of the actions
required under paragraph (e)(8)(iii)(C) of this section;
(B) Refund to the borrower all amounts paid by the borrower to the
lender or the agency with respect to the discharged loan amount,
including any late fees or collection charges imposed by the lender or
agency related to the discharged loan amount; and
(C) Notify the lender that the borrower's liability with respect to
the contested disbursement of the loan has been discharged, and that
the lender must--
(1) Immediately terminate any collection efforts against the
borrower with respect to the discharged loan amount and any charges
imposed or costs incurred by the lender related to the discharged loan
amount that the borrower is, or was, otherwise obligated to pay; and
(2) Within 30 days, report to all credit reporting agencies to
which the lender previously reported the status of the loan, so as to
delete all adverse credit history assigned to the loan.
(iv) If the agency determines that the borrower does not qualify
for a discharge, it shall, within 30 days after making that
determination--
(A) Notify the lender that the borrower's liability on the loan is
not discharged and that, depending on the borrower's decision under
paragraph (e)(8)(iv)(B) of this section, the loan shall either be
returned to the lender or paid as a default claim; and
(B) Notify the borrower that the borrower does not qualify for
discharge, and state the reasons for that conclusion. The agency shall
advise the borrower that he or she remains obligated to repay the loan
and warn the borrower of the consequences of default, and explain that
the borrower will be considered to be in default on the loan unless the
borrower submits a written statement to the agency within 30 days
stating that the borrower--
(1) Acknowledges the debt and, if payments are due, will begin or
resume making those payments to the lender; or
(2) Requests the Secretary to review the agency's decision.
(v) Within 30 days after receiving the borrower's written statement
described in paragraph (e)(8)(iv)(B)(1) of this section, the agency
shall return the claim file to the lender and notify the lender to
resume collection efforts if payments are due.
(vi) Within 30 days after receiving the borrower's request for
review by the Secretary, the agency shall forward the claim file to the
Secretary for his review and take the actions required under paragraph
(e)(11) of this section.
(vii) The agency shall pay a default claim to the lender within 30
days after the borrower fails to return either of the written
statements described in paragraph (e)(8)(iv)(B) of this section.
(9) Guaranty agency responsibilities in the case of a loan held by
the agency for which a discharge request is submitted by a borrower
based on the borrower's assertion that he or she did not sign the loan
application or the promissory note, or that the school failed to test,
or improperly tested, the student's ability to benefit. (i) The agency
shall evaluate the borrower's request and consider relevant information
it possesses and information available from other sources, and follow
the procedures described in paragraph (e)(9) of this section.
(ii) If the agency determines that the borrower satisfies the
requirements for discharge under paragraph (e)(3) of this section, it
shall immediately terminate any collection efforts against the borrower
with respect to the discharged loan amount and any charges imposed or
costs incurred by the agency related to the discharged loan amount that
the borrower is, or was otherwise obligated to pay and, not later than
30 days after the agency makes the determination that the borrower
satisfies the requirements for discharge--
(A) Notify the borrower that his or her liability with respect to
the amount of the loan has been discharged;
(B) Report to all credit reporting agencies to which the agency
previously reported the status of the loan, so as to delete all adverse
credit history assigned to the loan; and
(C) Refund to the borrower all amounts paid by the borrower to the
lender or the agency with respect to the discharged loan amount,
including any late fees or collection charges imposed by the lender or
agency related to the discharged loan amount.
(iii) If the agency determines that the borrower does not qualify
for a discharge, it shall, within 30 days after making that
determination, notify the borrower that the borrower's liability with
respect to the amount of the loan is not discharged, state the reasons
for that conclusion, and if the borrower is not then making payments in
accordance with a repayment arrangement with the agency on the loan,
advise the borrower of the consequences of continued failure to reach
such an arrangement, and that collection action will resume on the loan
unless within 30 days the borrower--
(A) Acknowledges the debt and, if payments are due, reaches a
satisfactory arrangement to repay the loan or resumes making payments
under such an arrangement to the agency; or
(B) Requests the Secretary to review the agency's decision.
(iv) Within 30 days after receiving the borrower's request for
review by the Secretary, the agency shall forward the borrower's
discharge request and all relevant documentation to the Secretary for
his review and take the actions required under paragraph (e)(11) of
this section.
(v) The agency shall resume collection action if within 30 days of
giving notice of its determination the borrower fails to seek review by
the Secretary or agree to repay the loan.
(10) Guaranty agency responsibilities in the case of a loan held by
the agency for which a discharge request is submitted by a borrower
based only on the borrower's assertion that he or she did not sign the
loan check or the authorization for the electronic transfer of loan
funds. (i) The agency shall evaluate the borrower's request and
consider relevant information it possesses and information available
from other sources, and follow the procedures described in paragraph
(e)(10) of this section.
(ii) If the agency determines that a borrower who asserts that he
or she did not endorse the loan check satisfies the requirements for
discharge under paragraph (e)(3)(iv) of this section, it shall refund
to the Secretary the amount of reinsurance payment received with
respect to the amount discharged on that loan less any repayments made
by the lender under paragraph (e)(10)(ii)(D)(2) of this section, and
within 30 days after making that determination--
(A) Notify the borrower that his or her liability with respect to
the amount of the contested disbursement of the loan has been
discharged;
(B) Report to all credit reporting agencies to which the agency
previously reported the status of the loan, so as to delete all adverse
credit history assigned to the loan;
(C) Refund to the borrower all amounts paid by the borrower to the
lender or the agency with respect to the discharged loan amount,
including any late fees or collection charges imposed by the lender or
agency related to the discharged loan amount;
(D) Notify the lender to whom a claim payment was made that the
lender must refund to the Secretary, within 30 days--
(1) All interest benefits and special allowance payments received
from the Secretary with respect to the loan disbursement that was
discharged; and
(2) The amount of the borrower's payments that were refunded to the
borrower by the guaranty agency under paragraph (e)(10)(iii)(C) of this
section that represent borrower payments previously paid to the lender
with respect to the loan disbursement that was discharged;
(E) Notify the lender to whom a claim payment was made that the
lender must, within 30 days, reimburse the agency for the amount of the
loan that was discharged, minus the amount of borrower payments made to
the lender that were refunded to the borrower by the guaranty agency
under paragraph (e)(10)(iii)(C) of this section; and
(F) Transfer to the lender the borrower's written assignment of any
rights the borrower may have against third parties with respect to the
loan disbursement that was discharged.
(iii) In the case of a borrower who requests a discharge because he
or she did not sign the electronic funds transfer authorization, if the
agency determines that the borrower meets the conditions for a
discharge, it shall immediately terminate any collection efforts
against the borrower with respect to the discharged loan amount and any
charges imposed or costs incurred by the agency related to the
discharged loan amount that the borrower is, or was, otherwise
obligated to pay, and within 30 days after making that determination--
(A) Notify the borrower that his or her liability with respect to
the amount of the contested disbursement of the loan has been
discharged;
(B) Refund to the borrower all amounts paid by the borrower to the
lender or the agency with respect to the discharged loan amount,
including any late fees or collection charges imposed by the lender or
agency related to the discharged loan amount; and
(C) Report to all credit reporting agencies to which the lender
previously reported the status of the loan, so as to delete all adverse
credit history assigned to the loan.
(iv) The agency shall take the actions required under paragraphs
(e)(9) (iii) through (v) if the agency determines that the borrower
does not qualify for a discharge.
(11) Guaranty agency responsibilities if a borrower requests a
review by the Secretary. (i) Within 30 days after receiving the
borrower's request for review under paragraph (e)(7)(iii)(B)(2),
(e)(8)(iv)(B)(2), (e)(9)(iii)(B), or (e)(10)(iv)(B) of this section,
the agency shall forward the borrower's discharge request and all
relevant documentation to the Secretary for his review.
(ii) The Secretary notifies the agency and the borrower of a
determination on review. If the Secretary determines that the borrower
is not eligible for a discharge under paragraph (e) of this section,
within 30 days after being so informed, the agency shall take the
actions described in paragraphs (e)(8) (iv) through (vii) or
(e)(9)(iii) through (v) of this section, as applicable.
(iii) If the Secretary determines that the borrower meets the
requirements for a discharge under paragraph (e) of this section, the
agency shall, within 30 days after being so informed, take the actions
required under paragraph (e)(7)(ii), (e)(8)(ii), (e)(8)(iii),
(e)(9)(ii), (e)(10)(ii), or (e)(10)(iii) of this section, as
applicable.
(12) Lender Responsibilities. (i) If the lender is notified by a
guaranty agency or the Secretary, or receives information it believes
to be reliable from another source indicating that a current or former
borrower may be eligible for a discharge under paragraph (e) of this
section, the lender shall immediately suspend any efforts to collect
from the borrower on any loan received for the program of study for
which the loan was made (but may continue to receive borrower payments)
and, within 30 days of receiving the information or notification,
inform the borrower of the procedures for requesting a discharge.
(ii) If the borrower fails to submit the written request and sworn
statement described in paragraph (e)(3) of this section within 60 days
of being notified of that option, the lender shall resume collection
and shall be deemed to have exercised forbearance of payment of
principal and interest from the date the lender suspended collection
activity. The lender may capitalize, in accordance with
Sec. 682.202(b), any interest accrued and not paid during that period.
(iii) The lender shall file a claim with the guaranty agency in
accordance with Sec. 682.402(g) no later than 60 days after the lender
receives the borrower's written request and sworn statement described
in paragraph (e)(3) of this section. If a lender receives a payment
made by or on behalf of the borrower on the loan after the lender files
a claim on the loan with the guaranty agency, the lender shall forward
the payment to the guaranty agency within 30 days of its receipt. The
lender shall assist the guaranty agency and the borrower in determining
whether the borrower is eligible for discharge of the loan.
(iv) The lender shall comply with all instructions received from
the Secretary or a guaranty agency with respect to loan discharges
under paragraph (e) of this section.
(v) The lender shall review a claim that the borrower did not
endorse and did not receive the proceeds of a loan check. The lender
shall take the actions required under paragraphs (e)(8)(ii)(A) and (B)
of this section if it determines that the borrower did not endorse the
loan check, unless the lender secures persuasive evidence that the
proceeds of the loan were received by the borrower or the student for
whom the loan was made, as provided in paragraph (e)(1)(ii). If the
lender determines that the loan check was properly endorsed or the
proceeds were received by the borrower or student, the lender may
consider the borrower's objection to repayment as a statement of
intention not to repay the loan, and may file a claim with the guaranty
agency for reimbursement on that ground, but shall not report the loan
to credit bureaus as in default until the guaranty agency, or, as
applicable, the Secretary, reviews the claim for relief. By filing such
a claim, the lender shall be deemed to have agreed to the following--
(A) If the guarantor or the Secretary determines that the borrower
endorsed the loan check or the proceeds of the loan were received by
the borrower or the student, any failure to satisfy due diligence
requirements by the lender prior to the filing of the claim that would
have resulted in the loss of reinsurance on the loan in the event of
default will be waived by the Secretary; and
(B) If the guarantor or the Secretary determines that the borrower
did not endorse the loan check and that the proceeds of the loan were
not received by the borrower or the student, the lender will comply
with the requirements specified in paragraph (e)(8)(ii)(B) of this
section.
(vi) Within 30 days after being notified by the guaranty agency
that the borrower's request for a discharge has been denied, the lender
shall notify the borrower of the reasons for the denial and, if
payments are due, resume collection against the borrower. The lender
shall be deemed to have exercised forbearance of payment of principal
and interest from the date the lender suspended collection activity,
and may capitalize, in accordance with Sec. 682.202(b), any interest
accrued and not paid during that period.
(13) Requirements for admission on the basis of ability to benefit.
(i) For periods of enrollment beginning between July 1, 1987 and June
30, 1991, a student who had a general education diploma or received one
before the scheduled completion of the program of instruction is deemed
to have the ability to benefit from the training offered by the school.
(ii) A student not described in paragraph (e)(8)(i) of this section
is considered to have the ability to benefit from training offered by
the school if the student--
(A) For periods of enrollment beginning prior to July 1, 1987, was
determined by the school to have the ability to benefit from the
school's training in accordance with the requirements of 34 CFR 668.6;
(B) For periods of enrollment beginning on or after July 1, 1987,
achieved a passing grade on a test--
(1) Approved by the Secretary, for periods of enrollment beginning
on or after July 1, 1991, or by the accrediting agency, for other
periods; and
(2) Administered substantially in accordance with the requirements
for use of the test; or
(C) Successfully completed a program of developmental or remedial
education provided by the school.
(iii) Notwithstanding paragraphs (e)(8) (i) and (ii) of this
section, a student did not have the ability to benefit from training
offered by the school if the student had, at the time of enrollment, a
condition or status, including one based on a physical or mental
condition, age, or criminal record, that would have prevented the
student from satisfying the physical requirements or the legal
requirements of the State in which the student resided when the loan
was made for either acceptance into the educational program offered by
the school or performance of the occupation for which the program of
instruction was designed to prepare the student.
(f) * * *
(2) Suspension of collection activity. If the lender is notified
that a borrower has filed a petition for relief in bankruptcy, the
lender shall immediately suspend any collection efforts outside the
bankruptcy proceeding against the borrower and--
(i) Against any co-maker or endorser if the borrower has filed for
relief under Chapters 12 or 13; and
(ii) Against any co-maker or endorser who has filed for relief in
bankruptcy.
(3) Determination of filing. The lender shall determine that a
borrower has filed a petition for relief in bankruptcy on the basis of
receiving a notice of the first meeting of creditors or other
confirmation issued by the bankruptcy court.
(4) Proof of claim. Unless instructed otherwise by the guaranty
agency, the lender shall file a proof of claim with the bankruptcy
court within--
* * * * *
(g) Claim procedures for a loan held by a lender--(1)
Documentation. A lender shall provide the guaranty agency with the
following documentation when filing a death, disability, closed school,
false certification, or bankruptcy claim:
(i) The original promissory note, or, if the lender no longer has
the original promissory note, a copy of the note certified by the
lender as a true and accurate copy;
* * * * *
(vi) In the case of a closed school claim, the documentation
described in paragraph (d)(3) of this section, or any other
documentation as the Secretary may require;
(vii) In the case of a false certification claim, the documentation
described in paragraph (e)(3) of this section.
(2) Filing deadlines. A lender shall file a death, disability,
closed school, false certification, or bankruptcy claim within the
following periods:
(i) Within 60 days of the date on which the lender determines that
a borrower (or the student on whose behalf a parent obtained a PLUS
loan) has died, or the lender determines that the borrower is totally
and permanently disabled.
(ii) In the case of a closed school claim, the lender shall file a
claim with the guaranty agency no later than 60 days after the borrower
submits to the lender the written request and sworn statement described
in paragraph (d)(3) of this section or after the lender is notified by
the Secretary or the Secretary's designee or by the guaranty agency to
do so.
(iii) In the case of a false certification claim, the lender shall
file a claim with the guaranty agency no later than 60 days after the
borrower submits to the lender the written request and sworn statement
described in paragraph (e)(3) of this section or after the lender is
notified by the Secretary or the Secretary's designee or by the
guaranty agency to do so.
* * * * *
(h) Payment of death, disability, closed school, false
certification, and bankruptcy claims by the guaranty agency.
(1) * * *
(iii) In the case of a closed school claim or a false certification
claim based on the determination that the borrower did not sign the
loan application, the promissory note, or the authorization for the
electronic transfer of loan funds, or that the school failed to test,
or improperly tested, the student's ability to benefit, the guaranty
agency shall document its determination that the borrower is eligible
for discharge under paragraphs (d) or (e) of this section and pay the
borrower or the holder the amount determined under paragraph (h)(2) of
this section.
(2) * * *
(ii) The amount of loss payable to a lender on a closed school
claim or on a false certification claim is equal to the sum of the
remaining principal balance and interest accrued on the loan,
collection costs incurred by the lender and applied to the borrower's
account within 30 days of the date those costs were actually incurred,
and unpaid interest determined in accordance with paragraph (h)(3) of
this section.
(iii) In the case of a claim filed by a lender on an outstanding
loan owed by the borrower, on the same date that the agency pays a
claim to the lender, the agency shall pay the borrower an amount equal
to the amount paid on the loan by or on behalf of the borrower, less
any school tuition refunds or payments received by the holder or the
borrower from a tuition recovery fund, performance bond, or other
third-party source.
(iv) In the case of a claim filed by a lender based on a request
received from a borrower whose loan had been repaid in full by, or on
behalf of the borrower to the lender, on the same date that the agency
notifies the lender that the borrower is eligible for a closed school
or false certification discharge, the agency shall pay the borrower an
amount equal to the amount paid on the loan by or on behalf of the
borrower, less any school tuition refunds or payments received by the
holder or the borrower from a tuition recovery fund, performance bond,
or other third-party source.
(v) In the case of a loan that has been included in a Federal
Consolidation Loan, the agency shall pay to the holder of the
borrower's Consolidation Loan, an amount equal to--
(A) The amount paid on the loan by or on behalf of the borrower at
the time the loan was paid through consolidation;
(B) The amount paid by the consolidating lender to the holder of
the loan when it was repaid through consolidation; minus
(C) Any school tuition refunds or payments received by the holder
or the borrower from a tuition recovery fund, performance bond, or
other third-party source if those refunds or payments were--
(1) Received by the borrower or received by the holder and applied
to the borrower's loan balance before the date the loan was repaid
through consolidation; or
(2) Received by the borrower or received by the Consolidation Loan
holder on or after the date the consolidating lender made a payment to
the former holder to discharge the borrower's obligation to that former
holder.
(3) * * *
(i) During the period before the claim is filed, not to exceed the
period provided for in paragraph (g)(2) of this section for filing the
claim.
(ii) During a period not to exceed 30 days following the receipt
date by the lender of a claim returned by the guaranty agency for
additional documentation necessary for the claim to be approved by the
guaranty agency.
* * * * *
(i) * * *
(2) Response by a guaranty agency to plans proposed under Chapters
11, 12, and 13. The guaranty agency shall take the following actions
when a petition for relief in bankruptcy under Chapters 11, 12, or 13
is filed:
* * * * *
(iv) The agency shall monitor the debtor's performance under a
confirmed plan. If the debtor fails to make payments required under the
plan or seeks but does not demonstrate entitlement to discharge under
11 U.S.C. 1328(b), the agency shall oppose any requested discharge or
move to dismiss the case if the costs of litigation together with the
costs incurred for objections to the plan are not reasonably expected
to exceed one-third of the amount of the loan to be discharged under
the plan.
* * * * *
(j) Mandatory purchase by a lender of a loan subject to a
bankruptcy claim. (1) The lender shall repurchase from the guaranty
agency a loan held by the agency pursuant to a bankruptcy claim paid to
that lender, unless the guaranty agency sells the loan to another
lender, promptly after the earliest of the following events:
* * * * *
(2) The lender may capitalize all outstanding interest accrued on a
loan purchased under paragraph (j) of this section to cover any periods
of delinquency prior to the bankruptcy action through the date the
lender purchases the loan and receives the supporting loan
documentation from the guaranty agency.
(k) Claims for reimbursement from the Secretary on loans held by
guaranty agencies.* * *
* * * * *
(2) The Secretary pays a death, disability, bankruptcy, closed
school, or false certification claim in an amount determined under
Sec. 682.402(k)(5) on a loan held by a guaranty agency after the agency
has paid a default claim to the lender thereon and received payment
under its reinsurance agreement. The Secretary reimburses the guaranty
agency only if--
(i) The guaranty agency determines that the borrower (or the
student for whom a parent obtained a PLUS loan or each of the co-makers
of a PLUS loan) has died, or the borrower (or each of the co-makers of
a PLUS loan) has become totally and permanently disabled since applying
for the loan, or has filed for relief in bankruptcy, in accordance with
the procedures in paragraphs (b), (c), or (f) of this section, or the
student was unable to complete an educational program because the
school closed, or the borrower's eligibility to borrow (or the
student's eligibility in the case of a PLUS loan) was falsely certified
by an eligible school. For purposes of this paragraph, references to
the ``lender'' and ``guaranty agency'' in paragraphs (b) through (f) of
this section mean the guaranty agency and the Secretary respectively;
(ii) In the case of a Stafford, SLS, or PLUS loan, the guaranty
agency determines that the borrower (or the student for whom a parent
obtained a PLUS loan, or each of the co-makers of a PLUS loan) has
died, or the borrower (or each of the co-makers of a PLUS loan) has
become totally and permanently disabled since applying for the loan, or
has filed the petition for relief in bankruptcy within 10 years of the
date the borrower entered repayment, exclusive of periods of deferment
or periods of forbearance granted by the lender that extended the 10-
year maximum repayment period, or the borrower (or the student for whom
a parent received a PLUS loan) was unable to complete an educational
program because the school closed, or the borrower's eligibility to
borrow (or the student's eligibility in the case of a PLUS loan) was
falsely certified by an eligible school;
(iii) In the case of a Consolidation loan, the guaranty agency
determines that the borrower (or each of the co-makers) has died,
become totally and permanently disabled since applying for the
Consolidation loan, or has filed the petition for relief in bankruptcy
within the maximum repayment period described in Sec. 682.209(h)(2),
exclusive of periods of deferment or periods of forbearance granted by
the lender that extended the maximum repayment period;
(iv) The guaranty agency has not written off the loan in accordance
with the procedures established by the agency under
Sec. 682.410(b)(6)(x), except for closed school and false certification
discharges; and
(v) The guaranty agency has exercised due diligence in the
collection of the loan in accordance with the procedures established by
the agency under Sec. 682.410(b)(6)(x), until the borrower (or the
student for whom a parent obtained a PLUS loan, or each of the co-
makers of a PLUS loan) has died, or the borrower (or each of the co-
makers of a PLUS loan) has become totally and permanently disabled or
filed a Chapter 12 or Chapter 13 petition, or had the loan discharged
in bankruptcy, or for closed school and false certification claims, the
guaranty agency receives a request for discharge from the borrower or
another party.
(3) [Reserved]
(4) Within 30 days of receiving reimbursement for a closed school
or false certification claim, the guaranty agency shall pay--
(i) The borrower an amount equal to the amount paid on the loan by
or on behalf of the borrower, less any school tuition refunds or
payments received by the holder, guaranty agency, or the borrower from
a tuition recovery fund, performance bond, or other third-party source;
or
(ii) The amount determined under paragraph (h)(2)(iv) of this
section to the holder of the borrower's Consolidation Loan.
(5) The Secretary pays the guaranty agency a percentage of the
outstanding principal and interest that is equal to the complement of
the reinsurance percentage paid on the loan. This interest includes
interest that accrues during--
(i) For death, disability, or bankruptcy claims, the shorter of 60
days or the period from the date the guaranty agency determines that
the borrower (or the student for whom a parent obtained a PLUS loan, or
each of the co-makers of a PLUS loan) died, became totally and
permanently disabled, or filed a petition for relief in bankruptcy
until the Secretary authorizes payment; or
(ii) For closed school or false certification claims, the period
from the date on which the guaranty agency received payment from the
Secretary on a default claim to the date on which the Secretary
authorizes payment of the closed school or false certification claim.
(l) Payments received after the Secretary's payment of a death,
disability, closed school, false certification, or bankruptcy claim.
(1) If the guaranty agency receives any payments from or on behalf of
the borrower on or attributable to a loan on which the Secretary
previously paid a bankruptcy claim, the guaranty agency shall remit 100
percent of these payments to the Secretary.
(2) The guaranty agency shall remit to the Secretary all payments
received from a tuition recovery fund, performance bond, or other
third-party with respect to a loan on which the Secretary previously
paid a closed school or false certification claim. The guaranty agency
shall promptly return to the borrower or the borrower's representative,
any payment on a discharged loan made by the borrower (or
representative) and received after the Secretary pays a closed school
or false certification claim. At the same time that the agency returns
the payment, it shall notify the borrower (or representative) that
there is no obligation to repay a loan discharged by virtue of death,
disability, false certification, or closing of the school.
(3) If the guaranty agency has returned a payment to the borrower,
or the borrower's representative, with the notice described in
paragraph (l)(2) of this section, and the borrower (or representative)
continues to send payments to the guaranty agency, the agency shall
remit all of those payments to the Secretary.
(m) Applicable suspension of the repayment period. For purposes of
this section and 11 U.S.C. 523(a)(8)(A) with respect to loans
guaranteed under the FFEL Program, an applicable suspension of the
repayment period--
* * * * *
(5) Includes the period between the filing of the petition for
relief and the date on which the proceeding is completed or dismissed,
unless payments have been made during that period in amounts sufficient
to meet the amount owed under the repayment schedule in effect when the
petition was filed.
* * * * *
(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082, 1087)
5. Section 682.410 is amended by revising paragraphs (b)(5)(vi)(H)
and (b)(5)(vi)(L), (b)(6)(i), (b)(6) (iii) introductory text and
(b)(6)(iii)(A), (b)(6)(iv) introductory and (b)(6)(iv)(B), (B)(6)(vii)
introductory text, (b)(6)(vii)(A), removing paragraphs (B)(6)(vii)(B)
and (b)(6)(vii)(C) and redesignating paragraph (b)(6)(vii)(D) as
paragraph (b)(6)(vii)(B) and reserving it, revising paragraph
(b)(6)(xii), revising paragraph (b)(7)(iv)(B), and by adding a new
paragraph (b)(10), and by revising the authority citation to read as
follows:
Sec. 682.410 Fiscal, administrative, and enforcement requirements.
* * * * *
(b) * * *
(5) * * *
(vi) * * *
(H) Unless the agency uses a separate notice to advise the borrower
regarding other proposed enforcement actions, describe specifically any
other enforcement action, such as offset against federal or state
income tax refunds or wage garnishment that the agency intends to use
to collect the debt, and explain the procedures available to the
borrower prior to those other enforcement actions for access to
records, for an administrative review, or for agreement to alternative
repayment terms;
* * * * *
(L) Describe the collection actions that the agency may take in the
future if those presently proposed do not result in repayment of the
loan obligation, including the filing of a lawsuit against the borrower
by the agency and assignment of the loan to the Secretary for the
filing of a lawsuit against the borrower by the Federal Government.
(6) Collection efforts on defaulted loans. (i) A guaranty agency
shall engage in at least the collection activities described in
paragraphs (b)(6) (iii) through (xii) of this section on a loan on
which it pays a default claim filed by a lender, and shall attempt an
annual IRS offset on each eligible loan, except that the agency may
engage in the collection activities described in paragraph (b)(7) of
this section in lieu of the activities described in paragraphs (b)(6)
(iii) through (vi) of this section.
If, after initiating wage garnishment procedures, the agency
terminates those procedures for a particular borrower, the agency
shall, within 30 days, commence collection efforts at least as forceful
as those described in paragraphs (b)(6) (iii) through (xii) of this
section. The agency's collection efforts shall begin with the same
collection activities as those that immediately preceded the initiation
of garnishment procedures, or, if no collection activities had been
performed, the agency shall begin with the activities described in
paragraph (b)(6)(iii) of this section, except that the agency may
engage in the collection activities described in paragraph (b)(7) of
this section in lieu of the activities described in paragraphs (b)(6)
(iii) through (vi) of this section.
* * * * *
(iii) One-45 days: During this period, the agency shall--
(A) Send to the borrower the written notice described in paragraph
(b)(5)(ii) of this section, and a written notice stating that the
agency either will initiate procedures to garnish the borrower's wages,
or institute a civil suit to compel repayment of the amount that the
borrower owes plus related collection costs; and
* * * * *
(iv) 46-180 days: During this period the agency shall--
* * * * *
(B) Send at least three written notices to the borrower forcefully
demanding that the borrower immediately commence repayment of the loan,
and informing the borrower that the default has been reported to all
national credit bureaus (if that is the case) and that the borrower's
credit rating may thereby have been damaged. The final notice also must
indicate that it is the final notice the borrower will receive before
the agency will take more forceful action, including the initiation of
procedures to garnish the borrower's wages, or to offset the borrower's
state and federal income tax refunds, or instituting a civil suit to
compel repayment of the amount that the borrower owes plus related
collection costs.
* * * * *
(vii) 181-545 days:
(A) Except as provided in paragraph (b)(6)(vii)(B) of this section,
during this period, but not sooner than 30 days after sending the
notice described in paragraph (b)(5)(vi) of this section, the agency
shall initiate proceedings to offset the borrower's state and federal
income tax refunds, and shall either initiate wage garnishment
proceedings against the borrower by the 225th day, or, by the 545th
day, institute a civil suit against the borrower for repayment of the
loan.
(B) The agency need not file suit if the agency determines and
documents in the borrower's file that--
(1) The cost of litigation would exceed the likely recovery if
litigation was begun; or
(2) The borrower does not have the means to satisfy a judgment on
the debt or a substantial portion thereof.
* * * * *
(xii) Not later than 10 days after its receipt of information
indicating that it does not know the current address of a borrower on a
loan on which the agency has neither declined to sue under paragraph
(b)(6)(vii)(B) of this section nor discontinued semi-annual inquiries
under paragraph (b)(6)(x) of this section, or the 60th day after its
payment of a default claim on the loan, whichever is later, the agency
shall attempt diligently to locate the borrower through the use of all
available skip-tracing techniques, including, but not limited to, any
skip-tracing assistance available from the IRS, credit bureaus, and
state motor vehicle departments. A guaranty agency shall use any
information provided by a school about a borrower's location in
conducting skip-tracing activities.
* * * * *
(7) * * *
(iv) * * *
(B) By the end of this period, the agency shall refer the loan to a
collection contractor in accordance with paragraph (b)(7)(iv)(C) of
this section.
* * * * *
(10) Administrative Garnishment. (i) If a guaranty agency decides
to garnish the disposable pay of a borrower who is not making payments
on a loan held by the agency, on which the Secretary has paid a
reinsurance claim, it shall do so in accordance with the following
procedures:
(A) The employer shall deduct and pay to the agency from a
borrower's wages an amount that does not exceed the lesser of 10
percent of the borrower's disposable pay for each pay period or the
amount permitted by 15 U.S.C. 1673, unless the borrower provides the
agency with written consent to deduct a greater amount. For this
purpose, the term ``disposable pay'' means that part of the borrower's
compensation from an employer remaining after the deduction of any
amounts required by law to be withheld.
(B) At least 30 days before the initiation of garnishment
proceedings, the guaranty agency shall mail to the borrower's last
known address, a written notice of the nature and amount of the debt,
the intention of the agency to initiate proceedings to collect the debt
through deductions from pay, and an explanation of the borrower's
rights.
(C) The guaranty agency shall offer the borrower an opportunity to
inspect and copy agency records related to the debt.
(D) The guaranty agency shall offer the borrower an opportunity to
enter into a written repayment agreement with the agency under terms
agreeable to the agency.
(E) The guaranty agency shall offer the borrower an opportunity for
a hearing in accordance with paragraph (b)(10)(i)(J) of this section
concerning the existence or the amount of the debt and, in the case of
a borrower whose proposed repayment schedule under the garnishment
order is established other than by a written agreement under paragraph
(b)(10)(i)(D) of this section, the terms of the repayment schedule.
(F) The guaranty agency shall sue any employer for any amount that
the employer, after receipt of the garnishment notice provided by the
agency under paragraph (b)(10)(i)(H) of this section, fails to withhold
from wages owed and payable to an employee under the employer's normal
pay and disbursement cycle.
(G) The guaranty agency may not garnish the wages of a borrower
whom it knows has been involuntarily separated from employment until
the borrower has been reemployed continuously for at least 12 months.
(H) Unless the guaranty agency receives information that the agency
believes justifies a delay or cancellation of the withholding order, it
shall send a withholding order to the employer within 20 days after the
borrower fails to make a timely request for a hearing, or, if a timely
request for a hearing is made by the borrower, within 20 days after a
final decision is made by the agency to proceed with garnishment.
(I) The notice given to the employer under paragraph (b)(10)(i)(H)
of this section must contain only the information as may be necessary
for the employer to comply with the withholding order.
(J) The guaranty agency shall provide a hearing, which, at the
borrower's option, may be oral or written, if the borrower submits a
written request for a hearing on the existence or amount of the debt or
the terms of the repayment schedule. The time and location of the
hearing shall be established by the agency. An oral hearing may, at the
borrower's option, be conducted either in-person or by telephone
conference. All telephonic charges must be the responsibility of the
guaranty agency.
(K) If the borrower's written request is received by the guaranty
agency on or before the 15th day following the borrower's receipt of
the notice described in paragraph (b)(10)(i)(B) of this section, the
guaranty agency may not issue a withholding order until the borrower
has been provided the requested hearing. For purposes of this
paragraph, in the absence of evidence to the contrary, a borrower shall
be considered to have received the notice described in paragraph
(b)(10)(i)(B) of this section 5 days after it was mailed by the agency.
The guaranty agency shall provide a hearing to the borrower in
sufficient time to permit a decision, in accordance with the procedures
that the agency may prescribe, to be rendered within 60 days.
(L) If the borrower's written request is received by the guaranty
agency after the 15th day following the borrower's receipt of the
notice described in paragraph (b)(10)(i)(B) of this section, the
guaranty agency shall provide a hearing to the borrower in sufficient
time that a decision, in accordance with the procedures that the agency
may prescribe, may be rendered within 60 days, but may not delay
issuance of a withholding order unless the agency determines that the
delay in filing the request was caused by factors over which the
borrower had no control, or the agency receives information that the
agency believes justifies a delay or cancellation of the withholding
order. For purposes of this paragraph, in the absence of evidence to
the contrary, a borrower shall be considered to have received the
notice described in paragraph (b)(10)(i)(B) of this section 5 days
after it was mailed by the agency.
(M) The hearing official appointed by the agency to conduct the
hearing may be any qualified individual, including an administrative
law judge, not under the supervision or control of the head of the
guaranty agency.
(N) The hearing official shall issue a final written decision at
the earliest practicable date, but not later than 60 days after the
guaranty agency's receipt of the borrower's hearing request.
(O) As specified in section 488A(a)(8) of the HEA, the borrower may
seek judicial relief, including punitive damages, if the employer
discharges, refuses to employ, or takes disciplinary action against the
borrower due to the issuance of a withholding order.
(ii) References to ``the borrower'' in this paragraph include all
endorsers on a loan.
* * * * *
(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1080a, 1082,
1087, 1091a, and 1099)
6. Section 682.411 is amended by revising paragraph (d)(2) and the
authority citation to read as follows:
Sec. 682.411 Due diligence by lenders in the collection of guaranty
agency loans.
* * * * *
(d) * * *
(2) At least two of the collection letters required under paragraph
(d)(1) of this section must warn the borrower that if the loan is not
paid, the lender will assign the loan to the guaranty agency that, in
turn, will report the default to all national credit bureaus, and that
the agency may institute proceedings to offset the borrower's state and
federal income tax refunds, to garnish the borrower's wages, and to
bring suit against the borrower to compel repayment of the loan.
* * * * *
(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1080a, 1082,
1087)
7. Section 682.414 is amended by revising paragraph (a)(2) and the
authority citation to read as follows:
Sec. 682.414 Records, reports, and inspection requirements for
guaranty agency programs.
(a) * * *
(2) The guaranty agency shall retain records for each loan for at
least five years after the loan is paid in full or has been determined
to be uncollectible in accordance with the agency's write-off
procedures. For the purpose of this section, the term ``paid in full''
includes loans paid by the Secretary due to the borrower's death (or
student's death in the case of a PLUS loan), the borrower's permanent
and total disability or bankruptcy, the discharge of the borrower's
loan obligation because of attendance at a closed school, or because
the student's eligibility to borrow had been falsely certified by the
school.
* * * * *
(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082, 1087)
[FR Doc. 94-10250 Filed 4-28-94; 8:45 am]
BILLING CODE 4000-01-P
