1. U.S. Code
  2. title 20
  3. chapter 28
  4. subchapter IV
  5. part B
  6. § 1078

Collapse to view only § 1078. Federal payments to reduce student interest costs

§ 1071. Statement of purpose; nondiscrimination; and appropriations authorized
(a) Purpose; discrimination prohibited
(1) Purpose
The purpose of this part is to enable the Secretary—
(A) to encourage States and nonprofit private institutions and organizations to establish adequate loan insurance programs for students in eligible institutions (as defined in section 1085 of this title),
(B) to provide a Federal program of student loan insurance for students or lenders who do not have reasonable access to a State or private nonprofit program of student loan insurance covered by an agreement under section 1078(b) of this title,
(C) to pay a portion of the interest on loans to qualified students which are insured under this part, and
(D) to guarantee a portion of each loan insured under a program of a State or of a nonprofit private institution or organization which meets the requirements of section 1078(a)(1)(B) of this title.
(2) Discrimination by creditors prohibited
(b) Authorization of appropriations
For the purpose of carrying out this part—
(1) there are authorized to be appropriated to the student loan insurance fund (established by section 1081 of this title) (A) the sum of $1,000,000, and (B) such further sums, if any, as may become necessary for the adequacy of the student loan insurance fund,
(2) there are authorized to be appropriated, for payments under section 1078 of this title with respect to interest on student loans and for payments under section 1087 of this title, such sums for the fiscal year ending June 30, 1966, and succeeding fiscal years, as may be required therefor,
(3) there is authorized to be appropriated the sum of $17,500,000 for making advances pursuant to section 1072 of this title for the reserve funds of State and nonprofit private student loan insurance programs,
(4) there are authorized to be appropriated (A) the sum of $12,500,000 for making advances after June 30, 1968, pursuant to sections 1072(a) and (b) of this title, and (B) such sums as may be necessary for making advances pursuant to section 1072(c) of this title, for the reserve funds of State and nonprofit private student loan insurance programs,
(5) there are authorized to be appropriated such sums as may be necessary for the purpose of paying a loan processing and issuance fee in accordance with section 1078(f) of this title to guaranty agencies, and
(6) there is authorized to be appropriated, and there are appropriated, out of any money in the Treasury not otherwise appropriated, such sums as may be necessary for the purpose of carrying out section 1072(c)(7) of this title.
Sums appropriated under paragraphs (1), (2), (4), and (5) of this subsection shall remain available until expended, except that no sums may be expended after June 30, 2010, with respect to loans under this part for which the first disbursement is after such date. No additional sums are authorized to be appropriated under paragraph (3) or (4) of this subsection by reason of the reenactment of such paragraphs by the Higher Education Amendments of 1986.
(c) Designation
(d) Termination of authority to make or insure new loans
Notwithstanding paragraphs (1) through (6) of subsection (b) or any other provision of law—
(1) no new loans (including consolidation loans) may be made or insured under this part after June 30, 2010; and
(2) no funds are authorized to be appropriated, or may be expended, under this chapter or any other Act to make or insure loans under this part (including consolidation loans) for which the first disbursement is after June 30, 2010,
except as expressly authorized by an Act of Congress enacted after March 30, 2010.
(Pub. L. 89–329, title IV, § 421, as added Pub. L. 99–498, title IV, § 402(a),

CITE AS: 20 USC 1071

§ 1072. Advances for reserve funds of State and nonprofit private loan insurance programs
(a) Purpose of and authority for advances to reserve funds
(1) Purpose; eligible recipients
(2) Matching requirementNo advance shall be made after June 30, 1968, unless matched by an equal amount from non-Federal sources. Such equal amount may include the unencumbered non-Federal portion of a reserve fund. As used in the preceding sentence, the term “unencumbered non-Federal portion” means the amount (determined as of the time immediately preceding the making of the advance) of the reserve fund less the greater of—
(A) the sum of—
(i) advances made under this section prior to July 1, 1968;
(ii) an amount equal to twice the amount of advances made under this section after June 30, 1968, and before the advance for purposes of which the determination is made; and
(iii) the proceeds of earnings on advances made under this section; or
(B) any amount which is required to be maintained in such fund pursuant to State law or regulation, or by agreement with lenders, as a reserve against the insurance of outstanding loans.
Except as provided in section 1078(c)(9)(E) or (F) of this title, such unencumbered non-Federal portion shall not be subject to recall, repayment, or recovery by the Secretary.
(3) Terms and conditions; repayment
(b) Limitations on total advances
(1) In general
(2) Calculation of population
(c) Advances for insurance obligations
(1) Use for payment of insurance obligations
(2) Amount of advances
(A) Except as provided in subparagraph (B), the amount to be advanced to each such State shall be equal to 10 percent of the principal amount of loans made by lenders and insured by such agency on those loans on which the first payment of principal became due during the fiscal year immediately preceding the fiscal year in which the advance is made.
(B) The amount of any advance determined according to subparagraph (A) of this paragraph shall be reduced by—
(i) the amount of any advance or advances made to such State pursuant to this subsection at an earlier date; and
(ii) the amount of the unspent balance of the advances made to a State pursuant to subsection (a).
Notwithstanding subparagraph (A) and the preceding sentence of this subparagraph, but subject to subparagraph (D) of this paragraph, the amount of any advance to a State described in paragraph (5)(A) for the first year of its eligibility under such paragraph, and the amount of any advance to any State described in paragraph (5)(B) for each year of its eligibility under such paragraph, shall not be less than $50,000.
(C) For the purpose of subparagraph (B), the unspent balance of the advances made to a State pursuant to subsection (a) shall be that portion of the balance of the State’s reserve fund (remaining at the time of the State’s first request for an advance pursuant to this subsection) which bears the same ratio to such balance as the Federal advances made and not returned by such State, pursuant to subsection (a), bears to the total of all past contributions to such reserve funds from all sources (other than interest on investment of any portion of the reserve fund) contributed since the date such State executed an agreement pursuant to section 1078(b) of this title.
(D) If the sums appropriated for any fiscal year for paying the amounts determined under subparagraphs (A) and (B) are not sufficient to pay such amounts in full, then such amounts shall be reduced—
(i) by ratably reducing that portion of the amount allocated to each State which exceeds $50,000; and
(ii) if further reduction is required, by equally reducing the $50,000 minimum allocation of each State.
If additional sums become available for paying such amounts for any fiscal year during which the preceding sentence has been applied, such reduced amounts shall be increased on the same basis as they were reduced.
(3) Use of earnings for insurance obligations
(4) Repayment of advances
(5) Limitation on number of advancesExcept as provided in paragraph (7), advances pursuant to this subsection shall be made to a State—
(A) in the case of a State which is actively carrying on a program under an agreement pursuant to section 1078(b) of this title which was entered into before October 12, 1976, upon such date as such State may request, but not before October 1, 1977, and on the same day of each of the 2 succeeding calendar years after the date so requested; and
(B) in the case of a State which enters into an agreement pursuant to section 1078(b) of this title on or after October 12, 1976, or which is not actively carrying on a program under an agreement pursuant to such section on such date, upon such date as such State may request, but not before October 1, 1977, and on the same day of each of the 4 succeeding calendar years after the date so requested of the advance.
(6) Payment of advances where no State program
(A) If for any fiscal year a State does not have a student loan insurance program covered by an agreement made pursuant to section 1078(b) of this title, and the Secretary determines after consultation with the chief executive officer of that State that there is no reasonable likelihood that the State will have such a student loan insurance program for such year, the Secretary may make advances pursuant to this subsection for such year for the same purpose to one or more nonprofit private institutions or organizations with which he has made an agreement pursuant to subsection (c), as well as subsection (b), of section 1078 of this title and subparagraph (B) of this paragraph in order to enable students in that State to participate in a program of student loan insurance covered by such agreements.
(B) The Secretary may enter into an agreement with a private nonprofit institution or organization for the purpose of this paragraph under which such institution or organization—
(i) agrees to establish within such State at least one office with sufficient staff to handle written, electronic, and telephone inquiries from students, eligible lenders, and other persons in the State, to encourage maximum commercial lender participation within the State, and to conduct periodic visits to at least the major eligible lenders within the State;
(ii) agrees that its insurance will not be denied any student because of his or her choice of eligible institutions; and
(iii) certifies that it is neither an eligible institution, nor has any substantial affiliation with an eligible institution.
(7) Emergency advancesThe Secretary is authorized to make advances, on terms and conditions satisfactory to the Secretary, to a guaranty agency—
(A) in accordance with section 1078(j) of this title, in order to ensure that the guaranty agency shall make loans as the lender-of-last-resort; or
(B) if the Secretary is seeking to terminate the guaranty agency’s agreement, or assuming the guaranty agency’s functions, in accordance with section 1078(c)(9)(F)(v) of this title, in order to assist the agency in meeting its immediate cash needs, ensure the uninterrupted payment of claims, or ensure that the guaranty agency shall make loans as described in subparagraph (A).
(d) Recovery of advances during fiscal years 1988 and 1989
(1) Amount and use of recovered funds
(2) Determination of guaranty agency obligationsIn determining the amount of advances which shall be repaid by a guaranty agency under paragraph (1), the Secretary—
(A) shall consider the solvency and maturity of the reserve and insurance funds of the guaranty agency assisted by such advances, as determined by the Comptroller General taking into account the requirements of State law as in effect on October 17, 1986;
(B) shall not seek repayment of such advances from any State described in subsection (c)(5)(B) during any year of its eligibility under such subsection; and
(C) shall not seek repayment of such advances from any State if such repayment encumbers the reserve fund requirement of State law as in effect on October 17, 1986.
(e) Correction for errors under reduction of excess cash reserves
(1) In general
(2) Amount
(f) Refund of cash reserve paymentsThe Secretary shall, within 30 days after July 23, 1992, pay the full amount of payments withheld or canceled under paragraph (3) of this subsection to any guaranty agency which—
(1) was required to eliminate excess cash reserves, based on the maximum cash reserve (as described in subsection (e) of this section as in effect on September 1, 1988) permitted at the end of 1986;
(2) appealed the Secretary’s demand that such agency should eliminate such excess cash reserves and received a waiver of a portion of the amount of such excess cash reserves to be eliminated;
(3) had payments under section 1078(c)(1) of this title or section 1078(f) of this title previously withheld or canceled in order to be applied to satisfy such agency’s obligation to eliminate excess cash reserves held by such agency, based on the maximum cash reserve (as described in subsection (e) of this section as in effect on September 1, 1988) permitted at the end of 1986; and
(4) according to a Department of Education review that was completed and forwarded to such guaranty agency prior to January 1, 1992, is expected to become insolvent during or before 1996 and the payments withheld or canceled under paragraph (3) of this subsection are a factor in such agency’s impending insolvency.
(g) Preservation and recovery of guaranty agency reserves
(1) Authority to recover fundsNotwithstanding any other provision of law, the reserve funds of the guaranty agencies, and any assets purchased with such reserve funds, regardless of who holds or controls the reserves or assets, shall be considered to be the property of the United States to be used in the operation of the program authorized by this part. However, the Secretary may not require the return of all reserve funds of a guaranty agency to the Secretary unless the Secretary determines that such return is in the best interest of the operation of the program authorized by this part, or to ensure the proper maintenance of such agency’s funds or assets or the orderly termination of the guaranty agency’s operations and the liquidation of its assets. The reserves shall be maintained by each guaranty agency to pay program expenses and contingent liabilities, as authorized by the Secretary, except that—
(A) the Secretary may direct a guaranty agency to return to the Secretary a portion of its reserve fund which the Secretary determines is unnecessary to pay the program expenses and contingent liabilities of the guaranty agency;
(B) the Secretary may direct the guaranty agency to require the return, to the guaranty agency or to the Secretary, of any reserve funds or assets held by, or under the control of, any other entity, which the Secretary determines are necessary to pay the program expenses and contingent liabilities of the guaranty agency, or which are required for the orderly termination of the guaranty agency’s operations and the liquidation of its assets;
(C) the Secretary may direct a guaranty agency, or such agency’s officers or directors, to cease any activities involving expenditure, use or transfer of the guaranty agency’s reserve funds or assets which the Secretary determines is a misapplication, misuse, or improper expenditure of such funds or assets; and
(D) any such determination under subparagraph (A) or (B) shall be based on standards prescribed by regulations that are developed through negotiated rulemaking and that include procedures for administrative due process.
(2) Termination provisions in contracts
(A) To ensure that the funds and assets of the guaranty agency are preserved, any contract with respect to the administration of a guaranty agency’s reserve funds, or the administration of any assets purchased or acquired with the reserve funds of the guaranty agency, that is entered into or extended by the guaranty agency, or any other party on behalf of or with the concurrence of the guaranty agency, after August 10, 1993, shall provide that the contract is terminable by the Secretary upon 30 days notice to the contracting parties if the Secretary determines that such contract includes an impermissible transfer of the reserve funds or assets, or is otherwise inconsistent with the terms or purposes of this section.
(B) The Secretary may direct a guaranty agency to suspend or cease activities under any contract entered into by or on behalf of such agency after January 1, 1993, if the Secretary determines that the misuse or improper expenditure of such guaranty agency’s funds or assets or such contract provides unnecessary or improper benefits to such agency’s officers or directors.
(3) Penalties
(4) Availability of funds
(h) Recall of reserves; limitations on use of reserve funds and assets
(1) In general
(2) Deposit
(3) Required shareThe Secretary shall require each guaranty agency to return reserve funds under paragraph (1) based on the agency’s required share of recalled reserve funds held by guaranty agencies as of September 30, 1996. For purposes of this paragraph, a guaranty agency’s required share of recalled reserve funds shall be determined as follows:
(A) The Secretary shall compute each guaranty agency’s reserve ratio by dividing (i) the amount held in the agency’s reserve funds as of September 30, 1996 (but reflecting later accounting or auditing adjustments approved by the Secretary), by (ii) the original principal amount of all loans for which the agency has an outstanding insurance obligation as of such date, including amounts of outstanding loans transferred to the agency from another guaranty agency.
(B) If the reserve ratio of any guaranty agency as computed under subparagraph (A) exceeds 2.0 percent, the agency’s required share shall include so much of the amounts held in the agency’s reserve funds as exceed a reserve ratio of 2.0 percent.
(C) If any additional amount is required to be recalled under paragraph (1) (after deducting the total of the required shares calculated under subparagraph (B)), such additional amount shall be obtained by imposing on each guaranty agency an equal percentage reduction in the amount of the agency’s reserve funds remaining after deduction of the amount recalled under subparagraph (B), except that such percentage reduction under this subparagraph shall not result in the agency’s reserve ratio being reduced below 0.58 percent. The equal percentage reduction shall be the percentage obtained by dividing—
(i) the additional amount required to be recalled (after deducting the total of the required shares calculated under subparagraph (B)), by
(ii) the total amount of all such agencies’ reserve funds remaining (after deduction of the required shares calculated under such subparagraph).
(D) If any additional amount is required to be recalled under paragraph (1) (after deducting the total of the required shares calculated under subparagraphs (B) and (C)), such additional amount shall be obtained by imposing on each guaranty agency with a reserve ratio (after deducting the required shares calculated under such subparagraphs) in excess of 0.58 percent an equal percentage reduction in the amount of the agency’s reserve funds remaining (after such deduction) that exceed a reserve ratio of 0.58 percent. The equal percentage reduction shall be the percentage obtained by dividing—
(i) the additional amount to be recalled under paragraph (1) (after deducting the amount recalled under subparagraphs (B) and (C)), by
(ii) the total amount of all such agencies’ reserve funds remaining (after deduction of the required shares calculated under such subparagraphs) that exceed a reserve ratio of 0.58 percent.
(4) Restricted accounts required
(A) In general
(B) Requirement
(C) Installments
(i) a guaranty agency that has a reserve ratio (as computed under subparagraph (3)(A)) equal to or less than 1.10 percent may transfer the agency’s required share to such account in 4 equal installments beginning in fiscal year 1999; and
(ii) a guaranty agency may transfer such required share to such account in accordance with such other payment schedules as are approved by the Secretary.
(5) Shortage
(6) Enforcement
(A) In general
(B) Prohibition
(C) Waiver
(7) Limitation
(A) Restriction on other authority
(B) Use of termination collectionsAny reserve funds directed by the Secretary to be returned to the Secretary under subsection (g)(1)(B) during such period that do not exceed a guaranty agency’s required share of recalled reserve funds under paragraph (3)—
(i) shall be used to satisfy the agency’s required share of recalled reserve funds; and
(ii) shall be deposited in the restricted account established by the agency under paragraph (4), without regard to whether such funds exceed the next installment required under such paragraph.
(C) Use of sanctions collectionsAny reserve funds directed by the Secretary to be returned to the Secretary under subsection (g)(1)(C) during such period that do not exceed a guaranty agency’s next installment under paragraph (4)—
(i) shall be used to satisfy the agency’s next installment; and
(ii) shall be deposited in the restricted account established by the agency under paragraph (4).
(D) Balance available to Secretary
(8) DefinitionsFor the purposes of this subsection:
(A) Default reduction activitiesThe term “default reduction activities” means activities to reduce student loan defaults that improve, strengthen, and expand default prevention activities, such as—
(i) establishing a program of partial loan cancellation to reward disadvantaged borrowers for good repayment histories with their lenders;
(ii) establishing a financial and debt management counseling program for high-risk borrowers that provides long-term training (beginning prior to the first disbursement of the borrower’s first student loan and continuing through the completion of the borrower’s program of education or training) in budgeting and other aspects of financial management, including debt management;
(iii) establishing a program of placement counseling to assist high-risk borrowers in identifying employment or additional training opportunities; and
(iv) developing public service announcements that would detail consequences of student loan default and provide information regarding a toll-free telephone number established by the guaranty agency for use by borrowers seeking assistance in avoiding default.
(B) Reserve fundsThe term “reserve funds” when used with respect to a guaranty agency—
(i) includes any reserve funds in cash or liquid assets held by the guaranty agency, or held by, or under the control of, any other entity; and
(ii) does not include buildings, equipment, or other nonliquid assets.
(i) Additional recall of reserves
(1) In generalNotwithstanding any other provision of law and subject to paragraph (4), the Secretary shall recall, from reserve funds held in the Federal Student Loan Reserve Funds established under section 1072a of this title by guaranty agencies—
(A) $85,000,000 in fiscal year 2002;
(B) $82,500,000 in fiscal year 2006; and
(C) $82,500,000 in fiscal year 2007.
(2) Deposit
(3) Required shareThe Secretary shall require each guaranty agency to return reserve funds under paragraph (1) on the basis of the agency’s required share. For purposes of this paragraph, a guaranty agency’s required share shall be determined as follows:
(A) Equal percentage
(B) CalculationThe equal percentage reduction shall be the percentage obtained by dividing—
(i) $250,000,000, by
(ii) the total amount of all guaranty agencies’ reserve funds held on September 30, 1996, less any amounts subject to recall under subsection (h).
(C) Special rule
(4) Offset of required shares
(5) Definition of reserve fundsThe term “reserve funds” when used with respect to a guaranty agency—
(A) includes any reserve funds in cash or liquid assets held by the guaranty agency, or held by, or under the control of, any other entity; and
(B) does not include buildings, equipment, or other nonliquid assets.
(Pub. L. 89–329, title IV, § 422, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1354; amended Pub. L. 100–203, title III, §§ 3001(a), 3002(a), Dec. 22, 1987, 101 Stat. 1330–36, 1330–38; Pub. L. 102–325, title IV, §§ 412, 416(p)(8), July 23, 1992, 106 Stat. 511, 527; Pub. L. 103–66, title IV, §§ 4041(a), (2)(A), 4042, Aug. 10, 1993, 107 Stat. 354, 357; Pub. L. 103–208, § 2(c)(1), Dec. 20, 1993, 107 Stat. 2460; Pub. L. 105–33, title VI, § 6101(a), Aug. 5, 1997, 111 Stat. 648; Pub. L. 105–244, title IV, § 412, Oct. 7, 1998, 112 Stat. 1673.)

CITE AS: 20 USC 1072

§ 1072a. Federal Student Loan Reserve Fund
(a) Establishment
(b) Investment of funds
(c) Additional depositsAfter the establishment of the Federal Fund, a guaranty agency shall deposit into the Federal Fund—
(1) all amounts received from the Secretary as payment of reinsurance on loans pursuant to section 1078(c)(1) of this title;
(2) from amounts collected on behalf of the obligation of a defaulted borrower, a percentage amount equal to the complement of the reinsurance percentage in effect when payment under the guaranty agreement was made—
(A) with respect to the defaulted loan pursuant to sections 1078(c)(6)(A) 1
1 See References in Text note below.
and 1078–6(a)(1)(B) of this title; and
(B) with respect to a loan that the Secretary has repaid or discharged under section 1087 of this title;
(3) insurance premiums collected from borrowers pursuant to sections 1078(b)(1)(H) and 1078–8(h) of this title;
(4) all amounts received from the Secretary as payment for supplemental preclaims activity performed prior to October 7, 1998;
(5) 70 percent of amounts received after October 7, 1998, from the Secretary as payment for administrative cost allowances for loans upon which insurance was issued prior to October 7, 1998; and
(6) other receipts as specified in regulations of the Secretary.
(d) Uses of fundsSubject to subsection (f), the Federal Fund may only be used by a guaranty agency—
(1) to pay lender claims pursuant to sections 1078(b)(1)(G), 1078(j), and 1087 of this title; and
(2) to pay into the Agency Operating Fund established pursuant to
(e) Ownership of Federal Fund
(f) Transition
(1) In general
(2) Special ruleA limited number of guaranty agencies may transfer interest earned on the Federal Fund to the Operating Fund during the first 3 years after October 7, 1998, if the guaranty agency demonstrates to the Secretary that—
(A) the cash flow in the Operating Fund will be negative without the transfer of such interest; and
(B) the transfer of such interest will substantially improve the financial circumstances of the guaranty agency.
(3) Repayment provisions
(4) Prohibition
(5) WaiverThe Secretary may—
(A) waive the requirements of paragraph (3), but only with respect to repayment of interest that was transferred in accordance with paragraph (2); and
(B) waive paragraph (4);
for a guaranty agency, if the Secretary determines that there are extenuating circumstances (such as State constitutional prohibitions) beyond the control of the agency that justify such a waiver.
(6) Extension of repayment period for interest
(A) Extension permittedThe Secretary shall extend the period for repayment of interest that was transferred in accordance with paragraph (2) from 2 years to 5 years if the Secretary determines that—
(i) the cash flow of the Operating Fund will be negative as a result of repayment as required by paragraph (3);
(ii) the repayment of the interest transferred will substantially diminish the financial circumstances of the guaranty agency; and
(iii) the guaranty agency has demonstrated—(I) that the agency is able to repay all transferred funds by the end of the 8th year following the date of establishment of the Operating Fund; and(II) that the agency will be financially sound on the completion of repayment.
(B) Repayment of income on transferred funds
(7) Investment of Federal funds
(8) Special rule
(Pub. L. 89–329, title IV, § 422A, as added Pub. L. 105–244, title IV, § 413(a), Oct. 7, 1998, 112 Stat. 1674; amended Pub. L. 110–315, title IV, § 438(a)(1), Aug. 14, 2008, 122 Stat. 3258.)

CITE AS: 20 USC 1072a

§ 1072b. Agency Operating Fund
(a) Establishment
(b) Investment of funds
(c) Additional deposits
After the establishment of the Operating Fund, the guaranty agency shall deposit into the Operating Fund—
(1) the loan processing and issuance fee paid by the Secretary pursuant to section 1078(f) of this title;
(2) 30 percent of amounts received after October 7, 1998, from the Secretary as payment for administrative cost allowances for loans upon which insurance was issued prior to October 7, 1998;
(3) the account maintenance fee paid by the Secretary in accordance with section 1087h of this title;
(4) the default aversion fee paid in accordance with section 1078(l) of this title;
(5) amounts remaining pursuant to section 1078(c)(6)(B) 1
1 See References in Text note below.
of this title from collection on defaulted loans held by the agency, after payment of the Secretary’s equitable share, excluding amounts deposited in the Federal Fund pursuant to section 1072a(c)(2) of this title; and
(6) other receipts as specified in regulations of the Secretary.
(d) Uses of funds
(1) In general
(2) Special rule
(3) Definitions
For purposes of this subsection:
(A) Default collection activities
(B) Default aversion activities
(C) Enrollment and repayment status management
(e) Ownership and regulation of Operating Fund
(1) Ownership
(2) Regulation
(3) Exception
Notwithstanding paragraphs (1) and (2), during any period in which funds are owed to the Federal Fund as a result of transfer under section 1072a(f) of this title—
(A) moneys in the Operating Fund may only be used for expenses related to the student loan programs authorized under this part; and
(B) the Secretary may regulate the uses or expenditure of moneys in the Operating Fund.
(Pub. L. 89–329, title IV, § 422B, as added Pub. L. 105–244, title IV, § 413(b), Oct. 7, 1998, 112 Stat. 1677.)

CITE AS: 20 USC 1072b

§ 1073. Effects of adequate non-Federal programs
(a) Federal insurance barred to lenders with access to State or private insurance
(b) Exceptions
The Secretary may issue certificates of insurance under section 1079 of this title to a lender in a State—
(1) for insurance of a loan made to a student borrower who does not, by reason of the borrower’s residence, have access to loan insurance under the loan insurance program of such State (or under any private nonprofit loan insurance program which has received an advance under section 1072 of this title for the benefit of students in such State);
(2) for insurance of all the loans made to student borrowers by a lender who satisfies the Secretary that, by reason of the residence of such borrowers, such lender will not have access to any single State or nonprofit private loan insurance program which will insure substantially all of the loans such lender intends to make to such student borrowers; or
(3) under such circumstances as may be approved by the guaranty agency in such State, for the insurance of a loan to a borrower for whom such lender previously was issued such a certificate if the loan covered by such certificate is not yet repaid.
(Pub. L. 89–329, title IV, § 423, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1358.)

CITE AS: 20 USC 1073

§ 1074. Scope and duration of Federal loan insurance program
(a) Limitations on amounts of loans covered by Federal insurance
(b) Apportionment of amounts
(Pub. L. 89–329, title IV, § 424, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1358; amended Pub. L. 102–325, title IV, § 411(b)(1), July 23, 1992, 106 Stat. 510; Pub. L. 105–33, title VI, § 6104(1), Aug. 5, 1997, 111 Stat. 652; Pub. L. 105–244, title IV, § 414, Oct. 7, 1998, 112 Stat. 1679; Pub. L. 109–171, title VIII, § 8004(b)(1), Feb. 8, 2006, 120 Stat. 158; Pub. L. 110–315, title IV, § 421, Aug. 14, 2008, 122 Stat. 3227; Pub. L. 111–152, title II, § 2202, Mar. 30, 2010, 124 Stat. 1074.)

CITE AS: 20 USC 1074

§ 1075. Limitations on individual federally insured loans and on Federal loan insurance
(a) Annual and aggregate limits
(1) Annual limits
(A) The total of loans made to a student in any academic year or its equivalent (as determined by the Secretary) which may be covered by Federal loan insurance under this part may not exceed—
(i) in the case of a student at an eligible institution who has not successfully completed the first year of a program of undergraduate education—(I) $3,500, if such student is enrolled in a program whose length is at least one academic year in length (as determined under section 1088 of this title); and(II) if such student is enrolled in a program of undergraduate education which is less than one academic year, the maximum annual loan amount that such student may receive may not exceed the amount that bears the same ratio to the amount specified in subclause (I) as the length of such program measured in semester, trimester, quarter, or clock hours bears to one academic year;
(ii) in the case of a student at an eligible institution who has successfully completed such first year but has not successfully completed the remainder of a program of undergraduate education—(I) $4,500; or(II) if such student is enrolled in a program of undergraduate education, the remainder of which is less than one academic year, the maximum annual loan amount that such student may receive may not exceed the amount that bears the same ratio to the amount specified in subclause (I) as such remainder measured in semester, trimester, quarter, or clock hours bears to one academic year;
(iii) in the case of a student at an eligible institution who has successfully completed the first and second years of a program of undergraduate education but has not successfully completed the remainder of such program—(I) $5,500; or(II) if such student is enrolled in a program of undergraduate education, the remainder of which is less than one academic year, the maximum annual loan amount that such student may receive may not exceed the amount that bears the same ratio to the amount specified in subclause (I) as such remainder measured in semester, trimester, quarter, or clock hours bears to one academic year; and
(iv) in the case of a graduate or professional student (as defined in regulations of the Secretary) at an eligible institution, $8,500.
(B) The annual insurable limits contained in subparagraph (A) shall not apply in cases where the Secretary determines, pursuant to regulations, that a higher amount is warranted in order to carry out the purpose of this part with respect to students engaged in specialized training requiring exceptionally high costs of education. The annual insurable limit per student shall not be deemed to be exceeded by a line of credit under which actual payments by the lender to the borrower will not be made in any year in excess of the annual limit.
(C) For the purpose of subparagraph (A), the number of years that a student has completed in a program of undergraduate education shall include any prior enrollment in an eligible program of undergraduate education for which the student was awarded an associate or baccalaureate degree, if such degree is required by the institution for admission to the program in which the student is enrolled.
(2) Aggregate limits
(A) The aggregate insured unpaid principal amount for all such insured loans made to any student shall not at any time exceed—
(i) $23,000, in the case of any student who has not successfully completed a program of undergraduate education, excluding loans made under section 1078–1 1
1 See References in Text note below.
or 1078–2 of this title; and
(ii) $65,500, in the case of any graduate or professional student (as defined by regulations of the Secretary) and (I) including any loans which are insured by the Secretary under this section, or by a guaranty agency, made to such student before the student became a graduate or professional student),2
2 So in original. There is no opening parenthesis.
but (II) excluding loans made under section 1078–1 1 or 1078–2 of this title,
except that the Secretary may increase the limit applicable to students who are pursuing programs which the Secretary determines are exceptionally expensive.
(B) The Secretary may increase the aggregate insurable limit applicable to students who are pursuing programs which the Secretary determines are exceptionally expensive.
(b) Level of insurance coverage based on default rate
(1) Reduction for defaults in excess of 5 or 9 percent
(A) Except as provided in subparagraph (B), the insurance liability on any loan insured by the Secretary under this part shall be 100 percent of the unpaid balance of the principal amount of the loan plus interest, except that—
(i) if, for any fiscal year, the total amount of payments under section 1080 of this title by the Secretary to any eligible lender as described in section 1085(d)(1)(D) of this title exceeds 5 percent of the sum of the loans made by such lender which are insured by the Secretary and which were in repayment at the end of the preceding fiscal year, the insurance liability under this subsection for that portion of such excess which represents loans insured after the applicable date with respect to such loans, as determined under subparagraph (C), shall be equal to 90 percent of the amount of such portion; or
(ii) if, for any fiscal year, the total amount of such payments to such a lender exceeds 9 percent of such sum, the insurance liability under this subsection for that portion of such excess which represents loans insured after the applicable date with respect to such loans, as determined under subparagraph (C), shall be equal to 80 percent of the amount of such portion.
(B) Notwithstanding subparagraph (A), the provisions of clauses (i) and (ii) of such subparagraph shall not apply to an eligible lender as described in section 1085(d)(1)(D) of this title for the fiscal year in which such lender begins to carry on a loan program insured by the Secretary, or for any of the 4 succeeding fiscal years.
(C) The applicable date with respect to a loan made by an eligible lender as described in section 1085(d)(1)(D) of this title shall be—
(i) the 90th day after the adjournment of the next regular session of the appropriate State legislature which convenes after October 12, 1976, or
(ii) if the primary source of lending capital for such lender is derived from the sale of bonds, and the constitution of the appropriate State prohibits a pledge of such State’s credit as security against such bonds, the day which is one year after such 90th day.
(2) Computation of amounts in repaymentFor the purpose of this subsection, the sum of the loans made by a lender which are insured by the Secretary and which are in repayment shall be the original principal amount of loans made by such lender which are insured by the Secretary reduced by—
(A) the amount the Secretary has been required to pay to discharge his or her insurance obligations under this part;
(B) the original principal amount of loans insured by the Secretary which have been fully repaid;
(C) the original principal amount insured on those loans for which payment of first installment of principal has not become due pursuant to section 1077(a)(2)(B) of this title or such first installment need not be paid pursuant to section 1077(a)(2)(C) of this title; and
(D) the original principal amount of loans repaid by the Secretary under section 1087 of this title.
(3) Payments to assignees
(4) Pledge of full faith and credit
(Pub. L. 89–329, title IV, § 425, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1359; amended Pub. L. 100–50, § 10(a), June 3, 1987, 101 Stat. 341; Pub. L. 102–325, title IV, § 413, July 23, 1992, 106 Stat. 512; Pub. L. 103–208, § 2(c)(2), (3), Dec. 20, 1993, 107 Stat. 2460, 2461; Pub. L. 105–244, title IV, § 415, Oct. 7, 1998, 112 Stat. 1679; Pub. L. 109–171, title VIII, § 8005(a), Feb. 8, 2006, 120 Stat. 158.)

CITE AS: 20 USC 1075

§ 1076. Sources of funds

Loans made by eligible lenders in accordance with this part shall be insurable by the Secretary whether made from funds fully owned by the lender or from funds held by the lender in a trust or similar capacity and available for such loans.

(Pub. L. 89–329, title IV, § 426, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1361.)

CITE AS: 20 USC 1076

§ 1077. Eligibility of student borrowers and terms of federally insured student loans
(a) List of requirementsExcept as provided in section 1078–3 of this title, a loan by an eligible lender shall be insurable by the Secretary under the provisions of this part only if—
(1) made to a student who (A) is an eligible student under section 1091 of this title, (B) has agreed to notify promptly the holder of the loan concerning any change of address, and (C) is carrying at least one-half the normal full-time academic workload for the course of study the student is pursuing (as determined by the institution); and
(2) evidenced by a note or other written agreement which—
(A) is made without security and without endorsement;
(B) provides for repayment (except as provided in subsection (c)) of the principal amount of the loan in installments over a period of not less than 5 years (unless sooner repaid or unless the student, during the 6 months preceding the start of the repayment period, specifically requests that repayment be made over a shorter period) nor more than 10 years beginning 6 months after the month in which the student ceases to carry at an eligible institution at least one-half the normal full-time academic workload as determined by the institution, except—
(i) as provided in subparagraph (C);
(ii) that the note or other written instrument may contain such reasonable provisions relating to repayment in the event of default in the payment of interest or in the payment of the cost of insurance premiums, or other default by the borrower, as may be authorized by regulations of the Secretary in effect at the time the loan is made; and
(iii) that the lender and the student, after the student ceases to carry at an eligible institution at least one-half the normal full-time academic workload as determined by the institution, may agree to a repayment schedule which begins earlier, or is of shorter duration, than required by this subparagraph, but in the event a borrower has requested and obtained a repayment period of less than 5 years, the borrower may at any time prior to the total repayment of the loan, have the repayment period extended so that the total repayment period is not less than 5 years;
(C) provides that periodic installments of principal need not be paid, but interest shall accrue and be paid, during any period—
(i) during which the borrower—(I) is pursuing at least a half-time course of study as determined by an eligible institution; or(II) is pursuing a course of study pursuant to a graduate fellowship program approved by the Secretary, or pursuant to a rehabilitation training program for individuals with disabilities approved by the Secretary,
 except that no borrower shall be eligible for a deferment under this clause, or a loan made under this part (other than a loan made under section 1078–2 or 1078–3 of this title), while serving in a medical internship or residency program;
(ii) not in excess of 3 years during which the borrower is seeking and unable to find full-time employment;
(iii) not in excess of 3 years for any reason which the lender determines, in accordance with regulations prescribed by the Secretary under section 1085(o) of this title, has caused or will cause the borrower to have an economic hardship; or
(iv) in which the borrower is receiving treatment for cancer and the 6 months after such period.1
1 So in original. The period probably should be a semicolon.
and provides that any such period shall not be included in determining the 10-year period described in subparagraph (B);
(D) provides for interest on the unpaid principal balance of the loan at a yearly rate, not exceeding the applicable maximum rate prescribed in section 1077a of this title, which interest shall be payable in installments over the period of the loan except that, if provided in the note or other written agreement, any interest payable by the student may be deferred until not later than the date upon which repayment of the first installment of principal falls due, in which case interest accrued during that period may be added on that date to the principal;
(E) provides that the lender will not collect or attempt to collect from the borrower any portion of the interest on the note which is payable by the Secretary under this part, and that the lender will enter into such agreements with the Secretary as may be necessary for the purpose of section 1087 of this title;
(F) entitles the student borrower to accelerate without penalty repayment of the whole or any part of the loan;
(G)
(i) contains a notice of the system,2
2 So in original. The comma probably should not appear.
of disclosure of information concerning such loan to consumer reporting agencies under section 1080a of this title, and (ii) provides that the lender on request of the borrower will provide information on the repayment status of the note to such consumer reporting agencies;
(H) provides that, no more than 6 months prior to the date on which the borrower’s first payment on a loan is due, the lender shall offer the borrower the option of repaying the loan in accordance with a graduated or income-sensitive repayment schedule established by the lender and in accordance with the regulations of the Secretary; and
(I) contains such other terms and conditions, consistent with the provisions of this part and with the regulations issued by the Secretary pursuant to this part, as may be agreed upon by the parties to such loan, including, if agreed upon, a provision requiring the borrower to pay the lender, in addition to principal and interest, amounts equal to the insurance premiums payable by the lender to the Secretary with respect to such loan;
(3) the funds borrowed by a student are disbursed to the institution by check or other means that is payable to and requires the endorsement or other certification by such student, except—
(A) that nothing in this subchapter shall be interpreted—
(i) to allow the Secretary to require checks to be made copayable to the institution and the borrower; or
(ii) to prohibit the disbursement of loan proceeds by means other than by check; and
(B) in the case of any student who is studying outside the United States in a program of study abroad that is approved for credit by the home institution at which such student is enrolled, the funds shall, at the request of the borrower, be delivered directly to the student and the checks may be endorsed, and fund transfers authorized, pursuant to an authorized power-of-attorney; and
(4) the funds borrowed by a student are disbursed in accordance with section 1078–7 of this title.
(b) Special rules for multiple disbursementFor the purpose of subsection (a)(4)—
(1) all loans issued for the same period of enrollment shall be considered as a single loan; and
(2) the requirements of such subsection shall not apply in the case of a loan made under section 1078–2 or 1078–3 of this title, or made to a student to cover the cost of attendance at an eligible institution outside the United States.
(c) Special repayment rules
(d) Borrower information
(Pub. L. 89–329, title IV, § 427, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1361; amended Pub. L. 100–50, § 10(b), (c), June 3, 1987, 101 Stat. 341; Pub. L. 100–369, §§ 5(b)(1), 7(c), 11(a), July 18, 1988, 102 Stat. 836–838; Pub. L. 101–239, title II, §§ 2002(a)(1), 2004(b)(2), Dec. 19, 1989, 103 Stat. 2111, 2116; Pub. L. 102–164, title VI, §§ 601(a), 602(a), Nov. 15, 1991, 105 Stat. 1065, 1066; Pub. L. 102–325, title IV, § 414, July 23, 1992, 106 Stat. 513; Pub. L. 103–208, § 2(c)(4), Dec. 20, 1993, 107 Stat. 2461; Pub. L. 110–315, title IV, § 432(b)(1), Aug. 14, 2008, 122 Stat. 3246; Pub. L. 115–245, div. B, title III, § 309(b), Sept. 28, 2018, 132 Stat. 3106.)

CITE AS: 20 USC 1077

§ 1077a. Applicable interest rates
(a) Rates to be consistent for borrower’s entire debtWith respect to any loan to cover the cost of instruction for any period of instruction beginning on or after January 1, 1981, the rate of interest applicable to any borrower shall—
(1) not exceed 7 percent per year on the unpaid principal balance of the loan in the case of any borrower who, on the date of entering into the note or other written evidence of that loan, has an outstanding balance of principal or interest on any loan made, insured, or guaranteed under this part, for which the interest rate does not exceed 7 percent;
(2) except as provided in paragraph (3), be 9 percent per year on the unpaid principal balance of the loan in the case of any borrower who, on the date of entering into the note or other written evidence of that loan, has no outstanding balance of principal or interest on any loan described in paragraph (1) or any loan for which the interest rate is determined under paragraph (1); or
(3) be 8 percent per year on the unpaid principal balance of the loan for a loan to cover the cost of education for any period of enrollment beginning on or after a date which is 3 months after a determination made under subsection (b) in the case of any borrower who, on the date of entering into the note or other written evidence of the loan, has no outstanding balance of principal or interest on any loan for which the interest rate is determined under paragraph (1) or (2) of this subsection.
(b) Reduction for new borrowers after decline in Treasury bill rates
(c) Rates for supplemental loans for students and loans for parents
(1) In general
(2) Reduction of rate after decline in Treasury bill rates
(3) Increase of rate after increase in Treasury bill rates
(4) Availability of variable rates
(A) For any loan made pursuant to section 1078–1 1 or 1078–2 of this title and disbursed on or after July 1, 1987, or any loan made pursuant to such section prior to such date that is refinanced pursuant to section 1078–1(d) 1 or 1078–2(d) of this title, the applicable rate of interest during any 12-month period beginning on July 1 and ending on June 30 shall be determined under subparagraph (B), except that such rate shall not exceed 12 percent.
(B)
(i) For any 12-month period beginning on July 1 and ending on or before June 30, 2001, the rate determined under this subparagraph is determined on the preceding June 1 and is equal to—(I) the bond equivalent rate of 52-week Treasury bills auctioned at the final auction held prior to such June 1; plus(II) 3.25 percent.
(ii) For any 12-month period beginning on July 1 of 2001 or any succeeding year, the rate determined under this subparagraph is determined on the preceding June 26 and is equal to—(I) the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the last calendar week ending on or before such June 26; plus(II) 3.25 percent.
(C) The Secretary shall determine the applicable rate of interest under subparagraph (B) after consultation with the Secretary of the Treasury and shall publish such rate in the Federal Register as soon as practicable after the date of determination.
(D) Notwithstanding subparagraph (A)—
(i) for any loan made pursuant to section 1078–1 1 of this title for which the first disbursement is made on or after October 1, 1992—(I) subparagraph (B) shall be applied by substituting “3.1” for “3.25”; and(II) the interest rate shall not exceed 11 percent; and
(ii) for any loan made pursuant to section 1078–2 of this title for which the first disbursement is made on or after October 1, 1992—(I) subparagraph (B) shall be applied by substituting “3.1” for “3.25”; and(II) the interest rate shall not exceed 10 percent.
(E) Notwithstanding subparagraphs (A) and (D) for any loan made pursuant to section 1078–2 of this title for which the first disbursement is made on or after July 1, 1994—
(i) subparagraph (B) shall be applied by substituting “3.1” for “3.25”; and
(ii) the interest rate shall not exceed 9 percent.
(d) Interest rates for new borrowers after July 1, 1988Notwithstanding subsections (a) and (b) of this section, with respect to any loan (other than a loan made pursuant to sections 1078–1,1 1078–2, and 1078–3 of this title) to cover the cost of instruction for any period of enrollment beginning on or after July 1, 1988, to any borrower who, on the date of entering into the note or other written evidence of the loan, has no outstanding balance of principal or interest on any loan made, insured, or guaranteed under this part, the applicable rate of interest shall be—
(1) 8 percent per year on the unpaid principal balance of the loan during the period beginning on the date of the disbursement of the loan and ending 4 years after the commencement of repayment; and
(2) 10 percent per year on the unpaid principal balance of the loan during the remainder of the repayment period.
(e) Interest rates for new borrowers after October 1, 1992
(1) In generalNotwithstanding subsections (a), (b), and (d) of this section, with respect to any loan (other than a loan made pursuant to sections 1078–1,1 1078–2 and 1078–3 of this title) for which the first disbursement is made on or after October 1, 1992, to any borrower who, on the date of entering into the note or other written evidence of the loan, has no outstanding balance of principal or interest on any loan made, insured, or guaranteed under section 1077, 1078, or 1078–8 of this title, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to—
(A) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus
(B) 3.10 percent,
except that such rate shall not exceed 9 percent.
(2) Consultation
(f) Interest rates for new loans after July 1, 1994
(1) In generalNotwithstanding subsections (a), (b), (d), and (e) of this section, with respect to any loan made, insured, or guaranteed under this part (other than a loan made pursuant to section 1078–2 or 1078–3 of this title) for which the first disbursement is made on or after July 1, 1994, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to—
(A) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus
(B) 3.10 percent,
except that such rate shall not exceed 8.25 percent.
(2) Consultation
(g) In school and grace period rules
(1) General ruleNotwithstanding the provisions of subsection (f), but subject to subsection (h), with respect to any loan under section 1078 or 1078–8 of this title for which the first disbursement is made on or after July 1, 1995, the applicable rate of interest for interest which accrues—
(A) prior to the beginning of the repayment period of the loan; or
(B) during the period in which principal need not be paid (whether or not such principal is in fact paid) by reason of a provision described in section 1078(b)(1)(M) or 1077(a)(2)(C) of this title,
shall not exceed the rate determined under paragraph (2).
(2) Rate determinationFor purposes of paragraph (1), the rate determined under this paragraph shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to—
(A) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction prior to such June 1; plus
(B) 2.5 percent,
except that such rate shall not exceed 8.25 percent.
(3) Consultation
(h) Interest rates for new loans after July 1, 1998
(1) In generalNotwithstanding subsections (a), (b), (d), (e), (f), and (g) of this section, with respect to any loan made, insured, or guaranteed under this part (other than a loan made pursuant to sections 1078–2 and 1078–3 of this title) for which the first disbursement is made on or after July 1, 1998, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to—
(A) the bond equivalent rate of the securities with a comparable maturity as established by the Secretary; plus
(B) 1.0 percent,
except that such rate shall not exceed 8.25 percent.
(2) Interest rates for new PLUS loans after July 1, 1998Notwithstanding subsections (a), (b), (d), (e), (f), and (g), with respect to any loan made under section 1078–2 of this title for which the first disbursement is made on or after July 1, 1998, paragraph (1) shall be applied—
(A) by substituting “2.1 percent” for “1.0 percent” in subparagraph (B); and
(B) by substituting “9.0 percent” for “8.25 percent” in the matter following such subparagraph.
(3) Consultation
(i) Treatment of excess interest payments on new borrower accounts resulting from decline in Treasury bill rates
(1) Excess interest on 10 percent loansIf, with respect to a loan for which the applicable interest rate is 10 percent under subsection (d) of this section at the close of any calendar quarter, the sum of the average of the bond equivalent rates of 91-day Treasury bills auctioned for that quarter and 3.25 percent is less than 10 percent, then an adjustment shall be made to a borrower’s account—
(A) by calculating excess interest in the amount computed under paragraph (2) of this subsection; and
(B)
(i) during any period in which a student is eligible to have interest payments paid on his or her behalf by the Government pursuant to section 1078(a) of this title, by crediting the excess interest to the Government; or
(ii) during any other period, by crediting such excess interest to the reduction of principal to the extent provided in paragraph (5) of this subsection.
(2) Amount of adjustment for 10 percent loansThe amount of any adjustment of interest on a loan to be made under this subsection for any quarter shall be equal to—
(A) 10 percent minus the sum of (i) the average of the bond equivalent rates of 91-day Treasury bills auctioned for such calendar quarter, and (ii) 3.25 percent; multiplied by
(B) the average daily principal balance of the loan (not including unearned interest added to principal) during such calendar quarter; divided by
(C) four.
(3) Excess interest on loans after 1992 amendments, to borrowers with outstanding balancesIf, with respect to a loan made on or after July 23, 1992, to a borrower, who on the date of entering into the note or other written evidence of the loan, has an outstanding balance of principal or interest on any other loan made, insured, or guaranteed under this part, the sum of the average of the bond equivalent rates of 91-day Treasury bills auctioned for that quarter and 3.1 percent is less than the applicable interest rate, then an adjustment shall be made—
(A) by calculating excess interest in the amount computed under paragraph (4) of this subsection; and
(B)
(i) during any period in which a student is eligible to have interest payments paid on his or her behalf by the Government pursuant to section 1078(a) of this title, by crediting the excess interest to the Government; or
(ii) during any other period, by crediting such excess interest to the reduction of principal to the extent provided in paragraph (5) of this subsection.
(4) Amount of adjustmentThe amount of any adjustment of interest on a loan to be made under this subsection for any quarter shall be equal to—
(A) the applicable interest rate minus the sum of (i) the average of the bond equivalent rates of 91-day Treasury bills auctioned for such calendar quarter, and (ii) 3.1 percent; multiplied by
(B) the average daily principal balance of the loan (not including unearned interest added to principal) during such calendar quarter; divided by
(C) four.
(5) Annual adjustment of interest and borrower eligibility for credit
(6) Publication of Treasury bill rate
(7) Conversion to variable rate
(A) Subject to subparagraphs (C) and (D), a lender or holder shall convert the interest rate on a loan that is made pursuant to this part and is subject to the provisions of this subsection to a variable rate. Such conversion shall occur not later than January 1, 1995, and, commencing on the date of conversion, the applicable interest rate for each 12-month period beginning on July 1 and ending on June 30 shall be determined by the Secretary on the June 1 preceding each such 12-month period and be equal to the sum of (i) the bond equivalent rate of the 91-day Treasury bills auctioned at the final auction prior to such June 1; and (ii) 3.25 percent in the case of loans described in paragraph (1), or 3.10 percent in the case of loans described in paragraph (3).
(B) In connection with the conversion specified in subparagraph (A) for any period prior to such conversion, and subject to paragraphs (C) and (D), a lender or holder shall convert the interest rate to a variable rate on a loan that is made pursuant to this part and is subject to the provisions of this subsection to a variable rate. The interest rates for such period shall be reset on a quarterly basis and the applicable interest rate for any quarter or portion thereof shall equal the sum of (i) the average of the bond equivalent rates of 91-Treasury bills auctioned for the preceding 3-month period, and (ii) 3.25 percent in the case of loans described in paragraph (1) or 3.10 percent in the case of loans described in paragraph (3). The rebate of excess interest derived through this conversion shall be provided to the borrower as specified in paragraph (5) for loans described in paragraph (1) or to the Government and borrower as specified in paragraph (3).
(C) A lender or holder of a loan being converted pursuant to this paragraph shall complete such conversion on or before January 1, 1995. The lender or holder shall notify the borrower that the loan shall be converted to a variable interest rate and provide a description of the rate to the borrower not later than 30 days prior to the conversion. The notice shall advise the borrower that such rate shall be calculated in accordance with the procedures set forth in this paragraph and shall provide the borrower with a substantially equivalent benefit as the adjustment otherwise provided for under this subsection. Such notice may be incorporated into the disclosure required under section 1083(b) of this title if such disclosure has not been previously made.
(D) The interest rate on a loan converted to a variable rate pursuant to this paragraph shall not exceed the maximum interest rate applicable to the loan prior to such conversion.
(E) Loans on which the interest rate is converted in accordance with subparagraph (A) or (B) shall not be subject to any other provisions of this subsection.
(j) Interest rates for new loans between July 1, 1998, and October 1, 1998
(1) In generalNotwithstanding subsection (h), but subject to paragraph (2), with respect to any loan made, insured, or guaranteed under this part (other than a loan made pursuant to section 1078–2 or 1078–3 of this title) for which the first disbursement is made on or after July 1, 1998, and before October 1, 1998, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to—
(A) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus
(B) 2.3 percent,
except that such rate shall not exceed 8.25 percent.
(2) In school and grace period rulesNotwithstanding subsection (h), with respect to any loan under this part (other than a loan made pursuant to section 1078–2 or 1078–3 of this title) for which the first disbursement is made on or after July 1, 1998, and before October 1, 1998, the applicable rate of interest for interest which accrues—
(A) prior to the beginning of the repayment period of the loan; or
(B) during the period in which principal need not be paid (whether or not such principal is in fact paid) by reason of a provision described in section 1078(b)(1)(M) or 1077(a)(2)(C) of this title,
shall be determined under paragraph (1) by substituting “1.7 percent” for “2.3 percent”.
(3) PLUS loansNotwithstanding subsection (h), with respect to any loan under section 1078–2 of this title for which the first disbursement is made on or after July 1, 1998, and before October 1, 1998, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to the lesser of—
(A)
(i) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus
(ii) 3.1 percent; or
(B) 9.0 percent.
(4) Consultation
(k) Interest rates for new loans on or after October 1, 1998, and before July 1, 2006
(1) In generalNotwithstanding subsection (h) and subject to paragraph (2) of this subsection, with respect to any loan made, insured, or guaranteed under this part (other than a loan made pursuant to section 1078–2 or 1078–3 of this title) for which the first disbursement is made on or after October 1, 1998, and before July 1, 2006, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to—
(A) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus
(B) 2.3 percent,
except that such rate shall not exceed 8.25 percent.
(2) In school and grace period rulesNotwithstanding subsection (h), with respect to any loan under this part (other than a loan made pursuant to section 1078–2 or 1078–3 of this title) for which the first disbursement is made on or after October 1, 1998, and before July 1, 2006, the applicable rate of interest for interest which accrues—
(A) prior to the beginning of the repayment period of the loan; or
(B) during the period in which principal need not be paid (whether or not such principal is in fact paid) by reason of a provision described in section 1077(a)(2)(C) or 1078(b)(1)(M) of this title,
shall be determined under paragraph (1) by substituting “1.7 percent” for “2.3 percent”.
(3) PLUS loansNotwithstanding subsection (h), with respect to any loan under section 1078–2 of this title for which the first disbursement is made on or after October 1, 1998, and before July 1, 2006, the applicable rate of interest shall be determined under paragraph (1)—
(A) by substituting “3.1 percent” for “2.3 percent”; and
(B) by substituting “9.0 percent” for “8.25 percent”.
(4) Consolidation loansWith respect to any consolidation loan under section 1078–3 of this title for which the application is received by an eligible lender on or after October 1, 1998, and before July 1, 2006, the applicable rate of interest shall be at an annual rate on the unpaid principal balance of the loan that is equal to the lesser of—
(A) the weighted average of the interest rates on the loans consolidated, rounded to the nearest higher one-eighth of 1 percent; or
(B) 8.25 percent.
(5) Consultation
(l) Interest rates for new loans on or after July 1, 2006, and before July 1, 2010
(1) In general
(2) PLUS loans
(3) Consolidation loansWith respect to any consolidation loan under section 1078–3 of this title for which the application is received by an eligible lender on or after July 1, 2006, and that was disbursed before July 1, 2010, the applicable rate of interest shall be at an annual rate on the unpaid principal balance of the loan that is equal to the lesser of—
(A) the weighted average of the interest rates on the loans consolidated, rounded to the nearest higher one-eighth of 1 percent; or
(B) 8.25 percent.
(4) Reduced rates for undergraduate subsidized loansNotwithstanding subsection (h) and paragraph (1) of this subsection, with respect to any loan to an undergraduate student made, insured, or guaranteed under this part (other than a loan made pursuant to section 1078–2, 1078–3, or 1078–8 of this title) for which the first disbursement is made on or after July 1, 2006, and before July 1, 2010, the applicable rate of interest shall be as follows:
(A) For a loan for which the first disbursement is made on or after July 1, 2006, and before July 1, 2008, 6.8 percent on the unpaid principal balance of the loan.
(B) For a loan for which the first disbursement is made on or after July 1, 2008, and before July 1, 2009, 6.0 percent on the unpaid principal balance of the loan.
(C) For a loan for which the first disbursement is made on or after July 1, 2009, and before July 1, 2010, 5.6 percent on the unpaid principal balance of the loan.
(m) Lesser rates permitted
(n) DefinitionsFor the purpose of subsections (a) and (d) of this section—
(1) the term “period of instruction” shall, at the discretion of the lender, be any academic year, semester, trimester, quarter, or other academic period; or shall be the period for which the loan is made as determined by the institution of higher education; and
(2) the term “period of enrollment” shall be the period for which the loan is made as determined by the institution of higher education and shall coincide with academic terms such as academic year, semester, trimester, quarter, or other academic period as defined by such institution.
(Pub. L. 89–329, title IV, § 427A, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1364; amended Pub. L. 100–50, § 10(d)(1), June 3, 1987, 101 Stat. 342; Pub. L. 102–325, title IV, § 415, July 23, 1992, 106 Stat. 514; Pub. L. 103–66, title IV, § 4101, Aug. 10, 1993, 107 Stat. 364; Pub. L. 103–208, § 2(c)(5)–(10), Dec. 20, 1993, 107 Stat. 2461; Pub. L. 105–178, title VIII, § 8301(a)(1), June 9, 1998, 112 Stat. 496; Pub. L. 105–244, title IV, § 416(a)(1), Oct. 7, 1998, 112 Stat. 1679; Pub. L. 106–554, § 1(a)(1) [title III, § 318(a)], Dec. 21, 2000, 114 Stat. 2763, 2763A–49; Pub. L. 107–139, § 1(a)(1), (c), Feb. 8, 2002, 116 Stat. 8, 9; Pub. L. 109–171, title VIII, § 8006(a), Feb. 8, 2006, 120 Stat. 159; Pub. L. 110–84, title II, § 201(a)(1), Sept. 27, 2007, 121 Stat. 790; Pub. L. 111–152, title II, § 2203, Mar. 30, 2010, 124 Stat. 1074.)

CITE AS: 20 USC 1077a

§ 1078. Federal payments to reduce student interest costs
(a) Federal interest subsidies
(1) Types of loans that qualifyEach student who has received a loan for study at an eligible institution for which the first disbursement is made before July 1, 2010, and—
(A) which is insured by the Secretary under this part; or
(B) which is insured under a program of a State or of a nonprofit private institution or organization which was contracted for, and paid to the student, within the period specified in paragraph (5), and which—
(i) in the case of a loan insured prior to July 1, 1967, was made by an eligible lender and is insured under a program which meets the requirements of subparagraph (E) of subsection (b)(1) and provides that repayment of such loan shall be in installments beginning not earlier than 60 days after the student ceases to pursue a course of study (as described in subparagraph (D) of subsection (b)(1)) at an eligible institution, or
(ii) in the case of a loan insured after June 30, 1967, was made by an eligible lender and is insured under a program covered by an agreement made pursuant to subsection (b),
shall be entitled to have paid on his or her behalf and for his or her account to the holder of the loan a portion of the interest on such loan under circumstances described in paragraph (2).
(2) Additional requirements to receive subsidy
(A) Each student qualifying for a portion of an interest payment under paragraph (1) shall—
(i) have provided to the lender a statement from the eligible institution, at which the student has been accepted for enrollment, or at which the student is in attendance, which—(I) sets forth the loan amount for which the student shows financial need; and(II) sets forth a schedule for disbursement of the proceeds of the loan in installments, consistent with the requirements of section 1078–7 of this title;
(ii) meet the requirements of subparagraph (B); and
(iii) have provided to the lender at the time of application for a loan made, insured, or guaranteed under this part, the student’s driver’s number, if any.
(B) For the purpose of clause (ii) of subparagraph (A), a student shall qualify for a portion of an interest payment under paragraph (1) if the eligible institution has determined and documented the student’s amount of need for a loan based on the student’s estimated cost of attendance, estimated financial assistance, and, for the purpose of an interest payment pursuant to this section, student aid index (as determined under part F), subject to the provisions of subparagraph (D).
(C) For the purpose of this paragraph—
(i) a student’s cost of attendance shall be determined under section 1087ll of this title;
(ii) a student’s estimated financial assistance means, for the period for which the loan is sought—(I) the amount of assistance such student will receive under subpart 1 of part A of this subchapter (as determined in accordance with section 1091(b) of this title), subpart 3 of part A of this subchapter, and parts C and E; plus(II) other scholarship, grant, or loan assistance, but excluding—(aa) any national service education award or post-service benefit under title I of the National and Community Service Act of 1990 [42 U.S.C. 12511 et seq.]; and(bb) any veterans’ education benefits as defined in section 1087vv(c) of this title; and
(iii) the determination of need and of the amount of a loan by an eligible institution under subparagraph (B) with respect to a student shall be calculated in accordance with part F.
(D) An eligible institution may not, in carrying out the provisions of subparagraphs (A) and (B) of this paragraph, provide a statement which certifies the eligibility of any student to receive any loan under this part in excess of the maximum amount applicable to such loan.
(E) For the purpose of subparagraphs (B) and (C) of this paragraph, any loan obtained by a student under section 1078–1 1
1 See References in Text note below.
or 1078–8 of this title or a parent under section 1078–2 of this title or under any State-sponsored or private loan program for an academic year for which the determination is made may be used to offset the student aid index of the student for that year.
(3) Amount of interest subsidy
(A)
(i) Subject to section 1087–1(c) of this title, the portion of the interest on a loan which a student is entitled to have paid, on behalf of and for the account of the student, to the holder of the loan pursuant to paragraph (1) of this subsection shall be equal to the total amount of the interest on the unpaid principal amount of the loan—(I) which accrues prior to the date the student ceases to carry at least one-half the normal full-time academic workload (as determined by the institution), or(II) which accrues during a period in which principal need not be paid (whether or not such principal is in fact paid) by reason of a provision described in subsection (b)(1)(M) of this section or in section 1077(a)(2)(C) of this title.
(ii) Such portion of the interest on a loan shall not exceed, for any period, the amount of the interest on that loan which is payable by the student after taking into consideration the amount of any interest on that loan which the student is entitled to have paid on his or her behalf for that period under any State or private loan insurance program.
(iii) The holder of a loan with respect to which payments are required to be made under this section shall be deemed to have a contractual right, as against the United States, to receive from the Secretary the portion of interest which has been so determined without administrative delay after the receipt by the Secretary of an accurate and complete request for payment pursuant to paragraph (4).
(iv) The Secretary shall pay this portion of the interest to the holder of the loan on behalf of and for the account of the borrower at such times as may be specified in regulations in force when the applicable agreement entered into pursuant to subsection (b) was made, or, if the loan was made by a State or is insured under a program which is not covered by such an agreement, at such times as may be specified in regulations in force at the time the loan was paid to the student.
(v) A lender may not receive interest on a loan for any period that precedes the date that is—(I) in the case of a loan disbursed by check, 10 days before the first disbursement of the loan;(II) in the case of a loan disbursed by electronic funds transfer, 3 days before the first disbursement of the loan; or(III) in the case of a loan disbursed through an escrow agent, 3 days before the first disbursement of the loan.
(B) If—
(i) a State student loan insurance program is covered by an agreement under subsection (b),
(ii) a statute of such State limits the interest rate on loans insured by such program to a rate which is less than the applicable interest rate under this part, and
(iii) the Secretary determines that subsection (d) does not make such statutory limitation inapplicable and that such statutory limitation threatens to impede the carrying out of the purpose of this part,
then the Secretary may pay an administrative cost allowance to the holder of each loan which is insured under such program and which is made during the period beginning on the 60th day after October 16, 1968, and ending 120 days after the adjournment of such State’s first regular legislative session which adjourns after January 1, 1969. Such administrative cost allowance shall be paid over the term of the loan in an amount per year (determined by the Secretary) which shall not exceed 1 percent of the unpaid principal balance of the loan.
(4) Submission of statements by holders on amount of payment
(5) Duration of authority to make interest subsidized loans
(6) Assessment of borrower’s financial condition not prohibited or required
(7) Loans that have not been consummated
(b) Insurance program agreements to qualify loans for interest subsidies
(1) Requirements of insurance programAny State or any nonprofit private institution or organization may enter into an agreement with the Secretary for the purpose of entitling students who receive loans which are insured under a student loan insurance program of that State, institution, or organization to have made on their behalf the payments provided for in subsection (a) if the Secretary determines that the student loan insurance program—
(A) authorizes the insurance in any academic year, as defined in section 1088(a)(2) of this title, or its equivalent (as determined under regulations of the Secretary) for any student who is carrying at an eligible institution or in a program of study abroad approved for credit by the eligible home institution at which such student is enrolled at least one-half the normal full-time academic workload (as determined by the institution) in any amount up to a maximum of—
(i) in the case of a student at an eligible institution who has not successfully completed the first year of a program of undergraduate education—(I) $3,500, if such student is enrolled in a program whose length is at least one academic year in length; and(II) if such student is enrolled in a program of undergraduate education which is less than 1 academic year, the maximum annual loan amount that such student may receive may not exceed the amount that bears the same ratio to the amount specified in subclause (I) as the length of such program measured in semester, trimester, quarter, or clock hours bears to 1 academic year;
(ii) in the case of a student at an eligible institution who has successfully completed such first year but has not successfully completed the remainder of a program of undergraduate education—(I) $4,500; or(II) if such student is enrolled in a program of undergraduate education, the remainder of which is less than one academic year, the maximum annual loan amount that such student may receive may not exceed the amount that bears the same ratio to the amount specified in subclause (I) as such remainder measured in semester, trimester, quarter, or clock hours bears to one academic year;
(iii) in the case of a student at an eligible institution who has successfully completed the first and second years of a program of undergraduate education but has not successfully completed the remainder of such program—(I) $5,500; or(II) if such student is enrolled in a program of undergraduate education, the remainder of which is less than one academic year, the maximum annual loan amount that such student may receive may not exceed the amount that bears the same ratio to the amount specified in subclause (I) as such remainder measured in semester, trimester, quarter, or clock hours bears to one academic year;
(iv) in the case of a student who has received an associate or baccalaureate degree and is enrolled in an eligible program for which the institution requires such degree for admission, the number of years that a student has completed in a program of undergraduate education shall, for the purposes of clauses (ii) and (iii), include any prior enrollment in the eligible program of undergraduate education for which the student was awarded such degree;
(v) in the case of a graduate or professional student (as defined in regulations of the Secretary) at an eligible institution, $8,500; and
(vi) in the case of a student enrolled in coursework specified in sections 1091(b)(3)(B) and 1091(b)(4)(B) of this title—(I) $2,625 for coursework necessary for enrollment in an undergraduate degree or certificate program, and, in the case of a student who has obtained a baccalaureate degree, $5,500 for coursework necessary for enrollment in a graduate or professional degree or certification program; and(II) in the case of a student who has obtained a baccalaureate degree, $5,500 for coursework necessary for a professional credential or certification from a State required for employment as a teacher in an elementary school or secondary school;
except in cases where the Secretary determines, pursuant to regulations, that a higher amount is warranted in order to carry out the purpose of this part with respect to students engaged in specialized training requiring exceptionally high costs of education, but the annual insurable limit per student shall not be deemed to be exceeded by a line of credit under which actual payments by the lender to the borrower will not be made in any years in excess of the annual limit;
(B) provides that the aggregate insured unpaid principal amount for all such insured loans made to any student shall be any amount up to a maximum of—
(i) $23,000, in the case of any student who has not successfully completed a program of undergraduate education, excluding loans made under section 1078–1 1 or 1078–2 of this title; and
(ii) $65,500, in the case of any graduate or professional student (as defined by regulations of the Secretary), and (I) including any loans which are insured by the Secretary under this section, or by a guaranty agency, made to such student before the student became a graduate or professional student, but (II) excluding loans made under section 1078–1 1 or 1078–2 of this title,
except that the Secretary may increase the limit applicable to students who are pursuing programs which the Secretary determines are exceptionally expensive;
(C) authorizes the insurance of loans to any individual student for at least 6 academic years of study or their equivalent (as determined under regulations of the Secretary);
(D) provides that (i) the student borrower shall be entitled to accelerate without penalty the whole or any part of an insured loan, (ii) the student borrower may annually change the selection of a repayment plan under this part, and (iii) the note, or other written evidence of any loan, may contain such reasonable provisions relating to repayment in the event of default by the borrower as may be authorized by regulations of the Secretary in effect at the time such note or written evidence was executed, and shall contain a notice that repayment may, following a default by the borrower, be subject to income contingent repayment in accordance with subsection (m);
(E) subject to subparagraphs (D) and (L), and except as provided by subparagraph (M), provides that—
(i) not more than 6 months prior to the date on which the borrower’s first payment is due, the lender shall offer the borrower of a loan made, insured, or guaranteed under this section or section 1078–8 of this title, the option of repaying the loan in accordance with a standard, graduated, income-sensitive, or extended repayment schedule (as described in paragraph (9)) established by the lender in accordance with regulations of the Secretary; and
(ii) repayment of loans shall be in installments in accordance with the repayment plan selected under paragraph (9) and commencing at the beginning of the repayment period determined under paragraph (7);
(F) authorizes interest on the unpaid balance of the loan at a yearly rate not in excess (exclusive of any premium for insurance which may be passed on to the borrower) of the rate required by section 1077a of this title;
(G) insures 98 percent of the unpaid principal of loans insured under the program, except that—
(i) such program shall insure 100 percent of the unpaid principal of loans made with funds advanced pursuant to subsection (j);
(ii) for any loan for which the first disbursement of principal is made on or after July 1, 2006, and before July 1, 2010, the preceding provisions of this subparagraph shall be applied by substituting “97 percent” for “98 percent”; and
(iii) notwithstanding the preceding provisions of this subparagraph, such program shall insure 100 percent of the unpaid principal amount of exempt claims as defined in subsection (c)(1)(G);
(H) provides—
(i) for loans for which the date of guarantee of principal is before July 1, 2006, for the collection of a single insurance premium equal to not more than 1.0 percent of the principal amount of the loan, by deduction proportionately from each installment payment of the proceeds of the loan to the borrower, and ensures that the proceeds of the premium will not be used for incentive payments to lenders; or
(ii) for loans for which the date of guarantee of principal is on or after July 1, 2006, and that are first disbursed before July 1, 2010, for the collection, and the deposit into the Federal Student Loan Reserve Fund under section 1072a of this title of a Federal default fee of an amount equal to 1.0 percent of the principal amount of the loan, which fee shall be collected either by deduction from the proceeds of the loan or by payment from other non-Federal sources, and ensures that the proceeds of the Federal default fee will not be used for incentive payments to lenders;
(I) provides that the benefits of the loan insurance program will not be denied any student who is eligible for interest benefits under subsection (a)(1) and (2);
(J) provides that a student may obtain insurance under the program for a loan for any year of study at an eligible institution;
(K) in the case of a State program, provides that such State program is administered by a single State agency, or by one or more nonprofit private institutions or organizations under supervision of a single State agency;
(L) provides that the total of the payments by borrower—
(i) except as otherwise provided by a repayment plan selected by the borrower under clause (ii), (iii), or (v) of paragraph (9)(A), during any year of any repayment period with respect to the aggregate amount of all loans to that borrower which are insured under this part shall not, unless the borrower and the lender otherwise agree, be less than $600 or the balance of all such loans (together with interest thereon), whichever amount is less (but in no instance less than the amount of interest due and payable, notwithstanding any payment plan under paragraph (9)(A)); and
(ii) for a monthly or other similar payment period with respect to the aggregate of all loans held by the lender may, when the amount of a monthly or other similar payment is not a multiple of $5, be rounded to the next highest whole dollar amount that is a multiple of $5;
(M) provides that periodic installments of principal need not be paid, but interest shall accrue and be paid by the Secretary, during any period—
(i) during which the borrower—(I) is pursuing at least a half-time course of study as determined by an eligible institution, except that no borrower, notwithstanding the provisions of the promissory note, shall be required to borrow an additional loan under this subchapter in order to be eligible to receive a deferment under this clause; or(II) is pursuing a course of study pursuant to a graduate fellowship program approved by the Secretary, or pursuant to a rehabilitation training program for disabled individuals approved by the Secretary,
 except that no borrower shall be eligible for a deferment under this clause, or loan made under this part (other than a loan made under section 1078–2 or 1078–3 of this title), while serving in a medical internship or residency program;
(ii) not in excess of 3 years during which the borrower is seeking and unable to find full-time employment, except that no borrower who provides evidence of eligibility for unemployment benefits shall be required to provide additional paperwork for a deferment under this clause;
(iii) during which the borrower—(I) is serving on active duty during a war or other military operation or national emergency; or(II) is performing qualifying National Guard duty during a war or other military operation or national emergency,
 and for the 180-day period following the demobilization date for the service described in subclause (I) or (II);
(iv) not in excess of 3 years for any reason which the lender determines, in accordance with regulations prescribed by the Secretary under section 1085(o) of this title, has caused or will cause the borrower to have an economic hardship; or
(v) during which the borrower is receiving treatment for cancer and the 6 months after such period;
(N) provides that funds borrowed by a student—
(i) are disbursed to the institution by check or other means that is payable to, and requires the endorsement or other certification by, such student;
(ii) in the case of a student who is studying outside the United States in a program of study abroad that is approved for credit by the home institution at which such student is enrolled, and only after verification of the student’s enrollment by the lender or guaranty agency, are, at the request of the student, disbursed directly to the student by the means described in clause (i), unless such student requests that the check be endorsed, or the funds transfer be authorized, pursuant to an authorized power-of-attorney; or
(iii) in the case of a student who is studying outside the United States in a program of study at an eligible foreign institution, are, at the request of the foreign institution, disbursed directly to the student, only after verification of the student’s enrollment by the lender or guaranty agency by the means described in clause (i).2
2 So in original. The period probably should be a semicolon.
(O) provides that the proceeds of the loans will be disbursed in accordance with the requirements of section 1078–7 of this title;
(P) requires the borrower to notify the institution concerning any change in local address during enrollment and requires the borrower and the institution at which the borrower is in attendance promptly to notify the holder of the loan, directly or through the guaranty agency, concerning (i) any change of permanent address, (ii) when the student ceases to be enrolled on at least a half-time basis, and (iii) any other change in status, when such change in status affects the student’s eligibility for the loan;
(Q) provides for the guarantee of loans made to students and parents under sections 1078–1 1 and 1078–2 of this title;
(R) with respect to lenders which are eligible institutions, provides for the insurance of loans by only such institutions as are located within the geographic area served by such guaranty agency;
(S) provides no restrictions with respect to the insurance of loans for students who are otherwise eligible for loans under such program if such a student is accepted for enrollment in or is attending an eligible institution within the State, or if such a student is a legal resident of the State and is accepted for enrollment in or is attending an eligible institution outside that State;
(T) authorizes (i) the limitation of the total number of loans or volume of loans, made under this part to students attending a particular eligible institution during any academic year; and (ii) the limitation, suspension, or termination of the eligibility of an eligible institution if—(I) such institution is ineligible for the emergency action, limitation, suspension, or termination of eligible institutions under regulations issued by the Secretary or is ineligible pursuant to criteria, rules, or regulations issued under the student loan insurance program which are substantially the same as regulations with respect to emergency action, limitation, suspension, or termination of such eligibility issued by the Secretary;(II) there is a State constitutional prohibition affecting the eligibility of such an institution;(III) such institution fails to make timely refunds to students as required by regulations issued by the Secretary or has not satisfied within 30 days of issuance a final judgment obtained by a student seeking such a refund;(IV) such institution or an owner, director, or officer of such institution is found guilty in any criminal, civil, or administrative proceeding, or such institution or an owner, director, or officer of such institution is found liable in any civil or administrative proceeding, regarding the obtaining, maintenance, or disbursement of State or Federal grant, loan, or work assistance funds; or(V) such institution or an owner, director, or officer of such institution has unpaid financial liabilities involving the improper acquisition, expenditure, or refund of State or Federal financial assistance funds;
except that, if a guaranty agency limits, suspends, or terminates the participation of an eligible institution, the Secretary shall apply that limitation, suspension, or termination to all locations of such institution, unless the Secretary finds, within 30 days of notification of the action by the guaranty agency, that the guaranty agency’s action did not comply with the requirements of this section;
(U) provides (i) for the eligibility of all lenders described in section 1085(d)(1) of this title under reasonable criteria, unless (I) that lender is eliminated as a lender under regulations for the emergency action, limitation, suspension, or termination of a lender under the Federal student loan insurance program or is eliminated as a lender pursuant to criteria issued under the student loan insurance program which are substantially the same as regulations with respect to such eligibility as a lender issued under the Federal student loan insurance program, or (II) there is a State constitutional prohibition affecting the eligibility of a lender, (ii) assurances that the guaranty agency will report to the Secretary concerning changes in such criteria, including any procedures in effect under such program to take emergency action, limit, suspend, or terminate lenders, and (iii) for (I) a compliance audit of each lender that originates or holds more than $5,000,000 in loans made under this subchapter for any lender fiscal year (except that each lender described in section 1085(d)(1)(A)(ii)(III) of this title shall annually submit the results of an audit required by this clause), at least once a year and covering the period since the most recent audit, conducted by a qualified, independent organization or person in accordance with standards established by the Comptroller General for the audit of governmental organizations, programs, and functions, and as prescribed in regulations of the Secretary, the results of which shall be submitted to the Secretary, or (II) with regard to a lender that is audited under chapter 75 of title 31, such audit shall be deemed to satisfy the requirements of subclause (I) for the period covered by such audit, except that the Secretary may waive the requirements of this clause (iii) if the lender submits to the Secretary the results of an audit conducted for other purposes that the Secretary determines provides the same information as the audits required by this clause;
(V) provides authority for the guaranty agency to require a participation agreement between the guaranty agency and each eligible institution within the State in which it is designated, as a condition for guaranteeing loans made on behalf of students attending the institution;
(W) provides assurances that the agency will implement all requirements of the Secretary for uniform claims and procedures pursuant to section 1082(l) of this title;
(X) provides information to the Secretary in accordance with subsection (c)(9) and maintains reserve funds determined by the Secretary to be sufficient in relation to such agency’s guarantee obligations; and
(Y) provides that—
(i) the lender shall determine the eligibility of a borrower for a deferment described in subparagraph (M)(i) based on—(I) receipt of a request for deferment from the borrower and documentation of the borrower’s eligibility for the deferment;(II) receipt of a newly completed loan application that documents the borrower’s eligibility for a deferment;(III) receipt of student status information documenting that the borrower is enrolled on at least a half-time basis; or(IV) the lender’s confirmation of the borrower’s half-time enrollment status through use of the National Student Loan Data System, if the confirmation is requested by the institution of higher education;
(ii) the lender will notify the borrower of the granting of any deferment under clause (i)(II) or (III) of this subparagraph and of the option to continue paying on the loan; and
(iii) the lender shall, at the time the lender grants a deferment to a borrower who received a loan under section 1078–8 of this title and is eligible for a deferment under subparagraph (M) of this paragraph, provide information to the borrower to assist the borrower in understanding the impact of the capitalization of interest on the borrower’s loan principal and on the total amount of interest to be paid during the life of the loan.
(2) Contents of insurance program agreementSuch an agreement shall—
(A) provide that the holder of any such loan will be required to submit to the Secretary, at such time or times and in such manner as the Secretary may prescribe, statements containing such information as may be required by or pursuant to regulation for the purpose of enabling the Secretary to determine the amount of the payment which must be made with respect to that loan;
(B) include such other provisions as may be necessary to protect the United States from the risk of unreasonable loss and promote the purpose of this part, including such provisions as may be necessary for the purpose of section 1087 of this title, and as are agreed to by the Secretary and the guaranty agency, as the case may be;
(C) provide for making such reports, in such form and containing such information, including financial information, as the Secretary may reasonably require to carry out the Secretary’s functions under this part and protect the financial interest of the United States, and for keeping such records and for affording such access thereto as the Secretary may find necessary to assure the correctness and verification of such reports;
(D) provide for—
(i) conducting, except as provided in clause (ii), financial and compliance audits of the guaranty agency on at least an annual basis and covering the period since the most recent audit, conducted by a qualified, independent organization or person in accordance with standards established by the Comptroller General for the audit of governmental organizations, programs, and functions, and as prescribed in regulations of the Secretary, the results of which shall be submitted to the Secretary; or
(ii) with regard to a guaranty program of a State which is audited under chapter 75 of title 31, deeming such audit to satisfy the requirements of clause (i) for the period of time covered by such audit;
(E)
(i) provide that any guaranty agency may transfer loans which are insured under this part to any other guaranty agency with the approval of the holder of the loan and such other guaranty agency; and
(ii) provide that the lender (or the holder of the loan) shall, not later than 120 days after the borrower has left the eligible institution, notify the borrower of the date on which the repayment period begins; and
(F) provide that, if the sale, other transfer, or assignment of a loan made under this part to another holder will result in a change in the identity of the party to whom the borrower must send subsequent payments or direct any communications concerning the loans, then—
(i) the transferor and the transferee will be required, not later than 45 days from the date the transferee acquires a legally enforceable right to receive payment from the borrower on such loan, either jointly or separately to provide a notice to the borrower of—(I) the sale or other transfer;(II) the identity of the transferee;(III) the name and address of the party to whom subsequent payments or communications must be sent;(IV) the telephone numbers of both the transferor and the transferee;(V) the effective date of the transfer;(VI) the date on which the current servicer (as of the date of the notice) will stop accepting payments; and(VII) the date on which the new servicer will begin accepting payments; and
(ii) the transferee will be required to notify the guaranty agency, and, upon the request of an institution of higher education, the guaranty agency shall notify the last such institution the student attended prior to the beginning of the repayment period of any loan made under this part, of—(I) any sale or other transfer of the loan; and(II) the address and telephone number by which contact may be made with the new holder concerning repayment of the loan,
except that this subparagraph (F) shall only apply if the borrower is in the grace period described in section 1077(a)(2)(B) of this title or subsection (b)(7) or is in repayment status.
(3) Restrictions on inducements, payments, mailings, and advertisingA guaranty agency shall not—
(A) offer, directly or indirectly, premiums, payments, stock or other securities, prizes, travel, entertainment expenses, tuition payment or reimbursement, or other inducements to—
(i) any institution of higher education, any employee of an institution of higher education, or any individual or entity in order to secure applicants for loans made under this part; or
(ii) any lender, or any agent, employee, or independent contractor of any lender or guaranty agency, in order to administer or market loans made under this part (other than a loan made as part of the guaranty agency’s lender-of-last-resort program pursuant to subsection (j)), for the purpose of securing the designation of the guaranty agency as the insurer of such loans;
(B) conduct unsolicited mailings, by postal or electronic means, of student loan application forms to students enrolled in secondary schools or postsecondary educational institutions, or to the families of such students, except that applications may be mailed, by postal or electronic means, to students or borrowers who have previously received loans guaranteed under this part by the guaranty agency;
(C) perform, for an institution of higher education participating in a program under this subchapter, any function that such institution is required to perform under this subchapter, except that the guaranty agency may perform functions on behalf of such institution in accordance with section 1092(b) or 1092(l) of this title;
(D) pay, on behalf of an institution of higher education, another person to perform any function that such institution is required to perform under this subchapter, except that the guaranty agency may perform functions on behalf of such institution in accordance with section 1092(b) or 1092(l) of this title; or
(E) conduct fraudulent or misleading advertising concerning loan availability, terms, or conditions.
It shall not be a violation of this paragraph for a guaranty agency to provide technical assistance to institutions of higher education comparable to the technical assistance provided to institutions of higher education by the Department.
(4) Special rule
(5) Guaranty agency information transfers
(A) Until such time as the Secretary has implemented section 1092b of this title and is able to provide to guaranty agencies the information required by such section, any guaranty agency may request information regarding loans made after January 1, 1987, to students who are residents of the State for which the agency is the designated guarantor, from any other guaranty agency insuring loans to such students.
(B) Upon a request pursuant to subparagraph (A), a guaranty agency shall provide—
(i) the name and the social security number of the borrower; and
(ii) the amount borrowed and the cumulative amount borrowed.
(C) Any costs associated with fulfilling the request of a guaranty agency for information on students shall be paid by the guaranty agency requesting the information.
(6) State guaranty agency information request of State licensing boards
(7) Repayment period
(A) In the case of a loan made under section 1077 of this title or this section, the repayment period shall exclude any period of authorized deferment or forbearance and shall begin the day after 6 months after the date the student ceases to carry at least one-half the normal full-time academic workload (as determined by the institution).
(B) In the case of a loan made under section 1078–8 of this title, the repayment period shall exclude any period of authorized deferment or forbearance, and shall begin as described in subparagraph (A), but interest shall begin to accrue or be paid by the borrower on the day the loan is disbursed.
(C) In the case of a loan made under section 1078–2 or 1078–3 of this title, the repayment period shall begin on the day the loan is disbursed, or, if the loan is disbursed in multiple installments, on the day of the last such disbursement, and shall exclude any period of authorized deferment or forbearance.
(D) There shall be excluded from the 6-month period that begins on the date on which a student ceases to carry at least one-half the normal full-time academic workload as described in subparagraph (A) any period not to exceed 3 years during which a borrower who is a member of a reserve component of the Armed Forces named in section 10101 of title 10 is called or ordered to active duty for a period of more than 30 days (as defined in section 101(d)(2) of such title). Such period of exclusion shall include the period necessary to resume enrollment at the borrower’s next available regular enrollment period.
(8) Means of disbursement of loan proceeds
(9) Repayment plans
(A) Design and selectionIn accordance with regulations promulgated by the Secretary, the lender shall offer a borrower of a loan made under this part the plans described in this subparagraph for repayment of such loan, including principal and interest thereon. No plan may require a borrower to repay a loan in less than 5 years unless the borrower, during the 6 months immediately preceding the start of the repayment period, specifically requests that repayment be made over of 3
3
(i) a standard repayment plan, with a fixed annual repayment amount paid over a fixed period of time, not to exceed 10 years;
(ii) a graduated repayment plan paid over a fixed period of time, not to exceed 10 years;
(iii) an income-sensitive repayment plan, with income-sensitive repayment amounts paid over a fixed period of time, not to exceed 10 years, except that the borrower’s scheduled payments shall not be less than the amount of interest due;
(iv) for new borrowers on or after October 7, 1998, who accumulate (after October 7, 1998) outstanding loans under this part totaling more than $30,000, an extended repayment plan, with a fixed annual or graduated repayment amount paid over an extended period of time, not to exceed 25 years, except that the borrower shall repay annually a minimum amount determined in accordance with paragraph (1)(L)(i); and
(v) beginning July 1, 2009, an income-based repayment plan that enables a borrower who has a partial financial hardship to make a lower monthly payment in accordance with section 1098e of this title, except that the plan described in this clause shall not be available to a borrower for a loan under section 1078–2 of this title made on behalf of a dependent student or for a consolidation loan under section 1078–3 of this title, if the proceeds of such loan were used to discharge the liability of a loan under section 1078–2 of this title made on behalf of a dependent student.
(B) Lender selection of option if borrower does not select
(c) Guaranty agreements for reimbursing losses
(1) Authority to enter into agreements
(A) The Secretary may enter into a guaranty agreement with any guaranty agency, whereby the Secretary shall undertake to reimburse it, under such terms and conditions as the Secretary may establish, with respect to losses (resulting from the default of the student borrower) on the unpaid balance of the principal and accrued interest of any insured loan. The guaranty agency shall be deemed to have a contractual right against the United States, during the life of such loan, to receive reimbursement according to the provisions of this subsection. Upon receipt of an accurate and complete request by a guaranty agency for reimbursement with respect to such losses, the Secretary shall pay promptly and without administrative delay. Except as provided in subparagraph (B) of this paragraph and in paragraph (7), the amount to be paid a guaranty agency as reimbursement under this subsection shall be equal to 100 percent of the amount expended by it in discharge of its insurance obligation incurred under its loan insurance program. A guaranty agency shall file a claim for reimbursement with respect to losses under this subsection within 30 days after the guaranty agency discharges its insurance obligation on the loan.
(B) Notwithstanding subparagraph (A)—
(i) if, for any fiscal year, the amount of such reimbursement payments by the Secretary under this subsection exceeds 5 percent of the loans which are insured by such guaranty agency under such program and which were in repayment at the end of the preceding fiscal year, the amount to be paid as reimbursement under this subsection for such excess shall be equal to 85 percent of the amount of such excess; and
(ii) if, for any fiscal year, the amount of such reimbursement payments exceeds 9 percent of such loans, the amount to be paid as reimbursement under this subsection for such excess shall be equal to 75 percent of the amount of such excess.
(C) For the purpose of this subsection, the amount of loans of a guaranty agency which are in repayment shall be the original principal amount of loans made by a lender which are insured by such a guaranty agency reduced by—
(i) the amount the insurer has been required to pay to discharge its insurance obligations under this part;
(ii) the original principal amount of loans insured by it which have been fully repaid; and
(iii) the original principal amount insured on those loans for which payment of the first installment of principal has not become due pursuant to subsection (b)(1)(E) of this section or such first installment need not be paid pursuant to subsection (b)(1)(M) of this section.
(D) Notwithstanding any other provisions of this section, in the case of a loan made pursuant to a lender-of-last-resort program, the Secretary shall apply the provisions of—
(i) the fourth sentence of subparagraph (A) by substituting “100 percent” for “95 percent”; 1
(ii) subparagraph (B)(i) by substituting “100 percent” for “85 percent”; and
(iii) subparagraph (B)(ii) by substituting “100 percent” for “75 percent”.
(E) Notwithstanding any other provisions of this section, in the case of an outstanding loan transferred to a guaranty agency from another guaranty agency pursuant to a plan approved by the Secretary in response to the insolvency of the latter such guarantee agency, the Secretary shall apply the provision of—
(i) the fourth sentence of subparagraph (A) by substituting “100 percent” for “95 percent”; 1
(ii) subparagraph (B)(i) by substituting “90 percent” for “85 percent”; and
(iii) subparagraph (B)(ii) by substituting “80 percent” for “75 percent”.
(F)
(i) Notwithstanding any other provisions of this section, in the case of exempt claims, the Secretary shall apply the provisions of—(I) the fourth sentence of subparagraph (A) by substituting “100 percent” for “95 percent”; 1(II) subparagraph (B)(i) by substituting “100 percent” for “85 percent”; and(III) subparagraph (B)(ii) by substituting “100 percent” for “75 percent”.
(ii) For purposes of clause (i) of this subparagraph, the term “exempt claims” means claims with respect to loans for which it is determined that the borrower (or the student on whose behalf a parent has borrowed), without the lender’s or the institution’s knowledge at the time the loan was made, provided false or erroneous information or took actions that caused the borrower or the student to be ineligible for all or a portion of the loan or for interest benefits thereon.
(G) Notwithstanding any other provision of this section, the Secretary shall exclude a loan made pursuant to a lender-of-last-resort program when making reimbursement payment calculations under subparagraphs (B) and (C).
(2) Contents of guaranty agreementsThe guaranty agreement—
(A) shall set forth such administrative and fiscal procedures as may be necessary to protect the United States from the risk of unreasonable loss thereunder, to ensure proper and efficient administration of the loan insurance program, and to assure that due diligence will be exercised in the collection of loans insured under the program, including (i) a requirement that each beneficiary of insurance on the loan submit proof that the institution was contacted and other reasonable attempts were made to locate the borrower (when the location of the borrower is unknown) and proof that contact was made with the borrower (when the location is known) and (ii) requirements establishing procedures to preclude consolidation lending from being an excessive proportion of guaranty agency recoveries on defaulted loans under this part;
(B) shall provide for making such reports, in such form and containing such information, as the Secretary may reasonably require to carry out the Secretary’s functions under this subsection, and for keeping such records and for affording such access thereto as the Secretary may find necessary to assure the correctness and verification of such reports;
(C) shall set forth adequate assurances that, with respect to so much of any loan insured under the loan insurance program as may be guaranteed by the Secretary pursuant to this subsection, the undertaking of the Secretary under the guaranty agreement is acceptable in full satisfaction of State law or regulation requiring the maintenance of a reserve;
(D) shall provide that if, after the Secretary has made payment under the guaranty agreement pursuant to paragraph (1) of this subsection with respect to any loan, any payments are made in discharge of the obligation incurred by the borrower with respect to such loan (including any payments of interest accruing on such loan after such payment by the Secretary), there shall be paid over to the Secretary (for deposit in the fund established by section 1081 of this title) such proportion of the amounts of such payments as is determined (in accordance with paragraph (6)(A)) to represent his equitable share thereof, but (i) shall provide for subrogation of the United States to the rights of any insurance beneficiary only to the extent required for the purpose of paragraph (8); and (ii) except as the Secretary may otherwise by or pursuant to regulation provide, amounts so paid by a borrower on such a loan shall be first applied in reduction of principal owing on such loan;
(E) shall set forth adequate assurance that an amount equal to each payment made under paragraph (1) will be promptly deposited in or credited to the accounts maintained for the purpose of section 1072(c) of this title;
(F) set forth adequate assurances that the guaranty agency will not engage in any pattern or practice which results in a denial of a borrower’s access to loans under this part because of the borrower’s race, sex, color, religion, national origin, age, handicapped status, income, attendance at a particular eligible institution within the area served by the guaranty agency, length of the borrower’s educational program, or the borrower’s academic year in school;
(G) shall prohibit the Secretary from making any reimbursement under this subsection to a guaranty agency when a default claim is based on an inability to locate the borrower, unless the guaranty agency, at the time of filing for reimbursement, certifies to the Secretary that diligent attempts, including contact with the institution, have been made to locate the borrower through the use of reasonable skip-tracing techniques in accordance with regulations prescribed by the Secretary; and
(H) set forth assurances that—
(i) upon the request of an eligible institution, the guaranty agency shall, subject to clauses (ii) and (iii), furnish to the institution information with respect to students (including the names and addresses of such students) who received loans made, insured, or guaranteed under this part for attendance at the eligible institution and for whom default aversion assistance activities have been requested under subsection (l);
(ii) the guaranty agency shall not require the payment from the institution of any fee for such information; and
(iii) the guaranty agency will require the institution to use such information only to assist the institution in reminding students of their obligation to repay student loans and shall prohibit the institution from disseminating the information for any other purpose.
(I) may include such other provisions as may be necessary to promote the purpose of this part.
(3) ForbearanceA guaranty agreement under this subsection—
(A) shall contain provisions providing that—
(i) upon request, a lender shall grant a borrower forbearance, renewable at 12-month intervals, on terms agreed to by the parties to the loan with the approval of the insurer and documented in accordance with paragraph (10), and otherwise consistent with the regulations of the Secretary, if the borrower—(I) is serving in a medical or dental internship or residency program, the successful completion of which is required to begin professional practice or service, or is serving in a medical or dental internship or residency program leading to a degree or certificate awarded by an institution of higher education, a hospital, or a health care facility that offers postgraduate training, provided that if the borrower qualifies for a deferment under section 1077(a)(2)(C)(vii) of this title or subsection (b)(1)(M)(vii) of this section as in effect prior to the enactment of the Higher Education Amendments of 1992, or section 1077(a)(2)(C) of this title or subsection (b)(1)(M) of this section as amended by such amendments, the borrower has exhausted his or her eligibility for such deferment;(II) has a debt burden under this subchapter that equals or exceeds 20 percent of income;(III) is serving in a national service position for which the borrower receives a national service educational award under the National and Community Service Trust Act of 1993; or(IV) is eligible for interest payments to be made on such loan for service in the Armed Forces under section 2174 of title 10, and, pursuant to that eligibility, the interest is being paid on such loan under subsection (o);
(ii) the length of the forbearance granted by the lender—(I) under clause (i)(I) shall equal the length of time remaining in the borrower’s medical or dental internship or residency program, if the borrower is not eligible to receive a deferment described in such clause, or such length of time remaining in the program after the borrower has exhausted the borrower’s eligibility for such deferment;(II) under clause (i)(II) or (IV) shall not exceed 3 years; or(III) under clause (i)(III) shall not exceed the period for which the borrower is serving in a position described in such clause; and
(iii) no administrative or other fee may be charged in connection with the granting of a forbearance under clause (i), and no adverse information regarding a borrower may be reported to a consumer reporting agency solely because of the granting of such forbearance;
(B) may, to the extent provided in regulations of the Secretary, contain provisions that permit such forbearance for the benefit of the student borrower as may be agreed upon by the parties to an insured loan and approved by the insurer;
(C) shall contain provisions that specify that—
(i) the form of forbearance granted by the lender pursuant to this paragraph, other than subparagraph (A)(i)(IV), shall be temporary cessation of payments, unless the borrower selects forbearance in the form of an extension of time for making payments, or smaller payments than were previously scheduled;
(ii) the form of forbearance granted by the lender pursuant to subparagraph (A)(i)(IV) shall be the temporary cessation of all payments on the loan other than payments of interest on the loan that are made under subsection (o);
(iii) the lender shall, at the time of granting a borrower forbearance, provide information to the borrower to assist the borrower in understanding the impact of capitalization of interest on the borrower’s loan principal and total amount of interest to be paid during the life of the loan; and
(iv) the lender shall contact the borrower not less often than once every 180 days during the period of forbearance to inform the borrower of—(I) the amount of unpaid principal and the amount of interest that has accrued since the last statement of such amounts provided to the borrower by the lender;(II) the fact that interest will accrue on the loan for the period of forbearance;(III) the amount of interest that will be capitalized, and the date on which capitalization will occur;(IV) the option of the borrower to pay the interest that has accrued before the interest is capitalized; and(V) the borrower’s option to discontinue the forbearance at any time; and
(D) shall contain provisions that specify that—
(i) forbearance for a period not to exceed 60 days may be granted if the lender reasonably determines that such a suspension of collection activity is warranted following a borrower’s request for deferment, forbearance, a change in repayment plan, or a request to consolidate loans, in order to collect or process appropriate supporting documentation related to the request, and
(ii) during such period interest shall accrue but not be capitalized.
Guaranty agencies shall not be precluded from permitting the parties to such a loan from entering into a forbearance agreement solely because the loan is in default. The Secretary shall permit lenders to exercise administrative forbearances that do not require the agreement of the borrower, under conditions authorized by the Secretary. Such forbearances shall include (i) forbearances for borrowers who are delinquent at the time of the granting of an authorized period of deferment under subsection (b)(1)(M) or section 1077(a)(2)(C) of this title, and (ii) if the borrower is less than 60 days delinquent on such loans at the time of sale or transfer, forbearances for borrowers on loans which are sold or transferred.
(4) Definitions
(5) Applicability to existing loans
(6) Secretary’s equitable share
(A) For the purpose of paragraph (2)(D), the Secretary’s equitable share of payments made by the borrower shall be that portion of the payments remaining after the guaranty agency with which the Secretary has an agreement under this subsection has deducted from such payments—
(i) a percentage amount equal to the complement of the reinsurance percentage in effect when payment under the guaranty agreement was made with respect to the loan; and
(ii) an amount equal to 24 percent of such payments for use in accordance with section 1072b of this title, except that—(I) beginning October 1, 2003 and ending September 30, 2007, this clause shall be applied by substituting “23 percent” for “24 percent”; and(II) beginning October 1, 2007, this clause shall be applied by substituting “16 percent” for “24 percent”.
(B) A guaranty agency shall—
(i) on or after October 1, 2006—(I) not charge the borrower collection costs in an amount in excess of 18.5 percent of the outstanding principal and interest of a defaulted loan that is paid off through consolidation by the borrower under this subchapter; and(II) remit to the Secretary a portion of the collection charge under subclause (I) equal to 8.5 percent of the outstanding principal and interest of such defaulted loan; and
(ii) on and after October 1, 2009, remit to the Secretary the entire amount charged under clause (i)(I) with respect to each defaulted loan that is paid off with excess consolidation proceeds.
(C) For purposes of subparagraph (B), the term “excess consolidation proceeds” means, with respect to any guaranty agency for any Federal fiscal year beginning on or after October 1, 2009, the proceeds of consolidation of defaulted loans under this subchapter that exceed 45 percent of the agency’s total collections on defaulted loans in such Federal fiscal year.
(7) New programs eligible for 100 percent reinsurance
(A) Notwithstanding paragraph (1)(C), the amount to be paid a guaranty agency for any fiscal year—
(i) which begins on or after October 1, 1977 and ends before October 1, 1991; and
(ii) which is either the fiscal year in which such guaranty agency begins to actively carry on a student loan insurance program which is subject to a guaranty agreement under subsection (b) of this section, or is one of the 4 succeeding fiscal years,
shall be 100 percent of the amount expended by such guaranty agency in discharge of its insurance obligation insured under such program.
(B) Notwithstanding the provisions of paragraph (1)(C), the Secretary may pay a guaranty agency 100 percent of the amount expended by such agency in discharge of such agency’s insurance obligation for any fiscal year which—
(i) begins on or after October 1, 1991; and
(ii) is the fiscal year in which such guaranty agency begins to actively carry on a student loan insurance program which is subject to a guaranty agreement under subsection (b) or is one of the 4 succeeding fiscal years.
(C) The Secretary shall continuously monitor the operations of those guaranty agencies to which the provisions of subparagraph (A) or (B) are applicable and revoke the application of such subparagraph to any such guaranty agency which the Secretary determines has not exercised reasonable prudence in the administration of such program.
(8) Assignment to protect Federal fiscal interest
(9) Guaranty agency reserve level
(A) Each guaranty agency which has entered into an agreement with the Secretary pursuant to this subsection shall maintain in the agency’s Federal Student Loan Reserve Fund established under section 1072a of this title a current minimum reserve level of at least 0.25 percent of the total attributable amount of all outstanding loans guaranteed by such agency. For purposes of this paragraph, such total attributable amount does not include amounts of outstanding loans transferred to the guaranty agency from another guaranty agency pursuant to a plan of the Secretary in response to the insolvency of the latter such guaranty agency.
(B) The Secretary shall collect, on an annual basis, information from each guaranty agency having an agreement under this subsection to enable the Secretary to evaluate the financial solvency of each such agency. The information collected shall include the level of such agency’s current reserves, cash disbursements and accounts receivable.
(C) If (i) any guaranty agency falls below the required minimum reserve level in any 2 consecutive years, (ii) any guaranty agency’s Federal reimbursement payments are reduced to 85 percent pursuant to paragraph (1)(B)(i), or (iii) the Secretary determines that the administrative or financial condition of a guaranty agency jeopardizes such agency’s continued ability to perform its responsibilities under its guaranty agreement, then the Secretary shall require the guaranty agency to submit and implement a management plan acceptable to the Secretary within 45 working days of any such event.
(D)
(i) If the Secretary is not seeking to terminate the guaranty agency’s agreement under subparagraph (E), or assuming the guaranty agency’s functions under subparagraph (F), a management plan described in subparagraph (C) shall include the means by which the guaranty agency will improve its financial and administrative condition to the required level within 18 months.
(ii) If the Secretary is seeking to terminate the guaranty agency’s agreement under subparagraph (E), or assuming the guaranty agency’s functions under subparagraph (F), a management plan described in subparagraph (C) shall include the means by which the Secretary and the guaranty agency shall work together to ensure the orderly termination of the operations, and liquidation of the assets, of the guaranty agency.
(E) The Secretary may terminate a guaranty agency’s agreement in accordance with subparagraph (F) if—
(i) a guaranty agency required to submit a management plan under this paragraph fails to submit a plan that is acceptable to the Secretary;
(ii) the Secretary determines that a guaranty agency has failed to improve substantially its administrative and financial condition;
(iii) the Secretary determines that the guaranty agency is in danger of financial collapse;
(iv) the Secretary determines that such action is necessary to protect the Federal fiscal interest; or
(v) the Secretary determines that such action is necessary to ensure the continued availability of loans to student or parent borrowers.
(F) If a guaranty agency’s agreement under this subsection is terminated pursuant to subparagraph (E), then the Secretary shall assume responsibility for all functions of the guaranty agency under the loan insurance program of such agency. In performing such functions the Secretary is authorized to—
(i) permit the transfer of guarantees to another guaranty agency;
(ii) revoke the reinsurance agreement of the guaranty agency at a specified date, so as to require the merger, consolidation, or termination of the guaranty agency;
(iii) transfer guarantees to the Department of Education for the purpose of payment of such claims and process such claims using the claims standards of the guaranty agency, if such standards are determined by the Secretary to be in compliance with this chapter;
(iv) design and implement a plan to restore the guaranty agency’s viability;
(v) provide the guaranty agency with additional advance funds in accordance with section 1072(c)(7) of this title, with such restrictions on the use of such funds as is determined appropriate by the Secretary, in order to—(I) meet the immediate cash needs of the guaranty agency;(II) ensure the uninterrupted payment of claims; or(III) ensure that the guaranty agency will make loans as the lender-of-last-resort, in accordance with subsection (j);
(vi) use all funds and assets of the guaranty agency to assist in the activities undertaken in accordance with this subparagraph and take appropriate action to require the return, to the guaranty agency or the Secretary, of any funds or assets provided by the guaranty agency, under contract or otherwise, to any person or organization; or
(vii) take any other action the Secretary determines necessary to ensure the continued availability of loans made under this part to residents of the State or States in which the guaranty agency did business, the full honoring of all guarantees issued by the guaranty agency prior to the Secretary’s assumption of the functions of such agency, and the proper servicing of loans guaranteed by the guaranty agency prior to the Secretary’s assumption of the functions of such agency, and to avoid disruption of the student loan program.
(G) Notwithstanding any other provision of Federal or State law, if the Secretary has terminated or is seeking to terminate a guaranty agency’s agreement under subparagraph (E), or has assumed a guaranty agency’s functions under subparagraph (F)—
(i) no State court may issue any order affecting the Secretary’s actions with respect to such guaranty agency;
(ii) any contract with respect to the administration of a guaranty agency’s reserve funds, or the administration of any assets purchased or acquired with the reserve funds of the guaranty agency, that is entered into or extended by the guaranty agency, or any other party on behalf of or with the concurrence of the guaranty agency, after August 10, 1993, shall provide that the contract is terminable by the Secretary upon 30 days notice to the contracting parties if the Secretary determines that such contract includes an impermissible transfer of the reserve funds or assets, or is otherwise inconsistent with the terms or purposes of this section; and
(iii) no provision of State law shall apply to the actions of the Secretary in terminating the operations of a guaranty agency.
(H) Notwithstanding any other provision of law, the Secretary’s liability for any outstanding liabilities of a guaranty agency (other than outstanding student loan guarantees under this part), the functions of which the Secretary has assumed, shall not exceed the fair market value of the reserves of the guaranty agency, minus any necessary liquidation or other administrative costs.
(I) The Secretary shall not take any action under subparagraph (E) or (F) without giving the guaranty agency notice and the opportunity for a hearing that, if commenced after September 24, 1998, shall be on the record.
(J) Notwithstanding any other provision of law, the information transmitted to the Secretary pursuant to this paragraph shall be confidential and exempt from disclosure under section 552 of title 5, relating to freedom of information, or any other Federal law.
(K) The Secretary, within 6 months after the end of each fiscal year, shall submit to the authorizing committees a report specifying the Secretary’s assessment of the fiscal soundness of the guaranty agency system.
(10) Documentation of forbearance agreements
(d) Usury laws inapplicableNo provision of any law of the United States (other than this chapter and section 3937 of title 50) or of any State (other than a statute applicable principally to such State’s student loan insurance program) which limits the rate or amount of interest payable on loans shall apply to a loan—
(1) which bears interest (exclusive of any premium for insurance) on the unpaid principal balance at a rate not in excess of the rate specified in this part; and
(2) which is insured (i) by the United States under this part, or (ii) by a guaranty agency under a program covered by an agreement made pursuant to subsection (b) of this section.
(e) Repealed. Pub. L. 110–315, title IV, § 422(h), Aug. 14, 2008, 122 Stat. 3231
(f) Payments of certain costs
(1)4
4 So in original. No par. (2) has been enacted.
Payment for certain activities
(A) In generalThe Secretary—
(i) for loans originated during fiscal years beginning on or after October 1, 1998, and before October 1, 2003, and in accordance with the provisions of this paragraph, shall, except as provided in subparagraph (C), pay to each guaranty agency, a loan processing and issuance fee equal to 0.65 percent of the total principal amount of the loans on which insurance was issued under this part during such fiscal year by such agency; and
(ii) for loans originated on or after October 1, 2003, and first disbursed before July 1, 2010, and in accordance with the provisions of this paragraph, shall, except as provided in subparagraph (C), pay to each guaranty agency, a loan processing and issuance fee equal to 0.40 percent of the total principal amount of the loans on which insurance was issued under this part during such fiscal year by such agency.
(B) Payment
(C) Requirement for payment
(g) Action on insurance program and guaranty agreementsIf a nonprofit private institution or organization—
(1) applies to enter into an agreement with the Secretary under subsections (b) and (c) with respect to a student loan insurance program to be carried on in a State with which the Secretary does not have an agreement under subsection (b), and
(2) as provided in the application, undertakes to meet the requirements of section 1072(c)(6)(B)(i), (ii), and (iii) of this title,
the Secretary shall consider and act upon such application within 180 days, and shall forthwith notify the authorizing committees of his actions.
(h) Repealed. Pub. L. 110–315, title IV, § 438(a)(2)(B), Aug. 14, 2008, 122 Stat. 3258
(i) Multiple disbursement of loans
(1) Escrow accounts administered by escrow agent
(2) Authority of escrow agentEach escrow agent entering into an agreement under paragraph (1) of this subsection is authorized to—
(A) make the disbursements in accordance with the note evidencing the loan;
(B) commingle the proceeds of all loans paid to the escrow agent pursuant to the escrow agreement entered into under such paragraph (1);
(C) invest the proceeds of such loans in obligations of the Federal Government or obligations which are insured or guaranteed by the Federal Government;
(D) retain interest or other earnings on such investment; and
(E) return to the lender undisbursed funds when the student ceases to carry at an eligible institution at least one-half of the normal full-time academic workload as determined by the institution.
(j) Lenders-of-last-resort
(1)
(2) Rules and operating proceduresThe guaranty agency shall develop rules and operating procedures for the lender-of-last-resort program designed to ensure that—
(A) the program establishes operating hours and methods of application designed to facilitate application by students and ensure a response within 60 days after the student’s original complete application is filed under this subsection;
(B) consistent with standards established by the Secretary, students applying for loans under this subsection shall not be subject to additional eligibility requirements or requests for additional information beyond what is required under this subchapter in order to receive a loan under this part from an eligible lender, nor, in the case of students and parents applying for loans under this subsection because of an inability to otherwise obtain loans under this part (except for consolidation loans under section 1078–3 of this title), be required to receive more than two rejections from eligible lenders in order to obtain a loan under this subsection;
(C) information about the availability of loans under the program is made available to institutions of higher education in the State; and
(D) appropriate steps are taken to ensure that borrowers receiving loans under the program are appropriately counseled on their loan obligation.
(3) Advances to guaranty agencies for lender-of-last-resort services
(A) In order to ensure the availability of loan capital, the Secretary is authorized to provide a guaranty agency designated for a State with additional advance funds in accordance with subparagraph (C) and section 1072(c)(7) of this title, with such restrictions on the use of such funds as are determined appropriate by the Secretary, in order to ensure that the guaranty agency will make loans as the lender-of-last-resort. Such agency shall make such loans in accordance with this subsection and the requirements of the Secretary.
(B) Notwithstanding any other provision in this part, a guaranty agency serving as a lender-of-last-resort under this paragraph shall be paid a fee, established by the Secretary, for making such loans in lieu of interest and special allowance subsidies, and shall be required to assign such loans to the Secretary on demand. Upon such assignment, the portion of the advance represented by the loans assigned shall be considered repaid by such guaranty agency.
(C) The Secretary shall exercise the authority described in subparagraph (A) only if the Secretary determines that eligible borrowers are seeking and are unable to obtain loans under this part or designates an institution of higher education for participation in the program under this subsection under paragraph (4), and that the guaranty agency designated for that State has the capability to provide lender-of-last-resort loans in a timely manner, in accordance with the guaranty agency’s obligations under paragraph (1), but cannot do so without advances provided by the Secretary under this paragraph. If the Secretary makes the determinations described in the preceding sentence and determines that it would be cost-effective to do so, the Secretary may provide advances under this paragraph to such guaranty agency. If the Secretary determines that such guaranty agency does not have such capability, or will not provide such loans in a timely fashion, the Secretary may provide such advances to enable another guaranty agency, that the Secretary determines to have such capability, to make lender-of-last-resort loans to eligible borrowers in that State who are experiencing loan access problems or to eligible borrowers who attend an institution in the State that is designated under paragraph (4).
(4) Institution-wide student qualification
(5) Standards developed by the SecretaryIn developing standards with respect to paragraph (4), the Secretary may require—
(A) an institution of higher education to demonstrate that, despite due diligence on the part of the institution, the institution has been unable to secure the commitment of eligible lenders willing to make loans under this part to a significant number of students attending the institution;
(B) that, prior to making a request under such paragraph for designation for participation in the lender-of-last-resort program, an institution of higher education shall demonstrate that the institution has met a minimum threshold, as determined by the Secretary, for the number or percentage of students at such institution who have received rejections from eligible lenders for loans under this part; and
(C) any other standards and guidelines the Secretary determines to be appropriate.
(6) Expiration of authority
(7) Expiration of designation
(8) Prohibition on inducements and marketingEach guaranty agency or eligible lender that serves as a lender-of-last-resort under this subsection—
(A) shall be subject to the prohibitions on inducements contained in subsection (b)(3) and the requirements of section 1085(d)(5) of this title; and
(B) shall not advertise, market, or otherwise promote loans under this subsection, except that nothing in this paragraph shall prohibit a guaranty agency from fulfilling its responsibilities under paragraph (2)(C).
(9) Dissemination and reporting
(A) In generalThe Secretary shall—
(i) broadly disseminate information regarding the availability of loans made under this subsection;
(ii) during the period beginning July 1, 2008 and ending June 30, 2011, provide to the authorizing committees and make available to the public—(I) copies of any new or revised plans or agreements made by guaranty agencies or the Department related to the authorities under this subsection;(II) quarterly reports on—(aa) the number and amounts of loans originated or approved pursuant to this subsection by each guaranty agency and eligible lender; and(bb) any related payments by the Department, a guaranty agency, or an eligible lender; and(III) a budget estimate of the costs to the Federal Government (including subsidy and administrative costs) for each 100 dollars loaned, of loans made pursuant to this subsection between May 7, 2008, and June 30, 2010, disaggregated by type of loan, compared to such costs to the Federal Government during such time period of comparable loans under this part and part D, disaggregated by part and by type of loan; and
(iii) beginning July 1, 2011, provide to the authorizing committees and make available to the public—(I) copies of any new or revised plans or agreements made by guaranty agencies or the Department related to the authorities under this subsection; and(II) annual reports on—(aa) the number and amounts of loans originated or approved pursuant to this subsection by each guaranty agency and eligible lender; and(bb) any related payments by the Department, a guaranty agency, or an eligible lender.
(B) Separate reporting
(k) Information on defaults
(1) Provision of information to eligible institutions
(2) Public dissemination not authorized
(3) Borrower location information
(4) Provision of information to borrowers in defaultEach guaranty agency that has received a default claim from a lender regarding a borrower, shall provide the borrower in default, on not less than two separate occasions, with a notice, in simple and understandable terms, of not less than the following information:
(A) The options available to the borrower to remove the borrower’s loan from default.
(B) The relevant fees and conditions associated with each option.
(l) Default aversion assistance
(1) Assistance required
(2) Reimbursement
(A) In general
(B) AmountThe default aversion fee shall be equal to 1 percent of the total unpaid principal and accrued interest on the loan at the time the request is submitted by the lender. A guaranty agency may transfer such fees earned under this subsection not more frequently than monthly. Such a fee shall not be paid more than once on any loan for which the guaranty agency averts the default unless—
(i) at least 18 months has elapsed between the date the borrower entered current repayment status and the date the lender filed a subsequent default aversion assistance request; and
(ii) during the period between such dates, the borrower was not more than 30 days past due on any payment of principal and interest on the loan.
(C) Definition
(m) Income contingent and income-based repayment
(1) Authority of Secretary to require
(2) Loans for which income contingent or income-based repayment may be required
(n) Blanket certificate of loan guaranty
(1) In generalSubject to paragraph (3), any guaranty agency that has entered into or enters into any insurance program agreement with the Secretary under this part may—
(A) offer eligible lenders participating in the agency’s guaranty program a blanket certificate of loan guaranty that permits the lender to make loans without receiving prior approval from the guaranty agency of individual loans for eligible borrowers enrolled in eligible programs at eligible institutions; and
(B) provide eligible lenders with the ability to transmit electronically data to the agency concerning loans the lender has elected to make under the agency’s insurance program via standard reporting formats, with such reporting to occur at reasonable and standard intervals.
(2) Limitations on blanket certificate of guaranty
(A) An eligible lender may not make a loan to a borrower under this section after such lender receives a notification from the guaranty agency that the borrower is not an eligible borrower.
(B) A guaranty agency may establish limitations or restrictions on the number or volume of loans issued by a lender under the blanket certificate of guaranty.
(3) Participation level
(4) Report required
(o) Armed Forces and NOAA Commissioned Officer Corps student loan interest payment programs
(1) Authority
(2) Forbearance
(3) Special allowance defined
(Pub. L. 89–329, title IV, § 428, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1367; amended Pub. L. 100–50, § 10(a)–(c), (e)–(m), June 3, 1987, 101 Stat. 341–343; Pub. L. 100–203, title III, §§ 3001(b), 3002(b), 3003, Dec. 22, 1987, 101 Stat. 1330–38, 1330–39; Pub. L. 100–369, §§ 5(b)(2), 7(c), 11(a), July 18, 1988, 102 Stat. 836–838; Pub. L. 101–239, title II, §§ 2002(a)(2), (b)(1), 2004(b)(1), (3), 2006(b), Dec. 19, 1989, 103 Stat. 2111, 2116, 2118; Pub. L. 101–508, title III, §§ 3002, 3004(b), Nov. 5, 1990, 104 Stat. 1388–25, 1388–27; Pub. L. 102–26, § 9, Apr. 9, 1991, 105 Stat. 128; Pub. L. 102–164, title VI, §§ 601(b), 602(b), 604, 605(b)(2), Nov. 15, 1991, 105 Stat. 1065, 1066, 1068; Pub. L. 102–325, title IV, §§ 411(b)(2), 416(a)–(e)(1), (f)–(p)(7), (q)–(t), July 23, 1992, 106 Stat. 510, 516–525, 527–529; Pub. L. 103–66, title IV, §§ 4041(a)(1), (2)(B), (b), 4043(a), 4044, 4045, 4102(c), 4107(a), (b), 4108(a), (b), 4110(a), 4112(a), 4201(a), Aug. 10, 1993, 107 Stat. 354, 355, 358, 359, 367–370; Pub. L. 103–82, title I, § 102(c)(1), Sept. 21, 1993, 107 Stat. 823; Pub. L. 103–208, § 2(c)(11)–(28), Dec. 20, 1993, 107 Stat. 2462–2465; Pub. L. 103–382, title III, § 355(a), Oct. 20, 1994, 108 Stat. 3967; Pub. L. 105–33, title VI, §§ 6101(b), 6104(2), Aug. 5, 1997, 111 Stat. 652; Pub. L. 105–244, title IV, § 417(a)–(c)(1)(A), (2)–(k), Oct. 7, 1998, 112 Stat. 1682–1690; Pub. L. 107–314, div. A, title VI, § 651(b), Dec. 2, 2002, 116 Stat. 2579; Pub. L. 109–171, title VIII, §§ 8004(b)(2), 8005(b), 8007(a), 8008(a), 8009(b)(1), 8014(a)(1), (b)(1), (c)(1), (d), (e), (j)(1)–(3), Feb. 8, 2006, 120 Stat. 158, 160, 162, 164, 168–171; Pub. L. 110–84, title II, § 202(a), title III, §§ 301, 302(b)(1), 303(a), Sept. 27, 2007, 121 Stat. 791, 796, 797; Pub. L. 110–227, §§ 3(b), 5(a), May 7, 2008, 122 Stat. 742, 743; Pub. L. 110–315, title I, § 103(b)(4), title IV, §§ 422(a)(1), (b)–(g)(1), (h)–(j), 424(b), 432(b)(2), 438(a)(2), Aug. 14, 2008, 122 Stat. 3088, 3227–3231, 3233, 3246, 3258; Pub. L. 110–350, § 2, Oct. 7, 2008, 122 Stat. 3947; Pub. L. 111–39, title IV, § 402(a)(1), (b)(1), (f)(1), July 1, 2009, 123 Stat. 1940, 1943; Pub. L. 111–152, title II, § 2204, Mar. 30, 2010, 124 Stat. 1075; Pub. L. 112–74, div. F, title III, § 309(d)(1), Dec. 23, 2011, 125 Stat. 1101; Pub. L. 114–113, div. H, title III, § 311, Dec. 18, 2015, 129 Stat. 2638; Pub. L. 115–245, div. B, title III, § 309(c), Sept. 28, 2018, 132 Stat. 3106; Pub. L. 116–259, title II, § 202(b)(1), Dec. 23, 2020, 134 Stat. 1163; Pub. L. 116–260, div. FF, title VII, § 704(1), (6), Dec. 27, 2020, 134 Stat. 3199, 3200.)

CITE AS: 20 USC 1078

§ 1078–1. Voluntary flexible agreements with guaranty agencies
(a) Voluntary agreements
(1) AuthoritySubject to paragraph (2),1
1 See References in Text note below.
the Secretary may enter into a voluntary, flexible agreement with a guaranty agency under this section, in lieu of agreements with a guaranty agency under subsections (b) and (c) of section 1078 of this title. The Secretary may waive or modify any requirement under such subsections, except that the Secretary may not waive—
(A) any statutory requirement pertaining to the terms and conditions attached to student loans or default claim payments made to lenders;
(B) the prohibitions on inducements contained in section 1078(b)(3) of this title; or
(C) the Federal default fee required by section 1078(b)(1)(H) of this title and the second sentence of section 1078–8(h) of this title.
(2) Eligibility
(3) Report required
(A) In generalThe Secretary, in consultation with the guaranty agencies operating under voluntary flexible agreements, shall report on an annual basis to the authorizing committees regarding the program outcomes that the voluntary flexible agreements have had with respect to—
(i) program integrity and program and cost efficiencies, delinquency prevention, and default aversion, including a comparison of such outcomes to such outcomes for each guaranty agency operating under an agreement under subsection (b) or (c) of section 1078 of this title;
(ii) consumer education programs described in section 1083a of this title; and
(iii) the availability and delivery of student financial aid.
(B) ContentsEach report described in subparagraph (A) shall include—
(i) a description of each voluntary flexible agreement and the performance goals established by the Secretary for each agreement;
(ii) a list of—(I) guaranty agencies operating under voluntary flexible agreements;(II) the specific statutory or regulatory waivers provided to each such guaranty agency; and(III) any other waivers provided to other guaranty agencies under paragraph (1);
(iii) a description of the standards by which each guaranty agency’s performance under the guaranty agency’s voluntary flexible agreement was assessed and the degree to which each guaranty agency achieved the performance standards;
(iv) an analysis of the fees paid by the Secretary, and the costs and efficiencies achieved under each voluntary flexible agreement; and
(v) an identification of promising practices for program improvement that could be replicated by other guaranty agencies.
(b) Terms of agreementAn agreement between the Secretary and a guaranty agency under this section—
(1) shall be developed by the Secretary, in consultation with the guaranty agency, on a case-by-case basis;
(2) may only include provisions—
(A) specifying the responsibilities of the guaranty agency under the agreement, with respect to—
(i) administering the issuance of insurance on loans made under this part on behalf of the Secretary;
(ii) monitoring insurance commitments made under this part;
(iii) default aversion activities;
(iv) review of default claims made by lenders;
(v) payment of default claims;
(vi) collection of defaulted loans;
(vii) adoption of internal systems of accounting and auditing that are acceptable to the Secretary, and reporting the result thereof to the Secretary in a timely manner, and on an accurate, and auditable basis;
(viii) timely and accurate collection and reporting of such other data as the Secretary may require to carry out the purposes of the programs under this subchapter;
(ix) monitoring of institutions and lenders participating in the program under this part; and
(x) informational outreach to schools and students in support of access to higher education;
(B) regarding the fees the Secretary shall pay, in lieu of revenues that the guaranty agency may otherwise receive under this part, to the guaranty agency under the agreement, and other funds that the guaranty agency may receive or retain under the agreement, except that in no case may the cost to the Secretary of the agreement, as reasonably projected by the Secretary, exceed the cost to the Secretary, as similarly projected, in the absence of the agreement;
(C) regarding the use of net revenues, as described in the agreement under this section, for such other activities in support of postsecondary education as may be agreed to by the Secretary and the guaranty agency;
(D) regarding the standards by which the guaranty agency’s performance of the agency’s responsibilities under the agreement will be assessed, and the consequences for a guaranty agency’s failure to achieve a specified level of performance on 1 or more performance standards;
(E) regarding the circumstances in which a guaranty agency’s agreement under this section may be ended in advance of the agreement’s expiration date;
(F) regarding such other businesses, previously purchased or developed with reserve funds, that relate to the program under this part and in which the Secretary permits the guaranty agency to engage; and
(G) such other provisions as the Secretary may determine to be necessary to protect the United States from the risk of unreasonable loss and to promote the purposes of this part;
(3) shall provide for uniform lender participation with the guaranty agency under the terms of the agreement; and
(4) shall not prohibit or restrict borrowers from selecting a lender of the borrower’s choosing, subject to the prohibitions and restrictions applicable to the selection under this chapter.
(c) Public notice
(1) In generalThe Secretary shall publish in the Federal Register a notice to all guaranty agencies that sets forth—
(A) an invitation for the guaranty agencies to enter into agreements under this section; and
(B) the criteria that the Secretary will use for selecting the guaranty agencies with which the Secretary will enter into agreements under this section.
(2) Agreement noticeThe Secretary shall notify the members of the authorizing committees not later than 30 days prior to concluding an agreement under this section. The notice shall contain—
(A) a description of the voluntary flexible agreement and the performance goals established by the Secretary for the agreement;
(B) a list of participating guaranty agencies and the specific statutory or regulatory waivers provided to each guaranty agency;
(C) a description of the standards by which each guaranty agency’s performance under the agreement will be assessed; and
(D) a description of the fees that will be paid to each participating guaranty agency.
(3) Waiver notice
(4) Public availability
(5) Modification notice
(d) Termination
(Pub. L. 89–329, title IV, § 428A, as added Pub. L. 105–244, title IV, § 418, Oct. 7, 1998, 112 Stat. 1691; amended Pub. L. 109–171, title VIII, § 8014(b)(3), (f), Feb. 8, 2006, 120 Stat. 169, 170; Pub. L. 110–315, title I, § 103(b)(5), title IV, § 423, Aug. 14, 2008, 122 Stat. 3089, 3231.)

CITE AS: 20 USC 1078-1

§ 1078–2. Federal PLUS loans
(a) Authority to borrow
(1) Authority and eligibilityPrior to July 1, 2010, a graduate or professional student or the parents of a dependent student shall be eligible to borrow funds under this section in amounts specified in subsection (b), if—
(A) the graduate or professional student or the parents do not have an adverse credit history as determined pursuant to regulations promulgated by the Secretary;
(B) in the case of a graduate or professional student or parent who has been convicted of, or has pled nolo contendere or guilty to, a crime involving fraud in obtaining funds under this subchapter, such graduate or professional student or parent has completed the repayment of such funds to the Secretary, or to the holder in the case of a loan under this subchapter obtained by fraud; and
(C) the graduate or professional student or the parents meet such other eligibility criteria as the Secretary may establish by regulation, after consultation with guaranty agencies, eligible lenders, and other organizations involved in student financial assistance.
(2) Terms, conditions, and benefits
(3) Special rules
(A) Parent borrowers
(B)
(i) Extenuating circumstancesAn eligible lender may determine that extenuating circumstances exist under the regulations promulgated pursuant to paragraph (1)(A) if, during the period beginning January 1, 2007, and ending December 31, 2009, an applicant for a loan under this section—(I) is or has been delinquent for 180 days or fewer on mortgage loan payments or on medical bill payments during such period; and(II) does not otherwise have an adverse credit history, as determined by the lender in accordance with the regulations promulgated pursuant to paragraph (1)(A), as such regulations were in effect on the day before May 7, 2008.
(ii) Definition of mortgage loan
(iii) Rule of construction
(b) Limitation based on need
(c) PLUS loan disbursementAll loans made under this section shall be disbursed in accordance with the requirements of section 1078–7 of this title and shall be disbursed by—
(1) an electronic transfer of funds from the lender to the eligible institution; or
(2) a check copayable to the eligible institution and the graduate or professional student or parent borrower.
(d) Payment of principal and interest
(1) Commencement of repaymentRepayment of principal on loans made under this section shall commence not later than 60 days after the date such loan is disbursed by the lender, subject to deferral—
(A)
(i) during any period during which the parent borrower or the graduate or professional student borrower meets the conditions required for a deferral under section 1077(a)(2)(C) or 1078(b)(1)(M) of this title; and
(ii) upon the request of the parent borrower, during any period during which the student on whose behalf the loan was borrowed by the parent borrower meets the conditions required for a deferral under section 1077(a)(2)(C)(i)(I) or 1078(b)(1)(M)(i)(I) of this title; and
(B)
(i) in the case of a parent borrower, upon the request of the parent borrower, during the 6-month period beginning on the later of—(I) the day after the date the student on whose behalf the loan was borrowed ceases to carry at least one-half the normal full-time academic workload (as determined by the institution); or(II) if the parent borrower is also a student, the day after the date such parent borrower ceases to carry at least one-half such a workload; and
(ii) in the case of a graduate or professional student borrower, during the 6-month period beginning on the day after the date such student ceases to carry at least one-half the normal full-time academic workload (as determined by the institution).
(2) Capitalization of interest
(A) In general
(i) be paid monthly or quarterly; or
(ii) be added to the principal amount of the loan not more frequently than quarterly by the lender.
(B) Insurable limits
(3) Subsidies prohibited
(4) Applicable rates of interest
(5) AmortizationThe amount of the periodic payment and the repayment schedule for any loan made pursuant to this section shall be established by assuming an interest rate equal to the applicable rate of interest at the time the repayment of the principal amount of the loan commences. At the option of the lender, the note or other written evidence of the loan may require that—
(A) the amount of the periodic payment will be adjusted annually, or
(B) the period of repayment of principal will be lengthened or shortened,
in order to reflect adjustments in interest rates occurring as a consequence of section 1077a(c)(4) of this title.
(e) Refinancing
(1) Refinancing to secure combined payment
(2) Refinancing to secure variable interest rate
(3) Refinancing by discharge of previous loanA borrower who has applied to an original lender for reissuance of a loan under paragraph (2) and who is denied such reissuance may obtain a loan from another lender for the purpose of discharging the loan from such original lender. A loan made for such purpose—
(A) shall bear interest at the applicable rate of interest provided under section 1077a(c)(4) of this title;
(B) shall not result in the extension of the duration of the note (other than as permitted under subsection (d)(5)(B));
(C) may be subject to an additional insurance fee but shall not be subject to the administrative cost charge permitted by paragraph (2) of this subsection; and
(D) shall be applied to discharge the borrower from any remaining obligation to the original lender with respect to the original loan.
(4) Certification in lieu of promissory note presentation
(f) Verification of immigration status and social security numberA parent who wishes to borrow funds under this section shall be subject to verification of the parent’s—
(1) immigration status in the same manner as immigration status is verified for students under section 1091(g) of this title; and
(2) social security number in the same manner as social security numbers are verified for students under section 1091(o) of this title.
(Pub. L. 89–329, title IV, § 428B, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1386; amended Pub. L. 100–50, § 10(o), (p)(2), (q), (r)(1), June 3, 1987, 101 Stat. 343, 344; Pub. L. 102–325, title IV, § 418, July 23, 1992, 106 Stat. 531; Pub. L. 103–66, title IV, § 4109(a), Aug. 10, 1993, 107 Stat. 369; Pub. L. 105–178, title VIII, § 8301(a)(2), June 9, 1998, 112 Stat. 497; Pub. L. 105–244, title IV, §§ 416(a)(2), 419, Oct. 7, 1998, 112 Stat. 1680, 1694; Pub. L. 109–171, title VIII, §§ 8005(c), 8014(g), Feb. 8, 2006, 120 Stat. 158, 171; Pub. L. 110–227, §§ 3(a), 4, May 7, 2008, 122 Stat. 742, 743; Pub. L. 110–315, title IV, § 424(a), Aug. 14, 2008, 122 Stat. 3232; Pub. L. 111–39, title IV, § 402(f)(2), July 1, 2009, 123 Stat. 1943; Pub. L. 111–152, title II, § 2205, Mar. 30, 2010, 124 Stat. 1075; Pub. L. 116–260, div. FF, title VII, §§ 702(n)(1)(B), 704(1), Dec. 27, 2020, 134 Stat. 3186, 3199.)

CITE AS: 20 USC 1078-2

§ 1078–3. Federal consolidation loans
(a) Agreements with eligible lenders
(1) Agreement required for insurance coverageFor the purpose of providing loans to eligible borrowers for consolidation of their obligations with respect to eligible student loans, the Secretary or a guaranty agency shall enter into agreements in accordance with subsection (b) with the following eligible lenders:
(A) the Student Loan Marketing Association or the Holding Company of the Student Loan Marketing Association, including any subsidiary of the Holding Company, created pursuant to section 1087–3 of this title;
(B) State agencies described in subparagraphs (D) and (F) of section 1085(d)(1) of this title; and
(C) other eligible lenders described in subparagraphs (A), (B), (C), (E), and (J) of such section.
(2) Insurance coverage of consolidation loans
(3) Definition of eligible borrower
(A) For the purpose of this section, the term “eligible borrower” means a borrower who—
(i) is not subject to a judgment secured through litigation with respect to a loan under this subchapter or to an order for wage garnishment under section 1095a of this title; and
(ii) at the time of application for a consolidation loan—(I) is in repayment status as determined under section 1078(b)(7)(A) of this title;(II) is in a grace period preceding repayment; or(III) is a defaulted borrower who has made arrangements to repay the obligation on the defaulted loans satisfactory to the holders of the defaulted loans.
(B)
(i)1
1 So in original. No cl. (ii) has been enacted.
An individual’s status as an eligible borrower under this section or under section 1087e(g) of this title terminates under both sections upon receipt of a consolidation loan under this section or under section 1087e(g) of this title, except that—(I) an individual who receives eligible student loans after the date of receipt of the consolidation loan may receive a subsequent consolidation loan;(II) loans received prior to the date of the consolidation loan may be added during the 180-day period following the making of the consolidation loan;(III) loans received following the making of the consolidation loan may be added during the 180-day period following the making of the consolidation loan;(IV) loans received prior to the date of the first consolidation loan may be added to a subsequent consolidation loan; and(V) an individual may obtain a subsequent consolidation loan under section 1087e(g) of this title only—(aa) for the purposes of obtaining income contingent repayment or income-based repayment, and only if the loan has been submitted to the guaranty agency for default aversion or if the loan is already in default;(bb) for the purposes of using the public service loan forgiveness program under section 1087e(m) of this title;(cc) for the purpose of using the no accrual of interest for active duty service members benefit offered under section 1087e(o) of this title; or(dd) for the purpose of separating a joint consolidation loan into 2 separate Federal Direct Consolidation Loans under section 1087e(g)(2) of this title.
(4) “Eligible student loans” definedFor the purpose of paragraph (1), the term “eligible student loans” means loans—
(A) made, insured, or guaranteed under this part, and first disbursed before July 1, 2010, including loans on which the borrower has defaulted (but has made arrangements to repay the obligation on the defaulted loans satisfactory to the Secretary or guaranty agency, whichever insured the loans);
(B) made under part E of this subchapter;
(C) made under part D of this subchapter;
(D) made under subpart II of part A of title VII of the Public Health Service Act [42 U.S.C. 292q et seq.]; or
(E) made under part E of title VIII of the Public Health Service Act [42 U.S.C. 297a et seq.].
(b) Contents of agreements, certificates of insurance, and loan notes
(1) Agreements with lendersAny lender described in subparagraph (A), (B), or (C) of subsection (a)(1) who wishes to make consolidation loans under this section shall enter into an agreement with the Secretary or a guaranty agency which provides—
(A) that, in the case of all lenders described in subsection (a)(1), the lender will make a consolidation loan to an eligible borrower (on request of that borrower) only if the borrower certifies that the borrower has no other application pending for a loan under this section;
(B) that each consolidation loan made by the lender will bear interest, and be subject to repayment, in accordance with subsection (c);
(C) that each consolidation loan will be made, notwithstanding any other provision of this part limiting the annual or aggregate principal amount for all insured loans made to a borrower, in an amount (i) which is not less than the minimum amount required for eligibility of the borrower under subsection (a)(3), and (ii) which is equal to the sum of the unpaid principal and accrued unpaid interest and late charges of all eligible student loans received by the eligible borrower which are selected by the borrower for consolidation;
(D) that the proceeds of each consolidation loan will be paid by the lender to the holder or holders of the loans so selected to discharge the liability on such loans;
(E) that the lender shall offer an income-sensitive repayment schedule, established by the lender in accordance with the regulations promulgated by the Secretary, to the borrower of any consolidation loan made by the lender on or after July 1, 1994, and before July 1, 2010;
(F) that the lender shall disclose to a prospective borrower, in simple and understandable terms, at the time the lender provides an application for a consolidation loan—
(i) whether consolidation would result in a loss of loan benefits under this part or part D, including loan forgiveness, cancellation, and deferment;
(ii) with respect to Federal Perkins Loans under part E—(I) that if a borrower includes a Federal Perkins Loan under part E in the consolidation loan, the borrower will lose all interest-free periods that would have been available for the Federal Perkins Loan, such as—(aa) the periods during which no interest accrues on such loan while the borrower is enrolled in school at least half-time;(bb) the grace period under section 1087dd(c)(1)(A) of this title; and(cc) the periods during which the borrower’s student loan repayments are deferred under section 1087dd(c)(2) of this title;(II) that if a borrower includes a Federal Perkins Loan in the consolidation loan, the borrower will no longer be eligible for cancellation of part or all of the Federal Perkins Loan under section 1087ee(a) of this title; and(III) the occupations listed in section 1087ee of this title that qualify for Federal Perkins Loan cancellation under section 1087ee(a) of this title;
(iii) the repayment plans that are available to the borrower;
(iv) the options of the borrower to prepay the consolidation loan, to pay such loan on a shorter schedule, and to change repayment plans;
(v) that borrower benefit programs for a consolidation loan may vary among different lenders;
(vi) the consequences of default on the consolidation loan; and
(vii) that by applying for a consolidation loan, the borrower is not obligated to agree to take the consolidation loan; and
(G) such other terms and conditions as the Secretary or the guaranty agency may specifically require of the lender to carry out this section.
(2) Issuance of certificate of comprehensive insurance coverage
(3) Contents of certificateA certificate issued under paragraph (2) shall, at a minimum, provide—
(A) that all consolidation loans made by such lender in conformity with the requirements of this section will be insured by the Secretary or the guaranty agency (whichever is applicable) against loss of principal and interest;
(B) that a consolidation loan will not be insured unless the lender has determined to its satisfaction, in accordance with reasonable and prudent business practices, for each loan being consolidated—
(i) that the loan is a legal, valid, and binding obligation of the borrower;
(ii) that each such loan was made and serviced in compliance with applicable laws and regulations; and
(iii) in the case of loans under this part, that the insurance on such loan is in full force and effect;
(C) the effective date and expiration date of the certificate;
(D) the aggregate amount to which the certificate applies;
(E) the reporting requirements of the Secretary on the lender and an identification of the office of the Department of Education or of the guaranty agency which will process claims and perform other related administrative functions;
(F) the alternative repayment terms which will be offered to borrowers by the lender;
(G) that, if the lender prior to the expiration of the certificate no longer proposes to make consolidation loans, the lender will so notify the issuer of the certificate in order that the certificate may be terminated (without affecting the insurance on any consolidation loan made prior to such termination); and
(H) the terms upon which the issuer of the certificate may limit, suspend, or terminate the lender’s authority to make consolidation loans under the certificate (without affecting the insurance on any consolidation loan made prior to such limitation, suspension, or termination).
(4) Terms and conditions of loansA consolidation loan made pursuant to this section shall be insurable by the Secretary or a guaranty agency pursuant to paragraph (2) only if the loan is made to an eligible borrower who has agreed to notify the holder of the loan promptly concerning any change of address and the loan is evidenced by a note or other written agreement which—
(A) is made without security and without endorsement, except that if the borrower is a minor and such note or other written agreement executed by him or her would not, under applicable law, create a binding obligation, endorsement may be required;
(B) provides for the payment of interest and the repayment of principal in accordance with subsection (c) of this section;
(C)
(i) provides that periodic installments of principal need not be paid, but interest shall accrue and be paid in accordance with clause (ii), during any period for which the borrower would be eligible for a deferral under section 1078(b)(1)(M) of this title, and that any such period shall not be included in determining the repayment schedule pursuant to subsection (c)(2) of this section; and
(ii) provides that interest shall accrue and be paid during any such period—(I) by the Secretary, in the case of a consolidation loan for which the application is received by an eligible lender before November 13, 1997, that consolidated only Federal Stafford Loans for which the student borrower received an interest subsidy under section 1078 of this title;(II) by the Secretary, in the case of a consolidation loan for which the application is received by an eligible lender on or after November 13, 1997, except that the Secretary shall pay such interest only on that portion of the loan that repays Federal Stafford Loans for which the student borrower received an interest subsidy under section 1078 of this title or Federal Direct Stafford Loans for which the borrower received an interest subsidy under (III) by the borrower, or capitalized, in the case of a consolidation loan other than a loan described in subclause (I) or (II);
(D) entitles the borrower to accelerate without penalty repayment of the whole or any part of the loan; and
(E)
(i) contains a notice of the system of disclosure concerning such loan to consumer reporting agencies under section 1080a of this title, and (ii) provides that the lender on request of the borrower will provide information on the repayment status of the note to such consumer reporting agencies.
(5) Direct loans
(6) Nondiscrimination in loan consolidationAn eligible lender that makes consolidation loans under this section shall not discriminate against any borrower seeking such a loan—
(A) based on the number or type of eligible student loans the borrower seeks to consolidate, except that a lender is not required to consolidate loans described in subparagraph (D) or (E) of subsection (a)(4) or subsection (d)(1)(C)(ii);
(B) based on the type or category of institution of higher education that the borrower attended;
(C) based on the interest rate to be charged to the borrower with respect to the consolidation loan; or
(D) with respect to the types of repayment schedules offered to such borrower.
(c) Payment of principal and interest
(1) Interest rate
(A) Notwithstanding subparagraphs (B) and (C), with respect to any loan made under this section for which the application is received by an eligible lender—
(i) on or after October 1, 1998, and before July 1, 2006, the applicable interest rate shall be determined under section 1077a(k)(4) of this title; or
(ii) on or after July 1, 2006, and that is disbursed before July 1, 2010, the applicable interest rate shall be determined under section 1077a(l)(3) of this title.
(B) A consolidation loan made before July 1, 1994, shall bear interest at an annual rate on the unpaid principal balance of the loan that is equal to the greater of—
(i) the weighted average of the interest rates on the loans consolidated, rounded to the nearest whole percent; or
(ii) 9 percent.
(C) A consolidation loan made on or after July 1, 1994, and disbursed before July 1, 2010, shall bear interest at an annual rate on the unpaid principal balance of the loan that is equal to the weighted average of the interest rates on the loans consolidated, rounded upward to the nearest whole percent.
(D) A consolidation loan for which the application is received by an eligible lender on or after November 13, 1997, and before October 1, 1998, shall bear interest at an annual rate on the unpaid principal balance of the loan that is equal to the rate specified in section 1077a(f) of this title, except that the eligible lender may continue to calculate interest on such a loan at the rate previously in effect and defer, until not later than April 1, 1998, the recalculation of the interest on such a loan at the rate required by this subparagraph if the recalculation is applied retroactively to the date on which the loan is made.
(2) Repayment schedules
(A) Notwithstanding any other provision of this part, to the extent authorized by its certificate of insurance under subsection (b)(2) and approved by the issuer of such certificate, the lender of a consolidation loan shall establish repayment terms as will promote the objectives of this section, which shall include the establishment of graduated, income-sensitive, or income-based repayment schedules, established by the lender in accordance with the regulations of the Secretary. Except as required by such income-sensitive or income-based repayment schedules, or by the terms of repayment pursuant to income contingent repayment offered by the Secretary under subsection (b)(5), such repayment terms shall require that if the sum of the consolidation loan and the amount outstanding on other student loans to the individual—
(i) is less than $7,500, then such consolidation loan shall be repaid in not more than 10 years;
(ii) is equal to or greater than $7,500 but less than $10,000, then such consolidation loan shall be repaid in not more than 12 years;
(iii) is equal to or greater than $10,000 but less than $20,000, then such consolidation loan shall be repaid in not more than 15 years;
(iv) is equal to or greater than $20,000 but less than $40,000, then such consolidation loan shall be repaid in not more than 20 years;
(v) is equal to or greater than $40,000 but less than $60,000, then such consolidation loan shall be repaid in not more than 25 years; or
(vi) is equal to or greater than $60,000, then such consolidation loan shall be repaid in not more than 30 years.
(B) The amount outstanding on other student loans which may be counted for the purpose of subparagraph (A) may not exceed the amount of the consolidation loan.
(3) Additional repayment requirementsNotwithstanding paragraph (2)—
(A) except in the case of an income-based repayment schedule under section 1098e of this title, a repayment schedule established with respect to a consolidation loan shall require that the minimum installment payment be an amount equal to not less than the accrued unpaid interest;
(B) except as required by the terms of repayment pursuant to income contingent repayment offered by the Secretary under subsection (b)(5), the lender of a consolidation loan may, with respect to repayment on the loan, when the amount of a monthly or other similar payment on the loan is not a multiple of $5, round the payment to the next highest whole dollar amount that is a multiple of $5; and
(C) an income-based repayment schedule under section 1098e of this title shall not be available to a consolidation loan borrower who used the proceeds of the loan to discharge the liability on a loan under section 1078–2 of this title, or a Federal Direct PLUS loan, made on behalf of a dependent student.
(4) Commencement of repayment
(5) Insurance premiums prohibited
(d) Special program authorized
(1) General rule and definition of eligible student loan
(A) In general
(B) Applicability rule
(C) “Eligible student loans” definedFor the purpose of this subsection, the term “eligible student loans” means loans—
(i) of the type described in subparagraphs (A), (B), and (C) of subsection (a)(4); and
(ii) made under subpart I of part A of title VII of the Public Health Service Act [42 U.S.C. 292 et seq.].
(2) Interest rate rule
(A) In general
(B) Determination of the maximum interest rate
(C) Publication of maximum interest rate
(3) Special rules
(A) No special allowance rule
(B) No interest subsidy rule
(C) Additional reserve rule
(D) Insurance rule
(4) Regulations
(e) Termination of authority
(f) Interest payment rebate fee
(1) In general
(2) Special rule
(3) Deposit
(Pub. L. 89–329, title IV, § 428C, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1388; amended Pub. L. 100–50, § 10(s), June 3, 1987, 101 Stat. 345; Pub. L. 102–325, title IV, § 419, July 23, 1992, 106 Stat. 532; Pub. L. 102–408, title III, § 306(a), (b), Oct. 13, 1992, 106 Stat. 2084, 2086; Pub. L. 103–66, title IV, §§ 4046(a), (b)(2), 4106(a), Aug. 10, 1993, 107 Stat. 360, 363, 368; Pub. L. 103–208, § 2(c)(33)–(37), Dec. 20, 1993, 107 Stat. 2466; Pub. L. 103–382, title III, § 356, Oct. 20, 1994, 108 Stat. 3967; Pub. L. 104–208, div. A, title I, § 101(e) [title VI, § 602(b)(1)(A)(ii)], Sept. 30, 1996, 110 Stat. 3009–233, 3009–283; Pub. L. 105–33, title VI, § 6104(3), Aug. 5, 1997, 111 Stat. 652; Pub. L. 105–78, title VI, § 609(b)–(e), Nov. 13, 1997, 111 Stat. 1522, 1523; Pub. L. 105–244, title IV, §§ 416(b)(2), 420, Oct. 7, 1998, 112 Stat. 1682, 1695; Pub. L. 107–139, § 1(a)(2), Feb. 8, 2002, 116 Stat. 8; Pub. L. 109–171, title VIII, §§ 8004(b)(3), 8009(a), (b)(2), (c), Feb. 8, 2006, 120 Stat. 158, 163, 164; Pub. L. 109–234, title VII, § 7015(a), (c), (d), June 15, 2006, 120 Stat. 485; Pub. L. 110–84, title II, § 203(b)(1), (2), Sept. 27, 2007, 121 Stat. 794, 795; Pub. L. 110–315, title IV, §§ 425(a)–(b)(2), (c), (d)(1), (e), 432(b)(3), Aug. 14, 2008, 122 Stat. 3233–3235, 3246; Pub. L. 111–39, title IV, § 402(c)(1), (f)(3), July 1, 2009, 123 Stat. 1940, 1943; Pub. L. 111–152, title II, § 2206(a), Mar. 30, 2010, 124 Stat. 1075; Pub. L. 117–200, § 2(b), Oct. 11, 2022, 136 Stat. 2221.)

CITE AS: 20 USC 1078-3

§ 1078–4. Commingling of funds
Notwithstanding any other provision of this part regarding permissible uses of funds from any source, funds received by a guaranty agency under any provision of this part may be commingled with funds received under any other provision of this part and may be used to carry out the purposes of such other provision, except that—
(1) the total amount expended for the purposes of such other provision shall not exceed the amount the guaranty agency would otherwise be authorized to expend; and
(2) the authority to commingle such funds shall not relieve such agency of any accounting or auditing obligations under this part.
(Pub. L. 89–329, title IV, § 428D, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1393.)

CITE AS: 20 USC 1078-4

§ 1078–5. Repealed. Pub. L. 102–164, title VI, § 605(b)(1), Nov. 15, 1991, 105 Stat. 1068

CITE AS: 20 USC 1078-5

§ 1078–6. Default reduction program
(a) Other repayment incentives
(1) Sale or assignment of loan
(A) In generalEach guaranty agency, upon securing 9 payments made within 20 days of the due date during 10 consecutive months of amounts owed on a loan for which the Secretary has made a payment under paragraph (1) of section 1078(c) of this title, shall—
(i) if practicable, sell the loan to an eligible lender; or
(ii) beginning July 1, 2014, assign the loan to the Secretary if the guaranty agency has been unable to sell the loan under clause (i).
(B) Monthly payments
(C) Consumer reporting agencies
(D) Duties upon saleWith respect to a loan sold under subparagraph (A)(i)—
(i) the guaranty agency—(I) shall, in the case of a sale made on or after July 1, 2014, repay the Secretary 100 percent of the amount of the principal balance outstanding at the time of such sale, multiplied by the reinsurance percentage in effect when payment under the guaranty agreement was made with respect to the loan; and(II) may, in the case of a sale made on or after July 1, 2014, in order to defray collection costs—(aa) charge to the borrower an amount not to exceed 16 percent of the outstanding principal and interest at the time of the loan sale; and(bb) retain such amount from the proceeds of the loan sale; and
(ii) the Secretary shall reinstate the Secretary’s obligation to—(I) reimburse the guaranty agency for the amount that the agency may, in the future, expend to discharge the guaranty agency’s insurance obligation; and(II) pay to the holder of such loan a special allowance pursuant to section 1087–1 of this title.
(E) Duties upon assignmentWith respect to a loan assigned under subparagraph (A)(ii)—
(i) the guaranty agency shall add to the principal and interest outstanding at the time of the assignment of such loan an amount equal to the amount described in subparagraph (D)(i)(II)(aa); and
(ii) the Secretary shall pay the guaranty agency, for deposit in the agency’s Operating Fund established pursuant to section 1072b of this title, an amount equal to the amount added to the principal and interest outstanding at the time of the assignment in accordance with clause (i).
(F) Eligible lender limitation
(G) Default due to error
(2) Use of proceeds of sales
(3) Borrower eligibility
(4) Applicability of general loan conditions
(5) Limitation
(b) Satisfactory repayment arrangements to renew eligibility
(c) Financial and economic literacy
(Pub. L. 89–329, title IV, § 428F, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1394; amended Pub. L. 100–50, § 10(u), June 3, 1987, 101 Stat. 346; Pub. L. 101–239, title II, § 2005(a), Dec. 19, 1989, 103 Stat. 2116; Pub. L. 102–325, title IV, § 420, July 23, 1992, 106 Stat. 534; Pub. L. 103–208, § 2(c)(38)–(40), Dec. 20, 1993, 107 Stat. 2466; Pub. L. 105–244, title IV, § 421, Oct. 7, 1998, 112 Stat. 1696; Pub. L. 109–171, title VIII, § 8014(h), Feb. 8, 2006, 120 Stat. 171; Pub. L. 110–315, title IV, § 426, Aug. 14, 2008, 122 Stat. 3235; Pub. L. 111–39, title IV, § 402(d)(1), July 1, 2009, 123 Stat. 1941; Pub. L. 113–67, div. A, title V, § 501, Dec. 26, 2013, 127 Stat. 1186.)

CITE AS: 20 USC 1078-6

§ 1078–7. Requirements for disbursement of student loans
(a) Multiple disbursement required
(1) Two disbursements required
(2) Minimum interval required
(3) Special rule
(4) Amendment to special rule
(b) Disbursement and endorsement requirements
(1) First year students
(2) Other students
(3) Amendment to cohort default rate exemption
(c) Method of multiple disbursement
Disbursements under subsection (a)—
(1) shall be made in accordance with a schedule provided by the institution (under section 1078(a)(2)(A)(i)(II) of this title) that complies with the requirements of this section;
(2) may be made directly by the lender or, in the case of a loan under sections 1078 and 1078–1 1
1 See References in Text note below.
of this title, may be disbursed pursuant to the escrow provisions of section 1078(i) of this title; and
(3) notwithstanding subsection (a)(2), may, with the permission of the borrower, be disbursed by the lender on a weekly or monthly basis, provided that the proceeds of the loan are disbursed by the lender in substantially equal weekly or monthly installments, as the case may be, over the period of enrollment for which the loan is made.
(d) Withholding of second disbursement
(1) Withdrawing students
(2) Students receiving over-awards
(e) Exclusion of consolidation and foreign study loans
(f) Beginning of period of enrollment
(g) Sales prior to disbursement prohibited
An eligible lender shall not sell or transfer a promissory note for any loan made, insured, or guaranteed under this part until the final disbursement of such loan has been made, except that the prohibition of this subsection shall not apply if—
(1) the sale of the loan does not result in a change in the identity of the party to whom payments will be made for the loan; and
(2) the first disbursement of such loan has been made.
(Pub. L. 89–329, title IV, § 428G, as added Pub. L. 101–239, title II, § 2004(a), Dec. 19, 1989, 103 Stat. 2115; amended Pub. L. 101–508, title III, § 3003(a), Nov. 5, 1990, 104 Stat. 1388–26; Pub. L. 102–325, title IV, § 421, July 23, 1992, 106 Stat. 534; Pub. L. 103–66, title IV, § 4109(b), Aug. 10, 1993, 107 Stat. 369; Pub. L. 103–208, § 2(c)(41), Dec. 20, 1993, 107 Stat. 2466; Pub. L. 105–244, title IV, § 422(a)–(c), Oct. 7, 1998, 112 Stat. 1696; Pub. L. 109–171, title VIII, § 8010, Feb. 8, 2006, 120 Stat. 164; Pub. L. 110–315, title IV, § 427, Aug. 14, 2008, 122 Stat. 3235; Pub. L. 111–39, title IV, § 402(f)(4), July 1, 2009, 123 Stat. 1943.)

CITE AS: 20 USC 1078-7

§ 1078–8. Unsubsidized Stafford loans for middle-income borrowers
(a) In general
(b) Eligible borrowersPrior to July 1, 2010, any student meeting the requirements for student eligibility under section 1091 of this title (including graduate and professional students as defined in regulations promulgated by the Secretary) shall be entitled to borrow an unsubsidized Federal Stafford Loan for which the first disbursement is made before such date if the eligible institution at which the student has been accepted for enrollment, or at which the student is in attendance, has—
(1) determined and documented the student’s need for the loan based on the student’s estimated cost of attendance (as determined under section 1087ll of this title) and the student’s estimated financial assistance, including a loan which qualifies for interest subsidy payments under section 1078 of this title; and
(2) provided the lender a statement—
(A) certifying the eligibility of the student to receive a loan under this section and the amount of the loan for which such student is eligible, in accordance with subsection (c); and
(B) setting forth a schedule for disbursement of the proceeds of the loan in installments, consistent with the requirements of section 1078–7 of this title.
(c) Determination of amount of loan
(d) Loan limits
(1) In general
(2) Limits for graduate, professional, and independent postbaccalaureate students
(A) Annual limitsThe maximum annual amount of loans under this section a graduate or professional student, or a student described in clause (ii), may borrow in any academic year (as defined in section 1088(a)(2) of this title) or its equivalent shall be the amount determined under paragraph (1), plus—
(i) in the case of such a student who is a graduate or professional student attending an eligible institution, $12,000; and
(ii) notwithstanding paragraph (4), in the case of an independent student, or a dependent student whose parents are unable to borrow under section 1078–2 of this title or the Federal Direct PLUS Loan Program, who has obtained a baccalaureate degree and who is enrolled in coursework specified in paragraph (3)(B) or (4)(B) of section 1091(b) of this title—(I) $7,000 for coursework necessary for enrollment in a graduate or professional program; and(II) $7,000 for coursework necessary for a professional credential or certification from a State required for employment as a teacher in an elementary or secondary school,
except in cases where the Secretary determines that a higher amount is warranted in order to carry out the purpose of this part with respect to students engaged in specialized training requiring exceptionally high costs of education, but the annual insurable limit per student shall not be deemed to be exceeded by a line of credit under which actual payments by the lender to the borrower will not be made in any years in excess of the annual limit.
(B) Aggregate limit
(3) Limits for undergraduate dependent students
(A) Annual limits
(B) Aggregate limits
(4) Limits for undergraduate independent students
(A) Annual limitsThe maximum annual amount of loans under this section an undergraduate independent student, or an undergraduate dependent student whose parents are unable to borrow under section 1078–2 of this title or the Federal Direct PLUS Loan Program, may borrow in any academic year (as defined in section 1088(a)(2) of this title) or its equivalent shall be the sum of the amount determined under paragraph (1), plus—
(i) in the case of such a student attending an eligible institution who has not completed such student’s first 2 years of undergraduate study—(I) $6,000, if such student is enrolled in a program whose length is at least one academic year in length; or(II) if such student is enrolled in a program of undergraduate education which is less than one academic year, the maximum annual loan amount that such student may receive may not exceed the amount that bears the same ratio to the amount specified in subclause (I) as the length of such program measured in semester, trimester, quarter, or clock hours bears to one academic year;
(ii) in the case of such a student at an eligible institution who has successfully completed such first and second years but has not successfully completed the remainder of a program of undergraduate education—(I) $7,000; or(II) if such student is enrolled in a program of undergraduate education, the remainder of which is less than one academic year, the maximum annual loan amount that such student may receive may not exceed the amount that bears the same ratio to the amount specified in subclause (I) as such remainder measured in semester, trimester, quarter, or clock hours bears to one academic year; and
(iii) in the case of such a student enrolled in coursework specified in—(I)section 1091(b)(3)(B) of this title, $6,000; or(II)section 1091(b)(4)(B) of this title, $7,000.
(B) Aggregate limits
(5) Capitalized interest
(e) Payment of principal and interest
(1) Commencement of repayment
(2) Capitalization of interest
(A) Except as provided in subparagraph (C), interest on loans made under this section for which payments of principal are not required during the in-school and grace periods or for which payments are deferred under sections 1077(a)(2)(C) and 1078(b)(1)(M) of this title shall, if agreed upon by the borrower and the lender—
(i) be paid monthly or quarterly; or
(ii) be added to the principal amount of the loan by the lender only—(I) when the loan enters repayment;(II) at the expiration of a grace period, in the case of a loan that qualifies for a grace period;(III) at the expiration of a period of deferment or forbearance; or(IV) when the borrower defaults.
(B) The capitalization of interest described in subparagraph (A) shall not be deemed to exceed the annual insurable limit on account of the student.
(C) Interest shall not accrue on a loan deferred under section 1078(b)(1)(M)(v) or 1077(a)(2)(C)(iv) of this title.
(3) Subsidies prohibited
(4) Applicable rates of interest
(5) AmortizationThe amount of the periodic payment and the repayment schedule for any loan made pursuant to this section shall be established by assuming an interest rate equal to the applicable rate of interest at the time the repayment of the principal amount of the loan commences. At the option of the lender, the note or other written evidence of the loan may require that—
(A) the amount of the periodic payment will be adjusted annually; or
(B) the period of repayment of principal will be lengthened or shortened,
in order to reflect adjustments in interest rates occurring as a consequence of section 1077a(c)(4) of this title.
(6) Repayment period
(7) Qualification for forbearance
(f) Repealed. Pub. L. 105–244, title IV, § 423(f), Oct. 7, 1998, 112 Stat. 1698
(g) Single application form and loan repayment schedule
(h) Insurance premium
(Pub. L. 89–329, title IV, § 428H, as added Pub. L. 102–325, title IV, § 422, July 23, 1992, 106 Stat. 535; amended Pub. L. 103–66, title IV, §§ 4047(a), 4102(b), Aug. 10, 1993, 107 Stat. 363, 366; Pub. L. 103–208, § 2(c)(42)–(45), Dec. 20, 1993, 107 Stat. 2466, 2467; Pub. L. 104–134, title I, § 101(d) [title V, § 514(a)], Apr. 26, 1996, 110 Stat. 1321–211, 1321–245; renumbered title I, Pub. L. 104–140, § 1(a), May 2, 1996, 110 Stat. 1327; Pub. L. 105–244, title IV, § 423, Oct. 7, 1998,

CITE AS: 20 USC 1078-8

§ 1078–9. Repealed. Pub. L. 110–84, title III, § 302(a), Sept. 27, 2007, 121 Stat. 796

CITE AS: 20 USC 1078-9

§ 1078–10. Loan forgiveness for teachers
(a) Statement of purpose
(b) Program authorizedThe Secretary shall carry out a program, through the holder of the loan, of assuming the obligation to repay a qualified loan amount for a loan made under section 1078 or 1078–8 of this title, in accordance with subsection (c), for any new borrower on or after October 1, 1998, who—
(1) has been employed as a full-time teacher for 5 consecutive complete school years—
(A) in a school or location that qualifies under section 1087ee(a)(2)(A) of this title for loan cancellation for Perkins loan recipients who teach in such schools or locations; and
(B) if employed as an elementary school or secondary school teacher, is highly qualified as defined in section 9101 1
1 See References in Text note below.
of the Elementary Secondary 2
2 So in original. Probably should be preceded by “and”.
Education Act of 1965 [20 U.S.C. 7801], or meets the requirements of subsection (g)(3); and
(2) is not in default on a loan for which the borrower seeks forgiveness.
(c) Qualified loans amount
(1) In general
(2) Treatment of consolidation loans
(3) Additional amounts for teachers in mathematics, science, or special educationNotwithstanding the amount specified in paragraph (1), the aggregate amount that the Secretary shall repay under this section shall be not more than $17,500 in the case of—
(A) a secondary school teacher—
(i) who meets the requirements of subsection (b); and
(ii) whose qualifying employment for purposes of such subsection is teaching mathematics or science on a full-time basis; and
(B) an elementary school or secondary school teacher—
(i) who meets the requirements of subsection (b);
(ii) whose qualifying employment for purposes of such subsection is as a special education teacher whose primary responsibility is to provide special education to children with disabilities (as those terms are defined in section 1401 of this title); and
(iii) who, as certified by the chief administrative officer of the public or non-profit private elementary school or secondary school in which the borrower is employed, or, in the case of a teacher who is employed by an educational service agency, as certified by the chief administrative officer of such agency, is teaching children with disabilities that correspond with the borrower’s special education training and has demonstrated knowledge and teaching skills in the span areas of the elementary school or secondary school curriculum that the borrower is teaching.
(d) Regulations
(e) Construction
(f) List
(g) Additional eligibility provisions
(1) Continued eligibilityAny teacher who performs service in a school that—
(A) meets the requirements of subsection (b)(1)(A) in any year during such service; and
(B) in a subsequent year fails to meet the requirements of such subsection,
may continue to teach in such school and shall be eligible for loan forgiveness pursuant to subsection (b).
(2) Prevention of double benefitsNo borrower may, for the same service, receive a benefit under both this section and—
(A)section 1078–11 of this title;
(B)section 1087e(m) of this title; or
(C) subtitle D of title I of the National and Community Service Act of 1990 (42 U.S.C. 12601 et seq.).
(3) Private school teachers
(h) “Year” defined
(Pub. L. 89–329, title IV, § 428J, as added Pub. L. 102–325, title IV, § 422, July 23, 1992, 106 Stat. 541; amended Pub. L. 103–82, title I, § 102(c)(2), Sept. 21, 1993, 107 Stat. 824; Pub. L. 103–208, § 2(c)(47)–(51), Dec. 20, 1993, 107 Stat. 2467; Pub. L. 105–244, title IV, § 424, Oct. 7, 1998, 112 Stat. 1698; Pub. L. 108–409, § 3(a)(1)(A), (b)(1), Oct. 30, 2004, 118 Stat. 2300; Pub. L. 109–171, title VIII, § 8013(e)(1), Feb. 8, 2006, 120 Stat. 167; Pub. L. 110–315, title IV, § 429, Aug. 14, 2008, 122 Stat. 3236; Pub. L. 111–39, title IV, § 402(f)(6), July 1, 2009, 123 Stat. 1944.)

CITE AS: 20 USC 1078-10

§ 1078–11. Loan forgiveness for service in areas of national need
(a) Program authorized
(1) Loan forgiveness authorizedThe Secretary shall forgive, in accordance with this section, the qualified loan amount described in subsection (c) of the student loan obligation of a borrower who—
(A) is employed full-time in an area of national need, as described in subsection (b); and
(B) is not in default on a loan for which the borrower seeks forgiveness.
(2) Method of loan forgivenessTo provide loan forgiveness under paragraph (1), the Secretary is authorized to carry out a program—
(A) through the holder of the loan, to assume the obligation to repay a qualified loan amount for a loan made, insured, or guaranteed under this part (other than an excepted PLUS loan or an excepted consolidation loan (as such terms are defined in section 1098e(a) of this title)); and
(B) to cancel a qualified loan amount for a loan made under part D of this subchapter (other than an excepted PLUS loan or an excepted consolidation loan).
(3) Regulations
(b) Areas of national needFor purposes of this section, an individual is employed in an area of national need if the individual meets the requirements of one of the following:
(1) Early childhood educators
(2) NursesThe individual is employed full-time—
(A) as a nurse in a clinical setting; or
(B) as a member of the nursing faculty at an accredited school of nursing (as those terms are defined in section 296 of title 42).
(3) Foreign language specialistsThe individual—
(A) has obtained a baccalaureate or advanced degree in a critical foreign language; and
(B) is employed full-time—
(i) in an elementary school or secondary school as a teacher of a critical foreign language;
(ii) in an agency of the United States Government in a position that regularly requires the use of such critical foreign language; or
(iii) in an institution of higher education as a faculty member or instructor teaching a critical foreign language.
(4) LibrariansThe individual is employed full-time as a librarian in—
(A) a public library that serves a geographic area within which the public schools have a combined average of 30 percent or more of the schools’ total student enrollments composed of children meeting a measure of poverty under section 6313(a)(5) of this title; or
(B) a school that qualifies under section 1087ee(a)(2)(A) of this title for loan cancellation for Perkins loan recipients who teach in such a school.
(5) Highly qualified teachers serving students who are limited English proficient, low-income communities, and underrepresented populationsThe individual—
(A) is highly qualified, as such term is defined in section 9101 1
1 See References in Text note below.
of the Elementary and Secondary Education Act of 1965 [20 U.S.C. 7801]; and
(B) is employed full-time—
(i) as a teacher educating students who are limited English proficient;
(ii) as a teacher in a school that qualifies under section 1087ee(a)(2)(A) of this title for loan cancellation for Perkins loan recipients who teach in such a school;
(iii) as a teacher and is an individual from an underrepresented population in the teaching profession, as determined by the Secretary; or
(iv) as a teacher in an educational service agency, as such term is defined in section 7801 of this title.
(6) Child welfare workersThe individual—
(A) has obtained a degree in social work or a related field with a focus on serving children and families; and
(B) is employed full-time in public or private child welfare services.
(7) Speech-language pathologists and audiologistsThe individual—
(A) is employed full-time as a speech-language pathologist or audiologist in an eligible preschool program or a school that qualifies under section 1087ee(a)(2)(A) of this title for loan cancellation for Perkins loan recipients who teach in such a school; and
(B) has, at a minimum, a graduate degree in speech-language pathology, audiology, or communication sciences and disorders.
(8) School counselorsThe individual—
(A) is employed full-time as a school counselor who has documented competence in counseling children and adolescents in a school setting and who—
(i) is licensed by the State or certified by an independent professional regulatory authority;
(ii) in the absence of such State licensure or certification, possesses national certification in school counseling or a specialty of counseling granted by an independent professional organization; or
(iii) holds a minimum of a master’s degree in school counseling from a program accredited by the Council for Accreditation of Counseling and Related Educational Programs or the equivalent; and
(B) is so employed in a school that qualifies under section 1087ee(a)(2)(A) of this title for loan cancellation for Perkins loan recipients who teach in such a school.
(9) Public sector employeesThe individual is employed full-time in—
(A) public safety (including as a first responder, firefighter, police officer, or other law enforcement or public safety officer);
(B) emergency management (including as an emergency medical technician);
(C) public health (including full-time professionals engaged in health care practitioner occupations and health care support occupations, as such terms are defined by the Bureau of Labor Statistics); or
(D) public interest legal services (including prosecution, public defense, or legal advocacy in low-income communities at a nonprofit organization).
(10) Nutrition professionalsThe individual—
(A) is a licensed, certified, or registered dietician who has completed a degree in a relevant field; and
(B) is employed full-time as a dietician with an agency of the special supplemental nutrition program for women, infants, and children under section 1786 of title 42.
(11) Medical specialistsThe individual—
(A) has received a degree from a medical school at an institution of higher education; and
(B) has been accepted to, or currently participates in, a full-time graduate medical education training program or fellowship (or both) to provide health care services (as recognized by the Accreditation Council for Graduate Medical Education) that—
(i) requires more than five years of total graduate medical training; and
(ii) has fewer United States medical school graduate applicants than the total number of positions available in such program or fellowship.
(12) Mental health professionalsThe individual—
(A) has not less than a master’s degree in social work, psychology, or psychiatry; and
(B) is employed full-time providing mental health services to children, adolescents, or veterans.
(13) DentistsThe individual—
(A)
(i) has received a degree from an accredited dental school (as accredited by the Commission on Dental Accreditation);
(ii) has completed residency training in pediatric dentistry, general dentistry, or dental public health; and
(iii) is employed full-time as a dentist; or
(B) is employed full-time as a member of the faculty at a program or school accredited by the Commission on Dental Accreditation.
(14) STEM employees
(15) Physical therapistsThe individual—
(A) is a physical therapist; and
(B) is employed full-time providing physical therapy services to children, adolescents, or veterans.
(16) Superintendents, principals, and other administrators
(17) Occupational therapists
(18) Allied health professionalsThe individual is employed full-time as an allied health professional—
(A) in a Federal, State, local, or tribal public health agency; or
(B) in a setting where patients might require health care services, including acute care facilities, ambulatory care facilities, personal residences and other settings located in health professional shortage areas, medically underserved areas, or medically underserved populations, as recognized by the Secretary of Health and Human Services.
(c) Qualified loan amount
(1) In general
(2) Maximum amount
(d) Priority
(e) Rule of construction
(f) Ineligibility for double benefits
(g) DefinitionsIn this section:
(1) Allied health professionalThe term “allied health professional” means an allied health professional as defined in section 295p(5) of title 42 who—
(A) has graduated and received an allied health professions degree or certificate from an institution of higher education; and
(B) is employed with a Federal, State, local or tribal public health agency, or in a setting where patients might require health care services, including acute care facilities, ambulatory care facilities, personal residences and other settings located in health professional shortage areas, medically underserved areas, or medically underserved populations, as recognized by the Secretary of Health and Human Services.
(2) AudiologistThe term “audiologist” means an individual who—
(A) has received, at a minimum, a graduate degree in audiology from an institution of higher education accredited by an agency or association recognized by the Secretary pursuant to section 1099b(a) of this title; and
(B)
(i) provides audiology services under subsection (ll)(2) of section 1395x of title 42; or
(ii) meets or exceeds the qualifications for a qualified audiologist under subsection (ll)(4) of such section.
(3) Early childhood educatorThe term “early childhood educator” means an individual who—
(A) works directly with children in an eligible preschool program or eligible early childhood education program in a low-income community;
(B) is involved directly in the care, development, and education of infants, toddlers, or young children age five and under; and
(C) has completed a baccalaureate or advanced degree in early childhood development or early childhood education, or in a field related to early childhood education.
(4) Eligible preschool programThe term “eligible preschool program” means a program that—
(A) provides for the care, development, and education of infants, toddlers, or young children age five and under;
(B) meets any applicable State or local government licensing, certification, approval, and registration requirements, and
(C) is operated by—
(i) a public or private school that is supported, sponsored, supervised, or administered by a local educational agency;
(ii) a Head Start agency serving as a grantee designated under the Head Start Act (42 U.S.C. 9831 et seq.);
(iii) a nonprofit or community based organization; or
(iv) a child care program, including a home.
(5) Eligible early childhood education programThe term “eligible early childhood education program” means—
(A) a family child care program, center-based child care program, State prekindergarten program, school program, or other out-of-home early childhood development care program, that—
(i) is licensed or regulated by the State; and
(ii) serves two or more unrelated children who are not old enough to attend kindergarten;
(B) a Head Start Program carried out under the Head Start Act (42 U.S.C. 9831 et seq.); or
(C) an Early Head Start Program carried out under section 645A of the Head Start Act (42 U.S.C. 9840a).
(6) Low-income communityThe term “low-income community” means a school attendance area (as defined in section 6313(a)(2)(A) of this title)—
(A) in which 70 percent of households earn less than 85 percent of the State median household income; or
(B) that includes a school that qualifies under section 1087ee(a)(2)(A) of this title for loan cancellation for Perkins loan recipients who teach in such a school.
(7) NurseThe term “nurse” means a nurse who meets all of the following:
(A) The nurse graduated from—
(i) an accredited school of nursing (as those terms are defined in section 296 of title 42);
(ii) a nursing center; or
(iii) an academic health center that provides nurse training.
(B) The nurse holds a valid and unrestricted license to practice nursing in the State in which the nurse practices in a clinical setting.
(C) The nurse holds one or more of the following:
(i) A graduate degree in nursing, or an equivalent degree.
(ii) A nursing degree from a collegiate school of nursing (as defined in section 296 of title 42).
(iii) A nursing degree from an associate degree school of nursing (as defined in such section).
(iv) A nursing degree from a diploma school of nursing (as defined in such section).
(8) Occupational therapistThe term “occupational therapist” means an individual who—
(A) has received, at a minimum, a baccalaureate degree in occupational therapy from an institution of higher education accredited by an agency or association recognized by the Secretary pursuant to section 1099b(a) of this title; and
(B)
(i) provides occupational therapy services under section 1395x(g) of title 42; or
(ii) meets or exceeds the qualifications for a qualified occupational therapist, as determined by State law.
(9) Physical therapistThe term “physical therapist” means an individual who—
(A) has received, at a minimum, a graduate degree in physical therapy from an institution of higher education accredited by an agency or association recognized by the Secretary pursuant to section 1099b(a) of this title; and
(B)
(i) provides physical therapy services under section 1395x(p) of title 42; or
(ii) meets or exceeds the qualifications for a qualified physical therapist, as determined by State law.
(10) Speech-language pathologistThe term “speech-language pathologist” means a speech-language pathologist who—
(A) has received, at a minimum, a graduate degree in speech-language pathology or communication sciences and disorders from an institution of higher education accredited by an agency or association recognized by the Secretary pursuant to section 1099b(a) of this title; and
(B) provides speech-language pathology services under section 1395x(ll)(1) of title 42, or meets or exceeds the qualifications for a qualified speech-language pathologist under subsection (ll)(4) of such section.
(h) Authorization of appropriations
(Pub. L. 89–329, title IV, § 428K, as added Pub. L. 105–244, title IV, § 425, Oct. 7, 1998, 112 Stat. 1699; amended Pub. L. 110–315, title IV, § 430, Aug. 14, 2008, 122 Stat. 3236; Pub. L. 111–39, title IV, § 402(f)(7), July 1, 2009, 123 Stat. 1944; Pub. L. 111–148, title V, § 5205(b), Mar. 23, 2010, 124 Stat. 611; Pub. L. 114–95, title IX, § 9215(oo)(8), Dec. 10, 2015, 129 Stat. 2180.)

CITE AS: 20 USC 1078-11

§ 1078–12. Loan repayment for civil legal assistance attorneys
(a) Purpose
(b) DefinitionsIn this section:
(1) Civil legal assistance attorneyThe term “civil legal assistance attorney” means an attorney who—
(A) is a full-time employee of—
(i) a nonprofit organization that provides legal assistance with respect to civil matters to low-income individuals without a fee; or
(ii) a protection and advocacy system or client assistance program that provides legal assistance with respect to civil matters and receives funding under—(I) subtitle C of title I of the Developmental Disabilities Assistance and Bill of Rights Act of 2000 (42 U.S.C. 15041 et seq.);(II) section 732 or 794e of title 29;(III) part A of title I of the Protection and Advocacy for Individuals with Mental Illness Act (42 U.S.C. 10801 et seq.);(IV)section 3004 of title 29;(V)section 1320b–21 of title 42;(VI)section 300d–53 of title 42; or(VII)section 21061 of title 52;
(B) as such employee, provides civil legal assistance as described in subparagraph (A) on a full-time basis; and
(C) is continually licensed to practice law.
(2) Student loan
(A) In generalExcept as provided in subparagraph (B), the term “student loan” means—
(i) subject to clause (ii), a loan made, insured, or guaranteed under this part, part D, or part E; and
(ii) a loan made under section 1078–3 or 1087e(g) of this title, to the extent that such loan was used to repay—(I) a Federal Direct Stafford Loan, a Federal Direct Unsubsidized Stafford Loan, or a Federal Direct PLUS Loan;(II) a loan made under section 1078, 1078–2, or 1078–8 of this title; or(III) a loan made under part E.
(B) Exclusion of parent plus loansThe term “student loan” does not include any of the following loans:
(i) A loan made to the parents of a dependent student under section 1078–2 of this title.
(ii) A Federal Direct PLUS Loan made to the parents of a dependent student.
(iii) A loan made under section 1078–3 or 1087e(g) of this title, to the extent that such loan was used to repay—(I) a loan made to the parents of a dependent student under section 1078–2 of this title; or(II) a Federal Direct PLUS Loan made to the parents of a dependent student.
(c) Program authorizedFrom amounts appropriated under subsection (i) for a fiscal year, the Secretary shall carry out a program of assuming the obligation to repay a student loan, by direct payments on behalf of a borrower to the holder of such loan, in accordance with subsection (d), for any borrower who—
(1) is employed as a civil legal assistance attorney; and
(2) is not in default on a loan for which the borrower seeks repayment.
(d) Terms of agreement
(1) In generalTo be eligible to receive repayment benefits under subsection (c), a borrower shall enter into a written agreement with the Secretary that specifies that—
(A) the borrower will remain employed as a civil legal assistance attorney for a required period of service of not less than three years, unless involuntarily separated from that employment;
(B) if the borrower is involuntarily separated from employment on account of misconduct, or voluntarily separates from employment, before the end of the period specified in the agreement, the borrower will repay the Secretary the amount of any benefits received by such employee under this agreement;
(C) if the borrower is required to repay an amount to the Secretary under subparagraph (B) and fails to repay such amount, a sum equal to that amount shall be recoverable by the Federal Government from the employee by such methods as are provided by law for the recovery of amounts owed to the Federal Government;
(D) the Secretary may waive, in whole or in part, a right of recovery under this subsection if it is shown that recovery would be contrary to the public interest; and
(E) the Secretary shall make student loan payments under this section for the period of the agreement, subject to the availability of appropriations.
(2) Repayments
(A) In general
(B) Merger
(3) Limitations
(A) Student loan payment amountStudent loan repayments made by the Secretary under this section shall be made subject to such terms, limitations, or conditions as may be mutually agreed upon by the borrower and the Secretary in an agreement under paragraph (1), except that the amount paid by the Secretary under this section shall not exceed—
(i) $6,000 for any borrower in any calendar year; or
(ii) an aggregate total of $40,000 in the case of any borrower.
(B) Beginning of payments
(e) Additional agreements
(1) In general
(2) Term
(f) Award basis; priority
(1) Award basis
(2) PriorityThe Secretary shall give priority in providing repayment benefits under this section in any fiscal year to a borrower who—
(A) has practiced law for five years or less and, for not less than 90 percent of the time in such practice, has served as a civil legal assistance attorney;
(B) received repayment benefits under this section during the preceding fiscal year; and
(C) has completed less than three years of the first required period of service specified for the borrower in an agreement entered into under subsection (d).
(g) Ineligibility for double benefits
(h) Regulations
(i) Authorization of appropriations
(Pub. L. 89–329, title IV, § 428L, as added Pub. L. 110–315, title IV, § 431, Aug. 14, 2008, 122 Stat. 3242.)

CITE AS: 20 USC 1078-12

§ 1079. Certificate of Federal loan insurance—effective date of insurance
(a) Loan-by-loan insurance
(1) Authority to issue certificates on application
(2) Effectiveness of certificate
(3) Contents of applications
(b) Comprehensive insurance coverage certificate
(1) Establishment of system by regulation
(2) Uncovered loans
(c) Charges for Federal insurance
(d) Assignability of insurance
(e) Consolidation not to affect insurance
(Pub. L. 89–329, title IV, § 429, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1395.)

CITE AS: 20 USC 1079

§ 1080. Default of student under Federal loan insurance program
(a) Notice to Secretary and payment of loss
(b) Effect of payment of loss
(c) Forbearance not precluded
(d) Care and diligence required of holders
(e) Default rate of lenders, holders, and guaranty agencies
(1) In general
(2) Regulations
(3) Rate establishment and correction
(Pub. L. 89–329, title IV, § 430, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1397; amended Pub. L. 102–325, title IV, § 423, July 23, 1992, 106 Stat. 543; Pub. L. 105–244, title IV, § 426, Oct. 7, 1998, 112 Stat. 1702.)

CITE AS: 20 USC 1080

§ 1080a. Reports to consumer reporting agencies and institutions of higher education
(a) Agreements to exchange information
For the purpose of promoting responsible repayment of loans covered by Federal loan insurance pursuant to this part or covered by a guaranty agreement pursuant to section 1078 of this title, the Secretary and each guaranty agency, eligible lender, and subsequent holder shall enter into an agreement with each consumer reporting agency to exchange information concerning student borrowers, in accordance with the requirements of this section. For the purpose of assisting such consumer reporting agencies in complying with the Fair Credit Reporting Act [15 U.S.C. 1681 et seq.], such agreements may provide for timely response by the Secretary (concerning loans covered by Federal loan insurance) or by a guaranty agency, eligible lender, or subsequent holder (concerning loans covered by a guaranty agreement), or to requests from such consumer reporting agencies for responses to objections raised by borrowers. Subject to the requirements of subsection (c), such agreements shall require the Secretary or the guaranty agency, eligible lender, or subsequent holder, as appropriate, to disclose to such consumer reporting agencies, with respect to any loan under this part that has not been repaid by the borrower—
(1) that the loan is an education loan (as such term is defined in section 1019 of this title);
(2) the total amount of loans made to any borrower under this part and the remaining balance of the loans;
(3) information concerning the repayment status of the loan for inclusion in the file of the borrower, except that nothing in this subsection shall be construed to affect any otherwise applicable provision of the Fair Credit Reporting Act (
(4) information concerning the date of any default on the loan and the collection of the loan, including information concerning the repayment status of any defaulted loan on which the Secretary has made a payment pursuant to section 1080(a) of this title or the guaranty agency has made a payment to the previous holder of the loan; and
(5) the date of cancellation of the note upon completion of repayment by the borrower of the loan or payment by the Secretary pursuant to section 1087 of this title.
(b) Additional information
(c) Contents of agreements
Agreements entered into pursuant to this section shall contain such provisions as may be necessary to ensure that—
(1) no information is disclosed by the Secretary or the guaranty agency, eligible lender, or subsequent holder unless its accuracy and completeness have been verified and the Secretary or the guaranty agency has determined that disclosure would accomplish the purpose of this section;
(2) as to any information so disclosed, such consumer reporting agencies will be promptly notified of, and will promptly record, any change submitted by the Secretary, the guaranty agency, eligible lender, or subsequent holder with respect to such information, or any objections by the borrower with respect to any such information, as required by section 611 of the Fair Credit Reporting Act (15 U.S.C. 1681i);
(3) no use will be made of any such information which would result in the use of collection practices with respect to such a borrower that are not fair and reasonable or that involve harassment, intimidation, false or misleading representations, or unnecessary communication concerning the existence of such loan or concerning any such information; and
(4) with regard to notices of default under subsection (a)(4) of this section, except for disclosures made to obtain the borrower’s location, the Secretary, or the guaranty agency, eligible lender, or subsequent holder whichever is applicable (A) shall not disclose any such information until the borrower has been notified that such information will be disclosed to consumer reporting agencies unless the borrower enters into repayment of his or her loan, but (B) shall, if the borrower has not entered into repayment within a reasonable period of time, but not less than 30 days, from the date such notice has been sent to the borrower, disclose the information required by this subsection.
(d) Contractor status of participants
(e) Disclosure to institutions
(f) Duration of authority
Notwithstanding paragraphs (4) and (5) of subsection (a) of section 605 of the Fair Credit Reporting Act (15 U.S.C. 1681c(a)(4), (a)(5)), a consumer reporting agency may make a report containing information received from the Secretary or a guaranty agency, eligible lender, or subsequent holder regarding the status of a borrower’s defaulted account on a loan guaranteed under this part until—
(1) 7 years from the date on which the Secretary or the agency paid a claim to the holder on the guaranty;
(2) 7 years from the date the Secretary, guaranty agency, eligible lender, or subsequent holder first reported the account to the consumer reporting agency; or
(3) in the case of a borrower who reenters repayment after defaulting on a loan and subsequently goes into default on such loan, 7 years from the date the loan entered default such subsequent time.
(Pub. L. 89–329, title IV, § 430A, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1398; amended Pub. L. 100–50, § 10(v), June 3, 1987, 101 Stat. 346; Pub. L. 102–325, title IV, § 424, July 23, 1992, 106 Stat. 543; Pub. L. 103–208, § 2(c)(52), Dec. 20, 1993, 107 Stat. 2467; Pub. L. 110–315, title IV, § 432(a), Aug. 14, 2008, 122 Stat. 3245; Pub. L. 111–39, title IV, § 402(f)(8), July 1, 2009, 123 Stat. 1944.)

CITE AS: 20 USC 1080a

§ 1081. Insurance fund
(a) Establishment
(b) Borrowing authority
(Pub. L. 89–329, title IV, § 431, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1400; amended Pub. L. 100–50, § 10(w), June 3, 1987, 101 Stat. 346.)

CITE AS: 20 USC 1081

§ 1082. Legal powers and responsibilities
(a) General powersIn the performance of, and with respect to, the functions, powers, and duties, vested in him by this part, the Secretary may—
(1) prescribe such regulations as may be necessary to carry out the purposes of this part, including regulations applicable to third party servicers (including regulations concerning financial responsibility standards for, and the assessment of liabilities for program violations against, such servicers) to establish minimum standards with respect to sound management and accountability of programs under this part, except that in no case shall damages be assessed against the United States for the actions or inactions of such servicers;
(2) sue and be sued in any court of record of a State having general jurisdiction or in any district court of the United States, and such district courts shall have jurisdiction of civil actions arising under this part without regard to the amount in controversy, and action instituted under this subsection by or against the Secretary shall survive notwithstanding any change in the person occupying the office of Secretary or any vacancy in that office; but no attachment, injunction, garnishment, or other similar process, mesne or final, shall be issued against the Secretary or property under the Secretary’s control and nothing herein shall be construed to except litigation arising out of activities under this part from the application of sections 509, 517, 547, and 2679 of title 28;
(3) include in any contract for Federal loan insurance such terms, conditions, and covenants relating to repayment of principal and payment of interest, relating to the Secretary’s obligations and rights to those of eligible lenders, and borrowers in case of default, and relating to such other matters as the Secretary determines to be necessary to assure that the purposes of this part will be achieved; and any term, condition, and covenant made pursuant to this paragraph or pursuant to any other provision of this part may be modified by the Secretary, after notice and opportunity for a hearing, if the Secretary finds that the modification is necessary to protect the United States from the risk of unreasonable loss;
(4) subject to the specific limitations in this part, consent to modification, with respect to rate of interest, time of payment of any installment of principal and interest or any portion thereof, or any other provision of any note or other instrument evidencing a loan which has been insured by the Secretary under this part;
(5) enforce, pay, or compromise, any claim on, or arising because of, any such insurance or any guaranty agreement under section 1078(c) of this title; and
(6) enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption.
(b) Financial operations responsibilitiesThe Secretary shall, with respect to the financial operations arising by reason of this part prepare annually and submit a budget program as provided for wholly owned Government corporations by chapter 91 of title 31. The transactions of the Secretary, including the settlement of insurance claims and of claims for payments pursuant to section 1078 of this title, and transactions related thereto and vouchers approved by the Secretary in connection with such transactions, shall be final and conclusive upon all accounting and other officers of the Government. The Secretary may not enter into any settlement of any claim under this subchapter that exceeds $1,000,000 unless—
(1) the Secretary requests a review of the proposed settlement of such claim by the Attorney General; and
(2) the Attorney General responds to such request, which may include, at the Attorney General’s discretion, a written opinion related to such proposed settlement.
(c) Data collection
(1) Collection by category of loan
(A) For loans insured after December 31, 1976, or in the case of each insurer after such earlier date where the data required by this subsection are available, the Secretary and all other insurers under this part shall collect and accumulate all data relating to (i) loan volume insured and (ii) defaults reimbursed or default rates according to the categories of loans listed in subparagraph (B) of this paragraph.
(B) The data indicated in subparagraph (A) of this paragraph shall be accumulated according to the category of lender making the loan and shall be accumulated separately for lenders who are (i) eligible institutions, (ii) State or private, nonprofit direct lenders, (iii) commercial financial institutions who are banks, savings and loan associations, or credit unions, and (iv) all other types of institutions or agencies.
(C) The Secretary may designate such additional subcategories within the categories specified in subparagraph (B) of this paragraph as the Secretary deems appropriate.
(D) The category or designation of a loan shall not be changed for any reason, including its purchase or acquisition by a lender of another category.
(2) Collection and reporting requirements
(A) The Secretary shall collect data under this subsection from all insurers under this part and shall publish not less often than once every fiscal year a report showing loan volume guaranteed and default data for each category specified in subparagraph (B) of paragraph (1) of this subsection and for the total of all lenders.
(B) The reports specified in subparagraph (A) of this paragraph shall include a separate report for each insurer under this part including the Secretary, and where an insurer insures loans for lenders in more than one State, such insurer’s report shall list all data separately for each State.
(3) Institutional, public, or nonprofit lenders
(d) Delegation
(1) Regional offices
(2) Delegable functionsThe functions which may be delegated pursuant to this subsection are—
(A) reviewing applications for loan insurance under section 1079 of this title and issuing contracts for Federal loan insurance, certificates of insurance, and certificates of comprehensive insurance coverage to eligible lenders which are financial or credit institutions subject to examination and supervision by an agency of the United States or of any State;
(B) receiving claims for payments under section 1080(a) of this title, examining those claims, and pursuant to regulations of the Secretary, approving claims for payment, or requiring lenders to take additional collection action as a condition for payment of claims; and
(C) certifying to the central office when collection of defaulted loans has been completed, compromising or agreeing to the modification of any Federal claim against a borrower (pursuant to regulations of the Secretary issued under subsection (a)), and recommending litigation with respect to any such claim.
(e) Use of information on borrowers
(f) Audit of financial transactions
(1) Comptroller General and Inspector General authorityThe Comptroller General and the Inspector General of the Department of Education shall each have the authority to conduct an audit of the financial transactions of—
(A) any guaranty agency operating under an agreement with the Secretary pursuant to section 1078(b) of this title;
(B) any eligible lender as defined in section 1085(d)(1) of this title;
(C) a representative sample of eligible lenders under this part, upon the request of either of the authorizing committees, with respect to the payment of the special allowance under section 1087–1 of this title in order to evaluate the program authorized by this part.
(2) Access to records
(3) “Record” defined
(4) Audit procedures
(g) Civil penalties
(1) Authority to impose penaltiesUpon determination, after reasonable notice and opportunity for a hearing, that a lender or a guaranty agency—
(A) has violated or failed to carry out any provision of this part or any regulation prescribed under this part, or
(B) has engaged in substantial misrepresentation of the nature of its financial charges,
the Secretary may impose a civil penalty upon such lender or agency of not to exceed $25,000 for each violation, failure, or misrepresentation.
(2) LimitationsNo civil penalty may be imposed under paragraph (1) of this subsection unless the Secretary determines that—
(A) the violation, failure, or substantial misrepresentation referred to in that paragraph resulted from a violation, failure, or misrepresentation that is material; and
(B) the lender or guaranty agency knew or should have known that its actions violated or failed to carry out the provisions of this part or the regulations thereunder.
(3) Correction of failure
(4) Consideration as single violation
(5) Assignees not liable for violations by others
(6) Compromise
(h) Authority of the Secretary to impose and enforce limitations, suspensions, and terminations
(1) Imposition of sanctions
(A) If the Secretary, after a reasonable notice and opportunity for hearing to an eligible lender, finds that the eligible lender—
(i) has substantially failed—(I) to exercise reasonable care and diligence in the making and collecting of loans under the provisions of this part,(II) to make the reports or statements under section 1078(a)(4) of this title, or(III) to pay the required loan insurance premiums to any guaranty agency, or
(ii) has engaged in—(I) fraudulent or misleading advertising or in solicitations that have resulted in the making of loans insured or guaranteed under this part to borrowers who are ineligible; or(II) the practice of making loans that violate the certification for eligibility provided in section 1078 of this title,
the Secretary shall limit, suspend, or terminate that lender from participation in the insurance programs operated by guaranty agencies under this part.
(B) The Secretary shall not lift any such limitation, suspension, or termination until the Secretary is satisfied that the lender’s failure under subparagraph (A)(i) of this paragraph or practice under subparagraph (A)(ii) of this paragraph has ceased and finds that there are reasonable assurances that the lender will—
(i) exercise the necessary care and diligence,
(ii) comply with the requirements described in subparagraph (A)(i), or
(iii) cease to engage in the practices described in subparagraph (A)(ii),
as the case may be.
(2) Review of sanctions on lenders
(A) The Secretary shall review each limitation, suspension, or termination imposed by any guaranty agency pursuant to section 1078(b)(1)(U) of this title within 60 days after receipt by the Secretary of a notice from the guaranty agency of the imposition of such limitation, suspension, or termination, unless the right to such review is waived in writing by the lender. The Secretary shall uphold the imposition of such limitation, suspension, or termination in the student loan insurance program of each of the guaranty agencies under this part, and shall notify such guaranty agencies of such sanction—
(i) if such review is waived; or
(ii) if such review is not waived, unless the Secretary determines that the limitation, suspension, or termination was not imposed in accordance with requirements of such section.
(B) The Secretary’s review under this paragraph of the limitation, suspension, or termination imposed by a guaranty agency pursuant to section 1078(b)(1)(U) of this title shall be limited to—
(i) a review of the written record of the proceedings in which the guaranty agency imposed such sanctions; and
(ii) a determination as to whether the guaranty agency complied with section 1078(b)(1)(U) of this title and any notice and hearing requirements prescribed in regulations of the Secretary under this part.
(C) The Secretary shall not lift any such sanction until the Secretary is satisfied that the lender has corrected the failures which led to the limitation, suspension, or termination, and finds that there are reasonable assurances that the lender will, in the future, comply with the requirements of this part. The Secretary shall notify each guaranty agency of the lifting of any such sanction.
(3) Review of sanctions on eligible institutions
(A) The Secretary shall review each limitation, suspension, or termination imposed by any guaranty agency pursuant to section 1078(b)(1)(T) of this title within 60 days after receipt by the Secretary of a notice from the guaranty agency of the imposition of such limitation, suspension, or termination, unless the right to such review is waived in writing by the institution. The Secretary shall uphold the imposition of such limitation, suspension, or termination in the student loan insurance program of each of the guaranty agencies under this part, and shall notify such guaranty agencies of such sanctions—
(i) if such review is waived; or
(ii) if such review is not waived, unless the Secretary determines that the limitation, suspension, or termination was not imposed in accordance with requirements of such section.
(B) The Secretary’s review under this paragraph of the limitation, suspension, or termination imposed by a guaranty agency pursuant to section 1078(b)(1)(T) of this title shall be limited to—
(i) a review of the written record of the proceedings in which the guaranty agency imposed such sanctions; and
(ii) a determination as to whether the guaranty agency complied with section 1078(b)(1)(T) of this title and any notice and hearing requirements prescribed in regulations of the Secretary under this part.
(C) The Secretary shall not lift any such sanction until the Secretary is satisfied that the institution has corrected the failures which led to the limitation, suspension, or termination, and finds that there are reasonable assurances that the institution will, in the future, comply with the requirements of this part. The Secretary shall notify each guaranty agency of the lifting of any such sanction.
(i) Authority to sell defaulted loans
(j) Authority of Secretary to take emergency actions against lenders
(1) Imposition of sanctionsIf the Secretary—
(A) receives information, determined by the Secretary to be reliable, that a lender is violating any provision of this subchapter, any regulation prescribed under this subchapter, or any applicable special arrangement, agreement, or limitation;
(B) determines that immediate action is necessary to prevent misuse of Federal funds; and
(C) determines that the likelihood of loss outweighs the importance of following the limitation, suspension, or termination procedures authorized in subsection (h);
the Secretary shall, effective on the date on which a notice and statement of the basis of the action is mailed to the lender (by registered mail, return receipt requested), take emergency action to stop the issuance of guarantee commitments and the payment of interest benefits and special allowance to the lender.
(2) Length of emergency action
(3) Opportunity to show cause
(k) Program of assistance for borrowers
(1) In general
(2) Publication
(3) Recommendation
(l) Uniform administrative and claims procedures
(1) In generalThe Secretary shall, by regulation developed in consultation with guaranty agencies, lenders, institutions of higher education, secondary markets, students, third party servicers and other organizations involved in providing loans under this part, prescribe standardized forms and procedures regarding—
(A) origination of loans;
(B) electronic funds transfer;
(C) guaranty of loans;
(D) deferments;
(E) forbearance;
(F) servicing;
(G) claims filing;
(H) borrower status change and anticipated graduation date; and
(I) cures.
(2) Special rules
(A) The forms and procedures described in paragraph (1) shall include all aspects of the loan process as such process involves eligible lenders and guaranty agencies and shall be designed to minimize administrative costs and burdens (other than the costs and burdens involved in the transition to new forms and procedures) involved in exchanges of data to and from borrowers, schools, lenders, secondary markets, and the Department.
(B) Nothing in this paragraph shall be construed to limit the development of electronic forms and procedures.
(3) Simplification requirementsSuch regulations shall include—
(A) standardization of computer formats, forms design, and guaranty agency procedures relating to the origination, servicing, and collection of loans made under this part;
(B) authorization of alternate means of document retention, including the use of microfilm, microfiche, laser disc, compact disc, and other methods allowing the production of a facsimile of the original documents;
(C) authorization of the use of computer or similar electronic methods of maintaining records relating to the performance of servicing, collection, and other regulatory requirements under this chapter; and
(D) authorization and implementation of electronic data linkages for the exchange of information to and from lenders, guarantors, institutions of higher education, third party servicers, and the Department of Education for student status confirmation reports, claim filing, interest and special allowance billing, deferment processing, and all other administrative steps relating to loans made pursuant to this part where using electronic data linkage is feasible.
(4) Additional recommendations
(m) Common forms and formats
(1) Common guaranteed student loan application form and promissory note
(A) In general
(B) RequirementsThe forms prescribed by the Secretary shall—
(i) use clear, concise, and simple language to facilitate understanding of loan terms and conditions by applicants; and
(ii) be formatted to require the applicant to clearly indicate a choice of lender.
(C) Free application form
(D) Master promissory note
(i) In general
(ii) Consultation
(iii) Sale; assignment; enforceability
(E) Perfection of security interests in student loans
(i) In general
(ii) Collateral description
(iii) Sales
(2) Common deferment form
(3) Common reporting formats
(4) Electronic forms
(n) Default reduction management
(1) Authorization
(2) Allowable activities
(3) Plan for use requiredThe Secretary shall submit a plan, for inclusion in the materials accompanying the President’s budget each fiscal year, detailing the expenditure of funds authorized by this section to accomplish the 5 percent reduction in defaults. At the conclusion of the fiscal year, the Secretary shall report the Secretary’s findings and activities concerning the expenditure of funds and whether the performance measure was met. If the performance measure was not met, the Secretary shall report the following:
(A) why the goal was not met, including an indication of any managerial deficiencies or of any legal obstacles;
(B) plans and a schedule for achieving the established performance goal;
(C) recommended legislative or regulatory changes necessary to achieve the goal; and
(D) if the performance standard or goal is impractical or infeasible, why that is the case and what action is recommended, including whether the goal should be changed or the program altered or eliminated.
This report shall be submitted to the Appropriations Committees of the House of Representatives and the Senate and to the authorizing committees.
(o) Consequences of guaranty agency insolvency
(p) Reporting requirement
(Pub. L. 89–329, title IV, § 432, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1401; amended Pub. L. 100–50, § 10(x), (y), June 3, 1987, 101 Stat. 346; Pub. L. 101–239, title II, § 2006(a), Dec. 19, 1989, 103 Stat. 2118; Pub. L. 102–325, title IV, § 425, July 23, 1992, 106 Stat. 543; Pub. L. 103–208, § 2(k)(2), (3), Dec. 20, 1993, 107 Stat. 2485; Pub. L. 104–66, title I, § 1042(e), Dec. 21, 1995, 109 Stat. 716; Pub. L. 105–244, title IV, § 427, Oct. 7, 1998, 112 Stat. 1702; Pub. L. 106–554, § 1(a)(1) [title III, § 311], Dec. 21, 2000, 114 Stat. 2763, 2763A–46; Pub. L. 109–171, title VIII, § 8014(j), Feb. 8, 2006, 120 Stat. 171; Pub. L. 110–315, title I, § 103(b)(6), title IV, § 433, Aug. 14, 2008, 122 Stat. 3089, 3247; Pub. L. 111–39, title IV, § 402(f)(9), July 1, 2009, 123 Stat. 1944; Pub. L. 117–286, § 4(b)(39), Dec. 27, 2022, 136 Stat. 4347.)

CITE AS: 20 USC 1082

§ 1083. Student loan information by eligible lenders
(a) Required disclosure before disbursementEach eligible lender, at or prior to the time such lender disburses a loan that is insured or guaranteed under this part (other than a loan made under section 1078–3 of this title), shall provide thorough and accurate loan information on such loan to the borrower in simple and understandable terms. Any disclosure required by this subsection may be made by an eligible lender by written or electronic means, including as part of the application material provided to the borrower, as part of the promissory note evidencing the loan, or on a separate written form provided to the borrower. Each lender shall provide to each borrower a telephone number, and may provide an electronic address, through which additional loan information can be obtained. The disclosure shall include—
(1) a statement prominently and clearly displayed and in bold print that the borrower is receiving a loan that must be repaid;
(2) the name of the eligible lender, and the address to which communications and payments should be sent;
(3) the principal amount of the loan;
(4) the amount of any charges, such as the origination fee and Federal default fee, and whether those fees will be—
(A) collected by the lender at or prior to the disbursal of the loan;
(B) deducted from the proceeds of the loan;
(C) paid separately by the borrower; or
(D) paid by the lender;
(5) the stated interest rate on the loan;
(6) for loans made under section 1078–8 of this title or to a student borrower under section 1078–2 of this title, an explanation—
(A) that the borrower has the option to pay the interest that accrues on the loan while the borrower is a student at an institution of higher education; and
(B) if the borrower does not pay such interest while attending an institution, when and how often interest on the loan will be capitalized;
(7) for loans made to a parent borrower on behalf of a student under section 1078–2 of this title, an explanation—
(A) that the parent has the option to defer payment on the loan while the student is enrolled on at least a half-time basis in an institution of higher education;
(B) if the parent does not pay the interest on the loan while the student is enrolled in an institution, when and how often interest on the loan will be capitalized; and
(C) that the parent may be eligible for a deferment on the loan if the parent is enrolled on at least a half-time basis in an institution of higher education;
(8) the yearly and cumulative maximum amounts that may be borrowed;
(9) a statement of the total cumulative balance, including the loan being disbursed, owed by the borrower to that lender, and an estimate of the projected monthly payment, given such cumulative balance;
(10) an explanation of when repayment of the loan will be required and when the borrower will be obligated to pay interest that accrues on the loan;
(11) a description of the types of repayment plans that are available for the loan;
(12) a statement as to the minimum and maximum repayment terms which the lender may impose, and the minimum annual payment required by law;
(13) an explanation of any special options the borrower may have for loan consolidation or other refinancing of the loan;
(14) a statement that the borrower has the right to prepay all or part of the loan, at any time, without penalty;
(15) a statement summarizing circumstances in which repayment of the loan or interest that accrues on the loan may be deferred;
(16) a statement summarizing the circumstances in which a borrower may obtain forbearance on the loan;
(17) a description of the options available for forgiveness of the loan, and the requirements to obtain loan forgiveness;
(18) a definition of default and the consequences to the borrower if the borrower defaults, including a statement that the default will be reported to a consumer reporting agency; and
(19) an explanation of any cost the borrower may incur during repayment or in the collection of the loan, including fees that the borrower may be charged, such as late payment fees and collection costs.
(b) Required disclosure before repaymentEach eligible lender shall, at or prior to the start of the repayment period on a loan made, insured, or guaranteed under section 1078, 1078–2, or 1078–8 of this title, disclose to the borrower by written or electronic means the information required under this subsection in simple and understandable terms. Each eligible lender shall provide to each borrower a telephone number, and may provide an electronic address, through which additional loan information can be obtained. The disclosure required by this subsection shall be made not less than 30 days nor more than 150 days before the first payment on the loan is due from the borrower. The disclosure shall include—
(1) the name of the eligible lender or loan servicer, and the address to which communications and payments should be sent;
(2) the scheduled date upon which the repayment period is to begin or the deferment period under section 1078–2(d)(1) of this title is to end, as applicable;
(3) the estimated balance owed by the borrower on the loan or loans covered by the disclosure (including, if applicable, the estimated amount of interest to be capitalized) as of the scheduled date on which the repayment period is to begin or the deferment period under 1078–2(d)(1) of this title is to end, as applicable;
(4) the stated interest rate on the loan or loans, or the combined interest rate of loans with different stated interest rates;
(5) information on loan repayment benefits offered for the loan or loans, including—
(A) whether the lender offers any benefits that are contingent on the repayment behavior of the borrower, such as—
(i) a reduction in interest rate if the borrower repays the loan by automatic payroll or checking account deduction;
(ii) a reduction in interest rate if the borrower makes a specified number of on-time payments; and
(iii) other loan repayment benefits for which the borrower could be eligible that would reduce the amount of repayment or the length of the repayment period;
(B) if the lender provides a loan repayment benefit—
(i) any limitations on such benefit;
(ii) explicit information on the reasons a borrower may lose eligibility for such benefit;
(iii) for a loan repayment benefit that reduces the borrower’s interest rate—(I) examples of the impact the interest rate reduction would have on the length of the borrower’s repayment period and the amount of repayment; and(II) upon the request of the borrower, the effect the reduction in interest rate would have with respect to the borrower’s payoff amount and time for repayment; and
(iv) whether and how the borrower can regain eligibility for a benefit if a borrower loses a benefit;
(6) a description of all the repayment plans that are available to the borrower and a statement that the borrower may change from one plan to another during the period of repayment;
(7) the repayment schedule for all loans covered by the disclosure, including—
(A) the date the first installment is due; and
(B) the number, amount, and frequency of required payments, which shall be based on a standard repayment plan or, in the case of a borrower who has selected another repayment plan, on the repayment plan selected by the borrower;
(8) an explanation of any special options the borrower may have for loan consolidation or other refinancing of the loan and of the availability and terms of such other options;
(9) except as provided in subsection (d)—
(A) the projected total of interest charges which the borrower will pay on the loan or loans, assuming that the borrower makes payments exactly in accordance with the repayment schedule; and
(B) if the borrower has already paid interest on the loan or loans, the amount of interest paid;
(10) the nature of any fees which may accrue or be charged to the borrower during the repayment period;
(11) a statement that the borrower has the right to prepay all or part of the loan or loans covered by the disclosure at any time without penalty;
(12) a description of the options by which the borrower may avoid or be removed from default, including any relevant fees associated with such options; and
(13) additional resources, including nonprofit organizations, advocates, and counselors (including the Student Loan Ombudsman of the Department) of which the lender is aware, where borrowers may receive advice and assistance on loan repayment.
(c) Separate notification
(d) Special disclosure rules on PLUS loans, and unsubsidized loansLoans made under sections 1078–2 and 1078–8 of this title shall not be subject to the disclosure of projected monthly payment amounts required under subsection (b)(7) if the lender, in lieu of such disclosure, provides the borrower with sample projections of monthly repayment amounts, assuming different levels of borrowing and interest accruals resulting from capitalization of interest while the borrower, or the student on whose behalf the loan is made, is in school, in simple and understandable terms. Such sample projections shall disclose the cost to the borrower of—
(1) capitalizing the interest; and
(2) paying the interest as the interest accrues.
(e) Required disclosures during repayment
(1) Pertinent information about a loan provided on a periodic basisEach eligible lender shall provide the borrower of a loan made, insured, or guaranteed under this part with a bill or statement (as applicable) that corresponds to each payment installment time period in which a payment is due and that includes, in simple and understandable terms—
(A) the original principal amount of the borrower’s loan;
(B) the borrower’s current balance, as of the time of the bill or statement, as applicable;
(C) the interest rate on such loan;
(D) the total amount the borrower has paid in interest on the loan;
(E) the aggregate amount the borrower has paid for the loan, including the amount the borrower has paid in interest, the amount the borrower has paid in fees, and the amount the borrower has paid against the balance;
(F) a description of each fee the borrower has been charged for the most recently preceding installment time period;
(G) the date by which the borrower needs to make a payment in order to avoid additional fees and the amount of such payment and the amount of such fees;
(H) the lender’s or loan servicer’s address and toll-free phone number for payment and billing error purposes; and
(I) a reminder that the borrower has the option to change repayment plans, a list of the names of the repayment plans available to the borrower, a link to the appropriate page of the Department’s website to obtain a more detailed description of the repayment plans, and directions for the borrower to request a change in repayment plan.
(2) Information provided to a borrower having difficulty making paymentsEach eligible lender shall provide to a borrower who has notified the lender that the borrower is having difficulty making payments on a loan made, insured, or guaranteed under this part with the following information in simple and understandable terms:
(A) A description of the repayment plans available to the borrower, including how the borrower should request a change in repayment plan.
(B) A description of the requirements for obtaining forbearance on a loan, including expected costs associated with forbearance.
(C) A description of the options available to the borrower to avoid defaulting on the loan, and any relevant fees or costs associated with such options.
(3) Required disclosures during delinquencyEach eligible lender shall provide to a borrower who is 60 days delinquent in making payments on a loan made, insured, or guaranteed under this part with a notice, in simple and understandable terms, of the following:
(A) The date on which the loan will default if no payment is made.
(B) The minimum payment the borrower must make to avoid default.
(C) A description of the options available to the borrower to avoid default, and any relevant fees or costs associated with such options, including a description of deferment and forbearance and the requirements to obtain each.
(D) Discharge options to which the borrower may be entitled.
(E) Additional resources, including nonprofit organizations, advocates, and counselors (including the Student Loan Ombudsman of the Department), of which the lender is aware, where the borrower can receive advice and assistance on loan repayment.
(f) Cost of disclosure and consequences of nondisclosure
(1) No cost to borrowers
(2) Consequences of nondisclosureThe failure of an eligible lender to provide information as required by this section shall not—
(A) relieve a borrower of the obligation to repay a loan in accordance with the loan’s terms; or
(B) provide a basis for a claim for civil damages.
(3) Rule of construction
(4) Actions by the Secretary
(Pub. L. 89–329, title IV, § 433, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1406; amended Pub. L. 100–50, § 10(z), June 3, 1987, 101 Stat. 346; Pub. L. 102–325, title IV, § 426, July 23, 1992, 106 Stat. 548; Pub. L. 103–208, § 2(c)(53), (54), (k)(4), Dec. 20, 1993, 107 Stat. 2468, 2485; Pub. L. 105–244, title IV, § 428, Oct. 7, 1998, 112 Stat. 1704; Pub. L. 110–315, title IV, § 434(a), Aug. 14, 2008, 122 Stat. 3247.)

CITE AS: 20 USC 1083

§ 1083a. Consumer education information
(a) In general
(b) Rule of construction
Nothing in this section shall be construed to prohibit—
(1) a guaranty agency from using existing activities, programs, and materials in meeting the requirements of this section;
(2) a guaranty agency from providing programs or materials similar to the programs or materials described in subsection (a) to an institution of higher education that provides loans exclusively through part D; or
(3) a lender or loan servicer from providing outreach or financial aid literacy information in accordance with subsection (a).
(Pub. L. 89–329, title IV, § 433A, as added Pub. L. 110–315, title IV, § 435, Aug. 14, 2008, 122 Stat. 3252.)

CITE AS: 20 USC 1083a

§ 1084. Participation by Federal credit unions in Federal, State, and private student loan insurance programs

Notwithstanding any other provision of law, Federal credit unions shall, pursuant to regulations of the National Credit Union Administration, have power to make insured loans to student members in accordance with the provisions of this part relating to federally insured loans, or in accordance with the provisions of any State or nonprofit private student loan insurance program which meets the requirements of section 1078(a)(1)(B) of this title.

(Pub. L. 89–329, title IV, § 434, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1408.)

CITE AS: 20 USC 1084

§ 1085. Definitions for student loan insurance programAs used in this part:
(a) Eligible institution
(1) In general
(2) Ineligibility based on high default rates
(A) An institution whose cohort default rate is equal to or greater than the threshold percentage specified in subparagraph (B) for each of the three most recent fiscal years for which data are available shall not be eligible to participate in a program under this part for the fiscal year for which the determination is made and for the two succeeding fiscal years, unless, within 30 days of receiving notification from the Secretary of the loss of eligibility under this paragraph, the institution appeals the loss of its eligibility to the Secretary. The Secretary shall issue a decision on any such appeal within 45 days after its submission. Such decision may permit the institution to continue to participate in a program under this part if—
(i) the institution demonstrates to the satisfaction of the Secretary that the Secretary’s calculation of its cohort default rate is not accurate, and that recalculation would reduce its cohort default rate for any of the three fiscal years below the threshold percentage specified in subparagraph (B);
(ii) there are exceptional mitigating circumstances within the meaning of paragraph (5); or
(iii) there are, in the judgment of the Secretary, other exceptional mitigating circumstances that would make the application of this paragraph inequitable.
During such appeal, the Secretary may permit the institution to continue to participate in a program under this part. If an institution continues to participate in a program under this part, and the institution’s appeal of the loss of eligibility is unsuccessful, the institution shall be required to pay to the Secretary an amount equal to the amount of interest, special allowance, reinsurance, and any related payments made by the Secretary (or which the Secretary is obligated to make) with respect to loans made under this part to students attending, or planning to attend, that institution during the pendency of such appeal.
(B) For purposes of determinations under subparagraph (A), the threshold percentage is—
(i) 35 percent for fiscal year 1991 and 1992;
(ii) 30 percent for fiscal year 1993;
(iii) 25 percent for fiscal year 1994 through fiscal year 2011; and
(iv) 30 percent for fiscal year 2012 and any succeeding fiscal year.
(C) Until July 1, 1999, this paragraph shall not apply to any institution that is—
(i) a part B institution within the meaning of section 1061(2) of this title;
(ii) a tribally controlled college or university, as defined in section 1801(a)(4) of title 25; or
(iii) a Navajo Community College under the Navajo Community College Act.
(D) Notwithstanding the first sentence of subparagraph (A), the Secretary shall restore the eligibility to participate in a program under subpart 1 of part A, part B, or part E of an institution that did not appeal its loss of eligibility within 30 days of receiving notification if the Secretary determines, on a case-by-case basis, that the institution’s failure to appeal was substantially justified under the circumstances, and that—
(i) the institution made a timely request that the appropriate guaranty agency correct errors in the draft data used to calculate the institution’s cohort default rate;
(ii) the guaranty agency did not correct the erroneous data in a timely fashion; and
(iii) the institution would have been eligible if the erroneous data had been corrected by the guaranty agency.
(3) Appeals for regulatory relief
(4) Appeals based upon allegations of improper loan servicingAn institution that—
(A) is subject to loss of eligibility for the Federal Family Education Loan Program pursuant to paragraph (2)(A) of this subsection;
(B) is subject to loss of eligibility for the Federal Supplemental Loans for Students pursuant to section 1078–1(a)(2) 1
1 See References in Text note below.
of this title; or
(C) is an institution whose cohort default rate equals or exceeds 20 percent for the most recent year for which data are available;
may include in its appeal of such loss or rate a defense based on improper loan servicing (in addition to other defenses). In any such appeal, the Secretary shall take whatever steps are necessary to ensure that such institution has access for a reasonable period of time, not to exceed 30 days, to a representative sample (as determined by the Secretary) of the relevant loan servicing and collection records used by a guaranty agency in determining whether to pay a claim on a defaulted loan or by the Department in determining an institution’s default rate in the loan program under part D of this subchapter. The Secretary shall reduce the institution’s cohort default rate to reflect the percentage of defaulted loans in the representative sample that are required to be excluded pursuant to subsection (m)(1)(B).
(5) Definition of mitigating circumstances
(A) For purposes of this subsection, an institution of higher education shall be treated as having exceptional mitigating circumstances that make application of paragraph (2) inequitable, and that provide for regulatory relief under paragraph (3), if such institution, in the opinion of an independent auditor, meets the following criteria:
(i) For a 12-month period that ended during the 6 months immediately preceding the fiscal year for which the cohort of borrowers used to calculate the institution’s cohort default rate is determined, at least two-thirds of the students enrolled on at least a half-time basis at the institution—(I) are eligible to receive a Federal Pell Grant award that is at least equal to one-half the Federal Pell Grant amount, determined under section 1070a(b)(2)(A) of this title, for which a student would be eligible based on the student’s enrollment status; or(II) have an adjusted gross income that when added with the adjusted gross income of the student’s parents (unless the student is an independent student), of less than the poverty level, as determined by the Department of Health and Human Services.
(ii) In the case of an institution of higher education that offers an associate, baccalaureate, graduate or professional degree, 70 percent or more of the institution’s regular students who were initially enrolled on a full-time basis and were scheduled to complete their programs during the same 12-month period described in clause (i)—(I) completed the educational programs in which the students were enrolled;(II) transferred from the institution to a higher level educational program;(III) at the end of the 12-month period, remained enrolled and making satisfactory progress toward completion of the student’s educational programs; or(IV) entered active duty in the Armed Forces of the United States.
(iii)(I) In the case of an institution of higher education that does not award a degree described in clause (ii), had a placement rate of 44 percent or more with respect to the institution’s former regular students who—(aa) remained in the program beyond the point the students would have received a 100 percent tuition refund from the institution;(bb) were initially enrolled on at least a half-time basis; and(cc) were originally scheduled, at the time of enrollment, to complete their educational programs during the same 12-month period described in clause (i).(II) The placement rate shall not include students who are still enrolled and making satisfactory progress in the educational programs in which the students were originally enrolled on the date following 12 months after the date of the student’s last date of attendance at the institution.(III) The placement rate is calculated by determining the percentage of all those former regular students who—(aa) are employed, in an occupation for which the institution provided training, on the date following 12 months after the date of their last day of attendance at the institution;(bb) were employed, in an occupation for which the institution provided training, for at least 13 weeks before the date following 12 months after the date of their last day of attendance at the institution; or(cc) entered active duty in the Armed Forces of the United States.(IV) The placement rate shall not include as placements a student or former student for whom the institution is the employer.
(B) For purposes of determining a rate of completion and a placement rate under this paragraph, a student is originally scheduled, at the time of enrollment, to complete the educational program on the date when the student will have been enrolled in the program for the amount of time normally required to complete the program. The amount of time normally required to complete the program for a student who is initially enrolled full-time is the period of time specified in the institution’s enrollment contract, catalog, or other materials, for completion of the program by a full-time student. For a student who is initially enrolled less than full-time, the period is the amount of time it would take the student to complete the program if the student remained enrolled at that level of enrollment throughout the program.
(6) Reduction of default rates at certain minority institutions
(A) Beneficiaries of exception required to establish management planAfter July 1, 1999, any institution that has a cohort default rate that equals or exceeds 25 percent for each of the three most recent fiscal years for which data are available and that relies on the exception in subparagraph (B) to continue to be an eligible institution shall—
(i) submit to the Secretary a default management plan which the Secretary, in the Secretary’s discretion, after consideration of the institution’s history, resources, dollars in default, and targets for default reduction, determines is acceptable and provides reasonable assurance that the institution will, by July 1, 2004, have a cohort default rate that is less than 25 percent;
(ii) engage an independent third party (which may be paid with funds received under section 1059d of this title or part B of subchapter III) to provide technical assistance in implementing such default management plan; and
(iii) provide to the Secretary, on an annual basis or at such other intervals as the Secretary may require, evidence of cohort default rate improvement and successful implementation of such default management plan.
(B) Discretionary eligibility conditioned on improvementNotwithstanding the expiration of the exception in paragraph (2)(C), the Secretary may, in the Secretary’s discretion, continue to treat an institution described in subparagraph (A) of this paragraph as an eligible institution for each of the 1-year periods beginning on July 1 of 1999 through 2003, only if the institution submits by the beginning of such period evidence satisfactory to the Secretary that—
(i) such institution has complied and is continuing to comply with the requirements of subparagraph (A); and
(ii) such institution has made substantial improvement, during each of the preceding 1-year periods, in the institution’s cohort default rate.
(7) Default prevention and assessment of eligibility based on high default rates
(A) First year
(i) In generalAn institution whose cohort default rate is equal to or greater than the threshold percentage specified in paragraph (2)(B)(iv) in any fiscal year shall establish a default prevention task force to prepare a plan to—(I) identify the factors causing the institution’s cohort default rate to exceed such threshold;(II) establish measurable objectives and the steps to be taken to improve the institution’s cohort default rate; and(III) specify actions that the institution can take to improve student loan repayment, including appropriate counseling regarding loan repayment options.
(ii) Technical assistance
(B) Second consecutive year
(i) In general
(ii) Review by the Secretary
(8) Participation rate index
(A) In general
(B) Data
(C) Notification
(b), (c) Repealed. Pub. L. 102–325, title IV, § 427(b)(1), (c), July 23, 1992, 106 Stat. 549
(d) Eligible lender
(1) In general
(A) a National or State chartered bank, a mutual savings bank, a savings and loan association, a stock savings bank, or a credit union which—
(i) is subject to examination and supervision by an agency of the United States or of the State in which its principal place of operation is established, and
(ii) does not have as its primary consumer credit function the making or holding of loans made to students under this part unless (I) it is a bank which is wholly owned by a State, or a bank which is subject to examination and supervision by an agency of the United States, makes student loans as a trustee pursuant to an express trust, operated as a lender under this part prior to January 1, 1975, and which meets the requirements of this provision prior to July 23, 1992, (II) it is a single wholly owned subsidiary of a bank holding company which does not have as its primary consumer credit function the making or holding of loans made to students under this part, (III) it is a bank (as defined in section 1813(a)(1) of title 12) that is a wholly owned subsidiary of a nonprofit foundation, the foundation is described in section 501(c)(3) of title 26 and exempt from taxation under section 501(a) of such title, and the bank makes loans under this part only to undergraduate students who are age 22 or younger and has a portfolio of such loans that is not more than $5,000,000, or (IV) it is a National or State chartered bank, or a credit union, with assets of less than $1,000,000,000;
(B) a pension fund as defined in the Employee Retirement Income Security Act [29 U.S.C. 1001 et seq.];
(C) an insurance company which is subject to examination and supervision by an agency of the United States or a State;
(D) in any State, a single agency of the State or a single nonprofit private agency designated by the State;
(E) an eligible institution which meets the requirements of paragraphs (2) through (5) of this subsection;
(F) for purposes only of purchasing and holding loans made by other lenders under this part, the Student Loan Marketing Association or the Holding Company of the Student Loan Marketing Association, including any subsidiary of the Holding Company, created pursuant to section 1087–3 of this title, or an agency of any State functioning as a secondary market;
(G) for purposes of making loans under sections 1078–2(d) and 1078–3 of this title, the Student Loan Marketing Association or the Holding Company of the Student Loan Marketing Association, including any subsidiary of the Holding Company, created pursuant to section 1087–3 of this title;
(H) for purposes of making loans under sections 1078(h) 1 and 1078(j) of this title, a guaranty agency;
(I) a Rural Rehabilitation Corporation, or its successor agency, which has received Federal funds under Public Law 499, Eighty-first Congress (64 Stat. 98 (1950));
(J) for purpose of making loans under section 1078–3 of this title, any nonprofit private agency functioning in any State as a secondary market; and
(K) a consumer finance company subsidiary of a national bank which, as of October 7, 1998, through one or more subsidiaries: (i) acts as a small business lending company, as determined under regulations of the Small Business Administration under section 120.470 of title 13, Code of Federal Regulations (as such section is in effect on October 7, 1998); and (ii) participates in the program authorized by this part pursuant to subparagraph (C), provided the national bank and all of the bank’s direct and indirect subsidiaries taken together as a whole, do not have, as their primary consumer credit function, the making or holding of loans made to students under this part.
(2) Requirements for eligible institutions
(A) In generalTo be an eligible lender under this part, an eligible institution—
(i) shall employ at least one person whose full-time responsibilities are limited to the administration of programs of financial aid for students attending such institution;
(ii) shall not be a home study school;
(iii) shall not—(I) make a loan to any undergraduate student;(II) make a loan other than a loan under section 1078 or 1078–8 of this title to a graduate or professional student; or(III) make a loan to a borrower who is not enrolled at that institution;
(iv) shall award any contract for financing, servicing, or administration of loans under this subchapter on a competitive basis;
(v) shall offer loans that carry an origination fee or an interest rate, or both, that are less than such fee or rate authorized under the provisions of this subchapter;
(vi) shall not have a cohort default rate (as defined in subsection (m)) greater than 10 percent;
(vii) shall, for any year for which the institution engages in activities as an eligible lender, provide for a compliance audit conducted in accordance with section 1078(b)(1)(U)(iii)(I) of this title, and the regulations thereunder, and submit the results of such audit to the Secretary;
(viii) shall use any proceeds from special allowance payments and interest payments from borrowers, interest subsidies received from the Department of Education, and any proceeds from the sale or other disposition of loans, for need-based grant programs; and
(ix) shall have met the requirements of subparagraphs (A) through (F) of this paragraph as in effect on the day before February 8, 2006, and made loans under this part, on or before April 1, 2006.
(B) Administrative expenses
(C) Supplement, not supplant
(3) Disqualification for high default rates
(4) Waiver of disqualificationWhenever the Secretary determines that—
(A) there is reasonable possibility that an eligible institution may, within 1 year after a determination is made under paragraph (3), improve the collection of loans described in section 1078(a)(1) of this title, so that the application of paragraph (3) would be a hardship to that institution, or
(B) the termination of the lender’s status under paragraph (3) would be a hardship to the present or for prospective students of the eligible institution, after considering the management of that institution, the ability of that institution to improve the collection of loans, the opportunities that institution offers to economically disadvantaged students, and other related factors,
the Secretary shall waive the provisions of paragraph (3) with respect to that institution. Any determination required under this paragraph shall be made by the Secretary prior to the termination of an eligible institution as a lender under the exception of paragraph (3). Whenever the Secretary grants a waiver pursuant to this paragraph, the Secretary shall provide technical assistance to the institution concerned in order to improve the collection rate of such loans.
(5) Disqualification for use of certain incentivesThe term “eligible lender” does not include any lender that the Secretary determines, after notice and opportunity for a hearing, has—
(A) offered, directly or indirectly, points, premiums, payments (including payments for referrals and for processing or finder fees), prizes, stock or other securities, travel, entertainment expenses, tuition payment or reimbursement, the provision of information technology equipment at below-market value, additional financial aid funds, or other inducements, to any institution of higher education, any employee of an institution of higher education, or any individual or entity in order to secure applicants for loans under this part;
(B) conducted unsolicited mailings, by postal or electronic means, of student loan application forms to students enrolled in secondary schools or postsecondary institutions, or to family members of such students, except that applications may be mailed, by postal or electronic means, to students or borrowers who have previously received loans under this part from such lender;
(C) entered into any type of consulting arrangement, or other contract to provide services to a lender, with an employee who is employed in the financial aid office of an institution of higher education, or who otherwise has responsibilities with respect to student loans or other financial aid of the institution;
(D) compensated an employee who is employed in the financial aid office of an institution of higher education, or who otherwise has responsibilities with respect to student loans or other financial aid of the institution, and who is serving on an advisory board, commission, or group established by a lender or group of lenders for providing such service, except that the eligible lender may reimburse such employee for reasonable expenses incurred in providing such service;
(E) performed for an institution of higher education any function that such institution of higher education is required to perform under this title, except that a lender shall be permitted to perform functions on behalf of such institution in accordance with section 1092(b) or 1092(l) of this title;
(F) paid, on behalf of an institution of higher education, another person to perform any function that such institution of higher education is required to perform under this subchapter, except that a lender shall be permitted to perform functions on behalf of such institution in accordance with section 1092(b) or 1092(l) of this title;
(G) provided payments or other benefits to a student at an institution of higher education to act as the lender’s representative to secure applications under this subchapter from individual prospective borrowers, unless such student—
(i) is also employed by the lender for other purposes; and
(ii) made all appropriate disclosures regarding such employment;
(H) offered, directly or indirectly, loans under this part as an inducement to a prospective borrower to purchase a policy of insurance or other product; or
(I) engaged in fraudulent or misleading advertising.
It shall not be a violation of this paragraph for a lender to provide technical assistance to institutions of higher education comparable to the kinds of technical assistance provided to institutions of higher education by the Department.
(6) Rebate fee requirement
(7) Eligible lender trusteesNotwithstanding any other provision of this subsection, an eligible lender may not make or hold a loan under this part as trustee for an institution of higher education, or for an organization affiliated with an institution of higher education, unless—
(A) the eligible lender is serving as trustee for that institution or organization as of September 30, 2006, under a contract that was originally entered into before September 30, 2006, and that continues in effect or is renewed after September 30, 2006; and
(B) the institution or organization, and the eligible lender, with respect to its duties as trustee, each comply on and after January 1, 2007, with the requirements of paragraph (2), except that—
(i) the requirements of clauses (i), (ii), (vi), and (viii) of paragraph (2)(A) shall, subject to clause (ii) of this subparagraph, only apply to the institution (including both an institution for which the lender serves as trustee and an institution affiliated with an organization for which the lender serves as trustee);
(ii) in the case of an organization affiliated with an institution—(I) the requirements of clauses (iii) and (v) of paragraph (2)(A) shall apply to the organization; and(II) the requirements of clause (viii) of paragraph (2)(A) shall apply to the institution or the organization (or both), if the institution or organization receives (directly or indirectly) the proceeds described in such clause;
(iii) the requirements of clauses (iv) and (ix) of paragraph (2)(A) shall not apply to the eligible lender, institution, or organization; and
(iv) the eligible lender, institution, and organization shall ensure that the loans made or held by the eligible lender as trustee for the institution or organization, as the case may be, are included in a compliance audit in accordance with clause (vii) of paragraph (2)(A).
(8) School as lender program auditEach institution serving as an eligible lender under paragraph (1)(E), and each eligible lender serving as a trustee for an institution of higher education or an organization affiliated with an institution of higher education, shall annually complete and submit to the Secretary a compliance audit to determine whether—
(A) the institution or lender is using all proceeds from special allowance payments and interest payments from borrowers, interest subsidies received from the Department, and any proceeds from the sale or other disposition of loans, for need-based grant programs, in accordance with paragraph (2)(A)(viii);
(B) the institution or lender is using not more than a reasonable portion of the proceeds described in paragraph (2)(A)(viii) for direct administrative expenses; and
(C) the institution or lender is ensuring that the proceeds described in paragraph (2)(A)(viii) are being used to supplement, and not to supplant, Federal and non-Federal funds that would otherwise be used for need-based grant programs.
(e) Line of credit
(f) Due diligence
(g), (h) Repealed. Pub. L. 102–325, title IV, § 427(f), July 23, 1992, 106 Stat. 550
(i) Holder
(j) Guaranty agency
(k) Insurance beneficiary
(l) Default
(m) Cohort default rate
(1) In general
(A) Except as provided in paragraph (2), the term “cohort default rate” means, for any fiscal year in which 30 or more current and former students at the institution enter repayment on loans under section 1078, 1078–1,1 or 1078–8 of this title received for attendance at the institution, the percentage of those current and former students who enter repayment on such loans (or on the portion of a loan made under section 1078–3 of this title that is used to repay any such loans) received for attendance at that institution in that fiscal year who default before the end of the second fiscal year following the fiscal year in which the students entered repayment. The Secretary shall require that each guaranty agency that has insured loans for current or former students of the institution afford such institution a reasonable opportunity (as specified by the Secretary) to review and correct errors in the information required to be provided to the Secretary by the guaranty agency for the purposes of calculating a cohort default rate for such institution, prior to the calculation of such rate.
(B) In determining the number of students who default before the end of such second fiscal year, the Secretary shall include only loans for which the Secretary or a guaranty agency has paid claims for insurance. In considering appeals with respect to cohort default rates pursuant to subsection (a)(3), the Secretary shall exclude, from the calculation of the number of students who entered repayment and from the calculation of the number of students who default, any loans which, due to improper servicing or collection, would, as demonstrated by the evidence submitted in support of the institution’s timely appeal to the Secretary, result in an inaccurate or incomplete calculation of such cohort default rate.
(C) For any fiscal year in which fewer than 30 of the institution’s current and former students enter repayment, the term “cohort default rate” means the percentage of such current and former students who entered repayment on such loans (or on the portion of a loan made under section 1078–3 of this title that is used to repay any such loans) in any of the three most recent fiscal years, who default before the end of the second fiscal year following the year in which they entered repayment.
(2) Special rules
(A) In the case of a student who has attended and borrowed at more than one school, the student (and such student’s subsequent repayment or default) is attributed to each school for attendance at which the student received a loan that entered repayment in the fiscal year.
(B) A loan on which a payment is made by the school, such school’s owner, agent, contractor, employee, or any other entity or individual affiliated with such school, in order to avoid default by the borrower, is considered as in default for purposes of this subsection.
(C) Any loan which has been rehabilitated before the end of the second fiscal year following the year in which the loan entered repayment is not considered as in default for purposes of this subsection. The Secretary may require guaranty agencies to collect data with respect to defaulted loans in a manner that will permit the identification of any defaulted loan for which (i) the borrower is currently making payments and has made not less than 6 consecutive on-time payments by the end of such second fiscal year, and (ii) a guaranty agency has renewed the borrower’s subchapter IV eligibility as provided in section 1078–6(b) of this title.
(D) For the purposes of this subsection, a loan made in accordance with section 1078–1 1 of this title (or the portion of a loan made under section 1078–3 of this title that is used to repay a loan made under section 1078–1 1 of this title) shall not be considered to enter repayment until after the borrower has ceased to be enrolled in a course of study leading to a degree or certificate at an eligible institution on at least a half-time basis (as determined by the institution) and ceased to be in a period of forbearance based on such enrollment. Each eligible lender of a loan made under section 1078–1 1 of this title (or a loan made under section 1078–3 of this title a portion of which is used to repay a loan made under section 1078–1 1 of this title) shall provide the guaranty agency with the information necessary to determine when the loan entered repayment for purposes of this subsection, and the guaranty agency shall provide such information to the Secretary.
(3) Regulations to prevent evasions
(4) Collection and reporting of cohort default rates and life of cohort default rates
(A) The Secretary shall publish not less often than once every fiscal year a report showing cohort default data and life of cohort default rates for each category of institution, including: (i) four-year public institutions; (ii) four-year private nonprofit institutions; (iii) two-year public institutions; (iv) two-year private nonprofit institutions; (v) four-year proprietary institutions; (vi) two-year proprietary institutions; and (vii) less than two-year proprietary institutions. For purposes of this subparagraph, for any fiscal year in which one or more current and former students at an institution enter repayment on loans under section 1078, 1078–2, or 1078–8 of this title, received for attendance at the institution, the Secretary shall publish the percentage of those current and former students who enter repayment on such loans (or on the portion of a loan made under section 1078–3 of this title that is used to repay any such loans) received for attendance at the institution in that fiscal year who default before the end of each succeeding fiscal year.
(B) The Secretary may designate such additional subcategories within the categories specified in subparagraph (A) as the Secretary deems appropriate.
(C) The Secretary shall publish not less often than once every fiscal year a report showing default data for each institution for which a cohort default rate is calculated under this subsection.
(D) The Secretary shall publish the report described in subparagraph (C) by September 30 of each year.
(n) Repealed. Pub. L. 102–325, title IV, § 427(f), July 23, 1992, 106 Stat. 550
(o) Economic hardship
(1) In generalFor purposes of this part and part E, a borrower shall be considered to have an economic hardship if—
(A) such borrower is working full-time and is earning an amount which does not exceed the greater of—
(i) the minimum wage rate described in section 206 of title 29; or
(ii) an amount equal to 150 percent of the poverty line applicable to the borrower’s family size as determined in accordance with section 9902(2) of title 42; or
(B) such borrower meets such other criteria as are established by the Secretary by regulation in accordance with paragraph (2).
(2) Considerations
(p) Eligible not-for-profit holder
(1) DefinitionSubject to the limitations in paragraph (2) and the prohibition in paragraph (3), the term “eligible not-for-profit holder” means an eligible lender under subsection (d) (except for an eligible lender described in subsection (d)(1)(E)) that requests a special allowance payment under section 1087–1(b)(2)(I)(vi)(II) of this title or a payment under section 1141 of this title and that is—
(A) a State, or a political subdivision, authority, agency, or other instrumentality thereof, including such entities that are eligible to issue bonds described in section 1.103–1 of title 26, Code of Federal Regulations, or section 144(b) of title 26;
(B) an entity described in section 150(d)(2) of such title that has not made the election described in section 150(d)(3) of such title;
(C) an entity described in section 501(c)(3) of such title; or
(D) acting as a trustee on behalf of a State, political subdivision, authority, agency, instrumentality, or other entity described in subparagraph (A), (B), or (C), regardless of whether such State, political subdivision, authority, agency, instrumentality, or other entity is an eligible lender under subsection (d).
(2) Limitations
(A) Existing on September 27, 2007
(i) In generalAn eligible lender shall not be an eligible not-for-profit holder under this chapter unless such lender—(I) was a State, political subdivision, authority, agency, instrumentality, or other entity described in paragraph (1)(A), (B), or (C) that was, on September 27, 2007, acting as an eligible lender under subsection (d) (other than an eligible lender described in subsection (d)(1)(E)); or(II) is acting as a trustee on behalf of a State, political subdivision, authority, agency, instrumentality, or other entity described in subparagraph (A), (B), or (C) of paragraph (1), regardless of whether such State, political subdivision, authority, agency, instrumentality, or other entity is an eligible lender under subsection (d), and such State, political subdivision, authority, agency, instrumentality, or other entity, on September 27, 2007, was the sole beneficial owner of a loan eligible for any special allowance payment under section 1087–1 of this title.
(ii) Exception
(B) No for-profit ownership or control
(i) In general
(ii) Trustees
(C) Sole ownership of loans and incomeNo State, political subdivision, authority, agency, instrumentality, trustee, or other entity described in paragraph (1)(A), (B), (C), or (D) shall be an eligible not-for-profit holder under this chapter with respect to any loan, or income from any loan, unless—
(i) such State, political subdivision, authority, agency, instrumentality, or other entity is the sole beneficial owner of such loan and the income from such loan; or
(ii) such trustee holds the loan on behalf of a State, political subdivision, authority, agency, instrumentality, or other entity described in subparagraph (A), (B), or (C) of paragraph (1), regardless of whether such State, political subdivision, authority, agency, instrumentality, or other entity is an eligible lender under subsection (d), and such State, political subdivision, authority, agency, instrumentality, or other entity is the sole beneficial owner of such loan and the income from such loan.
(D) Trustee compensation limitations
(E) Rule of constructionFor purposes of subparagraphs (A), (B), (C), and (D) of this paragraph, a State, political subdivision, authority, agency, instrumentality, or other entity described in subparagraph (A), (B), or (C) of paragraph (1), regardless of whether such State, political subdivision, authority, agency, instrumentality, or other entity is an eligible lender under subsection (d), shall not—
(i) be deemed to be owned or controlled, in whole or in part, by a for-profit entity; or
(ii) lose its status as the sole owner of a beneficial interest in a loan and the income from a loan,
by such State, political subdivision, authority, agency, instrumentality, or other entity, or by the trustee described in paragraph (1)(D), granting a security interest in, or otherwise pledging as collateral, such loan, or the income from such loan, to secure a debt obligation for which such State, political subdivision, authority, agency, instrumentality, or other entity is the issuer of the debt obligation.
(3) Prohibition
(4) Regulations
(Pub. L. 89–329, title IV, § 435, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1408; amended Pub. L. 100–50, § 10(aa), June 3, 1987, 101 Stat. 347; Pub. L. 101–239, title II, §§ 2003(a)(2), 2007(a), Dec. 19, 1989, 103 Stat. 2113, 2120; Pub. L. 101–508, title III, § 3004(a), Nov. 5, 1990, 104 Stat. 1388–26; Pub. L. 101–542, title III, § 301, Nov. 8, 1990, 104 Stat. 2387; Pub. L. 102–26, § 2(a)(1), Apr. 9, 1991, 105 Stat. 123; Pub. L. 102–325, title IV, §§ 416(e)(2), 427(a), (b)(1), (c)–(g), July 23, 1992, 106 Stat. 519, 549, 550; Pub. L. 103–66, title IV, §§ 4046(b)(1), 4106(b), Aug. 10, 1993, 107 Stat. 362, 368; Pub. L. 103–208, § 2(c)(55)–(62), Dec. 20, 1993, 107 Stat. 2468, 2469; Pub. L. 103–235, § 1, Apr. 28, 1994, 108 Stat. 381; Pub. L. 103–382, title III, § 357, Oct. 20, 1994, 108 Stat. 3967; Pub. L. 104–208, div. A, title I, § 101(e) [title VI, § 602(b)(1)(A)], Sept. 30, 1996, 110 Stat. 3009–233, 3009–283; Pub. L. 105–244, title I, § 102(b)(2), title IV, § 429(a)–(c)(1), (d), title IX, § 901(d), Oct. 7, 1998, 112 Stat. 1622, 1704–1709, 1828; Pub. L. 106–554, § 1(a)(1) [title III, §§ 308(a), 312], Dec. 21, 2000, 114 Stat. 2763, 2763A–45, 2763A–46; Pub. L. 109–171, title VIII, § 8011, Feb. 8, 2006, 120 Stat. 165; Pub. L. 109–292, § 3(a), Sept. 30, 2006, 120 Stat. 1340; Pub. L. 110–84, title III, § 304, Sept. 27, 2007, 121 Stat. 797; Pub. L. 110–109, § 4, Oct. 31, 2007, 121 Stat. 1028; Pub. L. 110–315, title IV, §§ 436(a)(1), (b)–(e)(1), 438(a)(3), Aug. 14, 2008, 122 Stat. 3253–3256, 3258; Pub. L. 111–39, title IV, § 402(b)(2), (f)(10), July 1, 2009, 123 Stat. 1940, 1944; Pub. L. 111–152, title II, § 2101(b)(3), Mar. 30, 2010, 124 Stat. 1073.)

CITE AS: 20 USC 1085

§ 1086. Delegation of functions
(a) In general
An eligible lender or guaranty agency that contracts with another entity to perform any of the lender’s or agency’s functions under this subchapter, or otherwise delegates the performance of such functions to such other entity—
(1) shall not be relieved of the lender’s or agency’s duty to comply with the requirements of this subchapter; and
(2) shall monitor the activities of such other entity for compliance with such requirements.
(b) Special rule
(Pub. L. 89–329, title IV, § 436, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1413; amended Pub. L. 105–244, title IV, § 430, Oct. 7, 1998, 112 Stat. 1709.)

CITE AS: 20 USC 1086

§ 1087. Repayment by Secretary of loans of bankrupt, deceased, or disabled borrowers; treatment of borrowers attending schools that fail to provide a refund, attending closed schools, or falsely certified as eligible to borrow
(a) Repayment in full for death and disability
(1) In generalIf a student borrower who has received a loan described in subparagraph (A) or (B) of section 1078(a)(1) of this title dies or becomes permanently and totally disabled (as determined in accordance with regulations of the Secretary), or if a student borrower who has received such a loan is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death, has lasted for a continuous period of not less than 60 months, or can be expected to last for a continuous period of not less than 60 months then the Secretary shall discharge the borrower’s liability on the loan by repaying the amount owed on the loan. The Secretary may develop such safeguards as the Secretary determines necessary to prevent fraud and abuse in the discharge of liability under this subsection. Notwithstanding any other provision of this subsection, the Secretary may promulgate regulations to reinstate the obligation of, and resume collection on, loans discharged under this subsection in any case in which—
(A) a borrower received a discharge of liability under this subsection and after the discharge the borrower—
(i) receives a loan made, insured, or guaranteed under this subchapter; or
(ii) has earned income in excess of the poverty line; or
(B) the Secretary determines the reinstatement and resumption to be necessary.
(2) Disability determinations
(3) Automatic income monitoring
(A) In generalThe Secretary shall establish and implement, with respect to any borrower described in subparagraph (B), procedures to—
(i) use return information disclosed under section 6103(l)(13) of title 26, pursuant to approval provided under section 1098h of this title, to determine the borrower’s continued eligibility for the loan discharge described in subparagraph (B);
(ii) allow the borrower, at any time, to opt out of disclosure under such section 6103(l)(13) and instead provide such information as the Secretary may require to determine the borrower’s continued eligibility for such loan discharge; and
(iii) provide the borrower with an opportunity to update the return information so disclosed before determination of such borrower’s continued eligibility for such loan discharge.
(B) ApplicabilitySubparagraph (A) shall apply—
(i) to each borrower of a loan that is discharged due to the total and permanent disability (within the meaning of this subsection) of the borrower; and
(ii) during the period beginning on the date on which such loan is so discharged and ending on the first day on which such loan may no longer be reinstated.
(b) Payment of claims on loans in bankruptcyThe Secretary shall pay to the holder of a loan described in section 1078(a)(1)(A) or (B), 1078–1,1
1 See References in Text note below.
1078–2, 1078–3, or 1078–8 of this title, the amount of the unpaid balance of principal and interest owed on such loan—
(1) when the borrower files for relief under chapter 12 or 13 of title 11;
(2) when the borrower who has filed for relief under chapter 7 or 11 of such title commences an action for a determination of dischargeability under section 523(a)(8)(B) of such title; or
(3) for loans described in section 523(a)(8)(A) of such title, when the borrower files for relief under chapter 7 or 11 of such title.
(c) Discharge
(1) In general
(2) Assignment
(3) Eligibility for additional assistance
(4) Special rule
(5) Reporting
(d) Repayment of loans to parents
(Pub. L. 89–329, title IV, § 437, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1414; amended Pub. L. 102–325, title IV, § 428, July 23, 1992, 106 Stat. 551; Pub. L. 103–208, § 2(c)(63)–(65), Dec. 20, 1993, 107 Stat. 2469; Pub. L. 105–244, title IV, § 431, Oct. 7, 1998, 112 Stat. 1709; Pub. L. 109–171, title VIII, § 8012, Feb. 8, 2006, 120 Stat. 166; Pub. L. 110–315, title I, § 103(b)(7), title IV, §§ 432(b)(4), 437(a), (b), Aug. 14, 2008, 122 Stat. 3089, 3246, 3257, 3258; Pub. L. 111–39, title IV, § 402(e)(1), July 1, 2009, 123 Stat. 1942; Pub. L. 116–91, § 5, Dec. 19, 2019, 133 Stat. 1193.)

CITE AS: 20 USC 1087

§ 1087–0. Repealed. Pub. L. 105–244, title IV, § 432, Oct. 7, 1998, 112 Stat. 1710

CITE AS: 20 USC 1087-0

§ 1087–1. Special allowances
(a) Findings
(b) Computation and payment
(1) Quarterly payment based on unpaid balance
(2) Rate of special allowance
(A) Subject to subparagraphs (B), (C), (D), (E), (F), (G), (H), and (I) and paragraph (4), the special allowance paid pursuant to this subsection on loans shall be computed (i) by determining the average of the bond equivalent rates of 91-day Treasury bills auctioned for such 3-month period, (ii) by subtracting the applicable interest rate on such loans from such average, (iii) by adding 3.10 percent to the resultant percent, and (iv) by dividing the resultant percent by 4. If such computation produces a number less than zero, such loans shall be subject to section 1077a(i) of this title.
(B)
(i) The quarterly rate of the special allowance for holders of loans which were made or purchased with funds obtained by the holder from the issuance of obligations, the income from which is exempt from taxation under title 26 shall be one-half the quarterly rate of the special allowance established under subparagraph (A), except that, in determining the rate for the purpose of this clause, subparagraph (A)(iii) shall be applied by substituting “3.5 percent” for “3.10 percent”. Such rate shall also apply to holders of loans which were made or purchased with funds obtained by the holder from collections or default reimbursements on, or interests or other income pertaining to, eligible loans made or purchased with funds described in the preceding sentence of this subparagraph or from income on the investment of such funds. This subparagraph shall not apply to loans which were made or insured prior to October 1, 1980.
(ii) The quarterly rate of the special allowance set under clause (i) of this subparagraph shall not be less than 9.5 percent minus the applicable interest rate on such loans, divided by 4.
(iii) No special allowance may be paid under this subparagraph unless the issuer of such obligations complies with subsection (d) of this section.
(iv) Notwithstanding clauses (i) and (ii), the quarterly rate of the special allowance for holders of loans which are financed with funds obtained by the holder from the issuance of obligations originally issued on or after October 1, 1993, or refunded after September 30, 2004, the income from which is excluded from gross income under title 26, shall be the quarterly rate of the special allowance established under subparagraph (A), (E), (F), (G), (H), or (I) as the case may be. Such rate shall also apply to holders of loans which were made or purchased with funds obtained by the holder from collections or default reimbursements on, or interest or other income pertaining to, eligible loans made or purchased with funds described in the preceding sentence of this subparagraph or from income on the investment of such funds.
(v) Notwithstanding clauses (i) and (ii), the quarterly rate of the special allowance shall be the rate determined under subparagraph (A), (E), (F), (G), (H), or (I) of this paragraph, or paragraph (4), as the case may be, for a holder of loans that—(I) were made or purchased with funds—(aa) obtained from the issuance of obligations the income from which is excluded from gross income under title 26 and which obligations were originally issued before October 1, 1993; or(bb) obtained from collections or default reimbursements on, or interest or other income pertaining to, eligible loans made or purchased with funds described in division (aa), or from income on the investment of such funds; and(II) are—(aa) financed by such an obligation that, after September 30, 2004, has matured or been retired or defeased;(bb) refinanced after September 30, 2004, with funds obtained from a source other than funds described in subclause (I) of this clause; or(cc) sold or transferred to any other holder after September 30, 2004.
(vi) Notwithstanding clauses (i), (ii), and (v), but subject to clause (vii), the quarterly rate of the special allowance shall be the rate determined under subparagraph (A), (E), (F), (G), (H), or (I) of this paragraph, as the case may be, for a holder of loans—(I) that were made or purchased on or after February 8, 2006; or(II) that were not earning a quarterly rate of special allowance determined under clauses (i) or (ii) of subparagraph (B) of this paragraph as of February 8, 2006.
(vii) Clause (vi) shall be applied by substituting “December 31, 2010” for “February 8, 2006” in the case of a holder of loans that—(I) was, as of February 8, 2006, and during the quarter for which the special allowance is paid, a unit of State or local government or a nonprofit private entity;(II) was, as of February 8, 2006, and during such quarter, not owned or controlled by, or under common ownership or control with, a for-profit entity; and(III) held, directly or through any subsidiary, affiliate, or trustee, a total unpaid balance of principal equal to or less than $100,000,000 on loans for which special allowances were paid under this subparagraph in the most recent quarterly payment prior to September 30, 2005.
(C)
(i) In the case of loans made before October 1, 1992, pursuant to section 1078–1 1
1 See References in Text note below.
or 1078–2 of this title for which the interest rate is determined under section 1077a(c)(4) of this title, a special allowance shall not be paid unless the rate determined for any 12-month period under subparagraph (B) of such section exceeds 12 percent.
(ii) Subject to subparagraphs (G), (H), and (I), in the case of loans disbursed on or after October 1, 1992, pursuant to section 1078–1 1 or 1078–2 of this title for which the interest rate is determined under section 1077a(c)(4) of this title, a special allowance shall not be paid unless the rate determined for any 12-month period under section 1077a(c)(4)(B) of this title exceeds—(I) 11 percent in the case of a loan under section 1078–1 1 of this title; or(II) 10 percent in the case of a loan under section 1078–2 of this title.
(D)
(i) In the case of loans made or purchased directly from funds loaned or advanced pursuant to a qualified State obligation, subparagraph (A)(iii) shall be applied by substituting “3.5 percent” for “3.10 percent”.
(ii) For the purpose of division (i) of this subparagraph, the term “qualified State obligation” means—(I) an obligation of the Maine Educational Loan Marketing Corporation to the Student Loan Marketing Association pursuant to an agreement entered into on January 31, 1984; or(II) an obligation of the South Carolina Student Loan Corporation to the South Carolina National Bank pursuant to an agreement entered into on July 30, 1986.
(E) In the case of any loan for which the applicable rate of interest is described in section 1077a(g)(2) of this title, subparagraph (A)(iii) shall be applied by substituting “2.5 percent” for “3.10 percent”.
(F) Subject to paragraph (4), the special allowance paid pursuant to this subsection on loans for which the applicable rate of interest is determined under section 1077a(h) of this title shall be computed (i) by determining the applicable bond equivalent rate of the security with a comparable maturity, as established by the Secretary, (ii) by subtracting the applicable interest rates on such loans from such applicable bond equivalent rate, (iii) by adding 1.0 percent to the resultant percent, and (iv) by dividing the resultant percent by 4. If such computation produces a number less than zero, such loans shall be subject to section 1077a(i) of this title.
(G)Loans disbursed between july 1, 1998, and october 1, 1998.—
(i)In general.—Subject to paragraph (4) and clauses (ii), (iii), and (iv) of this subparagraph, and except as provided in subparagraph (B), the special allowance paid pursuant to this subsection on loans for which the first disbursement is made on or after July 1, 1998, and before October 1, 1998, shall be computed—(I) by determining the average of the bond equivalent rates of 91-day Treasury bills auctioned for such 3-month period;(II) by subtracting the applicable interest rates on such loans from such average bond equivalent rate;(III) by adding 2.8 percent to the resultant percent; and(IV) by dividing the resultant percent by 4.
(ii)In school and grace period.—In the case of any loan for which the first disbursement is made on or after July 1, 1998, and before October 1, 1998, and for which the applicable rate of interest is described in section 1077a(j)(2) of this title, clause (i)(III) of this subparagraph shall be applied by substituting “2.2 percent” for “2.8 percent”.
(iii)PLUS loans.—In the case of any loan for which the first disbursement is made on or after July 1, 1998, and before October 1, 1998, and for which the applicable rate of interest is described in section 1077a(j)(3) of this title, clause (i)(III) of this subparagraph shall be applied by substituting “3.1 percent” for “2.8 percent”, subject to clause (v) of this subparagraph.
(iv)Consolidation loans.—This subparagraph shall not apply in the case of any consolidation loan.
(v)Limitation on special allowances for PLUS loans.—In the case of PLUS loans made under section 1078–2 of this title and disbursed on or after July 1, 1998, and before October 1, 1998, for which the interest rate is determined under 1077a(j)(3) of this title, a special allowance shall not be paid for such loan for such 2
2 So in original.
unless the rate determined under subparagraph (A) of such section (without regard to subparagraph (B) of such section) exceeds 9.0 percent.
(H)Loans disbursed on or after october 1, 1998, and before january 1, 2000.—
(i)In general.—Subject to paragraph (4) and clauses (ii), (iii), and (iv) of this subparagraph, and except as provided in subparagraph (B), the special allowance paid pursuant to this subsection on loans for which the first disbursement is made on or after October 1, 1998, and before January 1, 2000, shall be computed—(I) by determining the average of the bond equivalent rates of 91-day Treasury bills auctioned for such 3-month period;(II) by subtracting the applicable interest rates on such loans from such average bond equivalent rate;(III) by adding 2.8 percent to the resultant percent; and(IV) by dividing the resultant percent by 4.
(ii)In school and grace period.—In the case of any loan for which the first disbursement is made on or after October 1, 1998, and before January 1, 2000, and for which the applicable rate of interest is described in section 1077a(k)(2) of this title, clause (i)(III) of this subparagraph shall be applied by substituting “2.2 percent” for “2.8 percent”.
(iii)PLUS loans.—In the case of any loan for which the first disbursement is made on or after October 1, 1998, and before January 1, 2000, and for which the applicable rate of interest is described in section 1077a(k)(3) of this title, clause (i)(III) of this subparagraph shall be applied by substituting “3.1 percent” for “2.8 percent”, subject to clause (v) of this subparagraph.
(iv)Consolidation loans.—In the case of any consolidation loan for which the application is received by an eligible lender on or after October 1, 1998, and before January 1, 2000, and for which the applicable interest rate is determined under section 1077a(k)(4) of this title, clause (i)(III) of this subparagraph shall be applied by substituting “3.1 percent” for “2.8 percent”, subject to clause (vi) of this subparagraph.
(v)Limitation on special allowances for plus loans.—In the case of PLUS loans made under section 1078–2 of this title and first disbursed on or after October 1, 1998, and before January 1, 2000, for which the interest rate is determined under section 1077a(k)(3) of this title, a special allowance shall not be paid for such loan during any 12-month period beginning on July 1 and ending on June 30 unless, on the June 1 preceding such July 1—(I) the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1 (as determined by the Secretary for purposes of such section); plus(II) 3.1 percent,
exceeds 9.0 percent.
(vi)Limitation on special allowances for consolidation loans.—In the case of consolidation loans made under section 1078–3 of this title and for which the application is received on or after October 1, 1998, and before January 1, 2000, for which the interest rate is determined under section 1077a(k)(4) of this title, a special allowance shall not be paid for such loan during any 3-month period ending March 31, June 30, September 30, or December 31 unless—(I) the average of the bond equivalent rate of 91-day Treasury bills auctioned for such 3-month period; plus(II) 3.1 percent,
exceeds the rate determined under section 1077a(k)(4) of this title.
(I)Loans disbursed on or after january 1, 2000, and before july 1, 2010.—
(i)In general.—Notwithstanding subparagraphs (G) and (H), but subject to paragraph (4) and the following clauses of this subparagraph, and except as provided in subparagraph (B), the special allowance paid pursuant to this subsection on loans for which the first disbursement is made on or after January 1, 2000, and before July 1, 2010, shall be computed—(I) by determining the average of the bond equivalent rates of the quotes of the 3-month commercial paper (financial) rates in effect for each of the days in such quarter as reported by the Federal Reserve in Publication H–15 (or its successor) for such 3-month period;(II) by subtracting the applicable interest rates on such loans from the rate determined under subclause (I) (in accordance with clause (vii));(III) by adding 2.34 percent to the resultant percent; and(IV) by dividing the resultant percent by 4.
(ii)In school and grace period.—In the case of any loan—(I) for which the first disbursement is made on or after January 1, 2000, and before July 1, 2006, and for which the applicable rate of interest is described in section 1077a(k)(2) of this title; or(II) for which the first disbursement is made on or after July 1, 2006, and before July 1, 2010, and for which the applicable rate of interest is described in section 1077a(l)(1) or (l)(4) of this title, but only with respect to (aa) periods prior to the beginning of the repayment period of the loan; or (bb) during the periods in which principal need not be paid (whether or not such principal is in fact paid) by reason of a provision described in section 1077(a)(2)(C) or 1078(b)(1)(M) of this title;
clause (i)(III) of this subparagraph shall be applied by substituting “1.74 percent” for “2.34 percent”.
(iii)PLUS loans.—In the case of any loan for which the first disbursement is made on or after January 1, 2000, and before July 1, 2010, and for which the applicable rate of interest is described in section 1077a(k)(3) or (l)(2) of this title, clause (i)(III) of this subparagraph shall be applied by substituting “2.64 percent” for “2.34 percent”.
(iv)Consolidation loans.—In the case of any consolidation loan for which the application is received by an eligible lender on or after January 1, 2000, and that is disbursed before July 1, 2010, and for which the applicable interest rate is determined under section 1077a(k)(4) or (l)(3) of this title, clause (i)(III) of this subparagraph shall be applied by substituting “2.64 percent” for “2.34 percent”.
(v)Recapture of excess interest.—(I)Excess credited.—With respect to a loan on which the applicable interest rate is determined under subsection (k) or (l) of section 1077a of this title and for which the first disbursement of principal is made on or after April 1, 2006, and before July 1, 2010, if the applicable interest rate for any 3-month period exceeds the special allowance support level applicable to such loan under this subparagraph for such period, then an adjustment shall be made by calculating the excess interest in the amount computed under subclause (II) of this clause, and by crediting the excess interest to the Government not less often than annually.(II)Calculation of excess.—The amount of any adjustment of interest on a loan to be made under this subsection for any quarter shall be equal to—(aa) the applicable interest rate minus the special allowance support level determined under this subparagraph; multiplied by(bb) the average daily principal balance of the loan (not including unearned interest added to principal) during such calendar quarter; divided by(cc) four.(III)Special allowance support level.—For purposes of this clause, the term “special allowance support level” means, for any loan, a number expressed as a percentage equal to the sum of the rates determined under subclauses (I) and (III) of clause (i), and applying any substitution rules applicable to such loan under clauses (ii), (iii), (iv), (vi), and (vii) in determining such sum.
(vi)With respect to a loan on which the applicable interest rate is determined under section 1077a(l) of this title and for which the first disbursement of principal is made on or after October 1, 2007, and before July 1, 2010, the special allowance payment computed pursuant to this subparagraph shall be computed—(I) for loans held by an eligible lender not described in subclause (II)—(aa) by substituting “1.79 percent” for “2.34 percent” each place the term appears in this subparagraph;(bb) by substituting “1.19 percent” for “1.74 percent” in clause (ii);(cc) by substituting “1.79 percent” for “2.64 percent” in clause (iii); and(dd) by substituting “2.09 percent” for “2.64 percent” in clause (iv); and(II) for loans held by an eligible not-for-profit holder—(aa) by substituting “1.94 percent” for “2.34 percent” each place the term appears in this subparagraph;(bb) by substituting “1.34 percent” for “1.74 percent” in clause (ii);(cc) by substituting “1.94 percent” for “2.64 percent” in clause (iii); and(dd) by substituting “2.24 percent” for “2.64 percent” in clause (iv).
(vii)Revised calculation rule to reflect financial market conditions.—(I)Calculation based on LIBOR.—For the calendar quarter beginning on April 1, 2012 3
3 So in original. Probably should be followed by a comma.
and each subsequent calendar quarter, in computing the special allowance paid pursuant to this subsection with respect to loans described in subclause (II), clause (i)(I) of this subparagraph shall be applied by substituting “of the 1-month London Inter Bank Offered Rate (LIBOR) for United States dollars in effect for each of the days in such quarter as compiled and released by the British Bankers Association” for “of the quotes of the 3-month commercial paper (financial) rates in effect for each of the days in such quarter as reported by the Federal Reserve in Publication H–15 (or its successor) for such 3-month period”.(II)Loans eligible for LIBOR-based calculation.—The special allowance paid pursuant to this subsection shall be calculated as described in subclause (I) with respect to special allowance payments for the 3-month period ending June 30, 2012, and each succeeding 3-month period, on loans for which the first disbursement is made on or after January 1, 2000, and before July 1, 2010, if, not later than April 1, 2012, the holder of the loan (or, if the holder acts as eligible lender trustee for the beneficial owner of the loan, the beneficial owner of the loan), affirmatively and permanently waives all contractual, statutory, or other legal rights to a special allowance paid pursuant to this subsection that is calculated using the formula in effect at the time the loans were first disbursed.(III)Terms of waiver.—(aa)In general.—A waiver pursuant to subclause (II) shall be in a form (printed or electronic) prescribed by the Secretary, and shall be applicable to—(AA) all loans described in such subclause that the lender holds solely in its own right under any lender identification number associated with the holder (pursuant to section 1094b of this title);(BB) all loans described in such subclause for which the beneficial owner has the authority to make an election of a waiver under such subclause, regardless of the lender identification number associated with the loan or the lender that holds the loan as eligible lender trustee on behalf of such beneficial owner; and(CC) all future calculations of the special allowance on loans that, on the date of such waiver, are loans described in subitem (AA) or (BB), or that, after such date, become loans described in subitem (AA) or (BB).(bb)Exceptions.—Any waiver pursuant to subclause (II) that is elected for loans described in subitem (AA) or (BB) of item (aa) shall not apply to any loan described in such subitem for which the lender or beneficial owner of the loan demonstrates to the satisfaction of the Secretary that—(AA) in accordance with an agreement entered into before the date of enactment of this section by which such lender or owner is governed and that applies to such loans, such lender or owner is not legally permitted to make an election of such waiver with respect to such loans without the approval of one or more third parties with an interest in the loans, and that the lender or owner followed all available options under such agreement to obtain such approval, and was unable to do so; or(BB) such lender or beneficial owner presented the proposal of electing such a waiver applicable to such loans associated with an obligation rated by a nationally recognized statistical rating organization (as defined in section 78c(a)(62) of title 15), and such rating organization provided a written opinion that the agency would downgrade the rating applicable to such obligation if the lender or owner elected such a waiver.
(viii)Revised calculation rule to address instances where 1-month usd libor ceases or is non-representative.—(I)Substitute reference index.—The provisions of this clause apply to loans for which the special allowance payment would otherwise be calculated pursuant to clause (vii).(II)Calculation based on sofr.—For loans described in subclause (III) or (IV), the special allowance payment described in this subclause shall be substituted for the payment provided under clause (vii). For each calendar quarter, the formula for computing the special allowance that would otherwise apply under clause (vii) shall be revised by substituting “of the quotes of the 30-day Average Secured Overnight Financing Rate (SOFR) in effect for each of the days in such quarter as published by the Federal Reserve Bank of New York (or a successor administrator), adjusted daily by adding the tenor spread adjustment, as that term is defined in the Adjustable Interest Rate (LIBOR) Act, for 1-month LIBOR contracts of 0.11448 percent” for “of the 1-month London Inter Bank Offered Rate (LIBOR) for United States dollars in effect for each of the days in such quarter as compiled and released by the British Bankers Association”. The special allowance calculation for loans subject to clause (vii) shall otherwise remain in effect.(III)Loans eligible for sofr-based calculation.—Except as provided in subclause (IV), the special allowance payment calculated under subclause (II) shall apply to all loans for which the holder (or, if the holder acts as an eligible lender trustee for the beneficial owner of the loan, the beneficial owner of the loan) at any time after the effective date of this clause notifies the Secretary that the holder or beneficial owner affirmatively and permanently elects to waive all contractual, statutory, or other legal rights to a special allowance paid under clause (vii) or to the special allowance paid pursuant to any other formula that was previously in effect with respect to such loan, and accepts the rate described in subclause (II). Any such waiver shall apply to all loans then held, or to be held from time to time, by such holder or beneficial owner; provided that, due to the need to obtain the approval of, demonstrated to the satisfaction of the Secretary—(aa) one or more third parties with a legal or beneficial interest in loans eligible for the SOFR-based calculation; or(bb) a nationally recognized rating organization assigning a rating to a financing secured by loans otherwise eligible for the SOFR-based calculation,(IV)Fallback provisions.—(aa) In the event that a holder or beneficial owner has not elected to waive its rights to a special allowance payment under clause (vii) with respect to a portfolio with an effective date of the waiver prior to the first of—(AA) the date on which the ICE Benchmark Administration (“IBA”) has permanently or indefinitely stopped providing the 1-month United States Dollar LIBOR (“1-month USD LIBOR”) to the general public;(BB) the effective date of an official public statement by the IBA or its regulator that the 1-month USD LIBOR is no longer reliable or no longer representative; or(CC) the LIBOR replacement date, as defined in section 5802 of title 12,(bb) In such event—(AA) the last determined rate of special allowance based on 1-month USD LIBOR will continue to apply until the end of the then current calendar quarter; and(BB) the special allowance rate calculation as described in subclause (II) shall become effective as of the first day of the following calendar quarter and remain in effect for all subsequent calendar quarters.
 the holder of the loan (or, if the holder acts as an eligible lender trustee for the beneficial owner of the loan, the beneficial owner of the loan) may elect to apply the rate described in subclause (II) to specified loan portfolios established for financing purposes by separate notices with different effective dates. The special allowance rate based on SOFR shall be effective with respect to a portfolio as of the first day of the calendar quarter following the applicable effective date of the waiver received by the Secretary from the holder or beneficial owner and shall permanently and irrevocably continue for all subsequent quarters.
  the special allowance rate calculation as described in subclause (II) shall, by operation of law, apply to all loans in such portfolio.
(3) Contractual right of holders to special allowance
(4) Penalty for late payment
(A) If payments of the special allowances payable under this section or of interest payments under section 1078(a) of this title with respect to a loan have not been made within 30 days after the Secretary has received an accurate, timely, and complete request for payment thereof, the special allowance payable to such holder shall be increased by an amount equal to the daily interest accruing on the special allowance and interest benefits payments due the holder.
(B) Such daily interest shall be computed at the daily equivalent rate of the sum of the special allowance rate computed pursuant to paragraph (2) and the interest rate applicable to the loan and shall be paid for the later of (i) the 31st day after the receipt of such request for payment from the holder, or (ii) the 31st day after the final day of the period or periods covered by such request, and shall be paid for each succeeding day until, and including, the date on which the Secretary authorizes payment.
(C) For purposes of reporting to the Congress the amounts of special allowances paid under this section, amounts of special allowances paid pursuant to this paragraph shall be segregated and reported separately.
(5) “Eligible loan” definedAs used in this section, the term “eligible loan” means a loan—
(A)
(i) on which a portion of the interest is paid on behalf of the student and for the student’s account to the holder of the loan under section 1078(a) of this title;
(ii) which is made under section 1078–1,1 1078–2, 1078–3, 1078–8, or 1087–2(o) of this title; or
(iii) which was made prior to October 1, 1981; and
(B) which is insured under this part, or made under a program covered by an agreement under section 1078(b) of this title.
(6) Regulation of time and manner of payment
(7) Use of average quarterly balance
(c) Origination fees from students
(1) Deduction from interest and special allowance subsidies
(A) Notwithstanding subsection (b), the Secretary shall collect the amount the lender is authorized to charge as an origination fee in accordance with paragraph (2) of this subsection—
(i) by reducing the total amount of interest and special allowance payable under section 1078(a)(3)(A) of this title and subsection (b) of this section, respectively, to any holder; or
(ii) directly from the holder of the loan, if the lender fails or is not required to bill the Secretary for interest and special allowance or withdraws from the program with unpaid loan origination fees.
(B) If the Secretary collects the origination fee under this subsection through the reduction of interest and special allowance, and the total amount of interest and special allowance payable under section 1078(a)(3)(A) of this title and subsection (b) of this section, respectively, is less than the amount the lender was authorized to charge borrowers for origination fees in that quarter, the Secretary shall deduct the excess amount from the subsequent quarters’ payments until the total amount has been deducted.
(2) Amount of origination fees
(A) In general
(B) Subsequent reductionsSubparagraph (A) shall be applied to loans made under this part (other than loans made under sections 1078–3 and 1087–2(o) of this title)—
(i) by substituting “2.0 percent” for “3.0 percent” with respect to loans for which the first disbursement of principal is made on or after July 1, 2006, and before July 1, 2007;
(ii) by substituting “1.5 percent” for “3.0 percent” with respect to loans for which the first disbursement of principal is made on or after July 1, 2007, and before July 1, 2008;
(iii) by substituting “1.0 percent” for “3.0 percent” with respect to loans for which the first disbursement of principal is made on or after July 1, 2008, and before July 1, 2009; and
(iv) by substituting “0.5 percent” for “3.0 percent” with respect to loans for which the first disbursement of principal is made on or after July 1, 2009, and before July 1, 2010.
(3) Relation to applicable interest
(4) Disclosure required
(5) Prohibition on department compelling origination fee collections by lenders
(6) SLS and PLUS loans
(7) Distribution of origination fees
(8) Exception
(d) Loan fees from lenders
(1) Deduction from interest and special allowance subsidies
(A) In generalNotwithstanding subsection (b), the Secretary shall collect a loan fee in an amount determined in accordance with paragraph (2)—
(i) by reducing the total amount of interest and special allowance payable under section 1078(a)(3)(A) of this title and subsection (b), respectively, to any holder of a loan; or
(ii) directly from the holder of the loan, if the lender—(I) fails or is not required to bill the Secretary for interest and special allowance payments; or(II) withdraws from the program with unpaid loan fees.
(B) Special rule
(2) Amount of loan feesThe amount of the loan fee which shall be deducted under paragraph (1), but which may not be collected from the borrower, shall be equal to—
(A) except as provided in subparagraph (B), 0.50 percent of the principal amount of the loan with respect to any loan under this part for which the first disbursement was made on or after October 1, 1993; and
(B) 1.0 percent of the principal amount of the loan with respect to any loan under this part for which the first disbursement was made on or after October 1, 2007, and before July 1, 2010.
(3) Distribution of loan fees
(e) Nondiscrimination
(f) Regulations to prevent denial of loans to eligible students
(g) Special Rule
(Pub. L. 89–329, title IV, § 438, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1414; amended Pub. L. 100–50, § 10(d)(2), (bb), (cc), June 3, 1987, 101 Stat. 342, 347; Pub. L. 100–369, § 7(c), July 18, 1988, 102 Stat. 837; Pub. L. 102–325, title IV, § 430, July 23, 1992, 106 Stat. 553; Pub. L. 103–66, title IV, §§ 4102(a), 4103, 4105, 4111, Aug. 10, 1993, 107 Stat. 366, 367, 368, 370; Pub. L. 105–178, title VIII, § 8301(b), June 9, 1998, 112 Stat. 497; Pub. L. 105–244, title IV, §§ 416(b)(1), (3), 433(a)–(d)(1), Oct. 7, 1998, 112 Stat. 1680, 1682, 1710, 1711; Pub. L. 106–170, title IV, § 409(a), Dec. 17, 1999, 113 Stat. 1914; Pub. L. 107–139, § 2, Feb. 8, 2002, 116 Stat. 10; Pub. L. 108–409, § 2, Oct. 30, 2004, 118 Stat. 2299; Pub. L. 109–150, § 2(b), (c)(2), Dec. 30, 2005, 119 Stat. 2884; Pub. L. 109–171, title VIII, §§ 8006(b)(1), 8008(c)(1), 8013(a)–(c)(1), (d)(1), Feb. 8, 2006, 120 Stat. 159, 162, 166, 167; Pub. L. 110–84, title II, § 201(a)(2), title III, §§ 302(b)(2), 305, Sept. 27, 2007, 121 Stat. 791, 796, 799; Pub. L. 110–315, title IV, § 422(g)(2), Aug. 14, 2008, 122 Stat. 3230; Pub. L. 111–39, title IV, § 402(f)(11), July 1, 2009, 123 Stat. 1945; Pub. L. 111–152, title II, § 2208, Mar. 30, 2010, 124 Stat. 1077; Pub. L. 112–74, div. F, title III, § 309(e), Dec. 23, 2011, 125 Stat. 1101; Pub. L. 117–103, div. U, § 109, Mar. 15, 2022, 136 Stat. 832.)

CITE AS: 20 USC 1087-1

§ 1087–2. Student Loan Marketing Association
(a) Purpose
(b) Establishment
(1) In general
(2) Exemption from State and local taxes
(3) Appropriations authorized for establishment
(c) Board of Directors
(1) Composition of Board; Chairman
(A) The Association shall have a Board of Directors which shall consist of 21 persons, 7 of whom shall be appointed by the President and shall be representative of the general public. The remaining 14 directors shall be elected by the common stockholders of the Association entitled to vote pursuant to subsection (f). Commencing with the annual shareholders meeting to be held in 1993—
(i) 7 of the elected directors shall be affiliated with an eligible institution; and
(ii) 7 of the elected directors shall be affiliated with an eligible lender.
(B) The President shall designate 1 of the directors to serve as Chairman.
(2) Terms of appointed and elected members
(3) Affiliated membersFor the purpose of this subsection, the references to a director “affiliated with the eligible institution” or a director “affiliated with an eligible lender” means an individual who is, or within 5 years of election to the Board has been, an employee, officer, director, or similar official of—
(A) an eligible institution or an eligible lender;
(B) an association whose members consist primarily of eligible institutions or eligible lenders; or
(C) a State agency, authority, instrumentality, commission, or similar institution, the primary purpose of which relates to educational matters or banking matters.
(4) Meetings and functions of the Board
(d) Authority of Association
(1) In generalThe Association is authorized, subject to the provisions of this section—
(A) pursuant to commitments or otherwise to make advances on the security of, purchase, or repurchase, service, sell or resell, offer participations, or pooled interests or otherwise deal in, at prices and on terms and conditions determined by the Association, student loans which are insured by the Secretary under this part or by a guaranty agency;
(B) to buy, sell, hold, underwrite, and otherwise deal in obligations, if such obligations are issued, for the purpose of making or purchasing insured loans, by a guaranty agency or by an eligible lender in a State described in section 1085(d)(1)(D) or (F) of this title;
(C) to buy, sell, hold, insure, underwrite, and otherwise deal in obligations issued for the purpose of financing or refinancing the construction, reconstruction, renovation, improvement, or purchase at institutions of higher education of any of the following facilities (including the underlying property) and materials (including related equipment, instrumentation, and furnishings) at an eligible institution of higher education:
(i) educational and training facilities;
(ii) housing for students and faculties, dining halls, student unions, and facilities specifically designed to promote fitness and health for students, faculty, and staff or for physical education courses; and
(iii) library facilities, including the acquisition of library materials at institutions of higher education;
except that not more than 30 percent of the value of transactions entered into under this subparagraph shall involve transactions of the types described in clause (ii);
(D) to undertake a program of loan insurance pursuant to agreements with the Secretary under section 1078 of this title, and except with respect to loans under subsection (o) of this section or under section 1078–3 of this title, the Secretary may enter into an agreement with the Association for such purpose only if the Secretary determines that (i) eligible borrowers are seeking and unable to obtain loans under this part, and (ii) no guaranty agency is capable of or willing to provide a program of loan insurance for such borrowers; and
(E) to undertake any other activity which the Board of Directors of the Association determines to be in furtherance of the programs of insured student loans authorized under this part or will otherwise support the credit needs of students, except that—
(i) in carrying out all such activities the purpose shall always be to provide secondary market and other support for lending programs offered by other organizations and not to replace or compete with such other programs;
(ii) nothing in this subparagraph (E) shall be deemed to authorize the Association to acquire, own, operate, or control any bank, savings and loan association, savings bank or credit union; and
(iii) not later than 30 days prior to the initial implementation of a program undertaken pursuant to this subparagraph (E), the Association shall advise the Chairman and the Ranking Member on the Committee on Labor and Human Resources of the Senate and the Chairman and the Ranking Member of the Committee on Education and Labor of the House of Representatives in writing of its plans to offer such program and shall provide information relating to the general terms and conditions of such program.
The Association is further authorized to undertake any activity with regard to student loans which are not insured or guaranteed as provided for in this subsection as it may undertake with regard to insured or guaranteed student loans. Any warehousing advance made on the security of such loans shall be subject to the provisions of paragraph (3) of this subsection to the same extent as a warehousing advance made on the security of insured loans.
(2) Warehousing advances
(3) Perfection of security interests in student loans
(4) Form of securities
(5) Restrictions on facilities and housing activities
(e) Advances to lenders that do not discriminate
(f) Stock of the Association
(1) Voting common stock
(2) Number of shares; transferability
(3) Dividends
(4) Single class of voting common stock
(g) Preferred stock
(1) Authority of Board
(2) Rights of preferred stock
(3) Preference on termination of business
(h) Debt obligations
(1) Approval by Secretaries of Education and the Treasury
(2) Guarantee of debt
(3) Borrowing authority to meet guarantee obligations
(4) Action on request for guarantees
(5) Authority of Treasury to purchase debt
(6) Sale of debt to Federal Financing Bank
(7) Offset fee
(A) The Association shall pay to the Secretary, on a monthly basis, an offset fee calculated on an annual basis in an amount equal to 0.30 percent of the principal amount of each loan made, insured or guaranteed under this part that the Association holds (except for loans made pursuant to section 1078–3 of this title, subsection (o), or subsection (q)) and that was acquired on or after August 10, 1993.
(B) If the Secretary determines that the Association has substantially failed to comply with subsection (q), subparagraph (A) shall be applied by substituting “1.0 percent” for “0.3 percent”.
(C) The Secretary shall deposit all fees collected pursuant to this paragraph into the insurance fund established in section 1081 of this title.
(i) General corporate powersThe Association shall have power—
(1) to sue and be sued, complain and defend, in its corporate name and through its own counsel;
(2) to adopt, alter, and use the corporate seal, which shall be judicially noticed;
(3) to adopt, amend, and repeal by its Board of Directors, bylaws, rules, and regulations as may be necessary for the conduct of its business;
(4) to conduct its business, carry on its operations, and have officers and exercise the power granted by this section in any State without regard to any qualification or similar statute in any State;
(5) to lease, purchase, or otherwise acquire, own, hold, improve, use, or otherwise deal in and with any property, real, personal, or mixed, or any interest therein, wherever situated;
(6) to accept gifts or donations of services, or of property, real, personal, or mixed, tangible or intangible, in aid of any of the purposes of the Association;
(7) to sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of its property and assets;
(8) to appoint such officers, attorneys, employees, and agents as may be required, to determine their qualifications, to define their duties, to fix their salaries, require bonds for them, and fix the penalty thereof; and
(9) to enter into contracts, to execute instruments, to incur liabilities, and to do all things as are necessary or incidental to the proper management of its affairs and the proper conduct of its business.
(j) Accounting, auditing, and reporting
(k) Report on audits by Treasury
(l) Lawful investment instruments; effect of and exemptions from other laws
(m) Preparation of obligations
(n) Report on operations and activities
(o) Loan consolidations
(1) In general
(2) Use of existing agencies as agent
(p) Advances for direct loans by guaranty agencies
(1) In general
(2) Limitation
(q) Lender-of-last-resort
(1) Action at request of Secretary
(A) Whenever the Secretary determines that eligible borrowers are seeking and are unable to obtain loans under this part, the Association or its designated agent shall, not later than 90 days after August 10, 1993, begin making loans to such eligible borrowers in accordance with this subsection at the request of the Secretary. The Secretary may request that the Association make loans to borrowers within a geographic area or for the benefit of students attending institutions of higher education that certify, in accordance with standards established by the Secretary, that their students are seeking and unable to obtain loans.
(B) Loans made pursuant to this subsection shall be insurable by the Secretary under section 1079 of this title with a certificate of comprehensive insurance coverage provided for under section 1079(b)(1) of this title or by a guaranty agency under paragraph (2)(A) of this subsection.
(2) Issuance and coverage of loans
(A) Whenever the Secretary, after consultation with, and with the agreement of, representatives of the guaranty agency in a State, or an eligible lender in a State described in section 1085(d)(1)(D) of this title, determines that a substantial portion of eligible borrowers in such State or within an area of such State are seeking and are unable to obtain loans under this part, the Association or its designated agent shall begin making such loans to borrowers in such State or within an area of such State in accordance with this subsection at the request of the Secretary.
(B) Loans made pursuant to this subsection shall be insurable by the agency identified in subparagraph (A) having an agreement pursuant to section 1078(b) of this title. For loans insured by such agency, the agency shall provide the Association with a certificate of comprehensive insurance coverage, if the Association and the agency have mutually agreed upon a means to determine that the agency has not already guaranteed a loan under this part to a student which would cause a subsequent loan made by the Association to be in violation of any provision under this part.
(3) Termination of lending
(r) Safety and soundness of Association
(1) Reports by the AssociationThe Association shall promptly furnish to the Secretary of Education and Secretary of the Treasury copies of all—
(A) periodic financial reports publicly distributed by the Association;
(B) reports concerning the Association that are received by the Association and prepared by nationally recognized statistical rating organizations; and
(C)
(i) financial statements of the Association within 45 days of the end of each fiscal quarter; and
(ii) reports setting forth the calculation of the capital ratio of the Association within 45 days of the end of each fiscal quarter.
(2) Audit by Secretary of the Treasury
(A) The Secretary of the Treasury may—
(i) appoint and fix the compensation of such auditors and examiners as may be necessary to conduct audits of the Association from time to time to determine the condition of the Association for the purpose of assessing the Association’s financial safety and soundness and to determine whether the requirements of this section and section 1087–3 of this title are being met; and
(ii) obtain the services of such experts as the Secretary of the Treasury determines necessary and appropriate, as authorized by section 3109 of title 5, to assist in determining the condition of the Association for the purpose of assessing the Association’s financial safety and soundness, and to determine whether the requirements of this section and section 1087–3 of this title are being met.
(B) Each auditor appointed under this paragraph shall conduct an audit of the Association to the extent requested by the Secretary of the Treasury and shall prepare and submit a report to the Secretary of the Treasury concerning the results of such audit. A copy of such report shall be furnished to the Association and the Secretary of Education on the date on which it is delivered to the Secretary of the Treasury.
(C) The Association shall provide full and prompt access to the Secretary of the Treasury to its books and records and other information requested by the Secretary of the Treasury.
(D)Annual assessment.—
(i)In general.—For each fiscal year beginning on or after October 1, 1996, the Secretary of the Treasury may establish and collect from the Association an assessment (or assessments) in amounts sufficient to provide for reasonable costs and expenses of carrying out the duties of the Secretary of the Treasury under this section and section 1087–3 of this title during such fiscal year. In no event may the total amount so assessed exceed, for any fiscal year, $800,000, adjusted for each fiscal year ending after September 30, 1997, by the ratio of the Consumer Price Index for All Urban Consumers (issued by the Bureau of Labor Statistics) for the final month of the fiscal year preceding the fiscal year for which the assessment is made to the Consumer Price Index for All Urban Consumers for September 1997.
(ii)Deposit.—Amounts collected from assessments under this subparagraph shall be deposited in an account within the Treasury of the United States as designated by the Secretary of the Treasury for that purpose. The Secretary of the Treasury is authorized and directed to pay out of any funds available in such account the reasonable costs and expenses of carrying out the duties of the Secretary of the Treasury under this section and section 1087–3 of this title. None of the funds deposited into such account shall be available for any purpose other than making payments for such costs and expenses.
(E)Obligation to obtain, maintain, and report information.—
(i)In general.—The Association shall obtain such information and make and keep such records as the Secretary of the Treasury may from time to time prescribe concerning—(I) the financial risk to the Association resulting from the activities of any associated person, to the extent such activities are reasonably likely to have a material impact on the financial condition of the Association, including the Association’s capital ratio, the Association’s liquidity, or the Association’s ability to conduct and finance the Association’s operations; and(II) the Association’s policies, procedures, and systems for monitoring and controlling any such financial risk.
(ii)Summary reports.—The Secretary of the Treasury may require summary reports of such information to be filed no more frequently than quarterly. If, as a result of adverse market conditions or based on reports provided pursuant to this subparagraph or other available information, the Secretary of the Treasury has concerns regarding the financial or operational condition of the Association, the Secretary of the Treasury may, notwithstanding the preceding sentence and clause (i), require the Association to make reports concerning the activities of any associated person, whose business activities are reasonably likely to have a material impact on the financial or operational condition of the Association.
(iii)Definition.—For purposes of this subparagraph, the term “associated person” means any person, other than a natural person, directly or indirectly controlling, controlled by, or under common control with the Association.
(F)Compensation of auditors and examiners.—
(i)Rates of pay.—Rates of basic pay for all auditors and examiners appointed pursuant to subparagraph (A) may be set and adjusted by the Secretary of the Treasury without regard to the provisions of chapter 51 or subchapter III of chapter 53 of title 5.
(ii)Comparability.—(I)In general.—Subject to section 5373 of title 5, the Secretary of the Treasury may provide additional compensation and benefits to auditors and examiners appointed pursuant to subparagraph (A) if the same type of compensation or benefits are then being provided by any agency referred to in section 1833b of title 12 or, if not then being provided, could be provided by such an agency under applicable provisions of law, rule, or regulation.(II)Consultation.—In setting and adjusting the total amount of compensation and benefits for auditors and examiners appointed pursuant to subparagraph (A), the Secretary of the Treasury shall consult with, and seek to maintain comparability with, the agencies referred to in section 1833b of title 12.
(3) Monitoring of safety and soundness
(4) Capital standard
(5) Capital restoration plan
(A) Submission, approval, and implementation
(B) Disapproval
(C) Association implementation and response
(6) Substantial capital ratio reduction
(A) Additional plan required
(B) Disapproval
(C) Review by Congress; Association implementation
(7) Actions by Secretary of the TreasuryIf the capital ratio of the Association does not equal or exceed 1.75 percent at the end of the Association’s most recent calendar quarter, the Secretary of the Treasury may, until the capital ratio equals or exceeds 1.75 percent, take any one or more of the following actions:
(A) Limit increase in liabilities
(B) Restrict growth
(C) Restrict distributions
(D) Require issuance of new capital
(E) Limit executive compensation
(8) Critical capital standard
(A) If the capital ratio is less than 1 percent at the end of the Association’s most recent calendar quarter and the Association has already submitted a capital restoration plan to the Secretary of the Treasury pursuant to paragraph (4) or (6)(A), the Association shall forthwith proceed with diligence to implement the most recently proposed plan with such modifications as the Secretary of the Treasury determines are necessary to cause the capital ratio to equal or exceed 2 percent within 60 months.
(B) If the capital ratio is less than 1 percent at the end of the Association’s most recent calendar quarter and the Association has not submitted a capital restoration plan to the Secretary of the Treasury pursuant to paragraph (4) or (6)(A), the Association shall—
(i) within 14 days of such occurrence submit a capital restoration plan to the Secretary of the Treasury which the Association believes is adequate to cause the capital ratio to equal or exceed 2 percent within 60 months; and
(ii) forthwith proceed with diligence to implement such plan with such modifications as the Secretary of the Treasury determines are necessary to cause the capital ratio to equal or exceed 2 percent within 60 months.
(C) Immediately upon a determination under subparagraph (A) or (B) to implement a capital restoration plan, the Secretary of the Treasury shall submit the capital restoration plan to be implemented to the Chairman and ranking minority member of the Committee on Labor and Human Resources of the Senate, the Chairman and ranking minority member of the Committee on Education and Labor of the House of Representatives, and the Secretary of Education.
(9) Additional reports to committeesThe Association shall submit a copy of its capital restoration plan, modifications proposed to the Secretary of the Treasury, and proposed modifications received from the Secretary of the Treasury to the Congressional Budget Office and Government Accountability Office upon their submission to the Secretary of the Treasury or receipt from the Secretary of the Treasury. Notwithstanding any other provision of law, the Congressional Budget Office and Government Accountability Office shall maintain the confidentiality of information received pursuant to the previous sentence. In the event that the Secretary of the Treasury does not approve a capital restoration plan as provided in paragraph (5)(A) or (6)(A), or in the event that a capital restoration plan is modified by the Secretary of the Treasury pursuant to paragraph (6)(B) or (8), the Congressional Budget Office and Government Accountability Office shall each submit a report within 30 days of the Secretary of the Treasury’s submission to the Chairmen and ranking minority members as required in paragraphs (5)(B), (6)(B), and (8)(C) to such Chairmen and ranking members—
(A) analyzing the financial condition of the Association;
(B) analyzing the capital restoration plan and reasons for disapproval of the plan contained in the Secretary of the Treasury’s submission made pursuant to paragraph (5)(B), or the capital restoration plan proposed by the Association and the modifications made by the Secretary of the Treasury pursuant to paragraph (6)(B) or (8);
(C) analyzing the impact of the capital restoration plan and reasons for disapproval of the plan contained in the Secretary of the Treasury’s submission made pursuant to paragraph (5)(B), or the impact of the capital restoration plan proposed by the Association and the modifications made by the Secretary of the Treasury pursuant to paragraph (6)(B) or (8), and analyzing the impact of the recommendations made pursuant to subparagraph (D) of this paragraph, on—
(i) the ability of the Association to fulfill its purpose and authorized activities as provided in this section, and
(ii) the operation of the student loan programs; and
(D) recommending steps which the Association should take to increase its capital ratio without impairing its ability to perform its purpose and authorized activities as provided in this section.
(10) Review by Secretary of EducationThe Secretary of Education shall review the Secretary of the Treasury’s submission required pursuant to paragraph (5)(B), (6)(B), or (8) and shall submit a report within 30 days to the Chairman and ranking minority member of the Senate Committee on Labor and Human Resources and to the Chairman and ranking minority member of the House Committee on Education and Labor—
(A) describing any administrative or legislative provisions governing the student loan programs which contributed to the decline in the Association’s capital ratio; and
(B) recommending administrative and legislative changes in the student loan programs to maintain the orderly operation of such programs and to enable the Association to fulfill its purpose and authorized activities consistent with the capital ratio specified in paragraph (4).
(11) Safe harbor
(12) Treatment of confidential information
(13) Enforcement of safety and soundness requirements
(14) Actions by Secretary
(A) In generalFor any fiscal quarter ending after January 1, 2000, the Association shall have a capital ratio of at least 2.25 percent. The Secretary of the Treasury may, whenever such capital ratio is not met, take any one or more of the actions described in paragraph (7), except that—
(i) the capital ratio to be restored pursuant to paragraph (7)(D) shall be 2.25 percent; and
(ii) if the relevant capital ratio is in excess of or equal to 2 percent for such quarter, the Secretary of the Treasury shall defer taking any of the actions set forth in paragraph (7) until the next succeeding quarter and may then proceed with any such action only if the capital ratio of the Association remains below 2.25 percent.
(B) Applicability
(15) DefinitionsAs used in this subsection:
(A) The term “nationally recognized statistical rating organization” means any nationally recognized statistical rating organization, as that term is defined in section 78c(a) of title 15.
(B) The term “capital ratio” means the ratio of total stockholders’ equity, as shown on the Association’s most recent quarterly consolidated balance sheet prepared in the ordinary course of its business, to the sum of—
(i) the total assets of the Association, as shown on the balance sheet prepared in the ordinary course of its business; and
(ii) 50 percent of the credit equivalent amount of the following off-balance sheet items of the Association as of the date of such balance sheet—(I) all financial standby letters of credit and other irrevocable guarantees of the repayment of financial obligations of others; and(II) all interest rate contracts and exchange rate contracts, including interest exchange agreements, floor, cap, and collar agreements and similar arrangements.
For purposes of this subparagraph, the calculation of the credit equivalent amount of the items set forth in clause (ii) of this subparagraph, the netting of such items and eliminations for the purpose of avoidance of double-counting of such items shall be made in accordance with the measures for computing credit conversion factors for off-balance sheet items for capital maintenance purposes established for commercial banks from time to time by the Federal Reserve Board, but without regard to any risk weighting provisions in such measures.
(C) The term “legislative days” means only days on which either House of Congress is in session.
(16) Dividends
(17) Certification prior to payment of dividend
(s) Charter sunset
(1) Application of provisions
(2) Sunset plan
(A) Plan submission by the AssociationNot later than July 1, 2007, the Association shall submit to the Secretary of the Treasury and to the Chairman and Ranking Member of the Committee on Labor and Human Resources of the Senate and the Chairman and Ranking Member of the Committee on Economic and Educational Opportunities of the House of Representatives, a detailed plan for the orderly winding up, by July 1, 2013, of business activities conducted pursuant to the charter set forth in this section. Such plan shall—
(i) ensure that the Association will have adequate assets to transfer to a trust, as provided in this subsection, to ensure full payment of remaining obligations of the Association in accordance with the terms of such obligations;
(ii) provide that all assets not used to pay liabilities shall be distributed to shareholders as provided in this subsection; and
(iii) provide that the operations of the Association shall remain separate and distinct from that of any entity to which the assets of the Association are transferred.
(B) Amendment of the plan by the Association
(C) Plan monitoring
(D) Amendment of the plan by the Secretary of the Treasury
(E) Implementation by the Association
(3) Dissolution of the AssociationThe Association shall dissolve and the Association’s separate existence shall terminate on July 1, 2013, after discharge of all outstanding debt obligations and liquidation pursuant to this subsection. The Association may dissolve pursuant to this subsection prior to such date by notifying the Secretary of Education and the Secretary of the Treasury of the Association’s intention to dissolve, unless within 60 days of receipt of such notice the Secretary of Education notifies the Association that the Association continues to be needed to serve as a lender of last resort pursuant to subsection (q) or continues to be needed to purchase loans under an agreement with the Secretary described in paragraph (4)(A). On the dissolution date, the Association shall take the following actions:
(A) Establishment of a trust
(B) Use of trust assets
(C) Obligations not transferred to the trust
(D) Transfer of remaining assets
(4) Restrictions relating to winding up
(A) Restrictions on new business activity or acquisition of assets by the Association
(i) In generalBeginning on July 1, 2009, the Association shall not engage in any new business activities or acquire any additional program assets (including acquiring assets pursuant to contractual commitments) described in subsection (d) other than in connection with the Association—(I) serving as a lender of last resort pursuant to subsection (q); and(II) purchasing loans insured under this part, if the Secretary, with the approval of the Secretary of the Treasury, enters into an agreement with the Association for the continuation or resumption of the Association’s secondary market purchase program because the Secretary determines there is inadequate liquidity for loans made under this part.
(ii) Agreement
(B) Issuance of debt obligations during the wind up period; attributes of debt obligations
(C) Use of Association name
(Pub. L. 89–329, title IV, § 439, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1418; amended Pub. L. 100–50, § 10(dd), June 3, 1987, 101 Stat. 347; Pub. L. 100–369, § 7(c), July 18, 1988, 102 Stat. 837; Pub. L. 102–325, title IV, § 431, July 23, 1992, 106 Stat. 554; Pub. L. 103–66, title IV, §§ 4041(c), 4104, Aug. 10, 1993, 107 Stat. 356, 367; Pub. L. 103–208, § 2(c)(69), Dec. 20, 1993, 107 Stat. 2470; Pub. L. 103–382, title III, § 358, Oct. 20, 1994, 108 Stat. 3968; Pub. L. 104–208, div. A, title I, § 101(e) [title VI, § 602(b)(2)–(4), (c)], Sept. 30, 1996, 110 Stat. 3009–233, 3009–284 to 3009–286; Pub. L. 106–554, § 1(a)(1) [title III, § 309], Dec. 21, 2000, 114 Stat. 2763, 2763A–45; Pub. L. 108–271, § 8(b), July 7, 2004, 118 Stat. 814; Pub. L. 109–291, § 4(b)(5), Sept. 29, 2006, 120 Stat. 1338.)

CITE AS: 20 USC 1087-2

§ 1087–3. Reorganization of Student Loan Marketing Association through formation of Holding Company
(a) Actions by Association’s Board of Directors
The Board of Directors of the Association shall take or cause to be taken all such action as the Board of Directors deems necessary or appropriate to effect, upon the shareholder approval described in subsection (b), a restructuring of the common stock ownership of the Association, as set forth in a plan of reorganization adopted by the Board of Directors (the terms of which shall be consistent with this section) so that all of the outstanding common shares of the Association shall be directly owned by a Holding Company. Such actions may include, in the Board of Director’s discretion, a merger of a wholly owned subsidiary of the Holding Company with and into the Association, which would have the effect provided in the plan of reorganization and the law of the jurisdiction in which such subsidiary is incorporated. As part of the restructuring, the Board of Directors may cause—
(1) the common shares of the Association to be converted, on the reorganization effective date, to common shares of the Holding Company on a one for one basis, consistent with applicable State or District of Columbia law; and
(2) Holding Company common shares to be registered with the Securities and Exchange Commission.
(b) Shareholder approval
(c) Transition
In the event the shareholders of the Association approve the plan of reorganization under subsection (b), the following provisions shall apply beginning on the reorganization effective date:
(1) In general
(2) Transfer of certain property
(A) In general
Except as provided in this section, on the reorganization effective date or as soon as practicable thereafter, the Association shall use the Association’s best efforts to transfer to the Holding Company or any subsidiary of the Holding Company (or both), as directed by the Holding Company, all real and personal p
(i) direct or indirect subsidiaries of the Association (excluding special purpose funding companies in existence on September 30, 1996, and any interest in any government-sponsored enterprise);
(ii) contracts, leases, and other agreements of the Association;
(iii) licenses and other intellectual property of the Association; and
(iv) any other property of the Association.
(B) Construction
(3) Transfer of personnel
(4) Dividends
(5) Certification prior to dividend
(6) Restrictions on new business activity or acquisition of assets by Association
(A) In general
After the reorganization effective date, the Association shall not engage in any new business activities or acquire any additional program assets described in section 1087–2(d) of this title other than in connection with—
(i) student loan purchases through September 30, 2007;
(ii) contractual commitments for future warehousing advances, or pursuant to letters of credit or standby bond purchase agreements, which are outstanding as of the reorganization effective date;
(iii) the Association serving as a lender-of-last-resort pursuant to section 1087–2(q) of this title; and
(iv) the Association’s purchase of loans insured under this part, if the Secretary, with the approval of the Secretary of the Treasury, enters into an agreement with the Association for the continuation or resumption of the Association’s secondary market purchase program because the Secretary determines there is inadequate liquidity for loans made under this part.
(B) Agreement
(7) Issuance of debt obligations during the transition period; attributes of debt obligations
(8) Monitoring of safety and soundness
(A) Obligation to obtain, maintain, and report information
The Association shall obtain such information and make and keep such records as the Secretary of the Treasury may from time to time prescribe concerning—
(i) the financial risk to the Association resulting from the activities of any associated person, to the extent such activities are reasonably likely to have a material impact on the financial condition of the Association, including the Association’s capital ratio, the Association’s liquidity, or the Association’s ability to conduct and finance the Association’s operations; and
(ii) the Association’s policies, procedures, and systems for monitoring and controlling any such financial risk.
(B) Summary reports
(C) Separate operation of corporations
(i) In general
(ii) Books and records
(iii) Corporate office
(iv) Director
(v) One officer requirement
(vi) Transactions
(vii) Credit prohibition
(viii) Amounts collected
(D) Encumbrance of assets
(E) Holding Company activities
(F) Confidentiality
(G) Definition
(9) Issuance of stock warrants
(A) In general
On the reorganization effective date, the Holding Company shall issue to the District of Columbia Financial Responsibility and Management Assistance Authority a number of stock warrants that is equal to one percent of the outstanding shares of the Association, determined as of the last day of the fiscal quarter preceding September 30, 1996, with each stock warrant entitling the holder of the stock warrant to purchase from the Holding Company one share of the registered common stock of the Holding Company or the Holding Company’s successors or assigns, at any time on or before September 30, 2008. The exercise price for such warrants shall be an amount equal to the average closing price of the common stock of the Association for the 20 business days prior to September 30, 1996, on the exchange or market which is then the primary exchange or market for the common stock of the Association. The number of shares of Holding Company common stock subject to each stock warrant and the exercise price of each stock warrant shall be adjusted as necessary to reflect—
(i) the conversion of Association common stock into Holding Company common stock as part of the plan of reorganization approved by the Association’s shareholders; and
(ii) any issuance or sale of stock (including issuance or sale of treasury stock), stock split, recapitalization, reorganization, or other corporate event, if agreed to by the Secretary of the Treasury and the Association.
(B) Authority to sell or exercise stock warrants; deposit of proceeds
(10) Restrictions on transfer of Association shares and bankruptcy of Association
(d) Termination of Association
In the event the shareholders of the Association approve a plan of reorganization under subsection (b), the Association shall dissolve, and the Association’s separate existence shall terminate on September 30, 2008, after discharge of all outstanding debt obligations and liquidation pursuant to this subsection. The Association may dissolve pursuant to this subsection prior to such date by notifying the Secretary of Education and the Secretary of the Treasury of the Association’s intention to dissolve, unless within 60 days after receipt of such notice the Secretary of Education notifies the Association that the Association continues to be needed to serve as a lender of last resort pursuant to section 1087–2(q) of this title or continues to be needed to purchase loans under an agreement with the Secretary described in subsection (c)(6). On the dissolution date, the Association shall take the following actions:
(1) Establishment of a trust
(2) Use of trust assets
(3) Obligations not transferred to the trust
(4) Transfer of remaining assets
(e) Operation of Holding Company
In the event the shareholders of the Association approve the plan of reorganization under subsection (b), the following provisions shall apply beginning on the reorganization effective date:
(1) Holding Company Board of Directors
(2) Holding Company name
The names of the Holding Company and any subsidiary of the Holding Company (other than the Association)—
(A) may not contain the name “Student Loan Marketing Association”; and
(B) may contain, to the extent permitted by applicable State or District of Columbia law, “Sallie Mae” or variations thereof, or such other names as the Board of Directors of the Association or the Holding Company deems appropriate.
(3) Use of Sallie Mae name
(4) Disclosure required
Until 3 years after the dissolution date, the Holding Company, and any subsidiary of the Holding Company (other than the Association), shall prominently display—
(A) in any document offering the Holding Company’s securities, a statement that the obligations of the Holding Company and any subsidiary of the Holding Company are not guaranteed by the full faith and credit of the United States; and
(B) in any advertisement or promotional materials which use the “Sallie Mae” name or mark, a statement that neither the Holding Company nor any subsidiary of the Holding Company is a government-sponsored enterprise or instrumentality of the United States.
(f) Strict construction
(g) Right to enforce
(h) Deadline for reorganization effective date
(i) Definitions
For purposes of this section:
(1) Association
(2) Dissolution date
(3) Holding Company
(4) Remaining obligations
(5) Remaining property
The term “remaining property” means the following assets and liabilities of the Association which are outstanding as of the reorganization effective date:
(A) Debt obligations issued by the Association.
(B) Contracts relating to interest rate, currency, or commodity positions or protections.
(C) Investment securities owned by the Association.
(D) Any instruments, assets, or agreements described in section 1087–2(d) of this title (including, without limitation, all student loans and agreements relating to the purchase and sale of student loans, forward purchase and lending commitments, warehousing advances, academic facilities obligations, letters of credit, standby bond purchase agreements, liquidity agreements, and student loan revenue bonds or other loans).
(E) Except as specifically prohibited by this section or section 1087–2 of this title, any other nonmaterial assets or liabilities of the Association which the Association’s Board of Directors determines to be necessary or appropriate to the Association’s operations.
(6) Reorganization
(7) Reorganization effective date
(8) Subsidiary
(Pub. L. 89–329, title IV, § 440, as added Pub. L. 104–208, div. A, title I, § 101(e) [title VI, § 602(a)], Sept. 30, 1996, 110 Stat. 3009–233, 3009–275.)

CITE AS: 20 USC 1087-3

§ 1087–4. Discrimination in secondary markets prohibited

The Student Loan Marketing Association (and, if the Association is privatized under section 1087–3 of this title, any successor entity functioning as a secondary market for loans under this part, including the Holding Company described in such section) shall not engage directly or indirectly in any pattern or practice that results in a denial of a borrower’s access to loans under this part because of the borrower’s race, sex, color, religion, national origin, age, disability status, income, attendance at a particular eligible institution, length of the borrower’s educational program, or the borrower’s academic year at an eligible institution.

(Pub. L. 89–329, title IV, § 440A, as added Pub. L. 104–208, div. A, title I, § 101(e) [title VI, § 604], Sept. 30, 1996, 110 Stat. 3009–233, 3009–293.)

CITE AS: 20 USC 1087-4