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US (United States) Code. Title 20. Chapter 28: Higher education resources and student assistance

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-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1072b. Agency Operating Fund

-STATUTE-

(a) Establishment

Each guaranty agency shall, not later than 60 days after October

7, 1998, establish a fund designated as the Operating Fund.

(b) Investment of funds

Funds deposited into the Operating Fund shall be invested at the

discretion of the guaranty agency in accordance with prudent

investor standards.

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) 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

Funds in the Operating Fund shall be used for application

processing, loan disbursement, enrollment and repayment status

management, default aversion activities (including those

described in section 1072(h)(8) of this title), default

collection activities, school and lender training, financial aid

awareness and related outreach activities, compliance monitoring,

and other student financial aid related activities, as selected

by the guaranty agency.

(2) Special rule

The guaranty agency may, in the agency's discretion, transfer

funds from the Operating Fund to the Federal Fund for use

pursuant to section 1072a of this title. Such transfer shall be

irrevocable, and any funds so transferred shall become the sole

property of the United States.

(3) Definitions

For purposes of this subsection:

(A) Default collection activities

The term ''default collection activities'' means activities

of a guaranty agency that are directly related to the

collection of the loan on which a default claim has been paid

to the participating lender, including the due diligence

activities required pursuant to regulations of the Secretary.

(B) Default aversion activities

The term ''default aversion activities'' means activities of

a guaranty agency that are directly related to providing

collection assistance to the lender on a delinquent loan, prior

to the loan's being legally in a default status, including due

diligence activities required pursuant to regulations of the

Secretary.

The term ''enrollment and repayment status management'' means

activities of a guaranty agency that are directly related to

ascertaining the student's enrollment status, including prompt

notification to the lender of such status, an audit of the note

or written agreement to determine if the provisions of that

note or agreement are consistent with the records of the

guaranty agency as to the principal amount of the loan

guaranteed, and an examination of the note or agreement to

assure that the repayment provisions are consistent with the

provisions of this part.

(e) Ownership and regulation of Operating Fund

(1) Ownership

The Operating Fund, with the exception of funds transferred

from the Federal Fund in accordance with section 1072a(f) of this

title, shall be considered to be the property of the guaranty

agency.

(2) Regulation

Except as provided in paragraph (3), the Secretary may not

regulate the uses or expenditure of moneys in the Operating Fund,

but the Secretary may require such necessary reports and audits

as provided in section 1078(b)(2) of this title.

(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.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 422B, as added Pub. L. 105-244,

title IV, Sec. 413(b), Oct. 7, 1998, 112 Stat. 1677.)

-MISC1-

EFFECTIVE DATE

Section effective Oct. 1, 1998, except as otherwise provided in

Pub. L. 105-244, see section 3 of Pub. L. 105-244, set out as an

Effective Date of 1998 Amendment note under section 1001 of this

title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1072a, 1078, 1087h of

this title.

-CITE-

20 USC Sec. 1073 01/06/03

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TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1073. Effects of adequate non-Federal programs

-STATUTE-

(a) Federal insurance barred to lenders with access to State or

private insurance

Except as provided in subsection (b) of this section, the

Secretary shall not issue certificates of insurance under section

1079 of this title to lenders in a State if the Secretary

determines that every eligible institution has reasonable access in

that State to a State or private nonprofit student loan insurance

program which is covered by an agreement under section 1078(b) of

this title.

(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.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 423, as added Pub. L. 99-498, title

IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1358.)

-MISC1-

PRIOR PROVISIONS

A prior section 1073, Pub. L. 89-329, title IV, Sec. 423, Nov. 8,

1965, 79 Stat. 1237; Pub. L. 90-575, title I, Sec. 119(a), Oct. 16,

1968, 82 Stat. 1026; Pub. L. 94-482, title I, Sec. 127(a), Oct. 12,

1976, 90 Stat. 2103; Pub. L. 95-43, Sec. 1(a)(14), June 15, 1977,

91 Stat. 214; Pub. L. 96-374, title XIII, Sec. 1391(a)(1), Oct. 3,

1980, 94 Stat. 1503, limited participation in Federal loan

insurance programs, prior to the general revision of this part by

Pub. L. 99-498.

-CITE-

20 USC Sec. 1074 01/06/03

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TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1074. Scope and duration of Federal loan insurance program

-STATUTE-

(a) Limitations on amounts of loans covered by Federal insurance

The total principal amount of new loans made and installments

paid pursuant to lines of credit (as defined in section 1085 of

this title) to students covered by Federal loan insurance under

this part shall not exceed $2,000,000,000 for the period from July

1, 1976, to September 30, 1976, and for each of the succeeding

fiscal years ending prior to October 1, 2004. Thereafter, Federal

loan insurance pursuant to this part may be granted only for loans

made (or for loan installments paid pursuant to lines of credit) to

enable students, who have obtained prior loans insured under this

part, to continue or complete their educational program; but no

insurance may be granted for any loan made or installment paid

after September 30, 2008.

(b) Apportionment of amounts

The Secretary may, if he or she finds it necessary to do so in

order to assure an equitable distribution of the benefits of this

part, assign, within the maximum amounts specified in subsection

(a) of this section, Federal loan insurance quotas applicable to

eligible lenders, or to States or areas, and may from time to time

reassign unused portions of these quotas.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 424, as added Pub. L. 99-498, title

IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1358; amended Pub. L.

102-325, title IV, Sec. 411(b)(1), July 23, 1992, 106 Stat. 510;

Pub. L. 105-33, title VI, Sec. 6104(1), Aug. 5, 1997, 111 Stat.

652; Pub. L. 105-244, title IV, Sec. 414, Oct. 7, 1998, 112 Stat.

1679.)

-MISC1-

PRIOR PROVISIONS

A prior section 1074, Pub. L. 89-329, title IV, Sec. 424, Nov. 8,

1965, 79 Stat. 1237; Pub. L. 90-460, Sec. 1(a)(1), Aug. 3, 1968, 82

Stat. 634; Pub. L. 90-575, title I, Sec. 112(a), Oct. 16, 1968, 82

Stat. 1020; Pub. L. 92-318, title I, Sec. 132(a), June 23, 1972, 86

Stat. 261; Pub. L. 94-328, Sec. 2(a), June 30, 1976, 90 Stat. 727;

Pub. L. 94-482, title I, Sec. 127(a), Oct. 12, 1976, 90 Stat. 2103;

Pub. L. 96-374, title IV, Sec. 411(a), title XIII, Sec. 1391(a)(1),

Oct. 3, 1980, 94 Stat. 1415, 1503; Pub. L. 99-272, title XVI, Sec.

16018(a)(1), Apr. 7, 1986, 100 Stat. 348, related to new loans

under Federal loan insurance program, prior to the general revision

of this part by Pub. L. 99-498.

AMENDMENTS

1998 - Subsec. (a). Pub. L. 105-244 substituted ''October 1,

2004'' for ''October 1, 2002'' and ''September 30, 2008'' for

''September 30, 2006''.

1997 - Subsec. (a). Pub. L. 105-33 substituted ''October 1,

2002'' for ''October 1, 1998'' and ''September 30, 2006'' for

''September 30, 2002''.

1992 - Subsec. (a). Pub. L. 102-325 substituted ''October 1,

1998'' for ''October 1, 1992'' and ''September 30, 2002'' for

''September 30, 1997''.

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by Pub. L. 105-244 effective Oct. 1, 1998, except as

otherwise provided in Pub. L. 105-244, see section 3 of Pub. L.

105-244, set out as a note under section 1001 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1078-3, 1079 of this

title.

-CITE-

20 USC Sec. 1075 01/06/03

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TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1075. Limitations on individual federally insured loans and on

Federal loan insurance

-STATUTE-

(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) $2,625, 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) $3,500; 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.

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 (FOOTNOTE 1) or

1078-2 of this title; and

(FOOTNOTE 1) See References in Text note below.

(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),

(FOOTNOTE 2) but (II) excluding loans made under section 1078-1

(FOOTNOTE 1) or 1078-2 of this title,

(FOOTNOTE 2) So in original. There is no opening parenthesis.

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.

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 repayment

For 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;

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

For the purpose of this subsection, payments by the Secretary

under section 1080 of this title to an assignee of the lender

with respect to a loan shall be deemed payments made to such

lender.

(4) Pledge of full faith and credit

The full faith and credit of the United States is pledged to

the payment of all amounts which may be required to be paid under

the provisions of section 1080 or 1087 of this title.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 425, as added Pub. L. 99-498, title

IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1359; amended Pub. L.

100-50, Sec. 10(a), June 3, 1987, 101 Stat. 341; Pub. L. 102-325,

title IV, Sec. 413, July 23, 1992, 106 Stat. 512; Pub. L. 103-208,

Sec. 2(c)(2), (3), Dec. 20, 1993, 107 Stat. 2460, 2461; Pub. L.

105-244, title IV, Sec. 415, Oct. 7, 1998, 112 Stat. 1679.)

-REFTEXT-

REFERENCES IN TEXT

Section 1078-1 of this title, referred to in subsec. (a)(2)(A),

was repealed by Pub. L. 103-66, title IV, Sec. 4047(b)-(d), Aug.

10, 1993, 107 Stat. 364, eff. July 1, 1994, except with respect to

loans provided under that section as it existed prior to Aug. 10,

1993. Subsequently, a new section 1078-1, relating to voluntary

flexible agreements with guaranty agencies, was enacted by Pub. L.

105-244, title IV, Sec. 418, Oct. 7, 1998, 112 Stat. 1691.

-MISC2-

PRIOR PROVISIONS

A prior section 1075, Pub. L. 89-329, title IV, Sec. 425, Nov. 8,

1965, 79 Stat. 1238; Pub. L. 90-575, title I, Sec. 116(b)(1),

120(a)(2), Oct. 16, 1968, 82 Stat. 1023, 1027; Pub. L. 92-318,

title I, Sec. 132A(a), 132B(a), June 23, 1972, 86 Stat. 261, 262;

Pub. L. 94-482, title I, Sec. 127(a), Oct. 12, 1976, 90 Stat. 2104;

Pub. L. 95-43, Sec. 1(a)(15)-(17), June 15, 1977, 91 Stat. 214;

Pub. L. 95-566, Sec. 5(b)(2), Nov. 1, 1978, 92 Stat. 2403; Pub. L.

96-374, title IV, Sec. 412(a), (b), (f), title XIII, Sec.

1391(a)(1), Oct. 3, 1980, 94 Stat. 1416, 1417, 1503; Pub. L. 97-35,

title V, Sec. 535(a), (b), Aug. 13, 1981, 95 Stat. 455; Pub. L.

99-272, title XVI, Sec. 16013(e)(1), Apr. 7, 1986, 100 Stat. 341,

limited Federal loan insurance, prior to the general revision of

this part by Pub. L. 99-498.

AMENDMENTS

1998 - Subsec. (a)(1)(A)(i)(I). Pub. L. 105-244, Sec. 415(1)(A),

inserted ''and'' after semicolon.

Subsec. (a)(1)(A)(i)(II), (III). Pub. L. 105-244, Sec. 415(1)(B),

added subcl. (II) and struck out former subcls. (II) and (III)

which read as follows:

''(II) $1,750, if such student is enrolled in a program whose

length is less than one academic year, but at least 2/3 of such an

academic year; and

''(III) $875, if such student is enrolled in a program whose

length is less than 2/3, but at least 1/3, of such an academic

year;''.

Subsec. (a)(1)(A)(iii)(II). Pub. L. 105-244, Sec. 415(2),

inserted ''and'' after semicolon at end.

1993 - Subsec. (a)(1)(A)(ii), (iii). Pub. L. 103-208, Sec.

2(c)(2)(A), added cls. (ii) and (iii) and struck out former cls.

(ii) and (iii) which read as follows:

''(ii) the case of a student who has successfully completed such

first year but has not successfully completed the remainder of a

program of undergraduate study -

''(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);

''(II) $2,325, if such student is enrolled in a program whose

length is less than one academic year, but at least 2/3 of such

an academic year; and

''(III) $1,175, if such student is enrolled in a program whose

length is less than 2/3, but at least 1/3, of such an academic

year;

''(iii) in the case of a student at an eligible institution who

has successfully completed such first and second year but has not

successfully completed the remainder of a program of undergraduate

study -

''(I) $5,500, 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);

''(II) $3,675, if such student is enrolled in a program whose

length is less than one academic year, but at least 2/3 of such

an academic year; and

''(III) $1,825, if such student is enrolled in a program whose

length is less than 2/3, but at least 1/3, of such an academic

year; and''.

Subsec. (a)(1)(A)(iv). Pub. L. 103-208, Sec. 2(c)(2)(B),

substituted a period for semicolon at end.

Subsec. (a)(1)(C). Pub. L. 103-208, Sec. 2(c)(3), added subpar.

(C).

1992 - Subsec. (a)(1)(A). Pub. L. 102-325, Sec. 413(1), added

cls. (i) to (iv) and struck out former cls. (i) to (iii) which read

as follows:

''(i) $2,625, in the case of a student who has not successfully

completed the first and second year of a program of undergraduate

education;

''(ii) $4,000, in the case of a student who has successfully

completed such first and second year but who has not successfully

completed the remainder of a program of undergraduate education; or

''(iii) $7,500, in the case of a graduate or professional student

(as defined in regulations of the Secretary).''

Subsec. (a)(2)(A). Pub. L. 102-325, Sec. 413(2), added cls. (i)

and (ii) and concluding provision and struck out former cls. (i)

and (ii) which read as follows:

''(i) $17,250, in the case of any student who has not

successfully completed a program of undergraduate education,

excluding loans made under section 1078-1 or 1078-2 of this title;

and

''(ii) $54,750, in the case of any graduate or professional

student (as defined by regulations of the Secretary and including

any loans which are insured by the Secretary under this part, or by

a guaranty agency, made to such person before he or she became a

graduate or professional student), excluding loans made under

section 1078-1 or 1078-2 of this title.''

1987 - Subsec. (a)(2)(A)(i). Pub. L. 100-50, Sec. 10(a)(1),

inserted '', excluding loans made under section 1078-1 or 1078-2 of

this title'' after ''undergraduate education''.

Subsec. (a)(2)(A)(ii). Pub. L. 100-50, Sec. 10(a)(2), inserted

'', excluding loans made under section 1078-1 or 1078-2 of this

title'' after ''graduate or professional student)''.

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by Pub. L. 105-244 effective Oct. 1, 1998, except as

otherwise provided in Pub. L. 105-244, see section 3 of Pub. L.

105-244, set out as a note under section 1001 of this title.

EFFECTIVE DATE OF 1993 AMENDMENT

Amendment by section 2(c)(2) of Pub. L. 103-208 effective on and

after July 1, 1994 and amendment by section 2(c)(3) of Pub. L.

103-208 effective on and after Dec. 20, 1993, see section 5(b)(2),

(6) of Pub. L. 103-208 set out as a note under section 1051 of this

title.

EFFECTIVE DATE OF 1992 AMENDMENT

Amendment by Pub. L. 102-325 effective July 23, 1992, with

changes made in subsec. (a), relating to annual and aggregate loan

limits, applicable with respect to loans for which first

disbursement is made on or after July 1, 1993, except that changes

made in subsec. (a)(1)(A)(i) applicable with respect to loans for

which first disbursement is made on or after Oct. 1, 1992, and

except that changes made in subsec. (a)(1)(A)(iv) applicable with

respect to loans to cover costs of instruction for periods of

enrollment beginning on or after Oct. 1, 1993, see section 432 of

Pub. L. 102-325, set out as a note under section 1078 of this

title.

EFFECTIVE DATE OF 1987 AMENDMENT

Amendment by Pub. L. 100-50 effective as if enacted as part of

the Higher Education Amendments of 1986, Pub. L. 99-498, see

section 27 of Pub. L. 100-50, set out as a note under section 1001

of this title.

EFFECTIVE DATE

Section effective Oct. 17, 1986, except that subsec. (a) of this

section applicable only to loans disbursed on or after Jan. 1,

1987, or made to cover the costs of instruction for periods of

enrollment beginning on or after Jan. 1, 1987, see section 402(b)

of Pub. L. 99-498, set out as a note under section 1071 of this

title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1080, 1094 of this title.

-CITE-

20 USC Sec. 1076 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1076. Sources of funds

-STATUTE-

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.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 426, as added Pub. L. 99-498, title

IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1361.)

-MISC1-

PRIOR PROVISIONS

A prior section 1076, Pub. L. 89-329, title IV, Sec. 426, Nov. 8,

1965, 79 Stat. 1238; Pub. L. 94-482, title I, Sec. 127(a), Oct. 12,

1976, 90 Stat. 2106; Pub. L. 96-374, title XIII, Sec. 1391(a)(1),

Oct. 3, 1980, 94 Stat. 1503, related to insurability of loans made

from funds owned by lender or held by lender in trust, prior to the

general revision of this part by Pub. L. 99-498.

-CITE-

20 USC Sec. 1077 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1077. Eligibility of student borrowers and terms of federally

insured student loans

-STATUTE-

(a) List of requirements

Except 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

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;

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; or

(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;

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, (FOOTNOTE 1) of

disclosure of information concerning such loan to credit bureau

organizations 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

organizations;

(FOOTNOTE 1) So in original. The comma probably should not

appear.

(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 and part C of subchapter

I of chapter 34 of title 42 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 disbursement

For the purpose of subsection (a)(4) of this section -

(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.

Except as provided in subsection (a)(2)(H) of this section, the

total of the payments by a borrower 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).

(d) Borrower information

The lender shall obtain the borrower's driver's license number,

if any, at the time of application for the loan.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 427, as added Pub. L. 99-498, title

IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1361; amended Pub. L.

100-50, Sec. 10(b), (c), June 3, 1987, 101 Stat. 341; Pub. L.

100-369, Sec. 5(b)(1), 7(c), 11(a), July 18, 1988, 102 Stat.

836-838; Pub. L. 101-239, title II, Sec. 2002(a)(1), 2004(b)(2),

Dec. 19, 1989, 103 Stat. 2111, 2116; Pub. L. 102-164, title VI,

Sec. 601(a), 602(a), Nov. 15, 1991, 105 Stat. 1065, 1066; Pub. L.

102-325, title IV, Sec. 414, July 23, 1992, 106 Stat. 513; Pub. L.

103-208, Sec. 2(c)(4), Dec. 20, 1993, 107 Stat. 2461.)

-MISC1-

PRIOR PROVISIONS

A prior section 1077, Pub. L. 89-329, title IV, Sec. 427, Nov. 8,

1965, 79 Stat. 1238; Pub. L. 89-794, title XI, Sec. 1101(b)(1),

Nov. 8, 1966, 80 Stat. 1476; Pub. L. 90-460, Sec. 2(a)(1), Aug. 3,

1968, 82 Stat. 635; Pub. L. 90-575, title I, Sec. 113(b)(2),

116(b)(2), 117(c), 120(c)(2), Oct. 16, 1968, 82 Stat. 1021, 1023,

1026, 1027; Pub. L. 92-318, title I, Sec. 132B(b), 132C(c), June

23, 1972, 86 Stat. 262, 263; Pub. L. 94-482, title I, Sec. 127(a),

Oct. 12, 1976, 90 Stat. 2106; Pub. L. 95-43, Sec. 1(a)(9), (18),

June 15, 1977, 91 Stat. 213, 214; Pub. L. 95-566, Sec. 5(a)(1),

Nov. 1, 1978, 92 Stat. 2403; Pub. L. 96-374, title IV, Sec. 413(a),

(c), 415(a)(2), (b)(1), 416(a)(2), 423(a)(1), title XIII, Sec.

1391(a)(1), Oct. 3, 1980, 94 Stat. 1417-1421, 1432, 1503; Pub. L.

97-35, title V, Sec. 537(b)(1), (d)(2), (e)(1), Aug. 13, 1981, 95

Stat. 456, 457; Pub. L. 98-79, Sec. 10((a)), Aug. 15, 1983, 97

Stat. 484; Pub. L. 99-272, title XVI, Sec. 16012(a), 16013(b),

16017(b)(1), Apr. 7, 1986, 100 Stat. 339, 340, 347, set out

conditions for Federal loan insurance, prior to the general

revision of this part by Pub. L. 99-498.

AMENDMENTS

1993 - Subsec. (a)(2)(C)(i). Pub. L. 103-208 inserted ''section''

before ''1078-2 or 1078-3''.

1992 - Subsec. (a)(2)(A). Pub. L. 102-325, Sec. 414(a), amended

subpar. (A) generally. Prior to amendment, subpar. (A) read as

follows: ''is made without security and without endorsement, except

that prior to making a loan insurable by the Secretary under this

part a lender shall -

''(i) obtain a credit report, from at least one national credit

bureau organization, with respect to a loan applicant who will be

at least 21 years of age as of July 1 of the award year for which

assistance is being sought, for which the lender may charge the

applicant an amount not to exceed the lesser of $25 or the actual

cost of obtaining the credit report; and

''(ii) require an applicant of the age specified in clause (i)

who, in the judgment of the lender in accordance with the

regulations of the Secretary, has an adverse credit history, to

obtain a credit worthy cosigner in order to obtain the loan,

provided that, for purposes of this clause, an insufficient or

nonexistent credit history may not be considered to be an adverse

credit history;''.

Subsec. (a)(2)(C). Pub. L. 102-325, Sec. 414(b), amended subpar.

provisions formerly contained in cls. (i) to (xi).

Subsec. (a)(2)(G) to (I). Pub. L. 102-325, Sec. 414(c)(1), struck

out ''and'' at end of subpar. (G), added subpar. (H), and

redesignated former subpar. (H) as (I).

Subsec. (a)(3). Pub. L. 102-325, Sec. 414(d), amended par. (3)

generally. Prior to amendment, par. (3) read as follows: ''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 nothing

in this subchapter and part C of subchapter I of chapter 34 of

title 42 shall be interpreted to allow the Secretary to require

checks to be made co-payable to the institution and the borrower or

to prohibit the disbursement of loan proceeds by means other than

by check; and''.

Subsec. (c). Pub. L. 102-325, Sec. 414(c)(2), (e), substituted

''Special repayment rules'' for ''Minimum repayment rate'' in

heading and in text ''Except as provided in subsection (a)(2)(H) of

this section, the total'' for ''The total'' and ''(but in no

instance less than the amount of interest due and payable)'' for

'', except that in the case of a husband and wife, both of whom

have such loans outstanding, the total of the combined payments for

such a couple during any year shall not be less than $600 or the

balance of all such loans, whichever is less''.

1991 - Subsec. (a)(2)(A). Pub. L. 102-164, Sec. 601(a), amended

subpar. (A) generally. Prior to amendment, subpar. (A) read as

follows: ''is made without security and without endorsement, except

that if the borrower is a minor and such note or other written

agreement executed by the borrower would not, under the applicable

law, create a binding obligation, endorsement may be required;''.

Subsec. (d). Pub. L. 102-164, Sec. 602(a), added subsec. (d).

1989 - Subsec. (a)(2)(C)(i). Pub. L. 101-239, Sec. 2002(a)(1),

inserted before semicolon at end '', 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''.

Subsec. (a)(4). Pub. L. 101-239, Sec. 2004(b)(2), amended par.

(4) generally. Prior to amendment, par. (4) read as follows: ''in

the case of any loan made for any period of enrollment that ends

more than 180 days (or 6 months) after the date disbursement is

scheduled to occur, and for an amount of $1,000 or more, the

proceeds of the loan will, subject to subsection (b) of this

section, be disbursed directly by the lender in two or more

installments, none of which exceeds one-half of the loan, with the

second installment being disbursed after not less than one-third of

such period (except as necessary to permit the second installment

to be disbursed at the beginning of the second semester, quarter,

or similar division of such period of enrollment).''

1988 - Subsec. (a)(2)(C)(v). Pub. L. 100-369, Sec. 7(c),

substituted ''Internal Revenue Code of 1986'' for ''Internal

Revenue Code of 1954'', which for purposes of codification was

translated as ''title 26'' thus requiring no change in text.

Subsec. (a)(2)(C)(vii). Pub. L. 100-369, Sec. 11(a), inserted

''after January 1, 1986,'' after ''service''.

Subsec. (b)(2). Pub. L. 100-369, Sec. 5(b)(1), substituted

''section 1078-2 or 1078-3'' for ''section 1078-1, 1078-2, or

1078-3''.

1987 - Subsec. (a)(2)(C)(vi). Pub. L. 100-50, Sec. 10(b)(1),

inserted ''nonprofit'' before ''private''.

Subsec. (a)(2)(C)(vii). Pub. L. 100-50, Sec. 10(b)(2), inserted

''or serving in an 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'' before semicolon at end.

Subsec. (a)(4). Pub. L. 100-50, Sec. 10(c), substituted ''$1,000

or more'' for ''more than $1,000''.

EFFECTIVE DATE OF 1993 AMENDMENT

Amendment by Pub. L. 103-208 effective as if included in the

Higher Education Amendments of 1992, Pub. L. 102-325, except as

otherwise provided, see section 5(a) of Pub. L. 103-208, set out as

a note under section 1003 of this title.

EFFECTIVE DATE OF 1992 AMENDMENT

Amendment by Pub. L. 102-325 effective July 23, 1992, except that

changes made in subsec. (a)(2)(C), relating to deferments,

applicable with respect to loans for which first disbursement is

made on or after July 1, 1993, to an individual who is a new

borrower on date such individual applies for a loan, and except

that changes made in subsec. (a)(2)(H), relating to offering

graduated or income sensitive repayment options, applicable with

respect to loans for which first disbursement is made on or after

July 1, 1993, to an individual who is a new borrower on date such

individual applies for a loan, see section 432 of Pub. L. 102-325,

set out as a note under section 1078 of this title.

EFFECTIVE DATE OF 1989 AMENDMENT

Section 2002(a)(4) of Pub. L. 101-239 provided that: ''The

amendments made by this subsection (amending this section and

sections 1078 and 1087dd of this title) shall apply to any loan

made, insured, or guaranteed under part B or part E of title IV of

the Higher Education Act of 1965 (20 U.S.C. 1071 et seq., 1087aa et

seq.), including a loan made before the enactment of this Act (Dec.

19, 1989), and shall take effect on January 1, 1990, except that

such amendments shall not apply with respect to any portion of a

period of deferment granted to a borrower under section

427(a)(2)(C)(i), 428(b)(1)(M)(i), or 464(c)(2)(A)(i) of the Higher

Education Act of 1965 (sections 1077(a)(2)(C)(i), 1078(b)(1)(M)(i),

1087dd(c)(2)(A)(i) of this title) for service in a medical

internship or residency program that is completed prior to the

effective date of this section (Dec. 19, 1989).''

Section 2004(c) of Pub. L. 101-239 provided that: ''The

amendments made by this section (enacting section 1078-7 of this

title and amending this section and section 1078 of this title)

shall apply with respect to loans made to cover the cost of

instruction for periods of enrollment beginning on or after January

1, 1990.''

EFFECTIVE DATE OF 1988 AMENDMENT

Section 11(b) of Pub. L. 100-369 provided that: ''The amendments

made by subsection (a) (amending this section and section 1078 of

this title) and section 10(b) of the Higher Education Technical

Amendments Act of 1987 (section 10(b) of Pub. L. 100-50, amending

this section and section 1078 of this title) shall apply with

respect to loans made, insured or guaranteed under part B of the

Higher Education Act of 1965 (probably means part B of title IV of

Pub. L. 89-329 which is classified to this part), on, before, or

after the date of enactment of the Higher Education Technical

Amendments Act of 1987 (June 3, 1987).''

Amendment by section 5(b)(1) of Pub. L. 100-369 effective with

respect to loans made on or after Oct. 1, 1988, and amendment by

section 7(c) of Pub. L. 100-369 effective July 18, 1988, see

section 13(b) of Pub. L. 100-369, set out as a note under section

1091 of this title.

EFFECTIVE DATE OF 1987 AMENDMENT

Amendment by section 10(b) of Pub. L. 100-50 applicable with

respect to loans made, insured or guaranteed under this part on,

before, or after June 3, 1987, see section 11(b) of Pub. L.

100-369, set out as an Effective Date of 1988 Amendment note above.

Amendment by Pub. L. 100-50 effective as if enacted as part of

the Higher Education Amendments of 1986, Pub. L. 99-498, see

section 27 of Pub. L. 100-50, set out as a note under section 1001

of this title.

EFFECTIVE DATE

Section effective Oct. 17, 1986, except that subsec. (a)(2)(C)

(other than cls. (viii), (ix), and (x) thereof) of this section

shall apply only to loans to new borrowers made to cover the costs

of instruction for periods of enrollment beginning on or after July

1, 1987, or disbursed on or after July 1, 1987, see section 402(b)

of Pub. L. 99-498, set out as a note under section 1071 of this

title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1071, 1075, 1077a, 1078,

1078-2, 1078-8, 1085, 1087-1, 1087e of this title.

-CITE-

20 USC Sec. 1077a 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1077a. Applicable interest rates

-STATUTE-

(a) Rates to be consistent for borrower's entire debt

With 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) of this section

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

If for any 12-month period beginning on or after January 1, 1981,

the Secretary, after consultation with the Secretary of the

Treasury, determines that the average of the bond equivalent rates

of 91-day Treasury bills auctioned for such 12-month period is

equal to or less than 9 percent, the interest rate for loans under

this part shall be the rate prescribed in subsection (a)(3) of this

section for borrowers described in such subsection.

(1) In general

Except as otherwise provided in this subsection, the applicable

rate of interest on loans made pursuant to section 1078-1

(FOOTNOTE 1) or 1078-2 of this title on or after October 1, 1981,

shall be 14 percent per year on the unpaid principal balance of

the loan.

(FOOTNOTE 1) See References in Text note below.

(2) Reduction of rate after decline in Treasury bill rates

If for any 12-month period beginning on or after October 1,

1981, the Secretary, after consultation with the Secretary of the

Treasury, determines that the average of the bond equivalent

rates of 91-day Treasury bills auctioned for such 12-month period

is equal to or less than 14 percent, the applicable rate of

interest for loans made pursuant to section 1078-1 (FOOTNOTE 1)

or 1078-2 of this title on and after the first day of the first

month beginning after the date of publication of such

determination shall be 12 percent per year on the unpaid

principal balance of the loan.

(3) Increase of rate after increase in Treasury bill rates

If for any 12-month period beginning on or after the date of

publication of a determination under paragraph (2), the

Secretary, after consultation with the Secretary of the Treasury,

determines that the average of the bond equivalent rates of

91-day Treasury bills auctioned for such 12-month period exceeds

14 percent, the applicable rate of interest for loans made

pursuant to section 1078-1 (FOOTNOTE 1) or 1078-2 of this title

on and after the first day of the first month beginning after the

date of publication of that determination under this paragraph

shall be 14 percent per year on the unpaid principal balance of

the loan.

(4) Availability of variable rates

(A) For any loan made pursuant to section 1078-1 (FOOTNOTE 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) (FOOTNOTE 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.

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 (FOOTNOTE 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, 1988

Notwithstanding subsections (a) and (b) of this section, with

respect to any loan (other than a loan made pursuant to sections

1078-1, (FOOTNOTE 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 general

Notwithstanding subsections (a), (b), and (d) of this section,

with respect to any loan (other than a loan made pursuant to

sections 1078-1, (FOOTNOTE 2) 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 -

(FOOTNOTE 2) See References in Text note below.

(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

The Secretary shall determine the applicable rate of interest

under paragraph (1) 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.

(f) Interest rates for new loans after July 1, 1994

(1) In general

Notwithstanding 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

The Secretary shall determine the applicable rate of interest

under paragraph (1) 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.

(g) In school and grace period rules

(1) General rule

Notwithstanding the provisions of subsection (f) of this

section, but subject to subsection (h) of this section, 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 determination

For 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

The Secretary shall determine the applicable rate of interest

under this subsection 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.

(h) Interest rates for new loans after July 1, 1998

(1) In general

Notwithstanding 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, 1998

Notwithstanding subsections (a), (b), (d), (e), (f), and (g) of

this section, 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

The Secretary shall determine the applicable rate of interest

under this subsection 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.

(i) Treatment of excess interest payments on new borrower accounts

resulting from decline in Treasury bill rates

(1) Excess interest on 10 percent loans

If, 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 loans

The 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

(3) Excess interest on loans after 1992 amendments, to borrowers

with outstanding balances

If, 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 adjustment

The 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

(5) Annual adjustment of interest and borrower eligibility for

credit

Any adjustment amount computed pursuant to paragraphs (2) and

(4) of this subsection for any quarter shall be credited, by the

holder of the loan on the last day of the calendar year in which

such quarter falls, to the loan account of the borrower so as to

reduce the principal balance of such account. No such credit

shall be made to the loan account of a borrower who on the last

day of the calendar year is delinquent for more than 30 days in

making a required payment on the loan, but the excess interest

shall be calculated and credited to the Secretary. Any credit

which is to be made to a borrower's account pursuant to this

subsection shall be made effective commencing no later than 30

days following the last day of the calendar year in which the

quarter falls for which the credit is being made. Nothing in

this subsection shall be construed to require refunding any

repayment of a loan. At the option of the lender, the amount of

such adjustment may be distributed to the borrower either by

reduction in the amount of the periodic payment on loan, by

reducing the number of payments that shall be made with respect

to the loan, or by reducing the amount of the final payment of

the loan. Nothing in this paragraph shall be construed to

require the lender to make additional disclosures pursuant to

section 1083(b) of this title.

(6) Publication of Treasury bill rate

For the purpose of enabling holders of loans to make the

determinations and adjustments provided for in this subsection,

the Secretary shall for each calendar quarter commencing with the

quarter beginning on July 1, 1987, publish a notice of the

average of the bond equivalent rates of 91-day Treasury bills

auctioned for such quarter. Such notice shall be published not

later than 7 days after the end of the quarter to which the

notice relates.

(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).

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 general

Notwithstanding subsection (h) of this section, 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 rules

Notwithstanding subsection (h) of this section, 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 loans

Notwithstanding subsection (h) of this section, 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

The Secretary shall determine the applicable rate of interest

under this subsection 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.

(k) Interest rates for new loans on or after October 1, 1998, and

before July 1, 2006

(1) In general

Notwithstanding subsection (h) of this section 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 rules

Notwithstanding subsection (h) of this section, 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 loans

Notwithstanding subsection (h) of this section, 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 loans

With 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

The Secretary shall determine the applicable rate of interest

under this subsection 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.

(l) Interest rates for new loans on or after July 1, 2006

(1) In general

Notwithstanding subsection (h) 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,

2006, the applicable rate of interest shall be 6.8 percent on the

unpaid principal balance of the loan.

(2) PLUS loans

Notwithstanding subsection (h) of this section, with respect to

any loan under section 1078-2 of this title for which the first

disbursement is made on or after July 1, 2006, the applicable

rate of interest shall be 7.9 percent on the unpaid principal

balance of the loan.

(3) Consolidation loans

With 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, 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.

(m) Lesser rates permitted

Nothing in this section or section 1078-3 of this title shall be

construed to prohibit a lender from charging a borrower interest at

a rate less than the rate which is applicable under this part.

(n) Definitions

For the purpose of subsections (a) and (d) of this section -

(1) the term ''period of instruction'' shall, at the discretion

of the lender, be any academic year, semester, trimester,

quarter, or other academic period; or shall be the period for

which the loan is made as determined by the institution of higher

education; and

(2) the term ''period of enrollment'' shall be the period for

which the loan is made as determined by the institution of higher

education and shall coincide with academic terms such as academic

year, semester, trimester, quarter, or other academic period as

defined by such institution.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 427A, as added Pub. L. 99-498,

title IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1364; amended Pub.

L. 100-50, Sec. 10(d)(1), June 3, 1987, 101 Stat. 342; Pub. L.

102-325, title IV, Sec. 415, July 23, 1992, 106 Stat. 514; Pub. L.

103-66, title IV, Sec. 4101, Aug. 10, 1993, 107 Stat. 364; Pub. L.

103-208, Sec. 2(c)(5)-(10), Dec. 20, 1993, 107 Stat. 2461; Pub. L.

105-178, title VIII, Sec. 8301(a)(1), June 9, 1998, 112 Stat. 496;

Pub. L. 105-244, title IV, Sec. 416(a)(1), Oct. 7, 1998, 112 Stat.

1679; Pub. L. 106-554, Sec. 1(a)(1) (title III, Sec. 318(a)), Dec.

21, 2000, 114 Stat. 2763, 2763A-49; Pub. L. 107-139, Sec. 1(a)(1),

(c), Feb. 8, 2002, 116 Stat. 8, 9.)

-REFTEXT-

REFERENCES IN TEXT

Section 1078-1 of this title, referred to in subsecs. (c) to

(e)(1), was repealed by Pub. L. 103-66, title IV, Sec. 4047(b)-(d),

Aug. 10, 1993, 107 Stat. 364, eff. July 1, 1994, except with

respect to loans provided under that section as it existed prior to

Aug. 10, 1993. Subsequently, a new section 1078-1, relating to

voluntary flexible agreements with guaranty agencies, was enacted

by Pub. L. 105-244, title IV, Sec. 418, Oct. 7, 1998, 112 Stat.

1691.

-COD-

CODIFICATION

Amendments by section 2(c)(6)-(10) of Pub. L. 103-208 (which were

effective as if included in Pub. L. 102-325) were executed to this

section as amended by Pub. L. 102-325 and Pub. L. 103-66, to

reflect the probable intent of Congress.

-MISC3-

PRIOR PROVISIONS

A prior section 1077a, Pub. L. 89-329, title IV, Sec. 427A, as

added Pub. L. 96-374, title IV, Sec. 415(a)(1), Oct. 3, 1980, 94

Stat. 1419; amended Pub. L. 97-35, title V, Sec. 534(a)(1), Aug.

13, 1981, 95 Stat. 454; Pub. L. 98-79, Sec. 5(a), (b)(1), Aug. 15,

1983, 97 Stat. 481, 482, prescribed applicable interest rates on

loans, prior to the general revision of this part by Pub. L.

99-498.

AMENDMENTS

2002 - Subsec. (k). Pub. L. 107-139, Sec. 1(c), substituted

''2006'' for ''2003'' in heading and ''July 1, 2006,'' for ''July

1, 2003,'' wherever appearing in text.

Subsecs. (l) to (n). Pub. L. 107-139, Sec. 1(a)(1), added subsec.

(l) and redesignated former subsecs. (l) and (m) as (m) and (n),

respectively.

2000 - Subsec. (c)(4)(B). Pub. L. 106-554 amended subpar. (B)

generally. Prior to amendment, subpar. (B) read as follows: ''For

any 12-month period beginning on July 1 and ending on June 30, 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.''

1998 - Subsec. (j). Pub. L. 105-178, Sec. 8301(a)(1)(B), added

subsec. (j). Former subsec. (j) redesignated (k).

Subsec. (k). Pub. L. 105-244, Sec. 416(a)(1)(B), added subsec.

(k). Former subsec. (k) redesignated (l).

Pub. L. 105-178, Sec. 8301(a)(1)(A), redesignated subsec. (j) as

(k). Former subsec. (k) redesignated (l).

Subsec. (l). Pub. L. 105-244, Sec. 416(a)(1)(A), redesignated

subsec. (k) as (l). Former subsec. (l) redesignated (m).

Pub. L. 105-178, Sec. 8301(a)(1)(A), redesignated subsec. (k) as

(l).

Subsec. (m). Pub. L. 105-244, Sec. 416(a)(1)(A), redesignated

subsec. (l) as (m).

1993 - Subsec. (c)(4)(E). Pub. L. 103-66, Sec. 4101(1), added

subpar. (E).

Subsec. (e)(1). Pub. L. 103-208, Sec. 2(c)(5), substituted

''under section 1077, 1078, or 1078-8 of this title'' for ''under

this part''.

Subsecs. (f) to (h). Pub. L. 103-66, Sec. 4101(3), added subsecs.

(f) to (h). Former subsecs. (f) to (h) redesignated (i) to (k),

respectively.

Subsec. (i). Pub. L. 103-66, Sec. 4101(2), redesignated subsec.

(f) as (i).

Subsec. (i)(1)(B). Pub. L. 103-208, Sec. 2(c)(6), amended subpar.

(B) generally. Prior to amendment, subpar. (B) read as follows:

''by crediting the excess interest to the reduction of principal to

the extent provided for under paragraph (5) of this subsection.''

See Codification note above.

Subsec. (i)(2)(B). Pub. L. 103-208, Sec. 2(c)(7), substituted

''average daily principal balance'' for ''outstanding principal

balance'' and ''during'' for ''at the end of''. See Codification

note above.

Subsec. (i)(4)(B). Pub. L. 103-208, Sec. 2(c)(8), substituted

''average daily principal balance'' for ''outstanding principal

balance'' and ''during'' for ''at the end of''. See Codification

note above.

Subsec. (i)(5). Pub. L. 103-208, Sec. 2(c)(9)(A)(i), (B),

substituted ''paragraphs (2) and (4)'' for ''paragraph (2)'' in

first sentence and inserted '', but the excess interest shall be

calculated and credited to the Secretary'' after ''required payment

on the loan'' in second sentence. See Codification note above.

Pub. L. 103-208, Sec. 2(c)(9)(A)(ii), which directed substitution

of ''principal'' for ''principle'' in first sentence, could not be

executed because the word ''principle'' does not appear in text.

Subsec. (i)(7). Pub. L. 103-208, Sec. 2(c)(10), added par. (7).

See Codification note above.

Subsecs. (j), (k). Pub. L. 103-66, Sec. 4101(2), redesignated

subsecs. (g) and (h) as (j) and (k), respectively.

1992 - Subsec. (c)(4)(D). Pub. L. 102-325, Sec. 415(a), added

subpar. (D).

Subsec. (e). Pub. L. 102-325, Sec. 415(c)(2), added subsec. (e).

Former subsec. (e) redesignated (f).

Pub. L. 102-325, Sec. 415(b), amended par. (1) heading and

substituted ''paragraph (5)'' for ''paragraph (3)'' in par. (1)(B),

amended par. (2) heading, added pars. (3) and (4), redesignated

former par. (3) as (5), struck out ''or'' before ''by reducing the

number'' and inserted '', or by reducing the amount of the final

payment of the loan. Nothing in this paragraph shall be construed

to require the lender to make additional disclosures pursuant to

section 1083(b) of this title'' before period at end, redesignated

former par. (4) as (6), and struck out former par. (5) which

provided for study of treatment of excess interest payments

provisions.

Subsecs. (f) to (h). Pub. L. 102-325, Sec. 415(c)(1),

redesignated subsecs. (e) to (g) as (f) to (h), respectively.

1987 - Subsec. (c)(4)(A). Pub. L. 100-50, Sec. 10(d)(1)(A), (B),

substituted ''and disbursed on or after July 1, 1987'' for ''to

cover the cost of instruction for any period of enrollment

beginning on or after July 1, 1987'' and ''any 12-month period

beginning on or after July 1 and ending on June 30'' for ''any

calendar year''.

Subsec. (c)(4)(B). Pub. L. 100-50, Sec. 10(d)(1)(C), added

subpar. (B) and struck out former subpar. (B) which read as

follows: ''For any calendar year, the rate determined under this

subparagraph is determined on December 15 preceding such calendar

year and is equal to -

''(i) the average of the bond equivalent rates of 91-day

Treasury bills auctioned during the 12 months ending on November

30 preceding such calendar year; plus

''(ii) 3.75 percent.''

EFFECTIVE DATE OF 1998 AMENDMENT

Pub. L. 105-244, title IV, Sec. 416(c), Oct. 7, 1998, 112 Stat.

1682, provided that: ''The amendments made by this section

(amending this section and sections 1078-2, 1078-3, and 1087-1 of

this title) shall apply with respect to any loan made, insured, or

guaranteed under part B of title IV of the Higher Education Act of

1965 (20 U.S.C. 1071 et seq.) for which the first disbursement is

made on or after October 1, 1998, and before July 1, 2003, except

that such amendments shall apply with respect to any loan made

under section 428C of such Act (20 U.S.C. 1078-3) for which the

application is received by an eligible lender on or after October

1, 1998, and before July 1, 2003.''

EFFECTIVE DATE OF 1993 AMENDMENT

Amendment by section 2(c)(5) of Pub. L. 103-208 effective on and

after Dec. 20, 1993, and amendment by section 2(c)(6)-(10) of Pub.

L. 103-208 effective, except as otherwise provided, as if included

in the Higher Education Amendments of 1992, Pub. L. 102-325, see

section 5(a), (b)(2) of Pub. L. 103-208, set out as a note under

section 1051 of this title.

EFFECTIVE DATE OF 1987 AMENDMENT

Amendment by Pub. L. 100-50 effective as if enacted as part of

the Higher Education Amendments of 1986, Pub. L. 99-498, see

section 27 of Pub. L. 100-50, set out as a note under section 1001

of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1077, 1078, 1078-2,

1078-3, 1078-8, 1087-1 of this title; title 42 section 7274e.

-CITE-

20 USC Sec. 1078 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1078. Federal payments to reduce student interest costs

-STATUTE-

(a) Federal interest subsidies

(1) Types of loans that qualify

Each student who has received a loan for study at an eligible

institution -

(A) which is insured by the Secretary under this part; or

(B) which is insured under a program of a State or of a

nonprofit private institution or organization which was

contracted for, and paid to the student, within the period

specified in paragraph (5), and which -

(i) in the case of a loan insured prior to July 1, 1967,

was made by an eligible lender and is insured under a program

which meets the requirements of subparagraph (E) of

subsection (b)(1) of this section 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)

of this section) 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) of

this section,

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; and

(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, expected family contribution (as determined

under part E of this subchapter), subject to the provisions of

subparagraph (D).

(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 part C of subchapter I of

chapter 34 of title 42 and part D of this subchapter;

(II) any veterans' education benefits paid because of

enrollment in a postsecondary education institution,

including veterans' education benefits (as defined in section

1087vv(c) of this title, but excluding benefits described in

paragraph (2)(E) of such section); plus

(III) other scholarship, grant, or loan assistance, but

excluding 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

(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 E of

this subchapter.

(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

(FOOTNOTE 1) 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 expected family contribution of the

student for that year.

(FOOTNOTE 1) See References in Text note below.

(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 beginning of the repayment

period of the loan, or

(II) which accrues during a period in which principal need

not be paid (whether or not such principal is in fact paid) by

reason of a provision described in subsection (b)(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) of this section 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; or

(II) in the case of a loan disbursed by electronic funds

transfer, 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) of this section,

(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) of this

section 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

Each holder of a loan with respect to which payments of

interest are required to be made by the Secretary shall submit to

the Secretary, at such time or times and in such manner as the

Secretary may prescribe, statements containing such information

as may be required by or pursuant to regulation for the purpose

of enabling the Secretary to determine the amount of the payment

which he must make with respect to that loan.

(5) Duration of authority to make interest subsidized loans

The period referred to in subparagraph (B) of paragraph (1) of

this subsection shall begin on November 8, 1965, and end at the

close of September 30, 2004, except that, in the case of a loan

made or insured under a student loan or loan insurance program to

enable a student who has obtained a prior loan made or insured

under such program to continue his or her education program, such

period shall end at the close of September 30, 2008.

(6) Assessment of borrower's financial condition not prohibited

or required

Nothing in this chapter or any other Act shall be construed to

prohibit or require, unless otherwise specifically provided by

law, a lender to evaluate the total financial situation of a

student making application for a loan under this part, or to

counsel a student with respect to any such loan, or to make a

decision based on such evaluation and counseling with respect to

the dollar amount of any such loan.

(7) Loans that have not been consummated

Lenders may not charge interest or receive interest subsidies

or special allowance payments for loans for which the

disbursement checks have not been cashed or for which electronic

funds transfers have not been completed.

(b) Insurance program agreements to qualify loans for interest

subsidies

(1) Requirements of insurance program

Any 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) of this section 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) $2,625, 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) $3,500; 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 (FOOTNOTE 2) or

1078-2 of this title; and

(FOOTNOTE 2) See References in Text note below.

(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 (FOOTNOTE

2) 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;

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) of this section;

(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 such program shall

insure 100 percent of the unpaid principal of loans made with

funds advanced pursuant to subsection (j) of this section or

section 1087-2(q) of this title;

(H) provides for 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

insures that the proceeds of the premium will not be used for

incentive payments to lenders;

(I) provides that the benefits of the loan insurance program

will not be denied any student who is eligible for interest

benefits under subsection (a)(1) and (2) of this section;

(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) or (iii) 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 and part C of subchapter I of chapter 34 of

title 42 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 (FOOTNOTE 3) 1078-2 or 1078-3 of this title),

while serving in a medical internship or residency program;

(FOOTNOTE 3) So in original. Probably should be followed by

''section''.

(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; or

(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;

(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; or

(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 or at an eligible foreign institution, 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

authorized, pursuant to an authorized power-of-attorney;

(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 (FOOTNOTE 4) and 1078-2 of this

title;

(FOOTNOTE 4) See References in Text note below.

(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 and part C

of subchapter I of chapter 34 of title 42 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) of this section 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 receipt of -

(I) a request for deferment from the borrower and

documentation of the borrower's eligibility for the

deferment;

(II) a newly completed loan application that documents

the borrower's eligibility for a deferment; or

(III) student status information received by the lender

that the borrower is enrolled on at least a half-time

basis; and

(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.

(2) Contents of insurance program agreement

Such an agreement shall -

(A) provide that the holder of any such loan will be required

to submit to the Secretary, at such time or times and in such

manner as the Secretary may prescribe, statements containing

such information as may be required by or pursuant to

regulation for the purpose of enabling the Secretary to

determine the amount of the payment which must be made with

respect to that loan;

(B) include such other provisions as may be necessary to

protect the United States from the risk of unreasonable loss

and promote the purpose of this part, including such provisions

as may be necessary for the purpose of section 1087 of this

title, and as are agreed to by the Secretary and the guaranty

agency, as the case may be;

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; and

(IV) the telephone numbers of both the transferor and the

transferee; 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) of this

section or is in repayment status.

(3) Restrictions on inducements, mailings, and advertising

A guaranty agency shall not -

(A) offer, directly or indirectly, premiums, payments, or

other inducements to any educational institution or its

employees in order to secure applicants for loans under this

part;

(B) offer, directly or indirectly, any premium, incentive

payment, or other inducement to 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 under section 1078-8 of this title

or a loan made as part of a guaranty agency's

lender-of-last-resort program) for the purpose of securing the

designation of that guaranty agency as the insurer of such

loans;

forms to students enrolled in secondary school or a

postsecondary institution, or to parents of such students,

except that applications may be mailed to borrowers who have

previously received loans guaranteed under this part by the

guaranty agency; or

(D) conduct fraudulent or misleading advertising concerning

loan availability.

It shall not be a violation of this paragraph for a guaranty

agency to provide assistance to institutions of higher education

comparable to the kinds of assistance provided to institutions of

higher education by the Department of Education.

(4) Special rule

For the purpose of paragraph (1)(M)(i)(III) of this subsection,

the Secretary shall approve any course of study at a foreign

university that is accepted for the completion of a recognized

international fellowship program by the administrator of such a

program. Requests for deferment of repayment of loans under this

part by students engaged in graduate or postgraduate

fellowship-supported study (such as pursuant to a Fulbright

grant) outside the United States shall be approved until

completion of the period of the fellowship.

(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.

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

Each guaranty agency is authorized to enter into agreements

with each appropriate State licensing board under which the State

licensing board, upon request, will furnish the guaranty agency

with the address of a student borrower in any case in which the

location of the student borrower is unknown or unavailable to the

guaranty agency.

(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 -

(i) 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); or

(ii) on an earlier date if the borrower requests and is

granted a repayment schedule that provides for repayment to

commence at an earlier date.

(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 clause (i) or (ii) of subparagraph (A), but interest shall

begin to accrue or be paid by the borrower on the day the loan is

disbursed.

5) 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.

(FOOTNOTE 5) See References in Text note below.

(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)(i) 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

Nothing in this subchapter and part C of subchapter I of

chapter 34 of title 42 shall be interpreted to prohibit the

disbursement of loan proceeds by means other than by check or to

allow the Secretary to require checks to be made co-payable to

the institution and the borrower.

(9) Repayment plans

(A) Design and selection

In 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 (FOOTNOTE 6) a shorter period. The

borrower may choose from -

(FOOTNOTE 6) So in original.

(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; and

(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).

(B) Lender selection of option if borrower does not select

If a borrower of a loan made under this part does not select

a repayment plan described in subparagraph (A), the lender

shall provide the borrower with a repayment plan described in

subparagraph (A)(i).

(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 95 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 45 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.

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) Reimbursements of losses made by the Secretary on loans

submitted for claim by an eligible lender, servicer, or guaranty

agency designated for exceptional performance under section

1078-9 of this title shall not be subject to additional review by

the Secretary or repurchase by the guaranty agency for any reason

other than a determination by the Secretary that the eligible

lender, servicer, or guaranty agency engaged in fraud or other

purposeful misconduct in obtaining designation for exceptional

performance.

(E) 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'';

(ii) subparagraph (B)(i) by substituting ''100 percent'' for

''85 percent''; and

(iii) subparagraph (B)(ii) by substituting ''100 percent''

for ''75 percent''.

(F) 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'';

(ii) subparagraph (B)(i) by substituting ''90 percent'' for

''85 percent''; and

(iii) subparagraph (B)(ii) by substituting ''80 percent'' for

''75 percent''.

(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 agreements

The 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 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);

(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;

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)) 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

preclaims assistance activities have been requested under

subsection (l) of this section;

(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) Forbearance

A 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 in writing by the parties to the loan with the approval of

the insurer, 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 and part C

of subchapter I of chapter 34 of title 42 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;

(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) of this

section;

(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 credit bureau organization 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;

(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; and

(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) of this

section; 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) of this section 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

For the purpose of this subsection, the terms ''insurance

beneficiary'' and ''default'' have the meanings assigned to them

by section 1085 of this title.

(5) Applicability to existing loans

In the case of any guaranty agreement with a guaranty agency,

the Secretary may, in accordance with the terms of this

subsection, undertake to guarantee loans described in paragraph

(1) which are insured by such guaranty agency and are outstanding

on the date of execution of the guaranty agreement, but only with

respect to defaults occurring after the execution of such

guaranty agreement or, if later, after its effective date.

(6) Secretary's equitable share

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 -

(A) 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

(B) an amount equal to 24 percent of such payments for use in

accordance with section 1072b of this title, except that,

beginning on October 1, 2003, this subparagraph shall be

applied by substituting ''23 percent'' for ''24 percent''.

(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) of this

section or is one of the 4 succeeding fiscal years.

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

If the Secretary determines that the protection of the Federal

fiscal interest so requires, a guaranty agency shall assign to

the Secretary any loan of which it is the holder and for which

the Secretary has made a payment pursuant to paragraph (1) of

this subsection.

(9) 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.

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)

of this section;

(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 3 months after the end of each fiscal

year, shall submit to the House Committee on Education and the

Workforce and the Senate Committee on Labor and Human Resources a

report specifying the Secretary's assessment of the fiscal

soundness of the guaranty agency system.

(d) Usury laws inapplicable

No provision of any law of the United States (other than this

chapter) 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) Notice of availability of income-sensitive repayment option

At the time of offering a borrower a loan under this part, and at

the time of offering the borrower the option of repaying a loan in

accordance with this section, the lender shall provide the borrower

with a notice that informs the borrower, in a form prescribed by

the Secretary by regulation -

(1) that all borrowers are eligible for income-sensitive

repayment, including through loan consolidation under section

1078-3 of this title;

(2) the procedures by which the borrower may elect

income-sensitive repayment; and

(3) where and how the borrower may obtain additional

information concerning income-sensitive repayment.

(f) Payments of certain costs

(1) (FOOTNOTE 7) Payment for certain activities

(FOOTNOTE 7) So in original. No par. (2) has been enacted.

(A) In general

The 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 during fiscal years beginning on

or after 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 0.40 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

The payment required by subparagraph (A) shall be paid on a

quarterly basis. The guaranty agency shall be deemed to have a

contractual right against the United States to receive payments

according to the provisions of this paragraph. Payments shall

be made promptly and without administrative delay to any

guaranty agency submitting an accurate and complete application

under this subparagraph.

No payment may be made under this paragraph for loans for

which the disbursement checks have not been cashed or for which

electronic funds transfers have not been completed.

(g) Action on insurance program and guaranty agreements

If a nonprofit private institution or organization -

(1) applies to enter into an agreement with the Secretary under

subsections (b) and (c) of this section 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) of this

section, 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 Committee on Labor and

Human Resources of the Senate and the Committee on Education and

the Workforce of the House of Representatives of his actions.

(h) Lending by guaranty agencies

(1) Lending from Sallie Mae advances

From sums advanced by the Association pursuant to section

1087-2(p) of this title, each guaranty agency or an eligible

lender in a State described in section 1085(d)(1)(D) or (F) of

this title is authorized to make loans directly to students

otherwise unable to obtain loans under this part.

(2) Amount of advances

(A) Each guaranty agency or an eligible lender in a State

described in section 1085(d)(1)(D) or (F) of this title which has

an application approved under section 1087-2(p)(2) of this title

may receive advances under section 1087-2(p) of this title for

each fiscal year in an amount necessary to meet the demand for

loans under this section. The amount such agency or lender is

eligible to receive may not exceed 25 percent of the average of

the loans guaranteed by that agency or lender for the 3 years

preceding the fiscal year for which the determination is made.

Whenever the determination required by the preceding sentence

cannot be made because the agency or lender does not have 3 years

previous experience, the amount such agency or lender is eligible

to receive may not exceed 25 percent of the loans guaranteed

under a program of a State of comparable size.

(B) Each guaranty agency and each eligible lender in a State

described in section 1085(d)(1)(D) or (F) of this title shall

repay advances made under section 1087-2(p) of this title in

accordance with agreements entered into between the Association

and such agency or lender.

(3) Loan term, conditions, and benefits

Loans made pursuant to this subsection shall have the same

terms, conditions, and benefits as all other loans made under

this part.

(i) Multiple disbursement of loans

(1) Escrow accounts administered by escrow agent

Any guaranty agency or eligible lender (hereafter in this

subsection referred to as the ''escrow agent'') may enter into an

agreement with any other eligible lender that is not an eligible

institution or an agency or instrumentality of the State

(hereafter in this subsection referred to as the ''lender'') for

the purpose of authorizing disbursements of the proceeds of a

loan to a student. Such agreement shall provide that the lender

will pay the proceeds of such loans into an escrow account to be

administered by the escrow agent in accordance with the

provisions of paragraph (2) of this subsection. Such agreement

may allow the lender to make payments into the escrow account in

amounts that do not exceed the sum of the amounts required for

disbursement of initial or subsequent installments to borrowers

and to make such payments not more than 21 days prior to the date

of the disbursement of such installment to such borrowers. Such

agreement shall require the lender to notify promptly the

eligible institution when funds are escrowed under this

subsection for a student at such institution.

(2) Authority of escrow agent

Each escrow agent entering into an agreement under paragraph

(1) of this subsection is authorized to -

(A) make the disbursements in accordance with the note

evidencing the loan;

(B) commingle the proceeds of all loans paid to the escrow

agent pursuant to the escrow agreement entered into under such

paragraph (1);

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) General requirement

In each State, the guaranty agency or an eligible lender in the

State described in section 1085(d)(1)(D) of this title shall make

loans directly, or through an agreement with an eligible lender

or lenders, to students eligible to receive interest benefits

paid on their behalf under subsection (a) of this section who are

otherwise unable to obtain loans under this part. Loans made

under this subsection shall not exceed the amount of the need of

the borrower, as determined under subsection (a)(2)(B) of this

section, nor be less than $200. The guaranty agency shall

consider the request of any eligible lender, as defined under

section 1085(d)(1)(A) of this title, to serve as the

lender-of-last-resort pursuant to this subsection.

(2) Rules and operating procedures

The 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 and part C of subchapter I of chapter 34 of title 42

in order to receive a loan under this part from an eligible

lender, nor be required to receive more than two rejections

from eligible lenders in order to obtain a loan under this

subsection;

program is made available to institutions of higher education

in the State;

(D) appropriate steps are taken to ensure that borrowers

receiving loans under the program are appropriately counseled

on their loan obligation; and

(E) the guaranty agency notifies the Secretary when the

guaranty agency believes or has reason to believe that the

Secretary may need to exercise the Secretary's authority under

section 1087-2(q) of this title.

(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.

subparagraph (A) only if the Secretary determines that eligible

borrowers are seeking and are unable to obtain loans under this

part, 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.

(k) Information on defaults

(1) Provision of information to eligible institutions

Notwithstanding any other provision of law, in order to notify

eligible institutions of former students who are in default of

their continuing obligation to repay student loans, each guaranty

agency shall, upon the request of an eligible institution,

furnish information with respect to students who were enrolled at

the eligible institution and who are in default on the repayment

of any loan made, insured, or guaranteed under this part. The

information authorized to be furnished under this subsection

shall include the names and addresses of such students.

(2) Public dissemination not authorized

Nothing in paragraph (1) of this subsection shall be construed

to authorize public dissemination of the information described in

paragraph (1).

(3) Borrower location information

Any information provided by the institution relating to

borrower location shall be used by the guaranty agency in

conducting required skip-tracing activities.

(l) Default aversion assistance

(1) Assistance required

Upon receipt of a complete request from a lender received not

earlier than the 60th day of delinquency, a guaranty agency

having an agreement with the Secretary under subsection (c) of

this section shall engage in default aversion activities designed

to prevent the default by a borrower on a loan covered by such

agreement.

(2) Reimbursement

(A) In general

A guaranty agency, in accordance with the provisions of this

paragraph, may transfer from the Federal Student Loan Reserve

Fund under section 1072a of this title to the Agency Operating

Fund under section 1072b of this title a default aversion fee.

Such fee shall be paid for any loan on which a claim for

default has not been paid as a result of the loan being brought

into current repayment status by the guaranty agency on or

before the 300th day after the loan becomes 60 days delinquent.

(B) Amount

The 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.

For the purpose of earning the default aversion fee, the term

''current repayment status'' means that the borrower is not

delinquent in the payment of any principal or interest on the

loan.

(m) Income contingent repayment

(1) Authority of Secretary to require

The Secretary may require borrowers who have defaulted on loans

made under this part that are assigned to the Secretary under

subsection (c)(8) of this section to repay those loans under an

income contingent repayment plan, the terms and conditions of

which shall be established by the Secretary and the same as, or

similar to, an income contingent repayment plan established for

purposes of part C of this subchapter.

(2) Loans for which income contingent repayment may be required

A loan made under this part may be required to be repaid under

this subsection if the note or other evidence of the loan has

been assigned to the Secretary pursuant to subsection (c)(8) of

this section.

(n) Blanket certificate of loan guaranty

(1) In general

Subject 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

During fiscal years 1999 and 2000, the Secretary may permit, on

a pilot basis, a limited number of guaranty agencies to offer

blanket certificates of guaranty under this subsection.

Beginning in fiscal year 2001, any guaranty agency that has an

insurance program agreement with the Secretary may offer blanket

certificates of guaranty under this subsection.

(4) Report required

The Secretary shall, at the conclusion of the pilot program

under paragraph (3), provide a report to the Committee on

Education and the Workforce of the House of Representatives and

the Committee on Labor and Human Resources of the Senate on the

impact of the blanket certificates of guaranty on program

efficiency and integrity.

(o) Armed Forces student loan interest payment program

(1) Authority

Using funds received by transfer to the Secretary under section

2174 of title 10 for the payment of interest and any special

allowance on a loan to a member of the Armed Forces that is made,

insured, or guaranteed under this part, the Secretary shall pay

the interest and special allowance on such loan as due for a

period not in excess of 36 consecutive months. The Secretary may

not pay interest or any special allowance on such a loan out of

any funds other than funds that have been so transferred.

(2) Forbearance

During the period in which the Secretary is making payments on

a loan under paragraph (1), the lender shall grant the borrower

forbearance in accordance with the guaranty agreement under

subsection (c)(3)(A)(i)(IV) of this section.

(3) Special allowance defined

For the purposes of this subsection, the term ''special

allowance'', (FOOTNOTE 8) means a special allowance that is

payable with respect to a loan under section 1087-1 of this

title.

(FOOTNOTE 8) So in original. The comma probably should not

appear.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 428, as added Pub. L. 99-498, title

IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1367; amended Pub. L.

100-50, Sec. 10(a)-(c), (e)-(m), June 3, 1987, 101 Stat. 341-343;

Pub. L. 100-203, title III, Sec. 3001(b), 3002(b), 3003, Dec. 22,

1987, 101 Stat. 1330-38, 1330-39; Pub. L. 100-369, Sec. 5(b)(2),

7(c), 11(a), July 18, 1988, 102 Stat. 836-838; Pub. L. 101-239,

title II, Sec. 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,

Sec. 3002, 3004(b), Nov. 5, 1990, 104 Stat. 1388-25, 1388-27; Pub.

L. 102-26, Sec. 9, Apr. 9, 1991, 105 Stat. 128; Pub. L. 102-164,

title VI, Sec. 601(b), 602(b), 604, 605(b)(2), Nov. 15, 1991, 105

Stat. 1065, 1066, 1068; Pub. L. 102-325, title IV, Sec. 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, Sec. 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, Sec. 102(c)(1), Sept.

21, 1993, 107 Stat. 823; Pub. L. 103-208, Sec. 2(c)(11)-(28), Dec.

20, 1993, 107 Stat. 2462-2465; Pub. L. 103-382, title III, Sec.

355(a), Oct. 20, 1994, 108 Stat. 3967; Pub. L. 105-33, title VI,

Sec. 6101(b), 6104(2), Aug. 5, 1997, 111 Stat. 652; Pub. L.

105-244, title IV, Sec. 417(a)-(c)(1)(A), (2)-(k), Oct. 7, 1998,

112 Stat. 1682-1690; Pub. L. 107-314, div. A, title VI, Sec.

651(b), Dec. 2, 2002, 116 Stat. 2579.)

-REFTEXT-

REFERENCES IN TEXT

The National and Community Service Act of 1990, referred to in

subsec. (a)(2)(C)(ii)(III), is Pub. L. 101-610, Nov. 16, 1990, 104

Stat. 3127, as amended. Title I of the Act enacted subchapter I

(Sec. 12511 et seq.) of chapter 129 of Title 42, The Public Health

and Welfare, and amended sections 1070a-6 and 1087vv of this

title. For complete classification of this Act to the Code, see

Short Title note set out under section 12501 of Title 42 and

Tables.

Section 1078-1 of this title, referred to in subsecs. (a)(2)(E)

and (b)(1)(B), (Q), (7)(C), was repealed by Pub. L. 103-66, title

IV, Sec. 4047(b)-(d), Aug. 10, 1993, 107 Stat. 364, eff. July 1,

1994, except with respect to loans provided under that section as

it existed prior to Aug. 10, 1993. Subsequently, a new section

1078-1, relating to voluntary flexible agreements with guaranty

agencies, was enacted by Pub. L. 105-244, title IV, Sec. 418, Oct.

7, 1998, 112 Stat. 1691.

This chapter, referred to in subsecs. (a)(6), (c)(9)(F)(iii), and

(d), was in the original ''this Act'', meaning Pub. L. 89-329, as

amended, known as the Higher Education Act of 1965. For complete

classification of this Act to the Code, see Short Title note set

out under section 1001 of this title and Tables.

The Higher Education Amendments of 1992, referred to in subsec.

(c)(3)(A)(i)(I), is Pub. L. 102-325, July 23, 1992, 106 Stat. 448,

as amended. For complete classification of this Act to the Code,

see Short Title of 1992 Amendment note set out under section 1001

of this title and Tables.

The National and Community Service Trust Act of 1993, referred to

in subsec. (c)(3)(A)(i)(III), is Pub. L. 103-82, Sept. 21, 1993,

107 Stat. 785. For complete classification of this Act to the Code,

see Short Title of 1993 Amendment note set out under section 12501

of Title 42, The Public Health and Welfare, and Tables.

-COD-

CODIFICATION

Amendments by section 2(c)(17), (26), (27) of Pub. L. 103-208

(which were effective as if included in Pub. L. 102-325) were

executed to this section as amended by Pub. L. 102-325, Pub. L.

103-66, and Pub. L. 103-82, to reflect the probable intent of

Congress.

-MISC3-

PRIOR PROVISIONS

A prior section 1078, Pub. L. 89-329, title IV, Sec. 428, Nov. 8,

1965, 79 Stat. 1240; Pub. L. 90-460, Sec. 1(a)(2), 2(a)(2), (b)(1),

(2), 3(b), Aug. 3, 1968, 82 Stat. 634-636; Pub. L. 90-575, title I,

Sec. 111(a), (b)(1), 112(b), 113(b)(3), (4), 115(a)(1)-(3), (b),

116(b)(3), 117(a), (b), 120(a)(1), (b), (c)(1), Oct. 16, 1968, 82

Stat. 1020-1027; Pub. L. 92-318, title I, Sec. 132(b), 132A(b),

132C(a), (b), 132D(b)-(d), June 23, 1972, 86 Stat. 261-264; Pub. L.

93-269, Sec. 2-4, Apr. 18, 1974, 88 Stat. 87, 89; Pub. L. 94-328,

Sec. 2(b), June 30, 1976, 90 Stat. 727; Pub. L. 94-482, title I,

Sec. 127(a), Oct. 12, 1976, 90 Stat. 2108; S. Res. 4, Feb. 4, 1977;

Pub. L. 95-43, Sec. 1(a)(19)-(29), June 15, 1977, 91 Stat. 214-216;

Pub. L. 95-566, Sec. 5(a)(2), (b)(1), (3)-(5), Nov. 1, 1978, 92

Stat. 2403; S. Res. 30, Mar. 7, 1979; Pub. L. 96-49, Sec. 5(b),

Aug. 13, 1979, 93 Stat. 352; Pub. L. 96-374, title IV, Sec. 411(b),

412(c), (d), (f), 413(b), (d), 414, 415(a)(3)-(5), (b)(2), 417,

423(a)(2), (b)-(d), title XIII, Sec. 1391(a)(1), (2), Oct. 3, 1980,

94 Stat. 1416-1420, 1422, 1432, 1503; Pub. L. 97-35, title V, Sec.

532(a), (b)(1), 535(c), (d), 536(b), 537(a)(1), (b)(2), (c),

(d)(1), (e)(2), Aug. 13, 1981, 95 Stat. 451, 452, 455-457; Pub. L.

98-79, Sec. 10(b), Aug. 15, 1983, 97 Stat. 484; Pub. L. 99-272,

title XVI, Sec. 16012(b), 16013(a), (c), (e)(2), (3), 16014(a)(1),

(b)(1), (2) formerly (1), (3) formerly (2), 16015(b), 16016,

16018(a)(2), 16021, 16032(c), Apr. 7, 1986, 100 Stat. 340-343, 348,

349, 355, renumbered and amended, Pub. L. 99-320, Sec. 2(a), (b),

May 23, 1986, 100 Stat. 491, related to Federal interest subsidy

payments, prior to the general revision of this part by Pub. L.

99-498.

A prior section 1078a, Pub. L. 91-95, Sec. 2, Oct. 22, 1969, 83

Stat. 141; Pub. L. 92-318, title I, Sec. 134(a), June 23, 1972, 86

Stat. 270; Pub. L. 93-269, Sec. 5, Apr. 18, 1974, 88 Stat. 89; Pub.

L. 94-328, Sec. 2(c), June 30, 1976, 90 Stat. 727; Pub. L. 94-482,

title I, Sec. 127(c)(1), Oct. 12, 1976, 90 Stat. 2142, related to

special allowances for insured student loans, prior to repeal by

Pub. L. 94-482, title I, Sec. 127(c)(2), Oct. 12, 1976, 90 Stat.

2142.

AMENDMENTS

2002 - Subsec. (c)(3)(A)(i)(IV). Pub. L. 107-314, Sec.

651(b)(1)(A), added subcl. (IV).

Subsec. (c)(3)(A)(ii)(II). Pub. L. 107-314, Sec. 651(b)(1)(B),

inserted ''or (IV)'' after ''(i)(II)''.

Subsec. (c)(3)(C). Pub. L. 107-314, Sec. 651(b)(1)(C), added

subpar. (C) and struck out former subpar. (C) which read as

follows: ''shall contain provisions that specify that the form of

forbearance granted by the lender for purposes of this paragraph

shall be the 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;

and''.

Subsec. (o). Pub. L. 107-314, Sec. 651(b)(2), added subsec. (o).

1998 - Subsec. (a)(2)(A)(i). Pub. L. 105-244, Sec. 417(a)(1)(A),

added subcls. (I) and (II) and struck out former subcls. (I) to

(III) which read as follows:

''(I) sets forth such student's estimated cost of attendance (as

determined under section 1087ll of this title);

''(II) sets forth such student's estimated financial assistance;

and

''(III) 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;''.

Subsec. (a)(2)(B). Pub. L. 105-244, Sec. 417(a)(1)(B), amended

subpar. (B) generally. Prior to amendment, subpar. (B) read as

follows: ''For the purpose of clause (ii) of subparagraph (A), a

student shall qualify for a portion of an interest payment under

paragraph (1) if the eligible institution has provided the lender

with a statement evidencing a determination of need for a loan (as

determined under part E of this subchapter) and the amount of such

need, subject to the provisions of subparagraph (D).''

Subsec. (a)(2)(C). Pub. L. 105-244, Sec. 417(a)(1)(C), amended

subpar. (C) generally. Prior to amendment, subpar. (C) read as

follows: ''For the purpose of paragraph (1) and this paragraph -

''(i) a student's estimated financial assistance means, for the

period for which the loan is sought, 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 part C

of subchapter I of chapter 34 of title 42 and part D of this

subchapter, and any veterans' education benefits paid because of

enrollment in a postsecondary education institution, including

veterans' education benefits (as defined in section 1087vv(c) of

this title), plus other scholarship, grant, or loan assistance;

and

''(ii) 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 E of this

subchapter.''

Subsec. (a)(2)(F). Pub. L. 105-244, Sec. 417(a)(1)(D), struck out

subpar. (F) which read as follows: ''Except as provided in

subparagraph (D), an eligible institution may refuse to certify a

statement which permits a student to receive a loan under this part

or to certify a loan amount that is less than the student's

determination of need (as determined under part E of this

subchapter), if the reason for such action is documented and

provided in written form to each student so affected.''

Subsec. (a)(5). Pub. L. 105-244, Sec. 417(a)(2), substituted

''September 30, 2004'' for ''September 30, 2002'' and ''September

30, 2008'' for ''September 30, 2006''.

Subsec. (b)(1)(A). Pub. L. 105-244, Sec. 417(b)(1)(A), inserted

'', as defined in section 1088(a)(2) of this title,'' after

''academic year'' in introductory provisions.

Subsec. (b)(1)(A)(i)(I). Pub. L. 105-244, Sec. 417(b)(1)(B)(i),

substituted ''length; and'' for ''length (as determined under

section 1088 of this title);''.

Subsec. (b)(1)(A)(i)(II), (III). Pub. L. 105-244, Sec.

417(b)(1)(B)(ii), added subcl. (II) and struck out former subcls.

(II) and (III) which read as follows:

''(II) $1,750, if such student is enrolled in a program whose

length is less than one academic year, but at least 2/3 of such an

academic year; and

''(III) $875, if such student is enrolled in a program whose

length is less than 2/3, but at least 1/3, of such an academic

year;''.

Subsec. (b)(1)(A)(vi). Pub. L. 105-244, Sec. 417(b)(1)(C)-(E),

added cl. (vi).

Subsec. (b)(1)(D)(ii). Pub. L. 105-244, Sec. 417(b)(2), amended

cl. (ii) generally. Prior to amendment, cl. (ii) read as follows:

''the repayment period of any insured loan may not exceed 10 years,

and''.

Subsec. (b)(1)(E). Pub. L. 105-244, Sec. 417(b)(3), amended

subpar. (E) generally. Prior to amendment, subpar. (E) read as

follows: ''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 1078-1 of this title, the option of repaying

the loan in accordance with a graduated or income-sensitive

repayment schedule established by the lender and in accordance

with regulations of the Secretary; and

''(ii) repayment of loans shall be in installments over a

period of not less than 5 years (unless the student, during the 6

months immediately preceding the start of the repayment period,

specifically requests that repayment be made over a shorter

period) nor more than 10 years commencing at the beginning of the

repayment period determined under paragraph (7) of this

subsection;''.

Subsec. (b)(1)(G). Pub. L. 105-244, Sec. 417(b)(4), struck out

''not less than'' after ''insures''.

Subsec. (b)(1)(L)(i). Pub. L. 105-244, Sec. 417(b)(5), inserted

''except as otherwise provided by a repayment plan selected by the

borrower under clause (ii) or (iii) of paragraph (9)(A),'' before

''during any'' and '', notwithstanding any payment plan under

paragraph (9)(A)'' after ''due and payable''.

Subsec. (b)(1)(M)(i)(I). Pub. L. 105-244, Sec. 417(b)(6)(A),

inserted before semicolon '', except that no borrower,

notwithstanding the provisions of the promissory note, shall be

required to borrow an additional loan under this subchapter and

part C of subchapter I of chapter 34 of title 42 in order to be

eligible to receive a deferment under this clause''.

Subsec. (b)(1)(M)(ii). Pub. L. 105-244, Sec. 417(b)(6)(B),

inserted before semicolon '', 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''.

Subsec. (b)(1)(U)(i)(I), (ii). Pub. L. 105-244, Sec.

417(b)(7)(A), substituted ''emergency action,'' for ''emergency

action,,''.

Subsec. (b)(1)(U)(iii)(I). Pub. L. 105-244, Sec. 417(b)(7)(B),

inserted ''that originates or holds more than $5,000,000 in loans

made under this subchapter and part C of subchapter I of chapter 34

of title 42 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),''

before ''at least once a year''.

Subsec. (b)(1)(X). Pub. L. 105-244, Sec. 417(b)(8)(B)(i),

substituted ''subsection (c)(9)'' for ''subsection (c)(10)''.

Subsec. (b)(1)(Y). Pub. L. 105-244, Sec. 417(b)(8)(A), (B)(ii),

(C), added subpar. (Y).

Subsec. (b)(3). Pub. L. 105-244, Sec. 417(b)(9)(B), inserted

concluding provisions.

Subsec. (b)(3)(C). Pub. L. 105-244, Sec. 417(b)(9)(A), added

subpar. (C) and struck out former subpar. (C) which read as

follows: ''conduct unsolicited mailings to students enrolled in

secondary school of student loan application forms; or''.

Subsec. (b)(7)(D). Pub. L. 105-244, Sec. 417(b)(10), added

subpar. (D).

Subsec. (b)(9). Pub. L. 105-244, Sec. 417(b)(11), added par. (9).

Subsec. (c)(1)(A). Pub. L. 105-244, Sec. 417(c)(1)(A)(i),

substituted ''95 percent'' for ''98 percent''.

Subsec. (c)(1)(B)(i). Pub. L. 105-244, Sec. 417(c)(1)(A)(ii),

substituted ''85 percent'' for ''88 percent''.

Subsec. (c)(1)(B)(ii). Pub. L. 105-244, Sec. 417(c)(1)(A)(iii),

substituted ''75 percent'' for ''78 percent''.

Subsec. (c)(1)(E)(i). Pub. L. 105-244, Sec. 417(c)(1)(A)(iv)(I),

substituted ''95 percent'' for ''98 percent''.

Subsec. (c)(1)(E)(ii). Pub. L. 105-244, Sec.

417(c)(1)(A)(iv)(II), substituted ''85 percent'' for ''88

percent''.

Subsec. (c)(1)(E)(iii). Pub. L. 105-244, Sec.

417(c)(1)(A)(iv)(III), substituted ''75 percent'' for ''78

percent''.

Subsec. (c)(1)(F)(i). Pub. L. 105-244, Sec. 417(c)(1)(A)(v)(I),

substituted ''95 percent'' for ''98 percent''.

Subsec. (c)(1)(F)(ii). Pub. L. 105-244, Sec. 417(c)(1)(A)(v)(II),

substituted ''85 percent'' for ''88 percent''.

Subsec. (c)(1)(F)(iii). Pub. L. 105-244, Sec.

417(c)(1)(A)(v)(III), substituted ''75 percent'' for ''78

percent''.

Subsec. (c)(2)(A). Pub. L. 105-244, Sec. 417(c)(2)(A),

substituted ''proof that the institution was contacted and other

reasonable attempts were made'' for ''proof that reasonable

attempts were made''.

Subsec. (c)(2)(G). Pub. L. 105-244, Sec. 417(c)(2)(B),

substituted ''certifies to the Secretary that diligent attempts,

including contact with the institution, have been made'' for

''certifies to the Secretary that diligent attempts have been

made''.

Subsec. (c)(2)(H)(ii). Pub. L. 105-244, Sec. 417(c)(3), amended

cl. (ii) generally. Prior to amendment, cl. (ii) read as follows:

''the guaranty agency may require the payment by the institution of

a reasonable fee (as determined in accordance with regulations

prescribed by the Secretary) for such information; and''.

Subsec. (c)(3)(A)(i). Pub. L. 105-244, Sec. 417(c)(4)(A), struck

out ''written'' before ''request'' in introductory provisions.

Subsec. (c)(3)(D). Pub. L. 105-244, Sec. 417(c)(4)(B)-(D), added

subpar. (D).

Subsec. (c)(6). Pub. L. 105-244, Sec. 417(c)(5), amended heading

and text of par. (6) generally, revising and restating provisions

relating to Secretary's equitable share.

Subsec. (c)(8). Pub. L. 105-244, Sec. 417(c)(6), redesignated

subpar. (A) as entire par. and struck out subpar. (B) which read as

follows: ''An orderly transition from the Federal Family Education

Loan Program under this part to the Federal Direct Student Loan

Program under part C of this subchapter shall be deemed to be in

the Federal fiscal interest, and a guaranty agency shall promptly

assign loans to the Secretary under this paragraph upon the

Secretary's request.''

Subsec. (c)(9)(A). Pub. L. 105-244, Sec. 417(c)(7)(A),

substituted ''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'' for ''maintain a

current minimum reserve level of at least .5 percent''.

Subsec. (c)(9)(C). Pub. L. 105-244, Sec. 417(c)(7)(B),

substituted ''85 percent pursuant to paragraph (1)(B)(i)'' for ''80

percent pursuant to subsection (c)(1)(B)(ii) of this section'',

struck out '', as appropriate,'' after ''Secretary shall require'',

and substituted ''45 working days'' for ''30 working days''.

Subsec. (c)(9)(E)(iv). Pub. L. 105-244, Sec. 417(c)(7)(C)(i),

inserted ''or'' at end.

Subsec. (c)(9)(E)(v). Pub. L. 105-244, Sec. 417(c)(7)(C)(ii),

substituted a period for ''; or'' at end.

Subsec. (c)(9)(E)(vi). Pub. L. 105-244, Sec. 417(c)(7)(C)(iii),

struck out cl. (vi) which read as follows: ''the Secretary

determines that such action is necessary to ensure an orderly

transition from the loan programs under this part to the direct

student loan programs under part C of this subchapter.''

Subsec. (c)(9)(F)(vii). Pub. L. 105-244, Sec. 417(c)(7)(D),

substituted ''and to avoid disruption of the student loan

program.'' for ''to avoid disruption of the student loan program,

and to ensure an orderly transition from the loan programs under

this part to the direct student loan programs under part C of this

subchapter.''

Subsec. (c)(9)(I). Pub. L. 105-244, Sec. 417(c)(7)(E), inserted

''that, if commenced after September 24, 1998, shall be on the

record'' after ''for a hearing''.

Subsec. (c)(9)(K). Pub. L. 105-244, Sec. 417(c)(7)(F),

substituted ''and the Workforce'' for ''and Labor'' and struck out

''and the progress of the transition from the loan programs under

this part to the direct student loan programs under part C of this

subchapter'' after ''guaranty agency system''.

Subsec. (e). Pub. L. 105-244, Sec. 417(d), amended heading and

text of subsec. (e) generally. Prior to amendment, subsec. (e)

related to payments for lender referral services.

Subsec. (f). Pub. L. 105-244, Sec. 417(e), amended heading and

text of subsec. (f) generally. Prior to amendment, subsec. (f)

authorized the Secretary to make payments to guaranty agencies for

fiscal years prior to fiscal year 1994 for certain administrative

and other costs and provided for applications for such payments.

Subsec. (g). Pub. L. 105-244, Sec. 417(f), substituted ''and the

Workforce'' for ''and Labor'' in concluding provisions.

Subsec. (j)(3). Pub. L. 105-244, Sec. 417(g)(1), struck out

''during transition to direct lending'' after ''services'' in

heading.

Subsec. (j)(3)(A). Pub. L. 105-244, Sec. 417(g)(2), struck out

''during the transition from the Federal Family Education Loan

Program under this part to the Federal Direct Student Loan Program

under part C of this subchapter'' after ''loan capital'' and

inserted ''designated for a State'' after ''a guaranty agency'' and

''subparagraph (C) and'' after ''funds in accordance with''.

Subsec. (j)(3)(C). Pub. L. 105-244, Sec. 417(g)(3), added subpar.

(C).

Subsec. (l). Pub. L. 105-244, Sec. 417(h), amended heading and

text of subsec. (l) generally. Prior to amendment, text read as

follows:

''(1) Assistance required. - Upon receipt of a proper request

from the lender, a guaranty agency having an agreement with the

Secretary under subsection (c) of this section shall engage in

preclaims assistance activities (as described in subsection

(c)(6)(C)(i)(I) of this section) and supplemental preclaims

assistance activities (as described in subsection (c)(6)(C) of this

section) with respect to each loan covered by such agreement.

''(2) Payments for supplemental preclaims assistance. - The

Secretary shall make payments in accordance with the provisions of

this paragraph to any guaranty agency that engages in supplemental

preclaims assistance (as defined in subsection (c)(6)(C) of this

section) on a loan guaranteed under this part. For each loan on

which such assistance is performed and for which a default claim is

not presented to the guaranty agency by the lender on or before the

150th day after the loan becomes 120 days delinquent, such payment

shall be equal to one percent of the total of the unpaid principal

and the accrued unpaid interest of the loan.''

Subsec. (m)(1). Pub. L. 105-244, Sec. 417(i), substituted ''may

require borrowers'' for ''shall require at least 10 percent of the

borrowers''.

Subsec. (n). Pub. L. 105-244, Sec. 417(k), added subsec. (n).

Pub. L. 105-244, Sec. 417(j), struck out heading and text of

subsec. (n) which related to State share of default costs.

1997 - Subsec. (a)(5). Pub. L. 105-33, Sec. 6104(2), substituted

''September 30, 2002,'' for ''September 30, 1998,'' and ''September

30, 2006.'' for ''September 30, 2002.''

Subsec. (c)(9)(A). Pub. L. 105-33, Sec. 6101(b), struck out ''for

the fiscal year of the agency that begins in 1993'' after ''loans

guaranteed by such agency'' and struck out at end ''The minimum

reserve level shall increase to -

''(i) .7 percent of such total attributable amount for the

fiscal year of the agency that begins in 1994;

''(ii) .9 percent of such total attributable amount for the

fiscal year of the agency that begins in 1995; and

''(iii) 1.1 percent of such total attributable amount for each

fiscal year of the agency that begins on or after January 1,

1996.''

1994 - Subsec. (c)(1)(G). Pub. L. 103-382 added subpar. (G).

1993 - Subsec. (a)(2)(C)(i). Pub. L. 103-208, Sec. 2(c)(11),

substituted ''; and'' for period at end.

Subsec. (a)(2)(E). Pub. L. 103-208, Sec. 2(c)(12), inserted ''or

1078-8'' after ''1078-1''.

Subsec. (b)(1)(A)(ii), (iii). Pub. L. 103-208, Sec. 2(c)(13)(A),

added cls. (ii) and (iii) and struck out former cls. (ii) and (iii)

which read as follows:

''(ii) in the case of a student who has successfully completed

such first year but has not successfully completed the remainder of

a program of undergraduate study -

''(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);

''(II) $2,325, if such student is enrolled in a program whose

length is less than one academic year, but at least 2/3 of such

academic year; and

''(III) $1,175, if such student is enrolled in a program whose

length is less than 2/3, but at least 1/3, of such academic year;

''(iii) in the case of a student at an eligible institution who

has successfully completed such first and second year but has not

successfully completed the remainder of a program of undergraduate

study -

''(I) $5,500, 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);

''(II) $3,675, if such student is enrolled in a program whose

length is less than one academic year, but at least 2/3 of such

an academic year; and

''(III) $1,825, if such student is enrolled in a program whose

length is less than 2/3, but at least 1/3, of such an academic

year; and''.

Subsec. (b)(1)(A)(iv), (v). Pub. L. 103-208, Sec. 2(c)(13)(B),

(C), added cl. (iv) and redesignated former cl. (iv) as (v).

Subsec. (b)(1)(B). Pub. L. 103-208, Sec. 2(c)(14), substituted a

semicolon for period at end of closing provisions.

Subsec. (b)(1)(D). Pub. L. 103-66, Sec. 4043(a)(1), substituted

''be subject to income contingent repayment in accordance with

subsection (m) of this section;'' for ''be subject to repayment in

accordance with the regulations required by subsection (m) of this

section if the Secretary has published the finding required by

paragraph (2) of such subsection;''.

Subsec. (b)(1)(G). Pub. L. 103-66, Sec. 4108(b), substituted ''98

percent'' for ''100 percent'' and inserted before semicolon at end

'', except that such program shall insure 100 percent of the unpaid

principal of loans made with funds advanced pursuant to subsection

(j) of this section or section 1087-2(q) of this title''.

Subsec. (b)(1)(H). Pub. L. 103-66, Sec. 4102(c), substituted

''1.0 percent'' for ''3 percent''.

Subsec. (b)(1)(N). Pub. L. 103-208, Sec. 2(c)(15), amended

subpar. (N) generally. Prior to amendment, subpar. (N) read as

follows: ''provides that funds borrowed by a student are disbursed

to the institution by check or other means that is payable to and

requires the endorsement or other certification by such student,

except nothing in this subchapter and part C of subchapter I of

chapter 34 of title 42 shall be interpreted to allow the Secretary

to require checks to be made co-payable to the institution and the

borrower or to prohibit the disbursement of loan proceeds by means

other than by check and except in the case of students who are

studying outside the United States in a program of study abroad

that is approved for credit by the home institution at which the

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;''.

Subsec. (b)(1)(U). Pub. L. 103-208, Sec. 2(c)(16), inserted a

comma after ''emergency action'' in two places and substituted

''this clause'' for ''this clause;'' at end.

Subsec. (b)(1)(V). Pub. L. 103-208, Sec. 2(c)(17), redesignated

subpar. (X) as (V) and struck out former subpar. (V) which related

to procedure and requirements for granting a forbearance while a

borrower is enrolled in a medical or dental internship or residency

program. See Codification note above.

Subsec. (b)(1)(W). Pub. L. 103-208, Sec. 2(c)(17), redesignated

subpar. (Y) as (W) and struck out former subpar. (W) which read as

follows:

''(i) provides that, upon written request, a lender shall grant a

borrower forbearance on such terms as are otherwise consistent with

the regulations of the Secretary, during periods in which the

borrower 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;

''(ii) provides that clauses (iii) and (iv) of subparagraph (V)

shall also apply to a forbearance granted under this subparagraph;

and

''(iii) provides that interest shall continue to accrue on a loan

for which a borrower receives forbearance under this subparagraph

and shall be capitalized or paid by the borrower;''. See

Codification note above.

Pub. L. 103-82, Sec. 102(c)(1)(A), added subpar. (W) and

redesignated former subpar. (W) as (X).

Subsec. (b)(1)(X). Pub. L. 103-208, Sec. 2(c)(17)(B),

redesignated subpar. (Z) as (X). Former subpar. (X) redesignated

(V). See Codification note above.

Pub. L. 103-82, Sec. 102(c)(1)(A)(i), redesignated subpar. (W) as

(X). Former subpar. (X) redesignated (Y).

Subsec. (b)(1)(Y). Pub. L. 103-208, Sec. 2(c)(17)(B),

redesignated subpar. (Y) as (W). See Codification note above.

Pub. L. 103-82, Sec. 102(c)(1)(A)(i), redesignated subpar. (X) as

(Y). Former subpar. (Y) redesignated (Z).

Subsec. (b)(1)(Z). Pub. L. 103-208, Sec. 2(c)(17)(B),

redesignated subpar. (Z) as (X). See Codification note above.

Pub. L. 103-82, Sec. 102(c)(1)(A)(i), redesignated subpar. (Y) as

(Z).

Subsec. (b)(2)(F)(i). Pub. L. 103-208, Sec. 2(c)(18), substituted

''either jointly or separately to provide a notice'' for ''each to

provide a separate notice''.

Subsec. (b)(2)(F)(ii). Pub. L. 103-208, Sec. 2(c)(19)-(21),

substituted ''transferee'' for ''transferor'' in introductory

provisions, struck out ''to another holder'' after ''the loan'' in

subcl. (I), and substituted ''the new'' for ''such other'' in

subcl. (II).

Subsec. (b)(7). Pub. L. 103-208, Sec. 2(c)(22), amended par. (7)

generally. Prior to amendment, par. (7) read as follows:

''(A) In the case of a loan made under section 1077 of this title

or this section, the repayment period shall begin on the day

immediately following the expiration of the 6-month period after

the student ceases to carry at least one-half the normal full-time

academic workload as determined by the institution, unless the

borrower requests and is granted a repayment schedule that provides

for repayment to commence at an earlier point in time, and shall

exclude any period of authorized deferment or forbearance.

''(B) In the case of a loan made under section 1078-1 or 1078-8

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.

''(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, and shall exclude any period of authorized deferment

or forbearance.''

Subsec. (b)(8). Pub. L. 103-208, Sec. 2(c)(23), added par. (8).

Subsec. (c)(1)(A). Pub. L. 103-208, Sec. 2(c)(24), substituted

last sentence for former last sentence which read as follows: ''In

no case shall a guaranty agency file a claim under this subsection

for reimbursement with respect to losses prior to 270 days after

the loan becomes delinquent with respect to any installment

thereon, or later than 45 days after the guaranty agency discharges

its insurance obligation on the loan.''

Pub. L. 103-66, Sec. 4108(a)(1), substituted ''98 percent'' for

''100 percent'' in fourth sentence.

Subsec. (c)(1)(B), (E), (F). Pub. L. 103-66, Sec. 4108(a)(2)-(4),

in subpar. (B), substituted ''88 percent'' for ''90 percent'' in

cl. (i) and ''78 percent'' for ''80 percent'' in cl. (ii), and

added subpars. (E) and (F).

Subsec. (c)(2)(G). Pub. L. 103-208, Sec. 2(c)(25), substituted

''certifies'' for ''demonstrates'' before ''to the Secretary''.

Subsec. (c)(3)(A). Pub. L. 103-208, Sec. 2(c)(26), added subpar.

(A) and struck out former subpar. (A) which read as follows:

''shall contain provisions providing for forbearance in accordance

with subparagraphs (V) and (W) of subsection (b)(1) of this section

for the benefit of the student borrower serving in a medical or

dental internship or residency program;''. See Codification note

above.

Pub. L. 103-82, Sec. 102(c)(1)(B), substituted ''subparagraphs

(V) and (W) of subsection (b)(1)'' for ''subsection (b)(1)(V)''.

Subsec. (c)(6)(A)(ii). Pub. L. 103-66, Sec. 4110(a), substituted

''27 percent'' for ''30 percent''.

Subsec. (c)(8). Pub. L. 103-66, Sec. 4044, designated existing

provisions as subpar. (A), struck out second and third sentences,

and added subpar. (B). Prior to amendment, second and third

sentences read as follows: ''Prior to making such determination for

any guaranty agency, the Secretary shall, in consultation with the

guaranty agency, develop criteria to determine whether such agency

has made adequate collections efforts. In determining whether a

guaranty agency's collection efforts have met such criteria, the

Secretary shall consider the agency's record of success in

collecting on defaulted loans, the age of the loans, and the amount

of recent payments received on the loans.''

Subsec. (c)(9). Pub. L. 103-66, Sec. 4107(a), redesignated par.

(10) as (9) and struck out former par. (9) which required guaranty

agencies to pay reinsurance fees to the Secretary.

Subsec. (c)(10). Pub. L. 103-66, Sec. 4107(a)(2), redesignated

par. (10) as (9).

Subsec. (c)(10)(C). Pub. L. 103-66, Sec. 4045(1), inserted '', as

appropriate,'' after ''the Secretary shall require''.

Subsec. (c)(10)(D). Pub. L. 103-66, Sec. 4045(2), designated

existing provisions as cl. (i), substituted ''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'' for ''Each'', and added cl. (ii).

Subsec. (c)(10)(E)(iv) to (vi). Pub. L. 103-66, Sec. 4045(3),

added cls. (iv) to (vi).

Subsec. (c)(10)(F). Pub. L. 103-66, Sec. 4045(4)(A), substituted

''If a guaranty'' for ''Except as provided in subparagraph (G), if

a guaranty''.

Subsec. (c)(10)(F)(v). Pub. L. 103-66, Sec. 4045(4)(B), amended

cl. (v) generally. Prior to amendment, cl. (v) read as follows:

''provide the guaranty agency with additional advance funds in

accordance with section 1072(c)(7) of this title in order to meet

immediate cash needs of the guaranty agency and ensure the

uninterrupted payment of claims, with such restrictions on the use

of such funds, as determined appropriate by the Secretary; or''.

Subsec. (c)(10)(F)(vi), (vii). Pub. L. 103-66, Sec. 4045(4)(C),

(D), in cl. (vi), substituted ''to avoid'' for ''and to avoid''

before ''disruption of the student'' and inserted before period at

end '', and to ensure an orderly transition from the loan programs

under this part to the direct student loan programs under part C of

this subchapter'', redesignated cl. (vi) as (vii), and added new

cl. (vi).

Subsec. (c)(10)(G). Pub. L. 103-66, Sec. 4045(5), (7), added

subpar. (G) and struck out former subpar. (G) which read as

follows: ''The Secretary may not take any action under subparagraph

(E) or (F) against any guaranty agency that is backed by the full

faith and credit of the State where such guaranty agency is the

primary guarantor.''

Subsec. (c)(10)(H) to (J). Pub. L. 103-66, Sec. 4045(6), (7),

added subpar. (H) and redesignated former subpars. (H) and (I) as

(I) and (J), respectively. Former subpar. (J) redesignated (K).

Subsec. (c)(10)(K). Pub. L. 103-66, Sec. 4045(6), (8),

redesignated subpar. (J) as (K) and substituted ''system and the

progress of the transition from the loan programs under this part

to the direct student loan programs under part C of this

subchapter.'' for ''system, together with recommendations for

legislative changes, if necessary, for the maintenance of a strong

guaranty agency system.''

Subsec. (e)(1). Pub. L. 103-66, Sec. 4041(b)(1), amended heading,

designated existing provisions as subpar. (A) and substituted

''with which the Secretary has an agreement under subparagraph

(B)'' for ''in any State'', and added subpar. (B).

Subsec. (e)(2). Pub. L. 103-66, Sec. 4041(b)(2)(A), in

introductory provisions, substituted ''with which the Secretary has

an agreement under paragraph (1)(B)'' for ''in a State''.

Subsec. (e)(2)(A). Pub. L. 103-208, Sec. 2(c)(27), redesignated

former cl. (i), subcl. (I) as (i) and former cl. (i), subcl. (II)

as (ii) and struck out cl. (i) designation following subpar. (A)

designation. See Codification note above.

Pub. L. 103-66, Sec. 4041(b)(2)(B), amended subpar. (A)

generally. Prior to amendment, subpar. (A) read as follows: ''such

student is either a resident of such State or is accepted for

enrollment in or is attending an eligible institution in such

State; and''.

Subsec. (e)(3). Pub. L. 103-66, Sec. 4041(b)(3), substituted

''From funds available for costs of transition under section 1087h

of this title, the'' for ''The''.

Subsec. (e)(5). Pub. L. 103-66, Sec. 4041(b)(4), struck out par.

(5) which related to authorization of appropriations.

Subsec. (f)(1)(A). Pub. L. 103-66, Sec. 4107(b)(1), substituted

''For a fiscal year prior to fiscal year 1994, the Secretary'' for

''The Secretary''.

Subsec. (f)(1)(B). Pub. L. 103-66, Sec. 4107(b)(2), inserted

''prior to fiscal year 1994'' after ''any fiscal year''.

Subsec. (j)(2). Pub. L. 103-208, Sec. 2(c)(28), substituted

''lender-of-last-resort'' for ''lender of last resort'' in

introductory provisions.

Subsec. (j)(2)(A) to (E). Pub. L. 103-66, Sec. 4041(a)(2)(B), in

subpar. (A) inserted before semicolon ''and ensure a response

within 60 days after the student's original complete application is

filed under this subsection'', added subpar. (B), and redesignated

former subpars. (B) to (D) as (C) to (E), respectively.

Subsec. (j)(3). Pub. L. 103-66, Sec. 4041(a)(1), added par. (3)

consisting of subpars. (A) and (B), and struck out former par. (3)

relating to limitation on lender-of-last-resort program, consisting

of subpars. (A) to (C).

Subsec. (l)(2). Pub. L. 103-66, Sec. 4112(a), inserted second

sentence and struck out former second sentence which read as

follows: ''Such payments shall be equal to $50.00 for each loan on

which such assistance is performed and for which a default claim is

not presented to the guaranty agency by the lender on or before the

150th day after the loan becomes 120 days delinquent.''

Subsec. (m). Pub. L. 103-66, Sec. 4043(a)(2), amended par. (1)

generally, added par. (2), and struck out former pars. (2) to (4).

Prior to amendment, former pars. (1) to (4) related to

establishment of terms and conditions, collection mechanism, loans

for which income contingent repayment is required, and additional

authority, respectively.

Subsec. (n). Pub. L. 103-66, Sec. 4201(a), added subsec. (n).

1992 - Subsec. (a)(2)(C). Pub. L. 102-325, Sec. 416(a)(1),

amended cls. (i) and (ii) generally. Prior to amendment, cls. (i)

and (ii) read as follows:

''(i) a student's estimated financial assistance means, for the

period for which the loan is sought, 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 2 of part A of this subchapter, part D of this subchapter,

and part C of subchapter I of chapter 34 of title 42, and any

amount paid the student under chapters 32, 34, and 35 of title 38,

plus other scholarship, grant, or loan assistance; and

''(ii) 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 by subtracting from the estimated cost

of attendance at the eligible institution the total of the expected

family contribution with respect to such student plus any estimated

financial assistance reasonably available to such student.''

Subsec. (a)(3)(A)(v). Pub. L. 102-325, Sec. 416(a)(2), added cl.

(v).

Subsec. (a)(5). Pub. L. 102-325, Sec. 411(b)(2), substituted

''September 30, 1998'' for ''September 30, 1992'' and ''September

30, 2002'' for ''September 30, 1997''.

Subsec. (a)(7). Pub. L. 102-325, Sec. 416(a)(3), added par. (7).

Subsec. (b)(1)(A). Pub. L. 102-325, Sec. 416(b)(1)(A), inserted

''or in a program of study abroad approved for credit by the

eligible home institution at which such student is enrolled'' in

introductory provisions.

Subsec. (b)(1)(A)(i) to (iv). Pub. L. 102-325, Sec. 416(b)(1)(B),

added cls. (i) to (iv) and struck out former cls. (i) to (iii)

which read as follows:

''(i) $2,625, in the case of a student who has not successfully

completed the first and second year of a program of undergraduate

education;

''(ii) $4,000, in the case of a student who has successfully

completed such first and second year but who has not successfully

completed the remainder of a program of undergraduate education;

and

''(iii) $7,500, in the case of a graduate or professional student

(as defined in regulations of the Secretary);''.

Subsec. (b)(1)(B). Pub. L. 102-325, Sec. 416(b)(2), which

directed the amendment of subpar. (B) by striking clauses (i) and

(ii) and inserting language which contained new cls. (i) and (ii)

followed by concluding provisions, was executed by substituting the

new cls. (i) and (ii) and concluding provisions for former cls. (i)

and (ii) and former concluding provisions to reflect the probable

intent of Congress. Prior to amendment, cls. (i) and (ii) and

concluding provisions read as follows:

''(i) $17,250, in the case of any student who has not

successfully completed a program of undergraduate education,

excluding loans made under section 1078-1 or 1078-2 of this

title; and

''(ii) $54,750, in the case of any graduate or professional

student (as defined by regulations of the Secretary and including

any loans which are insured by the Secretary under this part, or

by a guaranty agency, made to such student before the student

became a graduate or professional student), excluding loans made

under section 1078-1 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;''.

Subsec. (b)(1)(D), (E). Pub. L. 102-325, Sec. 416(c)(1), amended

subpars. (D) and (E) generally. Prior to amendment, subpars. (D)

and (E) read as follows:

''(D) provides that (i) the student borrower shall be entitled to

accelerate without penalty the whole or any part of an insured

loan, (ii) except as provided in subparagraph (M) of this

paragraph, the repayment period of any insured loan may not exceed

10 years, and (iii) the note or other written evidence of any loan,

may contain such reasonable 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;

''(E) subject to subparagraphs (D) and (L) of this paragraph and

except as provided by subparagraph (M) of this paragraph, provides

that repayment of loans shall be in installments over a period of

not less than 5 years (unless the student, during the 6 months

preceding the start of the repayment period, specifically requests

that repayment be made over a shorter period) nor more than 10

years beginning 6 months after the month in which the student

ceases to carry at least one-half the normal full-time academic

workload as determined by the institution;''.

Subsec. (b)(1)(L)(i). Pub. L. 102-325, Sec. 416(d), substituted

''(but in no instance less than the amount of interest due and

payable)'' for '', except that, in the case of a husband and wife,

both of whom have such loans outstanding, the total of the combined

payments for such a couple during any year shall not be less than

$600 or the balance of all such loans, whichever is less''.

Subsec. (b)(1)(M). Pub. L. 102-325, Sec. 416(e)(1), amended

subpar. (M) generally, revising and restating as cls. (i) to (iii)

provisions formerly contained in cls. (i) to (xi).

Subsec. (b)(1)(N). Pub. L. 102-325, Sec. 416(f), substituted

''except in the case of students who are studying outside the

United States in a program of study abroad that is approved for

credit by the home institution at which the 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;'' for ''except in the case of attendance at an

institution outside the United States, the funds shall be delivered

directly to the student;''.

Subsec. (b)(1)(T). Pub. L. 102-325, Sec. 416(g), amended subpar.

(T) generally. Prior to amendment, subpar. (T) read as follows:

''provides no restrictions with respect to eligible institutions

(other than nonresidential correspondence schools) which are more

onerous than eligibility requirements for institutions under the

Federal student loan insurance program as in effect on January 1,

1985, unless -

''(i) that institution is ineligible under regulations for the

emergency action, limitation, suspension, or termination of

eligible institutions under the Federal student loan insurance

program or is ineligible pursuant to criteria issued under the

student loan insurance program which are substantially the same

as regulations with respect to such eligibility issued under the

Federal student loan insurance program; or

''(ii) there is a State constitutional prohibition affecting

the eligibility of such an institution;''.

Subsec. (b)(1)(U)(iii). Pub. L. 102-325, Sec. 416(h), added cl.

(iii).

Subsec. (b)(1)(V). Pub. L. 102-325, Sec. 416(i)(4), (5), added

cls. (ii) and (iii) and redesignated former cl. (ii) as (iv).

Pub. L. 102-325, Sec. 416(i)(3), which directed the amendment of

cl. (ii) by substituting a semicolon for a period at end, could not

be executed because the period had been stricken by Pub. L.

102-164, Sec. 601(b)(2).

Pub. L. 102-325, Sec. 416(i)(1), (2), struck out ''and'' at end

of cl. (i) and inserted ''or (ii)'' after ''clause (i)'' in two

places in cl. (ii).

Subsec. (b)(1)(W) to (Y). Pub. L. 102-325, Sec. 416(j), added

subpars. (W) to (Y) and struck out former subpars. (W) and (X)

which related to credit reports, credit worthy cosigners, and

authorizations for entry of judgments against borrowers in the

event of default.

Subsec. (b)(2)(C). Pub. L. 102-325, Sec. 416(k)(1), substituted

'', 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,'' for '', as the Secretary may reasonably require to carry

out the Secretary's functions under this part,''.

Subsec. (b)(2)(D)(i). Pub. L. 102-325, Sec. 416(k)(2)(A),

substituted ''on at least an annual basis'' for ''at least once

every 2 years''.

Subsec. (b)(2)(E). Pub. L. 102-325, Sec. 416(k)(3), designated

existing provisions as cl. (i) and added cl. (ii).

Subsec. (b)(2)(F). Pub. L. 102-325, Sec. 416(k)(2)(B), (4), added

subpar. (F).

Subsec. (b)(3)(B) to (D). Pub. L. 102-325, Sec. 416(l), added

subpar. (B) and redesignated former subpars. (B) and (C) as (C) and

(D), respectively.

Subsec. (b)(4). Pub. L. 102-325, Sec. 416(n), inserted at end

sentence relating to requests for deferment of repayment by

students engaged in fellowship-supported study outside the United

States.

Pub. L. 102-325, Sec. 416(m), redesignated par. (5) as (4) and

struck out former par. (4) which related to targeted teacher

deferment rule.

Subsec. (b)(5). Pub. L. 102-325, Sec. 416(m)(2), redesignated

par. (6) as (5). Former par. (5) redesignated (4).

Subsec. (b)(6). Pub. L. 102-325, Sec. 416(o), added par. (6).

Former par. (6) redesignated (5).

Subsec. (b)(7). Pub. L. 102-325, Sec. 416(c)(2), added par. (7).

Subsec. (c)(1)(A). Pub. L. 102-325, Sec. 416(p)(1), substituted

'', or later than 45 days after the guaranty agency discharges its

insurance obligation on the loan.'' for period at end.

Subsec. (c)(1)(D). Pub. L. 102-325, Sec. 416(p)(2), added subpar.

(D).

Subsec. (c)(2). Pub. L. 102-325, Sec. 416(p)(3), struck out

''and'' at end of subpar. (F), added subpars. (G) and (H), and

redesignated former subpar. (G) as (I).

Subsec. (c)(3). Pub. L. 102-325, Sec. 416(p)(4), added subpar.

which read as follows: ''Such regulations shall not preclude

guaranty agencies from permitting the parties to such a loan from

entering into a forbearance agreement solely because the loan is in

default.''

Subsec. (c)(7)(A). Pub. L. 102-325, Sec. 416(p)(5)(A),

substituted ''(1)(C)'' for ''(1)(B)'' in introductory provisions

and inserted ''and ends before October 1, 1991'' in cl. (i).

Subsec. (c)(7)(B). Pub. L. 102-325, Sec. 416(p)(5)(D), added

subpar. (B). Former subpar. (B) redesignated (C).

Subsec. (c)(7)(C). Pub. L. 102-325, Sec. 416(p)(5)(B), (C),

redesignated subpar. (B) as (C) and inserted ''or (B)'' after

''(A)''.

Subsec. (c)(8). Pub. L. 102-325, Sec. 416(p)(6), inserted

provisions at end directing Secretary to develop criteria to

determine whether agency has made adequate collection efforts and

directing Secretary to consider certain factors in making

determination.

Subsec. (c)(10). Pub. L. 102-325, Sec. 416(p)(7), added par.

(10).

Subsec. (f)(1)(A)(i). Pub. L. 102-325, Sec. 416(q)(1),

substituted ''eligible lender'' for ''commercial lender''.

Subsec. (f)(1)(C). Pub. L. 102-325, Sec. 416(q)(2), added subpar.

(C).

Subsec. (j). Pub. L. 102-325, Sec. 416(r), designated existing

provisions as par. (1), inserted par. heading, and added pars. (2)

and (3).

Subsec. (k)(3). Pub. L. 102-325, Sec. 416(s), added par. (3).

Subsec. (m). Pub. L. 102-325, Sec. 416(t), added subsec. (m).

1991 - Subsec. (a)(2)(A)(iii). Pub. L. 102-164, Sec. 602(b)(1),

added cl. (iii).

Subsec. (a)(2)(F). Pub. L. 102-26 amended subpar. (F) generally.

Prior to amendment, subpar. (F) read as follows: ''Except as

provided in subparagraph (D), an eligible institution may not, in

carrying out the provisions of subparagraphs (A) and (B) of this

paragraph, refuse to provide to any eligible lender which has an

agreement under subsection (b) of this section with any guaranty

agency, a statement which permits a student to receive any loan

under this part, except that, in individual cases where the

institution determines that the portion of the student's expenses

to be covered by the loan can be met more appropriately, either by

the institution or directly by the student, from other sources, the

institution may refuse to provide such statement or may reduce the

determination of need contained in such statement.''

Subsec. (b)(1)(W). Pub. L. 102-164, Sec. 601(b), added subpar.

(W).

Subsec. (b)(1)(X). Pub. L. 102-164, Sec. 604, added subpar. (X).

Subsec. (c)(6)(D). Pub. L. 102-164, Sec. 605(b)(2), struck out

subpar. (D) which read as follows: ''In the case of a State which

enacts and enforces a garnishment law that complies with the

requirements of section 1078-5 of this title, subparagraph (A)(ii)

shall be applied by substituting '35 percent' for '30 percent'.''

1990 - Subsec. (a)(2)(F). Pub. L. 101-508, Sec. 3004(b), inserted

before period at end '', except that, in individual cases where the

institution determines that the portion of the student's expenses

to be covered by the loan can be met more appropriately, either by

the institution or directly by the student, from other sources, the

institution may refuse to provide such statement or may reduce the

determination of need contained in such statement''.

Subsec. (c)(1)(A). Pub. L. 101-508, Sec. 3002(a)(1), struck out

before period at end of first sentence '', including the

administrative costs of supplemental preclaim assistance for

default prevention as defined in paragraph (6)(C)''.

Subsec. (c)(6)(C). Pub. L. 101-508, Sec. 3002(a)(2)-(5), in

introductory provisions of cl. (i), substituted ''subsection (l) of

this section'' for ''this paragraph'', in cl. (i)(I), substituted

''generally comparable in intensiveness to the level of preclaims

assistance performed, prior to the 120th day of delinquency, by the

guaranty agency as of October 16, 1990'' for ''required or

permitted under paragraph (2)(A) of this subsection and subsection

(f) of this section'', in cl. (ii), substituted ''payment under

subsection (l) of this section'' for ''reimbursement'' and

''described in division (i)(I) of this subparagraph'' for ''which

the guaranty agency is required or permitted to provide pursuant to

paragraph (2)(A) of this subsection and subsection (f) of this

section'', and in cl. (iv), struck out first sentence which read as

follows: ''The costs for each delinquent loan associated with

carrying out this subparagraph may not exceed 2 percent of the

outstanding principal balance of each such loan subject to the

supplemental preclaims assistance authorized by this subparagraph

or $100, whichever is less.''

Subsec. (l). Pub. L. 101-508, Sec. 3002(b), added subsec. (l).

1989 - Subsec. (a)(2)(A)(i)(III). Pub. L. 101-239, Sec.

2004(b)(1), added subcl. (III).

Subsec. (b)(1)(M)(i). Pub. L. 101-239, Sec. 2002(a)(2), inserted

before semicolon at end '', 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''.

Subsec. (b)(1)(O). Pub. L. 101-239, Sec. 2004(b)(3), amended

subpar. (O) generally, substituting requirement that student loans

be disbursed in accordance with section 1078-7 of this title for

provisions requiring that certain loans be disbursed directly by

lender in 2 or more installments, none exceeding more than one-half

of the loan, or in installments pursuant to escrow provisions in

subsec. (i).

Subsec. (b)(1)(T)(i). Pub. L. 101-239, Sec. 2006(b)(1), inserted

''emergency action,'' after ''regulations for the''.

Subsec. (b)(1)(U). Pub. L. 101-239, Sec. 2006(b), in cl. (i)

inserted ''emergency action,'' after ''regulations for the'', and

in cl. (ii) inserted ''take emergency action,'' after ''such

program to''.

Subsec. (b)(1)(V). Pub. L. 101-239, Sec. 2002(b)(1)(A), added

subpar. (V).

Subsec. (c)(3). Pub. L. 101-239, Sec. 2002(b)(1)(B), amended par.

(3) generally. Prior to amendment, par. (3) read as follows: ''To

the extent provided in regulations of the Secretary, a guaranty

agreement under this subsection may contain provisions which permit

such forbearance for the benefit of the student borrower as may be

agreed upon by the parties to an insured loan and approved by the

insurer. Such regulations shall not preclude guaranty agencies

from permitting the parties to such a loan from entering into a

forbearance agreement solely because the loan is in default.''

1988 - Subsec. (b)(1)(M)(v). Pub. L. 100-369, Sec. 7(c),

substituted ''Internal Revenue Code of 1986'' for ''Internal

Revenue Code of 1954'', which for purposes of codification was

translated as ''title 26'' thus requiring no change in text.

Subsec. (b)(1)(M)(vii). Pub. L. 100-369, Sec. 11(a), inserted

''after January 1, 1986,'' after ''service''.

Subsec. (b)(1)(O). Pub. L. 100-369, Sec. 5(b)(2), substituted

''section 1078-2 or 1078-3'' for ''section 1078-1, 1078-2, or

1078-3''.

1987 - Subsec. (a)(2)(D). Pub. L. 100-50, Sec. 10(e), substituted

''certifies the eligibility of any student'' for ''permits the

student''.

Subsec. (b)(1)(A)(i). Pub. L. 100-50, Sec. 10(f)(1), substituted

''first and'' for ''first or''.

Subsec. (b)(1)(B)(i). Pub. L. 100-50, Sec. 10(a)(1), inserted '',

excluding loans made under section 1078-1 or 1078-2 of this title''

after ''undergraduate education''.

Subsec. (b)(1)(B)(ii). Pub. L. 100-50, Sec. 10(a)(2), inserted

'', excluding loans made under section 1078-1 or 1078-2 of this

title'' after ''graduate or professional student)''.

Subsec. (b)(1)(M)(vi). Pub. L. 100-50, Sec. 10(b)(1), inserted

''nonprofit'' before ''private''.

Subsec. (b)(1)(M)(vii). Pub. L. 100-50, Sec. 10(b)(2), inserted

''or serving in an 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'' before semicolon at end.

Subsec. (b)(1)(N). Pub. L. 100-50, Sec. 10(f)(2), inserted ''and

except in the case of attendance at an institution outside the

United States, the funds shall be delivered directly to the

student'' before semicolon at end.

Subsec. (b)(1)(O). Pub. L. 100-50, Sec. 10(c), substituted

''$1,000 or more'' for ''more than $1,000''.

Subsec. (b)(1)(O)(i). Pub. L. 100-50, Sec. 10(f)(3), substituted

''being disbursed'' for ''being dispensed''.

Subsec. (b)(1)(P). Pub. L. 100-50, Sec. 10(f)(4), added subpar.

(P) and struck out former subpar. (P) which read as follows:

''requires the borrower and the institution at which the borrower

is in attendance to promptly notify the holder of the loan,

directly or through the guaranty agency, concerning any change of

address or status;''.

Subsec. (b)(1)(T). Pub. L. 100-50, Sec. 10(f)(5), inserted

''(other than nonresidential correspondence schools)'' after

''eligible institutions''.

Subsec. (b)(5). Pub. L. 100-50, Sec. 10(g), substituted

''paragraph (1)(M)(i)(III)'' for ''paragraph (1)(M)''.

Subsec. (b)(6)(A). Pub. L. 100-50, Sec. 10(h)(1), substituted

''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'' for ''Prior to the

implementation of section 1092b of this title''.

Subsec. (b)(6)(B)(ii). Pub. L. 100-50, Sec. 10(h)(2), added cl.

(ii) and struck out former cl. (ii) which read as follows: ''the

amount borrowed, the cumulative amount borrowed, the income

reported on the loan application, and the purposes and the cost of

attendance of the borrower.''

Subsec. (c)(1)(A). Pub. L. 100-203, Sec. 3002(b)(1), substituted

''shall be deemed'' for ''shall, subject to section 1072(e) of this

title, be deemed''.

Pub. L. 100-203, Sec. 3001(b)(1), substituted ''shall, subject to

section 1072(e) of this title, be deemed'' for ''shall be deemed''.

Subsec. (c)(6)(C)(iv). Pub. L. 100-50, Sec. 10(i), inserted at

end ''In the case of accounts brought into repayment status as a

result of performing supplemental preclaims assistance, the cost of

such assistance is a permissible charge to the borrower (for the

cost of collection) for which the borrower shall be liable.''

Subsec. (c)(6)(D). Pub. L. 100-50, Sec. 10(j), inserted ''and

enforces'' after ''enacts''.

Subsec. (c)(9)(A). Pub. L. 100-203, Sec. 3002(b)(2), substituted

''an amount equal to'' for ''an amount, subject to section 1072(e)

of this title, equal to'' in introductory provisions.

Pub. L. 100-203, Sec. 3001(b)(2), substituted ''an amount,

subject to section 1072(e) of this title, equal to'' for ''an

amount equal to'' in introductory provisions.

Subsec. (c)(9)(A)(i), (ii). Pub. L. 100-50, Sec. 10(k)(1),

inserted ''covered'' before ''loans''.

Subsec. (c)(9)(D). Pub. L. 100-50, Sec. 10(k)(2), added subpar.

(D).

Subsec. (f)(1)(B). Pub. L. 100-203, Sec. 3002(b)(3), substituted

''shall be deemed'' for ''shall, subject to section 1072(e) of this

title, be deemed''.

Pub. L. 100-203, Sec. 3001(b)(3), substituted ''shall, subject to

section 1072(e) of this title, be deemed'' for ''shall be deemed''.

Subsec. (i)(1). Pub. L. 100-50, Sec. 10(l), struck out

''multiple'' after ''authorizing'' and substituted ''21 days'' for

''45 days''.

Subsec. (j). Pub. L. 100-50, Sec. 10(m), inserted provision at

end that the guaranty agency consider the request of an eligible

lender to serve as the lender-of-last-resort pursuant to this

subsection.

Subsec. (k)(1). Pub. L. 100-203, Sec. 3003, substituted

''Notwithstanding any other provision of law, in'' for ''In'',

''guaranty agency shall'' for ''guaranty agency may'', and

''subsection shall include'' for ''subsection may include''.

EFFECTIVE DATE OF 2002 AMENDMENT

Amendment by Pub. L. 107-314 applicable with respect to interest,

and any special allowance under section 1087-1 of this title, that

accrue for months beginning on or after Oct. 1, 2003, on student

loans described in section 2174(c) of Title 10, Armed Forces, that

were made before, on, or after such date to members of the Armed

Forces who are on active duty (as defined in section 101(d) of

Title 10) on or after that date, see section 651(e) of Pub. L.

107-314, set out as an Effective Date note under section 2174 of

Title 10.

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by section 417(a), (b), (c)(2)-(k) of Pub. L. 105-244

effective Oct. 1, 1998, except as otherwise provided in Pub. L.

105-244, see section 3 of Pub. L. 105-244, set out as a note under

section 1001 of this title.

Pub. L. 105-244, title IV, Sec. 417(c)(1)(B), Oct. 7, 1998, 112

Stat. 1687, provided that: ''The amendments made by subparagraph

(A) of this paragraph (amending this section) apply to loans for

which the first disbursement is made on or after October 1, 1998.''

EFFECTIVE DATE OF 1994 AMENDMENT

Section 355(b) of Pub. L. 103-382 provided that: ''Subsection (a)

(amending this section) and the amendment made by subsection (a)

shall take effect on August 10, 1993.''

EFFECTIVE DATE OF 1993 AMENDMENTS

Amendment by section 2(c)(11), (12), (14)-(17), (22)-(28) of Pub.

L. 103-208 effective as if included in the Higher Education

Amendments of 1992, Pub. L. 102-325, except as otherwise provided,

amendment by section 2(c)(13)(A) of Pub. L. 103-208 effective on

and after July 1, 1994, amendment by section 2(c)(13)(B), (C) and

(18) of Pub. L. 103-208 effective on and after Dec. 20, 1993, and

amendment by section 2(c)(19)-(21) of Pub. L. 103-208 effective on

and after 30 days after Dec. 20, 1993, see section 5(a), (b)(2),

(3), (6) of Pub. L. 103-208, set out as a note under section 1051

of this title.

Amendment by Pub. L. 103-82 effective Oct. 1, 1993, see section

123 of Pub. L. 103-82, set out as a note under section 1701 of

Title 16, Conservation.

Section 4043(b) of Pub. L. 103-66 provided that: ''The amendments

made by this section (amending this section) shall take effect on

July 1, 1994.''

Section 4102(d) of Pub. L. 103-66 provided that: ''The amendments

made by this section (amending this section and sections 1078-8 and

1087-1 of this title) shall take effect on July 1, 1994.''

Section 4107(c) of Pub. L. 103-66 provided that: ''The amendments

made by this section (amending this section) shall take effect on

October 1, 1993.''

Section 4108(c) of Pub. L. 103-66 provided that: ''The amendments

made by this section (amending this section) shall apply to any

loan for which the first disbursement is made on or after October

1, 1993.''

Section 4110(b) of Pub. L. 103-66 provided that: ''The amendment

made by subsection (a) (amending this section) shall take effect on

October 1, 1993.''

Section 4112(b) of Pub. L. 103-66 provided that: ''The amendment

made by this section (amending this section) shall take effect on

October 1, 1993.''

Section 4201(b) of Pub. L. 103-66 provided that: ''The amendment

made by this section (amending this section) shall take effect on

October 1, 1994.''

EFFECTIVE DATE OF 1992 AMENDMENT

Section 432 of Pub. L. 102-325, as amended by Pub. L. 103-208,

Sec. 2(k)(5), Dec. 20, 1993, 107 Stat. 2486, provided that:

''(a) In General. - The changes made in part B of title IV of the

Act (20 U.S.C. 1071 et seq.) by the amendments made by this part

(part B (Sec. 411-432) of title IV of Pub. L. 102-325, see Tables

for classification) shall take effect on the date of enactment of

this Act (July 23, 1992), except -

''(1) as otherwise provided in such part B;

''(2) that the changes made in sections 425(a), 428(b)(1)(A),

428(b)(1)(B), 428A(b), 428B(b) (20 U.S.C. 1075(a), 1078(b)(1)(A),

(B), 1078-1(b), 1078-2(b)), relating to annual and aggregate loan

limits, shall apply with respect to loans for which the first

disbursement is made on or after July 1, 1993, except that -

''(A) the changes made in section 425(a)(1)(A)(i) and

428(b)(1)(A)(i) shall apply with respect to loans for which the

first disbursement is made on or after October 1, 1992; and

''(B) the changes made in section 425(a)(1)(A)(iv) and

428(b)(1)(A)(iv) shall apply with respect to loans to cover the

costs of instruction for periods of enrollment beginning on or

after October 1, 1993;

''(3) that the changes made in sections 427(a)(2)(C),

428(b)(1)(M), and 428B(d)(1) (20 U.S.C. 1077(a)(2)(C),

1078(b)(1)(M), 1078-2(d)(1)), relating to deferments, shall apply

with respect to loans for which the first disbursement is made on

or after July 1, 1993, to an individual who is a new borrower on

the date such individual applies for a loan;

''(4) that the changes made in sections 428(a)(7) and

428(f)(1)(C), relating to payments for unconsummated loans, shall

apply with respect to loans made on or after October 1, 1992;

''(5) that the changes made in sections 427(a)(2)(H) and

428(b)(1)(E)(i), relating to offering graduated or income

sensitive repayment options, shall apply with respect to loans

for which the first disbursement is made on or after July 1,

1993, to an individual who is a new borrower on the date such

individual applies for a loan;

''(6) that the changes made in section 428(b)(4), relating to

teacher deferment, shall apply with respect to loans for which

the first disbursement is made on or after July 1, 1993, to an

individual who is a new borrower on the date such individual

applies for a loan;

''(7) that section 428(c)(2)(H)(i) as added by such amendments

shall be effective on and after October 1, 1992;

''(8) that the changes in section 428(c)(3) with respect to

forbearance after a default shall be effective on and after

October 1, 1992;

''(9) that the changes made in section 428B(a) (20 U.S.C.

1078-2(a)) with respect to use of credit histories shall apply

with respect to loans for which the first disbursement is made on

or after July 1, 1993;

''(10) that section 428B(c) as added by such amendments,

relating to disbursement of Federal PLUS Loans, shall apply with

respect to loans for which the first disbursement is made on or

after October 1, 1992;

''(11) that the changes made in section 428C (20 U.S.C.

1078-3), relating to consolidation loans, shall apply with

respect to loans under such section for which the application is

received by an eligible lender on or after January 1, 1993;

''(12) that section 428H (20 U.S.C. 1078-8) as added by such

amendments shall be effective with respect to loans made to cover

the cost of instruction for periods of enrollment beginning on or

after October 1, 1992;

''(13) that the changes made in section 438 (20 U.S.C. 1087-1)

shall apply with respect to loans for which the first

disbursement is made on or after October 1, 1992;

''(14) that the changes in section 439(d)(1) (20 U.S.C.

1087-2(d)(1)), relating to facilities loans, shall apply with

respect to applications received on or after July 1, 1992; and

''(15) that the changes in the designation or names of loans or

programs under part B is (sic) effective with respect to

applications or other documents (used in making such loans) that

are printed after the date of enactment of this Act.

''(b) New Borrowers. - For purposes of the section, the term 'new

borrower' means, with respect to any date, an individual who on

that date has no outstanding balance of principal or interest owing

on any loan made, insured, or guaranteed under part B of title IV

of the Act (20 U.S.C. 1071 et seq.).''

EFFECTIVE DATE OF 1989 AMENDMENT

Amendment by section 2002(a)(2) of Pub. L. 101-239 applicable to

any loan made, insured, or guaranteed under this part or part D of

this subchapter, including a loan made before Dec. 19, 1989, and

amendment effective Jan. 1, 1990, but inapplicable with respect to

any portion of a period of deferment granted to a borrower under

section 1077(a)(2)(C)(i), 1078(b)(1)(M)(i), or 1087dd(c)(2)(A)(i)

of this title for service in a medical internship or residency

program completed prior to Dec. 19, 1989, see section 2002(a)(4) of

Pub. L. 101-239, set out as a note under section 1077 of this

title.

Section 2002(b)(2) of Pub. L. 101-239 provided that: ''The

amendments made by this subsection (amending this section) shall

apply with respect to loans made before, on, or after the date of

enactment of this Act (Dec. 19, 1989).''

Amendment by section 2004(b)(1), (3) of Pub. L. 101-239

applicable with respect to loans made to cover the cost of

instruction for periods of enrollment beginning on or after Jan. 1,

1990, see section 2004(c) of Pub. L. 101-239, set out as a note

under section 1077 of this title.

EFFECTIVE DATE OF 1988 AMENDMENT

Amendment by section 11(a) of Pub. L. 100-369 applicable with

respect to loans made, insured or guaranteed under this part on,

before, or after June 3, 1987, see section 11(b) of Pub. L.

100-369, set out as a note under section 1077 of this title.

Amendment by section 5(b)(2) of Pub. L. 100-369 effective with

respect to loans made on or after Oct. 1, 1988, and amendment by

section 7(c) of Pub. L. 100-369 effective July 18, 1988, see

section 13(b) of Pub. L. 100-369, set out as a note under section

1091 of this title.

EFFECTIVE DATE OF 1987 AMENDMENTS

Section 3002(b)(1)-(3) of Pub. L. 100-203 provided in part that

the amendments by section 3002(b)(1)-(3) of Pub. L. 100-203 are

effective Sept. 30, 1989.

Amendment by section 10(b) of Pub. L. 100-50 applicable with

respect to loans made, insured or guaranteed under this part on,

before, or after June 3, 1987, see section 11(b) of Pub. L.

100-369, set out as an Effective Date of 1988 Amendment note under

section 1077 of this title.

Amendment by Pub. L. 100-50 effective as if enacted as part of

the Higher Education Amendments of 1986, Pub. L. 99-498, see

section 27 of Pub. L. 100-50, set out as a note under section 1001

of this title.

EFFECTIVE DATE

Section effective Oct. 17, 1987, with subsection (b)(1)(M)

(except cls. (viii), (ix), and (x)) applicable only to loans to new

borrowers made to cover the costs of instruction for periods of

enrollment beginning on or after July 1, 1987, or disbursed on or

after July 1, 1987, subsection (b)(1)(A) and (B) applicable with

respect only to loans disbursed on or after Jan. 1, 1987, or made

to cover the costs of instruction for periods of enrollment

beginning on or after Jan. 1, 1987, and subsection (b)(1)(H)

applicable with respect only to loans for which the borrower files

an application on or after July 1, 1987, see section 402(b) of Pub.

L. 99-498, set out as a note under section 1071 of this title.

GUARANTEED STUDENT LOAN FAMILY CONTRIBUTION SCHEDULE FOR THE

PERIODS OF INSTRUCTION BEGINNING AFTER JUNE 30, 1983

Pub. L. 97-301, Sec. 9, Oct. 13, 1982, 96 Stat. 1403, as amended

by Pub. L. 98-79, Sec. 4(b), Aug. 15, 1983, 97 Stat. 481; Pub. L.

98-511, title VII, Sec. 707(7), (8), Oct. 19, 1984, 98 Stat. 2407,

2408; Pub. L. 99-272, title XVI, Sec. 16018(b), Apr. 7, 1986, 100

Stat. 348; Pub. L. 99-498, title IV, Sec. 408(a)(6), (7), Oct. 17,

1986, 100 Stat. 1495, specified that the family contribution

schedule for specific periods of instruction through June 30, 1988,

for loans made, insured, or guaranteed under this part be the

family contribution schedule for such loans for the period of

instruction from July 1, 1982, through June 30, 1983, and required

the family contribution schedule for the period of instruction from

July 1, 1982, through June 30, 1983, to be modified by the

Secretary of Education for use for each of the specific periods of

instruction to reflect the most recent and relevant data, prior to

repeal by Pub. L. 99-498, title IV, Sec. 408(b), Oct. 17, 1986, 100

Stat. 1495, effective with respect to any academic year beginning

on or after July 1, 1988, Pub. L. 97-301.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1015, 1058, 1071, 1072,

1072a, 1072b, 1073, 1077a, 1078-1, 1078-2, 1078-3, 1078-6, 1078-7,

1078-8, 1078-10, 1080, 1080a, 1081, 1082, 1084, 1085, 1087, 1087-1,

1087-2, 1087a, 1087c, 1087e, 1087f, 1087j, 1091, 1091a, 1091b,

1092, 1094, 1095a, 1101a of this title; title 10 section 2174;

title 16 section 1727; title 42 section 12656.

-CITE-

20 USC Sec. 1078-1 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1078-1. Voluntary flexible agreements with guaranty agencies

-STATUTE-

(a) Voluntary agreements

(1) Authority

Subject to paragraph (2), 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; or

(B) the prohibitions on inducements contained in section

1078(b)(3) of this title unless the Secretary determines that

such a waiver is consistent with the purposes of this section

and is limited to activities of the guaranty agency within the

State or States for which the guaranty agency serves as the

designated guarantor.

(2) Special rule

If the Secretary grants a waiver pursuant to paragraph (1)(B),

any guaranty agency doing business within the affected State or

States may request, and the Secretary shall grant, an identical

waiver to such guaranty agency under the same terms and

conditions (including service area limitations) as govern the

original waiver.

(3) Eligibility

During fiscal years 1999, 2000, and 2001, the Secretary may

enter into a voluntary, flexible agreement with not more than 6

guaranty agencies that had 1 or more agreements with the

Secretary under subsections (b) and (c) of section 1078 of this

title as of the day before October 7, 1998. Beginning in fiscal

year 2002, any guaranty agency or consortium thereof may enter

into a voluntary flexible agreement with the Secretary.

(4) Report required

Not later than September 30, 2001, the Secretary shall report

to the Committee on Labor and Human Resources of the Senate and

the Committee on Education and the Workforce of the House of

Representatives regarding the impact that the voluntary flexible

agreements have had upon program integrity, program and cost

efficiencies, and the availability and delivery of student

financial aid. Such report shall include -

(A) a description of each voluntary flexible agreement and

the performance goals established by the Secretary for each

agreement;

(B) a list of participating guaranty agencies and the

specific statutory or regulatory waivers provided to each

guaranty agency and any waivers provided to other guaranty

agencies under paragraph (2);

performance under the agency's voluntary flexible agreement was

assessed and the degree to which each agency achieved the

performance standards; and

(D) an analysis of the fees paid by the Secretary, and the

costs and efficiencies achieved under each voluntary agreement.

(b) Terms of agreement

An 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 and part C of

subchapter I of chapter 34 of title 42;

(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;

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.

(1) In general

The 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 notice

The Secretary shall notify the Chairperson and the Ranking

Minority Member of the Committee on Labor and Human Resources of

the Senate and the Committee on Education and the Workforce of

the House of Representatives 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;

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

The Secretary shall notify the Chairperson and the Ranking

Minority Member of the Committee on Labor and Human Resources of

the Senate and the Committee on Education and the Workforce of

the House of Representatives not later than 30 days prior to the

granting of a waiver pursuant to subsection (a)(2) of this

section to a guaranty agency that is not a party to a voluntary

flexible agreement.

(4) Public availability

The text of any voluntary flexible agreement, and any

subsequent revisions, and any waivers related to section

1078(b)(3) of this title that are not part of such an agreement,

shall be readily available to the public.

(5) Modification notice

The Secretary shall notify the Chairperson and the Ranking

Minority Members of the Committee on Labor and Human Resources of

the Senate and the Committee on Education and the Workforce of

the House of Representatives 30 days prior to any modifications

to an agreement under this section.

(d) Termination

At the expiration or early termination of an agreement under this

section, the Secretary shall reinstate the guaranty agency's prior

agreements under subsections (b) and (c) of section 1078 of this

title, subject only to such additional requirements as the

Secretary determines to be necessary in order to ensure the

efficient transfer of responsibilities between the agreement under

this section and the agreements under subsections (b) and (c) of

section 1078 of this title, and including the guaranty agency's

compliance with reserve requirements under sections 1072 and 1078

of this title.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 428A, as added Pub. L. 105-244,

title IV, Sec. 418, Oct. 7, 1998, 112 Stat. 1691.)

-REFTEXT-

REFERENCES IN TEXT

This chapter, referred to in subsec. (b)(4), was in the original

''this Act'', meaning Pub. L. 89-329, as amended, known as the

Higher Education Act of 1965. For complete classification of this

Act to the Code, see Short Title note set out under section 1001 of

this title and Tables.

-MISC2-

PRIOR PROVISIONS

A prior section 1078-1, Pub. L. 89-329, title IV, Sec. 428A, as

added Pub. L. 99-498, title IV, Sec. 402(a), Oct. 17, 1986, 100

Stat. 1384; amended Pub. L. 100-50, Sec. 10(n), (o)(1), (p)(1),

(q), (r)(1), June 3, 1987, 101 Stat. 343, 344; Pub. L. 100-369,

Sec. 3-5(a), (b)(3), July 18, 1988, 102 Stat. 835, 836; Pub. L.

101-239, title II, Sec. 2003(a)(1), (b)(1), (c)(1), Dec. 19, 1989,

103 Stat. 2112, 2114; Pub. L. 101-508, title III, Sec. 3006(b),

Nov. 5, 1990, 104 Stat. 1388-28; Pub. L. 102-26, Sec. 2(c)(1), Apr.

9, 1991, 105 Stat. 123; Pub. L. 102-325, title IV, Sec. 417, July

23, 1992, 106 Stat. 529; Pub. L. 103-208, Sec. 2(c)(29)-(32), Dec.

20, 1993, 107 Stat. 2465, 2466, related to Federal supplemental

loans for students, prior to repeal by Pub. L. 103-66, title IV,

Sec. 4047(b), (d), Aug. 10, 1993, 107 Stat. 364, effective July 1,

1994.

Another prior section 1078-1, Pub. L. 89-329, title IV, Sec.

428A, as added Pub. L. 94-482, title I, Sec. 127(a), Oct. 12, 1976,

90 Stat. 2120; amended Pub. L. 95-43, Sec. 1(a)(30)-(32), June 15,

1977, 91 Stat. 216; Pub. L. 96-374, title IV, Sec. 412(e), (f),

title XIII, Sec. 1391(a)(1), Oct. 3, 1980, 94 Stat. 1416, 1417,

1503; Pub. L. 97-35, title V, Sec. 535(e), Aug. 13, 1981, 95 Stat.

455, related to student loan insurance programs, prior to the

general amendment of this part by Pub. L. 99-498.

EFFECTIVE DATE

Section effective Oct. 1, 1998, see section 3 of Pub. L. 105-244,

set out as an Effective Date of 1998 Amendment note under section

1001 of this title.

-CITE-

20 USC Sec. 1078-2 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1078-2. Federal PLUS loans

-STATUTE-

(a) Authority to borrow

(1) Authority and eligibility

Parents of a dependent student shall be eligible to borrow

funds under this section in amounts specified in subsection (b)

of this section, if -

(A) the parents do not have an adverse credit history as

determined pursuant to regulations promulgated by the

Secretary; and

(B) 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

Except as provided in subsections (c), (d), and (e) of this

section, loans made under this section shall have the same terms,

conditions, and benefits as all other loans made under this part.

(3) Special rule

Whenever necessary to carry out the provisions of this section,

the terms ''student'' and ''borrower'' as used in this part shall

include a parent borrower under this section.

(b) Limitation based on need

Any loan under this section may be counted as part of the

expected family contribution in the determination of need under

this subchapter and part C of subchapter I of chapter 34 of title

42, but no loan may be made to any parent under this section for

any academic year in excess of (A) the student's estimated cost of

attendance, minus (B) other financial aid as certified by the

eligible institution under section 1078(a)(2)(A) of this title.

The annual insurable limit on account of any student shall not be

deemed to be exceeded by a line of credit under which actual

payments to the borrower will not be made in any year in excess of

the annual limit.

All 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

parent borrower.

(d) Payment of principal and interest

(1) Commencement of repayment

Repayment of principal on loans made under this section shall

commence not later than 60 days after the date such loan is

disbursed by the lender, subject to deferral during any period

during which the parent meets the conditions required for a

deferral under section 1077(a)(2)(C) or 1078(b)(1)(M) of this

title.

(2) Capitalization of interest

Interest on loans made under this section for which payments of

principal are deferred pursuant to paragraph (1) of this

subsection shall, if agreed upon by the borrower and the lender

(A) be paid monthly or quarterly, or (B) be added to the

principal amount of the loan not more frequently than quarterly

by the lender. Such capitalization of interest shall not be

deemed to exceed the annual insurable limit on account of the

borrower.

(3) Subsidies prohibited

No payments to reduce interest costs shall be paid pursuant to

section 1078(a) of this title on loans made pursuant to this

section.

(4) Applicable rates of interest

Interest on loans made pursuant to this section shall be at the

applicable rate of interest provided in section 1077a of this

title.

(5) Amortization

The amount of the periodic payment and the repayment schedule

for any loan made pursuant to this section shall be established

by assuming an interest rate equal to the applicable rate of

interest at the time the repayment of the principal amount of the

loan commences. At the option of the lender, the note or other

written evidence of the loan may require that -

(A) the amount of the periodic payment will be adjusted

annually, or

(B) the period of repayment of principal will be lengthened

or shortened,

in order to reflect adjustments in interest rates occurring as a

consequence of section 1077a(c)(4) of this title.

(e) Refinancing

(1) Refinancing to secure combined payment

An eligible lender may at any time consolidate loans held by it

which are made under this section to a borrower, including loans

which were made under this section as in effect prior to October

17, 1986, under a single repayment schedule which provides for a

single principal payment and a single payment of interest, and

shall calculate the repayment period for each included loan from

the date of the commencement of repayment of the most recent

included loan. Unless the consolidated loan is obtained by a

borrower who is electing to obtain variable interest under

paragraph (2) or (3), such consolidated loan shall bear interest

at the weighted average of the rates of all included loans. The

extension of any repayment period of an included loan pursuant to

this paragraph shall be reported (if required by them) to the

Secretary or guaranty agency insuring the loan, as the case may

be, but no additional insurance premiums shall be payable with

respect to any such extension. The extension of the repayment

period of any included loan shall not require the formal

extension of the promissory note evidencing the included loan or

the execution of a new promissory note, but shall be treated as

an administrative forbearance of the repayment terms of the

included loan.

(2) Refinancing to secure variable interest rate

An eligible lender may reissue a loan which was made under this

section before July 1, 1987, or under this section as in effect

prior to October 17, 1986, in order to permit the borrower to

obtain the interest rate provided under section 1077a(c)(4) of

this title. A lender offering to reissue a loan or loans for

such purpose may charge a borrower an amount not to exceed $100

to cover the administrative costs of reissuing such loan or

loans, not more than one-half of which shall be paid to the

guarantor of the loan being reissued to cover costs of

reissuance. Reissuance of a loan under this paragraph shall not

affect any insurance applicable with respect to the loan, and no

additional insurance fee may be charged to the borrower with

respect to the loan.

(3) Refinancing by discharge of previous loan

A borrower who has applied to an original lender for reissuance

of a loan under paragraph (2) and who is denied such reissuance

may obtain a loan from another lender for the purpose of

discharging the loan from such original lender. A loan made for

such purpose -

(A) shall bear interest at the applicable rate of interest

provided under section 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 (c)(5)(B) of

this section);

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

Each new lender may accept certification from the original

lender of the borrower's original loan in lieu of presentation of

the original promissory note.

(5) Notification to borrowers of availability of refinancing

options

Each holder of a loan made under this section or under this

section as in effect prior to October 17, 1986, shall, not later

than October 1, 1987, in the case of loans made before October

17, 1986, notify the borrower of such loan -

(A) of the refinancing options for which the borrower is

eligible under this subsection;

(B) of those options which will be made available by the

holder and of the practical consequences of such options in

terms of interest rates and monthly and total payments for a

set of loan examples; and

make available, the holder will, to the extent practicable,

refer the borrower to an eligible lender offering such option.

(f) Verification of immigration status and social security number

A 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(p)

of this title.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 428B, as added Pub. L. 99-498,

title IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1386; amended Pub.

L. 100-50, Sec. 10(o), (p)(2), (q), (r)(1), June 3, 1987, 101 Stat.

343, 344; Pub. L. 102-325, title IV, Sec. 418, July 23, 1992, 106

Stat. 531; Pub. L. 103-66, title IV, Sec. 4109(a), Aug. 10, 1993,

107 Stat. 369; Pub. L. 105-178, title VIII, Sec. 8301(a)(2), June

9, 1998, 112 Stat. 497; Pub. L. 105-244, title IV, Sec. 416(a)(2),

419, Oct. 7, 1998, 112 Stat. 1680, 1694.)

-COD-

CODIFICATION

October 17, 1986, referred to in subsec. (e)(5), was in the

original ''the date of enactment of this Act'', which was

translated as meaning the date of enactment of Pub. L. 99-498 which

enacted this section in the general revision of this part, to

reflect the probable intent of Congress.

-MISC3-

PRIOR PROVISIONS

A prior section 1078-2, Pub. L. 89-329, title IV, Sec. 428B, as

added Pub. L. 96-374, title IV, Sec. 419, Oct. 3, 1980, 94 Stat.

1424; amended Pub. L. 97-35, title V, Sec. 532(b)(3), 534(a)(2),

(c)(1), (2), Aug. 13, 1981, 95 Stat. 452, 454; Pub. L. 98-79, Sec.

12, Aug. 15, 1983, 97 Stat. 484, related to auxiliary loans to

assist students, prior to the general revision of this part by Pub.

L. 99-498.

AMENDMENTS

1998 - Subsec. (a). Pub. L. 105-244, Sec. 419(1), amended heading

and text of subsec. (a) generally. Prior to amendment, text read

as follows: ''Parents of a dependent student, who do not have an

adverse credit history as determined pursuant to regulations of the

Secretary, shall be eligible to borrow funds under this section in

amounts specified in subsection (b) of this section, and unless

otherwise specified in subsections (c), (d), and (e) of this

section, such loans shall have the same terms, conditions, and

benefits as all other loans made under this part. Whenever

necessary to carry out the provisions of this section, the terms

'student' and 'borrower' as used in this part shall include a

parent borrower under this section.''

Subsec. (d)(4). Pub. L. 105-244, Sec. 416(a)(2), substituted

''section 1077a'' for ''section 1077a(c)''.

Pub. L. 105-178 which directed substitution of ''section 1077a of

this title for loans made under this section'' for ''section

1077a(c) of this title'' in ''section 428B(d)(4) (20 U.S.C.

1078-2(d)(4))'' could not be executed because it did not indicate

what act was to be amended.

Subsec. (f). Pub. L. 105-244, Sec. 419(2), added subsec. (f).

1993 - Subsec. (c). Pub. L. 103-66 inserted ''shall be disbursed

in accordance with the requirements of section 1078-7 of this title

and'' after ''under this section''.

1992 - Pub. L. 102-325, Sec. 418(a), substituted ''Federal PLUS''

for ''PLUS'' in section catchline.

Subsec. (a). Pub. L. 102-325, Sec. 418(b)(1), substituted

''subsections (c), (d), and (e)'' for ''subsections (c) and (d)''

and inserted '', who do not have an adverse credit history as

determined pursuant to regulations of the Secretary,'' after ''a

dependent student''.

Subsec. (b). Pub. L. 102-325, Sec. 418(b)(2), struck out subsec.

(b) designation and heading, redesignated par. (3) as subsec. (b),

and struck out pars. (1) and (2) which set the annual limit on the

amount parents may borrow for one student in any academic year at

$4,000 and set the aggregate insured principal amount for insured

loans at not to exceed $20,000.

Subsec. (c). Pub. L. 102-325, Sec. 418(b)(4), added subsec. (c).

Former subsec. (c) redesignated (d).

Subsec. (d). Pub. L. 102-325, Sec. 418(c), (d), amended pars. (1)

and (2) generally. Prior to amendment, pars. (1) and (2) read as

follows:

''(1) Commencement of repayment. - Repayment of principal on

loans made under this section shall commence not later than 60 days

after the date such loan is disbursed by the lender, subject to

deferral (A) during any period during which the parent meets the

conditions required for a deferral under clause (i), (viii), or

(ix) of section 1077(a)(2)(C) or 1078(b)(1)(M) of this title; and

(B) during any period during which the borrower has a dependent

student for whom a loan obligation was incurred under this section

and who meets the conditions required for a deferral under clause

(i) of either such section.

''(2) Capitalization of interest. - Interest on loans made under

this section for which payments of principal are deferred pursuant

to paragraph (1) of this subsection shall, if agreed upon by the

borrower and the lender (A) be paid monthly or quarterly or (B) be

added to the principal amount of the loan on a quarterly basis by

the lender. Such capitalization of interest shall not be deemed to

exceed the annual insurable limit on account of the student.''

Pub. L. 102-325, Sec. 418(b)(3), redesignated subsec. (c) as (d).

Former subsec. (d) redesignated (e).

Subsec. (e). Pub. L. 102-325, Sec. 418(b)(3), redesignated

subsec. (d) as (e).

1987 - Subsec. (a). Pub. L. 100-50, Sec. 10(o)(2)(A), struck out

'', but such a parent borrower shall not be eligible for any

deferment pursuant to section 1077(a)(2)(C) or 1078(b)(1)(M) of

this title except for the deferments allowed (with respect to the

student) under clauses (i), (viii), and (ix) of such sections''

after ''borrower under this section''.

Subsec. (b)(3). Pub. L. 100-50, Sec. 10(p)(2), amended first

sentence generally, substituting ''for any academic year in excess

of (A) the student's estimated cost of attendance, minus (B) other

financial aid'' for ''which would cause the combined loans of the

parent and the student for any academic year to exceed the

student's estimated cost of attendance minus such student's

estimated financial assistance''.

Subsec. (c)(1). Pub. L. 100-50, Sec. 10(o)(2)(B), struck out

''pursuant to sections 1077(a)(2)(C)(i), (viii), and (ix) and

1078(b)(1)(M)(i), (viii), and (ix) of this title'' after ''subject

to deferral'' and inserted in lieu cls. (A) and (B).

Subsec. (c)(2). Pub. L. 100-50, Sec. 10(o)(1), (2)(C), (q), in

introductory provisions, struck out ''and interest'' after first

reference to ''principal'', and substituted ''pursuant to paragraph

(1) of this subsection'' for ''under sections 1077(a)(2)(C)(i) and

1078(b)(1)(M)(i) of this title'', and, in subpar. (A), inserted

''monthly or'' before ''quarterly''.

Subsec. (d)(1). Pub. L. 100-50, Sec. 10(r)(1)(A), inserted ''at

any time'' after ''eligible lender may'' in first sentence,

substituted ''the consolidated loan is obtained by a borrower who

is electing to obtain variable interest under paragraph (2) or

(3)'' for ''the borrower complies with the requirements of

paragraph (2)'' in second sentence, and inserted ''(if required by

them)'' after ''shall be reported'' in third sentence.

Subsec. (d)(2). Pub. L. 100-50, Sec. 10(r)(1)(B), inserted

''under this section before July 1, 1987, or'' before ''under this

section'' and substituted ''to reissue a loan or loans'' for ''to

reissue a loan'' and ''reissuing such loan or loans'' for

''reissuing such loan''.

Subsec. (d)(5). Pub. L. 100-50, Sec. 10(r)(1)(C), substituted

''October 1, 1987'' for ''January 1, 1987'' and, in subpar. (B),

inserted ''and of the practical consequences of such options in

terms of interest rates and monthly and total payments for a set of

loan examples'' before semicolon at end.

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by section 416(a)(2) of Pub. L. 105-244 applicable with

respect to any loan made, insured, or guaranteed under this part

for which the first disbursement is made on or after Oct. 1, 1998,

and before July 1, 2003, except that such amendment is applicable

with respect to any loan made under section 1078-3 of this title

for which application is received by an eligible lender on or after

Oct. 1, 1998, and before July 1, 2003, see section 416(c) of Pub.

L. 105-244, set out as a note under section 1077a of this title.

Amendment by section 419 of Pub. L. 105-244 effective Oct. 1,

1998, except as otherwise provided in Pub. L. 105-244, see section

3 of Pub. L. 105-244, set out as a note under section 1001 of this

title.

EFFECTIVE DATE OF 1993 AMENDMENT

Section 4109(c) of Pub. L. 103-66 provided that: ''The amendments

made by this section (amending this section and section 1078-7 of

this title) shall be effective with respect to loans for which the

first disbursement is made on or after October 1, 1993.''

EFFECTIVE DATE OF 1992 AMENDMENT

Amendment by Pub. L. 102-325 effective July 23, 1992, except that

changes made in subsec. (b), relating to annual and aggregate loan

limits, are applicable with respect to loans for which first

disbursement is made on or after July 1, 1993, changes made in

subsec. (a) with respect to use of credit histories are applicable

with respect to loans for which first disbursement is made on or

after July 1, 1993, and subsec. (c), as added by Pub. L. 102-325,

relating to disbursement of Federal PLUS Loans, is applicable with

respect to loans for which first disbursement is made on or after

Oct. 1, 1992, see section 432 of Pub. L. 102-325, set out as a note

under section 1078 of this title.

EFFECTIVE DATE OF 1987 AMENDMENT

Amendment by Pub. L. 100-50 effective as if enacted as part of

the Higher Education Amendments of 1986, Pub. L. 99-498, see

section 27 of Pub. L. 100-50, set out as a note under section 1001

of this title.

AMENDMENT OF NOTE OR OTHER WRITTEN EVIDENCE OF LOAN BY ELIGIBLE

LENDER AT REQUEST OF BORROWER; CIRCUMSTANCES; DENIAL OF REQUEST

Section 10(r)(2) of Pub. L. 100-50 provided that: ''An eligible

lender who has refinanced a loan or loans under section 428A(d)

(former 20 U.S.C. 1078-1(d)) or 428B(d) (20 U.S.C. 1078-2(d))

between the date of enactment of the Higher Education Amendments of

1986 (Oct. 17, 1986) and July 1, 1987, may, at the request of a

borrower or with the written consent of the borrower, amend the

note or other written evidence of loan as necessary to comply with

the requirements of such sections and section 427A(c)(4) (20 U.S.C.

1077a(c)(4)) as amended by this Act. Any borrower who is denied

such a request shall be treated as eligible to obtain a loan from

another lender under section 428A(d)(3) or 428B(d)(3), as

applicable, for the purposes of discharging the loan from the

original lender, and a borrower exercising this option shall not be

subject to an additional insurance fee under section 428A(d)(3)(C)

or 428B(d)(3)(C).''

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1075, 1077, 1077a, 1078,

1078-8, 1078-11, 1082, 1083, 1085, 1087, 1087-1, 1087d, 1087e,

1091, 1091b, 1092 of this title; title 26 section 144; title 42

section 12604.

-CITE-

20 USC Sec. 1078-3 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1078-3. Federal consolidation loans

-STATUTE-

(a) Agreements with eligible lenders

(1) Agreement required for insurance coverage

For the purpose of providing loans to eligible borrowers for

consolidation of their obligations with respect to eligible

student loans, the Secretary or a guaranty agency shall enter

into agreements in accordance with subsection (b) of this section

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

(B), (C), (E), and (J) of such section.

(2) Insurance coverage of consolidation loans

Except as provided in section 1079(e) of this title, no

contract of insurance under this part shall apply to a

consolidation loan unless such loan is made under an agreement

pursuant to this section and is covered by a certificate issued

in accordance with subsection (b)(2) of this section. Loans

covered by such a certificate that is issued by a guaranty agency

shall be considered to be insured loans for the purposes of

reimbursements under section 1078(c) of this title, but no

payment shall be made with respect to such loans under section

1078(f) of this title to any such agency.

(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 and part C of

subchapter I of chapter 34 of title 42 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;

(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) (FOOTNOTE 1) An individual's status as an eligible

borrower under this section terminates upon receipt of a

consolidation loan under this section, except that -

(FOOTNOTE 1) So in original. No cl. (ii) has been enacted.

(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; and

(IV) loans received prior to the date of the first

consolidation loan may be added to a subsequent consolidation

loan.

(C)(i) A married couple, each of whom has eligible student

loans, may be treated as if such couple were an individual

borrowing under subparagraphs (A) and (B) if such couple agrees

to be held jointly and severally liable for the repayment of a

consolidation loan, without regard to the amounts of the

respective loan obligations that are to be consolidated, and

without regard to any subsequent change that may occur in such

couple's marital status.

(ii) Only one spouse in a married couple applying for a

consolidation loan under this subparagraph need meet any of the

requirements of subsection (b) of this section, except that each

spouse shall -

(I) individually make the initial certification that no other

application is pending in accordance with subsection (b)(1)(A)

of this section; and

(II) agree to notify the holder concerning any change of

address in accordance with subsection (b)(4) of this section.

(4) ''Eligible student loans'' defined

For the purpose of paragraph (1), the term ''eligible student

loans'' means loans -

(A) made, insured, or guaranteed under this part, 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 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 subpart II of part B 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 lenders

Any lender described in subparagraph (A), (B), or (C) of

subsection (a)(1) of this section 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) of this section, 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 and (i) the

lender holds an outstanding loan of that borrower which is

selected by the borrower for consolidation under this section,

except that this clause shall not apply in the case of a

borrower with multiple holders of loans under this part, or

(ii) the borrower certifies that the borrower has sought and

has been unable to obtain a consolidation loan with

income-sensitive repayment terms from the holders of the

outstanding loans of that borrower (which are so selected for

consolidation);

(B) that each consolidation loan made by the lender will bear

interest, and be subject to repayment, in accordance with

subsection (c) of this section;

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) of this section, 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

(F) such other terms and conditions as the Secretary or the

guaranty agency may specifically require of the lender to carry

out this section.

(2) Issuance of certificate of comprehensive insurance coverage

The Secretary shall issue a certificate of comprehensive

insurance coverage under section 1079(b) of this title to a

lender which has entered into an agreement with the Secretary

under paragraph (1) of this subsection. The guaranty agency may

issue a certificate of comprehensive insurance coverage to a

lender with which it has an agreement under such paragraph. The

Secretary shall not issue a certificate to a lender described in

subparagraph (B) or (C) of subsection (a)(1) of this section

unless the Secretary determines that such lender has first

applied to, and has been denied a certificate of insurance by,

the guaranty agency which insures the preponderance of its loans

(by value).

(3) Contents of certificate

A 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;

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 loans

A consolidation loan made pursuant to this section shall be

insurable by the Secretary or a guaranty agency pursuant to

paragraph (2) only if the loan is made to an eligible borrower

who has agreed to notify the holder of the loan promptly

concerning any change of address and the loan is evidenced by a

note or other written agreement which -

(A) is made without security and without endorsement, except

that if the borrower is a minor and such note or other written

agreement executed by him or her would not, under applicable

law, create a binding obligation, endorsement may be required;

(B) provides for the payment of interest and the repayment of

principal in accordance with subsection (c) of this section;

(C)(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 section 1087e of this

title; or

(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 credit bureau organizations 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 organizations.

(5) Direct loans

In the event that a borrower is unable to obtain a

consolidation loan from a lender with an agreement under

subsection (a)(1) of this section, or is unable to obtain a

consolidation loan with income-sensitive repayment terms

acceptable to the borrower from such a lender, the Secretary

shall offer any such borrower who applies for it, a direct

consolidation loan. Such direct consolidation loan shall, as

requested by the borrower, be repaid either pursuant to income

contingent repayment under part C of this subchapter or pursuant

to any other repayment provision under this section. The

Secretary shall not offer such loans if, in the Secretary's

judgment, the Department of Education does not have the necessary

origination and servicing arrangements in place for such loans.

(6) Nondiscrimination in loan consolidation

An 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) of this section or subsection

(d)(1)(C)(ii) of this section;

(B) based on the type or category of institution of higher

education that the borrower attended;

with respect to the consolidation loan; or

(D) with respect to the types of repayment schedules offered

to such borrower.

(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, 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.

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)(F) of this section 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 or

income-sensitive repayment schedules, established by the lender

in accordance with the regulations of the Secretary. Except as

required by such income-sensitive repayment schedules, or by the

terms of repayment pursuant to income contingent repayment

offered by the Secretary under subsection (b)(5) of this section,

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 requirements

Notwithstanding paragraph (2) -

(A) 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; and

(B) except as required by the terms of repayment pursuant to

income contingent repayment offered by the Secretary under

subsection (b)(5) of this section, the lender of a

consolidation loan may, with respect to repayment on the loan,

when the amount of a monthly or other similar payment on the

loan is not a multiple of $5, round the payment to the next

highest whole dollar amount that is a multiple of $5.

(4) Commencement of repayment

Repayment of a consolidation loan shall commence within 60 days

after all holders have, pursuant to subsection (b)(1)(D) of this

section, discharged the liability of the borrower on the loans

selected for consolidation.

(5) Insurance premiums prohibited

No insurance premium shall be charged to the borrower on any

consolidation loan, and no insurance premium shall be payable by

the lender to the Secretary with respect to any such loan, but a

fee may be payable by the lender to the guaranty agency to cover

the costs of increased or extended liability with respect to such

loan.

(d) Special program authorized

(1) General rule and definition of eligible student loan

(A) In general

Subject to the provisions of this subsection, the Secretary

or a guaranty agency shall enter into agreements with eligible

lenders described in subparagraphs (A), (B), and (C) of

subsection (a)(1) of this section for the consolidation of

eligible student loans.

(B) Applicability rule

Unless otherwise provided in this subsection, the agreements

entered into under subparagraph (A) and the loans made under

such agreements for the consolidation of eligible student loans

under this subsection shall have the same terms, conditions,

and benefits as all other agreements and loans made under this

section.

For the purpose of this subsection, the term ''eligible

student loans'' means loans -

(i) of the type described in subparagraphs (A), (B), 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

The portion of each consolidated loan that is attributable to

an eligible student loan described in paragraph (1)(C)(ii)

shall bear interest at a rate not to exceed the rate determined

under subparagraph (B).

(B) Determination of the maximum interest rate

For the 12-month period beginning after July 1, 1992, and for

each 12-month period thereafter, beginning on July 1 and ending

on June 30, the interest rate applicable under subparagraph (A)

shall be equal to the average of the bond equivalent rates of

the 91-day Treasury bills auctioned for the quarter prior to

July 1, for each 12-month period for which the determination is

made, plus 3 percent.

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

determination.

(3) Special rules

(A) No special allowance rule

No special allowance under section 1087-1 of this title shall

be paid with respect to the portion of any consolidated loan

under this subsection that is attributable to any loan

described in paragraph (1)(C)(ii).

(B) No interest subsidy rule

No interest subsidy under section 1078(a) of this title shall

be paid on behalf of any eligible borrower for any portion of a

consolidated loan under this subsection that is attributable to

any loan described in paragraph (1)(C)(ii).

Notwithstanding any other provision of this chapter,

additional reserves shall not be required for any guaranty

agency with respect to a loan made under this subsection.

(D) Insurance rule

Any insurance premium paid by the borrower under subpart I of

part A of title VII of the Public Health Service Act (42 U.S.C.

292 et seq.) with respect to a loan made under that subpart and

consolidated under this subsection shall be retained by the

student loan insurance fund established under section 710 of

the Public Health Service Act (42 U.S.C. 292i).

(4) Regulations

The Secretary is authorized to promulgate such regulations as

may be necessary to facilitate carrying out the provisions of

this subsection.

(e) Termination of authority

The authority to make loans under this section expires at the

close of September 30, 2004. Nothing in this section shall be

construed to authorize the Secretary to promulgate rules or

regulations governing the terms or conditions of the agreements and

certificates under subsection (b) of this section. Loans made

under this section which are insured by the Secretary shall be

considered to be new loans made to students for the purpose of

section 1074(a) of this title.

(f) Interest payment rebate fee

(1) In general

For any month beginning on or after October 1, 1993, each

holder of a consolidation loan under this section for which the

first disbursement was made on or after October 1, 1993, shall

pay to the Secretary, on a monthly basis and in such manner as

the Secretary shall prescribe, a rebate fee calculated on an

annual basis equal to 1.05 percent of the principal plus accrued

unpaid interest on such loan.

(2) Special rule

For consolidation loans based on applications received during

the period from October 1, 1998 through January 31, 1999,

inclusive, the rebate described in paragraph (1) shall be equal

to 0.62 percent of the principal plus accrued unpaid interest on

such loan.

(3) Deposit

The Secretary shall deposit all fees collected pursuant to

subsection (a) of this section into the insurance fund

established in section 1081 of this title.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 428C, as added Pub. L. 99-498,

title IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1388; amended Pub.

L. 100-50, Sec. 10(s), June 3, 1987, 101 Stat. 345; Pub. L.

102-325, title IV, Sec. 419, July 23, 1992, 106 Stat. 532; Pub. L.

102-408, title III, Sec. 306(a), (b), Oct. 13, 1992, 106 Stat.

2084, 2086; Pub. L. 103-66, title IV, Sec. 4046(a), (b)(2),

4106(a), Aug. 10, 1993, 107 Stat. 360, 363, 368; Pub. L. 103-208,

Sec. 2(c)(33)-(37), Dec. 20, 1993, 107 Stat. 2466; Pub. L. 103-382,

title III, Sec. 356, Oct. 20, 1994, 108 Stat. 3967; Pub. L.

104-208, div. A, title I, Sec. 101(e) (title VI, Sec.

602(b)(1)(A)(ii)), Sept. 30, 1996, 110 Stat. 3009-233, 3009-283;

Pub. L. 105-33, title VI, Sec. 6104(3), Aug. 5, 1997, 111 Stat.

652; Pub. L. 105-78, title VI, Sec. 609(b)-(e), Nov. 13, 1997, 111

Stat. 1522, 1523; Pub. L. 105-244, title IV, Sec. 416(b)(2), 420,

Oct. 7, 1998, 112 Stat. 1682, 1695; Pub. L. 107-139, Sec. 1(a)(2),

Feb. 8, 2002, 116 Stat. 8.)

-REFTEXT-

REFERENCES IN TEXT

The Public Health Service Act, referred to in subsecs. (a)(4)(D),

(E) and (d)(1)(C)(ii), (3)(D), is act July 1, 1944, ch. 373, 58

Stat. 682, as amended. Subparts I and II of part A of title VII of

the Act are classified generally to subpart I (Sec. 292 et seq.)

and subpart II (Sec. 292q et seq.), respectively, of part A of

subchapter V of chapter 6A of Title 42, The Public Health and

Welfare. Subpart II of part B of title VIII of the Act, which was

classified generally to subpart II (Sec. 297a et seq.) of part B of

subchapter VI of chapter 6A of Title 42, was redesignated as part E

of subchapter VI of chapter 6A of Title 42, by Pub. L. 105-392,

title I, Sec. 123(2), Nov. 13, 1998, 112 Stat. 3562. For complete

classification of this Act to the Code, see Short Title note set

out under section 201 of Title 42 and Tables.

This chapter, referred to in subsec. (d)(3)(C), was in the

original ''this Act'', meaning Pub. L. 89-329, as amended, known as

the Higher Education Act of 1965. For complete classification of

this Act to the Code, see Short Title note set out under section

1001 of this title and Tables.

-COD-

CODIFICATION

Amendments by section 2(c)(33), (36) of Pub. L. 103-208 (which

were effective as if included in Pub. L. 102-325) were executed to

this section as amended by Pub. L. 102-325 and Pub. L. 103-66, to

reflect the probable intent of Congress.

-MISC3-

PRIOR PROVISIONS

A prior section 1078-3, Pub. L. 89-329, title IV, Sec. 428C, as

added Pub. L. 99-272, title XVI, Sec. 16017(a), Apr. 7, 1986, 100

Stat. 343, related to consolidation loans, prior to the general

revision of this part by Pub. L. 99-498.

AMENDMENTS

2002 - Subsec. (c)(1)(A). Pub. L. 107-139 amended subpar. (A)

generally. Prior to amendment, subpar. (A) read as follows:

''Notwithstanding subparagraphs (B) and (C), with respect to any

loan made under this section for which the application is received

by an eligible lender on or after October 1, 1998, and before July

1, 2003, the applicable interest rate shall be determined under

section 1077a(k)(4) of this title.''

1998 - Subsec. (a)(3). Pub. L. 105-244, Sec. 420(a), amended

heading, added subpars. (A) and (B), and struck out former subpars.

(A) and (B) which defined the term ''eligible borrower'', provided

for termination of individual's status as an eligible borrower, and

provided for counting loans against certain limitations on

aggregate indebtedness.

Subsec. (a)(4)(C). Pub. L. 105-244, Sec. 420(b), added subpar.

under part C of this subchapter, except that loans made under such

part shall be eligible student loans only for consolidation loans

for which the application is received by an eligible lender during

the period beginning on November 13, 1997, and ending on October 1,

1998;''.

Subsec. (b)(1)(A)(i). Pub. L. 105-244, Sec. 420(c)(1), inserted

''except that this clause shall not apply in the case of a borrower

with multiple holders of loans under this part,'' after ''under

this section,''.

Subsec. (b)(4)(C)(ii). Pub. L. 105-244, Sec. 420(c)(2), inserted

''during any such period'' after ''and be paid'' in introductory

provisions and struck out '', or on or after October 1, 1998,''

before ''that consolidated'' in subcl. (I) and ''and before October

1, 1998,'' before ''except that'' in subcl. (II).

Subsec. (b)(6)(A). Pub. L. 105-244, Sec. 420(c)(3), inserted

before semicolon at end '', except that a lender is not required to

consolidate loans described in subparagraph (D) or (E) of

subsection (a)(4) of this section or subsection (d)(1)(C)(ii) of

this section''.

Subsec. (c)(1). Pub. L. 105-244, Sec. 420(b)(2), amended heading,

added subpar. (A), and struck out former subpar. (A) which read as

follows: ''Consolidation loans made under this section shall bear

interest at rates determined under subparagraph (B), (C), or (D).

For the purposes of payment of special allowances under section

1087-1(b)(2) of this title, the interest rate required by this

subsection is the applicable interest rate with respect to a

consolidation loan.''

Subsec. (e). Pub. L. 105-244, Sec. 420(d), substituted

''September 30, 2004'' for ''September 30, 2002''.

Subsec. (f)(2), (3). Pub. L. 105-244, Sec. 420(e), added par. (2)

and redesignated former par. (2) as (3).

1997 - Subsec. (a)(4)(C) to (E). Pub. L. 105-78, Sec. 609(b),

added subpar. (C) and redesignated former subpars. (C) and (D) as

(D) and (E), respectively.

Subsec. (b)(4)(C)(ii)(I). Pub. L. 105-78, Sec. 609(c)(1), (2),

inserted ''for which the application is received by an eligible

lender before November 13, 1997, or on or after October 1, 1998,''

after ''consolidation loan'' and struck out ''or'' at end.

Subsec. (b)(4)(C)(ii)(II), (III). Pub. L. 105-78, Sec.

609(c)(3)-(5), added subcl. (II) and redesignated former subcl.

(II) as (III) and inserted ''or (II)'' before semicolon at end.

Subsec. (b)(6). Pub. L. 105-78, Sec. 609(d), added par. (6).

Subsec. (c)(1)(A). Pub. L. 105-78, Sec. 609(e)(1), substituted

''subparagraph (B), (C), or (D)'' for ''subparagraph (B) or (D)''.

Subsec. (c)(1)(D). Pub. L. 105-78, Sec. 609(e)(2), added subpar.

(D).

Subsec. (e). Pub. L. 105-33 substituted ''September 30, 2002.''

for ''September 30, 1998.''

1996 - Subsec. (a)(1)(A). Pub. L. 104-208 inserted ''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'' after ''Student Loan Marketing

Association''.

1994 - Subsec. (a)(4)(D). Pub. L. 103-382 added subpar. (D).

1993 - Subsec. (a)(3). Pub. L. 103-66, Sec. 4046(a)(1), amended

heading.

Subsec. (a)(3)(A). Pub. L. 103-208, Sec. 2(c)(33), substituted

''defaulted borrower who has made arrangements to repay the

obligation on the defaulted loans satisfactory to the holders of

the defaulted loans'' for ''delinquent or defaulted borrower who

will reenter repayment through loan consolidation''. See

Codification note above.

Pub. L. 103-66, Sec. 4046(a)(1), amended subpar. (A) generally.

Prior to amendment, subpar. (A) read as follows: ''For the purpose

of this section, the term 'eligible borrower' means a borrower who,

at the time of application for a consolidation loan -

''(i) has an outstanding indebtedness on eligible student

loans, at the time of application for a consolidation loan, of

not less than $7,500; and

''(ii) is in repayment status, or in a grace period preceding

repayment, or is a delinquent or defaulted borrower who will

reenter repayment through loan consolidation.''

Subsec. (a)(3)(B)(ii). Pub. L. 103-66, Sec. 4046(b)(2), struck

out at end ''Nothing in this section shall be interpreted to

authorize the Secretary to require lenders, holders, or guarantors

of consolidated loans to receive, to maintain, or to make reports

with respect to preexisting records relating to any eligible

student loan (as defined under paragraph (4)) discharged by a

borrower in receiving a consolidation loan.''

Subsec. (a)(4)(A). Pub. L. 103-208, Sec. 2(c)(34), struck out

before semicolon at end '', except for loans made to parent

borrowers under section 1078-2 of this title as in effect prior to

October 17, 1986''.

Subsec. (a)(4)(C). Pub. L. 103-208, Sec. 2(c)(35), substituted

''part A'' for ''part C'' before ''of title VII of the Public

Health Service Act''.

Subsec. (b)(1)(A), (E), (F). Pub. L. 103-66, Sec. 4046(a)(2)(A),

inserted ''with income-sensitive repayment terms'' after ''obtain a

consolidation loan'' in subpar. (A)(ii), added subpar. (E), and

redesignated former subpar. (E) as (F).

Subsec. (b)(4)(C). Pub. L. 103-66, Sec. 4046(a)(2)(B), amended

subpar. (C) generally. Prior to amendment, subpar. (C) read as

follows: ''provides that periodic installments of principal need

not be paid, but interest shall accrue and be paid by the

Secretary, 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 period pursuant to subsection (c)(2) of this section;''.

Subsec. (b)(5). Pub. L. 103-66, Sec. 4046(a)(2)(C), added par.

(5).

Subsec. (c)(1)(B), (C). Pub. L. 103-66, Sec. 4046(a)(3)(A),

amended subpars. (B) and (C) generally. Prior to amendment,

subpars. (B) and (C) read as follows:

''(B) Except as provided in subparagraph (C), a consolidation

loan shall bear interest at an annual rate on the unpaid principal

balance of the loan which is equal to the weighted average of the

interest rates on the loans consolidated, rounded to the nearest

whole percent.

''(C) A consolidation loan shall bear interest at an annual rate

on the unpaid principal balance of the loan equal to not less than

9 percent.''

Subsec. (c)(2)(A). Pub. L. 103-208, Sec. 2(c)(36), inserted

period at end of cl. (vi). See Codification note above.

Pub. L. 103-66, Sec. 4046(a)(3)(B)(i), in introductory provisions

substituted ''income-sensitive repayment schedules, established by

the lender in accordance with the regulations of the Secretary.

Except as required by such income-sensitive repayment schedules, or

by the terms of repayment pursuant to income contingent repayment

offered by the Secretary under subsection (b)(5) of this section,

such repayment terms'' for ''income sensitive repayment schedules.

Such repayment terms'', added cl. (i), and redesignated former cls.

(i) to (v) as (ii) to (vi), respectively.

Subsec. (c)(2)(B), (C). Pub. L. 103-66, Sec. 4046(a)(3)(B)(ii),

(iii), redesignated subpar. (C) as (B) and struck out former

subpar. (B) which read as follows: ''Unless a consolidation loan

under subparagraph (A)(ii) will be used to discharge at least

$5,000 of loans made under this part, such loan shall be repaid in

accordance with subparagraph (A)(i).''

Subsec. (c)(3)(A). Pub. L. 103-208, Sec. 2(c)(37), inserted ''be

an amount'' before ''equal to''.

Subsec. (c)(3)(B). Pub. L. 103-66, Sec. 4046(a)(3)(C), inserted

''except as required by the terms of repayment pursuant to income

contingent repayment offered by the Secretary under subsection

(b)(5) of this section,'' before ''the lender''.

Subsec. (f). Pub. L. 103-66, Sec. 4106(a), added subsec. (f).

1992 - Pub. L. 102-325, Sec. 419(a), substituted ''Federal

consolidation'' for ''Consolidation'' in section catchline.

Subsec. (a)(3)(A)(i). Pub. L. 102-325, Sec. 419(b)(1)(A),

substituted ''$7,500'' for ''$5,000''.

Subsec. (a)(3)(A)(ii). Pub. L. 102-325, Sec. 419(b)(1)(B),

amended cl. (ii) generally. Prior to amendment, cl. (ii) read as

follows: ''is in repayment status, or in a grace period preceding

repayment, and is not delinquent with respect to any required

payment on such indebtedness by more than 90 days.''

Subsec. (a)(3)(B). Pub. L. 102-325, Sec. 419(c), amended subpar.

(B) generally. Prior to amendment, subpar. (B) read as follows:

''An individual's status as an eligible borrower under this section

terminates upon receipt of a consolidation loan under this section

except with respect to eligible student loans received after the

date of receipt of the consolidation loan. Loans made under this

section shall, to the extent used to discharge loans made under

this subchapter and part C of subchapter I of chapter 34 of title

42, be counted against the applicable limitations on aggregate

indebtedness contained in sections 1075(a)(2), 1078(b)(1)(B),

1078-1(b)(2), and 1087dd(a)(2) of this title. Nothing in this

subparagraph shall be interpreted to authorize the Secretary to

require lenders, holders, or guarantors of consolidation loans to

receive, to maintain, or to make reports with respect to

pre-existing records relating to any eligible student loan (as

defined under subsection (a)(4) of this section) discharged by a

borrower in receiving a consolidation loan.''

Subsec. (a)(3)(C). Pub. L. 102-325, Sec. 419(d), added subpar.

(C).

Subsec. (a)(4)(A). Pub. L. 102-325, Sec. 419(b)(2), amended

subpar. (A) generally. Prior to amendment, subpar. (A) read as

follows: ''made, insured, or guaranteed under this part, except for

loans made to parent borrowers under section 1078-2 of this title,

including loans made to parent borrowers under section 1078-2 of

this title as in effect prior to October 17, 1986;''.

Subsec. (b)(4)(C). Pub. L. 102-325, Sec. 419(e), amended subpar.

''provides that periodic installments of principal need not be

paid, but interest shall accrue and be paid, during any period for

which the borrower would be eligible for a deferral under clause

(i), (viii), or (ix) of section 1078(b)(1)(M) of this title, and

that any such period shall not be included in determining the

repayment period pursuant to subsection (c)(2) of this section;''.

Subsec. (c)(2)(A). Pub. L. 102-325, Sec. 419(f), substituted

''which shall include'' for ''which may include'' in first

sentence, inserted second sentence, and struck out former second

sentence which read as follows: ''Such repayment terms shall

require that if the sum of the consolidation loan and the amount

outstanding on other student loans to the individual -

''(i) is equal to or greater than $5,000 but less than $7,500,

then such consolidation loan shall be repaid in not more than 10

years;

''(ii) is equal to or greater than $7,500 but less than

$10,000, then such consolidation loan shall be repaid in not more

than 12 years;

''(iii) is equal to or greater than $10,000 but less than

$20,000, then such consolidation loan shall be repaid in not more

than 15 years;

''(iv) is equal to or greater than $20,000 but less than

$45,000, then such consolidation loan shall be repaid in not more

than 20 years; or

''(v) is equal to or greater than $45,000, then such

consolidation loan shall be repaid in not more than 25 years.''

Subsec. (d). Pub. L. 102-408, Sec. 306(a), added subsec. (d).

Former subsec. (d) redesignated (e).

Pub. L. 102-325, Sec. 419(g), substituted ''September 30, 1998''

for ''September 30, 1992''.

Subsec. (e). Pub. L. 102-408, Sec. 306(b), which directed the

substitution of ''1997'' for ''1992'', could not be executed

because ''1992'' did not appear in text subsequent to the amendment

by Pub. L. 102-325, Sec. 419(g). See above.

Pub. L. 102-408, Sec. 306(a)(1), redesignated subsec. (d) as

subsec. (e).

1987 - Subsec. (a)(1)(C). Pub. L. 100-50, Sec. 10(s)(1), which

directed the amendment of subpar. (C) by substituting ''(C), (E),

and (J)'' for ''(C) and (E)'', was executed by substituting the new

language for ''(C), and (E)'', as the probable intent of Congress.

Subsec. (a)(3)(A). Pub. L. 100-50, Sec. 10(s)(2), struck out cl.

(iii) which read as follows: ''is not a parent borrower under

section 1078-2 of this title.''

Subsec. (a)(3)(B). Pub. L. 100-50, Sec. 10(s)(3), substituted

''eligible student loans received'' for ''loans received under this

subchapter and part C of subchapter I of chapter 34 of title 42'',

''under this subchapter and part C of subchapter I of chapter 34 of

title 42'' for ''under this part'', and '', 1078(b)(1)(B),

1078-1(b)(2), and 1087dd(a)(2) of this title'' for ''and

1078(b)(1)(B) of this title'', and inserted provision that nothing

in subpar. (B) should be interpreted to authorize Secretary to

require lenders, holders, or guarantors of consolidation loans to

make reports with respect to pre-existing records relating to

eligible student loans discharged by a borrower in receiving a

consolidation loan.

Subsec. (a)(4)(A). Pub. L. 100-50, Sec. 10(s)(4), inserted

exception for loans made to parent borrowers under section 1078-2

of this title.

Subsec. (b)(1)(C). Pub. L. 100-50, Sec. 10(s)(5), in cl. (i),

substituted ''subsection (a)(3) of this section'' for ''subsection

(a)(2) of this section'' and, in cl. (ii), substituted ''all

eligible student loans received by the eligible borrower'' for

''all loans received by the eligible borrower under this subchapter

and part C of subchapter I of chapter 34 of title 42''.

Subsec. (c)(2)(A)(v). Pub. L. 100-50, Sec. 10(s)(6), substituted

''equal to or greater'' for ''more'' the first time appearing, as

the probable intent of Congress.

Subsec. (c)(5). Pub. L. 100-50, Sec. 10(s)(7), inserted '', but a

fee may be payable by the lender to the guaranty agency to cover

the costs of increased or extended liability with respect to such

loan'' before period at end.

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by section 416(b)(2) of Pub. L. 105-244 applicable with

respect to any loan made, insured, or guaranteed under this part

for which the first disbursement is made on or after Oct. 1, 1998,

and before July 1, 2003, except that such amendment is applicable

with respect to any loan made under this section for which

application is received by an eligible lender on or after Oct. 1,

1998, and before July 1, 2003, see section 416(c) of Pub. L.

105-244, set out as a note under section 1077a of this title.

Amendment by section 420 of Pub. L. 105-244 effective Oct. 1,

1998, except as otherwise provided in Pub. L. 105-244, see section

3 of Pub. L. 105-244, set out as a note under section 1001 of this

title.

EFFECTIVE DATE OF 1996 AMENDMENT

Section 101(e) (title VI, Sec. 602(b)(1)(B)) of div. A of Pub.

L. 104-208 provided that: ''The amendments made by this paragraph

(amending this section and section 1085 of this title) shall take

effect on the reorganization effective date as defined in section

440(h) of the Higher Education Act of 1965 (20 U.S.C. 1087-3(h))

(as added by subsection (a)).''

EFFECTIVE DATE OF 1993 AMENDMENTS

Amendment by Pub. L. 103-208 effective as if included in the

Higher Education Amendments of 1992, Pub. L. 102-325, except as

otherwise provided, see section 5(a) of Pub. L. 103-208, set out as

a note under section 1051 of this title.

Section 4046(c) of Pub. L. 103-66 provided that: ''The amendments

made by this section (amending this section and section 1085 of

this title) shall take effect on July 1, 1994, except that the

amendments made by subsection (a)(2)(B) (amending this section)

shall take effect upon enactment (Aug. 10, 1993).''

EFFECTIVE DATE OF 1992 AMENDMENTS

Section 306(c) of Pub. L. 102-408 provided that: ''The amendments

made by this section (amending this section) take effect 60 days

after the date of enactment of this Act (Oct. 13, 1992).''

Amendment by Pub. L. 102-325 effective July 23, 1992, except that

changes made in this section, relating to consolidation loans,

applicable with respect to loans for which the application is

received by an eligible lender on or after Jan. 1, 1993, see

section 432, set out as a note under section 1078 of this title.

EFFECTIVE DATE OF 1987 AMENDMENT

Amendment by Pub. L. 100-50 effective as if enacted as part of

the Higher Education Amendments of 1986, Pub. L. 99-498, see

section 27 of Pub. L. 100-50, set out as a note under section 1001

of this title.

PENDING APPLICANTS

Section 609(f) of Pub. L. 105-78 provided that: ''The

consolidation loans authorized by the amendments made by this

section (amending this section) shall be available notwithstanding

any pending application by a student for a consolidation loan under

part D of title IV of the Higher Education Act of 1965 (20 U.S.C.

1087a et seq.), upon withdrawal of such application by the student

at any time prior to receipt of such a consolidation loan.''

COST EVALUATION REPORT

Pub. L. 99-272, title XVI, Sec. 16017(d), Apr. 7, 1986, 100 Stat.

348, provided that: ''The Secretary of Education shall evaluate the

cost, efficiency, and impact of the consolidation loan program

established by the amendments made by this section (enacting former

section 1078-3 of this title and amending former sections 1077,

1085, 1087-1, and 1087-2 of this title) and shall report to the

Congress not later than June 30, 1988, on the findings and

recommendations required by this subsection.''

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1077, 1077a, 1078,

1078-7, 1078-10, 1078-11, 1082, 1083, 1085, 1087, 1087-1, 1087-2,

1087e, 1091, 1092a of this title; title 42 section 292e.

-CITE-

20 USC Sec. 1078-4 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1078-4. Commingling of funds

-STATUTE-

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.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 428D, as added Pub. L. 99-498,

title IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1393.)

-CITE-

20 USC Sec. 1078-5 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1078-5. Repealed. Pub. L. 102-164, title VI, Sec. 605(b)(1),

Nov. 15, 1991, 105 Stat. 1068

-MISC1-

Section, Pub. L. 89-329, title IV, Sec. 428E, as added Pub. L.

99-498, title IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1393;

amended Pub. L. 100-50, Sec. 10(t), June 3, 1987, 101 Stat. 345,

related to State garnishment law requirements.

-CITE-

20 USC Sec. 1078-6 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1078-6. Default reduction program

-STATUTE-

(a) Other repayment incentives

(1) Sale of loan

(A) Each guaranty agency shall enter into an agreement with the

Secretary which shall provide that upon securing consecutive

payments for 12 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, the guaranty agency (pursuant to an

agreement with the Secretary) or the Secretary shall, if

practicable, sell the loan to an eligible lender. Such loan

shall not be sold to an eligible lender who has been found by the

guaranty agency or the Secretary to have substantially failed to

exercise the due diligence required of lenders under this part.

Neither the guaranty agency nor the Secretary shall demand from a

borrower as monthly payment amounts referred to in this paragraph

more than is reasonable and affordable based upon the borrower's

total financial circumstances.

(B) An agreement between the guaranty agency and the Secretary

for purposes of this paragraph shall provide -

(i) for the repayment by the agency to the Secretary of 81.5

percent of the amount of the principal balance outstanding at

the time of such sale, multiplied by the reinsurance percentage

in effect when payment under the guaranty agreement was made

with respect to the loan; and

(ii) for the reinstatement by the Secretary (I) of the

obligation to reimburse such agency for the amount expended by

it in discharge of its insurance obligation under its loan

insurance program, and (II) of the obligation to pay to the

holder of such loan a special allowance pursuant to section

1087-1 of this title.

(A) may also be eligible for sale under this paragraph upon a

determination that the loan was in default due to clerical or

data processing error and would not, in the absence of such

error, be in a delinquent status.

(2) Use of proceeds of sales

Amounts received by the Secretary pursuant to the sale of such

loans by a guaranty agency under paragraph (1) of this subsection

shall be deducted from the calculations of the amount of

reimbursement for which the agency is eligible under paragraph

(1)(B)(ii) of this subsection for the fiscal year in which the

amount was received, notwithstanding the fact that the default

occurred in a prior fiscal year.

(3) Borrower eligibility

Any borrower whose loan is sold under paragraph (1) shall not

be precluded by section 1091 of this title from receiving

additional loans or grants under this subchapter and part C of

subchapter I of chapter 34 of title 42 (for which he or she is

otherwise eligible) on the basis of defaulting on the loan prior

to such loan sale.

(4) Applicability of general loan conditions

A loan which is sold under paragraph (1) of this subsection

shall, so long as the borrower continues to make scheduled

repayments thereon, be subject to the same terms and conditions

and qualify for the same benefits and privileges as other loans

made under this part.

(b) Satisfactory repayment arrangements to renew eligibility

Each guaranty agency shall establish a program which allows a

borrower with a defaulted loan or loans to renew eligibility for

all title IV student financial assistance (regardless of whether

the defaulted loan has been sold to an eligible lender) upon the

borrower's payment of 6 consecutive monthly payments. The guaranty

agency shall not demand from a borrower as a monthly payment amount

under this subsection more than is reasonable and affordable based

upon the borrower's total financial circumstances. A borrower may

only obtain the benefit of this subsection with respect to renewed

eligibility once.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 428F, as added Pub. L. 99-498,

title IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1394; amended Pub.

L. 100-50, Sec. 10(u), June 3, 1987, 101 Stat. 346; Pub. L.

101-239, title II, Sec. 2005(a), Dec. 19, 1989, 103 Stat. 2116;

Pub. L. 102-325, title IV, Sec. 420, July 23, 1992, 106 Stat. 534;

Pub. L. 103-208, Sec. 2(c)(38)-(40), Dec. 20, 1993, 107 Stat. 2466;

Pub. L. 105-244, title IV, Sec. 421, Oct. 7, 1998, 112 Stat. 1696.)

-REFTEXT-

REFERENCES IN TEXT

Title IV, referred to in subsec. (b), means title IV of the

Higher Education Act of 1965, Pub. L. 89-329, which is classified

generally to this subchapter and part C (Sec. 2751 et seq.) of

subchapter I of chapter 34 of Title 42, The Public Health and

Welfare. For complete classification of title IV to the Code, see

Tables.

-MISC2-

AMENDMENTS

1998 - Subsec. (b). Pub. L. 105-244 substituted ''Satisfactory

repayment arrangements to renew eligibility'' for ''Special rule''

in heading.

1993 - Subsec. (a)(2). Pub. L. 103-208, Sec. 2(c)(38),

substituted ''paragraph (1) of this subsection'' for ''this

paragraph'' and ''this subsection'' for ''this section''.

Subsec. (a)(4). Pub. L. 103-208, Sec. 2(c)(39), substituted

''paragraph (1) of this subsection'' for ''this paragraph''.

Subsec. (b). Pub. L. 103-208, Sec. 2(c)(40), inserted at end ''A

borrower may only obtain the benefit of this subsection with

respect to renewed eligibility once.''

1992 - Subsec. (a). Pub. L. 102-325, Sec. 420(1)-(3),

redesignated subsec. (b) as (a), in par. (1)(A) substituted ''Each

guaranty agency shall enter into an agreement with the Secretary

which shall provide that upon'' for ''Upon'' and inserted provision

at end that neither the guaranty agency nor the Secretary demand

from the borrower as monthly payments more than is reasonable and

affordable based upon the borrower's total financial circumstances,

in par. (3) inserted ''or grants'' after ''loans'', and struck out

former subsec. (a) which related to program requirements for the

default reduction program.

Subsec. (b). Pub. L. 102-325, Sec. 420(4), added subsec. (b).

Former subsec. (b) redesignated (a).

1989 - Pub. L. 101-239 amended section generally, substituting

provisions relating to default reduction program for former

provisions relating to rehabilitation of defaulted loans.

1987 - Subsecs. (b), (c). Pub. L. 100-50 redesignated subsec. (c)

as (b) and struck out former subsec. (b) which read as follows:

''The loans which shall be eligible for rehabilitation under this

section shall be only those loans which are made to borrowers who,

at the time of default on the loan, are unemployed or

institutionalized.''

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by Pub. L. 105-244 effective Oct. 1, 1998, except as

otherwise provided in Pub. L. 105-244, see section 3 of Pub. L.

105-244, set out as a note under section 1001 of this title.

EFFECTIVE DATE OF 1993 AMENDMENT

Amendment by Pub. L. 103-208 effective as if included in the

Higher Education Amendments of 1992, Pub. L. 102-325, except as

otherwise provided, see section 5(a) of Pub. L. 103-208, set out as

a note under section 1051 of this title.

EFFECTIVE DATE OF 1987 AMENDMENT

Amendment by Pub. L. 100-50 effective as if enacted as part of

the Higher Education Amendments of 1986, Pub. L. 99-498, see

section 27 of Pub. L. 100-50, set out as a note under section 1001

of this title.

PUBLICITY THROUGH COMMUNICATIONS MEDIA OF AVAILABILITY OF DEFAULT

REDUCTION PROGRAM

Section 2005(b) of Pub. L. 101-239 provided that: ''The Secretary

of Education shall, from funds available through student loan

collections, commencing not less than 30 days before the beginning

of the default reduction program required by the amendment made by

this section (amending this section), and continuing throughout the

duration of such program, widely publicize (through various

communications media) the availability of the default reduction

program.''

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1072a, 1085 of this

title.

-CITE-

20 USC Sec. 1078-7 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1078-7. Requirements for disbursement of student loans

-STATUTE-

(a) Multiple disbursement required

(1) Two disbursements required

The proceeds of any loan made, insured, or guaranteed under

this part that is made for any period of enrollment shall be

disbursed in 2 or more installments, none of which exceeds

one-half of the loan.

(2) Minimum interval required

The interval between the first and second such installments

shall be not less than one-half of such period of enrollment,

except as necessary to permit the second installment to be

disbursed at the beginning of the second semester, quarter, or

similar division of such period of enrollment.

(b) Disbursement and endorsement requirements

(1) First year students

The first installment of the proceeds of any loan made,

insured, or guaranteed under this part that is made to a student

borrower who is entering the first year of a program of

undergraduate education, and who has not previously obtained a

loan under this part, shall not (regardless of the amount of such

loan or the duration of the period of enrollment) be presented by

the institution to the student for endorsement until 30 days

after the borrower begins a course of study, but may be delivered

to the eligible institution prior to the end of that 30-day

period.

(2) Other students

The proceeds of any loan made, insured, or guaranteed under

this part that is made to any student other than a student

described in paragraph (1) shall not be disbursed more than 30

days prior to the beginning of the period of enrollment for which

the loan is made.

Disbursements under subsection (a) of this section -

(1) shall be made in accordance with a schedule provided by the

institution (under section 1078(a)(2)(A)(i)(III) (FOOTNOTE 1) of

this title) that complies with the requirements of this section;

(FOOTNOTE 1) See References in Text note below.

(2) may be made directly by the lender or, in the case of a

loan under sections 1078 and 1078-1 (FOOTNOTE 1) of this title,

may be disbursed pursuant to the escrow provisions of section

1078(i) of this title; and

(3) notwithstanding subsection (a)(2) of this section, 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 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

A lender or escrow agent that is informed by the borrower or

the institution that the borrower has ceased to be enrolled

before the disbursement of the second or any succeeding

installment shall withhold such disbursement. Any disbursement

which is so withheld shall be credited to the borrower's loan and

treated as a prepayment thereon.

(2) Students receiving over-awards

If the sum of a disbursement for any student and the other

financial aid obtained by such student exceeds the amount of

assistance for which the student is eligible under this

subchapter and part C of subchapter I of chapter 34 of title 42,

the institution such student is attending shall withhold and

return to the lender or escrow agent the portion (or all) of such

installment that exceeds such eligible amount, except that

overawards permitted pursuant to section 2753(b)(4) of title 42

shall not be construed to be overawards for purposes of this

paragraph. Any portion (or all) of a disbursement installment

which is so returned shall be credited to the borrower's loan and

treated as a prepayment thereon.

(e) Exclusion of consolidation and foreign study loans

The provisions of this section shall not apply in the case of a

loan made under section 1078-3 of this title, made to a student to

cover the cost of attendance at an eligible institution outside the

United States, or made to a student to cover the cost of attendance

in a program of study abroad approved by the home eligible

institution if the home eligible institution has a cohort default

rate (as calculated under section 1085(m) of this title) of less

than 5 percent.

(f) Beginning of period of enrollment

For purposes of this section, a period of enrollment begins on

the first day that classes begin for the applicable 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.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 428G, as added Pub. L. 101-239,

title II, Sec. 2004(a), Dec. 19, 1989, 103 Stat. 2115; amended Pub.

L. 101-508, title III, Sec. 3003(a), Nov. 5, 1990, 104 Stat.

1388-26; Pub. L. 102-325, title IV, Sec. 421, July 23, 1992, 106

Stat. 534; Pub. L. 103-66, title IV, Sec. 4109(b), Aug. 10, 1993,

107 Stat. 369; Pub. L. 103-208, Sec. 2(c)(41), Dec. 20, 1993, 107

Stat. 2466; Pub. L. 105-244, title IV, Sec. 422(a)-(c), Oct. 7,

1998, 112 Stat. 1696.)

-REFTEXT-

REFERENCES IN TEXT

Section 1078(a)(2)(A)(i)(III) of this title, referred to in

subsec. (c)(1), was repealed by Pub. L. 105-244, title IV, Sec.

417(a)(1)(A), Oct. 7, 1998, 112 Stat. 1682. Provisions similar to

those contained in section 1078(a)(2)(A)(i)(III) are now contained

in section 1078(a)(2)(A)(i)(II).

Section 1078-1 of this title, referred to in subsec. (c)(2), was

repealed by Pub. L. 103-66, title IV, Sec. 4047(b)-(d), Aug. 10,

1993, 107 Stat. 364, eff. July 1, 1994, except with respect to

loans provided under that section as it existed prior to Aug. 10,

1993. Subsequently, a new section 1078-1, relating to voluntary

flexible agreements with guaranty agencies, was enacted by Pub. L.

105-244, title IV, Sec. 418, Oct. 7, 1998, 112 Stat. 1691.

-MISC2-

AMENDMENTS

1998 - Subsec. (a)(3). Pub. L. 105-244, Sec. 422(a), (d),

temporarily added par. (3) which read as follows: ''An institution

whose cohort default rate (as determined under section 1085(m) of

this title) for each of the 3 most recent fiscal years for which

data are available is less than 10 percent may disburse any loan

made, insured, or guaranteed under this part in a single

installment for any period of enrollment that is not more than 1

semester, 1 trimester, 1 quarter, or 4 months.'' See Effective and

Termination Dates of 1998 Amendment note below.

Subsec. (b)(1). Pub. L. 105-244, Sec. 422(b), (d), temporarily

inserted at end ''An institution whose cohort default rate (as

determined under section 1085(m) of this title) for each of the

three most recent fiscal years for which data are available is less

than 10 percent shall be exempt from the requirements of this

paragraph.'' See Effective and Termination Dates of 1998 Amendment

note below.

Subsec. (e). Pub. L. 105-244, Sec. 422(c), substituted '', made

to a student'' for ''or made to a student'' and inserted before the

period at end '', or made to a student to cover the cost of

attendance in a program of study abroad approved by the home

eligible institution if the home eligible institution has a cohort

default rate (as calculated under section 1085(m) of this title) of

less than 5 percent''.

1993 - Subsec. (c)(3). Pub. L. 103-208 directed the substitution

of ''disbursed by the lender'' for ''disbursed'' and was executed

by making the substitution the first place ''disbursed'' appeared,

to reflect the probable intent of Congress.

Subsec. (e). Pub. L. 103-66 substituted ''consolidation'' for

''PLUS, consolidation,'' in heading and ''section 1078-3'' for

''section 1078-2 or 1078-3'' in text.

1992 - Subsec. (c)(3). Pub. L. 102-325, Sec. 421(a), added par.

(3).

Subsec. (d)(2). Pub. L. 102-325, Sec. 421(b), inserted '', except

that overawards permitted pursuant to section 2753(b)(4) of title

42 shall not be construed to be overawards for purposes of this

paragraph'' before period at end of first sentence.

Subsec. (g). Pub. L. 102-325, Sec. 421(c), added subsec. (g).

1990 - Subsec. (b)(1). Pub. L. 101-508 amended par. (1)

generally. Prior to amendment, par. (1) read as follows: ''The

first installment of the proceeds of any loan made under section

1078-1 of this title that is made to a student borrower who has not

successfully completed the first year of a program of undergraduate

education shall not (regardless of the amount of such loan or the

duration of the period of enrollment) be presented by the

institution to the student for endorsement until -

''(A) 30 days after the borrower begins a course of study; and

''(B) the institution certifies that the borrower continues to

be enrolled and in attendance at the end of such 30-day period,

and is maintaining satisfactory progress;

but may be disbursed to the eligible institution prior to the end

of such 30-day period.''

EFFECTIVE AND TERMINATION DATES OF 1998 AMENDMENT

Amendment by section 422(c) of Pub. L. 105-244 effective Oct. 1,

1998, except as otherwise provided in Pub. L. 105-244, see section

3 of Pub. L. 105-244, set out as a note under section 1001 of this

title.

Pub. L. 105-244, title IV, Sec. 422(d), Oct. 7, 1998, 112 Stat.

1696, provided that: ''The amendments made by subsections (a) and

(b) (amending this section) shall be effective during the period

beginning on October 1, 1998, and ending on September 30, 2002.''

EFFECTIVE DATE OF 1993 AMENDMENTS

Amendment by Pub. L. 103-208 effective as if included in the

Higher Education Amendments of 1992, Pub. L. 102-325, except as

otherwise provided, see section 5(a) of Pub. L. 103-208, set out as

a note under section 1051 of this title.

Amendment by Pub. L. 103-66 effective with respect to loans for

which the first disbursement is made on or after Oct. 1, 1993, see

section 4109(c) of Pub. L. 103-66, set out as a note under section

1078-2 of this title.

EFFECTIVE DATE OF 1990 AMENDMENT

Section 3003(b) of Pub. L. 101-508 provided that: ''The amendment

made by this section (amending this section) shall be effective for

loans made on or after the date of enactment of this Act (Nov. 5,

1990) to cover the cost of instruction for periods of enrollment

beginning on or after January 1, 1991.''

EFFECTIVE DATE

Section applicable with respect to loans made to cover cost of

instruction for periods of enrollment beginning on or after Jan. 1,

1990, see section 2004(c) of Pub. L. 101-239, set out as an

Effective Date of 1989 Amendment note under section 1077 of this

title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1077, 1078, 1078-2,

1078-8, 1087d of this title.

-CITE-

20 USC Sec. 1078-8 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1078-8. Unsubsidized Stafford loans for middle-income

borrowers

-STATUTE-

(a) In general

It is the purpose of this section to authorize insured loans

under this part for borrowers who do not qualify for Federal

interest subsidy payments under section 1078 of this title. Except

as provided in this section, all terms and conditions for Federal

Stafford loans established under section 1078 of this title shall

apply to loans made pursuant to this section.

(b) Eligible borrowers

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 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) of

this section; 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.

The determination of the amount of a loan by an eligible

institution under subsection (b) of this section shall be

calculated by subtracting from the estimated cost of attendance at

the eligible institution any estimated financial assistance

reasonably available to such student. An eligible institution may

not, in carrying out the provisions of subsection (b) of this

section, provide a statement which certifies the eligibility of any

student to receive any loan under this section in excess of the

amount calculated under the preceding sentence.

(d) Loan limits

(1) In general

Except as provided in paragraphs (2) and (3), the annual and

aggregate limits for loans under this section shall be the same

as those established under section 1078(b)(1) of this title, less

any amount received by such student pursuant to the subsidized

loan program established under section 1078 of this title.

(2) Annual limits for independent, graduate, and professional

students

The maximum annual amount of loans under this section an

independent student (or a 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

amount determined under paragraph (1), plus -

(A) 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) $4,000, 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 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 clause (i) as the length of such program

measured in semester, trimester, quarter, or clock hours

bears to one academic year;

(B) in the case of 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) $5,000; 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;

professional student attending an eligible institution,

$10,000; and

(D) 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) $4,000 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, $5,000

for coursework necessary for enrollment in a graduate or

professional program; and

(ii) in the case of a student who has obtained a

baccalaureate degree, $5,000 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, (FOOTNOTE 1) 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.

(FOOTNOTE 1) So in original. The comma probably should not

appear.

(3) Aggregate limits for independent, graduate, and professional

students

The maximum aggregate amount of loans under this section a

student described in paragraph (2) may borrow shall be the amount

described in paragraph (1), adjusted to reflect the increased

annual limits described in paragraph (2), as prescribed by the

Secretary by regulation. Interest capitalized shall not be

deemed to exceed such maximum aggregate amount.

(e) Payment of principal and interest

(1) Commencement of repayment

Repayment of principal on loans made under this section shall

begin at the beginning of the repayment period described in

section 1078(b)(7) of this title. Not less than 30 days prior to

the anticipated commencement of such repayment period, the holder

of such loan shall provide notice to the borrower that interest

will accrue before repayment begins and of the borrower's option

to begin loan repayment at an earlier date.

(2) Capitalization of interest

(A) 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.

(3) Subsidies prohibited

No payments to reduce interest costs shall be paid pursuant to

section 1078(a) of this title on loans made pursuant to this

section.

(4) Applicable rates of interest

Interest on loans made pursuant to this section shall be at the

applicable rate of interest provided in section 1077a of this

title.

(5) Amortization

The amount of the periodic payment and the repayment schedule

for any loan made pursuant to this section shall be established

by assuming an interest rate equal to the applicable rate of

interest at the time the repayment of the principal amount of the

loan commences. At the option of the lender, the note or other

written evidence of the loan may require that -

(A) the amount of the periodic payment will be adjusted

annually; or

(B) the period of repayment of principal will be lengthened

or shortened,

in order to reflect adjustments in interest rates occurring as a

consequence of section 1077a(c)(4) of this title.

(6) Repayment period

For purposes of calculating the repayment period under section

1078(b)(9) of this title, such period shall commence at the time

the first payment of principal is due from the borrower.

(7) Qualification for forbearance

A lender may grant the borrower of a loan under this section a

forbearance for a period not to exceed 60 days if the lender

reasonably determines that such a forbearance from collection

activity is warranted following a borrower's request for

forbearance, deferment, or a change in repayment plan, or a

request to consolidate loans in order to collect or process

appropriate supporting documentation related to the request.

During any such period, interest on the loan shall accrue but not

be capitalized.

(f) Repealed. Pub. L. 105-244, title IV, Sec. 423(f), Oct. 7, 1998,

112 Stat. 1698

(g) Single application form and loan repayment schedule

A guaranty agency shall use a single application form and a

single repayment schedule for subsidized Federal Stafford loans

made pursuant to section 1078 of this title and for unsubsidized

Federal Stafford loans made pursuant to this section.

(h) Insurance premium

Each State or nonprofit private institution or organization

having an agreement with the Secretary under section 1078(b)(1) of

this title may charge a borrower under this section an insurance

premium equal to not more than 1.0 percent of the principal amount

of the loan, if such premium will not be used for incentive

payments to lenders.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 428H, as added Pub. L. 102-325,

title IV, Sec. 422, July 23, 1992, 106 Stat. 535; amended Pub. L.

103-66, title IV, Sec. 4047(a), 4102(b), Aug. 10, 1993, 107 Stat.

363, 366; Pub. L. 103-208, Sec. 2(c)(42)-(45), Dec. 20, 1993, 107

Stat. 2466, 2467; Pub. L. 104-134, title I, Sec. 101(d) (title V,

Sec. 514(a)), Apr. 26, 1996, 110 Stat. 1321-211, 1321-245;

renumbered title I, Pub. L. 104-140, Sec. 1(a), May 2, 1996, 110

Stat. 1327; Pub. L. 105-244, title IV, Sec. 423, Oct. 7, 1998, 112

Stat. 1696.)

-COD-

CODIFICATION

Amendments by section 2(c)(42), (45) of Pub. L. 103-208 (which

were effective as if included in Pub. L. 102-325) were executed to

this section as amended by Pub. L. 102-325 and Pub. L. 103-66, to

reflect the probable intent of Congress.

-MISC3-

AMENDMENTS

1998 - Subsec. (b). Pub. L. 105-244, Sec. 423(a), amended heading

and text of subsec. (b) generally. Prior to amendment, text read

as follows: ''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 Stafford

loan. Such student shall provide 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 -

''(1) sets forth such student's estimated cost of attendance

(as determined under section 1087ll of this title);

''(2) sets forth such student's estimated financial assistance,

including a loan which qualifies for subsidy payments under

section 1078 of this title; and

''(3) certifies 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) of this

section.''

Subsec. (d)(2). Pub. L. 105-244, Sec. 423(b)(1)(A), in

introductory provisions, inserted ''(as defined in section

1088(a)(2) of this title)'' after ''academic year'' and struck out

''or in any period of 7 consecutive months, whichever is longer,''

after ''or its equivalent''.

Subsec. (d)(2)(A). Pub. L. 105-244, Sec. 423(b)(1)(B),

substituted ''length; and'' for ''length (as determined under

section 1088 of this title);'' in cl. (i), added cl. (ii), and

struck out former cls. (ii) and (iii) which read as follows:

''(ii) $2,500, if such student is enrolled in a program whose

length is less than one academic year, but at least 2/3 of such an

academic year; and

''(iii) $1,500, if such student is enrolled in a program whose

length is less than 2/3, but at least 1/3, of such an academic

year;''.

Subsec. (d)(2)(D). Pub. L. 105-244, Sec. 423(b)(1)(C), (D), added

subpar. (D).

Subsec. (d)(3). Pub. L. 105-244, Sec. 423(b)(2), inserted at end

''Interest capitalized shall not be deemed to exceed such maximum

aggregate amount.''

Subsec. (e)(2). Pub. L. 105-244, Sec. 423(c), amended heading and

text of par. (2) generally. Prior to amendment, text read as

follows: ''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 (A) be paid monthly or quarterly, or

(B) be added to the principal amount of the loan not more

frequently than quarterly by the lender. Such capitalization of

interest shall not be deemed to exceed the annual insurable limit

on account of the student.''

Subsec. (e)(6). Pub. L. 105-244, Sec. 423(d), which directed

substitution of ''repayment period under section 1078(b)(9) of this

title'' for ''10 year repayment period under section 1078(b)(1)(D)

of this title'', was executed by making the substitution for

''10-year repayment period under section 1078(b)(1)(D) of this

title'' to reflect the probable intent of Congress.

Subsec. (e)(7). Pub. L. 105-244, Sec. 423(e), added par. (7).

Subsec. (f). Pub. L. 105-244, Sec. 423(f), struck out heading and

text of subsec. (f) which provided for lenders to charge borrowers

origination fees on loans.

1996 - Subsec. (d)(2). Pub. L. 104-134 substituted semicolon for

period at end of subpar. (C) and inserted concluding provisions.

1993 - Subsec. (b). Pub. L. 103-66, Sec. 4047(a)(1), inserted

''(including graduate and professional students as defined in

regulations promulgated by the Secretary)'' in introductory

provisions.

Subsec. (d). Pub. L. 103-66, Sec. 4047(a)(2), amended subsec. (d)

generally. Prior to amendment, subsec. (d) read as follows: ''The

annual and aggregate limits for loans under this section shall be

the same as those established under section 1078(b)(1) of this

title, less any amount received by such student pursuant to the

subsidized loan program established under section 1078 of this

title.''

Subsec. (d)(2)(B). Pub. L. 103-208, Sec. 2(c)(42), amended

subpar. (B) generally. Prior to amendment, subpar. (B) read as

follows: ''in the case of such a student attending an eligible

institution who has completed the first 2 years of undergraduate

study but who has not completed the remainder of a program of

undergraduate study -

''(i) $5,000, 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 section);

''(ii) $3,325, if such student is enrolled in a program whose

length is less than one academic year, but at least 2/3 of such

an academic year; and

''(iii) $1,675, if such student is enrolled in a program whose

length is less than 2/3, but at least 1/3, of such an academic

year; and''. See Codification note above.

Subsec. (e)(1). Pub. L. 103-208, Sec. 2(c)(43), substituted

''shall begin at the beginning of the repayment period described in

section 1078(b)(7) of this title.'' for ''shall commence 6 months

after the month in which the student ceases to carry at least

one-half the normal full-time workload as determined by the

institution.'' and inserted at end ''Not less than 30 days prior to

the anticipated commencement of such repayment period, the holder

of such loan shall provide notice to the borrower that interest

will accrue before repayment begins and of the borrower's option to

begin loan repayment at an earlier date.''

Subsec. (e)(4). Pub. L. 103-208, Sec. 2(c)(44), substituted

''section 1077a'' for ''section 1077a(e)''.

Subsec. (e)(5), (6). Pub. L. 103-66, Sec. 4047(a)(3), added pars.

(5) and (6).

Subsec. (f). Pub. L. 103-66, Sec. 4102(b)(1)(A), substituted

''Origination fee'' for ''Insurance premium'' in section catchline.

Subsec. (f)(1). Pub. L. 103-66, Sec. 4102(b)(1)(B), (C), struck

out reference to insurance premium in heading and in text

substituted ''an origination fee in the amount of 3.0 percent'' for

''a combined origination fee and insurance premium in the amount of

6.5 percent'' and struck out second sentence which read as follows:

''A guaranty agency may not charge an insurance premium on any loan

made under this section.''

Subsec. (f)(2). Pub. L. 103-66, Sec. 4102(b)(1)(D), substituted

''origination fee'' for ''combined fee and premium''.

Subsec. (f)(3). Pub. L. 103-66, Sec. 4102(b)(1)(E), substituted

''origination fee'' for ''combined origination fee and insurance

premium''.

Subsec. (f)(4). Pub. L. 103-66, Sec. 4102(b)(1)(F), in heading

substituted ''origination fee'' for ''insurance premium'' and in

text substituted ''origination fees'' for ''combined origination

fee and insurance premiums'' and ''to pay'' for ''and premiums to

pay''.

Subsec. (f)(5). Pub. L. 103-66, Sec. 4102(b)(1)(G), inserted

''origination fee and'' in heading and in text substituted ''do not

exceed the combined origination fee under this subsection and the

insurance premium under subsection (h) of this section, the

Secretary is directed to lower the origination fee and insurance

premium accordingly'' for ''do not exceed the 6.5 percent insurance

premium, the Secretary is directed to lower the insurance premium

accordingly''.

Subsec. (h). Pub. L. 103-208, Sec. 2(c)(45), redesignated subsec.

(l) as (h). See Codification note above.

Subsec. (l). Pub. L. 103-208, Sec. 2(c)(45), redesignated subsec.

(l) as (h). See Codification note above.

Pub. L. 103-66, Sec. 4102(b)(2), added subsec. (l).

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by Pub. L. 105-244 effective Oct. 1, 1998, except as

otherwise provided in Pub. L. 105-244, see section 3 of Pub. L.

105-244, set out as a note under section 1001 of this title.

EFFECTIVE DATE OF 1996 AMENDMENT

Section 101(d) (title V, Sec. 514(b)) of Pub. L. 104-134 provided

that: ''The amendments made by subsection (a) (amending this

section) shall be effective for loans made to cover the cost of

instruction for periods of enrollment beginning on or after July 1,

1996.''

EFFECTIVE DATE OF 1993 AMENDMENTS

Amendment by section 2(c)(42)-(43)(A), (44), (45) of Pub. L.

103-208 effective as if included in the Higher Education Amendments

of 1992, Pub. L. 102-325, except as otherwise provided, and

amendment by section 2(c)(43)(B) of Pub. L. 103-208 effective on

and after Apr. 1, 1994, see section 5(a), (b)(5) of Pub. L.

103-208, set out as a note under section 1051 of this title.

Section 4047(d) of Pub. L. 103-66 provided that: ''Except as

otherwise provided herein (see section 4047(c) of Pub. L. 103-66,

set out below), the amendments made by this section (amending this

section and repealing section 1078-1 of this title) shall take

effect on July 1, 1994.''

Amendment by section 4102(b) of Pub. L. 103-66 effective July 1,

1994, see section 4102(d) of Pub. L. 103-66, set out as a note

under section 1078 of this title.

EFFECTIVE DATE

Section effective with respect to loans made to cover the cost of

instruction for periods of enrollment beginning on or after Oct. 1,

1992, see section 432(a)(12) of Pub. L. 102-325, set out as an

Effective Date of 1992 Amendment note under section 1078 of this

title.

CONTINUING APPLICABILITY OF TERMS, CONDITIONS, AND BENEFITS OF

LOANS

Section 4047(c) of Pub. L. 103-66 provided that:

''Notwithstanding the amendments made by this section (amending

this section and repealing section 1078-1 of this section), with

respect to loans provided under sections 428A (former 20 U.S.C.

1078-1) and 428H of the Act (20 U.S.C. 1078-8) (as such sections

existed on the date preceding the date of enactment of this Act

(Aug. 10, 1993)) the terms, conditions and benefits applicable to

such loans under such sections shall continue to apply to such

loans after the date of enactment of this Act.''

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1072a, 1077a, 1078,

1078-10, 1083, 1085, 1087, 1087-1, 1087d, 1087e, 1087j, 1091, 1091b

of this title.

-CITE-

20 USC Sec. 1078-9 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1078-9. Special insurance and reinsurance rules

-STATUTE-

(a) Designation of lenders, servicers, and guaranty agencies

(1) Authority

Whenever the Secretary determines that an eligible lender,

servicer, or guaranty agency has a compliance performance rating

that equals or exceeds 97 percent, the Secretary shall designate

the eligible lender, servicer, or guaranty agency, as the case

may be, for exceptional performance. The Secretary shall notify

each appropriate guaranty agency of the eligible lenders and

servicers designated under this section.

(2) Compliance performance rating

For purposes of paragraph (1), a compliance performance rating

is determined with respect to compliance with due diligence in

the collection of loans under this part for each year for which

the determination is made. Such rating is equal to the percent

of all due diligence requirements applicable to each loan, on

average, as established by the Secretary by regulation, with

respect to -

(A) loans serviced during the period by the eligible lender

or servicer; or

(B) loans on which loan collection was attempted by the

guaranty agency.

(b) Payment to lenders and servicers

(1) 100 percent payment rule

Each guaranty agency shall pay each eligible lender or servicer

(as agent for an eligible lender) designated under subsection (a)

of this section 100 percent of the unpaid principal and interest

of all loans for which claims are submitted for payment by that

eligible lender or servicer for the one-year period following the

receipt by the guaranty agency of the notification of designation

under this section or until the guaranty agency receives notice

from the Secretary that the designation of the lender or servicer

under subsection (a) of this section has been revoked.

(2) Revocation authority

The Secretary shall revoke the designation of a lender or

servicer under subsection (a) of this section if any quarterly

audit required under subsection (c)(5) of this section is not

received by the Secretary by the date established by the

Secretary or if the audit indicates the lender or servicer failed

to maintain 97 percent or higher compliance with program

regulations, as reflected in the performance of not less than 97

percent of all due diligence requirements applicable to each

loan, on average, as established by the Secretary for the purpose

of this section, for 2 consecutive months or 90 percent for 1

month.

(3) Documentation

Nothing in this section shall restrict or limit the authority

of guaranty agencies to require the submission of claims

documentation evidencing servicing performed on loans, except

that the guaranty agency may not require greater documentation

than that required for lenders and servicers not designated under

subsection (a) of this section.

(4) Payments to guaranty agencies

The Secretary shall pay to each guaranty agency designated

under subsection (a) of this section the appropriate percentage

under this subsection for the 1-year period following the receipt

by the guaranty agency of the notification of designation under

subsection (a) of this section.

(1) Audits for lenders and servicers

Each eligible lender or servicer desiring a designation under

subsection (a) of this section shall have a financial and

compliance audit of the loan portfolio of such eligible lender or

servicer conducted annually by a qualified independent

organization from a list of qualified organizations promulgated

by the Secretary in accordance with standards established by the

Comptroller General and the Secretary. The standards shall

measure the lender's or servicer's compliance with the due

diligence standards and shall include a defined statistical

sampling technique designed to measure the performance rating of

the eligible lender or servicer for the purpose of this section.

Each eligible lender or servicer shall submit the audit required

by this section to the Secretary and to each appropriate guaranty

agency.

(2) Additional information on lenders and servicers

Each appropriate guaranty agency shall provide the Secretary

with such other information in its possession regarding an

eligible lender or servicer desiring designation as may relate to

the Secretary's determination under subsection (a) of this

section, including but not limited to any information suggesting

that the application of a lender or servicer for designation

under subsection (a) of this section should not be approved.

(3) Secretary's determinations

The Secretary shall make the determination under subsection (a)

of this section based upon the audits submitted under this

section, such other information as provided by any guaranty

agency under paragraph (2), and any information in the possession

of the Secretary or submitted by any other agency or office of

the Federal Government. If the results of the audit are not

persuasively rebutted by such other information, the Secretary

shall inform the eligible lender or servicer and the appropriate

guaranty agency that its application for designation as an

exceptional lender or servicer has been approved.

(4) Cost of audit

Each eligible lender or servicer shall pay for all the costs of

the audits required under this section.

(5) Compliance audit

In order to maintain its status as an exceptional eligible

lender or servicer, the lender or servicer shall undergo a

quarterly compliance audit at the end of each quarter (other than

the quarter in which status as an exceptional lender or servicer

is established through a financial and compliance audit, as

described in subsection (c)(1) of this section), and submit the

results of such audit to the Secretary and such appropriate

guaranty agency. The compliance audit will review compliance

with due diligence requirements for the period since the last

audit.

(6) Loss of designation

If the audit performed pursuant to paragraph (5) fails to meet

the standards for designation as an exceptional lender or

servicer under subsection (a)(1) of this section, the lender or

servicer shall lose its designation as an exceptional lender or

servicer. A lender or servicer receiving a compliance audit not

meeting the standard for designation as an exceptional lender or

servicer may reapply for designation under subsection (a) of this

section at any time.

(7) Due diligence standards

Due diligence standards used for determining compliance under

paragraph (5) shall be promulgated by the Secretary after

consultation with lenders, guaranty agencies and servicers and

shall consist of a list of specific elements for the Federal

regulations selected to provide an indication of systems

degradation.

(8) Additional revocation authority

Notwithstanding any other provision of this section,

designation under subsection (a) of this section may be revoked

at any time by the Secretary if the Secretary determines that the

eligible lender or servicer has failed to maintain an overall

level of regulatory compliance consistent with the audit

submitted by the eligible lender or servicer under this section

or if the Secretary believes the lender or servicer may have

engaged in fraud in securing designation under subsection (a) of

this section or is failing to service loans in accordance with

program regulations.

(d) Supervision of designated guaranty agencies

(1) Audit of guaranty agencies

Each guaranty agency desiring a designation under subsection

(a) of this section shall have a financial and compliance audit

of the defaulted loan portfolio of such guaranty agency conducted

annually by a qualified independent organization or person from a

list of qualified organizations or persons promulgated by the

Secretary in accordance with standards established by the

Comptroller General and the Secretary. The standards shall

include defined statistical sampling techniques designed to

measure the performance rating of the guaranty agency for the

purpose of this section. Each guaranty agency shall submit the

audit required by this paragraph to the Secretary.

(2) Quarterly sample audits

The Secretary may require quarterly sample audits as a means of

determining continued qualification of the guaranty agency for

designation as an exceptional guaranty agency.

(3) Secretary's determinations

The Secretary shall make the determination under subsection (a)

of this section based upon the audits submitted under this

section and other information in his possession. If the results

of the audit are not persuasively rebutted by such other

information, the Secretary shall inform the guaranty agency that

its application for designation as an exceptional guaranty agency

has been approved.

(4) Costs of audits

Each guaranty agency shall pay for all of the costs of the

audits regulated by this section.

(5) Revocation for fraud

The Secretary may revoke the designation of a guaranty agency

under subsection (a) of this section at any time if the Secretary

has reason to believe the guaranty agency secured its designation

under subsection (a) of this section through fraud or fails to

comply with applicable regulations.

(6) Revocation based on performance

Designation as an exceptional guaranty agency may be revoked at

any time by the Secretary upon 30 days notice and an opportunity

for a hearing before the Secretary upon a finding by the

Secretary that the guaranty agency has failed to maintain an

acceptable overall level of regulatory compliance.

(e) Special rule

Reimbursements made by the Secretary on loans submitted for claim

by an eligible lender or loan servicer designated for exceptional

performance under this section shall not be subject to additional

review by the Secretary or repurchase by the guaranty agency for

any reason other than a determination by the Secretary that the

eligible lender, loan servicer, or guaranty agency engaged in fraud

or other purposeful misconduct in obtaining designation for

exceptional performance.

(f) Limitation

Nothing in this section shall be construed to affect the

processing of claims on student loans of eligible lenders not

subject to this paragraph.

(g) Claims

A lender, servicer, or guaranty agency designated under

subsection (a) of this section failing to service loans or

otherwise comply with applicable program regulations shall be

considered in violation of section 3729 of title 31.

(h) Evaluation

Not later than 3 years after July 23, 1992, the Comptroller

General shall submit to the Chairman of the Senate Labor and Human

Resources Committee and the House Committee on Education and Labor,

an evaluation of the provisions of this section including, but not

limited to, the following:

(1) The effectiveness of due diligence performed by lenders and

servicers receiving designation as exceptional lenders or

servicers from the perspective of securing maximum collections

from borrowers.

(2) A quantification of the dollar volume of claims that were

paid to exceptional lenders and servicers that would not have

been paid under applicable program provisions prior to the

enactment of this section.

(3) An assessment of the impact of this section on the

financial condition of guaranty agencies.

(4) An assessment of the savings to lenders, servicers, and

guaranty agencies resulting from designation as exceptional

performance.

(5) An identification of specific administration steps that

lenders, servicers, and guaranty agencies do not have to perform

as a result of designation as exceptional lenders, servicers, or

guaranty agencies.

(6) A recommendation for program modifications applicable to

all program participants based on the findings of the evaluation.

(7) A recommendation for modifications to this section and

whether the program should be continued.

(i) Termination

After receipt of the study authorized in subsection (h) of this

section, the Secretary may terminate such program if he determines

such termination to be in the fiscal interest of the United States.

(j) Definitions

For the purpose of this section -

(1) the term ''due diligence requirements'' means the

activities required to be performed by lenders on delinquent

loans pursuant to regulations issued by the Secretary;

(2) the term ''eligible loan'' means a loan made, insured or

guaranteed under this part;

(3) the term ''servicer'' means an entity servicing and

collecting student loans which -

(A) has substantial experience in servicing and collecting

consumer loans or student loans;

(B) has an independent financial audit annually which is

furnished to the Secretary and any other parties designated by

the Secretary;

requirements of this part;

(D) has adequate personnel who are knowledgeable about the

student loan programs authorized by this part; and

(E) does not have any owner, majority shareholder, director,

or officer of the entity who has been convicted of a felony.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 428I, as added Pub. L. 102-325,

title IV, Sec. 422, July 23, 1992, 106 Stat. 536; amended Pub. L.

103-208, Sec. 2(c)(46), Dec. 20, 1993, 107 Stat. 2467.)

-COD-

CODIFICATION

July 23, 1992, referred to in subsec. (h), was in the original

''the date of enactment of this Act'', which was translated as

meaning the date of enactment of Pub. L. 102-325 which enacted this

section, to reflect the probable intent of Congress.

-MISC3-

AMENDMENTS

1993 - Subsec. (g). Pub. L. 103-208 substituted ''section 3729 of

title 31'' for ''the Federal False Claims Act''.

-CHANGE-

CHANGE OF NAME

Committee on Education and Labor of House of Representatives

treated as referring to Committee on Economic and Educational

Opportunities of House of Representatives by section 1(a) of Pub.

L. 104-14, set out as a note preceding section 21 of Title 2, The

Congress. Committee on Economic and Educational Opportunities of

House of Representatives changed to Committee on Education and the

Workforce of House of Representatives by House Resolution No. 5,

One Hundred Fifth Congress, Jan. 7, 1997.

-MISC4-

EFFECTIVE DATE OF 1993 AMENDMENT

Amendment by Pub. L. 103-208 effective as if included in the

Higher Education Amendments of 1992, Pub. L. 102-325, except as

otherwise provided, see section 5(a) of Pub. L. 103-208, set out as

a note under section 1051 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1078, 1087-1 of this

title.

-CITE-

20 USC Sec. 1078-10 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1078-10. Loan forgiveness for teachers

-STATUTE-

(a) Statement of purpose

It is the purpose of this section to encourage individuals to

enter and continue in the teaching profession.

(b) Program authorized

The 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) of this section, 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 that qualifies under section 1087ee(a)(2)(A)

of this title for loan cancellation for Perkins loan recipients

who teach in such schools;

(B) if employed as a secondary school teacher, is teaching a

subject area that is relevant to the borrower's academic major

as certified by the chief administrative officer of the public

or nonprofit private secondary school in which the borrower is

employed; and

demonstrated, as certified by the chief administrative officer

of the public or nonprofit private elementary school in which

the borrower is employed, knowledge and teaching skills in

reading, writing, mathematics, and other areas of the

elementary school curriculum; and

(2) is not in default on a loan for which the borrower seeks

forgiveness.

(1) In general

The Secretary shall repay not more than $5,000 in the aggregate

of the loan obligation on a loan made under section 1078 or

1078-8 of this title that is outstanding after the completion of

the fifth complete school year of teaching described in

subsection (b)(1) of this section. No borrower may receive a

reduction of loan obligations under both this section and section

1087j of this title.

(2) Treatment of consolidation loans

A loan amount for a loan made under section 1078-3 of this

title may be a qualified loan amount for the purposes of this

subsection only to the extent that such loan amount was used to

repay a Federal Direct Stafford Loan, a Federal Direct

Unsubsidized Stafford Loan, or a loan made under section 1078 or

1078-8 of this title for a borrower who meets the requirements of

subsection (b) of this section, as determined in accordance with

regulations prescribed by the Secretary.

(d) Regulations

The Secretary is authorized to issue such regulations as may be

necessary to carry out the provisions of this section.

(e) Construction

Nothing in this section shall be construed to authorize any

refunding of any repayment of a loan.

(f) List

If the list of schools in which a teacher may perform service

pursuant to subsection (b) of this section is not available before

May 1 of any year, the Secretary may use the list for the year

preceding the year for which the determination is made to make such

service determination.

(g) Additional eligibility provisions

(1) Continued eligibility

Any teacher who performs service in a school that -

(A) meets the requirements of subsection (b)(1)(A) of this

section 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) of this section.

(2) Prevention of double benefits

No borrower may, for the same service, receive a benefit under

both this subsection and subtitle D of title I of the National

and Community Service Act of 1990 (42 U.S.C. 12601 et seq.).

(h) ''Year'' defined

For purposes of this section, the term ''year'', where applied to

service as a teacher, means an academic year as defined by the

Secretary.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 428J, as added Pub. L. 102-325,

title IV, Sec. 422, July 23, 1992, 106 Stat. 541; amended Pub. L.

103-82, title I, Sec. 102(c)(2), Sept. 21, 1993, 107 Stat. 824;

Pub. L. 103-208, Sec. 2(c)(47)-(51), Dec. 20, 1993, 107 Stat. 2467;

Pub. L. 105-244, title IV, Sec. 424, Oct. 7, 1998, 112 Stat. 1698.)

-REFTEXT-

REFERENCES IN TEXT

The National and Community Service Act of 1990, referred to in

subsec. (g)(2), is Pub. L. 101-610, Nov. 16, 1990, 104 Stat. 3127,

as amended. Subtitle D of title I of the Act is classified

generally to division D of subchapter I (Sec. 12601 et seq.) of

chapter 129 of Title 42, The Public Health and Welfare. For

complete classification of this Act to the Code, see Short Title

note set out under section 12501 of Title 42 and Tables.

-MISC2-

AMENDMENTS

1998 - Pub. L. 105-244 amended section catchline and text

generally. Prior to amendment, section authorized Secretary to

carry out demonstration program for loan forgiveness for teachers,

individuals performing national community service, and nurses.

1993 - Subsec. (b)(1). Pub. L. 103-208, Sec. 2(c)(47),

substituted ''section'' for ''sections'' in introductory

provisions.

Pub. L. 103-82, Sec. 102(c)(2)(A), substituted ''October 1,

1989'' for ''October 1, 1992'' in introductory provisions.

Subsec. (b)(1)(B). Pub. L. 103-208, Sec. 2(c)(48), substituted

''serves as a full-time volunteer'' for ''agrees in writing to

volunteer for service''.

Subsec. (c)(1). Pub. L. 103-208, Sec. 2(c)(49), substituted

''year of service'' for ''academic year'' wherever appearing.

Subsec. (c)(5). Pub. L. 103-82, Sec. 102(c)(2)(B), added par.

(5).

Subsec. (d). Pub. L. 103-208, Sec. 2(c)(50), substituted ''to

eligible'' for ''of eligibility'' in heading.

Subsec. (e). Pub. L. 103-208, Sec. 2(c)(51), amended subsec. (e)

generally. Prior to amendment, subsec. (e) read as follows: ''Each

eligible individual desiring loan repayment under this section

shall submit an application to the Secretary at such time, in such

manner, and containing such information as the Secretary may

reasonably require.''

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by Pub. L. 105-244 effective Oct. 1, 1998, except as

otherwise provided in Pub. L. 105-244, see section 3 of Pub. L.

105-244, set out as a note under section 1001 of this title.

EFFECTIVE DATE OF 1993 AMENDMENTS

Amendment by Pub. L. 103-208 effective as if included in the

Higher Education Amendments of 1992, Pub. L. 102-325, except as

otherwise provided, see section 5(a) of Pub. L. 103-208, set out as

a note under section 1051 of this title.

Amendment by Pub. L. 103-82 effective Oct. 1, 1993, see section

123 of Pub. L. 103-82, set out as a note under section 1701 of

Title 16, Conservation.

REFERENCE TO COMMUNITY, MIGRANT, PUBLIC HOUSING, OR HOMELESS HEALTH

CENTER CONSIDERED REFERENCE TO HEALTH CENTER

Reference to community health center, migrant health center,

public housing health center, or homeless health center considered

reference to health center, see section 4(c) of Pub. L. 104-299,

set out as a note under section 254b of Title 42, The Public Health

and Welfare.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 1087j of this title.

-CITE-

20 USC Sec. 1078-11 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1078-11. Loan forgiveness for child care providers

-STATUTE-

(a) Purpose

It is the purpose of this section -

(1) to bring more highly trained individuals into the early

child care profession; and

(2) to keep more highly trained child care providers in the

early child care field for longer periods of time.

(b) Definitions

In this section:

(1) Child care facility

The term ''child care facility'' means a facility, including a

home, that -

(A) provides child care services; and

(B) meets applicable State or local government licensing,

certification, approval, or registration requirements, if any.

(2) Child care services

The term ''child care services'' means activities and services

provided for the education and care of children from birth

through age 5 by an individual who has a degree in early

childhood education.

(3) Degree

The term ''degree'' means an associate's or bachelor's degree

awarded by an institution of higher education.

(4) Early childhood education

The term ''early childhood education'' means education in the

areas of early child education, child care, or any other

educational area related to child care that the Secretary

determines appropriate.

(5) Institution of higher education

Notwithstanding section 1002 of this title, the term

''institution of higher education'' has the meaning given the

term in section 1001 of this title.

(1) In general

The Secretary may carry out a demonstration program of assuming

the obligation to repay, pursuant to subsection (d) of this

section, a loan made, insured, or guaranteed under this part or

part C of this subchapter (excluding loans made under sections

1078-2 and 1078-3 of this title or comparable loans made under

part C of this subchapter) for any new borrower after October 7,

1998, who -

(A) completes a degree in early childhood education;

(B) obtains employment in a child care facility; and

preceding the year for which the determination is made as a

child care provider in a low-income community.

(2) Low-income community

For the purposes of this subsection, the term ''low-income

community'' means a community in which 70 percent of households

within the community earn less than 85 percent of the State

median household income.

(3) Award basis; priority

(A) Award basis

Subject to subparagraph (B), loan repayment under this

section shall be on a first-come, first-served basis and

subject to the availability of appropriations.

(B) Priority

The Secretary shall give priority in providing loan repayment

under this section for a fiscal year to student borrowers who

received loan repayment under this section for the preceding

fiscal year.

(4) Regulations

The Secretary is authorized to prescribe such regulations as

may be necessary to carry out the provisions of this section.

(d) Loan repayment

(1) In general

The Secretary shall assume the obligation to repay -

(A) after the second consecutive year of employment described

in subparagraphs (B) and (C) of subsection (c)(1) of this

section, 20 percent of the total amount of all loans made after

October 7, 1998, to a student under this part or part C of this

subchapter;

(B) after the third consecutive year of such employment, 20

percent of the total amount of all such loans; and

such employment, 30 percent of the total amount of all such

loans.

(2) Construction

Nothing in this section shall be construed to authorize the

refunding of any repayment of a loan made under this part or part

C of this subchapter.

(3) Interest

If a portion of a loan is repaid by the Secretary under this

section for any year, the proportionate amount of interest on

such loan which accrues for such year shall be repaid by the

Secretary.

(4) Special rule

In the case where a student borrower who is not participating

in loan repayment pursuant to this section returns to an

institution of higher education after graduation from an

institution of higher education for the purpose of obtaining a

degree in early childhood education, the Secretary is authorized

to assume the obligation to repay the total amount of loans made

under this part or part C of this subchapter incurred for a

maximum of two academic years in returning to an institution of

higher education for the purpose of obtaining a degree in early

childhood education. Such loans shall only be repaid for

borrowers who qualify for loan repayment pursuant to the

provisions of this section, and shall be repaid in accordance

with the provisions of paragraph (1).

(5) Ineligibility of national service award recipients

No student borrower may, for the same volunteer service,

receive a benefit under both this section and subtitle D of title

I of the National and Community Service Act of 1990 (42 U.S.C.

12601 et seq.).

(e) Repayment to eligible lenders

The Secretary shall pay to each eligible lender or holder for

each fiscal year an amount equal to the aggregate amount of loans

which are subject to repayment pursuant to this section for such

year.

(f) Application for repayment

(1) In general

Each eligible individual desiring loan repayment under this

section shall submit a complete and accurate application to the

Secretary at such time, in such manner, and containing such

information as the Secretary may require.

(2) Conditions

An eligible individual may apply for loan repayment under this

section after completing each year of qualifying employment. The

borrower shall receive forbearance while engaged in qualifying

employment unless the borrower is in deferment while so engaged.

(g) Evaluation

(1) In general

The Secretary shall conduct, by grant or contract, an

independent national evaluation of the impact of the

demonstration program assisted under this section on the field of

early childhood education.

(2) Competitive basis

The grant or contract described in subsection (b) (FOOTNOTE 1)

of this section shall be awarded on a competitive basis.

(FOOTNOTE 1) So in original. Probably should be a reference to

paragraph (1).

(3) Contents

The evaluation described in this subsection shall -

(A) determine the number of individuals who were encouraged

by the demonstration program assisted under this section to

pursue early childhood education;

(B) determine the number of individuals who remain employed

in a child care facility as a result of participation in the

program;

(D) assess the cost-effectiveness of the program in improving

the quality of -

(i) early childhood education; and

(ii) child care services;

(E) identify the reasons why participants in the program have

chosen to take part in the program;

(F) identify the number of individuals participating in the

program who received an associate's degree and the number of

such individuals who received a bachelor's degree; and

(G) identify the number of years each individual participates

in the program.

(4) Interim and final evaluation reports

The Secretary shall prepare and submit to the President and the

Congress such interim reports regarding the evaluation described

in this subsection as the Secretary deems appropriate, and shall

prepare and so submit a final report regarding the evaluation by

January 1, 2002.

(h) Authorization of appropriations

There are authorized to be appropriated to carry out this section

$10,000,000 for fiscal year 1999, and such sums as may be necessary

for each of the 4 succeeding fiscal years.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 428K, as added Pub. L. 105-244,

title IV, Sec. 425, Oct. 7, 1998, 112 Stat. 1699.)

-REFTEXT-

REFERENCES IN TEXT

The National and Community Service Act of 1990, referred to in

subsec. (d)(5), is Pub. L. 101-610, Nov. 16, 1990, 104 Stat. 3127,

as amended. Subtitle D of title I of the Act is classified

generally to division D of subchapter I (Sec. 12601 et seq.) of

chapter 129 of Title 42, The Public Health and Welfare. For

complete classification of this Act to the Code, see Short Title

note set out under section 12501 of Title 42 and Tables.

-MISC2-

EFFECTIVE DATE

Section effective Oct. 1, 1998, except as otherwise provided in

Pub. L. 105-244, see section 3 of Pub. L. 105-244, set out as an

Effective Date of 1998 Amendment note under section 1001 of this

title.

-CITE-

20 USC Sec. 1079 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1079. Certificate of Federal loan insurance - effective date

of insurance

-STATUTE-

(a) Loan-by-loan insurance

(1) Authority to issue certificates on application

If, upon application by an eligible lender, made upon such

form, containing such information, and supported by such evidence

as the Secretary may require, and otherwise in conformity with

this section, the Secretary finds that the applicant has made a

loan to an eligible student which is insurable under the

provisions of this part, he may issue to the applicant a

certificate of insurance covering the loan and setting forth the

amount and terms of the insurance.

(2) Effectiveness of certificate

Insurance evidenced by a certificate of insurance pursuant to

subsection (a)(1) of this section shall become effective upon the

date of issuance of the certificate, except that the Secretary is

authorized, in accordance with regulations, to issue commitments

with respect to proposed loans, or with respect to lines (or

proposed lines) of credit, submitted by eligible lenders, and in

that event, upon compliance with subsection (a)(1) of this

section by the lender, the certificate of insurance may be issued

effective as of the date when any loan, or any payment by the

lender pursuant to a line of credit, to be covered by such

insurance was made. Such insurance shall cease to be effective

upon 60 days' default by the lender in the payment of any

installment of the premiums payable pursuant to subsection (c) of

this section.

(3) Contents of applications

An application submitted pursuant to subsection (a)(1) of this

section shall contain (A) an agreement by the applicant to pay,

in accordance with regulations, the premiums fixed by the

Secretary pursuant to subsection (c) of this section, and (B) an

agreement by the applicant that if the loan is covered by

insurance the applicant will submit such supplementary reports

and statement during the effective period of the loan agreement,

upon such forms, at such times, and containing such information

as the Secretary may prescribe by or pursuant to regulation.

(b) Comprehensive insurance coverage certificate

(1) Establishment of system by regulation

In lieu of requiring a separate insurance application and

issuing a separate certificate of insurance for each student loan

made by an eligible lender as provided in subsection (a) of this

section, the Secretary may, in accordance with regulations

consistent with section 1074 of this title, issue to any eligible

lender applying therefor a certificate of comprehensive insurance

coverage which shall, without further action by the Secretary,

insure all insurable loans made by that lender, on or after the

date of the certificate and before a specified cutoff date,

within the limits of an aggregate maximum amount stated in the

certificate. Such regulations may provide for conditioning such

insurance, with respect to any loan, upon compliance by the

lender with such requirements (to be stated or incorporated by

reference in the certificate) as in the Secretary's judgment will

best achieve the purpose of this subsection while protecting the

United States from the risk of unreasonable loss and promoting

the objectives of this part, including (but not limited to)

provisions as to the reporting of such loans and information

relevant thereto to the Secretary and as to the payment of

initial and other premiums and the effect of default therein, and

including provision for confirmation by the Secretary from time

to time (through endorsement of the certificate) of the coverage

of specific new loans by such certificate, which confirmation

shall be incontestable by the Secretary in the absence of fraud

or misrepresentation of fact or patent error.

(2) Uncovered loans

If the holder of a certificate of comprehensive insurance

coverage issued under this subsection grants to a student a line

of credit extending beyond the cutoff date specified in that

certificate, loans or payments thereon made by the holder after

that date pursuant to the line of credit shall not be deemed to

be included in the coverage of that certificate except as may be

specifically provided therein; but, subject to the limitations of

section 1074 of this title, the Secretary may, in accordance with

regulations, make commitments to insure such future loans or

payments, and such commitments may be honored either as provided

in subsection (a) of this section or by inclusion of such

insurance on comprehensive coverage under the subsection for the

period or periods in which such future loans or payments are

made.

The Secretary shall, pursuant to regulations, charge for

insurance on each loan under this part a premium in an amount not

to exceed one-fourth of 1 percent per year of the unpaid principal

amount of such loan (excluding interest added to principal),

payable in advance, at such times and in such manner as may be

prescribed by the Secretary. Such regulations may provide that such

premium shall not be payable, or if paid shall be refundable, with

respect to any period after default in the payment of principal or

interest or after the borrower has died or becomes totally and

permanently disabled, if (1) notice of such default or other event

has been duly given, and (2) requests for payment of the loss

insured against has been made or the Secretary has made such

payment on his own motion pursuant to section 1080(a) of this

title.

(d) Assignability of insurance

The rights of an eligible lender arising under insurance

evidenced by a certificate of insurance issued to it under this

section may be assigned as security by such lender only to another

eligible lender, and subject to regulation by the Secretary.

(e) Consolidation not to affect insurance

The consolidation of the obligations of two or more federally

insured loans obtained by a student borrower in any fiscal year

into a single obligation evidenced by a single instrument of

indebtedness shall not affect the insurance by the United States.

If the loans thus consolidated are covered by separate certificates

of insurance issued under subsection (a) of this section, the

Secretary may upon surrender of the original certificates issue a

new certificate of insurance in accordance with that subsection

upon the consolidated obligation; if they are covered by a single

comprehensive certificate issued under subsection (b) of this

section, the Secretary may amend that certificate accordingly.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 429, as added Pub. L. 99-498, title

IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1395.)

-MISC1-

PRIOR PROVISIONS

A prior section 1079, Pub. L. 89-329, title IV, Sec. 429, Nov. 8,

1965, 79 Stat. 1243; Pub. L. 94-482, title I, Sec. 127(a), Oct. 12,

1976, 90 Stat. 2123; Pub. L. 96-374, title XIII, Sec. 1391(a)(1),

(2), Oct. 3, 1980, 94 Stat. 1503, related to certificates of

Federal loan insurance, prior to the general revision of this part

by Pub. L. 99-498.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1073, 1078-3, 1080, 1082,

1085, 1087-2 of this title.

-CITE-

20 USC Sec. 1080 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1080. Default of student under Federal loan insurance program

-STATUTE-

(a) Notice to Secretary and payment of loss

Upon default by the student borrower on any loan covered by

Federal loan insurance pursuant to this part, and prior to the

commencement of suit or other enforcement proceedings upon security

for that loan, the insurance beneficiary shall promptly notify the

Secretary, and the Secretary shall if requested (at that time or

after further collection efforts) by the beneficiary, or may on the

Secretary's own motion, if the insurance is still in effect, pay to

the beneficiary the amount of the loss sustained by the insured

upon that loan as soon as that amount has been determined. The

''amount of the loss'' on any loan shall, for the purposes of this

subsection and subsection (b) of this section, be deemed to be an

amount equal to the unpaid balance of the principal amount and

accrued interest, including interest accruing from the date of

submission of a valid default claim (as determined by the

Secretary) to the date on which payment is authorized by the

Secretary, reduced to the extent required by section 1075(b) of

this title. Such beneficiary shall be required to meet the

standards of due diligence in the collection of the loan and shall

be required to submit proof that 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). The Secretary

shall make the determination required to carry out the provisions

of this section not later than 90 days after the notification by

the insurance beneficiary and shall make payment in full on the

amount of the beneficiary's loss pending completion of the due

diligence investigation.

(b) Effect of payment of loss

Upon payment of the amount of the loss pursuant to subsection (a)

of this section, the United States shall be subrogated for all of

the rights of the holder of the obligation upon the insured loan

and shall be entitled to an assignment of the note or other

evidence of the insured loan by the insurance beneficiary. If the

net recovery made by the Secretary on a loan after deduction of the

cost of that recovery (including reasonable administrative costs

and collection costs, to the extent set forth in regulations issued

by the Secretary) exceeds the amount of the loss, the excess shall

be paid over to the insured. The Secretary may, in attempting to

make recovery on such loans, contract with private business

concerns, State student loan insurance agencies, or State guaranty

agencies, for payment for services rendered by such concerns or

agencies in assisting the Secretary in making such recovery. Any

contract under this subsection entered into by the Secretary shall

provide that attempts to make recovery on such loans shall be fair

and reasonable, and do not involve harassment, intimidation, false

or misleading representations, or unnecessary communications

concerning the existence of any such loan to persons other than the

student borrower.

Nothing in this section or in this part shall be construed to

preclude any forbearance for the benefit of the student borrower

which may be agreed upon by the parties to the insured loan and

approved by the Secretary, or to preclude forbearance by the

Secretary in the enforcement of the insured obligation after

payment on that insurance. Any forbearance which is approved by

the Secretary under this subsection with respect to the repayment

of a loan, including a forbearance during default, shall not be

considered as indicating that a holder of a federally insured loan

has failed to exercise reasonable care and due diligence in the

collection of the loan.

(d) Care and diligence required of holders

Nothing in this section or in this part shall be construed to

excuse the holder of a federally insured loan from exercising

reasonable care and diligence in the making and collection of loans

under the provisions of this part. If the Secretary, after a

reasonable notice and opportunity for hearing to an eligible

lender, finds that it has substantially failed to exercise such

care and diligence or to make the reports and statements required

under section 1078(a)(4) of this title and section 1079(a)(3) of

this title, or to pay the required Federal loan insurance premiums,

the Secretary shall disqualify that lender for further Federal

insurance on loans granted pursuant to this part until the

Secretary is satisfied that its failure has ceased and finds that

there is reasonable assurance that the lender will in the future

exercise necessary care and diligence or comply with such

requirements, as the case may be.

(e) Default rate of lenders, holders, and guaranty agencies

(1) In general

The Secretary shall annually publish a list indicating the

cohort default rate (determined in accordance with section

1085(m) of this title) for each originating lender, subsequent

holder, and guaranty agency participating in the program assisted

under this part and an average cohort default rate for all

institutions of higher education within each State.

(2) Regulations

The Secretary shall prescribe regulations designed to prevent

an institution from evading the application to that institution

of a cohort default rate through the use of such measures as

branching, consolidation, change of ownership or control, or any

similar device.

(3) Rate establishment and correction

The Secretary shall establish a cohort default rate for

lenders, holders, and guaranty agencies (determined consistent

with section 1085(m) of this title), except that the rate for

lenders, holders, and guaranty agencies shall not reflect any

loans issued in accordance with section 1078(j) of this title.

The Secretary shall allow institutions, lenders, holders, and

guaranty agencies the opportunity to correct such cohort default

rate information.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 430, as added Pub. L. 99-498, title

IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1397; amended Pub. L.

102-325, title IV, Sec. 423, July 23, 1992, 106 Stat. 543; Pub. L.

105-244, title IV, Sec. 426, Oct. 7, 1998, 112 Stat. 1702.)

-MISC1-

PRIOR PROVISIONS

A prior section 1080, Pub. L. 89-329, title IV, Sec. 430, Nov. 8,

1965, 79 Stat. 1244; Pub. L. 90-575, title I, Sec. 113(b)(5), Oct.

16, 1968, 82 Stat. 1021; Pub. L. 92-318, title I, Sec. 132B(c),

June 23, 1972, 86 Stat. 262; Pub. L. 94-482, title I, Sec. 127(a),

Oct. 12, 1976, 90 Stat. 2125; Pub. L. 95-43, Sec. 1(a)(33), June

15, 1977, 91 Stat. 216; Pub. L. 96-374, title IV, Sec. 416(a)(1),

(b), 422, title XIII, Sec. 1391(a)(1), Oct. 3, 1980, 94 Stat. 1420,

1421, 1432, 1503; Pub. L. 99-272, title XVI, Sec. 16014(a)(2),

16022, Apr. 7, 1986, 100 Stat. 341, 349, related to default of

student borrowers under Federal loan insurance program, prior to

the general revision of this part by Pub. L. 99-498.

AMENDMENTS

1998 - Subsec. (a). Pub. L. 105-244 inserted ''the institution

was contacted and other'' after ''submit proof that'' in third

sentence.

1992 - Subsec. (e). Pub. L. 102-325 added subsec. (e).

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by Pub. L. 105-244 effective Oct. 1, 1998, except as

otherwise provided in Pub. L. 105-244, see section 3 of Pub. L.

105-244, set out as a note under section 1001 of this title.

STUDY OF FRAUD-BASED DEFENSES

Pub. L. 102-325, title XIV, Sec. 1403, July 23, 1992, 106 Stat.

817, directed Secretary of Education to conduct a study of impact

of fraud-based defenses on Federal Family Education Loan Program

and to submit a report to Congress on the study not later than 19

months after July 23, 1992, prior to repeal by Pub. L. 105-332,

Sec. 6(b)(2), Oct. 31, 1998, 112 Stat. 3128.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1075, 1079, 1080a, 1082,

1092b of this title.

-CITE-

20 USC Sec. 1080a 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1080a. Reports to credit bureaus and institutions of higher

education

-STATUTE-

(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, each guaranty agency, eligible lender, and subsequent

holder shall enter into agreements with credit bureau organizations

to exchange information concerning student borrowers, in accordance

with the requirements of this section. For the purpose of

assisting such organizations 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), by a guaranty agency, eligible lender, or

subsequent holder (concerning loans covered by a guaranty

agreement), or to requests from such organizations for responses to

objections raised by borrowers. Subject to the requirements of

subsection (c) of this section, such agreements shall require the

Secretary, the guaranty agency, eligible lender, or subsequent

holder, as appropriate, to disclose to such organizations, with

respect to any loan under this part that has not been repaid by the

borrower -

(1) the total amount of loans made to any borrower under this

part and the remaining balance of the loans;

(2) 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

(3) 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

Such agreements may also provide for the disclosure by such

organizations to the Secretary or a guaranty agency, whichever

insures or guarantees a loan, upon receipt of a notice under

subsection (a)(2) of this section that such a loan is in default,

of information concerning the borrower's location or other

information which may assist the Secretary, the guaranty agency,

the eligible lender, or the subsequent holder in collecting the

loan.

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 organizations 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)(2)

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 credit

bureau organizations 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

A guaranty agency, eligible lender, or subsequent holder or

credit bureau organization which discloses or receives information

under this section shall not be considered a Government contractor

within the meaning of section 552a of title 5.

(e) Disclosure to institutions

The Secretary and each guaranty agency, eligible lender, and

subsequent holder of a loan are authorized to disclose information

described in subsections (a) and (b) of this section concerning

student borrowers to the eligible institutions such borrowers

attend or previously attended. To further the purpose of this

section, an eligible institution may enter into an arrangement with

any or all of the holders of delinquent loans made to borrowers who

attend or previously attended such institution for the purpose of

providing current information regarding the borrower's location or

employment or for the purpose of assisting the holder in contacting

and influencing borrowers to avoid default.

(f) Duration of authority

Notwithstanding paragraphs (4) and (6) (FOOTNOTE 1) of subsection

(a) of section 605 of the Fair Credit Reporting Act (15 U.S.C.

1681c(a)(4), (a)(6)), 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 -

(FOOTNOTE 1) See References in Text note below.

(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.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 430A, as added Pub. L. 99-498,

title IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1398; amended Pub.

L. 100-50, Sec. 10(v), June 3, 1987, 101 Stat. 346; Pub. L.

102-325, title IV, Sec. 424, July 23, 1992, 106 Stat. 543; Pub. L.

103-208, Sec. 2(c)(52), Dec. 20, 1993, 107 Stat. 2467.)

-REFTEXT-

REFERENCES IN TEXT

The Fair Credit Reporting Act, referred to in subsec. (a), is

title VI of Pub. L. 90-321, as added by Pub. L. 91-508, title VI,

Sec. 601, Oct. 26, 1970, 84 Stat. 1127, as amended, which is

classified generally to subchapter III (Sec. 1681 et seq.) of

chapter 41 of Title 15, Commerce and Trade. For complete

classification of this Act to the Code, see Short Title note set

out under section 1601 of Title 15 and Tables.

Paragraph (6) of subsection (a) of section 605 of the Fair Credit

Reporting Act, referred to in subsec. (f), was redesignated

paragraph (5) of subsection (a) of section 605 of the Act by Pub.

L. 105-347, Sec. 5(4), Nov. 2, 1998, 112 Stat. 3211.

-MISC2-

PRIOR PROVISIONS

A prior section 1080a, Pub. L. 89-329, title IV, Sec. 430A, as

added Pub. L. 99-272, title XVI, Sec. 16023, Apr. 7, 1986, 100

Stat. 349; amended Pub. L. 99-320, Sec. 2(c), May 23, 1986, 100

Stat. 491, related to reports to credit bureaus and institutions of

higher education, prior to the general revision of this part by

Pub. L. 99-498.

AMENDMENTS

1993 - Subsec. (f)(1). Pub. L. 103-208 substituted a semicolon

for the comma at end.

1992 - Subsec. (f). Pub. L. 102-325 struck out ''or'' at end of

par. (1), added pars. (2) and (3), and struck out former par. (2)

which read as follows: ''with regard to an account on a loan on

which the Secretary or the guaranty agency has paid a claim but not

reported the account to a consumer reporting agency on or before

October 1, 1985, 7 years from that date.''

1987 - Subsec. (e). Pub. L. 100-50 inserted sentence at end

permitting an eligible institution to enter into arrangements with

holders of delinquent loans made to borrowers for purpose of

providing current information on borrower's location or employment

or to assist holder in contacting and influencing borrower to avoid

default.

EFFECTIVE DATE OF 1993 AMENDMENT

Amendment by Pub. L. 103-208 effective as if included in the

Higher Education Amendments of 1992, Pub. L. 102-325, except as

otherwise provided, see section 5(a) of Pub. L. 103-208, set out as

a note under section 1051 of this title.

EFFECTIVE DATE OF 1987 AMENDMENT

Amendment by Pub. L. 100-50 effective as if enacted as part of

the Higher Education Amendments of 1986, Pub. L. 99-498, see

section 27 of Pub. L. 100-50, set out as a note under section 1001

of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1077, 1078-3, 1087cc of

this title.

-CITE-

20 USC Sec. 1081 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1081. Insurance fund

-STATUTE-

(a) Establishment

There is hereby established a student loan insurance fund

(hereinafter in this section called the ''fund'') which shall be

available without fiscal year limitation to the Secretary for

making payments in connection with the default of loans insured by

the Secretary under this part, or in connection with payments under

a guaranty agreement under section 1078(c) of this title. All

amounts received by the Secretary as premium charges for insurance

and as receipts, earnings, or proceeds derived from any claim or

other assets acquired by the Secretary in connection with

operations under this part, any excess advances under section 1072

of this title, and any other moneys, property, or assets derived by

the Secretary from operations in connection with this section,

shall be deposited in the fund. All payments in connection with

the default of loans insured by the Secretary under this part, or

in connection with such guaranty agreements shall be paid from the

fund. Moneys in the fund not needed for current operations under

this section may be invested in bonds or other obligations

guaranteed as to principal and interest by the United States.

(b) Borrowing authority

If at any time the moneys in the fund are insufficient to make

payments in connection with the default of any loan insured by the

Secretary under this part, or in connection with any guaranty

agreement made under section 1078(c) of this title, the Secretary

is authorized, to the extent provided in advance by appropriations

Acts, to issue to the Secretary of the Treasury notes or other

obligations in such forms and denominations, bearing such

maturities, and subject to such terms and conditions as may be

prescribed by the Secretary with the approval of the Secretary of

the Treasury. Such notes or other obligations shall bear interest

at a rate determined by the Secretary of the Treasury, taking into

consideration the current average market yield on outstanding

marketable obligations of the United States of comparable

maturities during the month preceding the issuance of the notes or

other obligations. The Secretary of the Treasury is authorized and

directed to purchase any notes and other obligations issued

hereunder and for that purpose is authorized to use as a public

debt transaction the proceeds from the sale of any securities

issued under chapter 31 of title 31, and the purposes for which

securities may be issued under that chapter, are extended to

include any purchase of such notes and obligations. The Secretary

of the Treasury may at any time sell any of the notes or other

obligations acquired under this subsection. All redemptions,

purchases, and sales by the Secretary of the Treasury of such notes

or other obligations shall be treated as public debt transactions

of the United States. Sums borrowed under the subsection shall be

deposited in the fund and redemption of such notes and obligations

shall be made by the Secretary from such fund.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 431, as added Pub. L. 99-498, title

IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1400; amended Pub. L.

100-50, Sec. 10(w), June 3, 1987, 101 Stat. 346.)

-COD-

CODIFICATION

In subsec. (b), ''chapter 31 of title 31'' and ''that chapter''

substituted for ''the Second Liberty Bond Act, as amended'' and

''that Act, as amended'', respectively, on authority of Pub. L.

97-258, Sec. 4(b), Sept. 13, 1982, 96 Stat. 1067, the first section

of which enacted Title 31, Money and Finance.

-MISC3-

PRIOR PROVISIONS

A prior section 1081, Pub. L. 89-329, title IV, Sec. 431, Nov. 8,

1965, 79 Stat. 1245; Pub. L. 90-460, Sec. 3(c), Aug. 3, 1968, 82

Stat. 638; Pub. L. 94-482, title I, Sec. 127(a), Oct. 12, 1976, 90

Stat. 2126; Pub. L. 96-374, title XIII, Sec. 1391(a)(1), Oct. 3,

1980, 94 Stat. 1503, related to a student loan insurance fund,

prior to the general revision of this part by Pub. L. 99-498.

AMENDMENTS

1987 - Subsec. (a). Pub. L. 100-50 substituted ''section 1072 of

this title'' for ''section 1072(a)(4)(C) of this title''.

EFFECTIVE DATE OF 1987 AMENDMENT

Amendment by Pub. L. 100-50 effective as if enacted as part of

the Higher Education Amendments of 1986, Pub. L. 99-498, see

section 27 of Pub. L. 100-50, set out as a note under section 1001

of this title.

FEDERAL FAMILY EDUCATION LOAN INSURANCE FUND

Pub. L. 105-244, title IV, Sec. 434, Oct. 7, 1998, 112 Stat.

1711, provided that: ''Any funds in the insurance fund, as

established under section 431 of the Higher Education Act of 1965

(20 U.S.C. 1081), on the date of enactment of this Act (Oct. 7,

1998) shall be transferred to and deposited in the Treasury. All

funds received by the Secretary of Education under subsection (a)

of such section after the date of enactment of this Act shall be

deposited into the fund in accordance with such subsection.''

TRANSFER OF ASSETS AND LIABILITIES OF THE VOCATIONAL STUDENT LOAN

INSURANCE FUND

All assets and liabilities of the vocational student loan

insurance fund transferred to the student loan insurance fund, see

section 116(c)(2) of Pub. L. 90-575, set out as a note under former

section 981 et seq. of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1071, 1072, 1078, 1078-3,

1087-1, 1087-2 of this title.

-CITE-

20 USC Sec. 1082 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1082. Legal powers and responsibilities

-STATUTE-

(a) General powers

In 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 responsibilities

The 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.

(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.

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

For purposes of clarity in communications, the Secretary shall

separately identify loans made by the lenders referred to in

clause (i) and loans made by the lenders referred to in clause

(ii) of paragraph (1)(B) of this subsection.

(d) Delegation

(1) Regional offices

The functions of the Secretary under this part listed in

paragraph (2) of this subsection may be delegated to employees in

the regional office of the Department.

(2) Delegable functions

The 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

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) of this section), and recommending litigation

with respect to any such claim.

(e) Use of information on borrowers

Notwithstanding any other provision of law, the Secretary may

provide to eligible lenders, and to any guaranty agency having a

guaranty agreement under section 1078(c)(1) of this title, any

information with respect to the names and addresses of borrowers or

other relevant information which is available to the Secretary,

from whatever source such information may be derived.

(f) Audit of financial transactions

(1) Comptroller General and Inspector General authority

The 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;

part, upon the request of the Committee on Education and the

Workforce of the House of Representatives or the Committee on

Labor and Human Resources of the Senate, 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

For the purpose of carrying out this subsection, the records of

any entity described in subparagraph (A), (B), (C), or (D)

(FOOTNOTE 1) of paragraph (1) shall be available to the

Comptroller General and the Inspector General of the Department

of Education. For the purpose of section 716(c) of title 31, such

records shall be considered to be records to which the

Comptroller General has access by law, and for the purpose of

section 6(a)(4) of the Inspector General Act of 1978, such

records shall be considered to be records necessary in the

performance of functions assigned by that Act to the Inspector

General.

(FOOTNOTE 1) See References in Text note below.

(3) ''Record'' defined

For the purpose of this subsection, the term ''record''

includes any information, document, report, answer, account,

paper, or other data or documentary evidence.

(4) Audit procedures

In conducting audits pursuant to this subsection, the

Comptroller General and the Inspector General of the Department

of Education shall audit the records to determine the extent to

which they, at a minimum, comply with Federal statutes, and rules

and regulations prescribed by the Secretary, in effect at the

time that the record was made, and in no case shall the

Comptroller General or the Inspector General apply subsequently

determined standards, procedures, or regulations to the records

of such agency, lender, or Authority.

(g) Civil penalties

(1) Authority to impose penalties

Upon 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) Limitations

No 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

A lender or guaranty agency has no liability under paragraph

(1) of this subsection if, prior to notification by the Secretary

under that paragraph, the lender or guaranty agency cures or

corrects the violation or failure or notifies the person who

received the substantial misrepresentation of the actual nature

of the financial charges involved.

(4) Consideration as single violation

For the purpose of paragraph (1) of this subsection,

violations, failures, or substantial misrepresentations arising

from a specific practice of a lender or guaranty agency, and

occurring prior to notification by the Secretary under that

paragraph, shall be deemed to be a single violation, failure, or

substantial misrepresentation even if the violation, failure, or

substantial misrepresentation affects more than one loan or more

than one borrower, or both. The Secretary may only impose a

single civil penalty for each such violation, failure, or

substantial misrepresentation.

(5) Assignees not liable for violations by others

If a loan affected by a violation, failure, or substantial

misrepresentation is assigned to another holder, the lender or

guaranty agency responsible for the violation, failure, or

substantial misrepresentation shall remain liable for any civil

money penalty provided for under paragraph (1) of this

subsection, but the assignee shall not be liable for any such

civil money penalty.

(6) Compromise

Until a matter is referred to the Attorney General, any civil

penalty under paragraph (1) of this subsection may be compromised

by the Secretary. In determining the amount of such penalty, or

the amount agreed upon in compromise, the Secretary shall

consider the appropriateness of the penalty to the resources of

the lender or guaranty agency subject to the determination; the

gravity of the violation, failure, or substantial

misrepresentation; the frequency and persistence of the

violation, failure, or substantial misrepresentation; and the

amount of any losses resulting from the violation, failure, or

substantial misrepresentation. The amount of such penalty, when

finally determined, or the amount agreed upon in compromise, may

be deducted from any sums owing by the United States to the

lender or agency charged, unless the lender or agency has, in the

case of a final agency determination, commenced proceedings for

judicial review within 90 days of the determination, in which

case the deduction may not be made during the pendency of the

proceeding.

(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.

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.

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

In the event that all other collection efforts have failed, the

Secretary is authorized to sell defaulted student loans assigned to

the United States under this part to collection agencies, eligible

lenders, guaranty agencies, or other qualified purchaser on such

terms as the Secretary determines are in the best financial

interests of the United States. A loan may not be sold pursuant to

this subsection if such loan is in repayment status.

(j) Authority of Secretary to take emergency actions against

lenders

(1) Imposition of sanctions

If the Secretary -

(A) receives information, determined by the Secretary to be

reliable, that a lender is violating any provision of this

subchapter and part C of subchapter I of chapter 34 of title

42, any regulation prescribed under this subchapter and part C

of subchapter I of chapter 34 of title 42, or any applicable

special arrangement, agreement, or limitation;

(B) determines that immediate action is necessary to prevent

misuse of Federal funds; and

importance of following the limitation, suspension, or

termination procedures authorized in subsection (h) of this

section;

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

An emergency action under this subsection may not exceed 30

days unless a limitation, suspension, or termination proceeding

is initiated against the lender under subsection (h) of this

section before the expiration of that period.

(3) Opportunity to show cause

The Secretary shall provide the lender, if it so requests, an

opportunity to show cause that the emergency action is

unwarranted.

(k) Program of assistance for borrowers

(1) In general

The Secretary shall undertake a program to encourage

corporations and other private and public employers, including

the Federal Government, to assist borrowers in repaying loans

received under this subchapter and part C of subchapter I of

chapter 34 of title 42, including providing employers with

options for payroll deduction of loan payments and offering loan

repayment matching provisions as part of employee benefit

packages.

(2) Publication

The Secretary shall publicize models for providing the

repayment assistance described in paragraph (1) and each year

select entities that deserve recognition, through means devised

by the Secretary, for the development of innovative plans for

providing such assistance to employees.

(3) Recommendation

The Secretary shall recommend to the appropriate committees in

the Senate and House of Representatives changes to statutes that

could be made in order to further encourage such efforts.

(l) Uniform administrative and claims procedures

(1) In general

The 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;

(D) deferments;

(E) forbearance;

(F) servicing;

(G) claims filing;

(H) borrower status change; 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 requirements

Such 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;

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

The Secretary shall review regulations prescribed pursuant to

paragraph (1) and seek additional recommendations from guaranty

agencies, lenders, institutions of higher education, students,

secondary markets, third party servicers and other organizations

involved in providing loans under this part, not less frequently

than annually, for additional methods of simplifying and

standardizing the administration of the programs authorized by

this part.

(m) Common forms and formats

(1) Common guaranteed student loan application form and

promissory note

(A) In general

The Secretary, in cooperation with representatives of

guaranty agencies, eligible lenders, and organizations involved

in student financial assistance, shall prescribe common

application forms and promissory notes, or master promissory

notes, to be used for applying for loans under this part.

(B) Requirements

The forms prescribed by the Secretary shall -

(i) use clear, concise, and simple language to facilitate

understanding of loan terms and conditions by applicants;

(ii) be formatted to require the applicant to clearly

indicate a choice of lender; and (FOOTNOTE 2)

(FOOTNOTE 2) So in original. The ''; and'' probably should be a

period.

For academic year 1999-2000 and succeeding academic years,

the Secretary shall prescribe the form developed under section

1090 of this title as the application form under this part,

other than for loans under sections 1078-2 and 1078-3 of this

title.

(D) Master promissory note

(i) In general

The Secretary shall develop and require the use of master

promissory note forms for loans made under this part and part

C of this subchapter. Such forms shall be available for

periods of enrollment beginning not later than July 1, 2000.

Each form shall allow eligible borrowers to receive, in

addition to initial loans, additional loans for the same or

subsequent periods of enrollment through a student

confirmation process approved by the Secretary. Such forms

shall be used for loans made under this part or part C of

this subchapter as directed by the Secretary.

(ii) Consultation

In developing the master promissory note under this

subsection, the Secretary shall consult with representatives

of guaranty agencies, eligible lenders, institutions of

higher education, students, and organizations involved in

student financial assistance.

(iii) Sale; assignment; enforceability

Notwithstanding any other provision of law, each loan made

under a master promissory note under this subsection may be

sold or assigned independently of any other loan made under

the same promissory note and each such loan shall be

separately enforceable in all Federal and State courts on the

basis of an original or copy of the master promissory note in

accordance with the terms of the master promissory note.

(E) Perfection of security interests in student loans

(i) In general

Notwithstanding the provisions of any State law to the

contrary, including the Uniform Commercial Code as in effect

in any State, a security interest in loans made under this

part, on behalf of any eligible lender (as defined in section

1085(d) of this title) shall attach, be perfected, and be

assigned priority in the manner provided by the applicable

State's law for perfection of security interests in accounts,

as such law may be amended from time to time (including

applicable transition provisions). If any such State's law

provides for a statutory lien to be created in such loans,

such statutory lien may be created by the entity or entities

governed by such State law in accordance with the applicable

statutory provisions that created such a statutory lien.

(ii) Collateral description

In addition to any other method for describing collateral

in a legally sufficient manner permitted under the laws of

the State, the description of collateral in any financing

statement filed pursuant to this subparagraph shall be deemed

legally sufficient if it lists such loans, or refers to

records (identifying such loans) retained by the secured

party or any designee of the secured party identified in such

financing statement, including the debtor or any loan

servicer.

(iii) Sales

Notwithstanding clauses (i) and (ii) and any provisions of

any State law to the contrary, other than any such State's

law providing for creation of a statutory lien, an outright

sale of loans made under this part shall be effective and

perfected automatically upon attachment as defined in the

Uniform Commercial Code of such State.

(2) Common deferment form

The Secretary, in cooperation with representatives of guaranty

agencies, institutions of higher education, and lenders involved

in loans made under this part, shall prescribe a common deferment

reporting form to be used for the processing of deferments of

loans made under this subchapter and part C of subchapter I of

chapter 34 of title 42.

(3) Common reporting formats

The Secretary shall promulgate standards including necessary

rules, regulations (including the definitions of all relevant

terms), and procedures so as to require all lenders and guaranty

agencies to report information on all aspects of loans made under

this part in uniform formats, so as to permit the direct

comparison of data submitted by individual lenders, servicers, or

guaranty agencies.

(4) Electronic forms

Nothing in this section shall be construed to limit the

development and use of electronic forms and procedures.

(n) Default reduction management

(1) Authorization

There are authorized to be appropriated $25,000,000 for fiscal

year 1999 and each of the four succeeding fiscal years, for the

Secretary to expend for default reduction management activities

for the purposes of establishing a performance measure that will

reduce defaults by 5 percent relative to the prior fiscal year.

Such funds shall be in addition to, and not in lieu of, other

appropriations made for such purposes.

(2) Allowable activities

Allowable activities for which such funds shall be expended by

the Secretary shall include the following: (A) program reviews;

(B) audits; (C) debt management programs; (D) training

activities; and (E) such other management improvement activities

approved by the Secretary.

(3) Plan for use required

The 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;

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

Committee on Education and the Workforce of the House of

Representatives and the Committee on Labor and Human Resources of

the Senate.

(o) Consequences of guaranty agency insolvency

In the event that the Secretary has determined that a guaranty

agency is unable to meet its insurance obligations under this part,

the holder of loans insured by the guaranty agency may submit

insurance claims directly to the Secretary and the Secretary shall

pay to the holder the full insurance obligation of the guaranty

agency, in accordance with insurance requirements no more stringent

than those of the guaranty agency. Such arrangements shall

continue until the Secretary is satisfied that the insurance

obligations have been transferred to another guarantor who can meet

those obligations or a successor will assume the outstanding

insurance obligations.

(p) Reporting requirement

All officers and directors, and those employees and paid

consultants of eligible institutions, eligible lenders, guaranty

agencies, loan servicing agencies, accrediting agencies or

associations, State licensing agencies or boards, and entities

acting as secondary markets (including the Student Loan Marketing

Association), who are engaged in making decisions as to the

administration of any program or funds under this subchapter and

part C of subchapter I of chapter 34 of title 42 or as to the

eligibility of any entity or individual to participate under this

subchapter and part C of subchapter I of chapter 34 of title 42,

shall report to the Secretary, in such manner and at such time as

the Secretary shall require, on any financial interest which such

individual may hold in any other entity participating in any

program assisted under this subchapter and part C of subchapter I

of chapter 34 of title 42.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 432, as added Pub. L. 99-498, title

IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1401; amended Pub. L.

100-50, Sec. 10(x), (y), June 3, 1987, 101 Stat. 346; Pub. L.

101-239, title II, Sec. 2006(a), Dec. 19, 1989, 103 Stat. 2118;

Pub. L. 102-325, title IV, Sec. 425, July 23, 1992, 106 Stat. 543;

Pub. L. 103-208, Sec. 2(k)(2), (3), Dec. 20, 1993, 107 Stat. 2485;

Pub. L. 104-66, title I, Sec. 1042(e), Dec. 21, 1995, 109 Stat.

716; Pub. L. 105-244, title IV, Sec. 427, Oct. 7, 1998, 112 Stat.

1702; Pub. L. 106-554, Sec. 1(a)(1) (title III, Sec. 311), Dec. 21,

2000, 114 Stat. 2763, 2763A-46.)

-REFTEXT-

REFERENCES IN TEXT

Subparagraph (D) of paragraph (1) of subsec. (f), referred to in

subsec. (f)(2), was repealed by Pub. L. 105-244, title IV, Sec.

427(a)(3), Oct. 7, 1998, 112 Stat. 1702.

The Inspector General Act of 1978, referred to in subsec. (f)(2),

is Pub. L. 95-452, Oct. 12, 1978, 92 Stat. 1101, as amended, which

is set out in the Appendix to Title 5, Government Organization and

Employees.

This chapter, referred to in subsec. (l)(3)(C), was in the

original ''this Act'', meaning Pub. L. 89-329, as amended, known as

the Higher Education Act of 1965. For complete classification of

this Act to the Code, see Short Title note set out under section

1001 of this title and Tables.

-MISC2-

PRIOR PROVISIONS

A prior section 1082, Pub. L. 89-329, title IV, Sec. 432, Nov. 8,

1965, 79 Stat. 1246; Pub. L. 90-460, Sec. 3(d), Aug. 3, 1968, 82

Stat. 638; Pub. L. 93-604, title VII, Sec. 705(a), Jan. 2, 1975, 88

Stat. 1964; Pub. L. 94-482, title I, Sec. 127(a), Oct. 12, 1976, 90

Stat. 2127; Pub. L. 96-88, title III, Sec. 301(b)(2), Oct. 17,

1979, 93 Stat. 678; Pub. L. 96-374, title IV, Sec. 416(c), title

XIII, Sec. 1391(a)(1), Oct. 3, 1980, 94 Stat. 1421, 1503; Pub. L.

99-272, title XVI, Sec. 16024, Apr. 7, 1986, 100 Stat. 351, related

to functions, powers, and duties of Secretary, prior to the general

revision of this part by Pub. L. 99-498.

AMENDMENTS

2000 - Subsec. (m)(1)(D)(iv). Pub. L. 106-554, Sec. 1(a)(1)

(title III, Sec. 311(1)), struck out heading and text of cl. (iv).

Text read as follows: ''Notwithstanding the provisions of any State

law to the contrary, including the Uniform Commercial Code as in

effect in any State, a security interest in loans made under this

part created on behalf of any eligible lender as defined in section

1085(d) of this title may be perfected either through the taking of

possession of such loans (which can be through taking possession of

an original or copy of the master promissory note) or by the filing

of notice of such security interest in such loans in the manner

provided by such State law for perfection of security interests in

accounts.''

Subsec. (m)(1)(E). Pub. L. 106-554, Sec. 1(a)(1) (title III, Sec.

311(2)), added subpar. (E).

1998 - Subsec. (f)(1)(B). Pub. L. 105-244, Sec. 427(a)(1),

substituted ''section 1085(d)(1)'' for ''section 1085(d)(1)(D),

(F), or (H)''.

Subsec. (f)(1)(C). Pub. L. 105-244, Sec. 427(a)(2), substituted

''and the Workforce'' for ''and Labor'' and a period for ''; and''

at end.

Subsec. (f)(1)(D). Pub. L. 105-244, Sec. 427(a)(3), struck out

subpar. (D) which read as follows: ''any Authority required to file

a plan for doing business under section 1087-1(d) of this title.''

Subsec. (k)(3). Pub. L. 105-244, Sec. 427(b), substituted ''The

Secretary'' for ''Within 1 year after July 23, 1992, the

Secretary''.

Subsec. (m)(1)(A). Pub. L. 105-244, Sec. 427(c)(1)(A),

substituted ''common application forms and promissory notes, or

master promissory notes,'' for ''a common application form and

promissory note''.

Subsec. (m)(1)(B). Pub. L. 105-244, Sec. 427(c)(1)(B),

substituted ''The forms'' for ''The form'' in introductory

provisions and struck out cl. (iii) which read as follows:

''permit, to the maximum extent practicable, application for any

loan under this part.''

Subsec. (m)(1)(C). Pub. L. 105-244, Sec. 427(c)(1)(C), amended

heading and text of subpar. (C) generally. Prior to amendment,

text read as follows: ''The Secretary shall approve a form for use

not later than 360 days after July 23, 1992.''

Subsec. (m)(1)(D). Pub. L. 105-244, Sec. 427(c)(1)(D), amended

heading and text of subpar. (D) generally. Prior to amendment,

text read as follows: ''Nothing in this section shall be construed

to limit the development of electronic forms and procedures.''

Subsec. (m)(4). Pub. L. 105-244, Sec. 427(c)(2), added par. (4).

Subsec. (n)(1). Pub. L. 105-244, Sec. 427(d)(1), substituted

''1999'' for ''1993''.

Subsec. (n)(3). Pub. L. 105-244, Sec. 427(d)(2), substituted

''and the Workforce'' for ''and Labor'' in concluding provisions.

Subsec. (p). Pub. L. 105-244, Sec. 427(e), struck out ''State

postsecondary reviewing entities designated under subpart 1 of part

G of this subchapter,'' after ''agencies or boards,''.

1995 - Subsec. (b). Pub. L. 104-66 amended heading and text of

subsec. (b) generally. Prior to amendment, text read as follows:

''The Secretary shall, with respect to the financial operations

arising by reason of this part -

''(1) prepare annually and submit a budget program as provided

for wholly owned Government corporations by chapter 91 of title

31; and

''(2) maintain with respect to insurance under this part an

integral set of accounts and prepare financial statements in

accordance with generally accepted accounting principles, which

shall be audited annually by the General Accounting Office in

conformity with generally accepted Government auditing standards

except that 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.''

1993 - Subsec. (h)(2)(A), (3)(A). Pub. L. 103-208 amended

directory language of Pub. L. 102-325, Sec. 425(d)(1). See 1992

Amendment notes below.

1992 - Subsec. (a)(1). Pub. L. 102-325, Sec. 425(a), inserted

before semicolon at end '', 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''.

Subsecs. (a)(3), (g)(1). Pub. L. 102-325, Sec. 425(b)(1), (2),

struck out ''on the record'' after ''for a hearing''.

Subsec. (g)(2). Pub. L. 102-325, Sec. 425(c)(1), amended par. (2)

generally. Prior to amendment, par. (2) read as follows: ''No

civil penalty may be imposed under paragraph (1) of this subsection

unless it is determined that the violation, failure, or substantial

misrepresentation referred to in that paragraph resulted from -

''(A)(i) a clear and consistent pattern or practice of

violations, failures, or substantial misrepresentations in which

the lender or guaranty agency did not maintain procedures

reasonably adapted to avoid the violation, failure, or

substantial misrepresentation;

''(ii) gross negligence; or

''(iii) willful actions on the part of the lender or guaranty

agency; and

''(B) the violation, failure, or substantial misrepresentation

is material.''

Subsec. (g)(3). Pub. L. 102-325, Sec. 425(c)(2), substituted

''notification by the Secretary under that paragraph'' for ''the

institution of an action under that paragraph''.

Subsec. (g)(4). Pub. L. 102-325, Sec. 425(c)(3), inserted '', and

occurring prior to notification by the Secretary under that

paragraph,'' after ''guaranty agency'' and substituted ''or both.

The'' for ''or both, and the''.

Subsec. (h)(2)(A). Pub. L. 102-325, Sec. 425(d)(1), as amended by

Pub. L. 103-208, Sec. 2(k)(2), in second sentence substituted ''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'' for ''The Secretary shall

disqualify such lender from participation in the student loan

insurance program of each of the guaranty agencies under this part,

and notify such guaranty agencies of such disqualification''.

Pub. L. 102-325, Sec. 425(b)(3), in first sentence struck out '',

in accordance with sections 556 and 557 of title 5,'' after ''The

Secretary shall''.

Subsec. (h)(2)(B), (C). Pub. L. 102-325, Sec. 425(d)(2), (3),

added subpar. (B), redesignated former subpar. (B) as (C), and

substituted ''sanction'' for ''disqualification'' in two places.

Subsec. (h)(3)(A). Pub. L. 102-325, Sec. 425(d)(4), as amended by

Pub. L. 103-208, Sec. 2(k)(3), in second sentence substituted ''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'' for ''The Secretary

shall disqualify such institution from participation in the student

loan insurance program of each of the guaranty agencies under this

part, and notify such guaranty agencies of such disqualification''.

Pub. L. 102-325, Sec. 425(b)(4), in first sentence struck out '',

in accordance with sections 556 and 557 of title 5,'' after ''The

Secretary shall''.

Subsec. (h)(3)(B), (C). Pub. L. 102-325, Sec. 425(d)(5), (6),

added subpar. (B), redesignated former subpar. (B) as (C), and

substituted ''sanction'' for ''disqualification'' in two places.

Subsecs. (k) to (p). Pub. L. 102-325, Sec. 425(e), added subsecs.

(k) to (p).

1989 - Subsec. (j). Pub. L. 101-239 added subsec. (j).

1987 - Subsec. (f)(4). Pub. L. 100-50, Sec. 10(x), added par.

(4).

Subsec. (g)(2)(A)(i), (B). Pub. L. 100-50, Sec. 10(y),

substituted ''misrepresentation'' for ''representation''.

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by Pub. L. 105-244 effective Oct. 1, 1998, except as

otherwise provided in Pub. L. 105-244, see section 3 of Pub. L.

105-244, set out as a note under section 1001 of this title.

EFFECTIVE DATE OF 1993 AMENDMENT

Amendment by Pub. L. 103-208 effective as if included in the

Higher Education Amendments of 1992, Pub. L. 102-325, except as

otherwise provided, see section 5(a) of Pub. L. 103-208, set out as

a note under section 1051 of this title.

EFFECTIVE DATE OF 1987 AMENDMENT

Amendment by Pub. L. 100-50 effective as if enacted as part of

the Higher Education Amendments of 1986, Pub. L. 99-498, see

section 27 of Pub. L. 100-50, set out as a note under section 1001

of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1078, 1087c, 1087hh,

1094, 1099c-1 of this title.

-CITE-

20 USC Sec. 1083 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1083. Student loan information by eligible lenders

-STATUTE-

(a) Required disclosure before disbursement

Each 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

insurance premium, collected by the lender at or prior to the

disbursal of the loan and whether such charges are deducted from

the proceeds of the loan or paid separately by the borrower;

(5) the stated interest rate on the loan;

(6) the yearly and cumulative maximum amounts that may be

borrowed;

(7) 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;

(8) a statement as to the minimum and maximum repayment term

which the lender may impose, and the minimum annual payment

required by law;

(9) a statement of the total cumulative balance, including the

loan applied for, owed by the student to that lender, and an

estimate of the projected monthly payment, given such cumulative

balance;

(10) an explanation of any special options the borrower may

have for loan consolidation or other refinancing of the loan;

(11) a statement that the borrower has the right to prepay all

or part of the loan, at any time, without penalty, a statement

summarizing circumstances in which repayment of the loan or

interest that accrues on the loan may be deferred, and a brief

notice of the program for repayment of loans, on the basis of

military service, pursuant to section 902 of the Department of

Defense Authorization Act, 1981 (10 U.S.C. 2141, note); (FOOTNOTE

(FOOTNOTE 1) See References in Text note below.

(12) 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 credit bureau or credit reporting

agency;

(13) to the extent practicable, the effect of accepting the

loan on the eligibility of the borrower for other forms of

student assistance; and

(14) an explanation of any cost the borrower may incur in the

making or collection of the loan.

(b) Required disclosure before repayment

Each eligible lender shall, at or prior to the start of the

repayment period of the student borrower on loans made, insured, or

guaranteed under this part, 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. For any loan made, insured, or guaranteed under this

part, other than a loan made under section 1078-2 or 1078-3 of this

title, such disclosure required by this subsection shall be made

not less than 30 days nor more than 240 days before the first

payment on the loan is due from the borrower. The disclosure shall

include -

(1) the name of the eligible lender, and the address to which

communications and payments should be sent;

(2) the scheduled date upon which the repayment period is to

begin;

(3) the estimated balance owed by the borrower on the loan or

loans covered by the disclosure as of the scheduled date on which

the repayment period is to begin (including, if applicable, the

estimated amount of interest to be capitalized);

(4) the stated interest rate on the loan or loans, or the

combined interest rate of loans with different stated interest

rates;

(5) the nature of any fees which may accrue or be charged to

the borrower during the repayment period;

(6) the repayment schedule for all loans covered by the

disclosure including the date the first installment is due, and

the number, amount, and frequency of required payments;

(7) 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, except that

such explanation is not required when the loan being made is a

consolidation loan under section 1078-3 of this title;

(8) except as provided in subsection (e) of this section, 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

(9) 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.

Such information shall be available without cost to the

borrower. The failure of an eligible lender to provide information

as required by this section shall not (1) relieve a borrower of the

obligation to repay a loan in accordance with its terms, (2)

provide a basis for a claim for civil damages, or (3) be deemed to

abrogate the obligation of the Secretary under a contract of

insurance or reinsurance, or the obligation of a guaranty agency

under a contract of guaranty. Nothing in this section shall be

construed as subjecting the lender to the Truth in Lending Act (15

U.S.C. 1601 et seq.) with regard to loans made under this part.

The Secretary may limit, suspend, or terminate the continued

participation of an eligible lender in making loans under this part

for failure by that lender to comply with this section.

(d) Separate statement

Each eligible lender shall, at the time such lender notifies a

borrower of approval of a loan which is insured or guaranteed under

this part, provide the borrower with a separate paper which

summarizes (in plain English) the rights and responsibilities of

the borrower with respect to the loan, including a statement of the

consequences of defaulting on the loan and a statement that each

borrower who defaults will be reported to a credit bureau. The

requirement of this subsection shall be in addition to the

information required by subsection (a) of this section.

(e) Special disclosure rules on SLS loans and PLUS loans and

unsubsidized loans

Loans made under sections 1078-1, (FOOTNOTE 2) 1078-2, and 1078-8

of this title shall not be subject to the disclosure of projected

monthly payment amounts required under subsection (b)(8) of this

section 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 is in

school. Such sample projections shall disclose the cost to the

student of capitalizing -

(FOOTNOTE 2) See References in Text note below.

(1) principal and interest; and

(2) interest only.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 433, as added Pub. L. 99-498, title

IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1406; amended Pub. L.

100-50, Sec. 10(z), June 3, 1987, 101 Stat. 346; Pub. L. 102-325,

title IV, Sec. 426, July 23, 1992, 106 Stat. 548; Pub. L. 103-208,

Sec. 2(c)(53), (54), (k)(4), Dec. 20, 1993, 107 Stat. 2468, 2485;

Pub. L. 105-244, title IV, Sec. 428, Oct. 7, 1998, 112 Stat. 1704.)

-REFTEXT-

REFERENCES IN TEXT

Section 902 of the Department of Defense Authorization Act, 1981,

referred to in subsec. (a)(11), is section 902 of Pub. L. 96-342,

title IX, Sept. 8, 1980, 94 Stat. 1115, as amended, which was set

out as a note under section 2141 of Title 10, Armed Forces, and was

repealed by Pub. L. 99-145, title VI, Sec. 671(a)(3), Nov. 8, 1985,

99 Stat. 663. See section 16302 of Title 10.

Truth in Lending Act, referred to in subsec. (c), is title I of

Pub. L. 90-321, May 29, 1968, 82 Stat. 146, as amended, which is

classified generally to subchapter I (Sec. 1601 et seq.) of chapter

41 of Title 15, Commerce and Trade. For complete classification of

this Act to the Code, see Short Title note set out under section

1601 of Title 15 and Tables.

Section 1078-1 of this title, referred to in subsec. (e), was

repealed by Pub. L. 103-66, title IV, Sec. 4047(b)-(d), Aug. 10,

1993, 107 Stat. 364, eff. July 1, 1994, except with respect to

loans provided under that section as it existed prior to Aug. 10,

1993. Subsequently, a new section 1078-1, relating to voluntary

flexible agreements with guaranty agencies, was enacted by Pub. L.

105-244, title IV, Sec. 418, Oct. 7, 1998, 112 Stat. 1691.

-MISC2-

PRIOR PROVISIONS

A prior section 1083, Pub. L. 89-329, title IV, Sec. 433, Nov. 8,

1965, 79 Stat. 1247; Pub. L. 90-575, title I, Sec. 116(d), Oct. 16,

1968, 82 Stat. 1024; Pub. L. 92-318, title I, Sec. 132(c), June 23,

1972, 86 Stat. 261; Pub. L. 94-482, title I, Sec. 127(a), Oct. 12,

1976, 90 Stat. 2129; Pub. L. 95-43, Sec. 1(a)(34), June 15, 1977,

91 Stat. 216; Pub. L. 96-374, title XIII, Sec. 1391(a)(1), Oct. 3,

1980, 94 Stat. 1503, related to requirements for institutional

lenders, prior to the general revision of this part by Pub. L.

99-498.

A prior section 1083a, Pub. L. 89-329, title IV, Sec. 433A, as

added Pub. L. 96-374, title IV, Sec. 418, Oct. 3, 1980, 94 Stat.

1423; amended Pub. L. 97-301, Sec. 13(a), Oct. 13, 1982, 96 Stat.

1404; Pub. L. 98-79, Sec. 3(a), Aug. 15, 1983, 97 Stat. 476; Pub.

L. 99-272, title XVI, Sec. 16012(c), Apr. 7, 1986, 100 Stat. 340,

related to student loan information to be provided by eligible

lenders, prior to the general revision of this part by Pub. L.

99-498. See section 1083 of this title.

AMENDMENTS

1998 - Subsec. (a). Pub. L. 105-244, Sec. 428(a), amended heading

and introductory provisions generally. Prior to amendment,

introductory provisions read as follows: ''Each eligible lender

shall, at or prior to the time such lender disburses a loan which

is insured or guaranteed under this part (other than a loan made

under section 1078-3 of this title), provide thorough and accurate

loan information on such loan to the borrower. Any disclosure

required by this subsection may be made by an eligible lender as

part of the written application material provided to the borrower,

or as part of the promissory note evidencing the loan, or on a

separate written form provided to the borrower. The disclosure

shall include - ''.

Subsec. (b). Pub. L. 105-244, Sec. 428(b), amended heading and

introductory provisions generally. Prior to amendment,

introductory provisions read as follows: ''Each eligible lender

shall, at or prior to the start of the repayment period of the

student borrower on loans made, insured, or guaranteed under this

part, disclose to the borrower the information required under this

subsection. For any loan made, insured, or guaranteed under this

part, other than a loan made under section 1078-2 or 1078-3 of this

title, such disclosure required by this subsection shall be made

not less than 30 days nor more than 240 days before the first

payment on the loan is due from the borrower. The disclosure shall

include - ''.

1993 - Subsec. (b). Pub. L. 103-208, Sec. 2(c)(53), substituted

''30 days'' for ''60 days'' in introductory provisions.

Subsec. (e). Pub. L. 103-208, Sec. 2(k)(4), amended directory

language of Pub. L. 102-325, Sec. 426(c). See 1992 Amendment note

below.

Pub. L. 103-208, Sec. 2(c)(54), substituted ''sections'' for

''section'' before ''1078-1''.

1992 - Subsec. (a). Pub. L. 102-325, Sec. 426(a), added par. (1)

and redesignated former pars. (1) to (13) as (2) to (14),

respectively.

Subsec. (b). Pub. L. 102-325, Sec. 426(b)(1), in introductory

provisions, inserted second sentence and struck out former second

sentence which read as follows: ''Any disclosure required by this

subsection may be made by an eligible lender either in a promissory

note evidencing the loan or loans or in a written statement

provided to the borrower.''

Subsec. (b)(8). Pub. L. 102-325, Sec. 426(b)(2), inserted

''except as provided in subsection (e) of this section,'' before

''the projected''.

Subsec. (e). Pub. L. 102-325, Sec. 426(c), as amended by Pub. L.

103-208, Sec. 2(k)(4), added subsec. (e).

1987 - Subsec. (a). Pub. L. 100-50, Sec. 10(z)(1), inserted

''(other than a loan made under section 1078-3 of this title)''

after ''this part'' in first sentence.

Subsec. (a)(8). Pub. L. 100-50, Sec. 10(z)(2), added par. (8) and

struck out former par. (8) which read as follows: ''a statement of

the total cumulative balance, including the loan applied for, owed

by the student to that lender, the projected level of indebtedness

of the student based on a 4-year college career, and an estimate of

the projected monthly repayment given the level of indebtedness

over a 4- or 5-year college career;''.

Subsec. (b)(7). Pub. L. 100-50, Sec. 10(z)(3), inserted '',

except that such explanation is not required when the loan being

made is a consolidation loan under section 1078-3 of this title''

before semicolon at end.

Subsec. (d). Pub. L. 100-50, Sec. 10(z)(4), substituted

''notifies a borrower of approval of a loan'' for ''makes the first

disbursement of a loan with respect to a borrower''.

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by Pub. L. 105-244 effective Oct. 1, 1998, except as

otherwise provided in Pub. L. 105-244, see section 3 of Pub. L.

105-244, set out as a note under section 1001 of this title.

EFFECTIVE DATE OF 1993 AMENDMENT

Amendment by section 2(c)(53) of Pub. L. 103-208 effective on and

after 60 days after Dec. 20, 1993 and amendments by section

2(c)(54), (k)(4) of Pub. L. 103-208 effective, except as otherwise

provided, as if included in the Higher Education Amendments of

1992, Pub. L. 102-325, see section 5(a), (b)(4) of Pub. L. 103-208,

set out as a note under section 1051 of this title.

EFFECTIVE DATE OF 1987 AMENDMENT

Amendment by Pub. L. 100-50 effective as if enacted as part of

the Higher Education Amendments of 1986, Pub. L. 99-498, see

section 27 of Pub. L. 100-50, set out as a note under section 1001

of this title.

EFFECTIVE DATE

Section effective Oct. 17, 1986, with subsecs. (a), (b), and (d)

of this section applicable only with respect to loans disbursed on

or after Jan. 1, 1987, or made to cover the costs of instruction

for periods of enrollment beginning on or after Jan. 1, 1987, see

section 402(b) of Pub. L. 99-498, set out as a note under section

1071 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 1077a of this title.

-CITE-

20 USC Sec. 1084 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1084. Participation by Federal credit unions in Federal,

State, and private student loan insurance programs

-STATUTE-

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.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 434, as added Pub. L. 99-498, title

IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1408.)

-MISC1-

PRIOR PROVISIONS

A prior section 1084, Pub. L. 89-329, title IV, Sec. 434, Nov. 8,

1965, 79 Stat. 1247; Pub. L. 90-575, title I, Sec. 116(b)(4), Oct.

16, 1968, 82 Stat. 1024; Pub. L. 91-206, Sec. 6, Mar. 10, 1970, 84

Stat. 51; Pub. L. 92-318, title I, Sec. 132D(e), June 23, 1972, 86

Stat. 264; Pub. L. 94-482, title I, Sec. 127(a), Oct. 12, 1976, 90

Stat. 2129; Pub. L. 95-630, title V, Sec. 502(a), Nov. 10, 1978, 92

Stat. 3681, related to participation by Federal credit unions in

Federal, State, and private student loan insurance programs, prior

to the general revision of this part by Pub. L. 99-498.

-CITE-

20 USC Sec. 1085 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1085. Definitions for student loan insurance program

-STATUTE-

As used in this part:

(a) Eligible institution

(1) In general

Except as provided in paragraph (2), the term ''eligible

institution'' means an institution of higher education, as

defined in section 1002 of this title, except that, for the

purposes of sections 1077(a)(2)(C)(i) and 1078(b)(1)(M)(i) of

this title, an eligible institution includes any institution that

is within this definition without regard to whether such

institution is participating in any program under this subchapter

and part C of subchapter I of chapter 34 of title 42 and includes

any institution ineligible for participation in any program under

this part pursuant to paragraph (2) of this subsection.

(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 (4); 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; and

(iii) 25 percent for any succeeding fiscal year.

institution that is -

(i) a part B institution within the meaning of section

1061(2) of this title;

(ii) a tribally controlled community college within the

meaning of section 1801(a)(4) (FOOTNOTE 1) of title 25; or

(FOOTNOTE 1) See References in Text note below.

(iii) a Navajo Community College under the Navajo Community

College Act (25 U.S.C. 640a et seq.).

(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 D of this

subchapter 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 based upon allegations of improper loan servicing

An 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) (FOOTNOTE 1) of this title; 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 C 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) of this section.

(4) Definition of mitigating circumstances

(A) For purposes of paragraph (2)(A)(ii), an institution of

higher education shall be treated as having exceptional

mitigating circumstances that make application of that paragraph

inequitable 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 maximum Federal Pell Grant

award 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.

(5) Reduction of default rates at certain minority institutions

(A) Beneficiaries of exception required to establish management

plan

After 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 of this chapter) 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 improvement

Notwithstanding 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.

(6) Participation rate index

(A) In general

An institution that demonstrates to the Secretary that the

institution's participation rate index is equal to or less than

0.0375 for any of the 3 most recent fiscal years for which data

is available shall not be subject to paragraph (2). The

participation rate index shall be determined by multiplying the

institution's cohort default rate for loans under this part or

part C of this subchapter, or weighted average cohort default

rate for loans under this part and part C of this subchapter,

by the percentage of the institution's regular students,

enrolled on at least a half-time basis, who received a loan

made under this part or part C of this subchapter for a

12-month period ending 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.

(B) Data

An institution shall provide the Secretary with sufficient

data to determine the institution's participation rate index

within 30 days after receiving an initial notification of the

institution's draft cohort default rate.

Prior to publication of a final cohort default rate for an

institution that provides the data described in subparagraph

(B), the Secretary shall notify the institution of the

institution's compliance or noncompliance with subparagraph

(A).

(b), (c) Repealed. Pub. L. 102-325, title IV, Sec. 427(b)(1), (c),

July 23, 1992, 106 Stat. 549

(d) Eligible lender

(1) In general

Except as provided in paragraphs (2) through (6), the term

''eligible lender'' means -

(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, or (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(1) 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;

(B) a pension fund as defined in the Employee Retirement

Income Security Act (29 U.S.C. 1001 et seq.);

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 1078-1(d),

(FOOTNOTE 1) 1078-2(d), 1078-3, and 1087-2(q) 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) 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) Additional requirements of eligible institutions

To be an eligible lender under this part, an eligible

institution -

(A) 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;

(B) shall not be a home study school;

undergraduate students at the institution;

(D) shall not make a loan, other than a loan to a graduate or

professional student, unless the borrower has previously

received a loan from the school or has been denied a loan by an

eligible lender;

(E) shall not have a cohort default rate (as defined in

subsection (m) of this section) greater than 15 percent; and

(F) shall use the proceeds from special allowance payments

and interest payments from borrowers for need-based grant

programs, except for reasonable reimbursement for direct

administrative expenses;

except that the requirements of subparagraphs (C) and (D) shall

not apply with respect to loans made, and loan commitments made,

after October 17, 1986, and prior to July 1, 1987.

(3) Disqualification for high default rates

The term ''eligible lender'' does not include any eligible

institution in any fiscal year immediately after the fiscal year

in which the Secretary determines, after notice and opportunity

for a hearing, that for each of 2 consecutive years, 15 percent

or more of the total amount of such loans as are described in

section 1078(a)(1) of this title made by the institution with

respect to students at that institution and repayable in each

such year, are in default, as defined in subsection (m) of this

section.

(4) Waiver of disqualification

Whenever 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 incentives

The term ''eligible lender'' does not include any lender that

the Secretary determines, after notice and opportunity for a

hearing, has after October 17, 1986 -

(A) offered, directly or indirectly, points, premiums,

payments, or other inducements, to any educational institution

or individual in order to secure applicants for loans under

this part;

(B) conducted unsolicited mailings to students of student

loan application forms, except to students who have previously

received loans under this part from such lender;

an inducement to a prospective borrower to purchase a policy of

insurance or other product; or

(D) engaged in fraudulent or misleading advertising.

It shall not be a violation of this paragraph for a lender to

provide assistance to institutions of higher education comparable

to the kinds of assistance provided to institutions of higher

education by the Department of Education.

(6) Rebate fee requirement

To be an eligible lender under this part, an eligible lender

shall pay rebate fees in accordance with section 1078-3(f) of

this title.

(e) Line of credit

The term ''line of credit'' means an arrangement or agreement

between the lender and the borrower whereby a loan is paid out by

the lender to the borrower in annual installments, or whereby the

lender agrees to make, in addition to the initial loan, additional

loans in subsequent years.

(f) Due diligence

The term ''due diligence'' requires the utilization by a lender,

in the servicing and collection of loans insured under this part,

of servicing and collection practices at least as extensive and

forceful as those generally practiced by financial institutions for

the collection of consumer loans.

(g), (h) Repealed. Pub. L. 102-325, title IV, Sec. 427(f), July 23,

1992, 106 Stat. 550

(i) Holder

The term ''holder'' means an eligible lender who owns a loan.

(j) Guaranty agency

The term ''guaranty agency'' means any State or nonprofit private

institution or organization with which the Secretary has an

agreement under section 1078(b) of this title.

(k) Insurance beneficiary

The term ''insurance beneficiary'' means the insured or its

authorized representative assigned in accordance with section

1079(d) of this title.

(l) Default

Except as provided in subsection (m) of this section, the term

''default'' includes only such defaults as have existed for (1) 270

days in the case of a loan which is repayable in monthly

installments, or (2) 330 days in the case of a loan which is

repayable in less frequent installments.

(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, (FOOTNOTE 2) 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 following fiscal year. 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.

(FOOTNOTE 2) See References in Text note below.

(B) In determining the number of students who default before

the end of such 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) of this

section, 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.

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 fiscal

year immediately 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.

such following fiscal year is not considered as in default for

the 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 following fiscal year, and (ii) a guaranty agency has

renewed the borrower's title 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 (FOOTNOTE 2) 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 (FOOTNOTE 2) 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 (FOOTNOTE 2) 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 (FOOTNOTE 2) 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

The Secretary shall prescribe regulations designed to prevent

an institution from evading the application to that institution

of a default rate determination under this subsection through the

use of such measures as branching, consolidation, change of

ownership or control, or any similar device.

(4) Collection and reporting of cohort default rates

(A) The Secretary shall collect data from all insurers under

this part and shall publish not less often than once every fiscal

year a report showing default data for each category of

institution, including (i) 4-year public institutions, (ii)

4-year private institutions, (iii) 2-year public institutions,

(iv) 2-year private institutions, (v) 4-year proprietary

institutions, (vi) 2-year proprietary institutions, and (vii)

less than 2-year proprietary institutions.

(B) The Secretary may designate such additional subcategories

within the categories specified in subparagraph (A) as the

Secretary deems appropriate.

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, Sec. 427(f), July 23,

1992, 106 Stat. 550

(o) Economic hardship

(1) In general

For purposes of this part and part D of this subchapter, 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 100 percent of the poverty line for

a family of 2 as determined in accordance with section

9902(2) of title 42;

(B) such borrower is working full-time and has a Federal

educational debt burden that equals or exceeds 20 percent of

such borrower's adjusted gross income, and the difference

between such borrower's adjusted gross income minus such burden

is less than 220 percent of the greater of -

(i) the annual earnings of an individual earning the

minimum wage under section 206 of title 29; or

(ii) the income official poverty line (as defined by the

Office of Management and Budget, and revised annually in

accordance with section 9902(2) of title 42) applicable to a

family of two; or

established by the Secretary by regulation in accordance with

paragraph (2).

(2) Considerations

In establishing criteria for purposes of paragraph (1)(C), the

Secretary shall consider the borrower's income and debt-to-income

ratio as primary factors.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 435, as added Pub. L. 99-498, title

IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1408; amended Pub. L.

100-50, Sec. 10(aa), June 3, 1987, 101 Stat. 347; Pub. L. 101-239,

title II, Sec. 2003(a)(2), 2007(a), Dec. 19, 1989, 103 Stat. 2113,

2120; Pub. L. 101-508, title III, Sec. 3004(a), Nov. 5, 1990, 104

Stat. 1388-26; Pub. L. 101-542, title III, Sec. 301, Nov. 8, 1990,

104 Stat. 2387; Pub. L. 102-26, Sec. 2(a)(1), Apr. 9, 1991, 105

Stat. 123; Pub. L. 102-325, title IV, Sec. 416(e)(2), 427(a),

(b)(1), (c)-(g), July 23, 1992, 106 Stat. 519, 549, 550; Pub. L.

103-66, title IV, Sec. 4046(b)(1), 4106(b), Aug. 10, 1993, 107

Stat. 362, 368; Pub. L. 103-208, Sec. 2(c)(55)-(62), Dec. 20, 1993,

107 Stat. 2468, 2469; Pub. L. 103-235, Sec. 1, Apr. 28, 1994, 108

Stat. 381; Pub. L. 103-382, title III, Sec. 357, Oct. 20, 1994, 108

Stat. 3967; Pub. L. 104-208, div. A, title I, Sec. 101(e) (title

VI, Sec. 602(b)(1)(A)), Sept. 30, 1996, 110 Stat. 3009-233,

3009-283; Pub. L. 105-244, title I, Sec. 102(b)(2), title IV, Sec.

429(a)-(c)(1), (d), title IX, Sec. 901(d), Oct. 7, 1998, 112 Stat.

1622, 1704-1709, 1828; Pub. L. 106-554, Sec. 1(a)(1) (title III,

Sec. 308(a), 312), Dec. 21, 2000, 114 Stat. 2763, 2763A-45,

2763A-46.)

-REFTEXT-

REFERENCES IN TEXT

Section 1801(a)(4) of title 25, referred to in subsec.

(a)(2)(C)(ii), was amended by Pub. L. 105-244, title IX, Sec.

901(b)(5), Oct. 7, 1998, 112 Stat. 1828, and, as so amended, no

longer defines the term ''tribally controlled community college''.

The Navajo Community College Act, referred to in subsec.

(a)(2)(C)(iii), is Pub. L. 92-189, Dec. 15, 1971, 85 Stat. 646, as

amended, which is classified to section 640a et seq. of Title 25,

Indians. For complete classification of this Act to the Code, see

Short Title note set out under section 640a of Title 25 and Tables.

The Employee Retirement Income Security Act, referred to in

subsec. (d)(1)(B), probably means the Employee Retirement Income

Security Act of 1974, Pub. L. 93-406, Sept. 2, 1974, 88 Stat. 829,

as amended, which is classified principally to chapter 18 (Sec.

1001 et seq.) of Title 29, Labor. For complete classification of

this Act to the Code, see Short Title note set out under section

1001 of Title 29 and Tables.

Section 1078-1 of this title, referred to in subsecs. (a)(3)(B),

(d)(1)(G), and (m)(1)(A), (2)(D), was repealed by Pub. L. 103-66,

title IV, Sec. 4047(b)-(d), Aug. 10, 1993, 107 Stat. 364, eff.

July 1, 1994, except with respect to loans provided under that

section as it existed prior to Aug. 10, 1993. Subsequently, a new

section 1078-1, relating to voluntary flexible agreements with

guaranty agencies, was enacted by Pub. L. 105-244, title IV, Sec.

418, Oct. 7, 1998, 112 Stat. 1691.

Public Law 499, Eighty-first Congress (64 Stat. 98 (1950)),

referred to in subsec. (d)(1)(I), is act May 3, 1950, ch. 152, 64

Stat. 98, known as the Rural Rehabilitation Corporation Trust

Liquidation Act, which was classified to sections 440 to 444 of

former Title 40, Public Buildings, Property, and Works, and as

notes set out under section 1001 of Title 7, Agriculture, and

section 440 of former Title 40, and was omitted from the Code.

Title IV, referred to in subsec. (m)(2)(C), means title IV of the

Higher Education Act of 1965, Pub. L. 89-329, which is classified

generally to this subchapter and part C (Sec. 2751 et seq.) of

subchapter I of chapter 34 of Title 42, The Public Health and

Welfare. For complete classification of title IV to the Code, see

Tables.

-MISC2-

PRIOR PROVISIONS

A prior section 1085, Pub. L. 89-329, title IV, Sec. 435, Nov. 8,

1965, 79 Stat. 1247; Pub. L. 89-698, title II, Sec. 204, Oct. 29,

1966, 80 Stat. 1072; Pub. L. 90-575, title I, Sec. 116(a), 118(a),

Oct. 16, 1968, 82 Stat. 1023, 1026; Pub. L. 94-482, title I, Sec.

127(a), Oct. 12, 1976, 90 Stat. 2130; Pub. L. 95-43, Sec. 1(a)(35),

(36), June 15, 1977, 91 Stat. 216; Pub. L. 96-374, title IV, Sec.

413(e), 421(e)(2), title XIII, Sec. 1391(a)(1), Oct. 3, 1980, 94

Stat. 1418, 1432, 1503; Pub. L. 99-272, title XVI, Sec.

16017(b)(2), 16020, Apr. 7, 1986, 100 Stat. 347, 349, defined terms

used in this part, prior to the general revision of this part by

Pub. L. 99-498.

AMENDMENTS

2000 - Subsec. (a)(2)(D). Pub. L. 106-554, Sec. 1(a)(1) (title

III, Sec. 308(a)), added subpar. (D).

Subsec. (a)(5)(A)(i). Pub. L. 106-554, Sec. 1(a)(1) (title III,

Sec. 312(1)), substituted ''July 1, 2004,'' for ''July 1, 2002,''.

Subsec. (a)(5)(B). Pub. L. 106-554, Sec. 1(a)(1) (title III, Sec.

312(2)), substituted ''1999 through 2003'' for ''1999, 2000, and

2001'' in introductory provisions.

1998 - Subsec. (a)(1). Pub. L. 105-244, Sec. 102(b)(2),

substituted ''section 1002'' for ''section 1088''.

Subsec. (a)(2)(A). Pub. L. 105-244, Sec. 429(a)(1)(A)(i), (ii),

struck out ''or'' at end of cl. (i), added cls. (ii) and (iii), and

struck out former cl. (ii) which read as follows: ''there are, in

the judgment of the Secretary, exceptional mitigating circumstances

that would make the application of this paragraph inequitable.''

Pub. L. 105-244, Sec. 429(a)(1)(A)(iii), inserted at end of

concluding provisions ''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.''

Subsec. (a)(2)(C). Pub. L. 105-244, Sec. 429(a)(1)(B),

substituted ''July 1, 1999,'' for ''July 1, 1998,'' in introductory

provisions.

Subsec. (a)(2)(C)(ii). Pub. L. 105-244, Sec. 901(d), made

technical amendment to reference in original act which appears in

text as reference to section 1801(a)(4) of title 25.

Subsec. (a)(3). Pub. L. 105-244, Sec. 429(a)(2), in concluding

provisions, inserted ''for a reasonable period of time, not to

exceed 30 days,'' after ''access'' and substituted ''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 C of this subchapter''

for ''of the affected guaranty agencies and loan servicers for a

reasonable period of time, not to exceed 30 days''.

Subsec. (a)(4) to (6). Pub. L. 105-244, Sec. 429(a)(3), added

pars. (4) to (6).

Subsec. (d)(1)(A)(ii)(III). Pub. L. 105-244, Sec. 429(b)(1)(A),

added subcl. (III).

Subsec. (d)(1)(K). Pub. L. 105-244, Sec. 429(b)(1)(B)-(D), added

subpar. (K).

Subsec. (d)(5). Pub. L. 105-244, Sec. 429(b)(2), inserted

concluding provisions.

Subsec. (l). Pub. L. 105-244, Sec. 429(c)(1), substituted ''270

days'' for ''180 days'' and ''330 days'' for ''240 days''.

Subsec. (m)(1)(B). Pub. L. 105-244, Sec. 429(d)(1), substituted

''insurance. In considering appeals with respect to cohort default

rates pursuant to subsection (a)(3) of this section, 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,'' for ''insurance, and, in considering

appeals with respect to cohort default rates pursuant to subsection

(a)(3) of this section, exclude''.

Subsec. (m)(2)(C). Pub. L. 105-244, Sec. 429(d)(2), inserted at

end ''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 following fiscal year, and (ii)

a guaranty agency has renewed the borrower's title IV eligibility

as provided in section 1078-6(b) of this title.''

Subsec. (m)(4)(D). Pub. L. 105-244, Sec. 429(d)(3), added subpar.

(D).

1996 - Subsec. (d)(1)(F). Pub. L. 104-208, Sec. 101(e) (title VI,

Sec. 602(b)(1)(A)(i)), inserted ''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,'' after ''Student Loan Marketing Association''.

Subsec. (d)(1)(G). Pub. L. 104-208, Sec. 101(e) (title VI, Sec.

602(b)(1)(A)(ii)), inserted ''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'' after

''Student Loan Marketing Association''.

1994 - Subsec. (a)(2)(C). Pub. L. 103-235 substituted ''July 1,

1998'' for ''July 1, 1994''.

Subsec. (o)(1). Pub. L. 103-382, Sec. 357(1)-(3), struck out

''or'' at end of subpar. (A), added subpar. (B), and redesignated

former subpar. (B) as (C).

Subsec. (o)(2). Pub. L. 103-382, Sec. 357(4), substituted

''(1)(C)'' for ''(1)(B)''.

1993 - Subsec. (a)(3). Pub. L. 103-208, Sec. 2(c)(55), added par.

(3).

Subsec. (d)(1). Pub. L. 103-66, Sec. 4106(b)(1), in par. (1)

substituted ''through (6)'' for ''through (5)'' in introductory

provisions.

Subsec. (d)(2). Pub. L. 103-208, Sec. 2(c)(57), realigned margins

of closing provisions.

Subsec. (d)(2)(D). Pub. L. 103-208, Sec. 2(c)(56), substituted

''lender;'' for ''lender; and''.

Subsec. (d)(3). Pub. L. 103-208, Sec. 2(c)(58), substituted

''subsection (m)'' for ''subsection (o)''.

Subsec. (d)(6). Pub. L. 103-66, Sec. 4106(b)(2), added par. (6).

Subsec. (m)(1). Pub. L. 103-66, Sec. 4046(b)(1)(C), which

directed the insertion in par. (1)(D) of ''(or the portion of a

loan made under section 1078-3 of this title that is used to repay

a loan made under such section)'' after ''section 1078-1 of this

title'' the first place it appears, and ''(or a loan made under

section 1078-3 of this title a portion of which is used to repay a

loan made under such section)'' after ''section 1078-1 of this

title'' the second place it appears, could not be executed because

subsec. (m)(1) does not contain a subpar. (D).

Subsec. (m)(1)(A). Pub. L. 103-208, Sec. 2(c)(60)(A), inserted at

end ''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.''

Pub. L. 103-208, Sec. 2(c)(59), substituted ''section 1078,

1078-1, or 1078-8'' for ''section 1078 or 1078-1''.

Pub. L. 103-66, Sec. 4046(b)(1)(A), inserted ''(or on the portion

of a loan made under section 1078-3 of this title that is used to

repay any such loans)'' after ''on such loans''.

Subsec. (m)(1)(B). Pub. L. 103-208, Sec. 2(c)(60)(B), substituted

''and, in considering appeals with respect to cohort default rates

pursuant to subsection (a)(3) of this section, exclude 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.''

for ''and, in calculating the cohort default rate, exclude any

loans which, due to improper servicing or collection, would result

in an inaccurate or incomplete calculation of the cohort default

rate.''

Subsec. (m)(1)(C). Pub. L. 103-66, Sec. 4046(b)(1)(B), inserted

''(or on the portion of a loan made under section 1078-3 of this

title that is used to repay any such loans)'' after ''on such

loans''.

Subsec. (m)(2)(D). Pub. L. 103-208, Sec. 2(c)(61), inserted ''(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 of this title)''

after ''in accordance with section 1078-1 of this title'', and

''(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 of this

title)'' after ''a loan made under section 1078-1 of this title''.

Subsec. (m)(4). Pub. L. 103-208, Sec. 2(c)(62), added par. (4).

1992 - Subsec. (a)(1). Pub. L. 102-325, Sec. 427(a)(1), added

par. (1) and struck out former par. (1) which read as follows:

''Subject to subsection (n) of this section, the term 'eligible

institution' means -

''(A) an institution of higher education;

''(B) a vocational school; or

''(C) with respect to students who are nationals of the United

States, an institution outside the United States which is

comparable to an institution of higher education or to a

vocational school and which has been approved by the Secretary

for the purpose of this part,

except that such term does not include any such institution or

school which employs or uses commissioned salesmen to promote the

availability of any loan program described in section 1078(a)(1),

1078-1, or 1078-2 of this title at that institution or school.''

Subsec. (a)(2). Pub. L. 102-325, Sec. 427(a)(3), struck out

''and'' at end of subpar. (B)(i), substituted ''fiscal year 1993;

and'' for ''any succeeding fiscal year.'' in subpar. (B)(ii), and

added subpar. (B)(iii).

Pub. L. 102-325, Sec. 427(a)(1), (2), redesignated par. (3) as

(2) and struck out former par. (2) which required Secretary to

establish criteria for qualifying foreign medical schools as

''eligible institutions''.

Subsec. (a)(3). Pub. L. 102-325, Sec. 427(a)(2), redesignated

par. (3) as (2).

Subsec. (b). Pub. L. 102-325, Sec. 427(b)(1), struck out subsec.

(b) which defined ''institution of higher education''.

Subsec. (c). Pub. L. 102-325, Sec. 427(c), struck out subsec. (c)

which defined ''vocational school''.

Subsec. (d)(1)(A). Pub. L. 102-325, Sec. 427(d)(1), in

introductory provisions, struck out ''a trust company,'' after

''stock savings bank,'' and in cl. (ii), inserted at end of subcl.

(I) ''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, or'' and substituted a semicolon

for ''or (III) it is a trust company which makes student loans as a

trustee pursuant to an express trust and which operated as a lender

under this part prior to January 1, 1981;''.

Subsec. (d)(2)(E), (F). Pub. L. 102-325, Sec. 427(d)(2), added

subpars. (E) and (F).

Subsec. (f). Pub. L. 102-325, Sec. 427(e), inserted ''servicing

and'' before ''collection practices''.

Subsecs. (g), (h). Pub. L. 102-325, Sec. 427(f), struck out

subsec. (g) which defined ''temporarily totally disabled'' and

subsec. (h) which defined ''parental leave''.

Subsec. (m). Pub. L. 102-325, Sec. 427(g), amended subsec. (m)

generally, revising and restating as pars. (1) to (3) provisions

formerly contained in a single paragraph.

Subsec. (n). Pub. L. 102-325, Sec. 427(f), struck out subsec. (n)

which related to impact of loss of accreditation on certification

or recertification as an eligible institution.

Subsec. (o). Pub. L. 102-325, Sec. 416(e)(2), added subsec. (o).

1991 - Subsec. (c)(1). Pub. L. 102-26 substituted ''or who are

beyond the age of compulsory school attendance in the State in

which the institution is located'' for ''and who have the ability

to benefit (as determined by the institution under section 1088(d)

of this title) from the training offered by such institution;''.

1990 - Subsec. (a)(3). Pub. L. 101-508 added par. (3).

Subsec. (l). Pub. L. 101-542, Sec. 301(1), substituted ''Except

as provided in subsection (m) of this section, the term'' for ''The

term''.

Subsec. (m). Pub. L. 101-542, Sec. 301(2), inserted after first

sentence ''In determining the number of students who default before

the end of such fiscal year, the Secretary shall include only loans

for which the Secretary or a guaranty agency has paid claims for

insurance, and, in calculating the cohort default rate, exclude any

loans which, due to improper servicing or collection, would result

in an inaccurate or incomplete calculation of the cohort default

rate.''

1989 - Subsec. (a)(1). Pub. L. 101-239, Sec. 2007(a)(1),

substituted ''Subject to subsection (n) of this section, the term''

for ''The term''.

Subsec. (m). Pub. L. 101-239, Sec. 2003(a)(2), added subsec. (m).

Subsec. (n). Pub. L. 101-239, Sec. 2007(a)(2), added subsec. (n).

1987 - Subsec. (b)(3). Pub. L. 100-50, Sec. 10(aa)(1), inserted

'', or in the case of a hospital or health care facility, which

provides training of not less than one year for graduates of

accredited health professions programs, leading to a degree or

certificate upon completion of such training'' before semicolon at

end.

Subsec. (d)(1)(J). Pub. L. 100-50, Sec. 10(aa)(2), added subpar.

(J).

Subsec. (d)(2). Pub. L. 100-50, Sec. 10(aa)(3), added subpars.

of subpars. (C) and (D) not apply with respect to loans made, and

loan commitments made, after Oct. 17, 1986, and prior to July 1,

1987.

Subsec. (g)(2). Pub. L. 100-50, Sec. 10(aa)(4), added par. (2)

and struck out former par. (2) which read as follows: ''Such term

when used with respect to the disabled dependent of a single parent

borrower means a dependent who, by reason of injury or illness,

cannot be expected to be able to attend school or to be gainfully

employed during a period of injury or illness of not less than 3

months and who during such period requires continuous nursing or

similar services.''

Subsec. (h). Pub. L. 100-50, Sec. 10(aa)(5), struck out

''Definition of'' before ''Parental'' in heading.

EFFECTIVE DATE OF 2000 AMENDMENT

Pub. L. 106-554, Sec. 1(a)(1) (title III, Sec. 308(b)), Dec. 21,

2000, 114 Stat. 2763, 2763A-45, provided that: ''The amendment made

by subsection (a) of this section (amending this section) shall be

effective for cohort default rate calculations for fiscal years

1997 and 1998.''

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by sections 102(b)(2) and 429(a), (b), (d) of Pub. L.

105-244 effective Oct. 1, 1998, except as otherwise provided in

Pub. L. 105-244, see section 3 of Pub. L. 105-244, set out as a

note under section 1001 of this title.

Pub. L. 105-244, title IV, Sec. 429(c)(2), Oct. 7, 1998, 112

Stat. 1708, provided that: ''The amendment made by paragraph (1)

(amending this section) shall apply with respect to loans for which

the first day of delinquency occurs on or after the date of

enactment of this Act (Oct. 7, 1998).''

EFFECTIVE DATE OF 1996 AMENDMENT

Amendment by Pub. L. 104-208 effective on reorganization

effective date as defined in section 1087-3(h) of this title, see

section 101(e) (title VI, Sec. 602(b)(1)(B)) of Pub. L. 104-208,

set out as a note under section 1078-3 of this title.

EFFECTIVE DATE OF 1993 AMENDMENTS

Amendments by section 2(c)(55), (60)(B) of Pub. L. 103-208

applicable with respect to determination (and appeals from

determinations) of cohort default rates for fiscal year 1989 and

any succeeding fiscal year, amendments by section 2(c)(56)-(58),

(61) of Pub. L. 103-208 effective, except as otherwise provided, as

if included in the Higher Education Amendments of 1992, Pub. L.

102-325, amendment by section 2(c)(59) of Pub. L. 103-208 effective

on and after 30 days after Dec. 20, 1993, amendment by section

2(c)(60)(A) of Pub. L. 103-208 effective on and after Oct. 1, 1994,

and amendment by section 2(c)(62) effective on and after Dec. 20,

1993, see section 5(a), (b)(2), (3), (7), (8) of Pub. L. 103-208,

set out as a note under section 1051 of this title.

Amendment by section 4046(b)(1) of Pub. L. 103-66 effective July

1, 1994, see section 4046(c) of Pub. L. 103-66, set out as a note

under section 1078-3 of this title.

EFFECTIVE DATE OF 1991 AMENDMENT

Section 2(d)(1) of Pub. L. 102-26 provided that: ''The amendments

made by this section (amending this section and sections 1078-1,

1088, 1091, 1094, and 1141 of this title) shall apply to any grant,

loan, or work assistance to cover the cost of instruction for

periods of enrollment beginning on or after July 1, 1991.''

EFFECTIVE DATE OF 1990 AMENDMENT

Section 3004(d) of Pub. L. 101-508 provided that: ''The

amendments made by this section (amending this section, section

1078 of this title, and provisions set out as a note under section

1078-1 of this title) shall be effective July 1, 1991, except that

the amendment made by subsection (b) (amending section 1078 of this

title) shall be effective upon enactment.''

EFFECTIVE DATE OF 1987 AMENDMENT

Amendment by Pub. L. 100-50 effective as if enacted as part of

the Higher Education Amendments of 1986, Pub. L. 99-498, see

section 27 of Pub. L. 100-50, set out as a note under section 1001

of this title.

EFFECTIVE DATE

Section effective Oct. 17, 1986, with subsec. (d)(5) of this

section effective 30 days after Oct. 17, 1986, see section 402(b)

of Pub. L. 99-498, set out as a note under section 1071 of this

title.

-CROSS-

DEFINITION OF INSTITUTION OF HIGHER EDUCATION

Section 427(b)(2) of Pub. L. 102-325 provided that: ''With

respect to reference in any other provision of law to the

definition of institution of higher education contained in section

435(b) of the Act (former 20 U.S.C. 1085(b)), such provision shall

be deemed to refer to section 481(a) of the Act (former 20 U.S.C.

1088(a)).''

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1071, 1074, 1075, 1077,

1078, 1078-3, 1078-7, 1080, 1082, 1087-2, 1087c, 1087e, 1087dd,

2341a, 2373 of this title; title 2 section 1602; title 11 section

362; title 25 section 3324.

-CITE-

20 USC Sec. 1086 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1086. Delegation of functions

-STATUTE-

(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 and part C of subchapter I of chapter 34 of title

42, 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 part C of

subchapter I of chapter 34 of title 42; and

(2) shall monitor the activities of such other entity for

compliance with such requirements.

(b) Special rule

A lender that holds a loan made under this part in the lender's

capacity as a trustee is responsible for complying with all

statutory and regulatory requirements imposed on any other holder

of a loan made under this part.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 436, as added Pub. L. 99-498, title

IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1413; amended Pub. L.

105-244, title IV, Sec. 430, Oct. 7, 1998, 112 Stat. 1709.)

-MISC1-

PRIOR PROVISIONS

A prior section 1086, Pub. L. 89-329, title IV, Sec. 436, as

added Pub. L. 89-752, Sec. 12, Nov. 3, 1966, 80 Stat. 1244; amended

Pub. L. 90-575, title I, Sec. 116(b)(5), Oct. 16, 1968, 82 Stat.

1024; Pub. L. 94-482, title I, Sec. 127(a), Oct. 12, 1976, 90 Stat.

2132; Pub. L. 96-374, title XIII, Sec. 1391(a)(1), Oct. 3, 1980, 94

Stat. 1503, related to a District of Columbia student loan

insurance program, prior to the general revision of this part by

Pub. L. 99-498.

AMENDMENTS

1998 - Pub. L. 105-244 amended section catchline and text

generally. Prior to amendment, section authorized establishment of

a District of Columbia student loan insurance program.

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by Pub. L. 105-244 effective Oct. 1, 1998, except as

otherwise provided in Pub. L. 105-244, see section 3 of Pub. L.

105-244, set out as a note under section 1001 of this title.

-CITE-

20 USC Sec. 1087 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1087. Repayment by Secretary of loans of bankrupt, deceased,

or disabled borrowers; treatment of borrowers attending closed

schools or falsely certified as eligible to borrow

-STATUTE-

(a) Repayment in full for death and disability

If 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), then the Secretary

shall discharge the borrower's liability on the loan by repaying

the amount owed on the loan.

(b) Payment of claims on loans in bankruptcy

The Secretary shall pay to the holder of a loan described in

section 1078(a)(1)(A) or (B), 1078-1, (FOOTNOTE 1) 1078-2, 1078-3,

or 1078-8 of this title, the amount of the unpaid balance of

principal and interest owed on such loan -

(FOOTNOTE 1) See References in Text note below.

(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.

(1) In general

If a borrower who received, on or after January 1, 1986, a loan

made, insured, or guaranteed under this part and the student

borrower, or the student on whose behalf a parent borrowed, is

unable to complete the program in which such student is enrolled

due to the closure of the institution or if such student's

eligibility to borrow under this part was falsely certified by

the eligible institution, or if the institution failed to make a

refund of loan proceeds which the institution owed to such

student's lender, then the Secretary shall discharge the

borrower's liability on the loan (including interest and

collection fees) by repaying the amount owed on the loan and

shall subsequently pursue any claim available to such borrower

against the institution and its affiliates and principals or

settle the loan obligation pursuant to the financial

responsibility authority under subpart 3 of part G of this

subchapter. In the case of a discharge based upon a failure to

refund, the amount of the discharge shall not exceed that portion

of the loan which should have been refunded. The Secretary shall

report to the Committee on Education and the Workforce of the

House of Representatives and the Committee on Labor and Human

Resources of the Senate annually as to the dollar amount of loan

discharges attributable to failures to make refunds.

(2) Assignment

A borrower whose loan has been discharged pursuant to this

subsection shall be deemed to have assigned to the United States

the right to a loan refund up to the amount discharged against

the institution and its affiliates and principals.

(3) Eligibility for additional assistance

The period of a student's attendance at an institution at which

the student was unable to complete a course of study due to the

closing of the institution shall not be considered for purposes

of calculating the student's period of eligibility for additional

assistance under this subchapter and part C of subchapter I of

chapter 34 of title 42.

(4) Special rule

A borrower whose loan has been discharged pursuant to this

subsection shall not be precluded from receiving additional

grants, loans, or work assistance under this subchapter and part

C of subchapter I of chapter 34 of title 42 for which the

borrower would be otherwise eligible (but for the default on such

discharged loan). The amount discharged under this subsection

shall be treated the same as loans under section 1087ee(a)(5) of

this title.

(5) Reporting

The Secretary shall report to credit bureaus with respect to

loans which have been discharged pursuant to this subsection.

(d) Repayment of loans to parents

If a student on whose behalf a parent has received a loan

described in section 1078-2 of this title dies, then the Secretary

shall discharge the borrower's liability on the loan by repaying

the amount owed on the loan.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 437, as added Pub. L. 99-498, title

IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1414; amended Pub. L.

102-325, title IV, Sec. 428, July 23, 1992, 106 Stat. 551; Pub. L.

103-208, Sec. 2(c)(63)-(65), Dec. 20, 1993, 107 Stat. 2469; Pub. L.

105-244, title IV, Sec. 431, Oct. 7, 1998, 112 Stat. 1709.)

-REFTEXT-

REFERENCES IN TEXT

Section 1078-1 of this title, referred to in subsec. (b), was

repealed by Pub. L. 103-66, title IV, Sec. 4047(b)-(d), Aug. 10,

1993, 107 Stat. 364, eff. July 1, 1994, except with respect to

loans provided under that section as it existed prior to Aug. 10,

1993. Subsequently, a new section 1078-1, relating to voluntary

flexible agreements with guaranty agencies, was enacted by Pub. L.

105-244, title IV, Sec. 418, Oct. 7, 1998, 112 Stat. 1691.

-MISC2-

PRIOR PROVISIONS

A prior section 1087, Pub. L. 89-329, title IV, Sec. 437, as

added Pub. L. 90-575, title I, Sec. 113(a), Oct. 16, 1968, 82 Stat.

1020; amended Pub. L. 92-318, title I, Sec. 132D(a), June 23, 1972,

86 Stat. 263; Pub. L. 94-482, title I, Sec. 127(a), Oct. 12, 1976,

90 Stat. 2133; Pub. L. 96-374, title XIII, Sec. 1391(a)(1), Oct. 3,

1980, 94 Stat. 1503, related to repayment of loans by Secretary,

prior to the general revision of this part by Pub. L. 99-498.

AMENDMENTS

1998 - Subsec. (c)(1). Pub. L. 105-244 inserted ''or if the

institution failed to make a refund of loan proceeds which the

institution owed to such student's lender,'' after ''falsely

certified by the eligible institution,'' and inserted at end ''In

the case of a discharge based upon a failure to refund, the amount

of the discharge shall not exceed that portion of the loan which

should have been refunded. The Secretary shall report to the

Committee on Education and the Workforce of the House of

Representatives and the Committee on Labor and Human Resources of

the Senate annually as to the dollar amount of loan discharges

attributable to failures to make refunds.''

1993 - Subsec. (b). Pub. L. 103-208, Sec. 2(c)(63), amended

heading and text of subsec. (b) generally. Prior to amendment,

text read as follows: ''If the collection of a loan described in

subparagraph (A) or (B) of section 1078(a)(1) of this title or

sections 1078-1, 1078-2, 1078-3, or 1078-8 of this title is stayed

in any action under title 11, the Secretary shall repay the unpaid

balance of principal and interest owed on the loan.''

Subsec. (c)(1). Pub. L. 103-208, Sec. 2(c)(64), substituted ''If

a borrower'' for ''If a student borrower'', ''under this part and

the student borrower, or the student on whose behalf a parent

borrowed, is unable'' for ''under this part is unable'', and ''in

which such student is enrolled'' for ''in which the borrower is

enrolled''.

Subsec. (c)(4). Pub. L. 103-208, Sec. 2(c)(65), inserted at end

''The amount discharged under this subsection shall be treated the

same as loans under section 1087ee(a)(5) of this title.''

1992 - Pub. L. 102-325 amended section generally, substituting

subsecs. (a) to (d) for former subsecs. (a) and (b) which related

to repayment by Secretary of loans of bankrupt, deceased, or

disabled borrowers.

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by Pub. L. 105-244 effective Oct. 1, 1998, except as

otherwise provided in Pub. L. 105-244, see section 3 of Pub. L.

105-244, set out as a note under section 1001 of this title.

EFFECTIVE DATE OF 1993 AMENDMENT

Amendment by Pub. L. 103-208 effective as if included in the

Higher Education Amendments of 1992, Pub. L. 102-325, except as

otherwise provided, see section 5(a) of Pub. L. 103-208, set out as

a note under section 1051 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1071, 1072a, 1075, 1077,

1078, 1080a, 1092b, 1099c of this title.

-CITE-

20 USC Sec. 1087-0 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1087-0. Repealed. Pub. L. 105-244, title IV, Sec. 432, Oct. 7,

1998, 112 Stat. 1710

-MISC1-

Section, Pub. L. 89-329, title IV, Sec. 437A, as added Pub. L.

102-325, title IV, Sec. 429, July 23, 1992, 106 Stat. 552; amended

Pub. L. 103-208, Sec. 2(c)(66)-(68), Dec. 20, 1993, 107 Stat. 2469,

related to debt management options.

EFFECTIVE DATE OF REPEAL

Repeal effective Oct. 1, 1998, except as otherwise provided in

Pub. L. 105-244, see section 3 of Pub. L. 105-244, set out as an

Effective Date of 1998 Amendment note under section 1001 of this

title.

-CITE-

20 USC Sec. 1087-1 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1087-1. Special allowances

-STATUTE-

(a) Findings

In order to assure (1) that the limitation on interest payments

or other conditions (or both) on loans made or insured under this

part, do not impede or threaten to impede the carrying out of the

purposes of this part or do not cause the return to holders of

loans to be less than equitable, (2) that incentive payments on

such loans are paid promptly to eligible lenders, and (3) that

appropriate consideration of relative administrative costs and

money market conditions is made in setting the quarterly rate of

such payments, the Congress finds it necessary to establish an

improved method for the determination of the quarterly rate of the

special allowances on such loans, and to provide for a thorough,

expeditious, and objective examination of alternative methods for

the determination of the quarterly rate of such allowances.

(b) Computation and payment

(1) Quarterly payment based on unpaid balance

A special allowance shall be paid for each of the 3-month

periods ending March 31, June 30, September 30, and December 31

of every year and the amount of such allowance paid to any holder

with respect to any 3-month period shall be a percentage of the

average unpaid balance of principal (not including unearned

interest added to principal) of all eligible loans held by such

holder during such period.

(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(f) 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 division, 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

division (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, 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.

(C)(i) In the case of loans made before October 1, 1992,

pursuant to section 1078-1 (FOOTNOTE 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

subparagraph (B) of such section exceeds 12 percent.

(FOOTNOTE 1) See References in Text note below.

(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 (FOOTNOTE 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

(FOOTNOTE 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(f) 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 (FOOTNOTE 2) unless the rate determined under

subparagraph (A) of such section (without regard to

subparagraph (B) of such section) exceeds 9.0 percent.

(FOOTNOTE 2) So in original.

(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. -

(i) In general. - Notwithstanding subparagraphs (G) and (H),

but 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

January 1, 2000, 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 such average bond equivalent rate;

(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 for which the applicable rate of interest

is described in section 1077a(l)(1) 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 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'', 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 January 1, 2000, 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'', subject to clause (vi) of this

subparagraph.

(v) Limitation on special allowances for plus loans before

july 1, 2006. - In the case of PLUS loans made under section

1078-2 of this title and first disbursed on or after January 1,

2000, and before July 1, 2006, 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 January 1, 2000, for which the interest rate is

determined under section 1077a(k)(4) or (l)(3) 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 rates of the quotes

of the 3-month commercial paper (financial) rates in effect

for each of the days in such quarter as reported by the

Federal Reserve in Publication H-15 (or its successor) for

such 3-month period; plus

(II) 2.64 percent,

exceeds the rate determined under section 1077a(k)(4) or (l)(3)

of this title, whichever is applicable.

(vii) Limitation on special allowances for plus loans on or

after july 1, 2006. - In the case of PLUS loans made under

section 1078-2 of this title and first disbursed on or after

July 1, 2006, for which the interest rate is determined under

section 1077a(l)(2) 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 -

(I) the average of the bond equivalent rates of the quotes

of the 3-month commercial paper (financial), as published by

the Board of Governors of the Federal Reserve System in

Publication H-15 (or its successor), for the last calendar

week ending on or before such July 1; plus

(II) 2.64 percent,

exceeds 9.0 percent.

(3) Contractual right of holders to special allowance

The holder of an eligible loan shall be deemed to have a

contractual right against the United States, during the life of

such loan, to receive the special allowance according to the

provisions of this section. The special allowance determined for

any such 3-month period shall be paid promptly after the close of

such period, and without administrative delay after receipt of an

accurate and complete request for payment, pursuant to procedures

established by regulations promulgated under this section.

(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.

special allowances paid under this section, amounts of special

allowances paid pursuant to this paragraph shall be segregated

and reported separately.

(5) ''Eligible loan'' defined

As 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, (FOOTNOTE 3) 1078-2,

1078-3, 1078-8, or 1087-2(o) of this title; or

(FOOTNOTE 3) See References in Text note below.

(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.

As used in this section, the term ''eligible loan'' includes all

loans subject to section 1078-9 of this title.

(6) Regulation of time and manner of payment

The Secretary shall pay the holder of an eligible loan, at such

time or times as are specified in regulations, a special

allowance prescribed pursuant to this subsection subject to the

condition that such holder shall submit to the Secretary, at such

time or times and in such a manner as the Secretary may deem

proper, such information as may be required by regulation for the

purpose of enabling the Secretary to carry out his functions

under this section and to carry out the purposes of this section.

(7) Use of average quarterly balance

The Secretary shall permit lenders to calculate interest

benefits and special allowance through the use of the average

quarterly balance method until July 1, 1988.

(1) Deduction from interest and special allowance subsidies

(A) Notwithstanding subsection (b) of this section, 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

Subject to paragraph (6) of this subsection, with respect to

any loan (including loans made under section 1078-8 of this

title, but excluding loans made under sections 1078-3 and

1087-2(o) of this title) for which a completed note or other

written evidence of the loan was sent or delivered to the

borrower for signing on or after 10 days after August 13, 1981,

each eligible lender under this part is authorized to charge the

borrower an origination fee in an amount not to exceed 3.0

percent of the principal amount of the loan, to be deducted

proportionately from each installment payment of the proceeds of

the loan prior to payment to the borrower. Except as provided in

paragraph (8), a lender that charges an origination fee under

this paragraph shall assess the same fee to all student

borrowers.

(3) Relation to applicable interest

Such origination fee shall not be taken into account for

purposes of determining compliance with section 1077a of this

title.

(4) Disclosure required

The lender shall disclose to the borrower the amount and method

of calculating the origination fee.

(5) Prohibition on department compelling origination fee

collections by lenders

Nothing in this subsection shall be construed to permit the

Secretary to require any lender that is making loans that are

insured or guaranteed under this part, but for which no amount

will be payable for interest under section 1078(a)(3)(A) of this

title or for special allowances under subsection (b) of this

section, to collect any origination fee or to submit the sums

collected as origination fees to the United States. The Secretary

shall, not later than January 1, 1987, return to any such lender

any such sums collected before October 17, 1986, together with

interest thereon.

(6) SLS and PLUS loans

With respect to any loans made under section 1078-1 (FOOTNOTE

4) or 1078-2 of this title on or after October 1, 1992, each

eligible lender under this part shall charge the borrower an

origination fee of 3.0 percent of the principal amount of the

loan, to be deducted proportionately from each installment

payment of the proceeds of the loan prior to payments to the

borrower.

(FOOTNOTE 4) See References in Text note below.

(7) Distribution of origination fees

All origination fees collected pursuant to this section on

loans authorized under section 1078-1 (FOOTNOTE 4) or 1078-2 of

this title shall be paid to the Secretary by the lender and

deposited in the fund authorized under section 1081 of this

title.

(8) Exception

Notwithstanding paragraph (2), a lender may assess a lesser

origination fee for a borrower demonstrating greater financial

need as determined by such borrower's adjusted gross family

income.

(d) Loan fees from lenders

(1) Deduction from interest and special allowance subsidies

(A) In general

Notwithstanding subsection (b) of this section, 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) of this section, 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

If the Secretary collects loan fees under this subsection

through the reduction of interest and special allowance

payments, 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 of such loan fees, then the Secretary shall deduct the

amount of the loan fee balance from the amount of interest and

special allowance payments that would otherwise be payable, in

subsequent quarterly increments until the balance has been

deducted.

(2) Amount of loan fees

With respect to any loan under this part for which the first

disbursement was made on or after October 1, 1993, the amount of

the loan fee which shall be deducted under paragraph (1) shall be

equal to 0.50 percent of the principal amount of the loan.

(3) Distribution of loan fees

The Secretary shall deposit all fees collected pursuant to

paragraph (3) into the insurance fund established in section 1081

of this title.

(e) Nondiscrimination

In order for the holders of loans which were made or purchased

with funds obtained by the holder from an Authority issuing

obligations, the income from which is exempt from taxation under

title 26, to be eligible to receive a special allowance under

subsection (b)(2) of this section on any such loans, the Authority

shall 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,

disability status, income, attendance at a particular eligible

institution within the area served by the Authority, length of the

borrower's educational program, or the borrower's academic year in

school.

(f) Regulations to prevent denial of loans to eligible students

The Secretary shall adopt or amend appropriate regulations

pertaining to programs carried out under this part to prevent,

where practicable, any practices which the Secretary finds have

denied loans to a substantial number of eligible students.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 438, as added Pub. L. 99-498, title

IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1414; amended Pub. L.

100-50, Sec. 10(d)(2), (bb), (cc), June 3, 1987, 101 Stat. 342,

347; Pub. L. 100-369, Sec. 7(c), July 18, 1988, 102 Stat. 837; Pub.

L. 102-325, title IV, Sec. 430, July 23, 1992, 106 Stat. 553; Pub.

L. 103-66, title IV, Sec. 4102(a), 4103, 4105, 4111, Aug. 10, 1993,

107 Stat. 366, 367, 368, 370; Pub. L. 105-178, title VIII, Sec.

8301(b), June 9, 1998, 112 Stat. 497; Pub. L. 105-244, title IV,

Sec. 416(b)(1), (3), 433(a)-(d)(1), Oct. 7, 1998, 112 Stat. 1680,

1682, 1710, 1711; Pub. L. 106-170, title IV, Sec. 409(a), Dec. 17,

1999, 113 Stat. 1914; Pub. L. 107-139, Sec. 2, Feb. 8, 2002, 116

Stat. 10.)

-REFTEXT-

REFERENCES IN TEXT

Section 1078-1 of this title, referred to in subsecs. (b)(2)(C),

(5)(A)(ii) and (c)(6), (7), was repealed by Pub. L. 103-66, title

IV, Sec. 4047(b)-(d), Aug. 10, 1993, 107 Stat. 364, eff. July 1,

1994, except with respect to loans provided under that section as

it existed prior to Aug. 10, 1993. Subsequently, a new section

1078-1, relating to voluntary flexible agreements with guaranty

agencies, was enacted by Pub. L. 105-244, title IV, Sec. 418, Oct.

7, 1998, 112 Stat. 1691.

-MISC2-

PRIOR PROVISIONS

A prior section 1087-1, Pub. L. 89-329, title IV, Sec. 438, as

added Pub. L. 92-318, title I, Sec. 132E(a), June 23, 1972, 86

Stat. 264; amended Pub. L. 94-482, title I, Sec. 127(a), Oct. 12,

1976, 90 Stat. 2133; Pub. L. 95-43, Sec. 1(a)(37), June 15, 1977,

91 Stat. 216; Pub. L. 96-49, Sec. 5(c)(1), Aug. 13, 1979, 93 Stat.

352; Pub. L. 96-374, title IV, Sec. 420(a), 451(d), title XIII,

Sec. 1391(a)(1), Oct. 3, 1980, 94 Stat. 1425, 1458, 1503; Pub. L.

97-35, title V, Sec. 532(b)(4), 534(b), 536(a), Aug. 13, 1981, 95

Stat. 452, 454, 455; Pub. L. 98-79, Sec. 7(a), (c), Aug. 15, 1983,

97 Stat. 482, 483; Pub. L. 99-272, title XVI, Sec. 16013(d),

16017(b)(3), (c), Apr. 7, 1986, 100 Stat. 340, 347, related to

special allowances, prior to the general revision of this part by

Pub. L. 99-498.

A prior section 1087-1a, Pub. L. 96-374, title IV, Sec. 420(b),

Oct. 3, 1980, 94 Stat. 1427, related to eligibility for special

allowances covering loans made or purchased with funds obtained

from Authorities issuing tax exempt obligations, and established

requirement relating to plans for doing business, prior to repeal

by Pub. L. 98-79, Sec. 7(b), Aug. 15, 1983, 97 Stat. 483.

AMENDMENTS

2002 - Subsec. (b)(2)(I). Pub. L. 107-139, Sec. 2(1), struck out

'', and before july 1, 2003'' after ''january 1, 2000'' in heading.

Subsec. (b)(2)(I)(i). Pub. L. 107-139, Sec. 2(2), struck out

''and before July 1, 2003,'' after ''January 1, 2000,'' in

introductory provisions.

Subsec. (b)(2)(I)(ii). Pub. L. 107-139, Sec. 2(3), added cl. (ii)

and struck out heading and text of former cl. (ii). Text read as

follows: ''In the case of any loan for which the first disbursement

is made on or after January 1, 2000, and before July 1, 2003, 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 '1.74 percent' for '2.34

percent'.''

Subsec. (b)(2)(I)(iii). Pub. L. 107-139, Sec. 2(2), (4), struck

out ''and before July 1, 2003,'' after ''January 1, 2000,'' and

inserted ''or (l)(2)'' after ''section 1077a(k)(3)''.

Subsec. (b)(2)(I)(iv). Pub. L. 107-139, Sec. 2(2), (5), inserted

''or (l)(3)'' after ''section 1077a(k)(4)'' and struck out ''and

before July 1, 2003,'' after ''January 1, 2000,''.

Subsec. (b)(2)(I)(v). Pub. L. 107-139, Sec. 2(6), inserted

''before july 1, 2006'' after ''plus loans'' in heading and

substituted ''July 1, 2006,'' for ''July 1, 2003,'' in introductory

provisions.

Subsec. (b)(2)(I)(vi). Pub. L. 107-139, Sec. 2(2), (7), in

introductory provisions, struck out ''and before July 1, 2003,''

after ''January 1, 2000,'' and inserted ''or (l)(3)'' after

''section 1077a(k)(4)'', and in concluding provisions, substituted

''section 1077a(k)(4) or (l)(3) of this title, whichever is

applicable'' for ''section 1077a(k)(4) of this title''.

Subsec. (b)(2)(I)(vii). Pub. L. 107-139, Sec. 2(8), added cl.

(vii).

1999 - Subsec. (b)(2)(A). Pub. L. 106-170, Sec. 409(a)(1),

substituted ''(G), (H), and (I)'' for ''(G), and (H)'' in first

sentence.

Subsec. (b)(2)(B)(iv). Pub. L. 106-170, Sec. 409(a)(2),

substituted ''(G), (H), or (I)'' for ''(G), or (H)'' in first

sentence.

Subsec. (b)(2)(C)(ii). Pub. L. 106-170, Sec. 409(a)(3),

substituted ''(G), (H), and (I)'' for ''(G) and (H)'' in

introductory provisions.

Subsec. (b)(2)(H). Pub. L. 106-170, Sec. 409(a)(4), (5),

substituted ''january 1, 2000'' for ''july 1, 2003'' in subpar.

heading and ''January 1, 2000'' for ''July 1, 2003'' in text

wherever appearing.

Subsec. (b)(2)(I). Pub. L. 106-170, Sec. 409(a)(6), added subpar.

(I).

1998 - Subsec. (b)(2)(A). Pub. L. 105-244, Sec. 416(b)(3)(A),

substituted ''(F), (G), and (H)'' for ''(F), and (G)''.

Pub. L. 105-178, Sec. 8301(b)(2)(A), substituted ''(E), (F), and

(G)'' for ''(E), and (F)''.

Subsec. (b)(2)(B)(iv). Pub. L. 105-244, Sec. 416(b)(3)(B),

substituted ''(F), (G), or (H)'' for ''(F), or (G)''.

Pub. L. 105-178, Sec. 8301(b)(2)(B), substituted ''(E), (F), or

(G)'' for ''(E), or (F)''.

Subsec. (b)(2)(C)(ii). Pub. L. 105-244, Sec. 416(b)(3)(C),

substituted ''subparagraphs (G) and (H)'' for ''subparagraph (G)''.

Pub. L. 105-178, Sec. 8301(b)(2)(C), substituted ''Subject to

subparagraph (G), in the case'' for ''In the case''.

Subsec. (b)(2)(G). Pub. L. 105-178, Sec. 8301(b)(1), added

subpar. (G).

Subsec. (b)(2)(H). Pub. L. 105-244, Sec. 416(b)(1), added subpar.

(H).

Subsec. (c)(1). Pub. L. 105-244, Sec. 433(a), amended heading and

text of par. (1) generally. Prior to amendment, text read as

follows: ''Notwithstanding subsection (b) of this section, 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 shall be reduced by the

Secretary by the amount which the lender is authorized to charge as

an origination fee in accordance with paragraph (2) of this

subsection. If 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.''

Subsec. (c)(2). Pub. L. 105-244, Sec. 433(b)(1), substituted

''(including loans made under section 1078-8 of this title, but

excluding'' for ''(other than'' and inserted at end ''Except as

provided in paragraph (8), a lender that charges an origination fee

under this paragraph shall assess the same fee to all student

borrowers.''

Subsec. (c)(8). Pub. L. 105-244, Sec. 433(b)(2), added par. (8).

Subsec. (d)(1). Pub. L. 105-244, Sec. 433(c), amended heading and

text of par. (1) generally. Prior to amendment, text read as

follows: ''Notwithstanding subsection (b) of this section, the

Secretary shall reduce 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 of a

loan by a loan fee in an amount determined in accordance with

paragraph (2) of this subsection. If 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 of such loan fee, then the Secretary shall deduct

such excess amount from subsequent quarters' payments until the

total amount has been deducted.''

Subsec. (e). Pub. L. 105-244, Sec. 433(d)(1), amended heading and

text of subsec. (e) generally. Prior to amendment, subsec. (e)

related to lending from proceeds of tax exempt obligations.

1993 - Subsec. (b)(2)(A). Pub. L. 103-66, Sec. 4111(1),

substituted ''subparagraphs (B), (C), (D), (E), and (F)'' for

''subparagraphs (B), (C), and (D)'' and ''section 1077a(f)'' for

''section 1077a(e)''.

Subsec. (b)(2)(B)(iv). Pub. L. 103-66, Sec. 4105, added cl. (iv).

Subsec. (b)(2)(E), (F). Pub. L. 103-66, Sec. 4111(2), added

subpars. (E) and (F).

Subsec. (c). Pub. L. 103-66, Sec. 4102(a)(1), inserted ''from

students'' after ''origination fees'' in heading.

Subsec. (c)(2). Pub. L. 103-66, Sec. 4102(a)(2)(A), substituted

''sections 1078-3 and 1087-2(o)'' for ''sections 1078-1, 1078-2,

1078-3, and 1087-2(o)'' and ''3.0 percent'' for ''5 percent''.

Subsec. (c)(6). Pub. L. 103-66, Sec. 4102(a)(2)(B), substituted

''3.0 percent'' for ''5 percent''.

Subsecs. (d) to (f). Pub. L. 103-66, Sec. 4103, added subsec. (d)

and redesignated former subsecs. (d) and (e) as (e) and (f),

respectively.

1992 - Subsec. (b)(2)(A). Pub. L. 102-325, Sec. 430(a)(1), (2),

substituted ''3.10'' for ''3.25'' and inserted at end ''If such

computation produces a number less than zero, such loans shall be

subject to section 1077a(e) of this title.''

Subsec. (b)(2)(B)(i). Pub. L. 102-325, Sec. 430(a)(3),

substituted ''3.10'' for ''3.25''.

Subsec. (b)(2)(B)(ii). Pub. L. 102-325, Sec. 430(a)(4), added cl.

(ii) and struck out former cl. (ii) which read as follows: ''The

rate set under division (i) shall not be less than (I) 2.5 percent

per year in the case of loans for which the applicable interest

rate is 7 percent per year, (II) 1.5 percent per year in the case

of loans for which the applicable interest rate is 8 percent per

year, or (III) 0.5 percent in the case of loans for which the

applicable rate is 9 percent per year.''

Subsec. (b)(2)(C). Pub. L. 102-325, Sec. 430(a)(5), designated

existing provision as cl. (i), inserted ''before October 1, 1992,''

after ''made'', and added cl. (ii).

Subsec. (b)(2)(D)(i). Pub. L. 102-325, Sec. 430(a)(6),

substituted ''3.10'' for ''3.25''.

Subsec. (b)(5). Pub. L. 102-325, Sec. 430(c), inserted closing

provision which defined ''eligible loan'' as used in this section

to include all loans subject to section 1078-9 of this title.

Subsec. (b)(5)(A)(ii). Pub. L. 102-325, Sec. 430(b), inserted

''1078-8,'' after ''1078-3,''.

Subsec. (c)(2). Pub. L. 102-325, Sec. 430(d)(1), substituted

''Subject to paragraph (6) of this subsection, with'' for ''With''.

Subsec. (c)(6), (7). Pub. L. 102-325, Sec. 430(d)(2), added pars.

(6) and (7).

Subsec. (d)(2)(C). Pub. L. 102-325, Sec. 430(e), struck out ''or

discount'' after ''premium''.

1988 - Subsecs. (b)(2)(B)(i), (d)(1), (3). Pub. L. 100-369

substituted ''Internal Revenue Code of 1986'' for ''Internal

Revenue Code of 1954'', which for purposes of codification was

translated as ''title 26'' thus requiring no change in text.

1987 - Subsec. (b)(2)(B)(iii). Pub. L. 100-50, Sec. 10(bb)(1),

substituted ''subsection (d) of this section'' for ''subsection (c)

of this section''.

Subsec. (b)(2)(C). Pub. L. 100-50, Sec. 10(d)(2), substituted

''12 percent'' for ''12.5 percent''.

Subsec. (b)(7). Pub. L. 100-50, Sec. 10(bb)(2), added par. (7).

Subsec. (d)(4)(C). Pub. L. 100-50, Sec. 10(cc), struck out '', as

evidenced by the information submitted under paragraph (2)(G) of

this subsection'' after ''fiscal year''.

EFFECTIVE DATE OF 1999 AMENDMENT

Pub. L. 106-170, title IV, Sec. 409(b), Dec. 17, 1999, 113 Stat.

1916, provided that: ''Subparagraph (I) of section 438(b)(2) of the

Higher Education Act of 1965 (20 U.S.C. 1087-1(b)(2)) as added by

subsection (a) of this section shall apply with respect to any

payment pursuant to such section with respect to any 3-month period

beginning on or after January 1, 2000, for loans for which the

first disbursement is made after such date.''

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by section 416(b)(1) and (3) of Pub. L. 105-244

applicable with respect to any loan made, insured, or guaranteed

under this part for which the first disbursement is made on or

after Oct. 1, 1998, and before July 1, 2003, except that such

amendment is applicable with respect to any loan made under section

1078-3 of this title for which application is received by an

eligible lender on or after Oct. 1, 1998, and before July 1, 2003,

see section 416(c) of Pub. L. 105-244, set out as a note under

section 1077a of this title.

Amendment by section 433(a)-(c) of Pub. L. 105-244 effective Oct.

1, 1998, except as otherwise provided in Pub. L. 105-244, see

section 3 of Pub. L. 105-244, set out as a note under section 1001

of this title.

Pub. L. 105-244, title IV, Sec. 433(d)(2), Oct. 7, 1998, 112

Stat. 1711, provided that: ''The amendment made by paragraph (1)

(amending this section) shall be effective as of the date the plan

required by section 438(e)(1) (subsec. (e)(1) of this section) (as

such section was in effect prior to such amendment) was approved by

the Secretary or the Governor (whichever was the case). No

Authority shall have a right or cause of action against the

Secretary for any amounts paid to or offset by the Secretary

pursuant to a final settlement agreement entered into prior to July

1, 1998, resolving any audit or program review findings alleging

violations of any provision of section 438(e) (as in effect prior

to such amendment).''

EFFECTIVE DATE OF 1993 AMENDMENT

Amendment by section 4102(a) of Pub. L. 103-66 effective July 1,

1994, see section 4102(d) of Pub. L. 103-66, set out as a note

under section 1078 of this title.

EFFECTIVE DATE OF 1992 AMENDMENT

Amendment by Pub. L. 102-325 applicable with respect to loans for

which first disbursement is made on or after Oct. 1, 1992, see

section 432(a)(13) of Pub. L. 102-325, set out as a note under

section 1078 of this title.

EFFECTIVE DATE OF 1987 AMENDMENT

Amendment by Pub. L. 100-50 effective as if enacted as part of

the Higher Education Amendments of 1986, Pub. L. 99-498, see

section 27 of Pub. L. 100-50, set out as a note under section 1001

of this title.

EFFECTIVE DATE

Section effective Oct. 17, 1986, with subsec. (b) of this section

effective with respect to loans disbursed on or after 30 days after

Oct. 17, 1986, or made to cover the costs of instruction for

periods of enrollment beginning on or after 30 days after Oct. 17,

1986, and subsec. (d) of this section effective 30 days after Oct.

17, 1986, see section 402(b) of Pub. L. 99-498, set out as a note

under section 1071 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1078, 1078-3, 1082 of

this title; title 2 section 906; title 10 section 2174; title 26

sections 144, 148; title 42 section 292e.

-CITE-

20 USC Sec. 1087-2 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1087-2. Student Loan Marketing Association

-STATUTE-

(a) Purpose

The Congress hereby declares that it is the purpose of this

section (1) to establish a private corporation which will be

financed by private capital and which will serve as a secondary

market and warehousing facility for student loans, including loans

which are insured by the Secretary under this part or by a guaranty

agency, and which will provide liquidity for student loan

investments; (2) in order to facilitate secured transactions

involving student loans, to provide for perfection of security

interests in student loans either through the taking of possession

or by notice filing; and (3) to assure nationwide the establishment

of adequate loan insurance programs for students, to provide for an

additional program of loan insurance to be covered by agreements

with the Secretary.

(b) Establishment

(1) In general

There is hereby created a body corporate to be known as the

Student Loan Marketing Association (hereinafter referred to as

the ''Association''). The Association shall have succession until

dissolved. It shall maintain its principal office in the

District of Columbia and shall be deemed, for purposes of venue

and jurisdiction in civil actions, to be a resident and citizen

thereof. Offices may be established by the Association in such

other place or places as it may deem necessary or appropriate for

the conduct of its business.

(2) Exemption from State and local taxes

The Association, including its franchise, capital, reserves,

surplus, mortgages, or other security holdings, and income shall

be exempt from all taxation now or hereafter imposed by any

State, territory, possession, Commonwealth, or dependency of the

United States, or by the District of Columbia, or by any county,

municipality, or local taxing authority, except that any real

property of the Association shall be subject to State,

territorial, county, municipal, or local taxation to the same

extent according to its value as other real property is taxed.

(3) Appropriations authorized for establishment

There is hereby authorized to be appropriated to the Secretary

$5,000,000 for making advances for the purpose of helping to

establish the Association. Such advances shall be repaid within

such period as the Secretary may deem to be appropriate in light

of the maturity and solvency of the Association. Such advances

shall bear interest at a rate not less than (A) a rate determined

by the Secretary of the Treasury taking into consideration the

current average market yield on outstanding marketable

obligations of the United States with remaining period to

maturity comparable to the maturity of such advances, adjusted to

the nearest one-eighth of 1 percent, plus (B) an allowance

adequate in the judgment of the Secretary to cover administrative

costs and probable losses. Repayments of such advances shall be

deposited into miscellaneous receipts of the Treasury.

(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) of this section. 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

The directors appointed by the President shall serve at the

pleasure of the President and until their successors have been

appointed and have qualified. The remaining directors shall each

be elected for a term ending on the date of the next annual

meeting of the common stockholders of the Association, and shall

serve until their successors have been elected and have

qualified. Any appointive seat on the Board which becomes vacant

shall be filled by appointment of the President. Any elective

seat on the Board which becomes vacant after the annual election

of the directors shall be filled by the Board, but only for the

unexpired portion of the term.

(3) Affiliated members

For 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

or similar institution, the primary purpose of which relates to

educational matters or banking matters.

(4) Meetings and functions of the Board

The Board of Directors shall meet at the call of its Chairman,

but at least semiannually. The Board shall determine the general

policies which shall govern the operations of the Association.

The Chairman of the Board shall, with the approval of the Board,

select, appoint, and compensate qualified persons to fill the

offices as may be provided for in the bylaws, with such

functions, powers, and duties as may be prescribed by the bylaws

or by the Board of Directors, and such persons shall be the

officers of the Association and shall discharge all such

functions, powers, and duties.

(d) Authority of Association

(1) In general

The 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;

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

Any warehousing advance made under paragraph (1)(A) of this

subsection shall be made on the security of (A) insured loans,

(B) marketable obligations and securities issued, guaranteed, or

insured by, the United States, or for which the full faith and

credit of the United States is pledged for the repayment of

principal and interest thereof, or (C) marketable obligations

issued, guaranteed, or insured by any agency, instrumentality, or

corporation of the United States for which the credit of such

agency, instrumentality, or corporation is pledged for the

repayment of principal and interest thereof, in an amount equal

to the amount of such advance. The proceeds of any such advance

secured by insured loans shall either be invested in additional

insured loans or the lender shall provide assurances to the

Association that during the period of the borrowing it will

maintain a level of insured loans in its portfolio not less than

the aggregate outstanding balance of such loans held at the time

of the borrowing. The proceeds from any such advance secured by

collateral described in clauses (B) and (C) shall be invested in

additional insured student loans.

(3) Perfection of security interests in student loans

Notwithstanding the provisions of any State law to the

contrary, including the Uniform Commercial Code as in effect in

any State, a security interest in insured student loans created

on behalf of the Association or any eligible lender as defined in

section 1085(a) of this title may be perfected either through the

taking of possession of such loans or by the filing of notice of

such security interest in such loans in the manner provided by

such State law for perfection of security interests in accounts.

(4) Form of securities

Securities issued pursuant to the offering of participations or

pooled interests under paragraph (1) of this subsection may be in

the form of debt obligations, or trust certificates of beneficial

ownership, or both. Student loans set aside pursuant to the

offering of participations or pooled interests shall at all times

be adequate to ensure the timely principal and interest payments

on such securities.

(5) Restrictions on facilities and housing activities

Not less than 75 percent of the aggregate dollar amount of

obligations bought, sold, held, insured, underwritten, and

otherwise supported in accordance with the authority contained in

paragraph (1)(C) shall be obligations which are listed by a

nationally recognized statistical rating organization at a rating

below the second highest rating of such organization.

(e) Advances to lenders that do not discriminate

The Association, pursuant to such criteria as the Board of

Directors may prescribe, shall make advances on security or

purchase student loans pursuant to subsection (d) of this section

only after the Association is assured that the lender (1) does not

discriminate by pattern or practice against any particular class or

category of students by requiring that, as a condition to the

receipt of a loan, the student or his family maintain a business

relationship with the lender, except that this clause shall not

apply in the case of a loan made by a credit union, savings and

loan association, mutual savings bank, institution of higher

education, or any other lender with less than $75,000,000 in

deposits, and (2) does not discriminate on the basis of race, sex,

color, creed, or national origin.

(f) Stock of the Association

(1) Voting common stock

The Association shall have voting common stock having such par

value as may be fixed by its Board of Directors from time to

time. Each share of voting common stock shall be entitled to one

vote with rights of cumulative voting at all elections of

directors.

(2) Number of shares; transferability

The maximum number of shares of voting common stock that the

Association may issue and have outstanding at any one time shall

be fixed by the Board of Directors from time to time. Any voting

common stock issued shall be fully transferable, except that, as

to the Association, it shall be transferred only on the books of

the Association.

(3) Dividends

To the extent that net income is earned and realized, subject

to subsection (g)(2) of this section, dividends may be declared

on voting common stock by the Board of Directors. Such dividends

as may be declared by the Board of Directors shall be paid to the

holders of outstanding shares of voting common stock, except that

no such dividends shall be payable with respect to any share

which has been called for redemption past the effective date of

such call.

(4) Single class of voting common stock

As of the effective date of the Higher Education Amendments of

1992, all of the previously authorized shares of voting common

stock and nonvoting common stock of the Association shall be

converted to shares of a single class of voting common stock on a

share-for-share basis, without any further action on the part of

the Association or any holder. Each outstanding certificate for

voting or nonvoting common stock shall evidence ownership of the

same number of shares of voting stock into which it is

converted. All preexisting rights and obligations with respect

to any class of common stock of the Association shall be deemed

to be rights and obligations with respect to such converted

shares.

(g) Preferred stock

(1) Authority of Board

The Association is authorized to issue nonvoting preferred

stock having such par value as may be fixed by its Board of

Directors from time to time. Any preferred share issued shall be

freely transferable, except that, as to the Association, it shall

be transferred only on the books of the Association.

(2) Rights of preferred stock

The holders of the preferred shares shall be entitled to such

rate of cumulative dividends and such shares shall be subject to

such redemption or other conversion provisions as may be provided

for at the time of issuance. No dividends shall be payable on

any share of common stock at any time when any dividend is due on

any share of preferred stock and has not been paid.

(3) Preference on termination of business

In the event of any liquidation, dissolution, or winding up of

the Association's business, the holders of the preferred shares

shall be paid in full at par value thereof, plus all accrued

dividends, before the holders of the common shares receive any

payment.

(h) Debt obligations

(1) Approval by Secretaries of Education and the Treasury

The Association is authorized with the approval of the

Secretary of Education and the Secretary of the Treasury to issue

and have outstanding obligations having such maturities and

bearing such rate or rates of interest as may be determined by

the Association. The authority of the Secretary of Education to

approve the issuance of such obligations is limited to

obligations issued by the Association and guaranteed by the

Secretary pursuant to paragraph (2) of this subsection. Such

obligations may be redeemable at the option of the Association

before maturity in such manner as may be stipulated therein. The

Secretary of the Treasury may not direct as a condition of his

approval that any such issuance of obligations by the Association

be made or sold to the Federal Financing Bank. To the extent that

the average outstanding amount of the obligations owned by the

Association pursuant to the authority contained in subsection

(d)(1)(B) and (C) of this section and as to which the income is

exempt from taxation under title 26 does not exceed the average

stockholders' equity of the Association, the interest on

obligations issued under this paragraph shall not be deemed to be

interest on indebtedness incurred or continued to purchase or

carry obligations for the purpose of section 265 of title 26.

(2) Guarantee of debt

The Secretary is authorized, prior to October 1, 1984, to

guarantee payment when due of principal and interest on

obligations issued by the Association in an aggregate amount

determined by the Secretary in consultation with the Secretary of

the Treasury. Nothing in this section shall be construed so as to

authorize the Secretary of Education or the Secretary of the

Treasury to limit, control, or constrain programs of the

Association or support of the Guaranteed Student Loan Program by

the Association.

(3) Borrowing authority to meet guarantee obligations

To enable the Secretary to discharge his responsibilities under

guarantees issued by him, he is authorized to issue to the

Secretary of the Treasury notes or other obligations in such

forms and denominations, bearing such maturities, and subject to

such terms and conditions, as may be prescribed by the Secretary

with the approval of the Secretary of the Treasury. Such notes or

other obligations shall bear interest at a rate determined by the

Secretary of the Treasury, taking into consideration the current

average market yield on outstanding marketable obligations of the

United States of comparable maturities during the months

preceding the issuance of the notes or other obligations. The

Secretary of the Treasury is authorized and directed to purchase

any notes and other obligations issued hereunder and for that

purpose he is authorized to use as a public debt transaction the

proceeds from the sale of any securities issued under chapter 31

of title 31, and the purposes for which securities may be issued

under that chapter are extended to include any purchase of such

notes and obligations. The Secretary of the Treasury may at any

time sell any of the notes or other obligations acquired by him

under this subsection. All redemptions, purchases, and sales by

the Secretary of the Treasury of such notes or other obligations

shall be treated as public debt transactions of the United

States. There is authorized to be appropriated to the Secretary

such sums as may be necessary to pay the principal and interest

on the notes or obligations issued by him to the Secretary of the

Treasury.

(4) Action on request for guarantees

Upon receipt of a request from the Association under this

subsection requiring approvals by the Secretary of Education or

the Secretary of the Treasury, the Secretary of Education or the

Secretary of the Treasury shall act promptly either to grant

approval or to advise the Association of the reasons for

withholding approval. In no case shall such an approval be

withheld for a period longer than 60 days unless, prior to the

end of such period, the Secretary of Education and the Secretary

of the Treasury submit to the Congress a detailed explanation of

reasons for doing so.

(5) Authority of Treasury to purchase debt

The Secretary of the Treasury is authorized to purchase any

obligations issued by the Association pursuant to this subsection

as now or hereafter in force, and for such purpose the Secretary

of the Treasury is authorized to use as a public debt transaction

the proceeds of the sale of any securities hereafter issued under

chapter 31 of title 31, as now or hereafter in force, and the

purposes for which securities may be issued under chapter 31 of

title 31, as now or hereafter in force are extended to include

such purchases. The Secretary of the Treasury shall not at any

time purchase any obligations under this subsection if such

purchase would increase the aggregate principal amount of his

then outstanding holdings of such obligations under this

subsection to an amount greater than $1,000,000,000. Each

purchase of obligations by the Secretary of the Treasury under

this subsection shall be upon such terms and conditions as to

yield a return at a rate determined by the Secretary of the

Treasury, taking into consideration the current average rate on

outstanding marketable obligations of the United States of

comparable maturities as of the last day of the month preceding

the making of such purchase. The Secretary of the Treasury may,

at any time, sell, upon such terms and conditions and at such

price or prices as he shall determine, any of the obligations

acquired by him under this subsection. All redemptions,

purchases, and sales by the Secretary of the Treasury of such

obligations under this subsection shall be treated as public debt

transactions of the United States.

(6) Sale of debt to Federal Financing Bank

Notwithstanding any other provision of law the Association is

authorized to sell or issue obligations on the security of

student loans, the payment of interest or principal of which has

at any time been guaranteed under section 1078 or 1079 of this

title, to the 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) of this section, or subsection (q) of this

section) 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) of this

section, subparagraph (A) shall be applied by substituting ''1.0

percent'' for ''0.3 percent''.

this paragraph into the insurance fund established in section

1081 of this title.

(i) General corporate powers

The 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

The accounts of the Association shall be audited annually. Such

audits shall be conducted in accordance with generally accepted

auditing standards by independent certified public accountants or

by independent licensed public accountants, licensed on or before

December 31, 1970, who are certified or licensed by a regulatory

authority of a State or other political subdivision of the United

States, except that independent public accountants licensed to

practice by such regulatory authority after December 31, 1970, and

persons who, although not so certified or licensed, meet, in the

opinion of the Secretary, standards of education and experience

representative of the highest standards prescribed by the licensing

authorities of the several States which provide for the continuing

licensing of public accountants and which are prescribed by the

Secretary in appropriate regulations may perform such audits until

December 31, 1975. A report of each such audit shall be furnished

to the Secretary of the Treasury. The audit shall be conducted at

the place or places where the accounts are normally kept. The

representatives of the Secretary shall have access to all books,

accounts, financial records, reports, files, and all other papers,

things, or property belonging to or in use by the Association and

necessary to facilitate the audit, and they shall be afforded full

facilities for verifying transactions with the balances or

securities held by depositaries, fiscal agents, and custodians.

(k) Report on audits by Treasury

A report of each such audit for a fiscal year shall be made by

the Secretary of the Treasury to the President and to the Congress

not later than 6 months following the close of such fiscal year.

The report shall set forth the scope of the audit and shall include

a statement (showing intercorporate relations) of assets and

liabilities, capital and surplus or deficit; a statement of surplus

or deficit analysis; a statement of income and expense; a statement

of sources and application of funds; and such comments and

information as may be deemed necessary to keep the President and

the Congress informed of the operations and financial condition of

the Association, together with such recommendations with respect

thereto as the Secretary may deem advisable, including a report of

any impairment of capital or lack of sufficient capital noted in

the audit. A copy of each report shall be furnished to the

Secretary, and to the Association.

(l) Lawful investment instruments; effect of and exemptions from

other laws

All obligations issued by the Association including those made

under subsection (d)(4) of this section shall be lawful

investments, and may be accepted as security for all fiduciary,

trust, and public funds, the investment or deposit of which shall

be under authority or control of the United States or of any

officer or officers thereof. All stock and obligations issued by

the Association pursuant to this section shall be deemed to be

exempt securities within the meaning of laws administered by the

Securities and Exchange Commission, to the same extent as

securities which are direct obligations of, or obligations

guaranteed as to principal or interest by, the United States. The

Association shall, for the purposes of section 355(2) of title 12,

be deemed to be an agency of the United States. The obligations of

the Association shall be deemed to be obligations of the United

States for the purpose of section 3124 of title 31. For the purpose

of the distribution of its property pursuant to section 726 of

title 11, the Association shall be deemed a person within the

meaning of such title. The priority established in favor of the

United States by section 3713 of title 31 shall not establish a

priority over the indebtedness of the Association issued or

incurred on or before September 30, 1992. The Federal Reserve Banks

are authorized to act as depositaries, custodians, or fiscal

agents, or a combination thereof, for the Association in the

general performance of its powers under this section.

(m) Preparation of obligations

In order to furnish obligations for delivery by the Association,

the Secretary of the Treasury is authorized to prepare such

obligations in such form as the Board of Directors may approve,

such obligations when prepared to be held in the Treasury subject

to delivery upon order by the Association. The engraved plates,

dies, bed pieces, and so forth, executed in connection therewith

shall remain in the custody of the Secretary of the Treasury. The

Association shall reimburse the Secretary of the Treasury for any

expenditures made in the preparation, custody, and delivery of such

obligations. The Secretary of the Treasury is authorized to

promulgate regulations on behalf of the Association so that the

Association may utilize the book-entry system of the Federal

Reserve Banks.

(n) Report on operations and activities

The Association shall, as soon as practicable after the end of

each fiscal year, transmit to the President and the Congress a

report of the Association's operations and activities, including a

report with respect to all facilities transactions, during each

year.

(o) Loan consolidations

(1) In general

The Association or its designated agent may, upon request of a

borrower, consolidate loans received under this subchapter and

part C of subchapter I of chapter 34 of title 42 in accordance

with section 1078-3 of this title.

(2) Use of existing agencies as agent

The Association in making loans pursuant to this subsection in

any State served by a guaranty agency or an eligible lender in a

State described in section 1085(d)(1)(D) or (F) of this title may

designate as its agent such agency or lender to perform such

functions as the Association determines appropriate. Any

agreements made pursuant to this subparagraph shall be on such

terms and conditions as agreed upon by the Association and such

agency or lender.

(p) Advances for direct loans by guaranty agencies

(1) In general

The Association shall make advances in each fiscal year from

amounts available to it to each guaranty agency and eligible

lender described in subsection 1078(h)(1) of this title which has

an agreement with the Association which sets forth that advances

are necessary to enable such agency or lender to make student

loans in accordance with section 1078(h) of this title and that

such advances will be repaid to the Association in accordance

with such terms and conditions as may be set forth in the

agreement and agreed to by the Association and such agency or

lender. Advances made under this subsection shall not be subject

to subsection (d)(2) of this section.

(2) Limitation

No advance may be made under this subsection unless the

guaranty agency or lender makes an application to the

Association, which shall be accompanied by such information as

the Association determines to be reasonably necessary.

(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

The Association or its designated agent shall cease making

loans under this subsection at such time as the Secretary

determines that the conditions which caused the implementation of

this subsection have ceased to exist.

(r) Safety and soundness of Association

(1) Reports by the Association

The 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.

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

The Secretary of the Treasury shall conduct such studies as may

be necessary to monitor the financial safety and soundness of the

Association. In the event that the Secretary of the Treasury

determines that the financial safety and soundness of the

Association is at risk, the Secretary of the Treasury shall

inform 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

of such determination and identify any corrective actions that

should be taken to ensure the safety and soundness of the

Association.

(4) Capital standard

If the capital ratio is less than 2 percent and is greater than

or equal to 1.75 percent at the end of the Association's most

recent calendar quarter the Association shall, within 60 days of

such occurrence, submit to the Secretary of the Treasury a

capital restoration plan, in reasonable detail, that the

Association believes is adequate to cause the capital ratio to

equal or exceed 2 percent within 36 months.

(5) Capital restoration plan

(A) Submission, approval, and implementation

The Secretary of the Treasury and the Association shall

consult with respect to any capital restoration plan submitted

pursuant to paragraph (4) and the Secretary of the Treasury

shall approve such plan (or a modification thereof accepted by

the Association) or disapprove such plan within 30 days after

such plan is first submitted to the Secretary of the Treasury

by the Association, unless the Association and Secretary of the

Treasury mutually agree to a longer consideration period. If

the Secretary of the Treasury approves a capital restoration

plan (including a modification of a plan accepted by the

Association), the Association shall forthwith proceed with

diligence to implement such plan to the best of its ability.

(B) Disapproval

If the Secretary of the Treasury does not approve a capital

restoration plan as provided in subparagraph (A), then not

later than the earlier of the date the Secretary of the

Treasury disapproves of such plan by written notice to the

Association or the expiration of the 30-day consideration

period referred to in subparagraph (A) (as such period may have

been extended by mutual agreement), the Secretary of the

Treasury shall submit the Association's capital restoration

plan, in the form most recently proposed to the Secretary of

the Treasury by the Association, together with a report on the

Secretary of the Treasury's reasons for disapproval of such

plan and an alternative capital restoration plan, 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 copy of such submission simultaneously shall be sent to the

Association and the Secretary of Education by the Secretary of

the Treasury.

Upon receipt of the submission by the Association, the

Association shall forthwith proceed with diligence to implement

the most recently proposed capital restoration plan of the

Association. The Association, within 30 days after receipt from

the Secretary of the Treasury of such submission, shall submit

to such Chairmen and ranking minority members a written

response to such submission, setting out fully the nature and

extent of the Association's agreement or the disagreement with

the Secretary of the Treasury with respect to the capital

restoration plan submitted to the Secretary of the Treasury and

any findings of the Secretary of the Treasury.

(6) Substantial capital ratio reduction

(A) Additional plan required

If the capital ratio is less than 1.75 percent and is greater

than or equal to 1 percent at the end of the Association's most

recent calendar quarter, the Association shall submit to the

Secretary of the Treasury within 60 days after such occurrence

a capital restoration plan (or an appropriate modification of

any plan previously submitted or approved under paragraph (4))

to increase promptly its capital ratio to equal or exceed 1.75

percent. The Secretary of the Treasury and the Association

shall consult with respect to any plan or modified plan

submitted pursuant to this paragraph. The Secretary of the

Treasury shall approve such plan or modified plan (or a

modification thereof accepted by the Association) or disapprove

such plan or modified plan within 30 days after such plan or

modified plan is first submitted to the Secretary of the

Treasury by the Association, unless the Association and

Secretary of the Treasury mutually agree to a longer

consideration period. If the Secretary of the Treasury

approves a plan or modified plan (including a modification of a

plan accepted by the Association), the Association shall

forthwith proceed with diligence to implement such plan or

modified plan to the best of the Association's ability.

(B) Disapproval

If the Secretary of the Treasury disapproves a capital

restoration plan or modified plan submitted pursuant to

subparagraph (A), then, not later than the earlier of the date

the Secretary of the Treasury disapproves of such plan or

modified plan (by written notice to the Association) or the

expiration of the 30-day consideration period described in

subparagraph (A) (as such period may have been extended by

mutual agreement), the Secretary of the Treasury shall prepare

and submit an alternative capital restoration plan, together

with a report on his reasons for disapproval of the

Association's plan or modified plan, to the Chairman and

ranking minority member of the Committee on Labor and Human

Resources of the Senate and to the Chairman and ranking

minority member of the Committee on Education and Labor of the

House of Representatives. A copy of such submission

simultaneously shall be sent to the Association and the

Secretary of Education by the Secretary of the Treasury. The

Association, within 5 days after receipt from the Secretary of

the Treasury of such submission, shall submit to the Chairmen

and ranking minority members of such Committees, and the

Secretary of the Treasury, a written response to such

submission, setting out fully the nature and extent of the

Association's agreement or disagreement with the Secretary of

the Treasury with respect to the disapproved plan and the

alternative plan of the Secretary of the Treasury and any

findings of the Secretary of the Treasury.

Congress shall have 60 legislative days after the date on

which Congress receives the alternative plan under subparagraph

(B) from the Secretary of the Treasury to review such plan. If

Congress does not take statutory action with respect to any

such plan within such 60-day period, the Association shall

immediately proceed with diligence to implement the alternative

capital restoration plan of the Secretary of the Treasury under

subparagraph (B). If Congress is out of session when any such

alternative plan is received, such 60-day period shall begin on

the first day of the next session of Congress.

(7) Actions by Secretary of the Treasury

If 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

Limit any increase in, or order the reduction of, any

liabilities of the Association, except as necessary to fund

student loan purchases and warehousing advances.

(B) Restrict growth

Restrict or eliminate growth of the Association's assets,

other than student loans purchases and warehousing advances.

Restrict the Association from making any capital

distribution.

(D) Require issuance of new capital

Require the Association to issue new capital in any form and

in any amount sufficient to restore at least a 1.75 percent

capital ratio.

(E) Limit executive compensation

Prohibit the Association from increasing for any executive

officer any compensation including bonuses at a rate exceeding

that officer's average rate of compensation during the previous

12 calendar months and prohibiting the Board from adopting any

new employment severance contracts.

(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.

(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 committees

The 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 General

Accounting 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 General Accounting 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

General Accounting 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);

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 Education

The 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

The Association shall be deemed in compliance with the capital

ratios described in paragraphs (4) and (6)(A) if the Association

is rated in 1 of the 2 highest full rating categories (such

categories to be determined without regard to designations within

categories) by 2 nationally recognized statistical rating

organizations, determined without regard to the Association's

status as a federally chartered corporation.

(12) Treatment of confidential information

Notwithstanding any other provision of law, the Secretary of

the Treasury, the Secretary of Education, the Congressional

Budget Office, and the General Accounting Office shall not

disclose any information treated as confidential by the

Association or the Association's associated persons and obtained

pursuant to this subsection. Nothing in this paragraph shall

authorize the Secretary of the Treasury, the Secretary of

Education, the Congressional Budget Office, and the General

Accounting Office to withhold information from Congress, or

prevent the Secretary of Education, the Congressional Budget

Office, and the General Accounting Office from complying with a

request for information from any other Federal department or

agency requesting the information for purposes within the scope

of its jurisdiction, or complying with an order of a court of the

United States in an action brought by the United States. For

purposes of section 552 of title 5, this paragraph shall be

considered a statute described in subsection (b)(3) of such

section 552.

(13) Enforcement of safety and soundness requirements

The Secretary of Education or the Secretary of the Treasury, as

appropriate, may request that the Attorney General bring an

action in the United States District Court for the District of

Columbia for the enforcement of any provision of this section, or

may, under the direction or control of the Attorney General,

bring such an action. Such court shall have jurisdiction and

power to order and require compliance with this section.

(14) Actions by Secretary

(A) In general

For 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

The provisions of paragraphs (4), (5), (6), (8), (9), (10),

and (11) shall be of no further application to the Association

for any period after January 1, 2000.

(15) Definitions

As used in this subsection:

(A) The term ''nationally recognized statistical rating

organization'' means any entity recognized as such by the

Securities and Exchange Commission.

(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.

either House of Congress is in session.

(16) Dividends

The Association may pay dividends in the form of cash or

noncash distributions so long as at the time of the declaration

of such dividends, after giving effect to the payment of such

dividends as of the date of such declaration by the Board of

Directors of the Association, the Association's capital would be

in compliance with the capital standards set forth in this

section.

(17) Certification prior to payment of dividend

Prior to the payment of any dividend under paragraph (16), the

Association shall certify to the Secretary of the Treasury that

the payment of the dividend will be made in compliance with

paragraph (16) and shall provide copies of all calculations

needed to make such certification.

(s) Charter sunset

(1) Application of provisions

This subsection applies beginning 18 months and one day after

September 30, 1996, if no reorganization of the Association

occurs in accordance with the provisions of section 1087-3 of

this title.

(2) Sunset plan

(A) Plan submission by the Association

Not 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

The Association shall from time to time amend such plan to

reflect changed circumstances, and submit such amendments to

the Secretary of the Treasury and to the Chairman and Ranking

Minority Member of the Committee on Labor and Human Resources

of the Senate and Chairman and Ranking Minority Member of the

Committee on Economic and Educational Opportunities of the

House of Representatives. In no case may any amendment extend

the date for full implementation of the plan beyond the

dissolution date provided in paragraph (3).

The Secretary of the Treasury shall monitor the Association's

compliance with the plan and shall continue to review the plan

(including any amendments thereto).

(D) Amendment of the plan by the Secretary of the Treasury

The Secretary of the Treasury may require the Association to

amend the plan (including any amendments to the plan), if the

Secretary of the Treasury deems such amendments necessary to

ensure full payment of all obligations of the Association.

(E) Implementation by the Association

The Association shall promptly implement the plan (including

any amendments to the plan, whether such amendments are made by

the Association or are required to be made by the Secretary of

the Treasury).

(3) Dissolution of the Association

The 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) of this section 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

The Association shall, under the terms of an irrevocable

trust agreement in form and substance satisfactory to the

Secretary of the Treasury, the Association, and the appointed

trustee, irrevocably transfer all remaining obligations of the

Association to a trust and irrevocably deposit or cause to be

deposited into such trust, to be held as trust funds solely for

the benefit of holders of the remaining obligations, money or

direct noncallable obligations of the United States or any

agency thereof for which payment the full faith and credit of

the United States is pledged, maturing as to principal and

interest in such amounts and at such times as are determined by

the Secretary of the Treasury to be sufficient, without

consideration of any significant reinvestment of such interest,

to pay the principal of, and interest on, the remaining

obligations in accordance with their terms.

(B) Use of trust assets

All money, obligations, or financial assets deposited into

the trust pursuant to this subsection shall be applied by the

trustee to the payment of the remaining obligations assumed by

the trust. Upon the fulfillment of the trustee's duties under

the trust, any remaining assets of the trust shall be

transferred to the persons who, at the time of the dissolution,

were the shareholders of the Association, or to the legal

successors or assigns of such persons.

The Association shall make proper provision for all other

obligations of the Association, including the repurchase or

redemption, or the making of proper provision for the

repurchase or redemption, of any preferred stock of the

Association outstanding.

(D) Transfer of remaining assets

After compliance with subparagraphs (A) and (C), the

Association shall transfer to the shareholders of the

Association any remaining assets of the Association.

(4) Restrictions relating to winding up

(A) Restrictions on new business activity or acquisition of

assets by the Association

(i) In general

Beginning 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) of this

section other than in connection with the Association -

(I) serving as a lender of last resort pursuant to

subsection (q) of this section; 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

The Secretary is authorized to enter into an agreement

described in subclause (II) of clause (i) with the

Association covering such secondary market activities. Any

agreement entered into under such subclause shall cover a

period of 12 months, but may be renewed if the Secretary

determines that liquidity remains inadequate. The fee

provided under subsection (h)(7) of this section shall not

apply to loans acquired under any such agreement with the

Secretary.

(B) Issuance of debt obligations during the wind up period;

attributes of debt obligations

The Association shall not issue debt obligations which mature

later than July 1, 2013, except in connection with serving as a

lender of last resort pursuant to subsection (q) of this

section or with purchasing loans under an agreement with the

Secretary as described in subparagraph (A). Nothing in this

subsection shall modify the attributes accorded the debt

obligations of the Association by this section, regardless of

whether such debt obligations are transferred to a trust in

accordance with paragraph (3).

The Association may not transfer or permit the use of the

name ''Student Loan Marketing Association'', ''Sallie Mae'', or

any variation thereof, to or by any entity other than a

subsidiary of the Association.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 439, as added Pub. L. 99-498, title

IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1418; amended Pub. L.

100-50, Sec. 10(dd), June 3, 1987, 101 Stat. 347; Pub. L. 100-369,

Sec. 7(c), July 18, 1988, 102 Stat. 837; Pub. L. 102-325, title IV,

Sec. 431, July 23, 1992, 106 Stat. 554; Pub. L. 103-66, title IV,

Sec. 4041(c), 4104, Aug. 10, 1993, 107 Stat. 356, 367; Pub. L.

103-208, Sec. 2(c)(69), Dec. 20, 1993, 107 Stat. 2470; Pub. L.

103-382, title III, Sec. 358, Oct. 20, 1994, 108 Stat. 3968; Pub.

L. 104-208, div. A, title I, Sec. 101(e) (title VI, Sec.

602(b)(2)-(4), (c)), Sept. 30, 1996, 110 Stat. 3009-233, 3009-284

to 3009-286; Pub. L. 106-554, Sec. 1(a)(1) (title III, Sec. 309),

Dec. 21, 2000, 114 Stat. 2763, 2763A-45.)

-STATAMEND-

REPEAL OF SECTION

Pub. L. 104-208, div. A, title I, Sec. 101(e) (title VI, Sec.

602(d)), Sept. 30, 1996, 110 Stat. 3009-233, 3009-289, provided

that this section is repealed effective one year after date on

which all obligations of trust established under section

1087-3(d)(1) of this title have been extinguished, if

reorganization occurs in accordance with section 1087-3 of this

title; or date on which all obligations of trust established

under subsec. (s)(3)(A) of this section have been extinguished,

if reorganization does not occur in accordance with section

1087-3 of this title.

-REFTEXT-

REFERENCES IN TEXT

For the effective date of the Higher Education Amendments of

1992, referred to in subsec. (f)(4), see section 2 of Pub. L.

102-325, set out as an Effective Date of 1992 Amendment note under

section 1001 of this title.

-COD-

CODIFICATION

In subsec. (h)(3) and (5), ''chapter 31 of title 31'' substituted

for ''the Second Liberty Bond Act, as amended'' and ''the Second

Liberty Bond Act'', and ''that chapter'' substituted for ''that

Act, as amended'', on authority of Pub. L. 97-258, Sec. 4(b), Sept.

13, 1982, 96 Stat. 1067, the first section of which enacted Title

31, Money and Finance.

-MISC3-

PRIOR PROVISIONS

A prior section 1087-2, Pub. L. 89-329, title IV, Sec. 439, as

added Pub. L. 92-318, title I, Sec. 133(a), June 23, 1972, 86 Stat.

265; amended Pub. L. 94-273, Sec. 3(9), Apr. 21, 1976, 90 Stat.

376; Pub. L. 94-482, title I, Sec. 127(a), Oct. 12, 1976, 90 Stat.

2136; Pub. L. 95-43, Sec. 1(a)(38), June 15, 1977, 91 Stat. 217;

Pub. L. 96-374, title IV, Sec. 421(a)-(e)(1), title XIII, Sec.

1391(a)(1), (3), Oct. 3, 1980, 94 Stat. 1427-1430, 1503; Pub. L.

97-35, title V, Sec. 538, Aug. 13, 1981, 95 Stat. 457; Pub. L.

97-115, Sec. 18, Dec. 29, 1981, 95 Stat. 1610; Pub. L. 97-301, Sec.

14, Oct. 13, 1982, 96 Stat. 1405; Pub. L. 98-79, Sec. 2, 8, Aug.

15, 1983, 97 Stat. 476, 483; Pub. L. 99-272, title XVI, Sec.

16017(b)(4), 16018(a)(3), Apr. 7, 1986, 100 Stat. 347, 348,

established the Student Loan Marketing Association, prior to the

general revision of this part by Pub. L. 99-498.

AMENDMENTS

2000 - Subsec. (r)(2)(A)(i). Pub. L. 106-554, Sec. 1(a)(1) (title

III, Sec. 309(1)), which directed amendment of this section by

substituting ''and fix the compensation of such auditors and

examiners as may be necessary'' for ''auditors and examiners'', was

executed by making the substitution for ''auditors or examiners'',

to reflect the probable intent of Congress.

Subsec. (r)(2)(F). Pub. L. 106-554, Sec. 1(a)(1) (title III, Sec.

309(2)), added subpar. (F).

1996 - Subsec. (r)(1)(C). Pub. L. 104-208, Sec. 101(e) (title VI,

Sec. 602(b)(3)(A)), added subpar. (C).

Subsec. (r)(2)(A)(i), (ii). Pub. L. 104-208, Sec. 101(e) (title

VI, Sec. 602(b)(3)(B)(i)), added cls. (i) and (ii) and struck out

former cls. (i) and (ii) which read as follows:

''(i) appoint auditors to conduct audits of the Association from

time to time to determine the condition of the Association for the

purpose of assessing its financial safety and soundness; and

''(ii) enter into contracts to obtain the services of such

technical experts as the Secretary of the Treasury determines

necessary and appropriate to provide technical assistance to any

auditor appointed under this paragraph.''

Subsec. (r)(2)(D). Pub. L. 104-208, Sec. 101(e) (title VI, Sec.

602(b)(3)(B)(ii)), added subpar. (D).

Subsec. (r)(2)(E). Pub. L. 104-208, Sec. 101(e) (title VI, Sec.

602(b)(4)(A)), added subpar. (E).

Subsec. (r)(12). Pub. L. 104-208, Sec. 101(e) (title VI, Sec.

602(b)(2)(A)), inserted ''or the Association's associated persons''

after ''by the Association'' in first sentence.

Subsec. (r)(13). Pub. L. 104-208, Sec. 101(e) (title VI, Sec.

602(b)(2)(B), (C)), added par. (13) and redesignated former par.

(13) as (15).

Subsec. (r)(14). Pub. L. 104-208, Sec. 101(e) (title VI, Sec.

602(b)(3)(C)), added par. (14).

Subsec. (r)(15). Pub. L. 104-208, Sec. 101(e) (title VI, Sec.

602(b)(2)(B)), redesignated par. (13) as (15).

Subsec. (r)(16), (17). Pub. L. 104-208, Sec. 101(e), (title VI,

Sec. 602(b)(4)(B)), added pars. (16) and (17).

Subsec. (s). Pub. L. 104-208, Sec. 101(e) (title VI, Sec.

602(c)), added subsec. (s).

1994 - Subsec. (d)(1)(C). Pub. L. 103-382, Sec. 358(1)(A), (D),

inserted ''(including related equipment, instrumentation, and

furnishings)'' after ''materials'' in introductory provisions and

substituted ''30 percent'' for ''15 percent'' and ''types'' for

''type'' in concluding provisions.

Subsec. (d)(1)(C)(ii). Pub. L. 103-382, Sec. 358(1)(B),

substituted '', dining halls, student unions, and facilities

specifically designed to promote fitness and health for students,

faculty, and staff or for physical education courses; and'' for the

semicolon.

Subsec. (d)(1)(C)(iii), (iv). Pub. L. 103-382, Sec. 358(1)(C),

(E), struck out ''and'' after the semicolon in cl. (iii) and struck

out cl. (iv) which read as follows: ''related equipment,

instrumentation, and furnishings for facilities and materials

described in clause (i) or (iii);''.

Subsec. (n). Pub. L. 103-382, Sec. 358(2), substituted ''a report

of the Association's operations and activities, including a report

with respect to all facilities transactions, during each year'' for

''a report of its operations and activities during each year''.

1993 - Subsec. (h)(7). Pub. L. 103-66, Sec. 4104, added par. (7).

Subsec. (q). Pub. L. 103-66, Sec. 4041(c), amended subsec. (q)

generally, substituting present provisions for substantially

similar former provisions.

Subsec. (r)(12). Pub. L. 103-208 substituted ''section 552'' for

''section 522''.

1992 - Subsec. (c). Pub. L. 102-325, Sec. 431(a), amended subsec.

(1) to (4) for former provisions which provided for: in par. (1),

Board membership; in par. (2), interim Board; in par. (3), regular

Board; in par. (4), succession of regular Board; in par. (5), terms

of appointed and elected members; and in par. (6), meetings and

functions of Board.

Subsec. (d)(1)(C). Pub. L. 102-325, Sec. 431(b), amended subpar.

''to buy, sell, hold, insure, underwrite, and otherwise deal in

obligations issued for the purpose of financing or refinancing the

construction, reconstruction, renovation, or purchase of

educational and training facilities and housing for students and

faculties (including the underlying real property), and related

equipment, instrumentation, and furnishings;''.

Subsec. (d)(5). Pub. L. 102-325, Sec. 431(c), substituted

''second highest rating'' for ''third highest rating''.

Subsec. (f). Pub. L. 102-325, Sec. 431(d), amended subsec. (f)

generally, substituting present provisions consisting of pars. (1)

to (4) for former provisions which provided for: in par. (1),

common stock to insured lenders and eligible institutions only; in

par. (2), voting rights; in par. (3), number of shares and

transferability; in par. (4), dividends; and in par. (5), nonvoting

common stock.

Subsec. (r). Pub. L. 102-325, Sec. 431(e), added subsec. (r).

1988 - Subsec. (h)(1). Pub. L. 100-369 substituted ''Internal

Revenue Code of 1986'' for ''Internal Revenue Code of 1954'' in two

places, which for purposes of codification was translated as

''title 26'' thus requiring no change in text.

1987 - Subsec. (d)(1)(E)(iii). Pub. L. 100-50 inserted ''Labor

and'' before ''Human Resources''.

-CHANGE-

CHANGE OF NAME

Committee on Education and Labor of House of Representatives

treated as referring to Committee on Economic and Educational

Opportunities of House of Representatives by section 1(a) of Pub.

L. 104-14, set out as a note preceding section 21 of Title 2, The

Congress. Committee on Economic and Educational Opportunities of

House of Representatives changed to Committee on Education and the

Workforce of House of Representatives by House Resolution No. 5,

One Hundred Fifth Congress, Jan. 7, 1997.

-MISC4-

EFFECTIVE DATE OF 1996 AMENDMENT

Section 101(e) (title VI, Sec. 602(d)(2)) of div. A of Pub. L.

104-208 provided that: ''The repeals made by paragraph (1)

(repealing this section and section 1087-3 of this title) shall be

effective one year after -

''(A) the date on which all of the obligations of the trust

established under section 440(d)(1) of the Higher Education Act

of 1965 (20 U.S.C. 1087-3(d)(1)) (as added by subsection (a))

have been extinguished, if a reorganization occurs in accordance

with section 440 of such Act; or

''(B) the date on which all of the obligations of the trust

established under subsection (sic) 439(s)(3)(A) of such Act (20

U.S.C. 1087-2(s)(3)(A)) (as added by subsection (c)) have been

extinguished, if a reorganization does not occur in accordance

with section 440 of such Act.''

EFFECTIVE DATE OF 1993 AMENDMENT

Amendment by Pub. L. 103-208 effective as if included in the

Higher Education Amendments of 1992, Pub. L. 102-325, except as

otherwise provided, see section 5(a) of Pub. L. 103-208, set out as

a note under section 1051 of this title.

EFFECTIVE DATE OF 1992 AMENDMENT

Amendment by Pub. L. 102-325 effective July 23, 1992, except that

changes in subsec. (d)(1), relating to facilities loans, applicable

with respect to applications received on or after July 1, 1992, see

section 432 of Pub. L. 102-325, set out as a note under section

1078 of this title.

EFFECTIVE DATE OF 1987 AMENDMENT

Amendment by Pub. L. 100-50 effective as if enacted as part of

the Higher Education Amendments of 1986, Pub. L. 99-498, see

section 27 of Pub. L. 100-50, set out as a note under section 1001

of this title.

TERMINATION OF REPORTING REQUIREMENTS

For termination, effective May 15, 2000, of provisions in

subsecs. (k) and (n) of this section relating to transmitting

annual reports to Congress, see section 3003 of Pub. L. 104-66, as

amended, set out as a note under section 1113 of Title 31, Money

and Finance, and pages 141 and 206 of House Document No. 103-7.

USE OF ASSOCIATION NAMES UPON DISSOLUTION; ENFORCEMENT

Section 101(e) (title VI, Sec. 602(e), (f)) of div. A of Pub. L.

104-208 provided that:

''(e) Association Names. - Upon dissolution in accordance with

section 439(s) of the Higher Education Act of 1965 (20 U.S.C.

1087-2((s))), the names 'Student Loan Marketing Association',

'Sallie Mae', and any variations thereof may not be used by any

entity engaged in any business similar to the business conducted

pursuant to section 439 of such Act (as such section was in effect

on the date of enactment of this Act (Sept. 30, 1996)) without the

approval of the Secretary of the Treasury.

''(f) Right to Enforce. - The Secretary of Education or the

Secretary of the Treasury, as appropriate, may request that the

Attorney General bring an action in the United States District

Court for the District of Columbia for the enforcement of any

provision of subsection (e), or may, under the direction or control

of the Attorney General, bring such an action. Such court shall

have jurisdiction and power to order and require compliance with

subsection (e).''

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1072a, 1078, 1085,

1087-1, 1087-3, 1092a of this title; title 12 section 1828.

-CITE-

20 USC Sec. 1087-3 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1087-3. Reorganization of Student Loan Marketing Association

through formation of Holding Company

-STATUTE-

(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) of this section, 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

The plan of reorganization adopted by the Board of Directors

pursuant to subsection (a) of this section shall be submitted to

common shareholders of the Association for their approval. The

reorganization shall occur on the reorganization effective date,

provided that the plan of reorganization has been approved by the

affirmative votes, cast in person or by proxy, of the holders of a

majority of the issued and outstanding shares of the Association

common stock.

In the event the shareholders of the Association approve the plan

of reorganization under subsection (b) of this section, the

following provisions shall apply beginning on the reorganization

effective date:

(1) In general

Except as specifically provided in this section, until the

dissolution date the Association shall continue to have all of

the rights, privileges and obligations set forth in, and shall be

subject to all of the limitations and restrictions of, section

1087-2 of this title, and the Association shall continue to carry

out the purposes of such section. The Holding Company and any

subsidiary of the Holding Company (other than the Association)

shall not be entitled to any of the rights, privileges, and

obligations, and shall not be subject to the limitations and

restrictions, applicable to the Association under section 1087-2

of this title, except as specifically provided in this section.

The Holding Company and any subsidiary of the Holding Company

(other than the Association or a subsidiary of the Association)

shall not purchase loans insured under this chapter until such

time as the Association ceases acquiring such loans, except that

the Holding Company may purchase such loans if the Association is

merely continuing to acquire loans as a lender of last resort

pursuant to section 1087-2(q) of this title or under an agreement

with the Secretary described in paragraph (6).

(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 property of the Association (both

tangible and intangible) other than the remaining property.

Subject to the preceding sentence, such transferred property

shall include all right, title, and interest in -

(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

Nothing in this paragraph shall be construed to prohibit the

Association from transferring remaining property from time to

time to the Holding Company or any subsidiary of the Holding

Company, subject to the provisions of paragraph (4).

(3) Transfer of personnel

On the reorganization effective date, employees of the

Association shall become employees of the Holding Company (or any

subsidiary of the Holding Company), and the Holding Company (or

any subsidiary of the Holding Company) shall provide all

necessary and appropriate management and operational support

(including loan servicing) to the Association, as requested by

the Association. The Association, however, may obtain such

management and operational support from persons or entities not

associated with the Holding Company.

(4) Dividends

The Association may pay dividends in the form of cash or

noncash distributions so long as at the time of the declaration

of such dividends, after giving effect to the payment of such

dividends as of the date of such declaration by the Board of

Directors of the Association, the Association's capital would be

in compliance with the capital standards and requirements set

forth in section 1087-2(r) of this title. If, at any time after

the reorganization effective date, the Association fails to

comply with such capital standards, the Holding Company shall

transfer with due diligence to the Association additional capital

in such amounts as are necessary to ensure that the Association

again complies with the capital standards.

(5) Certification prior to dividend

Prior to the payment of any dividend under paragraph (4), the

Association shall certify to the Secretary of the Treasury that

the payment of the dividend will be made in compliance with

paragraph (4) and shall provide copies of all calculations needed

to make such certification.

(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

The Secretary is authorized to enter into an agreement

described in clause (iv) of subparagraph (A) with the

Association covering such secondary market activities. Any

agreement entered into under such clause shall cover a period

of 12 months, but may be renewed if the Secretary determines

that liquidity remains inadequate. The fee provided under

section 1087-2(h)(7) of this title shall not apply to loans

acquired under any such agreement with the Secretary.

(7) Issuance of debt obligations during the transition period;

attributes of debt obligations

After the reorganization effective date, the Association shall

not issue debt obligations which mature later than September 30,

2008, except in connection with serving as a

lender-of-last-resort pursuant to section 1087-2(q) of this title

or with purchasing loans under an agreement with the Secretary as

described in paragraph (6). Nothing in this section shall modify

the attributes accorded the debt obligations of the Association

by section 1087-2 of this title, regardless of whether such debt

obligations are incurred prior to, or at any time following, the

reorganization effective date or are transferred to a trust in

accordance with subsection (d) of this section.

(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

The Secretary of the Treasury may require summary reports of

the information described in subparagraph (A) 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

subparagraph (A), 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.

(i) In general

The funds and assets of the Association shall at all times

be maintained separately from the funds and assets of the

Holding Company or any subsidiary of the Holding Company and

may be used by the Association solely to carry out the

Association's purposes and to fulfill the Association's

obligations.

(ii) Books and records

The Association shall maintain books and records that

clearly reflect the assets and liabilities of the

Association, separate from the assets and liabilities of the

Holding Company or any subsidiary of the Holding Company.

(iii) Corporate office

The Association shall maintain a corporate office that is

physically separate from any office of the Holding Company or

any subsidiary of the Holding Company.

(iv) Director

No director of the Association who is appointed by the

President pursuant to section 1087-2(c)(1)(A) of this title

may serve as a director of the Holding Company.

(v) One officer requirement

At least one officer of the Association shall be an officer

solely of the Association.

(vi) Transactions

Transactions between the Association and the Holding

Company or any subsidiary of the Holding Company, including

any loan servicing arrangements, shall be on terms no less

favorable to the Association than the Association could

obtain from an unrelated third party offering comparable

services.

(vii) Credit prohibition

The Association shall not extend credit to the Holding

Company or any subsidiary of the Holding Company nor

guarantee or provide any credit enhancement to any debt

obligations of the Holding Company or any subsidiary of the

Holding Company.

(viii) Amounts collected

Any amounts collected on behalf of the Association by the

Holding Company or any subsidiary of the Holding Company with

respect to the assets of the Association, pursuant to a

servicing contract or other arrangement between the

Association and the Holding Company or any subsidiary of the

Holding Company, shall be collected solely for the benefit of

the Association and shall be immediately deposited by the

Holding Company or such subsidiary to an account under the

sole control of the Association.

(D) Encumbrance of assets

Notwithstanding any Federal or State law, rule, or

regulation, or legal or equitable principle, doctrine, or

theory to the contrary, under no circumstances shall the assets

of the Association be available or used to pay claims or debts

of or incurred by the Holding Company. Nothing in this

subparagraph shall be construed to limit the right of the

Association to pay dividends not otherwise prohibited under

this subparagraph or to limit any liability of the Holding

Company explicitly provided for in this section.

(E) Holding Company activities

After the reorganization effective date and prior to the

dissolution date, all business activities of the Holding

Company shall be conducted through subsidiaries of the Holding

Company.

(F) Confidentiality

Any information provided by the Association pursuant to this

section shall be subject to the same confidentiality

obligations contained in section 1087-2(r)(12) of this title.

(G) Definition

For purposes of this paragraph, the term ''associated

person'' means any person, other than a natural person, who is

directly or indirectly controlling, controlled by, or under

common control with, the Association.

(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

The District of Columbia Financial Responsibility and

Management Assistance Authority is authorized to sell or

exercise the stock warrants described in subparagraph (A). The

District of Columbia Financial Responsibility and Management

Assistance Authority shall deposit into the account established

under section 1155(e) (FOOTNOTE 1) of this title amounts

collected from the sale and proceeds resulting from the

exercise of the stock warrants pursuant to this subparagraph.

(FOOTNOTE 1) See References in Text note below.

(10) Restrictions on transfer of Association shares and

bankruptcy of Association

After the reorganization effective date, the Holding Company

shall not sell, pledge, or otherwise transfer the outstanding

shares of the Association, or agree to or cause the liquidation

of the Association or cause the Association to file a petition

for bankruptcy under title 11, without prior approval of the

Secretary of the Treasury and the Secretary of Education.

(d) Termination of Association

In the event the shareholders of the Association approve a plan

of reorganization under subsection (b) of this section, 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) of this section. On the dissolution

date, the Association shall take the following actions:

(1) Establishment of a trust

The Association shall, under the terms of an irrevocable trust

agreement that is in form and substance satisfactory to the

Secretary of the Treasury, the Association and the appointed

trustee, irrevocably transfer all remaining obligations of the

Association to the trust and irrevocably deposit or cause to be

deposited into such trust, to be held as trust funds solely for

the benefit of holders of the remaining obligations, money or

direct noncallable obligations of the United States or any agency

thereof for which payment the full faith and credit of the United

States is pledged, maturing as to principal and interest in such

amounts and at such times as are determined by the Secretary of

the Treasury to be sufficient, without consideration of any

significant reinvestment of such interest, to pay the principal

of, and interest on, the remaining obligations in accordance with

their terms. To the extent the Association cannot provide money

or qualifying obligations in the amount required, the Holding

Company shall be required to transfer money or qualifying

obligations to the trust in the amount necessary to prevent any

deficiency.

(2) Use of trust assets

All money, obligations, or financial assets deposited into the

trust pursuant to this subsection shall be applied by the trustee

to the payment of the remaining obligations assumed by the trust.

(3) Obligations not transferred to the trust

The Association shall make proper provision for all other

obligations of the Association not transferred to the trust,

including the repurchase or redemption, or the making of proper

provision for the repurchase or redemption, of any preferred

stock of the Association outstanding. Any obligations of the

Association which cannot be fully satisfied shall become

liabilities of the Holding Company as of the date of dissolution.

(4) Transfer of remaining assets

After compliance with paragraphs (1) and (3), any remaining

assets of the trust shall be transferred to the Holding Company

or any subsidiary of the Holding Company, as directed by the

Holding Company.

(e) Operation of Holding Company

In the event the shareholders of the Association approve the plan

of reorganization under subsection (b) of this section, the

following provisions shall apply beginning on the reorganization

effective date:

(1) Holding Company Board of Directors

The number of members and composition of the Board of Directors

of the Holding Company shall be determined as set forth in the

Holding Company's charter or like instrument (as amended from

time to time) or bylaws (as amended from time to time) and as

permitted under the laws of the jurisdiction of the Holding

Company's incorporation.

(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

Subject to paragraph (2), the Association may assign to the

Holding Company, or any subsidiary of the Holding Company, the

''Sallie Mae'' name as a trademark or service mark, except that

neither the Holding Company nor any subsidiary of the Holding

Company (other than the Association or any subsidiary of the

Association) may use the ''Sallie Mae'' name on, or to identify

the issuer of, any debt obligation or other security offered or

sold by the Holding Company or any subsidiary of the Holding

Company (other than a debt obligation or other security issued to

and held by the Holding Company or any subsidiary of the Holding

Company). The Association shall remit to the account established

under section 1155(e) (FOOTNOTE 2) of this title, $5,000,000,

within 60 days of the reorganization effective date as

compensation for the right to assign the ''Sallie Mae'' name as a

trademark or service mark.

(FOOTNOTE 2) See References in Text note below.

(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

Except as specifically set forth in this section, nothing in this

section shall be construed to limit the authority of the

Association as a federally chartered corporation, or of the Holding

Company as a State or District of Columbia chartered corporation.

(g) Right to enforce

The Secretary of Education or the Secretary of the Treasury, as

appropriate, may request that the Attorney General bring an action

in the United States District Court for the District of Columbia

for the enforcement of any provision of this section, or may, under

the direction or control of the Attorney General, bring such an

action. Such court shall have jurisdiction and power to order and

require compliance with this section.

(h) Deadline for reorganization effective date

This section shall be of no further force and effect in the event

that the reorganization effective date does not occur on or before

18 months after September 30, 1996.

(i) Definitions

For purposes of this section:

(1) Association

The term ''Association'' means the Student Loan Marketing

Association.

(2) Dissolution date

The term ''dissolution date'' means September 30, 2008, or such

earlier date as the Secretary of Education permits the transfer

of remaining obligations in accordance with subsection (d) of

this section.

(3) Holding Company

The term ''Holding Company'' means the new business corporation

established pursuant to this section by the Association under the

laws of any State of the United States or the District of

Columbia for the purposes of the reorganization and restructuring

described in subsection (a) of this section.

(4) Remaining obligations

The term ''remaining obligations'' means the debt obligations

of the Association outstanding as of the dissolution date.

(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.

(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

The term ''reorganization'' means the restructuring event or

events (including any merger event) giving effect to the Holding

Company structure described in subsection (a) of this section.

(7) Reorganization effective date

The term ''reorganization effective date'' means the effective

date of the reorganization as determined by the Board of

Directors of the Association, which shall not be earlier than the

date that shareholder approval is obtained pursuant to subsection

(b) of this section and shall not be later than the date that is

18 months after September 30, 1996.

(8) Subsidiary

The term ''subsidiary'' means one or more direct or indirect

subsidiaries.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 440, as added Pub. L. 104-208,

div. A, title I, Sec. 101(e) (title VI, Sec. 602(a)), Sept. 30,

1996, 110 Stat. 3009-233, 3009-275.)

-STATAMEND-

REPEAL OF SECTION

Pub. L. 104-208, div. A, title I, Sec. 101(e) (title VI, Sec.

602(d)), Sept. 30, 1996, 110 Stat. 3009-233, 3009-289, provided

that this section is repealed effective one year after date on

which all obligations of trust established under subsec. (d)(1)

of this section have been extinguished, if reorganization occurs

in accordance with this section, or date on which all obligations

of trust established under section 1087-2(s)(3)(A) of this title

have been extinguished, if reorganization does not occur in

accordance with this section.

-REFTEXT-

REFERENCES IN TEXT

This chapter, referred to in subsec. (c)(1), was in the original

''this Act'', meaning Pub. L. 89-329, as amended, known as the

Higher Education Act of 1965. For complete classification of this

Act to the Code, see Short Title note set out under section 1001 of

this title and Tables.

Section 1155(e) of this title, referred to in subsecs. (c)(9)(B)

and (e)(3), was in the original a reference to section 3(e) of the

Student Loan Marketing Association Reorganization Act of 1996, and

was translated as reading section 603(e) of that Act, which is Pub.

L. 104-208, div. A, title I, Sec. 101(e) (title VI, Sec. 603(e)),

Sept. 30, 1996, 110 Stat. 3009-233, 3009-293, to reflect the

probable intent of Congress, because that Act does not contain a

section 3(e), but does contain a section 603(e) which establishes

the account referred to in text.

-MISC2-

PRIOR PROVISIONS

A prior section 1087-3, Pub. L. 89-329, title IV, Sec. 439A, as

added Pub. L. 94-482, title I, Sec. 127(a), Oct. 12, 1976, 90 Stat.

2141, related to a five-year nondischargeability of certain loan

debts, prior to repeal by Pub. L. 95-598, title III, Sec. 317, Nov.

6, 1978, 92 Stat. 2678, eff. Nov. 6, 1978.

A prior section 1087-3a, Pub. L. 89-329, title IV, Sec. 439B, as

added Pub. L. 95-566, Sec. 8, Nov. 1, 1978, 92 Stat. 2404,

authorized any loan under this part to be counted as part of the

expected family contribution in the determination of need, prior to

repeal by Pub. L. 97-35, title V, Sec. 532(b)(2), Aug. 13, 1981, 95

Stat. 452, applicable to loans for the statement required by

section 1078(a)(2)(A) of this title is completed on or after Oct.

1, 1981.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1078-3, 1085, 1087-2,

1087-4, 1155 of this title; title 12 section 1828.

-CITE-

20 USC Sec. 1087-4 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part B - Federal Family Education Loan Program

-HEAD-

Sec. 1087-4. Discrimination in secondary markets prohibited

-STATUTE-

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.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 440A, as added Pub. L. 104-208,

div. A, title I, Sec. 101(e) (title VI, Sec. 604), Sept. 30, 1996,

110 Stat. 3009-233, 3009-293.)

-MISC1-

PRIOR PROVISIONS

A prior section 1087-4, Pub. L. 89-329, title IV, Sec. 440, as

added Pub. L. 94-482, title I, Sec. 127(a), Oct. 12, 1976, 90 Stat.

2141, provided for criminal penalties, prior to repeal by Pub. L.

96-374, title IV, Sec. 451(b), Oct. 3, 1980, 94 Stat. 1458, eff.

Oct. 1, 1980. See section 1097 of this title.

-CITE-

20 USC Part C - William D. Ford Federal Direct Loan

Program 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part C - William D. Ford Federal Direct Loan Program

-HEAD-

Part C - William D. Ford Federal Direct Loan Program

-COD-

CODIFICATION

This part was, in the original, part D of title IV of Pub. L.

89-329, the Higher Education Act of 1965. The letter designation

was changed from ''D'' to ''C'' for codification purposes. Part C

of title IV of Pub. L. 89-329, consisting of sections 441 to 447,

as added by Pub. L. 99-498, title IV, Sec. 403(a), Oct. 17, 1986,

100 Stat. 1429, is set out as section 2751 et seq. of Title 42, The

Public Health and Welfare, because sections 441 to 446 of Pub. L.

89-329 had originally been enacted as part C of title I of the

Economic Opportunity Act of 1964, consisting of sections 121 to 126

of Pub. L. 88-452, Aug. 20, 1964, 78 Stat. 513, prior to the

transfer of such sections into Pub. L. 89-329, and had already been

classified to section 2751 et seq. of Title 42 at the time of the

transfer.

-SECREF-

PART REFERRED TO IN OTHER SECTIONS

This part is referred to in sections 1070a, 1078, 1078-3,

1078-11, 1082, 1085, 1087tt, 1090, 1091, 1091a, 1091b, 1092, 1092b,

1094, 1098c, 1099c of this title; title 2 sections 60c-5, 906;

title 5 section 5379; title 10 sections 2171, 2174, 16301, 16302;

title 11 section 525; title 26 section 6103.

-CITE-

20 USC Sec. 1087a 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part C - William D. Ford Federal Direct Loan Program

-HEAD-

Sec. 1087a. Program authority

-STATUTE-

(a) In general

There are hereby made available, in accordance with the

provisions of this part, such sums as may be necessary to make

loans to all eligible students (and the eligible parents of such

students) in attendance at participating institutions of higher

education selected by the Secretary, to enable such students to

pursue their courses of study at such institutions during the

period beginning July 1, 1994. Such loans shall be made by

participating institutions, or consortia thereof, that have

agreements with the Secretary to originate loans, or by alternative

originators designated by the Secretary to make loans for students

in attendance at participating institutions (and their parents).

(b) Designation

(1) Program

The program established under this part shall be referred to as

the ''William D. Ford Federal Direct Loan Program''.

(2) Direct loans

Notwithstanding any other provision of this part, loans made to

borrowers under this part that, except as otherwise specified in

this part, have the same terms, conditions, and benefits as loans

made to borrowers under section 1078 of this title, shall be

known as ''Federal Direct Stafford/Ford Loans''.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 451, as added Pub. L. 99-498, title

IV, Sec. 404, Oct. 17, 1986, 100 Stat. 1437; amended Pub. L.

102-325, title IV, Sec. 451, July 23, 1992, 106 Stat. 569; Pub. L.

103-66, title IV, Sec. 4021, Aug. 10, 1993, 107 Stat. 341; Pub. L.

103-382, title III, Sec. 358A, Oct. 20, 1994, 108 Stat. 3968.)

-MISC1-

PRIOR PROVISIONS

A prior section 1087a, Pub. L. 89-329, title IV, Sec. 451, as

added Pub. L. 90-575, title I, Sec. 141, Oct. 16, 1968, 82 Stat.

1031; amended Pub. L. 92-318, title I, Sec. 136(a), (b)(1), June

23, 1972, 86 Stat. 272, authorized appropriations for cooperative

education programs from the fiscal year ending June 30, 1969,

through the fiscal year ending prior to July 1, 1975, prior to

repeal by Pub. L. 94-482, title I, Sec. 129(a), Oct. 12, 1976, 90

Stat. 2144, eff. 30 days after Oct. 12, 1976.

AMENDMENTS

1994 - Pub. L. 103-382 designated existing provisions as subsec.

(a), added heading, and added subsec. (b).

1993 - Pub. L. 103-66 amended section generally, substituting

provisions relating to program authority for former provisions

relating to program and payment authority.

1992 - Pub. L. 102-325 amended section generally, substituting

provisions relating to program and payment authority for Federal

direct loan demonstration program for former provisions relating to

statement of purpose of income contingent direct loan demonstration

project.

EFFECTIVE DATE OF 1992 AMENDMENT

Amendment by Pub. L. 102-325 effective Oct. 1, 1992, see section

2 of Pub. L. 102-325, set out as a note under section 1001 of this

title.

INCOME CONTINGENT LOAN DISTRIBUTION OF FUNDS

Section 452 of Pub. L. 102-325 provided that:

''(a) In General. - After September 30, 1992, and not later than

March 31, 1992, the capital balance of the student loan fund

established under part D of title IV of the Higher Education Act of

1965 (20 U.S.C. 1087a et seq.) (as such Act was in effect on the

date of enactment of this Act (July 23, 1992)) shall be distributed

by allowing institutions to transfer any remaining funds, including

future collections and all other funds at the institution's

discretion, to such institution's part E (20 U.S.C. 1087aa et seq.)

account, part C (42 U.S.C. 2751 et seq.) fund, or subpart 3 of part

A (20 U.S.C. 1070b et seq.) fund under the terms and conditions of

the appropriate program.

''(b) Conversion of Existing Loans. - Institutions may, after

July 1, 1992, convert all outstanding loans made under part D of

title IV of the Higher Education Act of 1965 (20 U.S.C. 1087a et

seq.) (as such Act was in effect on such date) to part E (20 U.S.C.

1087aa et seq.) loans, provided that such institution -

''(1) notify the borrower of such conversion;

''(2) obtain a signed part E promissory note from the borrower

for the remaining amount outstanding; and

''(3) provide the borrower in writing with a description of all

terms and conditions of the new loan.''

-CITE-

20 USC Sec. 1087b 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part C - William D. Ford Federal Direct Loan Program

-HEAD-

Sec. 1087b. Funds for origination of direct student loans

-STATUTE-

(a) In general

The Secretary shall provide, on the basis of the need and the

eligibility of students at each participating institution, and

parents of such students, for such loans, funds for student and

parent loans under this part -

(1) directly to an institution of higher education that has an

agreement with the Secretary under section 1087d(a) of this title

to participate in the direct student loan programs under this

part and that also has an agreement with the Secretary under

section 1087d(b) of this title to originate loans under this

part; or

(2) through an alternative originator designated by the

Secretary to students (and parents of students) attending

institutions of higher education that have an agreement with the

Secretary under section 1087d(a) of this title but that do not

have an agreement with the Secretary under section 1087d(b) of

this title.

(b) No entitlement to participate or originate

No institution of higher education shall have a right to

participate in the programs authorized by this part, to originate

loans, or to perform any program function under this part. Nothing

in this subsection shall be construed so as to limit the

entitlement of an eligible student attending a participating

institution (or the eligible parent of such student) to borrow

under this part.

Loan funds shall be paid and delivered to an institution by the

Secretary prior to the beginning of the payment period established

by the Secretary in a manner that is consistent with payment and

delivery of Federal Pell Grants under subpart 1 of part A of this

subchapter.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 452, as added Pub. L. 99-498, title

IV, Sec. 404, Oct. 17, 1986, 100 Stat. 1437; amended Pub. L.

102-325, title IV, Sec. 451, July 23, 1992, 106 Stat. 569; Pub. L.

103-66, title IV, Sec. 4021, Aug. 10, 1993, 107 Stat. 341; Pub. L.

105-33, title VI, Sec. 6102, Aug. 5, 1997, 111 Stat. 652; Pub. L.

105-244, title IV, Sec. 401(g)(5), Oct. 7, 1998, 112 Stat. 1652.)

-MISC1-

PRIOR PROVISIONS

A prior section 1087b, Pub. L. 89-329, title IV, Sec. 452, as

added Pub. L. 90-575, title I, Sec. 141, Oct. 16, 1968, 82 Stat.

1031, authorized grants for programs of cooperative education,

prior to repeal by Pub. L. 94-482, title I, Sec. 129(a), Oct. 12,

1976, 90 Stat. 2144, eff. 30 days after Oct. 12, 1976.

AMENDMENTS

1998 - Subsec. (c). Pub. L. 105-244 substituted ''Federal Pell

Grants'' for ''basic grants''.

1997 - Subsecs. (b) to (d). Pub. L. 105-33 redesignated subsecs.

subsec. (b) which required the Secretary to pay fees to

institutions of higher education and alternative loan originators

to assist in meeting the cost of loan origination.

1993 - Pub. L. 103-66 amended section generally, substituting

provisions relating to funds for origination of direct student

loans for former provisions relating to payment rules.

1992 - Pub. L. 102-325 amended section generally, substituting

provisions relating to payment rules for former provisions

authorizing demonstration projects.

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by Pub. L. 105-244 effective Oct. 1, 1998, except as

otherwise provided in Pub. L. 105-244, see section 3 of Pub. L.

105-244, set out as a note under section 1001 of this title.

EFFECTIVE DATE OF 1992 AMENDMENT

Amendment by Pub. L. 102-325 effective Oct. 1, 1992, see section

2 of Pub. L. 102-325, set out as a note under section 1001 of this

title.

-CITE-

20 USC Sec. 1087c 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part C - William D. Ford Federal Direct Loan Program

-HEAD-

Sec. 1087c. Selection of institutions for participation and

origination

-STATUTE-

(a) General authority

The Secretary shall enter into agreements pursuant to section

1087d(a) of this title with institutions of higher education to

participate in the direct student loan program under this part, and

agreements pursuant to section 1087d(b) of this title with

institutions of higher education, or consortia thereof, to

originate loans in such program, for academic years beginning on or

after July 1, 1994. Alternative origination services, through which

an entity other than the participating institution at which the

student is in attendance originates the loan, shall be provided by

the Secretary, through 1 or more contracts under section 1087f(b)

of this title or such other means as the Secretary may provide, for

students attending participating institutions that do not originate

direct student loans under this part. Such agreements for the

academic year 1994-1995 shall, to the extent feasible, be entered

into not later than January 1, 1994.

(b) Selection criteria

(1) Application

Each institution of higher education desiring to participate in

the direct student loan program under this part shall submit an

application satisfactory to the Secretary containing such

information and assurances as the Secretary may require.

(2) Selection procedure

The Secretary shall select institutions for participation in

the direct student loan program under this part, and shall enter

into agreements with such institutions under section 1087d(a) of

this title, from among those institutions that submit the

applications described in paragraph (1), and meet such other

eligibility requirements as the Secretary shall prescribe.

(1) In general

The Secretary may enter into a supplemental agreement with an

institution (or a consortium of such institutions) that -

(A) has an agreement under subsection 1087d(a) of this title;

(B) desires to originate loans under this part; and

(2) Selection criteria

The Secretary may approve an institution to originate loans

only if such institution -

(A) is not on the reimbursement system of payment for any of

the programs under subpart 1 or 3 of part A of this subchapter,

part C of subchapter I of chapter 34 of title 42, or part D of

this subchapter;

(B) is not overdue on program or financial reports or audits

required under this subchapter;

suspension, or termination under section 1078(b)(1)(T),

1082(h), or 1094(c) of this title;

(D) in the opinion of the Secretary, has not had severe

performance deficiencies for any of the programs under this

subchapter, including such deficiencies demonstrated by audits

or program reviews submitted or conducted during the 5 calendar

years immediately preceding the date of application;

(E) provides an assurance that such institution has no

delinquent outstanding debts to the Federal Government, unless

such debts are being repaid under or in accordance with a

repayment arrangement satisfactory to the Federal Government,

or the Secretary in the Secretary's discretion determines that

the existence or amount of such debts has not been finally

determined by the cognizant Federal agency; and

(F) meets such other criteria as the Secretary may establish

to protect the financial interest of the United States and to

promote the purposes of this part.

(3) Regulations governing approval

The Secretary shall promulgate and publish in the Federal

originate loans under this part in accordance with section

1087g(a)(2) of this title.

(d) Eligible institutions

The Secretary may not select an institution of higher education

for participation under this section unless such institution is an

eligible institution under section 1085(a) of this title.

(e) Consortia

Subject to such requirements as the Secretary may prescribe,

eligible institutions of higher education (as determined under

subsection (d) of this section) with agreements under section

1087d(a) of this title may apply to the Secretary as consortia to

originate loans under this part for students in attendance at such

institutions. Each such institution shall be required to meet the

requirements of subsection (c) of this section with respect to loan

origination.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 453, as added Pub. L. 99-498, title

IV, Sec. 404, Oct. 17, 1986, 100 Stat. 1438; amended Pub. L.

102-325, title IV, Sec. 451, July 23, 1992, 106 Stat. 569; Pub. L.

103-66, title IV, Sec. 4021, Aug. 10, 1993, 107 Stat. 342; Pub. L.

103-208, Sec. 2(e), Dec. 20, 1993, 107 Stat. 2470; Pub. L. 105-244,

title IV, Sec. 451, Oct. 7, 1998, 112 Stat. 1715.)

-COD-

CODIFICATION

Amendment by section 2 of Pub. L. 103-208 (which was effective as

if included in Pub. L. 102-325) was executed to this section as

amended by Pub. L. 102-325 and Pub. L. 103-66, to reflect the

probable intent of Congress.

-MISC3-

PRIOR PROVISIONS

A prior section 1087c, Pub. L. 89-329, title IV, Sec. 453, as

added Pub. L. 90-575, title I, Sec. 141, Oct. 16, 1968, 82 Stat.

1032; amended Pub. L. 92-318, title I, Sec. 136(b)(2), June 23,

1972, 86 Stat. 272, authorized grants and contracts for training

and research in cooperative education programs, prior to repeal by

Pub. L. 94-482, title I, Sec. 129(a), Oct. 12, 1976, 90 Stat. 2144,

eff. 30 days after Oct. 12, 1976.

AMENDMENTS

1998 - Subsec. (a). Pub. L. 105-244, Sec. 451(a), amended

heading, redesignated par. (1) as entire subsec., and struck out

pars. (2) to (4) which provided for transition from loan programs

under part B of this subchapter to direct student loan program

under this part and defined term ''new student loan volume''.

Subsec. (b)(2). Pub. L. 105-244, Sec. 451(b), substituted

''prescribe.'' for ''prescribe, by, to the extent possible -

''(A)(i) categorizing such institutions according to

anticipated loan volume, length of academic program, control of

the institution, highest degree offered, size of student

enrollment, geographic location, annual loan volume, and default

experience; and

''(ii) beginning in academic year 1995-1996 selecting

institutions that are reasonably representative of each of the

categories described pursuant to clause (i); and

''(B) if the Secretary determines it necessary in order to

carry out the purposes of subparagraph (A) and attain such

reasonable representation (as required by subparagraph (A)),

selecting additional institutions.''

Subsec. (c)(2). Pub. L. 105-244, Sec. 451(c)(1)(A), (B),

substituted ''Selection criteria'' for ''Transition selection

criteria'' in heading and ''The Secretary'' for ''For academic year

1994-1995, the Secretary'' in introductory provisions.

Subsec. (c)(2)(A). Pub. L. 105-244, Sec. 451(c)(1)(E),

redesignated subpar. (B) as (A).

Pub. L. 105-244, Sec. 451(c)(1)(C), struck out subpar. (A) which

read as follows: ''made loans under part D of this subchapter in

academic year 1993-1994 and did not exceed the applicable maximum

default rate under section 1087bb(g) of this title for the most

recent fiscal year for which data are available;''.

Subsec. (c)(2)(B) to (D). Pub. L. 105-244, Sec. 451(c)(1)(E),

redesignated subpars. (C), (D), and (F) as (B) to (D),

respectively. Former subpar. (B) redesignated (A).

Subsec. (c)(2)(E). Pub. L. 105-244, Sec. 451(c)(1)(E),

redesignated subpar. (G) as (E).

Pub. L. 105-244, Sec. 451(c)(1)(D), struck out subpar. (E) which

read as follows: ''in the opinion of the Secretary, has not had

significant deficiencies identified by a State postsecondary review

entity under subpart 1 of part G of this subchapter;''.

Subsec. (c)(2)(F) to (H). Pub. L. 105-244, Sec. 451(c)(1)(E),

redesignated subpars. (G) and (H) as (E) and (F), respectively.

Former subpar. (F) redesignated (D).

Subsec. (c)(3). Pub. L. 105-244, Sec. 451(c)(2), struck out

''after transition'' after ''approval'' in heading and substituted

''The Secretary'' for ''For academic year 1995-1996 and subsequent

academic years, the Secretary'' in text.

1993 - Pub. L. 103-66 amended section generally, substituting

provisions relating to selection of institutions for participation

and origination for former provisions relating to selection by

Secretary.

Subsec. (b)(2)(B). Pub. L. 103-208 amended subpar. (B)

generally. Prior to amendment, subpar. (B) read as follows: ''if

the Secretary determines it necessary to carry out the purposes of

this part, selecting additional institutions.'' See Codification

note above.

1992 - Pub. L. 102-325 amended section generally, substituting

provisions relating to selection by the Secretary for former

provisions relating to agreements with institutions of higher

education.

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by Pub. L. 105-244 effective Oct. 1, 1998, except as

otherwise provided in Pub. L. 105-244, see section 3 of Pub. L.

105-244, set out as a note under section 1001 of this title.

EFFECTIVE DATE OF 1993 AMENDMENT

Amendment by Pub. L. 103-208 effective as if included in the

Higher Education Amendments of 1992, Pub. L. 102-325, except as

otherwise provided, see section 5(a) of Pub. L. 103-208, set out as

a note under section 1051 of this title.

EFFECTIVE DATE OF 1992 AMENDMENT

Amendment by Pub. L. 102-325 effective Oct. 1, 1992, see section

2 of Pub. L. 102-325, set out as a note under section 1001 of this

title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 1091a of this title.

-CITE-

20 USC Sec. 1087d 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part C - William D. Ford Federal Direct Loan Program

-HEAD-

Sec. 1087d. Agreements with institutions

-STATUTE-

(a) Participation agreements

An agreement with any institution of higher education for

participation in the direct student loan program under this part

shall -

(1) provide for the establishment and maintenance of a direct

student loan program at the institution under which the

institution will -

(A) identify eligible students who seek student financial

assistance at such institution in accordance with section 1091

of this title;

(B) estimate the need of each such student as required by

part E of this subchapter for an academic year, except that,

any loan obtained by a student under this part with the same

terms as loans made under section 1078-8 of this title (except

as otherwise provided in this part), or a loan obtained by a

parent under this part with the same terms as loans made under

section 1078-2 of this title (except as otherwise provided in

this part), or obtained under any State-sponsored or private

loan program, may be used to offset the expected family

contribution of the student for that year;

student to receive a loan under this part that is not in excess

of the annual or aggregate limit applicable to such loan,

except that the institution may, in exceptional circumstances

identified by the Secretary, refuse to certify a statement that

permits a student to receive a loan under this part, or certify

a loan amount that is less than the student's determination of

need (as determined under part E of this subchapter), if the

reason for such action is documented and provided in written

form to such student;

(D) set forth a schedule for disbursement of the proceeds of

the loan in installments, consistent with the requirements of

section 1078-7 of this title; and

(E) provide timely and accurate information -

(i) concerning the status of student borrowers (and

students on whose behalf parents borrow under this part)

while such students are in attendance at the institution and

concerning any new information of which the institution

becomes aware for such students (or their parents) after such

borrowers leave the institution, to the Secretary for the

servicing and collecting of loans made under this part; and

(ii) if the institution does not have an agreement with the

Secretary under subsection (b) of this section, concerning

student eligibility and need, as determined under

subparagraphs (A) and (B), to the Secretary as needed for the

alternative origination of loans to eligible students and

parents in accordance with this part;

(2) provide assurances that the institution will comply with

requirements established by the Secretary relating to student

loan information with respect to loans made under this part;

(3) provide that the institution accepts responsibility and

financial liability stemming from its failure to perform its

functions pursuant to the agreement;

(4) provide that students at the institution and their parents

(with respect to such students) will be eligible to participate

in the programs under part B of this subchapter at the discretion

of the Secretary for the period during which such institution

participates in the direct student loan program under this part,

except that a student or parent may not receive loans under both

this part and part B of this subchapter for the same period of

enrollment;

(5) provide for the implementation of a quality assurance

system, as established by the Secretary and developed in

consultation with institutions of higher education, to ensure

that the institution is complying with program requirements and

meeting program objectives;

(6) provide that the institution will not charge any fees of

any kind, however described, to student or parent borrowers for

origination activities or the provision of any information

necessary for a student or parent to receive a loan under this

part, or any benefits associated with such loan; and

(7) include such other provisions as the Secretary determines

are necessary to protect the interests of the United States and

to promote the purposes of this part.

(b) Origination

An agreement with any institution of higher education, or

consortia thereof, for the origination of loans under this part

shall -

(1) supplement the agreement entered into in accordance with

subsection (a) of this section;

(2) include provisions established by the Secretary that are

similar to the participation agreement provisions described in

paragraphs (1)(E)(ii), (2), (3), (4), (5), (6), and (7) of

subsection (a) of this section, as modified to relate to the

origination of loans by the institution or consortium;

(3) provide that the institution or consortium will originate

loans to eligible students and parents in accordance with this

part; and

(4) provide that the note or evidence of obligation on the loan

shall be the property of the Secretary.

The Secretary shall establish procedures by which institutions or

consortia may withdraw or be terminated from the program under this

part.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 454, as added Pub. L. 99-498, title

IV, Sec. 404, Oct. 17, 1986, 100 Stat. 1438; amended Pub. L.

100-50, Sec. 12, June 3, 1987, 101 Stat. 348; Pub. L. 102-325,

title IV, Sec. 451, July 23, 1992, 106 Stat. 571; Pub. L. 103-66,

title IV, Sec. 4021, Aug. 10, 1993, 107 Stat. 345.)

-MISC1-

AMENDMENTS

1993 - Pub. L. 103-66 amended section generally, substituting

provisions relating to agreements with institutions, consisting of

subsecs. (a) to (c), for former provisions relating to requirements

of agreements, consisting of pars. (1) to (7).

1992 - Pub. L. 102-325 amended section generally, substituting

provisions relating to requirements of agreements for former

provisions relating to terms of loans under pilot program.

1987 - Subsec. (a)(4). Pub. L. 100-50 amended par. (4)

generally. Prior to amendment, par. (4) read as follows: ''The

interest rate on all such loans shall be the rate equal to the rate

obtained for each calendar year (A) by computing the average of the

bond equivalent rates of 91-day Treasury bills auctioned for such

3-month period preceding such year, and (B) by adding 3 percent to

the resulting percent.''

EFFECTIVE DATE OF 1992 AMENDMENT

Amendment by Pub. L. 102-325 effective Oct. 1, 1992, see section

2 of Pub. L. 102-325, set out as a note under section 1001 of this

title.

EFFECTIVE DATE OF 1987 AMENDMENT

Amendment by Pub. L. 100-50 effective as if enacted as part of

the Higher Education Amendments of 1986, Pub. L. 99-498, see

section 27 of Pub. L. 100-50, set out as a note under section 1001

of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1087b, 1087c, 1087g of

this title.

-CITE-

20 USC Sec. 1087e 01/06/03

-EXPCITE-

TITLE 20 - EDUCATION

CHAPTER 28 - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE

SUBCHAPTER IV - STUDENT ASSISTANCE

Part C - William D. Ford Federal Direct Loan Program

-HEAD-

Sec. 1087e. Terms and conditions of loans

-STATUTE-

(a) In general

(1) Parallel terms, conditions, benefits, and amounts

Unless otherwise specified in this part, loans made to

borrowers under this part shall have the same terms, conditions,

and benefits, and be available in the same amounts, as loans made

to borrowers under sections 1078, 1078-2, and 1078-8 of this

title.

(2) Designation of loans

Loans made to borrowers under this part that, except as

otherwise specified in this part, have the same terms,

conditions, and benefits as loans made to borrowers under -

(A) section 1078 of this title shall be known as ''Federal

Direct Stafford Loans'';

(B) section 1078-2 of this title shall be known as ''Federal

Direct PLUS Loans''; and

Direct Unsubsidized Stafford Loans''.

(b) Interest rate

(1) Rates for FDSL and FDUSL

For Federal Direct Stafford Loans and Federal Direct

Unsubsidized Stafford Loans 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) 3.1 percent,

except that such rate shall not exceed 8.25 percent.

(2) In school and grace period rules

(A) Notwithstanding the provisions of paragraph (1), but

subject to paragraph (3), with respect to any Federal Direct

Stafford Loan or Federal Direct Unsubsidized Stafford Loan for

which the first disbursement is made on or after July 1, 1995,

the applicable rate of interest for interest which accrues -

(i) prior to the beginning of the repayment period of the

loan; or

(ii) 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 subparagraph (B).

(B) For the purpose of subparagraph (A), the rate determined

under this subparagraph 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 -

(i) the bond equivalent rate of 91-day Treasury bills

auctioned at the final auction prior to such June 1; plus

(ii) 2.5 percent,

except that such rate shall not exceed 8.25 percent.

(3) Out-year rule

Notwithstanding paragraphs (1) and (2), for Federal Direct

Stafford Loans and Federal Direct Unsubsidized Stafford Loans

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 security with a

comparable maturity as established by the Secretary; plus

(B) 1.0 percent,

except that such rate shall not exceed 8.25 percent.

(4) Rates for FDPLUS

(A)(i) For Federal Direct PLUS Loans 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 or before June 30, 2001, be determined on

the preceding June 1 and be equal to -

(I) the bond equivalent rate of 52-week Treasury bills

auctioned at final auction held prior to such June 1; plus

(II) 3.1 percent,

except that such rate shall not exceed 9 percent.

(ii) For any 12-month period beginning on July 1 of 2001 or any

succeeding year, the applicable rate of interest determined under

this subparagraph shall be determined on the preceding June 26

and be 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) 3.1 percent,

except that such rate shall not exceed 9 percent.

(B) For Federal Direct PLUS loans 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 -

(i) the bond equivalent rate of the security with a

comparable maturity as established by the Secretary; plus

(ii) 2.1 percent,

except that such rate shall not exceed 9 percent.

(5) Temporary interest rate provision

(A) Rates for FDSL and FDUSL

Notwithstanding the preceding paragraphs of this subsection,

for Federal Direct Stafford Loans and Federal Direct

Unsubsidized Stafford Loans 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 -

(i) the bond equivalent rate of 91-day Treasury bills

auctioned at the final auction held prior to such June 1;

plus

(ii) 2.3 percent,

except that such rate shall not exceed 8.25 percent.

(B) In school and grace period rules

Notwithstanding the preceding paragraphs of this subsection,

with respect to any Federal Direct Stafford Loan or Federal

Direct Unsubsidized Stafford Loan 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 -

(i) prior to the beginning of the repayment period of the

loan; or

(ii) 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 subparagraph (A) by substituting

''1.7 percent'' for ''2.3 percent''.

Notwithstanding the preceding paragraphs of this subsection,

with respect to Federal Direct PLUS Loan for which the first

disbursement is made on or after July 1, 1998, and before

October 1, 1998, the applicable rate of interest shall be

determined under subparagraph (A) -

(i) by substituting ''3.1 percent'' for ''2.3 percent'';

and

(ii) by substituting ''9.0 percent'' for ''8.25 percent''.

(6) Interest rate provision for new loans on or after October 1,

1998, and before July 1, 2006

(A) Rates for FDSL and FDUSL

Notwithstanding the preceding paragraphs of this subsection,

for Federal Direct Stafford Loans and Federal Direct

Unsubsidized Stafford Loans 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 -

(i) the bond equivalent rate of 91-day Treasury bills

auctioned at the final auction held prior to such June 1;

plus

(ii) 2.3 percent,

except that such rate shall not exceed 8.25 percent.

(B) In school and grace period rules

Notwithstanding the preceding paragraphs of this subsection,

with respect to any Federal Direct Stafford Loan or Federal

Direct Unsubsidized Stafford Loan 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 -

(i) prior to the beginning of the repayment period of the

loan; or

(ii) 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 subparagraph (A) by substituting

''1.7 percent'' for ''2.3 percent''.

Notwithstanding the preceding paragraphs of this subsection,

with respect to Federal Direct PLUS Loan 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 subparagraph (A) -

(i) by substituting ''3.1 percent'' for ''2.3 percent'';

and

(ii) by substituting ''9.0 percent'' for ''8.25 percent''.

(D) Consolidation loans

Notwithstanding the preceding paragraphs of this subsection,

any Federal Direct Consolidation loan for which the application

is received on or after February 1, 1999, and before July 1,

2006, shall bear interest at an annual rate on the unpaid

principal balance of the loan that is equal to the lesser of -

(i) the weighted average of the interest rates on the loans

consolidated, rounded to the nearest higher one-eighth of one

percent; or

(ii) 8.25 percent.

(E) Temporary rules for consolidation loans

Notwithstanding the preceding paragraphs of this subsection,

any Federal Direct Consolidation loan for which the application

is received on or after October 1, 1998, and before February 1,

1999, shall bear interest at an annual rate on the unpaid

principal balance of the loan that is equal to -

(i) the bond equivalent rate of 91-day Treasury bills

auctioned at the final auction held prior to such June 1;

plus

(ii) 2.3 percent,

except that such rate shall not exceed 8.25 percent.

(7) Interest rate provision for new loans on or after July 1,

2006

(A) Rates for FDSL and FDUSL

Notwithstanding the preceding paragraphs of this subsection,

for Federal Direct Stafford Loans and Federal Direct

Unsubsidized Stafford Loans for which the first disbursement is

made on or after July 1, 2006, the applicable rate of interest

shall be 6.8 percent on the unpaid principal balance of the

loan.

(B) PLUS loans

Notwithstanding the preceding paragraphs of this subsection,

with respect to any Federal Direct PLUS loan for which the

first disbursement is made on or after July 1, 2006, the

applicable rate of interest shall be 7.9 percent on the unpaid

principal balance of the loan.

Notwithstanding the preceding paragraphs of this subsection,

any Federal Direct Consolidation loan for which the application

is received on or after July 1, 2006, shall bear interest at an

annual rate on the unpaid principal balance of the loan that is

equal to the lesser of -

(i) the weighted average of the interest rates on the loans

consolidated, rounded to the nearest higher one-eighth of one

percent; or

(ii) 8.25 percent.

(8) Repayment incentives

(A) In general

Notwithstanding any other provision of this part, the

Secretary is authorized to prescribe by regulation such

reductions in the interest rate paid by a borrower of a loan

made under this part as the Secretary determines appropriate to

encourage on-time repayment of the loan. Such reductions may

be offered only if the Secretary determines the reductions are

cost neutral and in the best financial interest of the Federal

Government. Any increase in subsidy costs resulting from such

reductions shall be completely offset by corresponding savings

in funds available for the William D. Ford Federal Direct Loan

Program in that fiscal year from section 1087h of this title

and other administrative accounts.

(B) Accountability

Prior to publishing regulations proposing repayment

incentives, the Secretary shall ensure the cost neutrality of

such reductions. The Secretary shall not prescribe such

regulations in final form unless an official report from the

Director of the Office of Management and Budget to the

Secretary and a comparable report from the Director of the

Congressional Budget Office to the Congress each certify that

any such reductions will be completely cost neutral. Such

reports shall be transmitted to the Committee on Labor and

Human Resources of the Senate and the Committee on Education

and the Workforce of the House of Representatives not less than

60 days prior to the publication of regulations proposing such

reductions.

(9) Publication

The Secretary shall determine the applicable rates of interest

under this subsection 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.

The Secretary shall charge the borrower of a loan made under this

part an origination fee of 4.0 percent of the principal amount of

loan.

(d) Repayment plans

(1) Design and selection

Consistent with criteria established by the Secretary, the

Secretary shall offer a borrower of a loan made under this part a

variety of plans for repayment of such loan, including principal

and interest on the loan. The borrower shall be entitled to

accelerate, without penalty, repayment on the borrower's loans

under this part. The borrower may choose -

(A) a standard repayment plan, with a fixed annual repayment

amount paid over a fixed period of time, consistent with

subsection (a)(1) of this section;

(B) an extended repayment plan, with a fixed annual repayment

amount paid over an extended period of time, except that the

borrower shall annually repay a minimum amount determined by

the Secretary in accordance with section 1078(b)(1)(L) of this

title;

established at 2 or more graduated levels and paid over a fixed

or extended period of time, except that the borrower's

scheduled payments shall not be less than 50 percent, nor more

than 150 percent, of what the amortized payment on the amount

owed would be if the loan were repaid under the standard

repayment plan; and

(D) an income contingent repayment plan, with varying annual

repayment amounts based on the income of the borrower, paid

over an extended period of time prescribed by the Secretary,

not to exceed 25 years, except that the plan described in this

subparagraph shall not be available to the borrower of a

Federal Direct PLUS loan.

(2) Selection by Secretary

If a borrower of a loan made under this part does not select a

repayment plan described in paragraph (1), the Secretary may

provide the borrower with a repayment plan described in

subparagraph (A), (B), or (C) of paragraph (1).

(3) Changes in selections

The borrower of a loan made under this part may change the

borrower's selection of a repayment plan under paragraph (1), or

the Secretary's selection of a plan for the borrower under

paragraph (2), as the case may be, under such terms and

conditions as may be established by the Secretary.

(4) Alternative repayment plans

The Secretary may provide, on a case by case basis, an

alternative repayment plan to a borrower of a loan made under

this part who demonstrates to the satisfaction of the Secretary

that the terms and conditions of the repayment plans available

under paragraph (1) are not adequate to accommodate the

borrower's exceptional circumstances. In designing such

alternative repayment plans, the Secretary shall ensure that such

plans do not exceed the cost to the Federal Government, as

determined on the basis of the present value of future payments

by such borrowers, of loans made using the plans available under

paragraph (1).

(5) Repayment after default

The Secretary may require any borrower who has defaulted on a

loan made under this part to -

(A) pay all reasonable collection costs associated with such

loan; and

(B) repay the loan pursuant to an income contingent repayment

plan.

(e) Income contingent repayment

(1) Information and procedures

The Secretary may obtain such information as is reasonably

necessary regarding the income of a borrower (and the borrower's

spouse, if applicable) of a loan made under this part that is, or

may be, repaid pursuant to income contingent repayment, for the

purpose of determining the annual repayment obligation of the

borrower. Returns and return information (as defined in section

6103 of title 26) may be obtained under the preceding sentence

only to the extent authorized by section 6103(l)(13) of title 26.

The Secretary shall establish procedures for determining the

borrower's repayment obligation on that loan for such year, and

such other procedures as are necessary to implement effectively

income contingent repayment.

(2) Repayment based on adjusted gross income

A repayment schedule for a loan made under this part and repaid

pursuant to income contingent repayment shall be based on the

adjusted gross income (as defined in section 62 of title 26) of

the borrower or, if the borrower is married and files a Federal

income tax return jointly with the borrower's spouse, on the

adjusted gross income of the borrower and the borrower's spouse.

(3) Additional documents

A borrower who chooses, or is required, to repay a loan made

under this part pursuant to income contingent repayment, and for

whom adjusted gross income is unavailable or does not reasonably

reflect the borrower's current income, shall provide to the

Secretary other documentation of income satisfactory to the

Secretary, which documentation the Secretary may use to determine

an appropriate repayment schedule.

(4) Repayment schedules

Income contingent repayment schedules shall be established by

regulations promulgated by the Secretary and shall require

payments that vary in relation to the appropriate portion of the

annual income of the borrower (and the borrower's spouse, if

applicable) as determined by the Secretary.

(5) Calculation of balance due

The balance due on a loan made under this part that is repaid

pursuant to income contingent repayment shall equal the unpaid

principal amount of the loan, any accrued interest, and any fees,

such as late charges, assessed on such loan. The Secretary may

promulgate regulations limiting the amount of interest that may

be capitalized on such loan, and the timing of any such

capitalization.

(6) Notification to borrowers

The Secretary shall establish procedures under which a borrower

of a loan made under this part who chooses or is required to

repay such loan pursuant to income contingent repayment is

notified of the terms and conditions of such plan, including

notification of such borrower -

(A) that the Internal Revenue Service will disclose to the

Secretary tax return information as authorized under section

6103(l)(13) of title 26; and

(B) that if a borrower considers that special circumstances,

such as a loss of employment by the borrower or the borrower's

spouse, warrant an adjustment in the borrower's loan repayment

as determined using the information described in subparagraph

(A), or the alternative documentation described in paragraph

(3), the borrower may contact the Secretary, who shall

determine whether such adjustment is appropriate, in accordance

with criteria established by the Secretary.

(f) Deferment

(1) Effect on principal and interest

A borrower of a loan made under this part who meets the

requirements described in paragraph (2) shall be eligible for a

deferment, during which periodic installments of principal need

not be paid, and interest -

(A) shall not accrue, in the case of a -

(i) Federal Direct Stafford Loan; or

(ii) a Federal Direct Consolidation Loan that consolidated

only Federal Direct Stafford Loans, or a combination of such

loans and Federal Stafford Loans for which the student

borrower received an interest subsidy under section 1078 of

this title; or

(B) shall accrue and be capitalized or paid by the borrower,

in the case of a Federal Direct PLUS Loan, a Federal Direct

Unsubsidized Stafford Loan, or a Federal Direct Consolidation

Loan not described in subparagraph (A)(ii).

(2) Eligibility

A borrower of a loan made under this part shall be eligible for

a deferment during any period -

(A) during which the borrower -

(i) is carrying at least one-half the normal full-time work

load for the course of study that the borrower is pursuing,

as determined by the eligible institution (as such term is

defined in section 1085(a) of this title) the borrower is

attending; 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 subparagraph, or a loan made under this part (other than a

Federal Direct PLUS Loan or a Federal Direct Consolidation

Loan), while serving in a medical internship or residency

program;

(B) not in excess of 3 years during which the borrower is

seeking and unable to find full-time employment;

determines, in accordance with regulations prescribed under

section 1085(o) of this title, that the borrower has

experienced or will experience an economic hardship.

(3) ''Borrower'' defined

For the purpose of this subsection, the term ''borrower'' means

an individual who is a new borrower on the date such individual

applies for a loan under this part for which the first

disbursement is made on or after July 1, 1993.

(4) Deferments for previous part B loan borrowers

A borrower of a loan made under this part, who at the time such

individual applies for such loan, has an outstanding balance of

principal or interest owing on any loan made, insured, or

guaranteed under part B of this subchapter prior to July 1, 1993,

shall be eligible for a deferment under section 1077(a)(2)(C) of

this title or section 1078(b)(1)(M) of this title as such

sections were in effect on July 22, 1992.

(g) Federal Direct Consolidation Loans

A borrower of a loan made under this part may consolidate such

loan with the loans described in section 1078-3(a)(4) of this

title. Loans made under this subsection shall be known as

''Federal Direct Consolidation Loans''.

(h) Borrower defenses

Notwithstanding any other provision of State or Federal law, the

Secretary shall specify in regulations (except as authorized under

section 1087g(a)(1) of this title) which acts or omissions of an

institution of higher education a borrower may assert as a defense

to repayment of a loan made under this part, except that in no

event may a borrower recover from the Secretary, in any action

arising from or relating to a loan made under this part, an amount

in excess of the amount such borrower has repaid on such loan.

(i) Loan application and promissory note

The common financial reporting form required in section

1090(a)(1) of this title shall constitute the application for loans

made under this part (other than a Federal Direct PLUS loan). The

Secretary shall develop, print, and distribute to participating

institutions a standard promissory note and loan disclosure form.

(j) Loan disbursement

(1) In general

Proceeds of loans to students under this part shall be applied

to the student's account for tuition and fees, and, in the case

of institutionally owned housing, to room and board. Loan

proceeds that remain after the application of the previous

sentence shall be delivered to the borrower by check or other

means that is payable to and requires the endorsement or other

certification by such borrower.

(2) Payment periods

The Secretary shall establish periods for the payments

described in paragraph (1) in a manner consistent with payment of

Federal Pell Grants under subpart 1 of part A of this subchapter.

(k) Fiscal control and fund accountability

(1) In general

(A) An institution shall maintain financial records in a manner

consistent with records maintained for other programs under this

subchapter.

(B) Except as otherwise required by regulations of the

Secretary, or in a notice under section 1087g(a)(1) of this

title, an institution may maintain loan funds under this part in

the same account as other Federal student financial assistance.

(2) Payments and refunds

Payments and refunds shall be reconciled in a manner consistent

with the manner set forth for the submission of a payment summary

report required of institutions participating in the program

under subpart 1 of part A of this subchapter, except that nothing

in this paragraph shall prevent such reconciliations on a monthly

basis.

(3) Transaction histories

All transaction histories under this part shall be maintained

using the same system designated by the Secretary for the

provision of Federal Pell Grants under subpart 1 of part A of

this subchapter.

(l) Armed Forces student loan interest payment program

(1) Authority

Using funds received by transfer to the Secretary under section

2174 of title 10 for the payment of interest on a loan made under

this part to a member of the Armed Forces, the Secretary shall

pay the interest on the loan as due for a period not in excess of

36 consecutive months. The Secretary may not pay interest on

such a loan out of any funds other than funds that have been so

transferred.

(2) Forbearance

During the period in which the Secretary is making payments on

a loan under paragraph (1), the Secretary shall grant the

borrower forbearance, in the form of a temporary cessation of all

payments on the loan other than the payments of interest on the

loan that are made under that paragraph.

-SOURCE-

(Pub. L. 89-329, title IV, Sec. 455, as added Pub. L. 99-498, title

IV, Sec. 404, Oct. 17, 1986, 100 Stat. 1439; amended Pub. L.

102-325, title IV, Sec. 451, July 23, 1992, 106 Stat. 572; Pub. L.

103-66, title IV, Sec. 4021, Aug. 10, 1993, 107 Stat. 346; Pub. L.

103-382, title III, Sec. 359, Oct. 20, 1994, 108 Stat. 3968; Pub.

L. 105-178, title VIII, Sec. 8301(c), June 9, 1998, 112 Stat. 498;

Pub. L. 105-244, title IV, Sec. 401(g)(6), 452(a)(1), (b), (c),

Oct. 7, 1998, 112 Stat. 1652, 1715-1717; Pub. L. 106-554, Sec.

1(a)(1) (title III, Sec. 318(b)), Dec. 21, 2000, 114 Stat. 2763,

2763A-49; Pub. L. 107-139, Sec. 1(b), (c), Feb. 8, 2002, 116 Stat.

9; Pub. L. 107-314, div. A, title VI, Sec. 651(c), Dec. 2, 2002,

116 Stat. 2580.)

-REFTEXT-

REFERENCES IN TEXT

Sections 1077(a)(2)(C) and 1078(b)(1)(M) of this title as such

sections were in effect on July 22, 1992, referred to in subsec.

(f)(4), means sections 1077(a)(2)(C) and 1078(b)(1)(M) of this

title prior to being amended generally by sections 414(b) and

416(e)(1), respectively, of Pub. L. 102-325, title IV, July 23,

1992, 106 Stat. 513, 519.

-MISC2-

AMENDMENTS

2002 - Subsec. (b)(6) to (9). Pub. L. 107-139, in par. (6)

relating to interest rate provision for new loans substituted

''2006'' for ''2003'' in heading and ''July 1, 2006,'' for ''July

1, 2003,'' wherever appearing in text, added par. (7), redesignated

former par. (7) as (8), and redesignated par. (6) relating to

publication of rate in Federal Register as (9).

Subsec. (l). Pub. L. 107-314 added subsec. (l).

2000 - Subsec. (b)(4)(A). Pub. L. 106-554 amended subpar. (A)

generally. Prior to amendment, subpar. (A) read as follows: ''For

Federal Direct PLUS Loans 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 -

''(i) the bond equivalent rate of 52-week Treasury bills

auctioned at final auction held prior to such June 1; plus

''(ii) 3.1 percent,

except that such rate shall not exceed 9 percent.''

1998 - Subsec. (b)(5). Pub. L. 105-178, Sec. 8301(c)(2), which

directed amendment of section 455(b) (20 U.S.C. 1087e(b)) by adding

par. (5), was executed to this section, which is section 455(b) of

Pub. L. 89-329, to reflect the probable intent of Congress. Former

par. (5) redesignated (6).

Subsec. (b)(6). Pub. L. 105-244, Sec. 452(a)(1), added par. (6)

relating to interest rate provision for new loans.

Pub. L. 105-178, Sec. 8301(c)(1), which directed amendment of

section 455(b) (20 U.S.C. 1087e(b)) by redesignating par. (5) as

(6), was executed to this section, which is section 455(b) of Pub.

L. 89-329, to reflect the probable intent of Congress.

Subsec. (b)(7). Pub. L. 105-244, Sec. 452(b), added par. (7).

Subsec. (g). Pub. L. 105-244, Sec. 452(c), struck out ''only

under such terms and conditions as the Secretary shall establish

pursuant to section 1087g(a)(1) of this title or regulations

promulgated under this part'' after ''section 1078-3(a)(4) of this

title''.

Subsecs. (j)(2), (k)(3). Pub. L. 105-244, Sec. 401(g)(6),

substituted ''Federal Pell Grants'' for ''basic grants''.

1994 - Subsec. (f)(3), (4). Pub. L. 103-382 added pars. (3) and

(4).

1993 - Pub. L. 103-66 amended section generally, substituting

provisions relating to terms and conditions of loans for former

provisions relating to withdrawal and termination procedures.

1992 - Pub. L. 102-325 amended section generally, substituting

provisions relating to withdrawal and termination procedures for

former provisions relating to feasibility study.