[Code of Federal Regulations]
[Title 34, Volume 3]
[Revised as of July 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 34CFR682.401]

[Page 702-710]
 
                           TITLE 34--EDUCATION
 
                         DEPARTMENT OF EDUCATION
 
PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM--Table of Contents
 
Subpart D--Administration of the Federal Family Education Loan Programs 
                          by a Guaranty Agency
 
Sec. 682.401  Basic program agreement.

    (a) General. In order to participate in the FFEL programs, a 
guaranty agency shall enter into a basic agreement with the Secretary.
    (b) Terms of agreement. In the basic agreement, the guaranty agency 
shall agree to ensure that its loan guarantee program meets the 
following requirements at all times:
    (1) Aggregate loan limits. The aggregate guaranteed unpaid principal

[[Page 703]]

amount for all Stafford and SLS, loans made to a borrower may not exceed 
the amounts set forth in Sec. 682.204 (b), (e), and (g).
    (2) Annual loan limits. (i) The annual loan maximum amount for a 
borrower that may be guaranteed for an academic year may not exceed the 
amounts set forth in Sec. 682.204 (a), (c), (d), (f), and (h).
    (ii) A guaranty agency may make the loan amounts authorized under 
paragraph (b)(2)(i) of this section applicable for either--
    (A) A period of not less than that attributable to the academic 
year;
    (B) A period attributable to the academic year in which the student 
earns the amount of credit in the student's program of study required by 
the student's school as the amount necessary for the student to advance 
in academic standing as normally measured on an academic year basis (for 
example, from freshman to sophomore or, in the case of schools using 
clock hours, completion of at least 900 clock hours; or
    (C) A period that does not exceed 12 months.
    (iii) The amount of a loan guaranteed may not exceed the amount set 
forth in Sec. 682.204(k).
    (3) Duration of borrower eligibility. (i) A student borrower under 
the Stafford Loan Program or the SLS Program and a parent borrower under 
the PLUS Program are eligible to receive a guaranteed loan for any year 
of the student's study at a participating school.
    (ii) Loans must be available to or on behalf of any student for at 
least six academic years of study.
    (4) Reinstatement of borrower eligibility. For a borrower's loans 
held by a guaranty agency on which a reinsurance claim has been paid by 
the Secretary, the guaranty agency must afford a defaulted borrower, 
upon the borrower's request, renewed eligibility for Title IV assistance 
once the borrower has made satisfactory repayment arrangements as that 
term is defined in Sec. 682.200.
    (i) For purposes of this section, the determination of reasonable 
and affordable must--
    (A) Include consideration of the borrower's and spouse's disposable 
income and necessary expenses including, but not limited to, housing, 
utilities, food, medical costs, dependent care costs, work-related 
expenses and other Title IV repayment;
    (B) Not be a required minimum payment amount, e.g. $50, if the 
agency determines that a smaller amount is reasonable and affordable 
based on the borrower's total financial circumstances. The agency must 
include documentation in the borrower's file of the basis for the 
determination, if the monthly reasonable and affordable payment 
established under this section is less than $50.00 or the monthly 
accrued interest on the loan, whichever is greater.
    (C) Be based on the documentation provided by the borrower or other 
sources including, but not limited to--
    (1) Evidence of current income (e.g. proof of welfare benefits, 
Social Security benefits, Supplemental Security Income, Workers' 
Compensation, child support, veterans' benefits, two most recent pay 
stubs, most recent copy of U.S. income tax return, State Department of 
Labor reports);
    (2) Evidence of current expenses (e.g. a copy of the borrower's 
monthly household budget, on a form provided by the guaranty agency); 
and
    (3) A statement of the unpaid balance on all FFEL loans held by 
other holders.
    (ii) A borrower may request that the monthly payment amount be 
adjusted due to a change in the borrower's total financial circumstances 
upon providing the documentation specified in paragraph (b)(4)(i)(C) of 
this section.
    (iii) A guaranty agency must provide the borrower with a written 
statement of the reasonable and affordable payment amount required for 
the reinstatement of the borrower's eligibility for Title IV student 
assistance, and provide the borrower with an opportunity to object to 
those terms.
    (iv) A guaranty agency must provide the borrower with written 
information regarding the possibility of loan rehabilitation if the 
borrower makes six additional reasonable and affordable monthly payments 
after making payments to regain eligibility for Title IV assistance and 
the consequences of loan rehabilitation.
    (v) A guaranty agency must inform the borrower that he or she may 
only

[[Page 704]]

obtain reinstatement of borrower eligibility under this section once.
    (5) Borrower responsibilities. (i) The borrower must indicate his or 
her preferred lender on the promissory note or other written or 
electronic documentation submitted during the loan origination process 
if he or she has such a preference.
    (ii) The borrower must give the lender, as part of the promissory 
note or application process for a PLUS loan--
    (A) A statement, as described in 34 CFR part 668, that the loan will 
be used for the cost of the student's attendance;
    (B) A statement from the student authorizing the school to release 
information relevant to the student's eligibility to have a parent 
borrow on the student's behalf (e.g., the student's enrollment status, 
financial assistance, and employment records); and
    (C) Information from the school providing the maximum amount that 
may be borrowed on behalf of the student.
    (iii) The borrower shall give the lender, as part of the application 
process for a Consolidation loan--
    (A) Information demonstrating that the borrower is eligible for the 
loan under Sec. 682.201(c); and
    (B) A statement that the borrower does not currently have another 
application for a Consolidation loan pending.
    (iv) The borrower shall promptly notify--
    (A) The current holder or the guaranty agency of any change of name, 
address, student status to less than half-time, employer, or employer's 
address; and
    (B) The school of any change in local address during enrollment.
    (6) School eligibility. (i) General. A school that has a program 
participation agreement in effect with the Secretary under Sec. 682.600 
is eligible to participate in the program of the agency under reasonable 
criteria established by the guaranty agency, and approved by the 
Secretary, under paragraph (d)(2) of this section, except to the extent 
that--
    (A) The school's eligibility is limited, suspended, or terminated by 
the Secretary under 34 CFR part 668 or by the guaranty agency under 
standards and procedures that are substantially the same as those in 34 
CFR part 668;
    (B) The Secretary upholds the limitation, suspension, or termination 
of a school by a guaranty agency and extends that sanction to all 
guaranty agency programs under section 432(h)(3) of the Act or 
Sec. 682.713;
    (C) The school is ineligible under section 435(a)(2) of the Act;
    (D) There is a State constitutional prohibition affecting the 
school's eligibility;
    (E) The school's programs consist of study solely by correspondence;
    (F) The agency determines, subject to the agreement of the 
Secretary, that the school does not satisfy the standards of 
administrative capability and financial responsibility as defined in 34 
CFR part 668;
    (G) The school fails to make timely refunds to students as required 
in Sec. 682.607(c);
    (H) The school has not satisfied, within 30 days of issuance, a 
final judgment obtained by a student seeking a refund;
    (I) The school or an owner, director, or officer of the school is 
found guilty or liable in any criminal, civil, or administrative 
proceeding regarding the obtaining, maintenance, or disbursement of 
State or Federal student grant, loan, or work assistance funds; or
    (J) The school or an owner, director, or officer of the school has 
unpaid financial liabilities involving the improper acquisition, 
expenditure, or refund of State or Federal student financial assistance 
funds.
    (ii) Limitation by a guaranty agency of a school's participation. 
For purposes of this paragraph, a school that is subject to limitation 
of participation in the guaranty agency's program may be either a school 
that is applying to participate in the agency's program for the first 
time, or a school that is renewing its application to continue 
participation in the agency's program. A guaranty agency may limit the 
total number of loans or the volume of loans made to students attending 
a particular school, or otherwise establish appropriate limitations on 
the school's participation, if the agency makes a

[[Page 705]]

determination that the school does not satisfy--
    (A) The standards of financial responsibility defined in 34 CFR 
668.5; or
    (B) The standards of administrative capability defined in 34 CFR 
668.16.
    (iii) Limitation, suspension, or termination of school eligibility. 
A guaranty agency may limit, suspend, or terminate the participation of 
an eligible school. If a guaranty agency limits, suspends, or terminates 
the participation of a school from the agency's program, the Secretary 
applies that limitation, suspension, or termination to all locations of 
the school.
    (iv) Condition for guaranteeing loans for students attending a 
school. The guaranty agency may require the school to execute a 
participation agreement with the agency and to submit documentation that 
establishes the school's eligibility to participate in the agency's 
program.
    (7) Lender eligibility. (i) An eligible lender may participate in 
the program of the agency under reasonable criteria established by the 
guaranty agency except to the extent that--
    (A) The lender's eligibility has been limited, suspended, or 
terminated by the Secretary under subpart G of this part or by the 
agency under standards and procedures that are substantially the same as 
those in subpart G of this part; or
    (B) The lender is disqualified by the Secretary under sections 
432(h)(1), 432(h)(2), 435(d)(3), or 435(d)(5) of the Act or 
Sec. 682.712; or
    (C) There is a State constitutional prohibition affecting the 
lender's eligibility.
    (ii) The agency may not guarantee a loan made by a school lender 
that is not located in the geographical area that the agency serves.
    (iii) The guaranty agency may refuse to guarantee loans made by a 
school on behalf of students not attending that school.
    (iv) The guaranty agency may, in determining whether to enter into a 
guarantee agreement with a lender, consider whether the lender has had 
prior experience in a similar Federal, State, or private nonprofit 
student loan program and the amount and percentage of loans that are 
currently delinquent or in default under that program.
    (8) Out-of-State schools. The agency shall guarantee Stafford, SLS, 
and PLUS loans for students who are legal residents of any State served 
by the agency under Sec. 682.404(h)(2) but who attend schools out of 
that State and for parents who are legal residents of that State and are 
borrowing on behalf of students attending schools out of that State. In 
guaranteeing these loans, the agency may not impose any restrictions 
that it does not apply to borrowers who are legal residents of the State 
attending in-State schools or to parent borrowers who are legal 
residents of the State and are borrowing for students attending in-State 
schools.
    (9) Out-of-State residents. The agency shall guarantee Stafford, 
SLS, and PLUS loans for students who are not legal residents of any 
State served by the agency under Sec. 682.404(h)(2) but who attend 
schools in that State, and for parents who are not legal residents of 
that State and who are borrowing on behalf of students attending schools 
in that State. In guaranteeing these loans, the agency may not impose 
any restrictions that it does not apply to borrowers who are legal 
residents of the State attending in-State schools, or to parent 
borrowers who are legal residents of the State and who are borrowing for 
students attending in-State schools.
    (10) Insurance premiums. (i) Except for a SLS or PLUS loan 
refinanced under Sec. 682.209 (e) or (f), the guaranty agency may charge 
the lender an insurance premium on each Stafford, SLS, or PLUS loan it 
guarantees.
    (ii) The guaranty agency may use the proceeds of this charge only to 
guarantee loans and to cover costs incurred by the guaranty agency in 
the administration of its loan guarantee program.
    (iii) The lender may deduct the amount of the premium from the 
borrower's loan proceeds. For a loan disbursed in more than one 
installment, the insurance premium must be deducted proportionately from 
each disbursement of the loan proceeds.
    (iv) The amount of the insurance premium may not exceed--

[[Page 706]]

    (A) For a loan disbursed on or before June 30, 1994, 3 percent of 
the principal balance of the loan; or
    (B) For a loan disbursed on or after July 1, 1994, 1 percent of the 
principal balance of the loan.
    (v) The guaranty agency shall refund to the lender any insurance 
premium received for a loan under the circumstances specified in 
Sec. 682.401(b)(10)(vi) (A) and (B).
    (vi) The lender shall refund to the borrower by a credit against the 
borrower's loan balance the insurance premium paid by the borrower on a 
loan under the following circumstances:
    (A) The premium attributable to each disbursement of a loan must be 
refunded if the loan check is returned uncashed to the lender.
    (B) The premium or an appropriate prorated amount of the premium 
must be refunded by application to the borrower's loan balance if--
    (1) The loan or a portion of the loan is returned by the school to 
the lender in order to comply with the Act or with applicable 
regulations;
    (2) Within 120 days of disbursement, the loan or a portion of the 
loan is repaid or returned, unless--
    (i) The borrower has no FFEL Program loans in repayment status and 
has requested, in writing, that the repaid or returned funds be used for 
a different purpose; or
    (ii) The borrower has a FFEL Program loan in repayment status, in 
which case the payment is applied in accordance with Sec. 682.209(b) 
unless the borrower has requested, in writing, that the repaid or 
returned funds be applied as a cancellation of all or part of the loan;
    (3) Within 120 days of disbursement, the loan check has not been 
negotiated; or
    (4) Within 120 days of disbursement, the loan proceeds disbursed by 
electronic funds transfer or master check in accordance with 
Sec. 682.207(b)(1)(ii) (B) and (C) have not been released from the 
restricted account maintained by the school.
    (11) Inquiries. The agency must be able to receive and respond to 
written, electronic, and telephone inquiries.
    (12) Administrative fee for Consolidation loans. The guaranty agency 
may charge a lender a fee, not to exceed $50, reasonably calculated to 
cover the agency's cost of increased or extended liability incurred in 
guaranteeing a Consolidation loan. The lender may not pass the fee on to 
the borrower. If it charges the fee, the agency must charge it for all 
loans made under the agency's Consolidation Loan program.
    (13) Administrative fee for refinancing fixed-rate PLUS or SLS 
loans. The guaranty agency may require a lender to pay to the guaranty 
agency up to 50 percent of the fee the lender charges a borrower under 
Sec. 682.202(e) for the purpose of defraying the agency's administrative 
costs incident to the guarantee of a lender's reissuance of a fixed-rate 
PLUS or SLS loan at a variable interest rate. If it charges the fee, the 
agency must charge the same fee to all lenders that refinance under this 
paragraph.
    (14) Guaranty liability. The guaranty agency shall guarantee--
    (i) 100 percent of the unpaid principal balance of each loan 
guaranteed for loans disbursed before October 1, 1993; and
    (ii) Not more than 98 percent of the unpaid principal balance of 
each loan guaranteed for loans first disbursed on or after October 1, 
1993.
    (15) Guaranty agency verification of default data. A guaranty agency 
must meet the requirements and deadlines provided for it in subpart M of 
34 CFR part 668 for the cohort default rate process.
    (16) Guaranty agency administration. In the case of a State loan 
guarantee program administered by a State government, the program must 
be administered by a single State agency, or by one or more private 
nonprofit institutions or organizations under the supervision of a 
single State agency. For this purpose, ``supervision'' includes, but is 
not limited to, setting policies and procedures, and having full 
responsibility for the operation of the program.
    (17) Loan assignment. (i) Except as provided in paragraph 
(b)(17)(iii) of this section, the guaranty agency must allow a loan to 
be assigned only if the loan is fully disbursed and is assigned to--
    (A) An eligible lender;

[[Page 707]]

    (B) A guaranty agency, in the case of a borrower's default, death, 
total and permanent disability, or filing of a bankruptcy petition, or 
for other circumstances approved by the Secretary, such as a loan made 
for attendance at a school that closed or a false certification claim;
    (C) An educational institution, whether or not it is an eligible 
lender, in connection with the institution's repayment to the agency or 
to the Secretary of a guarantee or a reinsurance claim payment made on a 
loan that was ineligible for the payment;
    (D) A Federal or State agency or an organization or corporation 
acting on behalf of such an agency and acting as a conservator, 
liquidator, or receiver of an eligible lender; or
    (E) The Secretary.
    (ii) For the purpose of this paragraph, ``assigned'' means any kind 
of transfer of an interest in the loan, including a pledge of such an 
interest as security.
    (iii) The guaranty agency must allow a loan to be assigned under 
paragraph (b)(17)(i) of this section, following the first disbursement 
of the loan if the assignment does not result in a change in the 
identity of the party to whom payments must be made.
    (18) Transfer of guarantees. Except in the case of a transfer of 
guarantee requested by a borrower seeking a transfer to secure a single 
guarantor, the guaranty agency may transfer its guarantee obligation on 
a loan to another guaranty agency, only with the approval of the 
Secretary, the transferee agency, and the holder of the loan.
    (19) Standards and procedures. (i) The guaranty agency shall 
establish, disseminate to concerned parties, and enforce standards and 
procedures for--
    (A) Ensuring that all lenders in its program meet the definition of 
``eligible lender'' in section 435(d) of the Act and have a written 
lender agreement with the agency;
    (B) School and lender participation in its program;
    (C) Limitation, suspension, termination of school and lender 
participation;
    (D) Emergency action against a participating school or lender;
    (E) The exercise of due diligence by lenders in making, servicing, 
and collecting loans; and
    (F) The timely filing by lenders of default, death, disability, 
bankruptcy, closed school, false certification, and ineligible loan 
claims.
    (ii) The guaranty agency shall ensure that its program and all 
participants in its program at all times meet the requirements of 
subparts B, C, D, and F of this part.
    (20) Monitoring student enrollment. The guaranty agency shall 
monitor the enrollment status of a FFEL program borrower or student on 
whose behalf a parent has borrowed that includes, at a minimum, 
reporting to the current holder of the loan within 60 days any change in 
the student's enrollment status reported that triggers--
    (i) The beginning of the borrower's grace period; or
    (ii) The beginning or resumption of the borrower's immediate 
obligation to make scheduled payments.
    (21) Submission of interest and special allowance information. Upon 
the Secretary's request, the guaranty agency shall submit, or require 
its lenders to submit, information that the Secretary deems necessary 
for determining the amount of interest benefits and special allowance 
payable on the agency's guaranteed loans.
    (22) Submission of information for reports. The guaranty agency 
shall require lenders to submit to the agency the information necessary 
for the agency to complete the reports required by Sec. 682.414(b).
    (23) Guaranty agency transfer of information. (i) A guaranty agency 
from which another guaranty agency requests information regarding 
Stafford and SLS loans made after January 1, 1987, to students who are 
residents of the State for which the requesting agency is the principal 
guaranty agency shall provide--
    (A) The name and social security number of the student; and
    (B) The annual loan amount and the cumulative amount borrowed by the 
student in loans under the Stafford and SLS programs guaranteed by the 
responding agency.

[[Page 708]]

    (ii) The reasonable costs incurred by an agency in fulfilling a 
request for information made under paragraph (b)(23)(i) of this section 
must be paid by the guaranty agency making the request.
    (24) Information on defaults. The guaranty agency shall, upon the 
request of a school, furnish information with respect to students, 
including the names and addresses of such students, who were enrolled at 
that school and who are in default on the repayment of any loan 
guaranteed by that agency.
    (25) Information on loan sales or transfers. The guaranty agency 
must, upon the request of a school, furnish to the school last attended 
by the student, information with respect to the sale or transfer of a 
borrower's loan prior to the beginning of the repayment period, 
including--
    (i) Notice of assignment;
    (ii) The identity of the assignee;
    (iii) The name and address of the party by which contact may be made 
with the holder concerning repayment of the loan; and
    (iv) The telephone number of the assignee or, if the assignee uses a 
lender servicer, another appropriate number for borrower inquiries.
    (26) Third-party servicers. The guaranty agency may not enter into a 
contract with a third-party servicer that the Secretary has determined 
does not meet the financial and compliance standards under Sec. 682.416. 
The guaranty agency shall provide the Secretary with the name and 
address of any third-party servicer with which the agency enters into a 
contract and, upon request by the Secretary, a copy of that contract.
    (27) Collection charges and late fees on defaulted FFEL loans being 
consolidated. (i) A guaranty agency may add collection costs in an 
amount not to exceed 18.5 percent of the outstanding principal and 
interest to a defaulted FFEL Program loan that is included in a Federal 
Consolidation loan.
    (ii) When returning the proceeds from the consolidation of a 
defaulted loan to the Secretary, a guaranty agency may only retain the 
amount added to the borrower's balance pursuant to paragraph (b)(27)(i) 
of this section.
    (28) Change in agency's records system. The agency shall provide 
written notification to the Secretary at least 30 days prior to placing 
its new guarantees or converting the records relating to its existing 
guaranty portfolio to an information or computer system that is owned 
by, or otherwise under the control of, an entity that is different than 
the party that owns or controls the agency's existing information or 
computer system. If the agency is soliciting bids from third parties 
with respect to a proposed conversion, the agency shall provide written 
notice to the Secretary as soon as the solicitation begins. The 
notification described in this paragraph must include a concise 
description of the agency's conversion project and the actual or 
estimated cost of the project.
    (c) Lender-of-last-resort. (1) The guaranty agency must ensure that 
it, or an eligible lender described in section 435(d)(1)(D) of the Act, 
serves as a lender-of-last-resort in the State in which the guaranty 
agency is the designated guaranty agency. The guaranty agency or an 
eligible lender described in section 435(d)(1)(D) of the Act may arrange 
for a loan required to be made under paragraph (c)(2) of this section to 
be made by another eligible lender. As used in this paragraph, the term 
``designated guaranty agency'' means the guaranty agency in the State 
for which the Secretary has signed a Basic Program Agreement under this 
section.
    (2) The lender-of-last-resort must make subsidized Federal Stafford 
loans and unsubsidized Federal Stafford loans to any eligible student 
who--
    (i) Qualifies for interest benefits pursuant to Sec. 682.301;
    (ii) Qualifies for a combined loan amount of at least $200; and
    (iii) Has been otherwise unable to obtain loans from another 
eligible lender for the same period of enrollment.
    (3) The lender-of-last resort may make unsubsidized Federal Stafford 
and Federal PLUS loans to borrowers who have been otherwise unable to 
obtain those loans from another eligible lender.
    (4) The guaranty agency must develop policies and operating 
procedures for its lender-of-last-resort program that provide for the 
accessibility of

[[Page 709]]

lender-of-last-resort loans. These policies and procedures must be 
submitted to the Secretary for approval as required under paragraph 
(d)(2) of this section. The policies and procedures for the agency's 
lender-of-last-resort program must ensure that--
    (i) The guaranty agency will serve eligible students attending any 
eligible school;
    (ii) The program establishes operating hours and methods of 
application designed to facilitate application by students; and
    (iii) Information about the availability of loans under the program 
is made available to schools in the State;
    (iv) Appropriate steps are taken to ensure that borrowers receiving 
loans under the program are appropriately counseled on their loan 
obligation;
    (v) The guaranty agency will respond to a student within 60 days 
after the student submits an original complete application; and
    (vi) Borrowers are not required to obtain more than two objections 
from eligible lenders prior to requesting assistance under the lender-
of-last-resort program.
    (5)(i) Upon request of the guaranty agency, the Secretary may 
advance Federal funds to the agency, on terms and conditions agreed to 
by the Secretary and the agency, to ensure the availability of loan 
capital for subsidized and unsubsidized Federal Stafford and Federal 
PLUS loans to borrowers who are otherwise unable to obtain those loans 
if the Secretary determines that--
    (A) Eligible borrowers in a State who qualify for subsidized Federal 
Stafford loans are seeking and are unable to obtain subsidized Federal 
Stafford loans;
    (B) The guaranty agency designated for that State has the capability 
for providing lender-of-last-resort loans in a timely manner, either 
directly or indirectly using a third party, in accordance with the 
guaranty agency's obligations under the Act, but cannot do so without 
advances provided by the Secretary; and
    (C) It would be cost-effective to advance Federal funds to the 
agency.
    (ii) If the Secretary determines that the designated guaranty agency 
does not have the capability to provide lender-of-last-resort loans, in 
accordance with paragraph (c)(5)(i) of this section, the Secretary may 
provide Federal funds to another guaranty agency, under terms and 
conditions agreed to by the Secretary and the agency, to make lender-of-
last-resort loans in that State.
    (d) Review of forms and procedures. (1) The guaranty agency shall 
submit to the Secretary its write-off criteria and procedures. The 
agency may not use these materials until the Secretary approves them.
    (2) The guaranty agency shall promptly submit to the Secretary its 
regulations, statements of procedures and standards, agreements, and 
other materials that substantially affect the operation of the agency's 
program, and any proposed changes to those materials. Except as provided 
in paragraph (d)(1) of this section, the agency may use these materials 
unless and until the Secretary disapproves them.
    (3) The guaranty agency must use common application forms, 
promissory notes, Master Promissory Notes (MPN), and other common forms 
approved by the Secretary.
    (4)(i) The Secretary authorizes the use of the multi-year feature of 
the MPN--
    (A) For students and parents for attendance at four-year or 
graduate/professional schools; and
    (B) For students and parents for attendance at other institutions 
meeting criteria or otherwise designated at the sole discretion of the 
Secretary.
    (ii) The Secretary may prohibit use of the multi-year feature of the 
MPN at specific schools described under paragraph (4)(i) of this section 
under circumstances including, but not limited to, the school being 
subject to an emergency action or a limitation, suspension, or 
termination action, or not meeting other performance criteria determined 
by the Secretary.
    (iii) A student or parent borrower who is borrowing funds for 
attendance at a school for which the multi-year feature of the MPN has 
not been authorized must complete a new promissory note for each 
academic year.
    (iv) Each loan made under an MPN is enforceable in accordance with 
the terms of the MPN and is eligible for

[[Page 710]]

claim payment based on a true and exact copy of such MPN.
    (v) A lender's ability to make additional loans under an MPN will 
automatically expire upon the earliest of--
    (A) The date the lender receives written notification from the 
borrower requesting that the MPN no longer be used as the basis for 
additional loans;
    (B) Twelve months after the date the borrower signed the MPN if no 
disbursements are issued by the lender under that MPN; or
    (C) Ten years from the date the borrower signed the MPN or the date 
the lender receives the MPN. However, if a portion of a loan is made on 
or before 10 years from the signature date, remaining disbursements of 
that loan may be made.
    (vi) The lender and school must develop and document a confirmation 
process in accordance with guidelines established by the Secretary for 
loans made under the multi-year feature of the MPN.
    (5) The guaranty agency must develop and implement appropriate 
procedures that provide for the granting of a student deferment as 
specified in Sec. 682.210(a)(6)(iv) and (c)(3) and require their lenders 
to use these procedures.
    (6) The guaranty agency shall ensure that all program materials meet 
the requirements of Federal and State law, including, but not limited 
to, the Act and the regulations in this part and part 668.
    (e) Prohibited inducements. A guaranty agency may be--
    (1) Offer directly or indirectly any premium, payment, or other 
inducement to an employee or student of a school, or an entity or 
individual affiliated with a school, to secure applicants for FFEL 
loans, except that a guaranty agency is not prohibited from providing 
assistance to schools comparable to the kinds of assistance provided by 
the Secretary to schools under, or in furtherance of, the Federal Direct 
Loan Program;
    (2)(i) Offer, directly or indirectly, any premium, incentive 
payment, or other inducement to any lender, or any person acting as an 
agent, employee, or independent contractor of any lender or other 
guaranty agency to administer or market FFEL loans, other than 
unsubsidized Stafford loans or subsidized Stafford loans made under a 
guaranty agency's lender-of-last-resort program, in an effort to secure 
the guaranty agency as an insurer of FFEL loans. Examples of prohibited 
inducements include, but are not limited to--
    (A) Compensating lenders or their representatives for the purpose of 
securing loan applications for guarantee;
    (B) Performing functions normally performed by lenders without 
appropriate compensation;
    (C) Providing equipment or supplies to lenders at below market cost 
or rental; or
    (D) Offering to pay a lender, that does not hold loans guaranteed by 
the agency, a fee for each application forwarded for the agency's 
guarantee.
    (ii) For the purposes of this section, the terms ``premium'', 
``inducement'', and ``incentive'' do not include services directly 
related to the enhancement of the administration of the FFEL Program the 
guaranty agency generally provides to lenders that participate in its 
program. However, the terms ``premium'', ``inducement'', and 
``incentive'' do apply to other activities specifically intended to 
secure a lender's participation in the agency's program.
    (3) Mail or otherwise distribute unsolicited loan applications to 
students enrolled in a secondary school or a postsecondary institution, 
or to parents of those students, unless the potential borrower has 
previously received loans insured by the guaranty agency;
    (4) Conduct fraudulent or misleading advertising concerning loan 
availability.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59 
FR 22454, Apr. 29, 1994; 59 FR 25746, May 17, 1994; 59 FR 32923, June 
27, 1994; 59 FR 33353, June 28, 1994; 59 FR 61428, Nov. 30, 1994; 60 FR 
30788, June 12, 1995; 60 FR 31411, June 15, 1995; 60 FR 61757, Dec. 1, 
1995; 61 FR 60436, 60486, Nov. 27, 1996; 62 FR 63434, Nov. 28, 1997; 64 
FR 18978, Apr. 16, 1999; 64 FR 58627, Oct. 29, 1999; 64 FR 58959, Nov. 
1, 1999; 65 FR 65650, Nov. 1, 2000; 66 FR 34763, June 29, 2001]

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