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34 CFR 682.840
TITLE 34--EDUCATION
CHAPTER VI--OFFICE OF POSTSECONDARY EDUCATION, DEPARTMENT OF EDUCATION
PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM--Table of Contents
Subpart H--Special Allowance Payments on Loans Made or Purchased With
Proceeds of Tax-Exempt Obligations
Sec. 682.840 Prohibition against discrimination as a condition for receiving
special allowance payments.
(a) For an Authority to receive special allowance payments on loans
made or acquired with the proceeds of a tax-exempt obligation, the
Authority or its agent may not engage in any pattern or practice that
results in a denial of a borrower's access to loans under the FFEL
programs because of the borrower's race, sex, color, religion, national
origin, age, handicapped status, income, attendance at a particular
institution within the area served by the Authority, length of the
borrower's education program, or the borrower's academic year in school.
(b) The Secretary considers an Authority that makes or acquires
loans guaranteed by an agency or organization that discriminates on one
or more grounds listed in paragraph (a) of this section to have adopted
a practice of
[[Page 750]]
denying access to loans on that ground unless the Authority makes
provision for loan guarantees from other sources necessary to serve the
borrowers excluded by that discriminatory policy.
(Authority: 20 U.S.C. 1082, 1087-1)
Appendix A to Part 682 [Reserved]
Appendix B to Part 682--Student Status Confirmation Report
This appendix sets forth the required format and data elements for
guarantee agencies to use in implementing a manual or automated Student
Status Confirmation Report system as required by Sec. 682.401(b)(18).
Student Status Confirmation Report
DATE: MM/DD/YY GUARANTOR/INSTITUTION CODE: (must accommodate
eight numeric characters)
GUARANTOR/INSTITUTION NAME:
SOCIAL SECURITY NUMBER NAME PERMANENT ADDRESS
CORRECTION CORRECTION CORRECTION
*STATUS EFFECTIVE DATE ANTICIPATED GRADUATION DATE
CORRECTION
*The valid enrollment status codes are as follows:
F=Full-time
H=Half-time or more but less than full-time.
L=Less than half-time. This code is used to specify students enrolled
less than half-time.
X=Never attended the institution. This code is to specify those
individuals on whose behalf a Stafford, SLS, or PLUS loan was made who
enrolled in school but never attended classes.
Z=No record found. A thorough search of the institution's enrolled
records revealed no information for this individual.
D=Deceased
A=Approved leave of absence
G=Graduated
W=Withdrawn
COMPLETED BY:
NAME
TITLE
TELEPHONE NUMBER CERTIFICATION DATE
The following definitions apply to the SSCR data elements.
------------------------------------------------------------------------
Data element Definition
------------------------------------------------------------------------
Date: MM/DD/YY............................ Date report is run and
considered to be issued to
school.
Social security number.................... Valid 9-digit SSN assigned
by Social Security
Administration to student
borrower or student on
whose behalf a PLUS loan
was borrowed.
Name...................................... Last name, first name and
middle initial of student
borrower or student on
whose behalf a PLUS loan
was borrowed.
Address................................... Last known permanent address
of student.
Anticipated graduation date............... Date recorded on agency's
system. Please note any
corrections to this date.
Effective date............................ Effective date of status
reported, as follows:
Full-time status, no record
found and never attended--
the report certification
date.
Half-time status--(1) the
date the student dropped
below full-time, or (2) if
half-time status is the
original enrollment status,
the report certification
date.
Less than half-time status--
the date the student
dropped below half-time.
Leave of absence--the date
the student began a leave
of absence approved in
accordance with Sec.
682.605(c).
Graduated--the date the
student completed the
course requirements (not
the date of the
presentation of the
diploma).
Withdrawn--the date the
student officially withdrew
as determined by the school
in accordance with Sec.
682.605(b).
Certification date........................ The date the institution
completed the SSCR.
Other information......................... Please note any corrections
to SSN, name, or permanent
address of which you are
aware. Please note the
effective date of this
information to avoid
replacing newer information
with old.
------------------------------------------------------------------------
(Approved by the Office of Management and Budget under control number
1840-0538)
[57 FR 60323, Dec. 18, 1993, as amended at 58 FR 9119, Feb. 19, 1993; 59
FR 25747, May 17, 1994]
Appendix C to Part 682--Procedures for Curing Violations of the Due
Diligence in Collection and Timely Filing of Claims Requirements
Applicable to FISLP and Federal PLUS Program Loans and for Repayment of
Interest and Special Allowance Overbillings [Bulletin L-77a]
Note: The following is a reprint of Bulletin L-77a, issued on
January 7, 1983, with minor modifications made to reflect changes in the
program regulations since that date. All references to ``the date of
this bulletin'' refer to that date. All references made to the Federal
[[Page 751]]
Insured Student Loan Program (FISLP) shall be understood to include the
Federal PLUS Program. The bulletin includes references to the 120- and
180-day default periods that used to apply to FFELP and PLUS Program
loans. Public Law 99-272 established new default periods of 180 and 240
days (as set out in 34 CFR 682.200 of these regulations) for all new
loans and many existing ones. Although the discussion in this appendix C
refers to the 120- and 180-day default periods, it is equally applicable
to the new 180- and 240-day default periods.
Introduction
This bulletin prescribes procedures for lenders to use (1) to cure
violations of the requirements for due diligence in collection (``due
diligence'') and timely filing of claims under the Federal Insured
Student Loan Program (FISLP), and (2) to repay interest and special
allowance overbillings made on loans evidencing such violations. See 34
CFR 682.507, 682.511.\1\ These procedures allow for the reinstatement of
a lender's eligibility for interest and special allowance and claim
payments on loans evidencing such violations, under specified
circumstances. These procedures apply to loans for which the first day
of the 120-day or 180-day default period occurred on or after October
21, 1979 (the effective date of the September 17, 1979 regulations),
whether or not the loans have previously been submitted as claims to the
Secretary.
The due diligence and timely filing requirements governing the FISLP
were established in response to requests from some lenders for more
detailed regulatory guidance on the proper handling of FISLP loans.
Despite the promulgation of these provisions, a number of lenders have
failed to exercise the requisite care in their treatment of these loans,
thereby increasing the risk of default thereon and, in many cases,
prejudicing the Secretary's ability to collect from the borrowers. At
the time the current due diligence and timely filing rules were issued,
the Secretary anticipated that violations of these rules would be so
infrequent as to permit requests for cures to be handled individually.
However, the unexpectedly high incidence of violations of these rules
has made continued case-by-case treatment of all cure requests
administratively unmanageable. After carefully considering the views of
lenders and other program participants, the Secretary has decided to
exercise his authority under 20 U.S.C. 1082(a)(5), (6), and institute
uniform procedures by which lenders with loans involving violations of
the due diligence or timely filing requirements may cure these
violations.
Due Diligence
Collection activity is required to begin immediately upon
delinquency by the borrower in honoring the repayment obligation. This
holds true whether or not the borrower received a repayment schedule or
signed a repayment agreement. Under 34 CFR 682.200, default on a FISLP
loan occurs when a borrower fails to make a payment when due, provided
this failure persists for 120 days for loans payable in monthly
installments, or for 180 days for loans payable in less frequent
installments. If, however, the lender has added the optional provision
to the promissory note requiring the borrower to execute a repayment
agreement not later than 120 days prior to the expiration of the grace
period, the loan entered repayment prior to September 4, 1985 (see 50 FR
35970), the lender sends the agreement to the borrower 150 days or more
before the end of the grace period, and the agreement is not executed
before the end of the grace period, default occurs at that time. One
exception to this rule is as follows: If the holder of the loan is not
the lender that made the loan, the holder may choose to forego
enforcement of the optional 120-day provision in the note.
The 120/180 day default period applies regardless of whether
payments were missed consecutively or intermittently. For example, if
the borrower, on a loan payable in monthly installments, makes his
January 1st payment on time, his February 1st payment two months late
(April 1st), his March 1st payment three months late (June 1st), and
makes no further payments, the default period begins on February 1st,
with the first delinquency, and ends on August 1st, when the April 1st
payment becomes 120 days past due. The lender must treat the payment
made on April 1st as the February 1st payment, since the February 1st
payment had not been made prior to that time. Similarly, the lender must
treat the payment made on June 1st as the March 1st payment, since the
March payment had not been made prior to that time.
Note: Lenders are strongly encouraged to exercise forbearance, prior
to default, for the benefit of borrowers who have missed payments
intermittently but have otherwise indicated willingness to repay their
loans. See 34 CFR 682.211. The forebearance process helps to reduce the
incidence of default, and serves to emphasize for the borrower the
importance of compliance with the repayment obligation.
Timely Filing
The 90-day filing period applicable to FISLP default claims is set
forth in 34 CFR 682.511(e) (1) and (3). The 90-day filing period begins
at the end of the 120/180 day default period. The lender must file a
default claim on a loan in default by the end of the filing
[[Page 752]]
period, unless the borrower brings the account current before the end of
the filing period. In such a case, the lender may choose not to file a
claim on the loan at that time.
In addition, for any loan less than 210 days delinquent on the date
of this bulletin, the lender need not file a claim on that loan before
the 210th day of delinquency (120-day default period plus 90-day filing
period) if the borrower brings the account less than 120 days delinquent
before such 210th day. Thus, in the above example, if the borrower makes
the April 1st payment on August 2nd, the 90-day filing period continues
to run from August 1st, unless the loan was less than 210 days
delinquent on the date of this bulletin. If the loan was less than 210
days delinquent on the date of this bulletin, then the August 2nd
payment makes the loan 91 days delinquent, and the lender may, but need
not file a default claim on the loan at that time. If, however, that
loan again becomes 120 days delinquent, the lender must file a default
claim within 90 days thereafter (unless the loan is again brought to
less than 120 days delinquent prior to the end of that 90 day period).
In other words, for any loan less than 210 days delinquent on the date
of this bulletin, the Secretary will permit a lender to treat payments
made during the filing period as ``curing'' the default if such payments
are sufficient to make the loan less than 120 days delinquent.
If a lender fails to comply with either the due diligence or timely
filing requirements, the affected loan ceases to be insured; that is,
the lender loses its right to receive interest benefits, special
allowance and claim payments thereon. Some examples of violations of the
due diligence requirements are set out in section I.C. below.
I. Cure Procedures
A. Definitions
The following definitions apply to terms used throughout Section I
of this bulletin.
Full payment means payment by the borrower, or another person (other
than the lender) on the borrower's behalf, in an amount at least as
great as the monthly payment amount required under the existing terms of
the loan, exclusive of any forbearance agreement in force at the time of
the default. (For example, if the original repayment schedule or
agreement called for payments of $30 per month, but a forbearance
agreement was in effect at the time of default that allowed the borrower
to pay $15 per month for a specified time, and the borrower defaulted in
making the reduced payments, a ``full payment'' would be $30, or two $15
payments in accordance with original repayment schedule or agreement.)
Reinstatement with respect to insurance coverage means the
reinstatement of the lender's right to receive default, death,
disability, or bankruptcy claim payments for the unpaid principal
balance of the loan and for unpaid interest accruing on the loan after
the date of reinstatement. Upon reinstatement of insurance, the borrower
regains the right to receive forbearance or deferments, as appropriate.
For purposes of this bulletin, ``reinstatement'' with respect to
insurance on a loan does not include reinstatement of the lender's right
to receive interest and special allowance payments on that loan.
Reinstatement of the lender's right to receive interest and special
allowance payments is addressed in section I.B.1, below.
B. General
1. Resumption of Interest and Special Allowance Billing on Loans
Involving Due Diligence or Timely Filing Violations. For any loan on
which a cure is attempted under this bulletin, the lender may resume
billing for interest and special allowance on the loan only for periods
following the earlier of (1) its receipt of the equivalent of three full
payments thereon, after the date of this bulletin or the date of the
violation, whichever is later, or (2) receipt by the borrower of an
authorized deferment, after reinstatement of insurance coverage.
2. Reservation of the Secretary's Right to Strict Enforcement. While
this bulletin allows cures to be attempted for particular violations in
specified ways, the Secretary retains the option of refusing to permit
or recognize cures in cases where, in the Secretary's judgment, a lender
has committed an excessive number of severe violations of the due
diligence or timely filing rules, and in cases where the best interests
of the program otherwise require strict enforcement of these
requirements. More generally, this bulletin states the Secretary's
general policy and is not intended to limit in any way the authority and
discretion afforded the Secretary by statute or regulations.
3. Applicability of the Cure Procedures to Particular Classes of
Loans. The cure procedures outlined in this bulletin apply only to a
loan for which the first day of the 120/180 day default period that
ended with default by the borrower occurred on or after October 21,
1979, and which involve violations only of the due diligence and/or
timely filing requirements.
The cure procedures applicable to loans involving due diligence
violations also apply to loans involving violations of both the timely
filing and due diligence requirements.
4. Excusal of Certain Due Diligence Violations. A lender whose claim
was previously denied solely for violation of the timely filing rule,
and who is permitted to cure that violation under the procedures set out
in this bulletin, will not be required to utilize the procedures for
curing due diligence violations, or to repay interest and special
allowance
[[Page 753]]
improperly received from the Secretary as a result of a due diligence
violation for periods prior to the timely filing violation. This applies
even if, upon submission of the ``cured'' claim, the Secretary discovers
that evidence of due diligence violations appeared in the file of the
previously rejected claim.
The Secretary will also excuse a due diligence violation by a lender
if the account was brought current by the borrower (or another, other
than the lender, on the borrower's behalf) prior to the 120th/180th day
of the delinquency period during which the violation occurred.
5. Treatment of Accrued Interest on ``Cured'' Claims--a. Due
Diligence Violations. For any default claim involving ``cured''
violations of the due diligence rules, the Secretary will not reimburse
the lender for any unpaid interest accruing after the first day of the
120/180 day period that culminated in default, and prior to the date of
reinstatement of insurance coverage.
For any loan involving ``cured'' due diligence violations, the
lender may capitalize unpaid interest accruing on the loan from the
commencement of the 120/180 day default period to the date of the
reinstatement of insurance coverage. See sections I.C. and D. below.
However, if the lender later files a claim on that loan, the lender must
deduct this capitalized interest from the amount of the claim. This
deduction must be reflected in column 15 on the ED Form 1207, Lender's
Application for Insurance Claim on Federal Insured Student Loan, filed
with the claim evidencing the cure.
b. Timely Filing Violations. For any default claim involving
``cured'' violations of the timely filing rules, the Secretary will not
reimburse the lender for unpaid interest accruing after the end of the
120/180 day default period that culminated in default, and prior to the
date of reinstatement of insurance coverage.
For any default claim involving a ``cured'' timely filing violation,
if insurance coverage is later reinstated, the lender may capitalize
unpaid interest accruing on the loan from the commencement of the
original 120/180 day default period to the date of the reinstatement of
insurance coverage. See sections I.C. and D. below. However, if the
lender later files a claim, on that loan, the lender must deduct this
capitalized interest from the amount of the claim, except that the
lender need not deduct from the claim unpaid interest that accrued on
the loan during the original 120/180 day default period. This deduction
must be reflected in Column 15 of the ED Form 1207, Lender's Application
for Insurance Claim on Federal Insured Student Loan, filed with the
claim evidencing the cure.
Some timely filing cures will not reinstate insurance coverage. For
treatment of accrued interest in such cases, see Section I.D.1.c.
6. Documents to be Submitted with ``Cured'' Claims. The Secretary
requests that any lender submitting a claim on a loan involving
``cured'' violations identify the claim as such with a note in the claim
file stapled to the new ED Form 1207.
For all ``cured'' claims, the lender must submit:
<bullet> For loans on which a claim was previously rejected, all
documents sent by the regional office with the original claim (when the
claim was rejected and returned to the lender), including without
limitation, the original ED Form 1207 and all documents showing the
reason(s) for the original rejection;
<bullet> All documents ordinarily required in connection with the
submission of a default claim, including, without limitation, the
promissory note, which must bear a valid assignment to the United States
of America;
<bullet> A new ED Form 1207; and
<bullet> All documents showing that the lender has complied with the
applicable cure procedures and requirements.
C. Cures for Violations of the Due Diligence in Collection Requirements
(34 CFR 682.507)
A violation of the due diligence in collection rules occurs when a
lender fails to meet requirements found in 34 CFR 682.507. For example,
a violation occurs if the lender fails to:
<bullet> Remind the borrower of the date a missed payment was due
within 15 days of delinquency;
<bullet> Attempt to contact the borrower and any endorser at least 3
times at regular intervals during the rest of the 120/180 day default
period;
<bullet> Request preclaims assistance from the Department of
Education;
<bullet> Request skip-tracing assistance from the Secretary, if
required, or
<bullet> Send a final demand letter to the borrower exercising the
option to accelerate the due date for the outstanding balance of the
loan, unless the lender does not know the borrower's address as of the
90th day of delinquency.
1. Reinstatement of Insurance Coverage. In the case of a due
diligence violation, the lender may utilize either of the two procedures
described below for obtaining reinstatement of insurance coverage on the
loan. After the date of this bulletin, or after the date of the
violation, whichever is later:
(a) The lender obtains a new repayment agreement signed by the
borrower which complies with the ten and fifteen year repayment
limitations set out in 34 CFR 682.209(a)(7); or
(b) The lender obtains 3 full payments. If the borrower later
defaults, the lender must
[[Page 754]]
submit evidence of these payments (e.g., copies of the checks) with the
claim.
2. Borrower's Deemed Current As of Date of Cure. On the date the
lender receives a signed copy of the new repayment agreement, or
receives the third (curing) payment, insurance coverage on the loan is
reinstated, and the borrower shall be deemed by the lender to be current
in repaying the loan and entitled to all rights and benefits available
to FISLP borrowers. If the borrower later becomes delinquent in
repayment, the lender shall follow the collection procedures set out in
34 CFR 682.507, and the timely filing requirements set out in 34 CFR
682.511.
D. Cures for Violations of the Timely Filing Requirements (34 CFR
682.511)
1. Default Claims.--a. Reinstatement of Insurance Coverage. In order
to obtain reinstatement of insurance coverage on a loan in the case of a
timely filing violation, the lender must first locate the borrower after
the date of this bulletin, or after the date of the violation, whichever
is later (see section I.D.1.d. for description of acceptable evidence of
location). Then, the lender must send to the borrower, at the address at
which the borrower was located, (i) a new repayment agreement, to be
signed by the borrower, which complies with the ten and fifteen year
repayment limitations set out in 34 CFR 682.209(a)(7), along with (ii) a
collection letter indicating in strong terms the seriousness of the
borrower's delinquency and its potential effect on his or her credit
rating if repayment is not commenced or resumed.
If, within 30 days after the lender sends these items, the borrower
fails to make a full payment or to sign and return the new repayment
agreement, the lender shall, within 5 working days thereafter, send the
borrower a copy of the attached ``48 hour'' collection letter, on the
lender's letterhead. (See attachment A.)
b. Borrower Deemed Current Under Certain Circumstances. If, within
45 days after the lender sends the new repayment agreement to the
borrower for signature, the borrower makes a full payment or signs and
returns the new repayment agreement, insurance coverage on the loan is
reinstated. The borrower shall be deemed by the lender to be current in
repaying the loan and entitled to all rights and benefits available to
FISLP borrowers. If the borrower later becomes delinquent in repayment,
the lender shall follow the collection steps in 34 CFR 682.507 and the
timely filing requirements in 34 CFR 682.511.
c. Borrower Deemed in Default Under Certain Circumstances. If the
borrower does not make a full payment, or sign and return the new
repayment agreement, within 45 days after the lender sends the new
repayment agreement, the lender shall deem the borrower to be in
default. The lender shall then file a default claim on the loan
accompanied by acceptable evidence of location (see I.D.I.d below),
within 30 days after the end of such 45-day period. Although insurance
coverage is not reinstated on loans involving these circumstances, the
Secretary will honor default claims submitted in accordance with this
paragraph on the outstanding principal balance of such loans, and on
unpaid interest accruing on the loan during the 120/180 day default
period.
d. Acceptable Evidence of Location. Only the following documentation
is acceptable as evidence that the lender has located the borrower:
(i) Postal receipt signed by the borrower not more than 25 days
prior to the date on which the lender sent the new repayment agreement,
indicating acceptance of correspondence from the lender by the borrower
at the address shown on the receipt; or
(ii) A completed ``Certification of Borrower Location'' form
(Attachment B).
2. Death, Disability, and Bankruptcy Claims. Lenders may immediately
resubmit any death or disability claim which was rejected solely for
failure to meet the 60 day timely filing requirements (see 34 CFR
685.511(e)(2)). However, the Secretary will not pay any such claim if,
before the date the lender determined that the borrower died or was
totally and permanently disabled, the lender had violated the due
diligence or timely filing requirements applicable to default claims
with respect to that loan. Interest that accrued on the loan after the
expiration of the 60-day filing period remains uninsured by the
Secretary, and the lender must repay all interest and special allowance
received on the loan for periods after the expiration of the 60-day
filing period.
The Secretary has determined that, in the vast majority of cases,
the failure of a lender to comply with the timely filing requirement
applicable to bankruptcy claims causes irreparable harm to the
Secretary's ability to contest the discharge of the loan by the court,
or to otherwise collect from the borrower. Therefore, the Secretary has
decided not to permit cures for violations of the timely filing
requirement applicable to bankruptcy claims, except when the lender can
demonstrate that the bankruptcy action has concluded and that the loan
has not been discharged in bankruptcy. In that case, the lender shall
treat the loan as in default. The Secretary will honor a default claim
later filed on such a loan only if the lender has met the cure
requirements in section I.C. above for due diligence violations.
[[Page 755]]
II. Repayment of Interest and Special Allowance on Loans Evidencing
Violations of the Due Diligence or Timely Filing Requirements
A. General Rule
It has always been the Secretary's interpretation of the FISLP
statute and regulations that a lender's right to receive interest and
special allowance payments on a FISLP loan terminates immediately
following the lender's violation of the due diligence or timely filing
requirements. This applies whether or not the lender has filed a claim
on the loan. In other words, lenders may receive interest and special
allowance only on loans which are insured by the Secretary. Since these
violations result in the termination of insurance, they also result in
the termination of FISLP benefits.
B. Cessation of Billing on Loans Evidencing Violations of the Due
Diligence or Timely Filing Requirements
Any lender currently billing the Secretary for interest and special
allowance on a loan that the lender knows involves a due diligence or
timely filing violation must cease doing so immediately. However,
lenders are not required at this time to review their loan portfolios
for due diligence and timely filing violations.
C. Determination of Amounts of Interest and Special Allowance That Must
Be Repaid
1. Due Diligence Violations. In the case of due diligence
violations, it is often difficult to ascertain the precise date on which
a violation occurred. For the administrative ease of the Secretary and
lenders, the Secretary has decided to waive his right to recoup interest
and special allowance payments made to a lender for periods between the
date of a due diligence violation and the end of the 120/180 day default
period. However, any lender that has received interest or special
allowance payments from the Secretary for periods after the end of the
120/180 day default period on a loan that the lender knows involves a
due diligence violation must promptly repay those amounts.
2. Timely Filing Violations. In the case of timely filing
violations, the lender loses its right to receive interest and special
allowance payments as of the expiration of the applicable timely filing
period. Therefore, any lender that has received interest or special
allowance payments from the Secretary for periods following the end of
the applicable timely filing period on a loan that the lender knows
involves a timely filing violation must repay those amounts.
3. Situations in Which a Lender May Have Received Interest Benefits
for Periods During Which a Loan was Uninsured. Because most due
diligence violations, and timely filing violations, occur after
termination of the grace period, interest payments are ordinarily not
affected by such violations. However, there are three types of
situations in which a lender may have received interest payments from
the Secretary to which it was not entitled due to a due diligence or
timely filing violation.
a. Promissory notes that include a requirement that the borrower
sign a repayment agreement no later than 120 days prior to the
expiration of the grace period. In such cases, a due diligence violation
may occur during the grace period, when the lender may otherwise have
been eligible to receive interest benefits. However, the lender need not
repay that interest to the Secretary. See II.C.1. above.
b. Deferment Periods. A due diligence violation may occur prior to a
deferment period when the lender would otherwise have been eligible to
receive interest benefits.
c. Loans Made Prior to December 15, 1968. A loan disbursed prior to
December 15, 1968, and which qualified for payment of Federal interest
benefits at the time the loan was disbursed, qualifies for payment of a
3 percent interest subsidy on the unpaid principal balance during the
entire repayment period, provided the loan remains insured. In the case
of such a loan, a due diligence or timely filing violation terminates
the lender's eligibility for the 3 percent payments.
D. Procedures for Repayment of Federal Interest Benefits and Special
Allowance Received by a Lender for Periods During Which a Loan Was
Uninsured
A lender must make the repayments of interest and/or special
allowance discussed in II.C. above, by way of an adjustment during the
two quarters immediately following the discovery of the violation. These
adjustments must be reported on the normal Lender`s Interest and Special
Allowance Request and Report (ED Form 799). Lenders are requested not to
send a check with the adjustment; the overpaid amount will be deducted
by the Secretary from the lender's next regular interest and special
allowance payment. For five years after any loan for which an adjustment
is made is repaid in full, the lender shall retain a record of the basis
for the adjustment showing the amount(s) of the overbilling(s), and the
date it used for cessation of interest or special allowance eligibility
in calculating the overbilled amount. See 34 CFR 682.515(a)(2).
Attachments.
\1\ All references to the program regulations are to part 682 of
title 34 of the Code of Federal Regulations (34 CFR part 682).
Attachment A
[[Page 756]]
[GRAPHIC] [TIFF OMITTED] TC21OC91.021
Attachment B
Certification of Borrower Location
As an employee or agent of
Name and Address of Lender_____________________________________________
I hereby certify as follows:
1. On (Date), I spoke with or received written communication from
(copy attached):
(Circle a or b)
(a) the borrower on the loan underlying the default claim, or
(b) a parent, spouse, or sibling of the borrower.
2. The borrower, parent, spouse, or sibling represented to me that
the borrower's address and telephone number are--__________.
_______________________________________________________________________
Address and Telephone Number
3. Within 15 days thereafter, this institution sent the borrower a
new repayment agreement along with a collection letter of the type
described in section I.D.1.a.ii of Bulletin L-77a, dated January 7,
1983, to the address set out in 2, above.
4. (Applicable only if 1(b), above, is used.) The letter and
agreement referenced in 3, above, has not been returned undelivered.
_______________________________________________________________________
Name of Borrower
_______________________________________________________________________
Borrower's SSN
_______________________________________________________________________
Signature of Employee or Agent
_______________________________________________________________________
Typed Name of Employee or Agent
_______________________________________________________________________
Title of Employee or Agent
[[Page 757]]
_______________________________________________________________________
Date
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Lender Identification Number
Appendix D to Part 682--Policy for Waiving the Secretary's Right To
Recover or Refuse To Pay, Interest Benefits, Special Allowance, and
Reinsurance on Stafford, PLUS, Supplemental Loans for Students, and
Consolidation Program Loans Involving Lenders' Violations of Federal
Regulations Pertaining to Due Diligence in Collection or Timely Filing
of Claims [Bulletin 88-G-138].
Note: The following is a reprint of Bulletin 88-G-138, issued on
March 11, 1988, with modifications made to reflect changes in the
program regulations. For a loan that has lost reinsurance prior to
December 1, 1992, this policy applies only through November 30, 1995.
For a loan that loses reinsurance on or after December 1, 1992, this
policy applies until three years after the default claim filing
deadline.
Introduction
This letter sets forth the circumstances under which the Secretary,
pursuant to sections 432(a) (5) and (6) of the Higher Education Act of
1965 and 34 CFR Secs. 682.406(b) and 682.413(f), will waive certain of
his rights and claims with respect to Stafford Loans, PLUS, Supplemental
Loans for Students (SLS), and Consolidation Program loans made under a
guaranty agency program that involve violations of Federal regulations
pertaining to due diligence in collection or timely filing. (These
programs are collectively referred to in this letter as the FFEL
Programs.) This policy applies to due diligence violations on loans for
which the first day of delinquency occurred on or after March 10, 1987
(the effective date of the November 10, 1986 due diligence regulations)
and to timely filing violations occurring on or after December 26, 1986,
whether or not the affected loans have been submitted as claims to the
guaranty agency.
The Secretary has been implementing a variety of regulatory and
administrative actions to minimize defaults in the FFEL Programs. As a
part of this effort, the Secretary published final regulations on
November 10, 1986 requiring lenders and guaranty agencies to undertake
specific due diligence activities to collect delinquent and defaulted
loans, and establishing deadlines for the filing of claims by lenders
with guaranty agencies. In recognition of the time required for agencies
and lenders to modify their internal procedures, the Secretary delayed
for four months the date by which lenders were required to comply with
the new due diligence requirements. Thus, Sec. 682.411 of the
regulations, which established minimum due diligence procedures that a
lender must follow in order for a guaranty agency to receive reinsurance
on a loan, became effective for loans for which the first day of
delinquency occurred on or after March 10, 1987. The regulations make
clear that compliance with these minimum requirements, and with the new
timely filing deadlines, is a condition for an agency's receiving or
retaining reinsurance payments made by the Secretary on a loan. See 34
CFR 682.406(a)(3), (a)(5), 682.413(b). The regulations also specify that
a lender must comply with Sec. 682.411 and with the applicable filing
deadline, as a condition for its right to receive or retain interest
benefits and special allowance on a loan for certain periods. See 34 CFR
682.300(b)(2)(vi), 682.413(a)(1).
The Department has received inquiries regarding the procedures by
which a lender may ``cure'' a violation of Sec. 682.411 regarding
diligent loan collection, or of the 90-day deadline for the filing of
default claims found in Sec. 682.406(a)(3) and (a)(5), in order to
reinstate the agency's right to reinsurance, and the lender's right to
interest benefits and special allowance. Preliminarily, please note
that, absent an exercise of the Secretary's waiver authority, a guaranty
agency may not receive or retain reinsurance payments on a loan on which
the lender has violated the Federal due diligence or timely filing
requirements, even if the lender has followed a cure procedure
established by the agency. Under Secs. 682.406(b) and 682.413(f), the
Secretary--not the guaranty agency--decides whether to reinstate
reinsurance coverage on a loan involving such a violation, or any other
violation of Federal regulations. A lender's violation of a guaranty
agency's requirement that affects the agency's guarantee coverage also
affects reinsurance coverage. See Secs. 682.406(a)(7); and 682.413(b).
As Secs. 682.406(a)(7) and 682.413(b) make clear, a guaranty agency's
cure procedures are relevant to reinsurance coverage only insofar as
they allow for cure of violations of requirements established by the
agency affecting the loan insurance it provides to lenders. In addition,
all such requirements must be submitted to the Secretary for review and
approval, under 34 CFR 682.401(d).
References throughout this letter to ``due diligence and timely
filing'' rules, requirements, and violations should be understood to
mean only the Federal rules cited above, unless the context clearly
requires otherwise.
[[Page 758]]
A. Scope
This letter outlines the Secretary's waiver policy regarding certain
violations of Federal due diligence or timely filing requirements on a
loan insured by a guaranty agency. Unless your agency receives
notification to the contrary, or the lender's violation involves fraud
or other intentional misconduct, you may treat as reinsured any
otherwise reinsured loan involving such a violation that has been cured
in accordance with this letter.
B. Duty of a Guaranty Agency to Enforce Its Standards
As noted above, a lender's violation of a guaranty agency's
requirement that affects the agency's guarantee coverage also affects
reinsurance coverage. Thus, as a general rule, an agency that fails to
enforce such a requirement and pays a default claim involving a
violation is not eligible to receive reinsurance on the underlying loan.
However, in light of the waiver policy outlined below, which provides
more stringent cure procedures for violations occurring on or after May
1, 1988 than for pre-May 1, 1988 violations, some guarantee agencies
with more stringent policies than the policy outlined below for the pre-
May 1 violations have indicated that they wish to relax their own
policies for violations of agency rules during that period. While the
Secretary does not encourage any agency to do so, the Secretary will
permit an agency to take either of the following approaches to its
enforcement of its own due diligence and timely filing rules for
violations occurring before May 1, 1988.
(1) The agency may continue to enforce its rules, even if they
result in the denial of guarantee coverage by the agency on otherwise
reinsurable loans; or
(2) The agency may decline to enforce its rules as to any loan that
would be reinsured under the retrospective waiver policy outlined below.
In other words, for violations of a guaranty agency's due diligence and
timely filing rules occurring before May 1, 1988, a guaranty agency is
authorized, but not required, to retroactively revise its own due
diligence and timely filing standards to treat as guaranteed any loan
amount that is reinsured under the retrospective enforcement policy
outlined in section I.C.1., below. However, for any violation of an
agency's due diligence or timely filing rules occurring on or after May
1, 1988, the agency must resume enforcing those rules in accordance with
their terms, in order to receive reinsurance payments on the underlying
loan. For these post-April 30 violations, and for any other violation of
an agency's rule affecting its guarantee coverage, the Secretary will
treat as reinsured all loans on which the agency has engaged in, and
documented, a case-by-case exercise of reasonable discretion allowing
for guarantee coverage to be continued or reinstated notwithstanding the
violation. But any agency that otherwise fails, or refuses, to enforce
such a rule does so without the benefit of reinsurance coverage on the
affected loans, and the lenders continue to be ineligible for interest
benefits and special allowance thereon.
C. Due Diligence
Under 34 CFR 682.200, default on a FFEL Program loan occurs when a
borrower fails to make a payment when due, provided this failure
persists for 180 days for loans payable in monthly installments, or for
240 days for loans payable in less frequent installments. The 180/240-
day default period applies regardless of whether payments were missed
consecutively or intermittently. For example, if the borrower, on a loan
payable in monthly installments, makes his January 1st payment on time,
his February 1st payment two months late (April 1st), his March 1st
payment three months late (June 1st), and makes no further payments, the
delinquency period begins on February 2nd, with the first delinquency,
and default occurs on September 29th, when the April payment becomes 180
days past due. The lender must treat the payment made on April 1st as
the February 1st payment, since the February 1st payment had not been
made prior to that time. Similarly, the lender must treat the payment
made on June 1st as the March 1st payment, since the March payment had
not been made prior to that time.
Note: Lenders are strongly encouraged to exercise forbearance, prior
to default, for the benefit of borrowers who have missed payments
intermittently but have otherwise indicated willingness to repay their
loans. See 34 CFR 682.211. The forbearance process helps to reduce the
incidence of default, and serves to emphasize for the borrower the
importance of compliance with the repayment obligation.
D. Timely Filing
The 90-day filing period applicable to FFEL Program default claims
is set forth in 34 CFR 682.406(a)(5). The 90-day filing period begins at
the end of the 180/240-day default period. The lender ordinarily must
file a default claim on a loan in default by the end of the filing
period. However, the lender may, but need not, file a claim on that loan
before the 270th day of delinquency (180-day default period plus 90-day
filing period) if the borrower brings the account less than 180 days
delinquent before such 270th day. Thus, in the above example, if the
borrower makes the April 1st payment on September 30th, that payment
makes the loan 151 days delinquent, and the lender may, but need not,
file a default claim on the loan at that time. If,
[[Page 759]]
however, the loan again becomes 180 days delinquent, the lender must
file a default claim within 90 days thereafter (unless the loan is again
brought to less than 180 days delinquent prior to the end of that 90-day
period). In other words, the Secretary will permit a lender to treat
payments made during the filing period as curing the default if such
payments are sufficient to make the loan less than 180 days delinquent.
Section I of this letter outlines the Secretary's waiver policy for
due diligence and timely filing violations. As noted above, to the
extent that it results in the imposition of a lesser sanction than that
available to the Secretary by statute or regulation, this policy
reflects the exercise of the Secretary's authority to waive the
Secretary's rights and claims in this area. Section II discusses the
issue of the due date of the first payment on a loan, and the
application of the waiver policy to that issue. Section III provides
guidance on several issues related to due diligence and timely filing as
to which clarification has been requested by some program participants.
I. Waiver Policy
A. Definitions
The following definitions apply to terms used throughout this
letter:
Full payment means payment by the borrower, or another person (other
than the lender) on the borrower's behalf, in an amount at least as
great as the monthly payment amount required under the existing terms of
the loan, exclusive of any forbearance agreement in force at the time of
the default. (For example, if the original repayment schedule or
agreement called for payments of $50 per month, but a forbearance
agreement was in effect at the time of default that allowed the borrower
to pay $25 per month for a specified time, and the borrower defaulted in
making the reduced payments, a ``full payment'' would be $50, or two $25
payments in accordance with the original repayment schedule or
agreement.) In the case of a payment made by cash, money order, or other
means that do not identify the payor that is received by a lender after
the date of this letter, that payment may constitute a ``full payment''
only if a senior officer of the lender or servicing agent certifies that
the payment was not made by or on behalf of the lender or servicing
agent.
Reinstatement with respect to reinsurance coverage means the
reinstatement of the guaranty agency's right to receive reinsurance
payments on the loan after the date of reinstatement. Upon reinstatement
of reinsurance, the borrower regains the right to receive forbearance or
deferments, as appropriate. ``Reinstatement'' with respect to
reinsurance on a loan also includes reinstatement of the lender's right
to receive interest and special allowance payments on that loan.
``Gap'' in collection activity on a loan means:
(a) The period between the initial delinquency and the first
collection activity;
(b) The period between collection activities (a request for
preclaims assistance is considered a collection activity);
(c) The period between the last collection activity and default; or
(d) The period between the date a lender discovers a borrower has
``skipped'' and the lender's first skip-tracing activity.
Note: the concept of ``gap'' is used herein simply as one measure of
collection activity. This definition applies to loans subject to the
FFEL and PLUS programs regulations published on November 10, 1986. For
such loans, not all gaps are violations of the due diligence rules.
Violation with respect to the due diligence requirements in
Sec. 682.411 means the failure to timely complete a required diligent
phone contact effort, the failure to timely send a required letter
(including a request for preclaims assistance), or the failure to timely
engage in a required skip-tracing activity. If during the deliquency
period, a gap of more than 45 days occurs (more than 60 days for loans
with a transfer), the lender must satisfy the requirement outlined in
I.D.1. for reinsurance to be reinstated. The day after the 45-day gap
(or 60 for loans with a transfer) will be considered the date that the
violation occurred.
Transfer means any action, including, but not limited to, the sale
of the loan, that results in a change in the system used to monitor or
conduct collection activity on a loan from one system to another.
B. General
1. Resumption of Interest and Special Allowance Billing on Loans
Involving Due Diligence or Timely Filing Violations. For any loan on
which a cure is required under this letter in order for the agency to
receive any reinsurance payment, the lender may resume billing for
interest and special allowance on the loan only for periods following
its completion of the required cure procedure.
2. Reservation of the Secretary's Right to Strict Enforcement. While
this letter describes the Secretary's general waiver policy, the
Secretary retains the option of refusing to permit or recognize cures,
or of insisting on strict enforcement of the remedies established by
statute or regulation, in cases where, in the Secretary's judgment, a
lender has committed an excessive number of severe violations of due
diligence or timely filing rules, and in cases where the best interests
of the United States otherwise require such strict enforcement. More
generally, this bulletin states the Secretary's general policy
[[Page 760]]
and is not intended to limit in any way the authority and discretion
afforded the Secretary by statute or regulation.
3. Interest, Special Allowance, and Reinsurance Repayment Required
as a Condition for Exercise of the Secretary's Waiver Authority. The
Secretary's waiver of the right to recover or refuse to pay reinsurance,
interest benefits, or special allowance payments, and recognition of
cures for due diligence and timely filing violations, are conditioned on
the following:
(1) The guaranty agency and lender shall ensure that the lender
repays all interest benefits and special allowance received on loans
involving violations occurring prior to May 1, 1988, for which the
lender is ineligible under the waiver policy for the ``retrospective
period'' described in section I.C.1., below, or under the waiver policy
for timely filing violations described in section I.E.1., below, by an
adjustment to one of the next three quarterly billings for interest
benefits and special allowance submitted by the lender in a timely
manner after May 1, 1988. The guaranty agency's responsibility in this
regard is satisfied by receipt of a certification from the lender that
this repayment has been made in full.
(2) The guaranty agency, on or before October 1, 1988, shall repay
all reinsurance received on loans involving violations occurring prior
to May 1, 1988, for which the agency is ineligible under the waiver
policy for the ``retrospective period'' described in section I.C.1.,
below, or under the waiver policy for timely filing violations described
in section I.E.1., below. Pending completion of the repayment described
above, a lender or guaranty agency may submit billings to the Secretary
on loans that are eligible for reinsurance under the waiver policy in
this letter until it learns that repayment in full will not be made, or
until the deadline for a repayment has passed without it being made,
whichever is earlier. Of course, a lender or guaranty agency is
prohibited from billing the Secretary for program payments on any loan
amount that is not eligible for reinsurance under the waiver policy
outlined in this letter. In addition to the repayments required above,
any amounts received in the future in violation of this prohibition must
immediately be repaid to the Secretary.
4. Applicability of the Waiver Policy to Particular Classes of
Loans. The policy outlined in this letter applies only to a loan for
which the first day of the 180/240-day default period that ended with
default by the borrower occurred on or after March 10, 1987, or, in the
case of a timely filing violation, December 26, 1986, and that involves
violations only of the due diligence and/or timely filing requirements.
For a loan that has lost reinsurance prior to December 1, 1992, this
policy applies only through November 30, 1995. For a loan that loses
reinsurance on or after December 1, 1992, this policy applies until
three years after the default claim filing deadline.
5. Excuse of Certain Due Diligence Violations. Except as noted in
section II, below, if a loan has due diligence violations but was later
cured and brought current, those violations will not be considered in
determining whether a loan was serviced in accordance with 34 CFR
682.411. Guarantors must review the due diligence for the 180-day period
prior to the default date ensuring the due date of the first payment not
later made is the correct payment due date for the borrower.
6. Excuse of Timely Filing Violations Due to Performance of a
Guaranty Agency's Cure Procedures. If, prior to May 1, 1988, and prior
to the filing deadline, a lender commenced the performance of collection
activities specifically required by the guaranty agency to cure a due
diligence violation on a loan, the Secretary will excuse the lender's
timely filing violation if the lender completes the additional
activities within the time period permitted by the guaranty agency, and
files a default claim on the loan not more than 45 days after completing
the additional activities.
7. Treatment of Accrued Interest on ``Cured'' Claims. For any loan
involving any violation of the due diligence or timely filing rules for
which a ``cure'' is required under section I.C. or I.E., below, for the
agency to receive a reinsurance payment, the Secretary will not
reimburse the guaranty agency for any unpaid interest accruing after the
date of the earliest unexcused violation occurring after the last
payment received before the cure is accomplished, and prior to the date
of reinstatement of reinsurance coverage. The lender may capitalize
unpaid interest accruing on the loan from the date of the earliest
unexcused violation to the date of the reinstatement of reinsurance
coverage. However, if the agency later files a claim for reinsurance on
that loan, the agency must deduct this capitalized interest from the
amount of the claim. Some cures will not reinstate coverage. For
treatment of accrued interest in such cases, see Section I.E.1.c.,
below.
C. Waiver Policy for Violations of the Federal Due Diligence in
Collection Requirements (34 CFR 682.411
A violation of the due diligence in collection rules occurs when a
lender fails to meet the requirements found in 34 CFR 682.411. However,
if a lender makes all required calls and sends all required letters
during any of the delinquency periods described in that section, the
lender is considered to be in compliance with that section for that
period, even if the letters were sent before the calls were made.
The special provisions for transfers set forth below apply whenever
the violation(s) and, if applicable, the gap, were due to a transfer, as
defined in section I.A., above.
[[Page 761]]
1. Retrospective Period. For one or more due diligence violations
occurring during the period March 10, 1987-April 30, 1988--
a. There will be no reduction or recovery by the Secretary of
payments to the lender or guaranty agency if no gap of 46 days or more
(61 days or more for a transfer) exists.
b. If a gap of 46-60 days (61-75 days for a transfer) exists,
principal will be reinsured, but accrued interest, interest benefits,
and special allowance otherwise payable by the Secretary for the
delinquency period are limited to amounts accruing through the date of
default.
c. If a gap of 61 days or more (76 days or more for a transfer)
exists, the borrower must be located after the gap, either by the agency
or the lender, in order for reinsurance on the loan to be reinstated.
(See section I.E.1.d., below, for a description of acceptable evidence
of location.) In addition, if the loan is held by the lender or after
March 15, 1988, the lender must follow the steps described in section
I.E.1., or receive a full payment or a new signed repayment agreement,
in order for the loan to again be eligible for reinsurance. The lender
must repay all interest benefits and special allowance received for the
period beginning with its earliest unexcused violation, occurring after
the last payment received before the cure is accomplished, and ending
with the date, if any, that reinsurance on the loan is reinstated.
2. Prospective Period. For due diligence violations occurring on or
after May 1, 1988----
a. There will be no reduction or recovery by the Secretary of
payments to the lender or guaranty agency if there is no violation of
Federal requirements of 6 days or more (21 days or more for a transfer.)
b. If there exists not more than 2 violations of 6 days or more each
(21 days or more for a transfer), and no gap of 46 days or more (61 days
or more for a transfer) exists, principal will be reinsured, but accrued
interest, interest benefits, and special allowance otherwise payable by
the Secretary for the delinquency period will be limited to amounts
accruing through the date of default.
However, the lender must complete all required activities before the
claim filing deadline, except that a preclaims assistance request must
be made before the 240th day of delinquency. If the lender fails to make
this request by the 240th day, the Secretary will not pay any accrued
interest, interest benefits, and special allowance for the most recent
180 days prior to default. If the lender fails to complete any other
required activity before the claim filing deadline, accrued interest,
interest benefits, and special allowance otherwise payable by the
Secretary for the delinquency period will be limited to amounts accruing
through the 90th day before default.
c. If there exists 3 violations of 6 days or more each (21 days or
more for a transfer) and no gap of 46 days or more (61 days or more for
a transfer), the lender must satisfy the requirements outlined in
I.E.1., or receive a full payment or a new signed repayment agreement in
order for reinsurance on the loan to be reinstated. The Secretary does
not pay any interest benefits or special allowance for the period
beginning with the lender's earliest unexcused violation occurring after
the last payment received before the cure is accomplished, and ending
with the date, if any, that reinsurance on the loan is reinstated.
d. If there exists more than three violations of 6 days or more each
(21 days or more for a transfer) of any type, or a gap of 46 days (61
days for a transfer) or more and at least one violation, the lender must
satisfy the requirement outlined in section I.D.1., for reinsurance on
the loan to be reinstated. The Secretary does not pay any interest
benefits or special allowance for the period beginning with the lender's
earliest unexcused violation occurring after the last payment received
before the cure is accomplished, and ending with the date, if any, that
reinsurance on the loan is reinstated.
D. Reinstatement of Reinsurance Coverage for Certain Egregious Due
Diligence Violations
1. Cures. In the case of a loan involving violations described in
section I.C.2.d., above, the lender may utilize either of the two
procedures described below for obtaining reinstatement of reinsurance
coverage on the loan.
a. After the violations occur, the lender obtains a new repayment
agreement signed by the borrower. The repayment agreement must comply
with the ten-year repayment limitations set out in 34 CFR 682.209(a)(7);
or
b. After the violations occur, the lender obtains one full payment.
If the borrower later defaults, the guaranty agency must obtain evidence
of this payment (e.g., a copy of the check) from the lender.
2. Borrower Deemed Current as of Date of Cure. On the date the
lender receives a new signed repayment agreement or the curing payment
under section I.D.1., above, reinsurance coverage on the loan is
reinstated, and the borrower shall be deemed by the lender to be current
in repaying the loan and entitled to all rights and benefits available
to borrowers who are not in default. The lender shall then follow the
collection and timely filing requirements applicable to the loan.
E. Cures for Timely Filing Violations and Certain Due Diligence
Violations
1. Default Claims--a. Reinstatement of Insurance Coverage. Except as
noted in section I.B.6., in order to obtain reinstatement of reinsurance
coverage on a loan in the case of a timely filing violation, a due
diligence violation described in section I.C.2.c., or a due
[[Page 762]]
diligence violation described in section I.C.1.c. where the lender holds
the loan on or after March 15, 1988, the lender must first locate the
borrower after the gap, or after the date of the last violation, as
applicable. (See section I.E.1.d. for description of acceptable evidence
of location.) Within 15 days thereafter, the lender must send to the
borrower, at the address at which the borrower was located, (i) a new
repayment agreement, to be signed by the borrower, that complies with
the ten-year repayment limitations set out in 34 CFR 682.209(a)(7),
along with (ii) a collection letter indicating in strong terms the
seriousness of the borrower's delinquency and its potential effect on
his or her credit rating if repayment is not commenced or resumed.
If, within 15 days after the lender sends these items, the borrower
fails to make a full payment or to sign and return the new repayment
agreement, the lender shall, within 5 days thereafter, diligently
attempt to contact the borrower by telephone. Within 5-10 days after
completing these efforts, the lender shall again diligently attempt to
contact the borrower by telephone. Finally, within 5-10 days after
completing these efforts, the lender shall send a forceful collection
letter indicating that the entire unpaid balance of the loan is due and
payable, and that, unless the borrower immediately contacts the lender
to arrange repayment, the lender will be filing a default claim with the
guaranty agency.
b. Borrower Deemed Current Under Certain Circumstances. If, at any
time on or before the 30th day after the lender completes the additional
collection efforts described in section I.E.1.a., above, or the 180th
day of delinquency, whichever is later, the lender receives a full
payment or a new signed repayment agreement, reinsurance coverage on the
loan is reinstated on the date the lender receives the full payment or
new agreement. The borrower shall be deemed by the lender to be current
in repaying the loan and entitled to all rights and benefits available
to borrowers who are not in default.
In the case of a timely filing violation on a loan for which the
borrower is deemed current under this paragraph, the lender is
ineligible to receive interest benefits and special allowance accruing
from the date of the violation to the date of reinstatement of
reinsurance coverage on the loan.
c. Borrower Deemed in Default Under Certain Circumstances. If the
borrower does not make a full payment, or sign and return the new
repayment agreement, on or before the 30th day after the lender
completes the additional collection efforts described in section
I.E.1.a., above, or the 180th day of delinquency, whichever is later,
the lender shall deem the borrower to be in default. The lender shall
then file a default claim on the loan, accompanied by acceptable
evidence of location (see section I.E.1.d., below), within 30 days after
the end of such 30-day period. Reinsurance coverage, and therefore the
lender's right to receive interest benefits and special allowance, is
not reinstated on a loan involving these circumstances. However, the
Secretary will honor reinsurance claims submitted in accordance with
this paragraph on the outstanding principal balance of such loans, on
unpaid interest as provided in section I.B.7., above, and for
reimbursement of eligible supplemental preclaims assistance costs.
In the case of a timely filing violation on a loan for which the
borrower is deemed in default under this paragraph, the lender is
ineligible to receive interest benefits and special allowance accruing
from the date of the violation.
d. Acceptable Evidence of Location. Only the following documentation
is acceptable as evidence that the lender has located the borrower:
(1) A postal receipt signed by the borrower not more than 15 days
prior to the date on which the lender sent the new repayment agreement,
indicating acceptance of correspondence from the lender by the borrower
at the address shown on the receipt; or
(2) Documentation submitted by the lender showing--
(i) The name, identification number, and address of the lender;
(ii) The name and Social Security number of the borrower; and
(iii) A signed certification by an employee or agent of the lender,
that--
(A) On a specified date, he or she spoke with or received written
communication (attached to the certification) from the borrower on the
loan underlying the default claim, or a parent, spouse, sibling,
roommate, or neighbor of the borrower;
(B) The address and, if available, telephone number of the borrower
were provided to the lender in the telephone or written communication;
and
(C) In the case of a borrower whose address or telephone number was
provided to the lender by someone other than the borrower, the new
repayment agreement and the letter sent by the lender pursuant to
section I.E.1.a., above, had not been returned undelivered as of 20 days
after the date those items were sent, for due diligence violations
described in section I.C.1.c. where the lender holds the loan on the
date of this letter, and as of the date the lender filed a default claim
on the cured loan, for all other violations.
2. Death, Disability, and Bankruptcy Claims. The Secretary will
honor a death or disability claim on an otherwise eligible loan
notwithstanding the lender's failure to meet the 60-day timely filing
requirement (see 34 CFR 682.402(e)(2)(i)). However, the Secretary will
not reimburse the guaranty agency if, before
[[Page 763]]
the date the lender determined that the borrower died or was totally and
permanently disabled, the lender had violated the Federal due diligence
or timely filing requirements applicable to that loan, except in
accordance with the waiver policy described above. Interest that accrued
on the loan after the expiration of the 60-day filing period remains
ineligible for reimbursement by the Secretary, and the lender must repay
all interest and special allowance received on the loan for periods
after the expiration of the 60-day filing period.
The Secretary had determined that, in the vast majority of cases,
the failure of a lender to comply with the timely filing requirement
applicable to bankruptcy claims (Sec. 682.402(e)(2)(ii)) causes
irreparable harm to the guaranty agency's ability to contest the
discharge of the loan by the court, or to otherwise collect from the
borrower. Therefore, the Secretary has decided not to excuse violations
of the timely filing requirement applicable to bankruptcy claims, except
when the lender can demonstrate that the bankruptcy action has concluded
and that the loan has not been discharged in bankruptcy, or, if
previously discharged, has been the subject of a reversal of the
discharge. In that case, the lender shall return the borrower to the
appropriate status that existed prior to the filing of the bankruptcy
claim. The Secretary will not reimburse the guaranty agency for interest
accruing beyond the filing deadline for the bankruptcy claim.
II. Due Date of First Payment
Section 682.411(b)(1) refers to the ``due date of the first missed
payment not later made'' as one way to determine the first day of
delinquency on a loan. Section 682.209(a)(3) states that, generally, the
repayment period on a FFEL programs loan begins some number of months
after the month in which the borrower ceases at least half-time study.
Where the borrower enters the repayment period with the lender's
knowledge, the first payment due date may be set by the lender, provided
it falls within a reasonable time after the first day of the month in
which the repayment period begins. In this situation, the Secretary
generally permits a lender to allow the borrower up to 45 days from the
first day of repayment to make the first payment. (Unless the lender
establishes the first day of repayment under Sec. 682.209(a)(3)(ii)(E).)
In cases where the lender learns that the borrower has entered the
repayment period after the fact, current Sec. 682.411 treats the 30th
day after the lender receives this information as the first day of
delinquency. In the course of discussion with lenders, the Secretary has
learned that many lenders have not been using the 30th day after receipt
of notice that the repayment period has begun (``the notice'') as the
first payment due date. In recognition of this apparently widespread
practice, the Secretary has decided that, both retrospectively and
prospectively, a lender should be allowed to establish a first payment
due date within 60 days after receipt of the notice, to capitalize
interest accruing up to the first payment due date, and to exercise
forbearance with respect to the period during which the borrower was in
the repayment period but made no payment. In effect, this means that, if
the lender sends the borrower a coupon book, billing notice, or other
correspondence establishing a new first payment due date, on or before
the 60th day after receipt of the notice, the lender is deemed to have
exercised forbearance up to the new first payment due date. The new
first payment due date must fall no later than 75 days after receipt of
the notice. (Unless the lender establishes the first day of repayment
under Sec. 682.209(a)(3)(ii)(E).) In keeping with the 5-day tolerance
permitted under section I.C.2.a., for the ``prospective period'', a
lender that sends the above-described material on or before the 65th day
after receipt of the notice will be held harmless. However, a lender
that does so on the 66th day will have failed by more than 5 days to
send both of the collection letters required by Sec. 682.411(c) to be
sent within the first 30 days of delinquency, and will thus have
committed two violations of more than five days of that rule.
If the lender fails to send the material establishing a new first
payment due date on or before the 65th day after receipt of the notice,
it may thereafter send material establishing a new first payment due
date falling not more than 45 days after the materials are sent, and
will be deemed to have exercised forbearance up to the new first payment
due date. However, all violations and gaps occurring prior to the date
on which the material is sent are subject to the waiver policies
described in section I for violations falling in either the
retrospective or prospective periods. This is an exception to the
general policy set forth in section I.B.5., above, that only violations
occurring during the most recent 180 days of the delinquency period on a
loan are relevant to the Secretary's examination of due diligence.
Please Note: References to the ``65th day after receipt of the
notice'' and ``66th day'' in the preceding paragraphs should be amended
to read ``95th day'' and ``96th day'' respectively for lenders subject
to Sec. 682.209(a)(3)(ii)(E).
III. Questions and Answers
The waiver policy outlined in this letter was developed after
extensive discussion and consultation with participating lenders and
guarantee agencies. In the course of these discussions, lenders and
agencies raised a
[[Page 764]]
number of questions regarding the due diligence rules as applied to
various circumstances. The Secretary's responses to these questions are
set forth below.
Note: The answer to questions 1 and 4 are applicable only to loans
subject to Sec. 682.411 of the FFEL snd PLUS program regulations
published on November 10, 1986.
1. Q: Section 682.411 of the program regulations requires the lender
to make ``diligent efforts to contact the borrower by telephone'' during
each 30-day period of delinquency beginning after the 30th day of
delinquency. What must a lender do to comply with this requirement?
A: Generally speaking, one actual telephone contact with the
borrower, or two attempts to make such contact on different days and at
different times, will satisfy the ``diligent efforts'' requirement for
any of the 30-day delinquency periods described in the rule. However,
the ``diligent efforts'' requirement is intended to be a flexible one,
requiring the lender to act on information it receives in the course of
attempting telephone contact regarding the borrower's actual telephone
number, the best time to call to reach the borrower, etc. For instance,
if the lender is told during its second telephone contact attempt that
the borrower can be reached at another number or at a different time of
day, the lender must then attempt to reach the borrower by telephone at
that number or that time of day.
2. Q: What must a lender do when it receives conflicting information
regarding the date a borrower ceased at least half-time study?
A: A lender must promptly attempt to reconcile conflicting
information regarding a borrower's in-school status by making inquiries
of appropriate parties, including the borrower's school. Pending
reconciliation, the lender may rely on the most recent credible
information it has.
3. Q: If a loan is transferred from one lender to another, is the
transferee held responsible for information regarding the borrower's
status that is received by the transferor but is not passed on to the
transferee?
A: No. A lender is responsible only for information received by its
agents and employees. However, if the transferee has reason to believe
that the transferor has received additional information regarding the
loan, the transferee must make a reasonable inquiry of the transferor as
to the nature and substance of that information.
4. Q: What are a lender's due diligence responsibilities where a
check received on a loan is dishonored by the bank on which it was
drawn?
A: Upon receiving notice that a check has been dishonored, the
lender shall treat the payment as having never been made for purposes of
determining the number of days delinquent that the borrower is at that
time. The lender must then begin (or resume) attempting collection on
the loan in accordance with Sec. 682.411, commencing with the first 30-
day delinquency period described in Sec. 682.411 that begins after the
30-day delinquency period in which the notice of dishonor is received.
The same result obtains when the lender successfully obtains a
delinquent borrower's correct address through skip-tracing, or when a
delinquent borrower leaves deferment or forbearance status.
[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 25747, May 17, 1994]
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