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