[Federal Register Volume 82, Number 219 (Wednesday, November 15, 2017)]
[Rules and Regulations]
[Pages 53374-53395]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-24636]



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Vol. 82

Wednesday,

No. 219

November 15, 2017

Part III





 Department of Education





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34 CFR Part 681





 Health Education Assistance Loan (HEAL) Program; Final Rule

  Federal Register / Vol. 82 , No. 219 / Wednesday, November 15, 2017 / 
Rules and Regulations  

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DEPARTMENT OF EDUCATION

34 CFR Part 681

RIN 1840-AD21
[Docket ID ED-2017-OPE-0031]


Health Education Assistance Loan (HEAL) Program

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Final rule.

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SUMMARY: On July 1, 2014, the HEAL Program was transferred from the 
U.S. Department of Health and Human Services (HHS) to the U.S. 
Department of Education (the Department). To reflect this transfer and 
to facilitate the servicing of all HEAL loans that are currently held 
by the Department, the Secretary adds the HEAL Program regulations to 
the Department's chapter in the Code of Federal Regulations (CFR).

DATES: These final regulations are effective November 15, 2017.

FOR FURTHER INFORMATION CONTACT: Ms. Vanessa Freeman, U.S. Department 
of Education, 400 Maryland Avenue SW., Room 6W236, Washington, DC 
20202. Telephone: (202) 453-7378 or by email: [email protected].
    If you use a telecommunications device for the deaf (TDD) or a text 
telephone (TTY), you may call the Federal Relay Service (FRS), toll 
free, at 1-800-877-8339.

SUPPLEMENTARY INFORMATION: Background: The HEAL Program is authorized 
by sections 701-720 of the Public Health Service Act (the Act), 42 
U.S.C. 292-292o. The HEAL Program was first administered by the Office 
of Education in the former Department of Health, Education, and 
Welfare. On May 21, 1980, the HEAL Program was transferred from the 
Office of Education to HHS until July 1, 2014, when Congress 
transferred the program to the Department pursuant to Division H, title 
V, section 525 of the Consolidated Appropriations Act, 2014 (Pub. L. 
113-76) (Consolidated Appropriations Act, 2014). From fiscal year (FY) 
1978 through FY 1998 the HEAL Program insured loans made by 
participating lenders to eligible graduate students in schools of 
medicine, osteopathy, dentistry, veterinary medicine, optometry, 
podiatry, public health, pharmacy, and chiropractic, and in programs in 
health administration and clinical psychology.
    Lenders such as banks, savings and loan associations, credit 
unions, pension funds, State agencies, HEAL schools, and insurance 
companies made HEAL loans, which were insured by the Federal Government 
against loss due to borrowers' death, disability, bankruptcy, and 
default. The purpose of the program was to ensure the availability of 
funds for loans to eligible students who need to borrow money to pay 
for their educational costs.
    Authorization to fund new HEAL loans to students expired September 
30, 1998. Provisions of the HEAL legislation allowing for the 
refinancing or consolidation of existing HEAL loans expired September 
30, 2004. However, the reporting, notification, and recordkeeping 
burden associated with refinancing HEAL loans, servicing outstanding 
loans, and administering and monitoring of the HEAL Program regulations 
continues. On July 1, 2014, the HEAL Program was transferred from HHS 
to the Department. To reflect this transfer and to facilitate the 
servicing of HEAL loans that are currently held by the Department, the 
Secretary adds the HEAL Program regulations that are currently part of 
HHS's regulations (42 CFR part 60) to Title 34 Subpart B Chapter VI 
Part 681 of the CFR. Consistent with this regulatory action, HHS 
intends to remove the HEAL Program regulations from its regulations.
    Significant Regulations:
    In adding the HEAL Program regulations to Title 34 of the CFR, we 
have made a limited number of technical changes to the regulations. It 
is important to note, we have removed references to the making of HEAL 
loans to streamline the regulations and avoid confusion, where 
possible. However, in many places we have retained those provisions, 
even though there is no authority to fund new HEAL loans, because those 
provisions may continue to form the basis of a claim by a lender, 
holder, borrower, or the Secretary relating to an outstanding HEAL 
loan. In addition, we note that the Consolidated Appropriations Act, 
2014 provided that, in servicing, collecting, and enforcing HEAL loans, 
all the authorities under part B of title IV of the Federal Family 
Education Loan Program (FFELP program) would be available. Accordingly, 
we have made a number of technical changes to conform the HEAL Program 
servicing, collection, and enforcement regulations with those in the 
FFELP program regulations.
    Specifically, the changes to the final regulations include:
     Revising Sec.  681.1(c) to specifically note that 
administrative wage garnishment (AWG) may be used as a method of loan 
collection for HEAL loans, in accordance with the Consolidated 
Appropriations Act, 2014;
     Deleting outdated references in Sec.  681.8(b)(3) to 
reflect the phaseout of the HEAL program and that no new HEAL loans 
have been issued since September 30, 1998;
     Revising Sec.  681.11(f)(6) by adding a cross-reference to 
include title IV repayment plans available for FFELP borrowers for 
eligible HEAL loans, in accordance with the Consolidated Appropriations 
Act, 2014;
     Revising Sec.  681.18 to reflect that HEAL loans may be 
consolidated in accordance with section 525 of the Consolidated 
Appropriations Act, 2014;
     Revising Sec.  681.20(a) by deleting the reference to the 
statute of limitations on collection of HEAL loans in accordance with 
42 U.S.C 292f(i);
     Revising Sec.  681.20(d) by adding a cross-reference to 
update the procedures and standards to determine if a borrower is 
totally and permanently disabled in accordance with section 525(d) of 
the Consolidated Appropriations Act, 2014;
     Revising Sec.  681.34(c) by deleting outdated information 
and modernizing the language to reflect current practices related to 
how a lender may contact HEAL loan borrowers to obtain updated 
information;
     Revising Sec.  681.34(d) to reflect current practices 
related to skip tracing procedures for HEAL loans as outlined in Sec.  
682.411 and in accordance with section 525 of the Consolidated 
Appropriations Act, 2014;
     Revising Sec.  681.35(a)(2) by deleting obsolete 
information related to actions a lender may take to contact a 
delinquent HEAL loan borrower;
     Revising Sec.  681.35(g)(2) to reflect current practices 
for lenders that obtain public records electronically rather than 
requiring submission of paperwork from a HEAL loan borrower;
     Revising Sec.  681.38(a)(3) by deleting obsolete 
information and to reflect that all HEAL loans are currently in 
repayment;
     Revising Sec.  681.39(a) by adding a cross-reference to 
update the death discharge procedures for HEAL loan borrowers in 
accordance with section 525 of the Consolidated Appropriations Act, 
2014;
     Revising Sec.  681.39(b) to reference the Department's 
total and permanent disability discharge procedures in accordance with 
the Consolidated Appropriations Act, 2014;
     Updating references related to publication of HEAL loan 
data to reflect the Department's student aid Web site as an online 
resource;

[[Page 53375]]

     Changing references to HHS to the Department or the 
Department's servicer, as appropriate;
     Changing HHS OMB control numbers for information 
collections to the Department's control numbers; and
     Making technical changes such as updating the names of 
student loan servicing companies and medical associations.
    We are not making any significant substantive changes to the HEAL 
regulations. The regulations are being transferred from HHS's 
regulations at 42 CFR part 60 to the Department's regulations at 34 CFR 
part 681 to reflect the Department's authority to administer and 
service outstanding HEAL loans. For more information on the substance 
of the regulations please see the final rule published in the Federal 
Register on August 26, 1983 (48 FR 38988) and subsequent amendments 
published on August 28, 1986 (51 FR 30644); January 8, 1987 (52 FR 
746); and June 29, 1992 (57 FR 28794).

Executive Orders 12866, 13563, and 13771

Regulatory Impact Analysis

    Under Executive Order 12866, the Secretary must determine whether 
this regulatory action is ``significant'' and, therefore, subject to 
the requirements of the Executive order and subject to review by the 
Office of Management and Budget (OMB). Section 3(f) of Executive Order 
12866 defines a ``significant regulatory action'' as an action likely 
to result in a rule that may--
    (1) Have an annual effect on the economy of $100 million or more, 
or adversely affect a sector of the economy, productivity, competition, 
jobs, the environment, public health or safety, or State, local, or 
Tribal governments or communities in a material way (also referred to 
as an ``economically significant'' rule);
    (2) Create serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impacts of entitlement grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles stated in the 
Executive order.
    This regulatory action is not a significant regulatory action 
subject to review by OMB under section 3(f) of Executive Order 12866.
    Under Executive Order 13771, for each new regulation that the 
Department proposes for notice and comment or otherwise promulgates 
that is a significant regulatory action under Executive Order 12866 and 
that imposes total costs greater than zero, it must identify two 
deregulatory actions. For FY 2017, any new incremental costs associated 
with a new regulation must be fully offset by the elimination of 
existing costs through deregulatory actions. The final regulations are 
not a significant regulatory action. Therefore, the requirements of 
Executive Order 13771 do not apply.
    We have also reviewed these regulations under Executive Order 
13563, which supplements and explicitly reaffirms the principles, 
structures, and definitions governing regulatory review established in 
Executive Order 12866. To the extent permitted by law, Executive Order 
13563 requires that an agency--
    (1) Propose or adopt regulations only upon a reasoned determination 
that their benefits justify their costs (recognizing that some benefits 
and costs are difficult to quantify);
    (2) Tailor its regulations to impose the least burden on society, 
consistent with obtaining regulatory objectives and taking into 
account--among other things and to the extent practicable--the costs of 
cumulative regulations;
    (3) In choosing among alternative regulatory approaches, select 
those approaches that maximize net benefits (including potential 
economic, environmental, public health and safety, and other 
advantages; distributive impacts; and equity);
    (4) To the extent feasible, specify performance objectives, rather 
than the behavior or manner of compliance a regulated entity must 
adopt; and
    (5) Identify and assess available alternatives to direct 
regulation, including economic incentives--such as user fees or 
marketable permits--to encourage the desired behavior, or provide 
information that enables the public to make choices.
    Executive Order 13563 also requires an agency ``to use the best 
available techniques to quantify anticipated present and future 
benefits and costs as accurately as possible.'' The Office of 
Information and Regulatory Affairs of OMB has emphasized that these 
techniques may include ``identifying changing future compliance costs 
that might result from technological innovation or anticipated 
behavioral changes.''
    We are issuing these final regulations only on a reasoned 
determination that their benefits would justify their costs. In 
choosing among alternative regulatory approaches, we selected those 
approaches that would maximize net benefits. Based on the analysis that 
follows, the Department believes that these final regulations are 
consistent with the principles in Executive Order 13563.
    We have also determined that this regulatory action would not 
unduly interfere with State, local, and Tribal governments in the 
exercise of their governmental functions.
    In accordance with the applicable Executive orders, the Department 
has assessed the potential costs and benefits, both quantitative and 
qualitative, of this regulatory action. The final regulations are not 
expected to have a significant impact on Federal, State, or local 
government, institutions, or borrowers. The potential costs associated 
with this regulatory action are those resulting from statutory 
requirements and those we have determined are necessary for 
administering the Department's programs and activities. The final 
regulations support the Department's efforts to facilitate the 
servicing of student loans and consolidate Federal student loan 
oversight.
    Elsewhere in this document under Paperwork Reduction Act of 1995, 
we identify and explain burdens specifically associated with 
information collection requirements.
    In this Regulatory Impact Analysis we discuss the need for 
regulatory action; costs, benefits, and transfers; net budget impacts, 
assumptions, limitations, and data sources; and regulatory alternatives 
we considered.

Need for Regulatory Action

    Section 525 of the Consolidated Appropriations Act, 2014 
establishes the need for regulatory action. This legislation 
authorizes, and the final regulations reflect, the transfer of the 
collection of HEAL loans from HHS to the Department effective July 1, 
2014. As part of this transfer, the Department also received 
information collections from HHS required to operate the program. As of 
December 31, 2016, there were 22,265 HEAL loans outstanding; 11,390 
unique borrowers; and a total value of $187,029,585.\1\ The mean loan 
balance is $8,400 with a range of $1 to $341,907. At that date, 99.5 
percent of outstanding HEAL loans were in repayment.
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    \1\ Federal Student Aid (FSA), HEAL Online Processing System 
(HOPS) (December 2016). Data extracted from an internal system by 
FSA in April 2017.
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Discussion of Costs, Benefits, and Transfers

    The final regulations are not expected to have a significant 
economic impact

[[Page 53376]]

either by imposing additional costs or providing additional benefits.

Borrowers

    The final regulations reflect that, as of July 1, 2014, borrowers' 
loans are insured by the Department rather than HHS. The final 
regulations do not change borrowers' loan servicers or lenders nor do 
they cause any change in cost or benefit for borrowers.

Lenders and Holders

    These final regulations reflect that, as of July 1, 2014, in the 
event of borrower default, death, disability, or bankruptcy, lenders 
and loan holders file insurance claims with the Department, rather than 
HHS. The final regulations do not impact the future incidence of these 
events; therefore, we do not estimate any change in lenders' costs or 
benefits as a result of the regulations.

Loan Servicers

    The final regulations do not change the lenders or borrowers for 
any loan servicers. Therefore, we do not estimate any change in loan 
servicers' costs or benefits as a result of the regulations.

Federal Government

    All aspects of administering the HEAL Program transferred from HHS 
to the Department. This includes program costs the Department incurs 
and proceeds it receives. Therefore, we do not anticipate any 
additional costs or benefits to the Federal government as a result of 
the final regulations.

Net Budget Impacts

    The final regulations are not expected to have a significant net 
budget impact. No change in costs or benefits to borrowers, lenders, or 
loan servicers is expected as a result of the regulations. The final 
regulations do reflect the change in the insurer of the HEAL loans and 
the department to which lenders submit insurance claims; however, these 
changes are transfers within the Federal government and result in no 
change in fiscal burden to lenders or the Federal government. Based on 
this, the Department estimates no significant net budget impact from 
the final regulations.

Assumptions, Limitations, and Data Sources

    We considered HEAL Program data obtained from FSA to assess whether 
the final regulations affect the costs or benefits to borrowers, the 
Federal government, lenders, and loan servicers. Because we determined 
that the final regulations only result in transfers, we did not include 
the data in the Regulatory Impact Analysis.

Alternatives Considered

    The transfer of the HEAL Program was authorized by section 525 of 
the Consolidated Appropriations Act, 2014. To reflect this transfer and 
to facilitate the servicing of all HEAL loans that are currently held 
by the Department, the Secretary adds the HEAL Program regulations to 
Title 34 Subpart B Chapter VI Part 681 of the CFR. The final 
regulations reflect the program's transfer to the Department and make 
the other technical changes described under Significant Regulations. 
Accordingly, no other alternatives were considered.

Clarity of the Regulations

    Executive Order 12866 and the Presidential memorandum ``Plain 
Language in Government Writing'' require each agency to write 
regulations that are easy to understand.
    The Secretary invites comments on how to make these regulations 
easier to understand, including answers to questions such as the 
following:
     Are the requirements in the regulations clearly stated?
     Do the regulations contain technical terms or other 
wording that interferes with their clarity?
     Does the format of the regulations (grouping and order of 
sections, use of headings, paragraphing, etc.) aid or reduce their 
clarity?
     Would the regulations be easier to understand if we 
divided them into more (but shorter) sections? (A ``section'' is 
preceded by the symbol ``Sec.  '' and a numbered heading; for example, 
Sec.  681.39.)
     Could the description of the regulations in the 
SUPPLEMENTARY INFORMATION section of this preamble be more helpful in 
making the regulations easier to understand? If so, how?
     What else could we do to make the regulations easier to 
understand?
    Send any comments that concern how the Department could make these 
regulations easier to understand to the program contact person listed 
under FOR FURTHER INFORMATION CONTACT.

Waiver of Rulemaking and Delayed Effective Dates

    Under the Administrative Procedure Act (APA) (5 U.S.C. 553), the 
Department generally offers interested parties the opportunity to 
comment on proposed regulations. However, the APA provides that an 
agency is not required to conduct notice and comment rulemaking when 
the agency for good cause finds that notice and public procedure 
thereon are impracticable, unnecessary, or contrary to the public 
interest. 5 U.S.C. 553(b)(B). Rulemaking is ``unnecessary'' when the 
agency is issuing a minor rule in which the public is not particularly 
interested. It applies in those situations in which ``the 
administrative rule is a routine determination, insignificant in nature 
and impact, and inconsequential to the industry and to the public.'' 
Utility Solid Waste Activities Group v. EPA, 236 F.3d 749, 755 (D.C. 
Cir. 2001), quoting U.S. Department of Justice, Attorney General's 
Manual on the Administrative Procedure Act 31 (1947) and South Carolina 
v. Block, 558 F. Supp. 1004, 1016 (D.S.C. 1983).
    There is good cause here for waiving rulemaking under the APA. 
Rulemaking is unnecessary because this rulemaking merely transfers the 
HEAL Program regulations from HHS to the Department in accordance with 
section 525 of the Consolidated Appropriations Act, 2014. The final 
regulations reflect the program's transfer to the Department and make 
the other technical changes described under Significant Regulations.
    The APA also generally requires that regulations be published at 
least 30 days before their effective date, unless the agency has good 
cause to implement its regulations sooner (5 U.S.C. 553(d)(3)). Again, 
because the final regulations merely implement the statutory mandate to 
transfer the HEAL Program from HHS to the Department, the Secretary is 
also waiving the 30-day delay in the effective date of these regulatory 
changes under 5 U.S.C. 553(d)(3).
    For the same reasons, the Secretary has determined, under section 
492(b)(2) of the Higher Education Act of 1965, as amended, that these 
regulations should not be subject to negotiated rulemaking.

Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act does not apply to this rulemaking 
because there is good cause to waive notice and comment under 5 U.S.C. 
553.

Paperwork Reduction Act of 1995

    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department provides the general public and Federal agencies 
with an opportunity to comment on proposed and continuing collections 
of information in accordance with the Paperwork Reduction Act of 1995 
(PRA) (44 U.S.C. 3506(c)(2)(A)). This helps ensure that: The public 
understands the Department's collection instructions, respondents can 
provide the requested data in the desired format, reporting burden 
(time and financial resources) is minimized, collection instruments are

[[Page 53377]]

clearly understood, and the Department can properly assess the impact 
of collection requirements on respondents.
    The authorization to fund new HEAL loans to students expired 
September 30, 1998. Section 525 of the Consolidated Appropriations Act, 
2014, transferred the servicing, collecting, and enforcing of the HEAL 
loans from HHS to the Department. To fulfill this mandate, the 
Department reviewed the regulations and approved forms and then 
requested and received the transfer of the pertinent OMB approved 
information collections from HHS to the Department. This was completed 
in June 2014.
    Information collection 1845-0125 contains information collection 
requirements pertaining to the regulatory language.
    This filing also identifies separate information collections under 
1845-0124, 1845-0126, 1845-0127, and 1845-0128 pertaining to required 
forms and reporting mechanisms. Since the transfer of the necessary 
ICRs from HHS, the Department has renewed each of the aforementioned 
collections.
    A Federal agency may not conduct or sponsor a collection of 
information unless OMB approves the collection under the PRA and the 
corresponding information collection instrument displays a currently 
valid OMB control number. Notwithstanding any other provision of law, 
no person is required to comply with, or is subject to penalty for 
failure to comply with, a collection of information if the collection 
instrument does not display a currently valid OMB control number.
    In the final regulations, we have displayed the control numbers 
assigned by OMB to any information collection requirements contained in 
the regulations.

Discussion

    The language in the final regulations contains information 
collection requirements that have been assigned OMB Control number 
1845-0125. The following figures represent revised information as of 
December 31, 2016, which we obtained from HOPS.
    The calculations below represent updated figures since the latest 
renewal of the 1845-0125 collection in August, 2016, with an expiration 
date of August 31, 2019. The changes included here are due to an 
updating of the number of borrowers and loan holders but there has been 
no change to the regulatory language associated with this collection. 
We will be requesting a nonsubstantive change clearance for the updated 
figures.
    This is a summary of the reporting, notification, and recordkeeping 
burden associated with the information collection in the supporting 
statement. The estimate for this information collection burden is based 
on 14 HEAL loan holders in the program; and a current cumulative total 
of 11,390 individuals with outstanding loans requiring a variety of 
servicing transactions depending on loan status, i.e., internship/
residency, repayment, or delinquent.

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                    Entity                        Respondents               Responses              Burden hours
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                                             Reporting Requirements
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Loan Holders..................................              14  56 x .20 Hrs....................              11
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                                            Notification Requirements
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Loan Holders..................................               *  91,000 x .17 Hrs................          15,470
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Individuals...................................          11,390  11,390 x .17 Hrs................           1,936
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                                           Recordkeeping Requirements
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Loan Holders..................................               *   36,400 x .23 Hrs...............           8,372
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                                                 Revised Totals
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Loan Holders..................................              14  127,456.........................          23,853
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Individuals...................................          11,390  11,390..........................           1,936
                                               -----------------------------------------------------------------
    Total.....................................          11,404  138,846.........................          25,789
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                                                  Final Totals
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Current Totals................................          25,650  144,930.........................          26,409
Revised Totals................................          11,404  138,846.........................          25,789
Difference....................................         -14,246  -6,084..........................            -620
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(The * represents the universe of 14 HEAL loan holders participating in the program and is done to avoid double
  counting the number of respondents.)

    The final regulations contain reporting, recordkeeping, and 
notification requirements. As each of the noted ICRs was approved by 
OMB prior to the transfer of HEAL Program to the Department, the table 
below identifies the affected party and burden assessment approved by 
OMB by the ICR number.

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                                                       Burden hours by
    OMB control No.          Topic and form No.        affected entity
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1845-0124..............  Physician's Certification  Individual 15 hrs.;
                          of Total Permanent         State 3 hrs.
                          Disability #539.
                                                   ---------------------
    Total..............  .........................  18 hours.
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[[Page 53378]]

 
1845-0126..............  HEAL Repayment Schedules   #502-1 & #502-2
                          Form #502-1, #502-2,.      Private Not-for
                                                     Profit 175 hrs.
                         Holder's Report on HEAL    Private Not-for-
                          Form #512.                 Profit 30 hrs.
                                                   ---------------------
    Total..............  .........................  205 hours.
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1845-0127..............  Lender Application for     #510 Private For-
                          Insurance Claim #510.      Profit 182 hrs.
                         Request for Collection     Private For-Profit
                          Assistance Form #513.      983 hrs.
                                                   ---------------------
    Total..............  .........................  1,165 hours.
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1845-0128..............  HEAL Forms--Application    Private For-Profit 2
                          for Contract for Federal   hrs.
                          Loan Insurance #504,.
                         Borrower Deferment         Individual 11 hrs.
                          Request #508.
                         Borrower Loan Status       Private For-Profit
                          Record Layout.             10 hrs.
                         Loan Purchase              Private For-Profit 1
                          Consolidation Electronic   hr.
                          submission.
                                                   ---------------------
    Total..............  .........................  24 hours.
------------------------------------------------------------------------

Intergovernmental Review

    This program is subject to Executive Order 12372 and the 
regulations in 34 CFR part 79. One of the objectives of the Executive 
order is to foster an intergovernmental partnership and a strengthened 
federalism. The Executive order relies on processes developed by State 
and local governments for coordination and review of proposed Federal 
financial assistance.
    This document provides early notification of our specific plans and 
actions for this program.

Assessment of Educational Impact

    Based on our own review, we have determined that the final 
regulations do not require transmission of information that any other 
agency or authority of the United States gathers or makes available.
    Accessible Format: Individuals with disabilities can obtain this 
document in an accessible format (e.g., Braille, large print, 
audiotape, or compact disc) on request to the person listed under FOR 
FURTHER INFORMATION CONTACT.

Electronic Access to This Document

     The official version of this document is the document published in 
the Federal Register. Free internet access to the official edition of 
the Federal Register and the Code of Federal Regulations is available 
via the Federal Digital System at: www.gpo.gov/fdsys. At this site you 
can view this document, as well as all other documents of this 
Department published in the Federal Register, in text or Portable 
Document Format (PDF). To use PDF you must have Adobe Acrobat Reader, 
which is available free at the site.
    You may also access documents of the Department published in the 
Federal Register by using the article search feature at: 
www.federalregister.gov. Specifically, through the advanced search 
feature at this site, you can limit your search to documents published 
by the Department.

List of Subjects in 34 CFR Part 681

    Educational study programs, Health professions, Loan programs--
education, Loan programs--health, Medical and dental schools, Reporting 
and recordkeeping requirements, Student aid.

    Dated: November 8, 2017.
Betsy DeVos,
Secretary of Education.

0
For the reasons discussed in the preamble, the Secretary adds part 681 
to title 34 of the Code of Federal Regulations as follows:

 PART 681--HEALTH EDUCATION ASSISTANCE LOAN PROGRAM

Subpart A--General Program Description
Sec.
681.1 What is the HEAL program?
Subpart B--The Borrower
681.5 Who is an eligible student borrower?
681.6 Who is an eligible nonstudent borrower?
681.7 The loan application process.
681.8 What are the borrower's major rights and responsibilities?
Subpart C--The Loan
681.10 How much can be borrowed?
681.11 Terms of repayment.
681.12 Deferment.
681.13 Interest.
681.14 The insurance premium.
681.15 Other charges to the borrower.
681.16 Power of attorney.
681.17 Security and endorsement.
681.18 Consolidation of HEAL loans.
681.19 Forms.
681.20 The Secretary's collection efforts after payment of a default 
claim.
681.21 Refunds.
Subpart D--The Lender and Holder
681.30 Which organizations are eligible to apply to be HEAL lenders 
and holders?
681.31 The application to be a HEAL lender or holder.
681.32 The HEAL lender or holder insurance contract.
681.33 Making a HEAL loan.
681.34 HEAL loan account servicing.
681.35 HEAL loan collection.
681.36 Consequence of using an agent.
681.37 Forbearance.
681.38 Assignment of a HEAL loan.
681.39 Death and disability claims.
681.40 Procedures for filing claims.
681.41 Determination of amount of loss on claims.
681.42 Records, reports, inspection, and audit requirements for HEAL 
lenders and holders.
681.43 Limitation, suspension, or termination of the eligibility of 
a HEAL lender or holder.
Subpart E--The School
681.50 Which schools are eligible to be HEAL schools?
681.51 The student loan application.
681.52 The student's loan check.
681.53 Notification to lender or holder of change in enrollment 
status.
681.54 Payment of refunds by schools.
681.55 Administrative and fiscal procedures.
681.56 Records.
681.57 Reports.
681.58 Federal access to school records.
681.59 Records and Federal access after a school is no longer a HEAL 
school.
681.60 Limitation, suspension, or termination of the eligibility of 
a HEAL school.
681.61 Responsibilities of a HEAL school.

    Authority: Sec. 215, Pub. L. 78-410, 58 Stat. 690, as amended, 
63 Stat. 35 (42 U.S.C. 216); secs. 727-739A, Pub. L. 78-410, 90 
Stat. 2243, as amended, 93 Stat. 582, 99 Stat. 529-532, 102 Stat. 
3122-3125 (42 U.S.C. 294-294l-1); renumbered as secs. 701-720, as 
amended by 106 Stat. 1994-2011 (42 U.S.C. 292-292p); sec. 525, Pub. 
L. 113-76, Division H, title V, transferred HEAL to the Secretary of 
Education effective July 1, 2014.

[[Page 53379]]

Subpart A--General Program Description


Sec.  681.1  What is the HEAL program?

    (a) The Health Education Assistance Loan (HEAL) program is a 
program of Federal insurance of educational loans that were made to 
graduate students in the fields of medicine, osteopathic medicine, 
dentistry, veterinary medicine, optometry, podiatric medicine, 
pharmacy, public health, chiropractic, health administration, and 
clinical psychology. The basic purpose of the program is to encourage 
lenders to make loans to students in these fields who desire to borrow 
money to pay for their educational costs. In addition, certain 
nonstudents (such as doctors serving as interns or residents) could 
borrow in order to pay the current interest charges accruing on earlier 
HEAL loans. By taking a HEAL loan, the borrower is obligated to repay 
the lender or holder the full amount of the money borrowed, plus all 
interest which accrues on the loan.
    (b) HEAL loans were made by schools, banks, credit unions, State 
agencies, and other institutions eligible as lenders under Sec.  
681.30. HEAL school eligibility is described in Sec.  681.50.
    (c) The Secretary insures each lender or holder for the losses of 
principal and interest it may incur in the event that a borrower dies; 
becomes totally and permanently disabled; files for bankruptcy under 
chapter 11 or 13 of the Bankruptcy Act; files for bankruptcy under 
chapter 7 of the Bankruptcy Act and files a compliant to determine the 
dischargeability of the HEAL loan; or defaults on his or her loan. In 
these instances, if the lender or holder has complied with all HEAL 
statutes and regulations and with the lender's or holder's insurance 
contract, then the Secretary pays the amount of the loss to the lender 
or holder and the borrower's loan is assigned to the Secretary. Only 
after assignment does the Secretary become the holder of the HEAL loan 
and the Secretary will use all collection methods legally authorized to 
obtain repayment of the HEAL loan, including, but not limited to, 
reporting the borrower's default on the loan to consumer credit 
reporting agencies, certifying the debt for offset in the Treasury 
Offset Program (TOP), using available methods to locate the debtor, 
utilizing administrative wage garnishment, and referring the debt to 
the Department of Justice for litigation.
    (d) Any person who knowingly makes a false statement or 
misrepresentation in a HEAL loan transaction, bribes or attempts to 
bribe a Federal official, fraudulently obtains a HEAL loan, or commits 
any other illegal action in connection with a HEAL loan is subject to 
possible fine and imprisonment under Federal statute.
    (e) In counting the number of days allowed to comply with any 
provisions of these regulations, Saturdays, Sundays, and holidays are 
to be included. However, if a due date falls on a Saturday, Sunday, or 
Federal holiday, the due date is the next Federal work day.

Subpart B--The Borrower


Sec.  681.5  Who is an eligible student borrower?

    To receive a HEAL loan, a student must satisfy the following 
requirements:
    (a) He or she must be a citizen, national, or lawful permanent 
resident of the United States, permanent resident of the Trust 
Territory of the Pacific Islands (the Republic of Palau), the Republic 
of the Marshall Islands, the Federated States of Micronesia, the 
Commonwealth of the Northern Mariana Islands, or American Samoa, or 
lawful permanent resident of the Commonwealth of Puerto Rico, the 
Virgin Islands or Guam;
    (b) He or she must be enrolled or accepted for enrollment at a HEAL 
school in a course of study that leads to one of the following degrees:
    (1) Doctor of Medicine.
    (2) Doctor of Osteopathic Medicine.
    (3) Doctor of Dentistry or equivalent degree.
    (4) Doctor of Veterinary Medicine or equivalent degree.
    (5) Doctor of Optometry or equivalent degree.
    (6) Doctor of Podiatric Medicine or equivalent degree.
    (7) Bachelor or Master of Science in Pharmacy or equivalent degree.
    (8) Graduate or equivalent degree in Public Health.
    (9) Doctor of Chiropractic or equivalent degree.
    (10) Doctoral degree in Clinical Psychology.
    (11) Masters or doctoral degree in Health Administration.
    (c) He or she must be carrying or plan to carry, during the period 
for which the loan is intended, the normal work load of a full-time 
student, as determined by the school. The student's work load may 
include any combination of courses, work experience, research or 
special studies that the school considers sufficient to classify the 
student as full time.
    (d) If currently enrolled in school, he or she must be in good 
standing, as determined by the school.
    (e)(1) In the case of a pharmacy student, he or she must have 
satisfactorily completed 3 years of training toward the pharmacy 
degree. These 3 years of training may have been taken at the pharmacy 
school or at a different school whose credits are accepted on transfer 
by the pharmacy school.
    (2) The Doctor of Pharmacy degree is considered to be an equivalent 
degree if it is taken in a school that does not require the Bachelor or 
Master of Science in pharmacy as a prerequisite for the Doctor of 
Pharmacy degree.
    (f) In the case of a medical, dental or osteopathic student 
enrolled in a 6-year program that the student may enter directly from 
secondary school, the student must be enrolled in the last 4 years of 
the program.
    (g) He or she must agree that all funds received under the proposed 
loan will be used solely for tuition, other reasonable educational 
expenses, including fees, books, supplies and equipment, and laboratory 
expenses, reasonable living expenses, reasonable transportation costs 
(only to the extent that they are directly related to the borrower's 
education), and the HEAL insurance premium.
    (h) He or she must require the loan to pursue the course of study 
at the school. This determination of the maximum amount of the loan 
will be made by the school, applying the considerations in Sec.  
681.51(f).
    (i) If required under section 3 of the Military Selective Service 
Act to present himself for and submit to registration under such 
section, he must have presented himself and submitted to registration 
under such section.


Sec.  681.6  Who is an eligible nonstudent borrower?

    To receive a HEAL loan, a person who is not a student must satisfy 
all of the following requirements:
    (a) He or she must have received a HEAL loan prior to August 13, 
1981, for which he or she is required to make payments of interest, but 
not principal, during the period for which the new loan is intended. 
This may be the grace period or a period of internship, residency, or 
deferment.
    (b) He or she must continue to meet the citizenship, nationality, 
or residency qualifications required of student borrowers.
    (c) He or she must agree that all funds received under the proposed 
loan will be used solely for payment of currently accruing interest on 
HEAL loans and the HEAL insurance premium.
    (d) If required under section 3 of the Military Selective Service 
Act to present himself for and submit to registration under such 
section, he must have

[[Page 53380]]

presented himself and submitted to registration under such section.


Sec.  681.7  The loan application process.

    (a)(1)(i) A student seeking a HEAL loan applies to a participating 
lender for a HEAL loan by submitting an application form supplied by 
the school.
    (ii) The applicant must fill out the applicant sections of the form 
completely and accurately.
    (2) The student applicant must have been informed of the Federal 
debt collection policies and procedures in accordance with the Health 
and Human Services (HHS) Claims Collection Regulation (45 CFR part 30) 
prior to the student receiving the loan. The applicant must sign a 
certification statement attesting that the applicant has been notified 
of the actions the Federal Government can take in the event that the 
applicant fails to meet the scheduled payments. This signed statement 
must be maintained by the school and the lender or holder as part of 
the borrower's official record.
    (3) A student applicant must have his or her school complete a 
portion of the application providing information relating to:
    (i) The applicant's eligibility for the loan;
    (ii) The cost of his or her education; and
    (iii) The total financial resources that are actually available to 
the applicant for his or her costs of education for the period covered 
by the proposed HEAL loan, as determined in accordance with Sec.  
681.51(f), and other student aid that the applicant has received or 
will receive for the period covered by the proposed HEAL loan.
    (4) The student applicant must certify on the application that the 
information provided reflects the applicant's total financial resources 
actually available for his or her costs of education for the period 
covered by the proposed HEAL loan and the applicant's total 
indebtedness, and that the applicant has no other financial resources 
that are available to the applicant or that the applicant will receive 
for the period covered by the proposed HEAL loan.
    (5) A student applicant must certify on the application that if 
required under section 3 of the Military Selective Service Act to 
present himself for and submit to registration under such section, he 
has presented himself and submitted to registration under such section.
    (b) The applicant pursuing a full-time course of study at an 
institution of higher education that is a ``participating school'' in 
the Guaranteed Student Loan Program but is not pursuing a course of 
study listed in Sec.  681.5(b), applies for a HEAL loan as a nonstudent 
under paragraph (c) of this section.
    (c)(1)(i) A nonstudent seeking a HEAL loan applies to a 
participating lender for a HEAL loan by submitting an application form 
supplied by the lender.
    (ii) The applicant must fill out the applicant sections of the form 
completely and accurately.
    (2) The nonstudent applicant must have been informed of the Federal 
debt collection policies and procedures in accordance with HHS' Claims 
Collection Regulation (45 CFR part 30) prior to the nonstudent 
receiving the loan. The applicant must sign a certification statement 
attesting that the applicant has been notified of the actions the 
Federal Government can take in the event that the applicant fails to 
meet the scheduled payments. This signed statement will be maintained 
by the lender or holder as part of the borrower's official record.
    (3) A nonstudent applicant must have his or her employer or 
institution, whichever is relevant, certify on the application that the 
applicant is:
    (i) Enrolled as a full-time student in an eligible school, as 
described in Sec.  681.12;
    (ii) A participant in an accredited internship or residency 
program, as described in Sec.  681.11(a);
    (iii) A member of the Armed Forces of the United States;
    (iv) A Peace Corps volunteer;
    (v) A member of the National Health Service Corps; or
    (vi) A full-time VISTA volunteer under Title I of the Domestic 
Volunteer Service Act of 1973.
    (4) The nonstudent applicant seeking a HEAL loan during the grace 
period applies to the lender directly.
    (5) A nonstudent applicant must certify on the application that if 
required under section 3 of the Military Selective Service Act to 
present himself for and submit to registration under such section, he 
has presented himself and submitted to registration under such section.
    (6) The nonstudent applicant must have certified on the application 
that the information provided reflects the applicant's total financial 
resources and indebtedness. (Approved by the Office of Management and 
Budget under control numbers 0915-0038 and 1845-0125).


Sec.  681.8  What are the borrower's major rights and responsibilities?

    (a) The borrower's rights. (1) Once the terms of the HEAL loan have 
been established, the lender or holder may not change them without the 
borrower's consent.
    (2) The lender must provide the borrower with a copy of the 
completed promissory note when the loan is made. The lender or holder 
must return the original note to the borrower when the loan is paid in 
full.
    (3) A lender must disburse HEAL loan proceeds as described in Sec.  
681.33(f).
    (4) The lender or holder must provide the borrower with a copy of 
the repayment schedule before repayment begins.
    (5) If the loan is sold from one lender or holder to another lender 
or holder, or if the loan is serviced by a party other than the lender 
or holder, the buyer must notify the borrower within 30 days of the 
transaction.
    (6) The borrower does not have to begin repayment until 9 full 
months after leaving school or an accredited internship or residency 
program as described in Sec.  681.11.
    (7) The borrower is entitled to deferment from repayment of the 
principal and interest installments during periods described in Sec.  
681.12.
    (8) The borrower may prepay the whole or any portion of the loan at 
any time without penalty.
    (9) The lender or holder must allow the borrower to repay a HEAL 
loan according to a graduated repayment schedule.
    (10) The borrower's total loan obligation is cancelled in the event 
of death or total and permanent disability.
    (11) To assist the borrower in avoiding default, the lender or 
holder may grant the borrower forbearance. Forbearance, including 
circumstances in which the lender or holder must grant forbearance, is 
more fully described in Sec.  681.37.
    (12) Any borrower who received a fixed interest rate HEAL loan in 
excess of 12 percent per year could have entered into an agreement with 
the lender which made this loan for the reissuance of the loan in 
accordance with section 739A of the Public Health Service Act (the 
Act).
    (b) The borrower's responsibilities. (1) The borrower must pay any 
insurance premium that the lender may require as more fully described 
in Sec.  681.14.
    (2) The borrower must pay all interest charges on the loan as 
required by the lender or holder.
    (3) The borrower must immediately notify the lender or holder in 
writing in the event of:
    (i) Change of address;
    (ii) Change of name; or
    (iii) Change of status that authorizes deferment.
    (4) The borrower must repay the loan in accordance with the 
repayment schedule.

[[Page 53381]]

    (5) A borrower may not have a HEAL loan discharged in bankruptcy 
during the first 5 years of the repayment period. This prohibition 
against the discharge of a HEAL loan applies to bankruptcy under any 
chapter of the Bankruptcy Act, including Chapter 13. A borrower may 
have a HEAL loan discharged in bankruptcy after the first 5 years of 
the repayment period only upon a finding by the Bankruptcy Court that 
the non-discharge of such debt would be unconscionable and upon the 
condition that the Secretary shall not have waived his or her rights to 
reduce any Federal reimbursements or Federal payments for health 
services under any Federal law in amounts up to the balance of the 
loan.
    (6) If the borrower fails to make payments on the loan on time, the 
total amount to be repaid by the borrower may be increased by 
additional interest, late charges, attorney's fees, court costs, and 
other collection charges. In addition, the Secretary may offset amounts 
attributable to an unpaid loan from reimbursements or payment for 
health services provided under any Federal law to a defaulted borrower 
practicing his or her profession.

(Approved by the Office of Management and Budget under control 
number 1845-0125)

Subpart C--The Loan


Sec.  681.10   How much can be borrowed?

    (a) Student borrower. An eligible student may borrow an amount to 
be used solely for expenses, as described in Sec.  681.5(g), incurred 
or to be incurred over a period of up to an academic year and disbursed 
in accordance with Sec.  681.33(f). The maximum amount he or she may 
receive for that period shall be determined by the school in accordance 
with Sec.  681.51(f) within the following limitations:
    (1) A student enrolled in a school of medicine, osteopathic 
medicine, dentistry, veterinary medicine, optometry or podiatric 
medicine may borrow up to $80,000 under this part. The amount received 
may not exceed $20,000 in any academic year.
    (2) A student enrolled in a school of public health, pharmacy, or 
chiropractic, or a graduate program in health administration, clinical 
psychology, or allied health, may borrow up to $50,000 under this part. 
The amount received may not exceed $12,500 per academic year.
    (3) For purposes of this paragraph, an academic year means the 
traditional approximately 9-month September-to-June annual session. For 
the purpose of computing academic year equivalents for students who, 
during a 12-month period, attend for a longer period than the 
traditional academic year, the academic year will be considered to be 9 
months in length.
    (4) The student's estimated cost of attendance shall not exceed the 
estimated cost of attendance of all students in like circumstances 
pursuing a similar curriculum at that school.
    (b) Non-student borrower. An eligible nonstudent may borrow amounts 
under this authority with the following restrictions:
    (1) In no case may an eligible nonstudent borrower receive a loan 
that is greater than the sum of the HEAL insurance premium plus the 
interest that is expected to accrue and must be paid on the borrower's 
HEAL loans during the period for which the new loan is intended.
    (2) An eligible nonstudent in the field of medicine, osteopathic 
medicine, dentistry, veterinary medicine, optometry, or podiatric 
medicine may borrow up to $80,000 under this part including loans 
obtained while the borrower was a student. The loan amount may not 
exceed $20,000 in any 12-month period.
    (3) An eligible nonstudent in the field of pharmacy, public health, 
chiropractic, health administration, or clinical psychology may borrow 
up to $50,000 under this part including loans obtained while the 
borrower was a student. The loan amount received under this part may 
not exceed $12,500 in any 12-month period.


Sec.  681.11  Terms of repayment.

    (a) Commencement of repayment. (1) The borrower's repayment period 
begins the first day of the 10th month after the month he or she ceases 
to be a full-time student at a HEAL school. The 9-month period before 
the repayment period begins is popularly called the ``grace period.''
    (i) Postponement for internship or residency program. However, if 
the borrower becomes an intern or resident in an accredited program 
within 9 full months after leaving school, then the borrower's 
repayment period begins the first day of the 10th month after the month 
he or she ceases to be an intern or resident. For a borrower who 
receives his or her first HEAL loan on or after October 22, 1985, this 
postponement of the beginning of the repayment period for participation 
in an internship or residency program is limited to 4 years.
    (ii) Postponement for fellowship training or educational activity. 
For any HEAL loan received on or after October 22, 1985, if the 
borrower becomes an intern or resident in an accredited program within 
9 full months after leaving school, and subsequently enters into a 
fellowship training program or an educational activity, as described in 
Sec.  681.12(b)(1) and (2), within 9 months after the completion of the 
accredited internship or residency program or prior to the completion 
of such program, the borrower's repayment period begins on the first 
day of the 10th month after the month he or she ceases to be a 
participant in the fellowship training program or educational activity. 
Postponement of the commencement of the repayment period for either 
activity is limited to 2 years.
    (iii) Non-student borrower. If a nonstudent borrower obtains 
another HEAL loan during the grace period or period of internship, 
residency, or deferment (as defined in Sec.  681.12), the repayment 
period on this loan begins when repayment on the borrower's other HEAL 
loans begins or resumes.
    (2) An accredited internship or residency program must be approved 
by one of the following accrediting agencies:
    (i) Accreditation Council for Graduate Medical Education.
    (ii) Council on Optometric Education.
    (iii) Commission on Accreditation of Dental and Dental Auxiliary 
Programs.
    (iv) American Osteopathic Association.
    (v) Council on Podiatry Education.
    (vi) American Council on Pharmaceutical Education.
    (vii) Council on Education for Public Health.
    (viii) American College of Veterinary Surgeons.
    (ix) Council on Chiropractic Education.
    (b) Length of repayment period. In general, a lender or holder must 
allow a borrower at least 10 years, but not more than 25 years, to 
repay a loan calculated from the beginning of the repayment period. A 
borrower must fully repay a loan within 33 years from the date that the 
loan is made.
    (1) For a HEAL borrower who received any HEAL loan prior to October 
22, 1985, periods of deferment (as described in Sec.  681.12) are not 
included when calculating the 10 to 25 or 33 year limitations.
    (2) For a borrower who receives his or her first HEAL loan on or 
after October 22, 1985, periods of deferment (as described in Sec.  
681.12) are included when calculating the 33 year limitation, but are 
not included when calculating the 10 to 25 year limitation.
    (c) Prepayment. The borrower may prepay the whole or any part of 
the loan at any time without penalty.
    (d) Minimum annual payment. During each year of repayment, a 
borrower's payments to all holders of his or her

[[Page 53382]]

HEAL loans must total the interest that accrues during the year on all 
of the loans, unless the borrower, in the promissory note or other 
written agreement, agrees to make payments during any year or any 
repayment period in a lesser amount.
    (e) Repayment schedule agreement. At least 30 and not more than 60 
days before the commencement of the repayment period, a borrower must 
contact the holder of the loan to establish the precise terms of 
repayment. The borrower may select a monthly repayment schedule with 
substantially equal installment payments or a monthly repayment 
schedule with graduated installment payments that increase in amount 
over the repayment period. If the borrower does not contact the lender 
or holder and does not respond to contacts from the lender or holder, 
the lender or holder may establish a monthly repayment schedule with 
substantially equal installment payments, subject to the terms of the 
borrower's HEAL note.
    (f) Supplemental repayment agreement. (1) A lender or holder and a 
borrower may enter into an agreement supplementing the regular 
repayment schedule agreement. Under a supplemental repayment agreement, 
the lender or holder agrees to consider that the borrower has met the 
terms of the regular repayment schedule as long as the borrower makes 
payments in accordance with the supplemental schedule.
    (2) The purpose of a supplemental repayment agreement is to permit 
a lender or holder, at its option, to offer a borrower a repayment 
schedule based on other than equal or graduated payments. (For example, 
a supplemental repayment agreement may base the amount of the 
borrower's payments on his or her income.)
    (3) The supplemental schedule must contain terms which, according 
to the Secretary, do not unduly burden the borrower and do not extend 
the Secretary's insurance liability beyond the number of years 
specified in paragraph (b) of this section. The supplemental schedule 
must be approved by the Secretary prior to the start of repayment.
    (4) The lender or holder may establish a supplemental repayment 
agreement over the borrower's objection only if the borrower's written 
consent to enter into a supplemental agreement was obtained by the 
lender at the time the loan was made.
    (5) A lender or holder may assign a loan subject to a supplemental 
repayment agreement only if it specifically notifies the buyer of the 
terms of the supplemental agreement. In such cases, the loan and the 
supplemental agreement must be assigned together.
    (6) As authorized by section 525 of the Consolidated Appropriations 
Act, 2014, any repayment plan available under part B of title IV of the 
HEA (the Federal Family Education Loan Program (FFELP)) is available 
for servicing, collecting, or enforcing HEAL loans. Such repayment 
plans are set forth in 34 CFR part 682, and in particular in Sec. Sec.  
682.102, 682.209, and 682.215.

(Approved by the Office of Management and Budget under control 
numbers 1845-0125 and 1845-0126)

Sec.  681.12   Deferment.

    (a) After the repayment period has commenced, installments of 
principal and interest need not be paid during any period:
    (1) During which the borrower is pursuing a full-time course of 
study at a HEAL school or at an institution of higher education that is 
a ``participating school'' in the William D. Ford Federal Direct Loan 
Program;
    (2) Up to 4 years during which the borrower is a participant in an 
accredited internship or residency program, as described in Sec.  
681.11(a)(2). For a borrower who receives his or her first HEAL loan on 
or after October 22, 1985, this total of 4 years for an internship or 
residency program includes any period of postponement of the repayment 
period, as described in Sec.  681.11(a)(1);
    (3) Up to 3 years during which the borrower is a member of the 
Armed Forces of the United States;
    (4) Up to 3 years during which the borrower is in service as a 
volunteer under the Peace Corps Act;
    (5) Up to 3 years during which the borrower is a member of the 
National Health Service Corps; or
    (6) Up to 3 years during which the borrower is a full-time 
volunteer under title I of the Domestic Volunteer Service Act of 1973.
    (b) For any HEAL loan received on or after October 22, 1985, after 
the repayment period has commenced, installments of principal and 
interest need not be paid during any period for up to 2 years during 
which the borrower is a participant in:
    (1) A fellowship training program, which:
    (i) Is directly related to the discipline for which the borrower 
received the HEAL loan;
    (ii) Begins within 12 months after the borrower ceases to be a 
participant in an accredited internship or residency program, as 
described in Sec.  681.11(a)(2), or prior to the completion of the 
borrower's participation in such program;
    (iii) Is a full-time activity in research or research training or 
health care policy;
    (iv) Is not a part of, an extension of, or associated with an 
internship or residency program, as described in Sec.  681.11(a)(2);
    (v) Pays no stipend or one which is not more than the annual 
stipend level established by the Public Health Service for the payment 
of uniform levels of financial support for trainees receiving graduate 
and professional training under Public Health Service grants, as in 
effect at the time the borrower requests the deferment; and
    (vi) Is a formally established fellowship program which was not 
created for a specific individual; or
    (2) A full-time educational activity at an institution defined by 
section 435(b) of the HEA which:
    (i) Is directly related to the discipline for which the borrower 
received the HEAL loan;
    (ii) Begins within 12 months after the borrower ceases to be a 
participant in an accredited internship or residency program, as 
described in Sec.  681.11(a)(2), or prior to the completion of the 
borrower's participation in such program;
    (iii) Is not a part of, an extension of, or associated with an 
internship or residency program, as described in Sec.  681.11(a)(2); 
and
    (iv) Is required for licensure, registration, or certification in 
the State in which the borrower intends to practice the discipline for 
which the borrower received the HEAL loan.
    (c)(1) To receive a deferment, including a deferral of the onset of 
the repayment period (see Sec.  681.11(a)), a borrower must at least 30 
days prior to, but not more than 60 days prior to, the onset of the 
activity and annually thereafter, submit to the lender or holder 
evidence of his or her status in the deferment activity and evidence 
that verifies deferment eligibility of the activity (with the full 
expectation that the borrower will begin the activity). It is the 
responsibility of the borrower to provide the lender or holder with all 
required information or other information regarding the requested 
deferment. If written evidence that verifies eligibility of the 
activity and the borrower for the deferment, including a certification 
from an authorized official (e.g., the director of the fellowship 
activity, the dean of the school, etc.), is received by the lender or 
holder within the required time limit, the lender or holder must 
approve the deferment. The

[[Page 53383]]

lender or holder may rely in good faith upon statements of the borrower 
and the authorized official, except where those statements or other 
information conflict with information available to the lender or 
holder. When those verification statements or other information 
conflict with information available to the lender or holder, to 
indicate that the applicant fails to meet the requirements for 
deferment, the lender or holder may not approve the deferment until 
those conflicts are resolved.
    (2) For those activities described in paragraphs (b)(1) or (b)(2) 
of this section, the borrower may request that the Secretary review a 
decision by the lender or holder denying the deferment by sending to 
the Secretary copies of the application for deferment and the lender's 
or holder's denial of the request. However, if information submitted to 
the lender or holder conflicts with other information available to the 
lender or holder, to indicate that the borrower fails to meet the 
requirements for deferment, the borrower may not request a review until 
such conflicts have been resolved. During the review process, the 
lender or holder must comply with any requests for information made by 
the Secretary. If the Secretary determines that the fellowship or 
educational activity is eligible for deferment and so notifies the 
lender or holder, the lender or holder must approve the deferment.

(Approved by the Office of Management and Budget under control 
numbers 1845-0125 and 1845-0128)

Sec.  681.13  Interest.

    (a) Rate. At the lender's option, the interest rate on the HEAL 
loan may be calculated on a fixed rate or on a variable rate basis. 
However, whichever method is selected must continue over the life of 
the loan, except where the loan is consolidated with another HEAL loan.
    (1) For all loans made on or after October 22, 1985, for each 
calendar quarter, the Secretary determines the maximum annual HEAL 
interest rate by determining the average of the bond equivalent rates 
reported for the 91-day U.S. Treasury bills auctioned for the preceding 
calendar quarter, adding 3 percentage points, and rounding that amount 
to the next higher one-eighth of 1 percent.
    (2) Interest that is calculated on a fixed rate basis is determined 
for the life of the loan during the calendar quarter in which the loan 
is executed. It may not exceed the rate determined for that quarter by 
the Secretary under paragraph (a)(1) of this section.
    (3) Interest that is calculated on a variable rate basis varies 
every calendar quarter throughout the life of the loan as the market 
price of U.S. Treasury bills changes. For any quarter it may not exceed 
the rate determined by the Secretary under paragraph (a)(1) of this 
section.
    (4) The Secretary announces the rate determined under paragraph 
(a)(1) of this section on a quarterly basis through a notice published 
on the Department's student aid Web site at www.ifap.ed.gov.
    (b) Compounding of interest. Interest accrues from the date the 
loan is disbursed until the loan is paid in full. Unpaid accrued 
interest shall be compounded not more frequently than semiannually and 
added to principal. However, a lender or holder may postpone the 
compounding of interest before the beginning of the repayment period or 
during periods of deferment or forbearance and add interest to 
principal at the time repayment of principal begins or resumes.
    (c) Payment. Repayment of principal and interest is due when the 
repayment period begins. A lender or holder must permit a borrower to 
postpone paying interest before the beginning of the repayment period 
or during a period of deferment or forbearance. In these cases, payment 
of interest begins or resumes on the date repayment of principal begins 
or resumes.
    (d) Usury laws. No provision of any Federal or State law that 
limits the rate or amount of interest payable on loans shall apply to a 
HEAL loan.


Sec.  681.14  The insurance premium.

    (a) General. (1) The Secretary insures each lender or holder for 
the losses of principal and interest it may incur in the event that a 
borrower dies; becomes totally and permanently disabled; files for 
bankruptcy under chapter 11 or 13 of the Bankruptcy Act; files for 
bankruptcy under chapter 7 of the Bankruptcy Act and files a complaint 
to determine the dischargeability of the HEAL loan; or defaults on his 
or her loan. For this insurance, the Secretary charges the lender an 
insurance premium. The insurance premium is due to the Secretary on the 
date of disbursement of the HEAL loan.
    (2) The lender may charge the borrower an amount equal to the cost 
of the insurance premium. The cost of the insurance premium may be 
charged to the borrower by the lender in the form of a one-time special 
charge with no subsequent adjustments required. The lender may bill the 
borrower separately for the insurance premium or may deduct an amount 
attributable to it from the loan proceeds before the loan is disbursed. 
In either case, the lender must clearly identify to the borrower the 
amount of the insurance premium and the method of calculation.
    (3) If the lender does not pay the insurance premium on or before 
30 days after disbursement of the loan, a late fee will be charged on a 
daily basis at the same rate as the interest rate that the lender 
charges for the HEAL loan for which the insurance premium is past due. 
The lender may not pass on this late fee to the borrower.
    (4) HEAL insurance coverage ceases to be effective if the insurance 
premium is not paid within 60 days of the disbursement of the loan.
    (5) Except in cases of error, premiums are not refundable by the 
Secretary, and need not be refunded by the lender to the borrower, even 
if the borrower graduates or withdraws from the school, defaults, dies 
or becomes totally and permanently disabled.
    (b) Rate. The rate of the insurance premium shall not exceed the 
statutory maximum. The Secretary announces changes in the rate of the 
insurance premium through a notice published on the Department's 
student aid Web site: www.ifap.ed.gov.
    (c) Method of calculation--(1) Student borrowers. For loans 
disbursed prior to July 22, 1986, the lender must calculate the 
insurance premium on the basis of the number of months beginning with 
the month following the month in which the loan proceeds are disbursed 
to the student borrower and ending 9 full months after the month of the 
student's anticipated date of graduation. For loans disbursed on or 
after July 22, 1986, the insurance premium shall be calculated as a 
one-time flat rate on the principal of the loan at the time of 
disbursement.
    (2) Non-student borrowers. For loans disbursed prior to July 22, 
1986, the lender must calculate the insurance premium for nonstudent 
borrowers on the basis of the number of months beginning with the month 
following the month in which the loan proceeds are disbursed to the 
borrower and ending at the conclusion of the month preceding the month 
in which repayment of principal is expected to begin or resume on the 
borrower's previous HEAL loans. For loans disbursed on or after July 
22, 1986, the insurance premium shall be calculated as a one-time flat 
rate on the principal of the loan at the time of disbursement.
    (3) Multiple installments. In cases where the lender disburses the 
loan in multiple installments, the insurance premium is calculated for 
each disbursement.

[[Page 53384]]

Sec.  681.15  Other charges to the borrower.

    (a) Late charges. If the borrower fails to pay all of a required 
installment payment or fails to provide written evidence that verifies 
eligibility for the deferment of the payment within 30 days after the 
payment's due date, the lender or holder will require that the borrower 
pay a late charge. A late charge must be equal to 5 percent of the 
unpaid portion of the payment due.
    (b) Collection charges. The lender or holder may also require that 
the borrower pay the holder of the note for reasonable costs incurred 
by the holder or its agent in collecting any installment not paid when 
due. These costs may include attorney's fees, court costs, telegrams, 
and long-distance phone calls. The holder may not charge the borrower 
for the normal costs associated with preparing letters and making 
personal and local telephone contacts with the borrower. A service 
agency's fee for normal servicing of a loan may not be passed on to the 
borrower, either directly or indirectly. No charges, other than those 
authorized by this section, may be passed on to the borrower, either 
directly or indirectly, without prior approval of the Secretary.
    (c) Other loan making costs. A lender may not pass on to the 
borrower any cost of making a HEAL loan other than the costs of the 
insurance premium.


Sec.  681.16  Power of attorney.

    Neither a lender nor a school may obtain a borrower's power of 
attorney or other authorization to endorse a disbursement check on 
behalf of a borrower. The borrower must personally endorse the check 
and may not authorize anyone else to endorse it on his or her behalf.


Sec.  681.17  Security and endorsement.

    (a) A HEAL loan must be made without security.
    (b) With one exception, it must also be made without endorsement. 
If a borrower is a minor and cannot under State law create a legally 
binding obligation by his or her own signature, a lender may require an 
endorsement by another person on the borrower's HEAL note. For purposes 
of this paragraph, an ``endorsement'' means a signature of anyone other 
than the borrower who is to assume either primary or secondary 
liability on the note.


Sec.  681.18  Consolidation of HEAL loans.

    HEAL loans may be consolidated as permitted in 34 CFR 685.220.


Sec.  681.19  Forms.

    All HEAL forms are approved by the Secretary and may not be changed 
without prior approval by the Secretary. HEAL forms shall not be signed 
in blank by a borrower, a school, a lender or holder, or an agent of 
any of these. The Secretary may prescribe who must complete the forms, 
and when and to whom the forms must be sent. All HEAL forms must 
contain a statement that any person who knowingly makes a false 
statement or misrepresentation in a HEAL loan transaction, bribes or 
attempts to bribe a Federal official, fraudulently obtains a HEAL loan, 
or commits any other illegal action in connection with a HEAL loan is 
subject to possible fine and imprisonment under Federal statute.


Sec.  681.20  The Secretary's collection efforts after payment of a 
default claim.

    After paying a default claim on a HEAL loan, the Secretary attempts 
to collect from the borrower and any valid endorser in accordance with 
the Federal Claims Collection Standards (4 CFR parts 101 through 105), 
the Office of Management and Budget Circular A-129, issued January 
2013, and the Department's Claims Collection Regulation (34 CFR parts 
30, 31, and 34). The Secretary attempts collection of all unpaid 
principal, interest, penalties, administrative costs, and other charges 
or fees, except in the following situations:
    (a) The borrower has a valid defense on the loan. The Secretary 
refrains from collection against the borrower or endorser to the extent 
of any defense that the Secretary concludes is valid. Examples of a 
valid defense include infancy or proof of repayment in part or in full.
    (b) A school owes the borrower a refund for the period covered by 
the loan. In this situation, the Secretary refrains from collection to 
the extent of the unpaid refund if the borrower assigns to the 
Secretary the right to receive the refund.
    (c) The school or lender or holder is the subject of a lawsuit or 
Federal administrative proceeding. In this situation, if the Secretary 
determines that the proceeding involves allegations that, if proven, 
would provide the borrower with a full or partial defense on the loan, 
then the Secretary may suspend collection activity on all or part of a 
loan until the proceeding ends. The Secretary suspends collection 
activity only for so long as the proceeding is being energetically 
prosecuted in good faith and the allegations that relate to the 
borrower's defense are reasonably likely to be proven.
    (d) The borrower dies or becomes totally and permanently disabled. 
In this situation, the Secretary terminates all collection activity 
against the borrower. The Secretary follows the procedures and 
standards in 34 CFR 685.213 and 34 CFR 685.212(a) to determine if the 
borrower is totally and permanently disabled. If the borrower dies or 
becomes totally and permanently disabled, the Secretary also terminates 
all collection activity against any endorser.


Sec.  681.21  Refunds.

    (a) Student authorization. By applying for a HEAL loan, a student 
authorizes a participating school to make payment of a refund that is 
allocable to a HEAL loan directly to the original lender (or to a 
subsequent holder of the loan note, if the school has knowledge of the 
holder's identity).
    (b) Treatment by lenders or holders. (1) A holder of a HEAL loan 
must treat a refund payment received from a HEAL school as a downward 
adjustment in the principal amount of the loan.
    (2) When a lender receives a school refund check for a loan it no 
longer holds, the lender must transfer that payment to the holder of 
the loan and either inform the borrower about the refund check and 
where it was sent or, if the borrower's address is unknown, notify the 
current holder that the borrower was not informed. The current holder 
must provide the borrower with a written notice of the refund payment.

(Approved by the Office of Management and Budget under control 
number 1845-0125)

Subpart D--The Lender and Holder


Sec.  681.30  Which organizations are eligible to apply to be HEAL 
lenders and holders?

    (a) A HEAL lender may hold loans under the HEAL program.
    (b) The following types of organizations were eligible to apply to 
the Secretary to be HEAL lenders:
    (1) A financial or credit institution (including a bank, savings 
and loan association, credit union, or insurance company) which is 
subject to examination and supervision in its capacity as a lender by 
an agency of the United States or of the State in which it has its 
principal place of business;
    (2) A pension fund approved by the Secretary;
    (3) An agency or instrumentality of a State; and
    (4) A private nonprofit entity, designated by the State, regulated 
by the State, and approved by the Secretary.
    (c) The following types of organizations are eligible to apply to 
the Secretary to be HEAL holders:

[[Page 53385]]

    (1) Public entities in the business of purchasing student loans;
    (2) Navient (formerly known as the Student Loan Marketing 
Association, or ``Sallie Mae''); and
    (3) Other eligible lenders.
    (d) HEAL holders must comply with any provisions in the regulations 
required of HEAL lenders including, but not limited to, provisions 
regarding applications, contracts, and due diligence.


Sec.  681.31  The application to be a HEAL lender or holder.

    (a) In order to be a HEAL lender or holder, an eligible 
organization must submit an application to the Secretary annually.
    (b) In determining whether to enter into an insurance contract with 
an applicant and what the terms of that contract should be, the 
Secretary may consider the following criteria:
    (1) Whether the applicant is capable of complying with the 
requirements in the HEAL regulations applicable to lenders and holders;
    (2) The amount and rate of loans which are currently delinquent or 
in default, if the applicant has had prior experience with similar 
Federal or State student loan programs; and
    (3) The financial resources of the applicant.
    (c) The applicant must develop and follow written procedures for 
servicing and collecting HEAL loans. These procedures must be reviewed 
during the biennial audit required by Sec.  681.42(d). If the applicant 
uses procedures more stringent than those required by Sec. Sec.  681.34 
and 681.35 for its other loans of comparable dollar value, on which it 
has no Federal, State, or other third party guarantee, it must include 
those more stringent procedures in its written procedures for servicing 
and collecting its HEAL loans.
    (d) The applicant must submit sufficient materials with his or her 
application to enable the Secretary to fairly evaluate the application 
in accordance with these criteria.

(Approved by the Office of Management and Budget under control 
numbers 1845-0125 and 1845-0128)

Sec.  681.32  The HEAL lender or holder insurance contract.

    (a)(1) If the Secretary approves an application to be a HEAL lender 
or holder, the Secretary and the lender or holder must sign an 
insurance contract. Under this contract, the lender or holder agrees to 
comply with all the laws, regulations, and other requirements 
applicable to its participation in the HEAL program and the Secretary 
agrees to insure each eligible HEAL loan held by the lender or holder 
against the borrower's default, death, total and permanent disability, 
bankruptcy under chapter 11 or 13 of the Bankruptcy Act, or bankruptcy 
under chapter 7 of the Bankruptcy Act when the borrower files a 
complaint to determine the dischargeability of the HEAL loan. The 
Secretary's insurance covers 100 percent of the lender's or holder's 
losses on both unpaid principal and interest, except to the extent that 
a borrower may have a defense on the loan other than infancy.
    (2) HEAL insurance, however, is not unconditional. The Secretary 
issues HEAL insurance on the implied representations of the lender that 
all the requirements for the initial insurability of the loan have been 
met. HEAL insurance is further conditioned upon compliance by the 
holder of the loan with the HEAL statute and regulations, the lender's 
or holder's insurance contract, and its own loan management procedures 
set forth in writing pursuant to Sec.  681.31(c). The contract may 
contain a limit on the duration of the contract and the number or 
amount of HEAL loans a lender may make or hold. Each HEAL lender has 
either a standard insurance contract or a comprehensive insurance 
contract with the Secretary, as described below.
    (b) Standard insurance contract. A lender with a standard insurance 
contract must submit to the Secretary a borrower's loan application for 
HEAL insurance on each loan that the lender determines to be eligible. 
The Secretary notifies the lender whether the loan is or is not 
insurable, the amount of the insurance, and the expiration date of the 
insurance commitment. A loan which has been disbursed under a standard 
contract of insurance prior to the Secretary's approval of the 
application is considered not to have been insured.
    (c)(1) Comprehensive insurance contract. A lender with a 
comprehensive insurance contract may disburse a loan without submitting 
an individual borrower's loan application to the Secretary for 
approval. All eligible loans made by a lender with this type of 
contract are insured immediately upon disbursement.
    (2) The Secretary will revoke the comprehensive contract of any 
lender who utilizes procedures which are inconsistent with the HEAL 
statute and regulations, the lender's insurance contract, or its own 
loan management procedures set forth in writing pursuant to Sec.  
681.31(c), and require that such lenders disburse HEAL loans only under 
a standard contract. When the Secretary determines that the lender is 
in compliance with the HEAL statute and regulations and its own loan 
management procedures set forth in writing pursuant to Sec.  681.31(c), 
the lender may reapply for a comprehensive contract.
    (3) In providing comprehensive contracts, the Secretary shall give 
priority to eligible lenders that:
    (i) Make loans to students at interest rates below the rates 
prevailing during the period involved; or
    (ii) Make loans under terms that are otherwise favorable to the 
student relative to the terms under which eligible lenders are 
generally making loans during the period involved.

(Approved by the Office of Management and Budget under control 
number 1845-0125)

Sec.  681.33  Making a HEAL loan.

    The loan-making process includes the processing of necessary forms, 
the approval of a borrower for a loan, determination of a borrower's 
creditworthiness, the determination of the loan amount (not to exceed 
the amount approved by the school), the explanation to a borrower of 
his or her responsibilities under the loan, the execution of the 
promissory note, and the disbursement of the loan proceeds. A lender 
may rely in good faith upon statements of an applicant and the HEAL 
school contained in the loan application papers, except where those 
statements are in conflict with information obtained from the report on 
the applicant's credit history, or other information available to the 
lender. Except where the statements are in conflict with information 
obtained from the applicant's credit history or other information 
available to the lender, a lender making loans to nonstudent borrowers 
may rely in good faith upon statements by the borrower and authorizing 
officials of internship, residency, or other programs for which a 
borrower may receive a deferment.
    (a) Processing of forms. Before making a HEAL loan, a lender must 
determine that all required forms have been completed by the borrower, 
the HEAL school, the lender, and the authorized official for an 
internship, a residency, or other deferment activity.
    (b) Approval of borrower. A lender may make a HEAL loan only to an 
eligible student or nonstudent borrower.
    (c) Lender determination of the borrower's creditworthiness. The 
lender may make HEAL loans only to an applicant that the lender has 
determined to be creditworthy. This determination must be made at least 
once for each academic year during which the applicant applies for a 
HEAL loan. An applicant will be determined to be ``creditworthy'' if he 
or she has a

[[Page 53386]]

repayment history that has been satisfactory on any loans on which 
payments have become due. The lender may not determine that an 
applicant is creditworthy if the applicant is currently in default on 
any loan (commercial, consumer, or educational) until the delinquent 
account is made current or satisfactory arrangements are made between 
the affected lender(s) and the HEAL applicant. The lender must obtain 
documentation, such as a letter from the authorized official(s) of the 
affected lender(s) or a corrected credit report indicating that the 
HEAL applicant has taken satisfactory actions to bring the account into 
good standing. It is the responsibility of the HEAL loan applicant to 
assure that the lender receives each such documentation. No loan may be 
made to an applicant who is delinquent on any Federal debt until the 
delinquent account is made current or satisfactory arrangements are 
made between the affected agency and the HEAL applicant. The lender 
must receive a letter from the authorized Federal official of the 
affected Federal agency stating that the borrower has taken 
satisfactory actions to bring the account into good standing. It is the 
responsibility of the loan applicant to assure that the lender has 
received each such letter. The absence of any previous credit, however, 
is not an indication that the applicant is not creditworthy and is not 
to be used as a reason to deny the status of creditworthy to an 
applicant. The lender must determine the creditworthiness of the 
applicant using, at a minimum, the following:
    (1) A report of the applicant's credit history obtained from an 
appropriate consumer credit reporting agency, which must be used in 
making the determinations required by paragraph (c) of this section; 
and
    (2) For student applicants only, the certification made by the 
applicant's school under Sec.  681.51(e).
    (d) Determination of loan amount. A lender may not make a HEAL loan 
in an amount that exceeds the permissible annual and aggregate maximums 
described in Sec.  681.10.
    (e) Promissory note. (1) Each loan must be evidenced by a 
promissory note approved by the Secretary. A lender must obtain the 
Secretary's prior approval of the note form before it makes a HEAL loan 
evidenced by a promissory note containing any deviation from the 
provisions of the form most currently approved by the Secretary. The 
lender must give the borrower a copy of each executed note.
    (2) The lender must explain to the borrower that the loan must be 
repaid and that the loan proceeds may be applied toward educational 
expenses only.
    (f) Disbursement of HEAL loan. (1) A lender must disburse HEAL loan 
proceeds:
    (i) To a student borrower, by means of a check or draft payable 
jointly to the student borrower and the HEAL school. Except where a 
lender is also a school, a lender must mail the check or draft to the 
school. A lender may not disburse the loan proceeds earlier than is 
reasonably necessary to meet the cost of education for the period for 
which the loan is made.
    (ii) To a nonstudent borrower, by means of a check or draft payable 
to the borrower. However, when a previous loan is held by a different 
lender, the current lender must make the HEAL loan disbursement check 
or draft payable jointly to the borrower and the holder of the previous 
HEAL loan for which interest is payable.
    (2) Effective July 1, 1987, a lender must disburse the HEAL loan 
proceeds in two or more installments unless the loan is intended to 
cover a period of no more than one-half an academic year. The amount 
disbursed at one time must correspond to the borrower's educational 
expenses for the period for which the disbursement is made, and must be 
indicated by the school on the borrower's application. If the loan is 
intended for more than one-half an academic year, the school must 
indicate on the borrower's application both the approximate dates of 
disbursement and the amount the borrower will need on each such date. 
In no case may the lender disburse the proceeds earlier than is 
reasonably necessary to meet the costs of education for the period for 
which the disbursement or the loan is made.
    (g) If the lender determines that the applicant is not 
creditworthy, pursuant to paragraph (c) of this section, the lender 
must not approve the HEAL loan request. If the applicant is a student, 
the lender must notify the applicant and the applicant's school named 
on the application form of the denial of a HEAL loan, stating the 
reason for the denial.
    (h) The lender must report a borrower's HEAL indebtedness to one or 
more national credit bureaus within 120 days of the date the final 
disbursement on the loan is made.

(Approved by the Office of Management and Budget under control 
numbers 1845-0125 and 1845-0126)

Sec.  681.34  HEAL loan account servicing.

    HEAL loan account servicing involves the proper maintenance of 
records, and the proper review and management of accounts. Generally 
accepted account servicing standards ensure that collections are 
received and accounted for, delinquent accounts are identified 
promptly, and reports are produced comparing actual results to 
previously established objectives.
    (a) Borrower inquiries. A lender or holder must respond on a timely 
basis to written inquiries and other communications from a borrower and 
any endorser of a HEAL loan.
    (b) Conversion of loan to repayment status. (1) At least 30 and not 
more than 60 days before the commencement of the repayment period, the 
lender or holder must contact the borrower in writing to establish the 
terms of repayment. Lenders or holders may not charge borrowers for the 
additional interest or other charges, penalties, or fees that accrue 
when a lender or holder does not contact the borrower within this time 
period and a late conversion results.
    (2) Terms of repayment are established in a written schedule that 
is made a part of, and subject to the terms of, the borrower's original 
HEAL note.
    (3) The lender or holder may not surrender the original promissory 
note to the borrower until the loan is paid in full. At that time, the 
lender or holder must give the borrower the original promissory note.
    (c) Borrower contacts. The lender or holder must contact each 
borrower to request updated contact information for the borrower and to 
notify the borrower of the balance owed for principal, interest, 
insurance premiums, and any other charges or fees owed to the lender, 
at least every 6 months from the time the loan is disbursed. The lender 
or holder must use this notice to remind the borrower of the option, 
without penalty, to pay all or part of the principal and accrued 
interest at any time.
    (d) Skip-tracing. If, at any time, the lender or holder is unable 
to locate a borrower, the lender or holder must initiate skip-tracing 
procedures as described in Sec.  682.411.

(Approved by the Office of Management and Budget under control 
numbers 1845-0125 and 1845-0126)

Sec.  681.35  HEAL loan collection.

    A lender or holder must exercise due diligence in the collection of 
a HEAL loan with respect to both a borrower and any endorser. In order 
to exercise due diligence, a lender or holder must implement the 
following procedures when a borrower fails to honor his or her payment 
obligations:
    (a) When a borrower is delinquent in making a payment, the lender 
or holder

[[Page 53387]]

must remind the borrower within 15 days of the date the payment was due 
by means of a written contact. If payments do not resume, the lender or 
holder must contact both the borrower and any endorser at least 3 more 
times at regular intervals during the 120-day delinquent period 
following the first missed payment of that 120-day period. The second 
demand notice for a delinquent account must inform the borrower that 
the continued delinquent status of the account will be reported to 
consumer credit reporting agencies if payment is not made. Each of the 
required four contacts must consist of at least a written contact which 
has an address correction request on the envelope. The last contact 
must consist of a telephone contact, in addition to the required 
letter, unless the borrower cannot be contacted by telephone. The 
lender or holder may choose to substitute a personal contact for a 
telephone contact. A record must be made of each attempt to contact and 
each actual contact, and that record must be placed in the borrower's 
file. Each contact must become progressively firmer in tone. If the 
lender or holder is unable to locate the borrower and any endorser at 
any time during the period when the borrower is delinquent, the lender 
or holder must initiate the skip-tracing procedures described in Sec.  
681.34(d).
    (b) When a borrower is 90 days delinquent in making a payment, the 
lender or holder must immediately request preclaim assistance from the 
Department's servicer. The Secretary does not pay a default claim if 
the lender or holder fails to request preclaim assistance.
    (c) Prior to the filing of a default claim, a lender or holder must 
use, at a minimum, collection practices that are at least as extensive 
and effective as those used by the lender or holder in the collection 
of its other loans. These practices must include, but need not be 
limited to:
    (1) Using collection agents, which may include its own collection 
department or other internal collection agents;
    (2) Immediately notifying an appropriate consumer credit reporting 
agency regarding accounts overdue by more than 60 days; and
    (3) Commencing and prosecuting an action for default unless:
    (i) In the determination of the Secretary that:
    (A) The lender or holder has made reasonable efforts to serve 
process on the borrower involved and has been unsuccessful in these 
efforts; or
    (B) Prosecution of such an action would be fruitless because of the 
financial or other circumstances of the borrower;
    (ii) For loans made before November 4, 1988, the loan involved was 
made in an amount of less than $5,000; or
    (iii) For loans made on or after November 4, 1988, the loan 
involved was made in an amount of less than $2,500.
    (d) If the Secretary's preclaim assistance locates the borrower, 
the lender or holder must implement the loan collection procedures 
described in this section. When the Secretary's preclaim assistance is 
unable to locate the borrower, a default claim may be filed by the 
lender as described in Sec.  681.40. The Secretary does not pay a 
default claim if the lender or holder has not complied with the HEAL 
statute and regulations or the lender's or holder's insurance contract.
    (e) If a lender or holder does not sue the borrower, it must send a 
final demand letter to the borrower and any endorser at least 30 days 
before a default claim is filed.
    (f) If a lender or holder sues a defaulted borrower or endorser, it 
may first apply the proceeds of any judgment against its reasonable 
attorney's fees and court costs, whether or not the judgment provides 
for these fees and costs.
    (g) Collection of chapter 7 bankruptcies. (1) If a borrower files 
for bankruptcy under chapter 7 of the Bankruptcy Act and does not file 
a complaint to determine the dischargeability of the HEAL loan, the 
lender or holder is responsible for monitoring the bankruptcy case in 
order to pursue collection of the loan after the bankruptcy proceedings 
have been completed.
    (i) For any loan for which the lender or holder had not begun to 
litigate against the borrower prior to the imposition of the automatic 
stay, the period of the automatic stay is to be considered as an 
extended forbearance authorized by the Secretary, in addition to the 2-
year period of forbearance which lenders and holders are authorized to 
grant without prior approval from the Secretary. Only periods of 
delinquency following the date of receipt (as documented by a date 
stamp) of the discharge of debtor notice (or other written notification 
from the court or the borrower's attorney of the end of the automatic 
stay imposed by the Bankruptcy Court) can be included in determining 
default, as described in Sec.  681.40(c)(1)(i). The lender or holder 
must attempt to reestablish repayment terms with the borrower in 
writing no more than 30 days after receipt of the discharge of debtor 
notice (or other written notification from the court or the borrower's 
attorney of the end of the automatic stay imposed by the Bankruptcy 
Court), in accordance with the procedures followed at the end of a 
forbearance period. If the borrower fails to make a payment as 
scheduled, the lender or holder must attempt to obtain repayment 
through written and telephone contacts in accordance with the intervals 
established in paragraph (a)(1) of this section, and must perform the 
other HEAL loan collection activities required in this section, before 
filing a default claim.
    (ii) For any loan for which the lender or holder had begun to 
litigate against the borrower prior to the imposition of the automatic 
stay, the lender or holder must, upon written notification from the 
court or the borrower's attorney that the bankruptcy proceedings have 
been completed, either resume litigation or treat the loan in 
accordance with paragraph (g)(1)(i) of this section.
    (2) If the lender or holder has not received written notification 
of discharge within 12 months of the date that the borrower filed for 
bankruptcy, the lender or holder must contact the court and the 
borrower's attorney (if known) within 30 days to determine if the 
bankruptcy proceedings have been completed. If no response is received 
within 30 days of the date of these contacts, the lender or holder must 
resume its collection efforts, in accordance with paragraph (g)(1) of 
this section. If a written response from the court or the borrower's 
attorney indicates that the bankruptcy proceedings are still underway, 
the lender or holder is not to pursue further collection efforts until 
receipt of written notice of discharge, except that follow-up in 
accordance with this paragraph must be done at least once every 12 
months until the bankruptcy proceedings have been completed. A lender 
or holder may utilize PACER (Public Access to Court Electronic Records) 
in place of contact with the court and/or borrower's attorney.
    (3) If, despite the lender or holder's compliance with required 
procedures, a loan subject to the requirements of paragraph (g)(1) of 
this section is discharged, the lender or holder must file a claim with 
the Secretary within 10 days of the initial date of receipt (as 
documented by a date stamp) of written notification of the discharge 
from the court or the borrower's attorney, in accordance with the 
procedures set forth in Sec.  681.40(c)(4). The lender or holder also 
must file with the bankruptcy court an objection to the discharge of 
the HEAL loan, and must

[[Page 53388]]

include with the claim documentation showing that the bankruptcy 
proceedings were handled properly and expeditiously (e.g., all 
documents sent to or received from the bankruptcy court, including 
evidence which shows the period of the bankruptcy proceedings).

(Approved by the Office of Management and Budget under control 
numbers 1845-0125 and 1845-0127)

Sec.  681.36  Consequence of using an agent.

    The delegation of functions to a servicing agency or other party 
does not relieve a lender or holder of its responsibilities under the 
HEAL program.


Sec.  681.37  Forbearance.

    (a) Forbearance means an extension of time for making loan payments 
or the acceptance of smaller payments than were previously scheduled to 
prevent a borrower from defaulting on his or her payment obligations. A 
lender or holder must notify each borrower of the right to request 
forbearance.
    (1) Except as provided in paragraph (a)(2) of this section, a 
lender or holder must grant forbearance whenever the borrower is 
temporarily unable to make scheduled payments on a HEAL loan and the 
borrower continues to repay the loan in an amount commensurate with his 
or her ability to repay the loan. Any circumstance which affects the 
borrower's ability to repay the loan must be fully documented.
    (2) If the lender or holder determines that the default of the 
borrower is inevitable and that forbearance will be ineffective in 
preventing default, the lender or holder may submit a claim to the 
Secretary rather than grant forbearance. If the Secretary is not in 
agreement with the determination of the lender or holder, the claim 
will be returned to the lender or holder as disapproved and forbearance 
must be granted.
    (b) A lender or holder must exercise forbearance in accordance with 
terms that are consistent with the 25- and 33-year limitations on the 
length of repayment (described in Sec.  681.11) if the lender or holder 
and borrower agree in writing to the new terms. Each forbearance period 
may not exceed 6 months.
    (c) A lender or holder may also exercise forbearance for periods of 
up to 6 months in accordance with terms that are inconsistent with the 
minimum annual payment requirement if the lender or holder complies 
with the requirements listed in paragraphs (c)(1) through (4) of this 
section. Subsequent renewals of the forbearance must also be documented 
in accordance with the following requirements:
    (1) The lender or holder must reasonably believe that the borrower 
intends to repay the loan but is currently unable to make payments in 
accordance with the terms of the loan note. The lender or holder must 
state the basis for its belief in writing and maintain that statement 
in its loan file on that borrower.
    (2) Both the borrower and an authorized official of the lender or 
holder must sign a written agreement of forbearance.
    (3) If the agreement between the borrower and lender or holder 
provides for forbearance of all payments, the lender or holder must 
contact the borrower at least every 3 months during the period of 
forbearance in order to remind the borrower of the outstanding 
obligation to repay.
    (4) The total period of forbearance (with or without interruption) 
granted by the lender or holder to any borrower must not exceed 2 
years. However, when the borrower and the lender or holder believe that 
there are bona fide reasons why this period should be extended, the 
lender or holder may request a reasonable extension beyond the 2-year 
period from the Secretary. This request must document the reasons why 
the extension should be granted. The lender or holder may grant the 
extension for the approved time period if the Secretary approves the 
extension request.

(Approved by the Office of Management and Budget under control 
number 1845-0125)

Sec.  681.38  Assignment of a HEAL loan.

    A HEAL note may not be assigned except to another HEAL lender or 
organization as specified in Sec.  681.30 and except as provided in 
Sec.  681.40. In this section ``seller'' means any kind of assignor and 
``buyer'' means any kind of assignee.
    (a) Procedure. A HEAL note assigned from one lender or holder to 
another must be subject to a blanket endorsement together with other 
HEAL notes being assigned or must individually bear effective words of 
assignment. Either the blanket endorsement or the HEAL note must be 
signed and dated by an authorized official of the seller. Within 30 
days of the transaction, the buyer must notify the following parties of 
the assignment:
    (1) The Secretary; and
    (2) The borrower. The notice to the borrower must contain a clear 
statement of all the borrower's rights and responsibilities which arise 
from the assignment of the loan, including a statement regarding the 
consequences of making payments to the seller subsequent to receipt of 
the notice.
    (b) Risks assumed by the buyer. Upon acquiring a HEAL loan, a new 
holder assumes responsibility for the consequences of any previous 
violations of applicable statutes, regulations, or the terms of the 
note except for defects under Sec.  681.41(d). A HEAL note is not a 
negotiable instrument, and a subsequent holder is not a holder in due 
course. If the borrower has a valid legal defense that could be 
asserted against the previous holder, the borrower can also assert the 
defense against the new holder. In this situation, if the new holder 
files a default claim on a loan, the Secretary denies the default claim 
to the extent of the borrower's defense. Furthermore, when a new holder 
files a claim on a HEAL loan, it must provide the Secretary with the 
same documentation that would have been required of the original 
lender.
    (c) Warranty. Nothing in this section precludes the buyer of a HEAL 
loan from obtaining a warranty from the seller covering certain future 
reductions by the Secretary in computing the amount of insurable loss, 
if any, on a claim filed on the loan. The warranty may only cover 
reductions which are attributable to an act or failure to act of the 
seller or other previous holder. The warranty may not cover matters for 
which the buyer is charged with responsibility under the HEAL 
regulations.
    (d) Bankruptcy. If a lender or holder assigns a HEAL loan to a new 
holder, or a new holder acquires a HEAL loan under 20 U.S.C. 1092a (the 
Combined Payment Plan authority), and the previous holder(s) 
subsequently receives court notice that the borrower has filed for 
bankruptcy, the previous holder(s) must forward the bankruptcy notice 
to the purchaser within 10 days of the initial date of receipt, as 
documented by a date stamp, except that if it is a chapter 7 bankruptcy 
with no complaint for dismissal, the previous holder(s) must file the 
notice with the purchaser within 30 days of the initial date of 
receipt, as documented by a date stamp. The previous holder(s) also 
must file a statement with the court notifying it of the change of 
ownership. Notwithstanding the above, the current holder will not be 
held responsible for any loss due to the failure of the prior holder(s) 
to meet the deadline for giving notice if such failure occurs after the 
current holder purchased the loan.

(Approved by the Office of Management and Budget under control 
numbers 1845-0125 and 1845-0128)


[[Page 53389]]




Sec.  681.39  Death and disability claims.

    (a) Death. The Secretary will discharge a borrower's liability on 
the loan in accordance with section 738 of the Act upon the death of 
the borrower. The holder of the loan may not attempt to collect on the 
loan from the borrower's estate or any endorser. The holder must secure 
a certification of death or whatever official proof is conclusive under 
State law. The holder must return to the sender any payments in 
accordance with Sec.  685.212(a) received from the estate of the 
borrower or paid on behalf of the borrower after the date of death.
    (b) Disability. The Secretary will discharge a borrower's liability 
on the loan in accordance with 34 CFR 685.213.


Sec.  681.40  Procedures for filing claims.

    (a) A lender or holder must file an insurance claim on a form 
approved by the Secretary. The lender or holder must attach to the 
claim all documentation necessary to litigate a default, including any 
documents required to be submitted by the Federal Claims Collection 
Standards, and which the Secretary may require. Failure to submit the 
required documentation and to comply with the HEAL statute and 
regulations or the lender's or holder's insurance contract will result 
in a claim not being honored. The Secretary may deny a claim that is 
not filed within the period specified in this section. The Secretary 
requires for all claims at least the following documentation:
    (1) The original promissory note;
    (2) An assignment to the United States of America of all right, 
title, and interest of the lender or holder in the note;
    (3) The loan application;
    (4) The history of the loan activities from the date of loan 
disbursement through the date of claim, including any payments made; 
and
    (5) A Borrower Status Form (HEAL-508), documenting each deferment 
granted under Sec.  681.12 or a written statement from an appropriate 
official stating that the borrower was engaged in an activity for which 
he or she was entitled to receive a deferment at the time the deferment 
was granted.
    (b) The Secretary's payment of a claim is contingent upon receipt 
of all required documentation and an assignment to the United States of 
America of all right, title, and interest of the lender or holder in 
the note underlying the claim. The lender or holder must warrant that 
the loan is eligible for HEAL insurance.
    (c) In addition, the lender or holder must comply with the 
following requirements for the filing of default, death, disability, 
and bankruptcy claims:
    (1) Default claims. Default means the persistent failure of the 
borrower to make a payment when due or to comply with other terms of 
the note or other written agreement evidencing a loan under 
circumstances where the Secretary finds it reasonable to conclude that 
the borrower no longer intends to honor the obligation to repay the 
loan. In the case of a loan repayable (or on which interest is payable) 
in monthly installments, this failure must have persisted for 120 days. 
In the case of a loan repayable (or on which interest is payable) in 
less frequent installments, this failure must have persisted for 180 
days. If, for a particular loan, an automatic stay is imposed on 
collection activities by a Bankruptcy Court, and the lender or holder 
receives written notification of the automatic stay prior to initiating 
legal proceedings against the borrower, the 120- or 180-day period does 
not include any period prior to the end of the automatic stay.
    (i) If a lender or holder determines that it is not appropriate to 
commence and prosecute an action against a default borrower pursuant to 
Sec.  681.35(c)(3), it must file a default claim with the Secretary 
within 30 days after a loan has been determined to be in default.
    (ii) If a lender files suit against a defaulted borrower and does 
not pursue collection of the judgment obtained as a result of the suit, 
it must file a default claim with the Secretary within 60 days of the 
date of issuance of the judgment. If a lender or holder files suit 
against a defaulted borrower, and pursues collection of the judgment 
obtained as a result of the suit, these collection activities must 
begin within 60 days of the date of issuance of the judgment. If the 
lender or holder is unable to collect the full amount of principal and 
interest owed, a claim must be filed within 30 days of completion of 
the post-judgment collection activities. In either case, the lender or 
holder must assign the judgment to the Secretary as part of the default 
claim.
    (iii) In addition to the documentation required for all claims, the 
lender or holder must submit with its default claim at least the 
following:
    (A) Repayment schedule(s);
    (B) A collection history, if any;
    (C) A final demand letter;
    (D) The original or a copy of all correspondence relevant to the 
HEAL loan to or from the borrower (whether received by the original 
lender, a subsequent holder, or an independent servicing agent);
    (E) A claims collection litigation report; and
    (F) If the defaulted borrower filed for bankruptcy under chapter 7 
of the Bankruptcy Act and did not file a complaint to determine the 
dischargeability of the loan, all documents sent to or received from 
the bankruptcy court, including evidence which shows the period of the 
bankruptcy proceedings.
    (iv) If a lender or holder files a default claim on a loan and 
subsequently receives written notice from the court or the borrower's 
attorney that the borrower has filed for bankruptcy under chapter 11 or 
13 of the Bankruptcy Act, or under chapter 7 with a complaint to 
determine the dischargeability of the loan, the lender or holder must 
file that notice with the Secretary within 10 days of the lender or 
holder's initial date of receipt, as documented by a date stamp. If the 
borrower is declaring bankruptcy under chapter 7 of the Bankruptcy Act, 
and has not filed a complaint to determine the dischargeability of the 
loan, the lender or holder must file the written notice with the 
Secretary within 30 days of the lender's or holder's initial date of 
receipt, as documented by a date stamp. If the Secretary has not paid 
the claim at the time the lender or holder receives that notice, upon 
receipt of the notice, the lender or holder must file with the 
bankruptcy court a proof of claim, if applicable, and an objection to 
the discharge or compromise of the HEAL loan. If the Secretary has paid 
the claim, the lender or holder must file a statement with the court 
notifying it that the loan is owned by the Secretary.
    (2) Death claims. A lender or holder must file a death claim with 
the Secretary within 30 days after the lender or holder obtains 
documentation that a borrower is dead. In addition to the documentation 
required for all claims, the lender or holder must submit with its 
death claim those documents which verify the death, including an 
official copy of the Death Certificate.
    (3) Disability claims. A lender or holder must file a disability 
claim with the Secretary within 30 days after it has been notified that 
the Secretary has determined a borrower to be totally and permanently 
disabled. In addition to the documentation required for all claims, the 
lender or holder must submit with its claim evidence of the Secretary's 
determination that the borrower is totally and permanently disabled.
    (4) Bankruptcy claims. For a bankruptcy under chapter 11 or 13 of 
the Bankruptcy Act, or a bankruptcy under chapter 7 of the Bankruptcy 
Act when the borrower files a complaint to determine the 
dischargeability of the

[[Page 53390]]

HEAL loan, the current holder must file a claim with the Secretary 
within 10 days of the initial date of receipt of court notice or 
written notice from the borrower's attorney that the borrower has filed 
for bankruptcy under chapter 11 or chapter 13, or has filed a complaint 
to determine the dischargeability of the HEAL loan under chapter 7. The 
initial date of receipt of the written notice must be documented by a 
date stamp. The lender or holder must file with the bankruptcy court a 
proof of claim, if applicable, and an objection to the discharge or 
compromise of the HEAL loan. In addition to the documentation required 
for all claims, with its claim the lender or holder must submit to the 
Secretary at least the following:
    (i) Repayment schedule(s);
    (ii) A collection history, if any;
    (iii) A proof of claim, where applicable;
    (iv) An assignment to the United States of America of its proof of 
claim, where applicable;
    (v) All pertinent documents sent to or received from the bankruptcy 
court;
    (vi) A statement of any facts of which the lender is aware that may 
form the basis for an objection to the bankrupt's discharge or an 
exception to the discharge;
    (vii) The notice of the first meeting or creditors, or an 
explanation as to why this is not included;
    (viii) In cases where there is defective service, a declaration or 
affidavit attesting to the fact that the lender or holder was not 
directly served with the notice of meeting of creditors. This 
declaration or affidavit must also indicate when and how the lender or 
holder learned of the bankruptcy; and
    (ix) In cases where there is defective service due to the 
borrower's failure to list the proper creditor, a copy of the letter 
sent to the borrower at the time of purchase of the HEAL loan by the 
current holder, or a sample letter with documentation indicating when 
the letter was sent to the borrower.

(Approved by the Office of Management and Budget under control 
numbers 1845-0125 and 1845-0127)

Sec.  681.41   Determination of amount of loss on claims.

    (a) General rule. HEAL insurance covers the unpaid balance of 
principal and interest on an eligible HEAL loan, less the amount of any 
judgment collected pursuant to default proceedings commenced by the 
eligible lender or holder involved. In determining whether to approve 
an insurance claim for payment, the Secretary considers legal defects 
affecting the initial validity or insurability of the loan. The 
Secretary also deducts from a claim any amount that is not a legally 
enforceable obligation of the borrower except to the extent that the 
defense of infancy applies. The Secretary further considers whether all 
holders of the loan have complied with the requirements of the HEAL 
regulations, including those concerned with the making, servicing, and 
collecting of the loan, the timely filing of claims, and the submission 
of documents with a claim.
    (b) Special rules for loans acquired by assignment. If a claim is 
filed by a lender or holder that obtained a loan by assignment, that 
lender or holder is not entitled to any payment under this section 
greater than that to which a previous holder would have been entitled. 
In particular, the Secretary deducts from the claim any amounts that 
are attributable to payments made by the borrower to a prior holder of 
the loan before the borrower received proper notice of the assignment 
of the loan.
    (c) Special rules for loans made by school lenders. (1) If the loan 
for which a claim is filed was originally made by a school and the 
claim is filed by that school, the Secretary deducts from the claim an 
amount equal to any unpaid refund that the school owes the borrower.
    (2) If the loan for which a claim is filed was originally made by a 
school but the claim is filed by another lender of holder that obtained 
the note by assignment, the Secretary deducts from the claim an amount 
equal to any unpaid refund that the school owed the borrower prior to 
the assignment.
    (d) Circumstances under which defects in claims may be cured or 
excused. The Secretary may permit a lender or holder to cure certain 
defects in a specified manner as a condition for payment of a default 
claim. The Secretary may excuse certain defects if the holder 
submitting the default claim satisfies the Secretary that the defect 
did not contribute to the default or prejudice the Secretary's attempt 
to collect the loan from the borrower. The Secretary may also excuse 
certain defects if the defect arose while the loan was held by another 
lender or holder and the holder submitting the default claim satisfies 
the Secretary that the assignment of the loan was an arm's length 
transaction, that the present holder did not know of the defect at the 
time of the sale and that the present holder could not have become 
aware of the defect through an examination of the loan documents.
    (e) Payment of insured interest. The payment on an approved claim 
covers the unpaid principal balance and interest that accrues through 
the date the claim is paid, except:
    (1) If the lender or holder failed to submit a claim within the 
required period after the borrower's default; death; total and 
permanent disability; or filing of a petition in bankruptcy under 
chapter 11 or 13 of the Bankruptcy Act, or under chapter 7 where the 
borrower files a complaint to determine the dischargeability of the 
HEAL loan; the Secretary does not pay interest that accrued between the 
end of that period and the date the Secretary received the claim.
    (2) If the Secretary returned the claim to the lender or holder for 
additional documentation necessary for the approval of the claim, the 
Secretary pays interest only for the first 30 days following the return 
of the claim to the lender or holder.


Sec.  681.42  Records, reports, inspection, and audit requirements for 
HEAL lenders and holders.

    (a) Records. (1) A lender or holder must keep complete and accurate 
records of each HEAL loan which it holds. The records must be organized 
in a way that permits them to be easily retrievable and allows the 
ready identification of the current status of each loan. The required 
records include:
    (i) The loan application;
    (ii) The original promissory note;
    (iii) The repayment schedule agreement;
    (iv) Evidence of each disbursement of loan proceeds;
    (v) Notices of changes in a borrower's address and status as a 
full-time student;
    (vi) Evidence of the borrower's eligibility for a deferment;
    (vii) The borrower's signed statement describing his or her rights 
and responsibilities in connection with a HEAL loan;
    (viii) The documents required for the exercise of forbearance;
    (ix) Documentation of the assignment of the loan; and
    (x) Evidence of a borrower's creditworthiness, including the 
borrower's credit report.
    (2) The lender or holder must maintain for each borrower a payment 
history showing the date and amount of each payment received on the 
borrower's behalf, and the amounts of each payment attributable to 
principal and interest. A lender or holder must also maintain for each 
loan a collection history showing the date and subject of each 
communication with a borrower or

[[Page 53391]]

endorser for collection of a delinquent loan. Furthermore, a lender or 
holder must keep any additional records which are necessary to make any 
reports required by the Secretary.
    (3) A lender or holder must retain the records required for each 
loan for not less than 5 years following the date the loan is repaid in 
full by the borrower. However, in particular cases the Secretary may 
require the retention of records beyond this minimum period. A lender 
or holder must keep the original copy of an unpaid promissory note, but 
may store all other records in microform or computer format.
    (4) The lender or holder must maintain accurate and complete 
records on each HEAL borrower and related school activities required by 
the HEAL program. All HEAL records shall be maintained under security 
and protected from fire, flood, water leakage, other environmental 
threats, electronic data system failures or power fluctuations, 
unauthorized intrusion for use, and theft.
    (b) Reports. A lender or holder must submit reports to the 
Secretary at the time and in the manner required by the Secretary.
    (c) Inspections. Upon request, a lender or holder must afford the 
Secretary, the Comptroller General of the United States, and any of 
their authorized representatives access to its records in order to 
assure the correctness of its reports.
    (d) The lender or holder must comply with the Department's biennial 
audit requirements of section 705 of the Act.
    (e) Any lender or holder who has information which indicates 
potential or actual commission of fraud or other offenses against the 
United States, involving these loan funds, must promptly provide this 
information to the appropriate Regional Office of Inspector General for 
Investigations.

(Approved by the Office of Management and Budget under control 
numbers 1845-0125 and 1845-0126)

Sec.  681.43  Limitation, suspension, or termination of the eligibility 
of a HEAL lender or holder.

    (a) The Secretary may limit, suspend, or terminate the eligibility 
under the HEAL program of an otherwise eligible lender or holder that 
violates or fails to comply with any provision of the Act, these 
regulations, or agreements with the Secretary concerning the HEAL 
program. Prior to terminating a lender or holder's participation in the 
program, the Secretary will provide the entity an opportunity for a 
hearing in accordance with the procedures under paragraph (b) of this 
section.
    (b)(1) The Secretary will provide any lender or holder subject to 
termination with a written notice, sent by certified mail, specifying 
his or her intention to terminate the lender or holder's participation 
in the program and stating that the entity may request, within 30 days 
of the receipt of this notice, a formal hearing. If the entity requests 
a hearing, it must, within 90 days of the receipt of the notice, submit 
material, factual issues in dispute to demonstrate that there is cause 
for a hearing. These issues must be both substantive and relevant. The 
hearing will be held in the Washington, DC metropolitan area. The 
Secretary will deny a hearing if:
    (i) The request for a hearing is untimely (i.e., fails to meet the 
30-day requirement);
    (ii) The lender or holder does not provide a statement of material, 
factual issues in dispute within the 90-day required period; or
    (iii) The statement of factual issues in dispute is frivolous or 
inconsequential.
    (2) In the event that the Secretary denies a hearing, the Secretary 
will send a written denial, by certified mail, to the lender or holder 
setting forth the reasons for denial. If a hearing is denied, or if as 
a result of the hearing, termination is still determined to be 
necessary, the lender or holder will be terminated from participation 
in the program. An entity will be permitted to reapply for 
participation in the program when it demonstrates, and the Secretary 
agrees, that it is in compliance with all HEAL requirements.
    (c) This section does not apply to a determination that a HEAL 
lender fails to meet the statutory definition of an ``eligible 
lender.''
    (d) This section also does not apply to administrative action by 
the Department of Education based on any alleged violation of:
    (1) Title VI of the Civil Rights Act of 1964, which is governed by 
34 CFR part 100;
    (2) Title IX of the Education Amendments of 1972, which is governed 
by 34 CFR part 106;
    (3) The Family Educational Rights and Privacy Act of 1974 (section 
444 of the General Education Provisions Act, as amended), which is 
governed by 34 CFR part 99; or
    (4) Title XI of the Right to Financial Privacy Act of 1978, Public 
Law 95-630 (12 U.S.C. 3401-3422).

(Approved by the Office of Management and Budget under control 
number 0915-0144)

Subpart E--The School


Sec.  681.50  Which schools are eligible to be HEAL schools?

    (a) In order to participate in the HEAL program, a school must 
enter into a written agreement with the Secretary. In the agreement, 
the school promises to comply with provisions of the HEAL law and the 
HEAL regulations. For initial entry into this agreement and for the 
agreement to remain in effect, a school must satisfy the following 
requirements:
    (1)(i) The school must be legally authorized within a State to 
conduct a course of study leading to one of the following degrees:
    (A) Doctor of Medicine.
    (B) Doctor of Osteopathic Medicine.
    (C) Doctor of Dentistry or equivalent degree.
    (D) Bachelor or Master of Science in Pharmacy or equivalent degree.
    (E) Doctor of Optometry or equivalent degree.
    (F) Doctor of Veterinary Medicine or equivalent degree.
    (G) Doctor of Podiatric Medicine or equivalent degree.
    (H) Graduate or equivalent degree in Public Health.
    (I) Doctor of Chiropractic or equivalent degree.
    (J) Doctoral degree of Clinical Psychology.
    (K) Masters or doctoral degree in Health Administration.
    (ii) For the purposes of this section, the term ``State'' includes, 
in addition to the several States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana 
Islands, the Virgin Islands, Guam, American Samoa, the Trust Territory 
of the Pacific Islands (the Republic of Palau), the Republic of the 
Marshall Islands, and the Federated States of Micronesia.
    (2)(i) The school must be accredited by a recognized agency 
approved for that course of study by the Secretary of Education, as 
described in paragraph (a)(2)(ii) of this section, except where a 
school is not eligible for accreditation solely because it is too new. 
A new school is eligible if the Secretary of Education determines that 
it can reasonably expect to be accredited before the beginning of the 
academic year following the normal graduation date of its first 
entering class. The Secretary of Education makes this determination 
after consulting with the appropriate accrediting agency and receiving 
reasonable assurance to that effect.
    (ii) The approved accrediting agencies are:

[[Page 53392]]

    (A) Liaison Committee on Medical Education.
    (B) American Osteopathic Association, Bureau of Professional 
Education.
    (C) American Dental Association, Commission on Dental 
Accreditation.
    (D) American Veterinary Medical Association, Council on Education.
    (E) American Optometric Association, Council on Optometric 
Education.
    (F) American Podiatric Medical Association, Council on Podiatric 
Medical Education.
    (G) Accreditation Council for Pharmacy Education.
    (H) Council on Education for Public Health.
    (I) Council on Chiropractic Education, Commission on Accreditation.
    (J) Accrediting Commission on Accreditation of Healthcare 
Management Education.
    (K) American Psychological Association, Committee on Accreditation.
    (b) If a HEAL school undergoes a change of controlling ownership or 
form of control, its agreement automatically expires at the time of 
that change. The school must enter into a new agreement with the 
Secretary in order to continue its participation in the HEAL program.


Sec.  681.51  The student loan application.

    When the student completes his or her portion of the student loan 
application and submits it to the school, the school must do the 
following:
    (a) Accurately and completely fill out its portion of the HEAL 
application;
    (b) Verify, to the best of its ability, the information provided by 
the student on the HEAL application, including, but not limited to, 
citizenship status and Social Security number. To comply with this 
requirement, the school may request that the student provide a 
certified copy of his or her birth certificate, his or her 
naturalization papers, and an original Social Security card or copy 
issued by the Federal Government, or other documentation that the 
school may require. The school must assure that the applicant's I-151 
or I-551 is attached to the application, if the applicant is required 
to possess such identification by the United States;
    (c) Certify that the student is eligible to receive a HEAL loan, 
according to the requirements of Sec.  681.5;
    (d) Review the financial aid transcript from each institution 
previously attended by the applicant on at least a half-time basis to 
determine whether the applicant is in default on any loans or owes a 
refund on any grants. The school may not approve the HEAL application 
or disburse HEAL funds if the borrower is in default on any loans or 
owes a refund on any educational grants, unless satisfactory 
arrangements have been made between the borrower and the affected 
lender or school to resolve the default or the refund on the grant. If 
the financial aid transcript has been requested, but has not been 
received at the time the applicant submits his or her first HEAL 
application, the school may approve the application and disburse the 
first HEAL installment prior to receipt of the transcript. Each 
financial aid transcript must include at least the following data:
    (1) Student's name;
    (2) Amounts and sources of loans and grants previously received by 
the student for study at an institution of higher education;
    (3) Whether the student is in default on any of these loans, or 
owes a refund on any grants;
    (4) Certification from each institution attended by the student 
that the student has received no financial aid, if applicable; and
    (5) From each institution attended, the signature of an official 
authorized by the institution to sign such transcripts on behalf of the 
institution;
    (e) State that it has no reason to believe that the borrower may 
not be willing to repay the HEAL loan;
    (f) Make reasonable determinations of the maximum loan amount 
approvable, based on the student's circumstances. The student applicant 
determines the amount he or she wishes to borrow, up to this maximum 
amount. Only then may the school certify an eligible application. In 
determining the maximum loan amount approvable, the school will 
calculate the difference between:
    (1) The total financial resources available to the applicant for 
his or her costs of education for the period covered by the proposed 
HEAL loan, and other student aid that the applicant has received or 
will receive during the period covered by the proposed HEAL loan. To 
determine the total financial resources available to the applicant for 
his or her costs of education for the period covered by the proposed 
HEAL loan (including familial, spousal, or personal income or other 
financial assistance that the applicant has received or will receive), 
the school must consider information provided through one of the 
national need analysis systems or any other procedure approved by the 
Secretary of Education, in addition to any other information which the 
school has regarding the student's financial situation. The school may 
make adjustments to the need analysis information only when necessary 
to accurately reflect the applicant's actual resources, and must 
maintain in the borrower's record documentation to support the basis 
for any adjustments to the need analysis information; and
    (2) The costs reasonably necessary for each student to pursue the 
same or similar curriculum or program within the same class year at the 
school for the period covered by the proposed HEAL loan, using a 
standard student budget. The school must maintain in its general office 
records the criteria used to develop each standard student budget. 
Adjustments to the standard student budget may be made only to the 
extent that they are necessary for the student to complete his or her 
education, and documentation must be maintained in the borrower's 
record to support the basis for any adjustments to the standard student 
budget.
    (g) Comply with the requirements of Sec.  681.61.

(Approved by the Office of Management and Budget under control 
numbers 1845-0125)

Sec.  681.52  The student's loan check.

    (a) When a school receives from a HEAL lender a loan disbursement 
check or draft payable jointly to the school and to one of its 
students, it must:
    (1) If the school receives the instrument after the student is 
enrolled, obtain the student's endorsement, retain that portion of 
funds due the school, and disburse the remaining funds to the student.
    (2) If the school receives the instrument before the student is 
enrolled, it must, prior to endorsing the instrument, send the 
instrument to the student to endorse and return to the school. The 
school may then retain that portion of funds then due the school but 
must hold the remaining funds for disbursement to the student at the 
time of enrollment. However, if the student is unable to meet other 
educational expenses due before the time of enrollment, the school may 
obtain the student's endorsement and disburse to the student that 
portion of funds required to meet these other educational expenses.
    (b) If a school determines that a student does not plan to enroll, 
the school must return a loan disbursement check or draft to the lender 
within 30 days of this determination.


Sec.  681.53   Notification to lender or holder of change in enrollment 
status.

    Each school must notify the holder of a HEAL loan of any change in 
the student's enrollment status within 30 days following the change in 
status. Each notice must contain the student's

[[Page 53393]]

full name under which the loan was received, the student's current name 
(if different), the student's Social Security number, the date of the 
change in the enrollment status, or failure to enroll as scheduled for 
any academic period as a full-time student, the student's latest known 
permanent and temporary addresses, and other information which the 
school may decide is necessary to identify or locate the student. If 
the school does not know the identity of the current holder of the HEAL 
loan, it must notify the HEAL Program Office of a change in the 
student's enrollment status. This notification is not required for 
vacation periods and leaves of absence or other temporary interruptions 
which do not exceed one academic term.

(Approved by the Office of Management and Budget under control 
number 1845-0125)

Sec.  681.54  Payment of refunds by schools.

    A participating school must pay that portion of a refund that is 
allocable to a HEAL loan directly to the original lender (or to a 
subsequent holder of the loan note, if the school has knowledge of the 
holder's identity). At the same time, the school must provide to the 
borrower written notice that it is doing so.

(Approved by the Office of Management and Budget under control 
number 1845-0125)

Sec.  681.55  Administrative and fiscal procedures.

    Each school must establish and maintain administrative and fiscal 
procedures necessary to achieve the following objectives:
    (a) Proper and efficient administration of the funds received from 
students who have HEAL loans;
    (b) Protection of the rights of students under the HEAL program;
    (c) Protection of the United States from unreasonable risk of loss 
due to defaults; and
    (d) Compliance with applicable requirements for HEAL schools.


Sec.  681.56  Records.

    (a) In addition to complying with the requirements of section 
739(b) of the Act, each school must maintain an accurate, complete, and 
easily retrievable record with respect to each student who has a HEAL 
loan. The record must contain all of the following information:
    (1) Student's name, address, academic standing and period of 
attendance;
    (2) Name of the HEAL lender, amount of the loan, and the period for 
which the HEAL loan was intended;
    (3) If a noncitizen, documentation of the student's alien 
registration status;
    (4) Amount and source of other financial assistance received by the 
student during the period for which the HEAL loan was made;
    (5) Date the school receives the HEAL check or draft and the date 
it either gives it to the student or returns it to the lender (if the 
school is not the lender);
    (6) Date the school disburses the loan to a student (if the school 
is the lender);
    (7) Date the school signs the loan check or draft (if the school is 
a copayee);
    (8) Amount of tuition, fees and other charges paid by the student 
to the school for the academic period covered by the loan and the dates 
of payment;
    (9) Photocopy of each HEAL check or draft received by the student;
    (10) Documentation of each entrance interview, including the date 
of the entrance interview and the signature of the borrower indicating 
that the entrance interview was conducted;
    (11) Documentation of the exit interview, including the date of the 
exit interview and the signature of the borrower indicating that the 
exit interview was conducted, or documentation of the date that the 
school mailed exit interview materials to the borrower if the borrower 
failed to report for the exit interview;
    (12) A photocopy made by the school of the borrower's I-151 or I-
551, if the borrower is required to possess such identification by the 
United States, or other documentation, if obtained by the school, to 
verify citizenship status and Social Security number (e.g., a certified 
copy of the borrower's birth certificate or a photocopy made by the 
school of the borrower's original Social Security card or copy issued 
by the Federal Government);
    (13) Documentation of the calculations made which compare the 
financial resources of the applicant with the cost of his or her 
education at the school;
    (14) Copy(s) of the borrower's financial aid transcript(s);
    (15) The standard budget used for the student, and documentation to 
support the basis for any deviations made to the standard budget;
    (16) Copies of all correspondence between the school and the 
borrower or between the school and the lender or its assignee regarding 
the loan;
    (17) Copy of each form used by the school in connection with the 
loan; and
    (18) Expected postgraduate destination of borrower.
    (b) The school must maintain the record for not less than 5 years 
following the date the student graduates, withdraws or fails to enroll 
as a full-time student. The school may store the records in microform 
or computer format.
    (c) The school must comply with the Department's biennial audit 
requirements of section 705 of the Act.
    (d) The school must develop and follow written procedures for the 
receipt, verification of amount, and disbursement of HEAL checks or 
drafts. These procedures must be maintained in the school's policies 
and procedures manuals or other general office records.

(Approved by the Office of Management and Budget under control 
number 1845-0125)

Sec.  681.57  Reports.

    A school must submit reports to the Secretary at the times and in 
the manner the Secretary may reasonably prescribe. The school must 
retain a copy of each report for not less than 5 years following the 
report's completion, unless otherwise directed by the Secretary. A 
school must also make available to a HEAL lender or holder, upon the 
lender's or holder's request, the name, address, postgraduate 
destination and other reasonable identifying information for each of 
the school's students who has a HEAL loan.

(Approved by the Office of Management and Budget under control 
number 1845-0125)

Sec.  681.58  Federal access to school records.

    For the purposes of audit and examination, a HEAL school must 
provide the Secretary of Education, the Comptroller General of the 
United States, and any of their authorized representatives access to 
the records that the school is required to keep and to any documents 
and records pertinent to the administration of the HEAL program.


Sec.  681.59  Records and Federal access after a school is no longer a 
HEAL school.

    In the event a school ceases to participate in the HEAL program, 
the school (or its successor, in the case of a school which undergoes a 
change in ownership) must retain all required HEAL records and provide 
the Secretary of Education, the Comptroller General of the United 
States, and any of their authorized representatives access to them.


Sec.  681.60  Limitation, suspension, or termination of the eligibility 
of a HEAL school.

    (a) The Secretary may limit, suspend, or terminate the eligibility 
under the HEAL program of an otherwise eligible school that violates or 
fails to comply with any provision of the Act, these regulations, or 
agreements with the Secretary concerning the HEAL program. Prior to 
terminating a school's

[[Page 53394]]

participation in the program, the Secretary will provide the school an 
opportunity for a hearing in accordance with the procedures under 
paragraph (b) of this section.
    (b)(1) The Secretary will provide any school subject to termination 
with a written notice, sent by certified mail, specifying his or her 
intention to terminate the school's participation in the program and 
stating that the school may request, within 30 days of the receipt of 
this notice, a formal hearing. If the school requests a hearing, it 
must, within 90 days of the receipt of the notice, submit material, 
factual issues in dispute to demonstrate that there is cause for a 
hearing. These issues must be both substantive and relevant. The 
hearing will be held in the Washington, DC metropolitan area. The 
Secretary will deny a hearing if:
    (i) The request for a hearing is untimely (i.e., fails to meet the 
30-day requirement);
    (ii) The school does not provide a statement of material, factual 
issues in dispute within the 90-day required period; or
    (iii) The statement of factual issues in dispute is frivolous or 
inconsequential.
    (2) In the event that the Secretary denies a hearing, the Secretary 
will send a written denial, by certified mail, to the school setting 
forth the reasons for denial. If a hearing is denied, or if as a result 
of the hearing, termination is still determined to be necessary, the 
school will be terminated from participation in the program. A school 
will be permitted to reapply for participation in the program when it 
demonstrates, and the Secretary agrees, that it is in compliance with 
all HEAL requirements.
    (c) This section does not apply to a determination that a HEAL 
school fails to meet the statutory definition of an ``eligible 
school.''
    (d) This section does not apply to administrative action by the 
Department of Education based on any alleged violation of the Family 
Educational Rights and Privacy Act of 1974 (section 444 of the General 
Education Provisions Act, as amended), as governed by 34 CFR part 99.

(Approved by the Office of Management and Budget under control 
number 0915-0144)

Sec.  681.61  Responsibilities of a HEAL school.

    (a) A HEAL school is required to carry out the following activities 
for each HEAL applicant or borrower:
    (1) Conduct and document an entrance interview with each student 
(individually or in groups) no later than prior to the loan recipient's 
first HEAL disbursement in each academic year that the loan recipient 
obtains a HEAL loan. The school must inform the loan recipient during 
the entrance interview of his or her rights and responsibilities under 
a HEAL loan, including the consequences for noncompliance with those 
responsibilities, and must gather personal information which would 
assist in locating the loan recipient should he or she depart from the 
school without receiving an exit interview. A school may meet this 
requirement through correspondence where the school determines that a 
face-to-face meeting is impracticable.
    (2) Conduct and document an exit interview with each HEAL loan 
recipient (individually or in groups) within the final academic term of 
the loan recipient's enrollment prior to his or her anticipated 
graduation date or other departure date from the school. The school 
must inform the loan recipient in the exit interview of his or her 
rights and responsibilities under each HEAL loan, including the 
consequences for noncompliance with those responsibilities. The school 
must also collect personal information from the loan recipient which 
would assist the school or the lender or holder in skiptracing 
activities and to direct the loan recipient to contact the lender or 
holder concerning specific repayment terms and options. A copy of the 
documentation of the exit interview, including the personal information 
collected for skiptracing activities, and any other information 
required by the Secretary regarding the exit interview must be sent to 
the lender or holder of each HEAL loan within 30 days of the exit 
interview. If the loan recipient departs from the school prior to the 
anticipated date or does not receive an exit interview, the exit 
interview information must be mailed to the loan recipient by the 
school within 30 days of the school's knowledge of the departure or the 
anticipated departure date, whichever is earlier. The school must 
request that the loan recipient forward any required information (e.g., 
skiptracing information, request for deferment, etc.) to the lender or 
holder. The school must notify the lender or holder of the loan 
recipient's departure at the same time it mails the exit interview 
material to the loan recipient.
    (3) Verify the accuracy and completeness of information provided by 
each student on the HEAL loan application, particularly in regard to 
the HEAL eligibility requirements, by comparing the information with 
previous loan applications or other records or information provided by 
the student to the school. Notify the potential lender of any 
discrepancies which were not resolved between the school and the 
student.
    (4) Develop and implement procedures relating to check receipt and 
release which keep these functions separate from the application 
preparation and approval process and assure that the amount of the HEAL 
loan check(s) does(do) not exceed the approved total amount of the loan 
and the statutory maximums. Checks must not be cashed without the 
borrower's personal endorsement. Documentation of these procedures and 
their usage shall be maintained by the school.
    (5) Maintain accurate and complete records on each HEAL borrower 
and related school activities required by the HEAL program. All HEAL 
records shall be properly safeguarded and protected from environmental 
threats and unauthorized intrusion for use and theft.
    (6) Maintain documentation of the criteria used to develop the 
school's standard student budgets in the school's general records, 
readily available for audit purposes, and maintain in each HEAL 
borrower's record a copy of the standard budget which was actually used 
in the determination of the maximum loan amount approvable for the 
student, as described in Sec.  681.51.
    (7) Notify the lender or its assignee of any changes in the 
student's name, address, status, or other information pertinent to the 
HEAL loan not more than 30 days after receiving information indicating 
such a change.
    (b) Any school which has information which indicates potential or 
actual commission of fraud or other offenses against the United States 
involving these loan funds must promptly provide this information to 
the appropriate Regional Office of Inspector General for 
Investigations.
    (c) The school will be considered responsible and the Secretary may 
seek reimbursement from any school for the amount of a loan in default 
on which the Secretary has paid an insurance claim, if the Secretary 
finds that the school did not comply with the applicable HEAL statute 
and regulations, or its written agreement with the Secretary. The 
Secretary may excuse certain defects if the school satisfies the 
Secretary that the defect did not contribute to the default or 
prejudice the Secretary's attempt to collect the loan from the 
borrower.
    (d) A school is authorized to withhold services from a HEAL 
borrower who is in default on a HEAL loan received while enrolled in 
that school, except in instances where the borrower has filed for 
bankruptcy. Such services may include, but are not limited to academic

[[Page 53395]]

transcripts and alumni services. Defaulted HEAL borrowers who have 
filed for bankruptcy shall provide court documentation that verifies 
the filing for bankruptcy upon the request of the school. Schools will 
also supply this information to the Secretary upon request. All 
academic and financial aid transcripts that are released on a defaulted 
HEAL borrower must indicate on the transcript that the borrower is in 
default on a HEAL loan. It is the responsibility of the borrower to 
provide the school with documentation from the lender, holder, or 
Department when a default has been satisfactorily resolved, in order to 
obtain access to services that are being withheld, or to have the 
reference to default removed from the academic and financial aid 
transcripts.

(Approved by the Office of Management and Budget under control 
number 1845-0125)


[FR Doc. 2017-24636 Filed 11-14-17; 8:45 am]
BILLING CODE 4000-01-P