Federal Family Education Loan Program; Final Rule DEPARTMENT OF EDUCATION

SUMMARY: The Secretary amends the Federal Family Education Loan (FFEL)

Program regulations. The FFEL Program consists of the Federal Stafford,

Federal Supplemental Loans for Students (SLS), Federal PLUS, and the

Federal Consolidation Loan Programs. These amendments are needed to

implement certain changes made to the Higher Education Act of 1965, as

amended (HEA), by the Omnibus Budget Reconciliation Act of 1993 (OBRA),

enacted August 10, 1993, and by the Higher Education Technical

Amendments of 1993, enacted December 20, 1993. These regulations also

amend the FFEL Program regulations to permit a lender to issue a

``master check'' to an institution for purposes of disbursing Federal

Stafford loan proceeds to an institution, to prohibit a subsequent

holder of a loan to bill the Secretary for any applicable interest

benefits or special allowance on a loan for which origination fees have

not been paid, and to limit the collection charges that may be assessed

a borrower with a defaulted loan that is paid off through loan

consolidation. These regulations also clarify a change made to the HEA

by the Improving America's Schools Act of 1994 (Pub. L. 103-382).

EFFECTIVE DATE: These regulations take effect July 1, 1995. However,

affected parties do not have to comply with the information collection

requirements in Secs. 682.305, 682.401, 682.404, and 682.603 until the

Department of Education publishes in the Federal Register the control

number assigned by the Office of Management and Budget (OMB) to these

information collection requirements. Publication of the control number

notifies the public that OMB has approved these information collection

requirements under the Paperwork Reduction Act of 1980.

FOR FURTHER INFORMATION CONTACT: Mr. Douglas D. Laine, Program

Specialist, Federal Family Education Loan Program Section, Loans

Branch, U.S. Department of Education, 600 Independence Avenue, SW.,

room 4310, Regional Office Building 3, Washington, DC 20202-5343,

telephone: (202) 708-8242. Individuals who use a telecommunications

device for the deaf (TDD) may call the Federal Information Relay

Service (FIRS) at 1-800-877-8339 between 8 a.m. and 8 p.m., Eastern

time, Monday through Friday.

SUPPLEMENTARY INFORMATION:

Background

The FFEL Program regulations (34 CFR Part 682) govern the Federal

Stafford Loan Program, the Federal Unsubsidized Stafford Loan Program,

the Federal SLS Program, the Federal PLUS Program, and the Federal

Consolidation Loan Program (formerly the Guaranteed Student Loan

programs).

The Secretary is amending 34 CFR Part 682 to implement changes made

to the HEA by the Omnibus Budget Reconciliation Act of 1993 (OBRA)

(Pub. L. 103-66) and the Higher Education Technical Amendments of 1993

(the Technical Amendments) (Pub. L. 103-208).

These amendments reflect changes made to the HEA by OBRA, such as

the payment of lender referral fees to guaranty agencies, the reduction

of the reinsurance coverage and reinsurance rates for a guaranty

agency's losses on default claims and the reduction of insurance

coverage a guaranty agency may pay on default claims.

These amendments also reflect changes to the HEA made by the

Technical Amendments, such as a lender's obligation to rebate excess

interest on certain Federal Stafford loans to either the borrower or

the Secretary and require lenders to convert the interest rates on

certain Federal Stafford loans to a variable interest rate.

These amendments also permit a lender to disburse Federal Stafford

loan proceeds to a school via a master check, prohibit a subsequent

holder of a loan to bill the Secretary for any applicable interest

benefits or special allowance on a loan for which origination fees have

not been paid, and limit the collection charges that may be assessed a

borrower with a defaulted loan that is paid off through loan

consolidation.

These amendments also exclude loans made under a guaranty agency's

lender-of-last-resort program from the guaranty agency's reinsurance

percentage determined under Sec. 682.404.

On October 13, 1994, the Secretary published a notice of proposed

rulemaking (NPRM) for the FFEL Program in the Federal Register (59 FR

52038). The NPRM included a discussion of the issues surrounding the

proposed changes which will not be repeated here. The following list

summarizes those issues and identifies the pages of the preamble to the

NPRM on which a discussion may be found:

Returning excess interest to certain Stafford loan

borrowers or the Secretary and converting the interest rate on certain

Federal Stafford loans to a variable interest rate (page 52038);

Disbursement of a Federal Stafford loan via a master

check (page 52038);

The obligation of an originating lender to pay

origination fees to the Secretary (page 52039);

Payment of a lender referral fee to each guaranty agency

with whom the Secretary has a lender referral agreement in an amount

equal to 0.5 percent of the principal amount of a loan made as a result

of the agency's referral services (page 52039);

The limitation of a guaranty agency to paying 98 percent

of the unpaid principal balance of each loan on default claims on loans

disbursed on or after October 1, 1993 (page 52039);

The limitation of collection charges and late fees a

guaranty agency may guarantee when a defaulted loan is consolidated

(page 52039); and

The rates at which the Secretary will reinsure a guaranty

agency's default claims (page 52039).

Substantive Revisions to the Notice of Proposed Rulemaking

The Secretary has decided not to issue proposed section 682.418

which would implement section 428(n) of the HEA (State Share of Default

Costs). As discussed below, the Secretary has determined that further

consideration of the regulations is necessary.

The final regulations have been revised to clarify that a

borrower's loan proceeds disbursed via a master check are treated, for

operational purposes, the same way as loan proceeds are treated that

are disbursed via electronic funds transfer. These technical changes

are reflected throughout the regulations.

The final regulations have been revised to provide that a

loan made under a guaranty agency's lender-of-last-resort program are

not included in the guaranty agency's reinsurance rate determined under

Sec. 682.404.

Analysis of Comments and Changes

In response to the Secretary's invitation in the NPRM, 129 parties

submitted comments on the proposed regulations. An analysis of the

comments and changes made to the regulations that differ from the NPRM

follows.

Major issues are grouped according to subject, with the reference

to the appropriate sections of the regulations. Other substantive

issues are discussed under the section of the regulations to which they

pertain. Technical and other minor changes, and suggested changes the

Secretary is not legally authorized to make under the applicable

statutory authority are generally not addressed.

General

Comments: Some commenters noted that the proposed regulations did

not reflect other changes made to the HEA as a result of OBRA and the

Technical Amendments. The commenters expressed concern that the

Department's decision not to reflect these statutory changes in the

regulations would result in a delay in their implementation under the

master calendar provisions of the HEA.

Discussion: The Secretary agrees that the statutory changes noted

by the commenters should be incorporated into the FFEL regulations and

is preparing a regulations package of technical corrections and self-

implementing changes that the Department plans to publish shortly. As

self-implementing provisions of the statute, these requirements are

currently in effect.

Changes: None.

Comments: Many commenters asked the Secretary not to implement

proposed section 682.418, which would implement the requirement in

section 428(n) of the HEA, which requires States to pay a share of the

costs of defaults in the FFEL Program. Many of the commenters raised

concerns or questions about a number of the proposed regulatory

provisions. In addition, some commenters informed the Secretary that

the implementation of this rule in fiscal year 1995 would not give the

States enough time to appropriate money to pay their fees and to enact

laws under which they could pass a portion of their fees on to schools.

Further, the commenters argued that the States would not be able to

develop any criteria for exceptional mitigating circumstances that

could be approved by the Secretary before the fee is due to the

Secretary. In addition, many commenters argued that the formula

prescribed by section 428(n) of the HEA would impose undue penalties on

States and schools.

Discussion: Based on the comments received in response to the NPRM,

the Secretary has determined that more time is needed to review and

address the concerns raised by the commenters regarding implementation

of section 428(n) of the HEA. Therefore, the Secretary has decided not

to issue regulations implementing that provision at this time. The

Secretary will further evaluate the statutory requirements and pursue

further rulemaking during 1995 to implement section 428(n) of the HEA

for fiscal year 1996. Moreover, the Secretary will exercise his

authority under section 432(a)(5) and (6) of the HEA to waive any fee a

State would be responsible to pay under section 428(n) of the HEA for

fiscal year 1995.

Changes: The Secretary has decided that more time is needed to

review the concerns raised by the commenters and, therefore, is not

publishing the final rule to implement section 428(n) of the HEA in

these regulations. The Secretary expects to fully implement this

provision in fiscal year 1996 and will publish the final regulations at

a later date.

Section 682.202 Permissible Charges by Lenders to Borrowers

Comments: Many commenters suggested that the Secretary calculate a

borrower's refund of excess interest paid on a Federal Stafford loan

based on the ending principal balance of the loan for the quarter

instead of the daily principal balance. The commenter noted that using

the average daily principal balance of the loan for the quarter would

be more burdensome to a lender than using the ending principal balance.

Other commenters noted that the guidance in the regulations was not

consistent with guidance the Department has previously issued.

Discussion: The Secretary is aware that using the average daily

principal balance of a loan for a quarter requires a lender to track

more information than if the lender used the ending principal balance

of the loan. The Secretary is also aware that the regulatory provisions

differ from the guidance the Department has issued with respect to

rebates of excess interest. However, these regulations reflect the

provisions that are contained in section 427A(i) of the HEA. The

Secretary does not have the authority to change these statutory

requirements.

Changes: None.

Comments: Many commenters suggested that the Secretary extend the

30-day period to credit the refund to 45 or 60 days. The commenters

believed that a lender with a large volume of loans for which a refund

was required may not be able to make the appropriate refunds within 30

days from the last day of the calendar year in which the quarter falls.

Discussion: The Secretary realizes that a lender that has a large

number of loans for which a rebate is required may have difficulty

making the appropriate refunds within the 30-day period. However, the

30-day time period is expressly mandated by section 427(i)(5) of the

HEA. The Secretary does not have the authority to change this statutory

requirement.

Changes: None.

Section 682.207 Due Diligence in Disbursing a Loan

Comments: A commenter suggested that a school, when receiving FFEL

proceeds via check, should be given the option to receive those

proceeds via a master check or individual checks. The commenter pointed

out that the disbursement of FFEL Program loan proceeds via a master

check will place the extra administrative burden and costs associated

with processing the master check and cutting individual checks to

borrowers at a school in cases when a school would otherwise endorse an

individual loan check and deliver it to the borrower.

Discussion: The Secretary agrees with the commenter that

disbursement of a loan proceeds via a master could impose such a

burden. The Secretary agrees with the commenter that a school should be

provided the authority to choose if it wishes loan proceeds to be

disbursed via a master check.

Changes: A change has been made. The final regulations provide that

FFEL Program loan proceeds may be disbursed via a master check if both

the lender and school agree to the use of a master check.

Comments: Many commenters suggested that the Secretary should

require a school to obtain a borrower's written authorization to

release FFEL Program loan proceeds that are disbursed via a master

check. The commenters believed that this is a necessary control to

ensure that the borrowers are aware they are receiving their loan

proceeds.

Discussion: The Secretary agrees with the commenters that requiring

the borrower's written authorization for the release of the initial and

any subsequent disbursement of each FFEL loan to be made is a necessary

control to ensure that a borrower is aware he or she is receiving the

loan proceeds.

Changes: A change has been made. The final regulations have been

amended in Sec. 682.604 to require a borrower's written authorization

for the release of his or her loan proceeds via a master check.

Section 682.305 Procedures for Payment of Interest Benefits and

Special Allowance

Comments: Many commenters suggested that the Secretary notify a

guaranty agency, or a new holder of a loan, that the originating lender

has failed to pay the origination fees. The commenters argued that a

guaranty agency or a new holder will not know if the origination fees

have been paid on a loan.

Discussion: The Secretary does not agree with the commenters. The

Secretary believes that the most practical way for a lender or guaranty

agency to find out if the origination fees have been paid on a loan is

through the lender selling the loan or the lender that is submitting

the claim. It would not be practicable for the Secretary to verify if

the origination fees have been paid on a loan every time a loan is sold

or a default claim is filed. The Secretary is not informed by lenders

when a loan is sold.

Changes: None.

Comments: Many commenters believed that a guaranty agency should

not be penalized by loss of eligibility for reinsurance on a loan

because a lender did not pay the origination fees. The commenters

believed that the lender should be held responsible and be penalized

for failing to pay the origination fees on loans that it has made.

Discussion: The Secretary does not agree with the commenters. It

has been the longstanding policy of the Secretary that an FFEL Program

loan is not eligible for reinsurance if the lender or agency has failed

to comply with all Federal requirements with respect to the loan.

However, the Secretary agrees with the commenters that a lender that

fails to pay the origination fees should be penalized for failing to do

so. The Secretary will take whatever action necessary against a lender

to ensure that the origination fees are promptly being paid.

Changes: None.

Comments: Many commenters suggested that the Secretary amend this

provision to permit a lender that purchases a loan to pay the

origination fees to the Secretary. The commenters argued that many

originating lenders sell their loans upon disbursement and have

contractual agreements with the purchasing lenders that provide that

the purchasing lender will pay the origination fees.

Discussion: The Secretary does not believe that such an amendment

is necessary. The Secretary has promulgated this rule because, in many

cases, such origination fees are not being paid to the Secretary. The

Secretary believes that it is necessary to hold an originating lender

responsible for such fees because this will decrease the incidence of

origination fees not being paid to the Secretary. A purchasing lender

may reimburse the originating lender for the origination fees.

Changes: None.

Section 682.401 Basic Program Agreement

Comments: Many commenters suggested that the Secretary provide in

the regulations that a guaranty agency may (generally) not insure less

than 98 percent of the unpaid principal balance of loans insured under

its program. The commenters suggested this change because they believed

this reflected the language of the HEA.

Discussion: The Secretary does not agree with the commenters. The

Secretary believes that Congress intended to bar a guaranty agency from

paying lenders more than 98 percent of the unpaid principal and accrued

interest on default claims filed on loans made on or after October 1,

1993. The Secretary believes therefore it would be a misuse of a

guaranty agency's reserve fund to pay more than 98 percent of the

unpaid principal and interest on a defaulted loan.

Changes: None.

Comments: Many commenters suggested that the Secretary's limitation

of collection costs that may be included in a Federal Consolidation

Loan to 18.5 percent was unreasonable. The commenters believed that

18.5 percent would not cover the collection costs incurred on some

loans. The commenters also argued that this provision debilitates the

deterring effect collection costs have with respect to a borrower

repaying his or her loan.

Discussion: The Secretary does not agree with the commenters that

limiting collection costs to 18.5 percent of the borrower's outstanding

balance is unreasonable. The Secretary wishes to clarify that this

provision is intended to encourage a borrower with a defaulted loan to

consolidate the loan in order to get the loan out of default and

reestablish his or her eligibility for student financial aid. The

Secretary believes that limiting the collection costs that may be

included in a Federal Consolidation loan will provide an incentive for

a borrower to get out of default.

Changes: None.

Waiver of Proposed Rulemaking

In addition to the changes made to part 682 based on public comment

on the notice of proposed rulemaking, the Secretary has revised the

regulations to include changes made by the Improving America's Schools

Act of 1994 (Pub. L. 103-382), enacted subsequent to publication of the

notice of proposed rulemaking.

It is the practice of the Secretary to offer interested parties the

opportunity to comment on proposed regulations in accordance with the

Administrative Procedure Act, 5 U.S.C. 553. However, since these

changes merely incorporate statutory changes into the regulations,

public comment could have no effect. Therefore, the Secretary has

determined pursuant to 5 U.S.C. 553(b)(B) that public comment on the

regulations is unnecessary and contrary to the public interest.

Executive Order 12866

These final regulations have been reviewed in accordance with

Executive Order 12866. Under the terms of the order the Secretary has

assessed the potential costs and benefits of this regulatory action.

The potential costs associated with these regulations are those

resulting from statutory requirements and those determined by the

Secretary to be necessary for administering the Title IV, HEA programs

effectively and efficiently. In assessing the potential costs and

benefits--both quantitative and qualitative--of these proposed

regulations, the Secretary has determined that the benefits of these

regulations justify the costs.

The Secretary has also determined that this regulatory action does

not unduly interfere with State, local, and tribal governments in the

exercise of their governmental functions.

Assessment of Educational Impact

In the NPRM, the Secretary requested comments on whether the

proposed regulations would require transmission of information that is

being gathered by, or is available from, any other agency or authority

of the United States.

Based on the response to the proposed rules and on its own review,

the Department has determined that the regulations in this document do

not require transmission of information that is being gathered by, or

is available from, any other agency or authority of the United States.

List of Subjects in 34 CFR Part 682

Administrative practice and procedure, Colleges and universities,

Education, Loan programs--education, Reporting and recordkeeping

requirements, Student aid, Vocational education.

Dated: November 22, 1994.

Richard W. Riley,

Secretary of Education.

(Catalog of Federal Domestic Assistance Number 84.032, Federal

Family Education Loan Program)

The Secretary proposes to amend part 682 of title 34 of the Code of

Federal Regulations as follows:

PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAMS

1. The authority citation for part 682 continues to read as

follows:

Authority: 20 U.S.C. 1071 to 1087-2, unless otherwise noted.

2. Section 682.202 is amended by adding new paragraphs (a)(6) and

(a)(7) to read as follows:

Sec. 682.202 Permissible charges by lenders to borrowers.

* * * * *

(a) * * *

(6) Refund of excess interest paid on Stafford loans.

(i) For a loan with an applicable interest rate of 10 percent made

prior to July 23, 1992, and for a loan with an applicable interest rate

of 10 percent made from July 23, 1992 through September 30, 1992, to a

borrower with no outstanding FFEL Program loans--

(A) If during any calendar quarter, the sum of the average of the

bond equivalent rates of the 91-day Treasury bills auctioned for that

quarter, plus 3.25 percent, is less than 10 percent, the lender shall

calculate an adjustment and credit the adjustment as specified under

paragraph (a)(6)(i)(B) of this section if the borrower's account is not

more than 30 days delinquent on December 31. The amount of the

adjustment for a calendar quarter is equal to--

(1) 10 percent minus the sum of the average of the bond equivalent

rates of the 91-day Treasury bills auctioned for the applicable quarter

plus 3.25 percent;

(2) Multiplied by the average daily principal balance of the loan

(not including unearned interest added to principal); and

(3) Divided by 4;

(B) No later than 30 calendar days after the end of the calendar

year, the holder of the loan shall credit any amounts computed under

paragraph (a)(6)(i)(A) of this section to--

(1) The Secretary, for amounts paid during any period in which the

borrower is eligible for interest benefits;

(2) The borrower's account to reduce the outstanding principal

balance as of the date the holder adjusts the borrower's account,

provided that the borrower's account was not more than 30 days

delinquent on that December 31; or

(3) The Secretary, for a borrower who on the last day of the

calendar year is delinquent for more than 30 days.

(ii) For a fixed interest rate loan made on or after July 23, 1992

to a borrower with an outstanding FFEL Program loan--

(A) If during any calendar quarter, the sum of the average of the

bond equivalent rates of the 91-day Treasury bills auctioned for that

quarter, plus 3.10 percent, is less than the applicable interest rate,

the lender shall calculate an adjustment and credit the adjustment to

reduce the outstanding principal balance of the loan as specified under

paragraph (a)(6)(ii)(C) of this section if the borrower's account is

not more than 30 days delinquent on December 31. The amount of an

adjustment for a calendar quarter is equal to--

(1) The applicable interest rate minus the sum of the average of

the bond equivalent rates of the 91-day Treasury bills auctioned for

the applicable quarter plus 3.10 percent;

(2) Multiplied by the average daily principal balance of the loan

(not including unearned interest added to principal); and

(3) Divided by 4;

(B) For any quarter or portion thereof that the Secretary was

obligated to pay interest subsidy on behalf of the borrower, the holder

of the loan shall refund to the Secretary, no later than the end of the

following quarter, any excess interest calculated in accordance with

paragraph (a)(6)(ii)(A) of this section;

(C) For any other quarter, the holder of the loan shall, within 30

days of the end of the calendar year, reduce the borrower's outstanding

principal by the amount of excess interest calculated under paragraph

(a)(6)(ii)(A) of this section, provided that the borrower's account was

not more than 30 days delinquent as of December 31;

(D) For a borrower who on the last day of the calendar year is

delinquent for more than 30 days, any excess interest calculated shall

be refunded to the Secretary; and

(E) Notwithstanding paragraphs (a)(6)(ii)(B), (C) and (D) of this

section, if the loan was disbursed during a quarter, the amount of any

adjustment refunded to the Secretary or credited to the borrower for

that quarter shall be prorated accordingly.

(7) Conversion to Variable Rate.

(i) A lender or holder shall convert the interest rate on a loan

under paragraphs (a)(6)(i) or (ii) of this section to a variable rate.

(ii) The applicable interest rate for each 12-month period

beginning on July 1 and ending on June 30 preceding each 12-month

period is equal to the sum of--

(A) The bond equivalent rate of the 91-day Treasury bills auctioned

at the final auction prior to June 1; and

(B) 3.25 percent in the case of a loan described in paragraph

(a)(6)(i) of this section or 3.10 percent in the case of a loan

described in paragraph (a)(6)(ii) of this section.

(iii)(A) In connection with the conversion specified in paragraph

(a)(6)(ii) of this section for any period prior to the conversion for

which a rebate has not been provided under paragraph (a)(6) of this

section, a lender or holder shall convert the interest rate to a

variable rate.

(B) The interest rate for each period shall be reset quarterly and

the applicable interest rate for the quarter or portion shall equal the

sum of--

(1) The average of the bond equivalent rates of 91-day Treasury

bills auctioned for the preceding 3-month period; and

(2) 3.25 percent in the case of loans as specified under paragraph

(a)(6)(i) of this section or 3.10 percent in the case of loans as

specified under paragraph (a)(6)(ii) of this section.

(iv)(A) The holder of a loan being converted under paragraph

(a)(7)(iii)(A) of this section shall complete such conversion on or

before January 1, 1995.

(B) The holder shall, not later than 30 days prior to the

conversion, provide the borrower with--

(1) A notice informing the borrower that the loan is being

converted to a variable interest rate;

(2) A description of the rate to the borrower;

(3) The current interest rate; and

(4) An explanation that the variable rate will provide a

substantially equivalent benefit as the adjustment otherwise provided

under paragraph (a)(6) of this section.

(v) The notice may be provided as part of the disclosure

requirement as specified under Sec. 682.205.

(vi) The interest rate as calculated under this paragraph may not

exceed the maximum interest rate applicable to the loan prior to the

conversion.

* * * * *

3. Section 682.207 is amended by removing the word ``or'' at the

end of paragraph (b)(1)(ii)(A); removing the semicolon at the end of

paragraph (b)(1)(ii)(B), and adding, in its place, a period and a new

sentence; and removing the semicolon at the end of paragraph

(b)(1)(v)(B)(1), and adding, in its place, a period and a new sentence;

by adding a new paragraph (b)(1)(ii)(C) to read as follows:

Sec. 682.207 Due diligence in disbursing a loan.

* * * * *

(b)(1) * * *

(ii) * * *

(B) * * * A disbursement made by electronic funds transfer must be

accompanied by a list of the names, social security numbers, and loan

amounts of the borrowers who are receiving a portion of the

disbursement; or

(C) If the school and the lender agree, a master check from the

lender to the eligible institution to a separate account maintained by

the school as trustee for the lender. A disbursement made by a master

check must be accompanied by a list of the names, social security

numbers, and loan amounts of the borrowers who are receiving a portion

of the disbursement;

* * * * *

(v) * * *

(B) * * *

(1) * * * A disbursement made by electronic funds transfer or

master check must be accompanied by a list of the names, social

security numbers, and loan amounts of the borrowers who are receiving a

portion of the disbursement and the names and social security numbers

of the students on whose behalf the parents are borrowing.

4. Section 682.300 is amended by revising paragraph (b)(2)(ii)(B),

paragraph (c)(3)(ii), and paragraphs (c)(4) (i) and (ii) to read as

follows:

Sec. 682.300 Payment of interest benefits on Stafford and

Consolidation Loans.

* * * * *

(b) * * *

(2) * * *

(ii) * * *

(B) The proceeds of the disbursement made by electronic funds

transfer or master check in accordance with Sec. 682.207(b)(1)(ii) (B)

and (C) have not been released from the restricted account maintained

by the school on or before that date;

* * * * *

(c) * * *

(3) * * *

(ii) In the case of a loan disbursed by electronic funds transfer

or master check, 3 days prior to the first day of the period of

enrollment or, if the loan is disbursed after the first day of the

period of enrollment, 3 days after disbursement.

(4) * * *

(i) The disbursement check is returned uncashed to the lender or

the lender is notified that the disbursement made by electronic funds

transfer or master check will not be released from the restricted

account maintained by the school; or

(ii) The check for the disbursement has not been negotiated before

the 120th day after the date of disbursement or the disbursement made

by electronic funds transfer or master check has not been released from

the restricted account maintained by the school before that date.

5. Section 682.302 is amended by revising paragraphs (b)(3) (i) and

(ii) and paragraph (d)(1)(vi)(B) to read as follows:

Sec. 682.302 Payment of special allowance on FFEL loans.

* * * * *

(b) * * *

(3) * * *

(i) The disbursement check is returned uncashed to the lender or

the lender is notified that the disbursement made by electronic funds

transfer or master check will not be released from the restricted

account maintained by the school; or

(ii) The check for the disbursement has not been negotiated before

the 120th day after the date of disbursement or the disbursement made

by electronic funds transfer or master check has not been released from

the restricted account maintained by the school before that date.

* * * * *

(d) * * *

(1) * * *

(vi) * * *

(B) the loan proceeds disbursed by electronic funds transfer or

master check in accordance with Sec. 682.207(b)(1)(ii) (B) and (C) have

not been released from the restricted account maintained by the school

on or before that date; or

6. Section 682.305 is amended by revising paragraph (a)(4) to read

as follows:

Sec. 682.305 Procedures for payment of interest benefits and special

allowance.

(a) * * *

(4) If an originating lender sells or otherwise transfers a loan to

a new holder, the originating lender remains liable to the Secretary

for payment of the origination fees. The Secretary will not pay

interest benefits or special allowance to the new holder or pay

reinsurance to the guaranty agency until the origination fees are paid

to the Secretary.

* * * * *

7. Section 682.401 is amended by revising paragraph

(b)(10)(vi)(B)(3); adding new paragraphs (b)(10)(iii) and (b)(27); and

by revising paragraph (b)(14) to read as follows:

Sec. 682.401 Basic program agreement.

* * * * *

(b) * * *

(10) * * *

(vi) * * *

(B) * * *

(3) The loan proceeds disbursed by electronic funds transfer or

master check in accordance with Sec. 682.207(b)(1)(ii) (B) and (C) have

not been released from the restricted account maintained by the school.

(11) * * *

(iii) The Secretary will pay a lender referral fee to each guaranty

agency with whom the Secretary has a lender referral agreement, an

amount equal to 0.5 percent of the principal amount of a loan made as a

result of the agency's referral service.

* * * * *

(14) Guaranty liability. The guaranty agency shall guarantee--

(i) 100 percent of the unpaid principal balance of each loan

guaranteed for loans disbursed before October 1, 1993; and

(ii) Not more than 98 percent of the unpaid principal balance of

each loan guaranteed for loans first disbursed on or after October 1,

1993.

* * * * *

(27) Collection Charges and Late Fees on Defaulted FFEL loans being

Consolidated. A guaranty agency may not guarantee collection charges or

late fees that exceed 18.5 percent of the outstanding principal and

interest on a defaulted FFEL Program loan that is included in a Federal

Consolidation loan.

* * * * *

8. Section 682.402 is amended by revising paragraphs (e)(3)(iv)

introductory text, (e)(3)(iv)(A), the heading of paragraph (e)(8),

paragraph (e)(8)(iii) introductory text, the heading of paragraph

(e)(10) and paragraph (e)(10)(iii) introductory text to read as

follows:

Sec. 682.402 Death, disability, closed school, false certification,

and bankruptcy payments.

* * * * *

(e) * * *

(3) * * *

(iv) In the case of a borrower requesting a discharge because the

school, without authorization of the borrower, endorsed the borrower's

name on the loan check or signed the authorization for electronic funds

transfer or master check, the borrower shall--

(A) Certify that he or she did not endorse the loan check or sign

the authorization for electronic funds transfer or master check, or

authorize the school to do so;

* * * * *

(8) Guaranty agency responsibilities with respect to a claim filed

by a lender based only on the borrower's assertion that he or she did

not sign the loan check or the authorization for the release of loan

funds via electronic funds transfer or master check.

* * * * *

(iii) If the agency determines that a borrower who asserts that he

or she did not sign the electronic funds transfer or master check

authorization satisfies the requirements for discharge under paragraph

(e)(3)(iv) of this section, it shall, within 30 days after making that

determination, pay the claim in accordance with Sec. 682.402(h) and--

* * * * *

(10) Guaranty agency responsibilities in the case of a loan held by

the agency for which a discharge request is submitted by a borrower

based only on the borrower's assertion that he or she did not sign the

loan check or the authorization for the release of loan proceeds via

electronic funds transfer or master check.

* * * * *

(iii) In the case of a borrower who requests a discharge because he

or she did not sign the electronic funds transfer or master check

authorization, if the agency determines that the borrower meets the

conditions for discharge, it shall immediately terminate any collection

efforts against the borrower with respect to the discharged loan amount

and any charges imposed or costs incurred by the agency related to the

discharged loan amount that the borrower is, or was, otherwise

obligated to pay, and within 30 days after making that determination--

* * * * *

9. Section 682.404 is amended by revising paragraphs (a)(1),

(b)(1), and (b)(2), by removing paragraph (b)(4), by redesignating

paragraph (b)(5) as paragraph (b)(4), by removing the period at the end

of paragraph (b)(3)(iii) and adding a semi-colon in its place, and

adding a new paragraph (b)(3)(iv).

Sec. 682.404 Federal reinsurance agreement.

(a) General. (1)(i) The Secretary may enter into a reinsurance

agreement with a guaranty agency that has a basic program agreement.

Except as provided in paragraph (b) of this section, under a

reinsurance agreement the Secretary reimburses the guaranty agency for

98 percent of its losses on default claim payments to lenders.

(ii) Notwithstanding paragraph (a)(1)(i) of this section, the

Secretary reimburses a guaranty agency for 100 percent of its losses on

default claim payments--

(A) For loans made prior to October 1, 1993;

(B) For loans made under an approved lender-of-last-resort program;

(C) For loans transferred under a plan approved by the Secretary

from an insolvent guaranty agency or a guaranty agency that withdraws

its participation in the FFEL Program;

(D) For a guaranty agency that entered into a basic program

agreement under section 428(b) of the Act after September 30, 1976, or

was not actively carrying on a loan guarantee program covered by a

basic program agreement on October 1, 1976 for five consecutive fiscal

years beginning with the first year of its operation.

* * * * *

(b) * * *

(1) If the total of reinsurance claims paid by the Secretary to a

guaranty agency during any fiscal year reaches 5 percent of the amount

of loans in repayment at the end of the preceding fiscal year, the

Secretary's reinsurance payment on a default claim subsequently paid by

the guaranty agency during that fiscal year equals--

(i) 90 percent of its losses for loans made before October 1, 1993

or transferred under a plan approved by the Secretary from an insolvent

guaranty agency or a guaranty agency that withdraws its participation

in the FFEL Program; or

(ii) 88 percent of its losses for loans made on or after October 1,

1993.

(2) If the total of reinsurance claims paid by the Secretary to a

guaranty agency during any fiscal year reaches 9 percent of the amount

of loans in repayment at the end of the preceding fiscal year, the

Secretary's reinsurance payment on a default claim subsequently paid by

the guaranty agency during that fiscal year equals--

(i) 80 percent of its losses for loans made before October 1, 1993

or transferred under a plan approved by the Secretary from an insolvent

guaranty agency or a guaranty agency that withdraws its participation

in the FFEL Program; or

(ii) 78 percent of its losses for loans made on or after October 1,

1993.

(3) * * *

(iv) On loans made under a guaranty agency's approved lender-of-

last-resort program.

* * * * *

10. Section 682.406 is amended by revising paragraph (a)(2)(ii) to

read as follows:

Sec. 682.406 Conditions of reinsurance coverage.

(a) * * *

(2) * * *

(ii) The proceeds of the disbursement made by electronic funds

transfer or master check in accordance with Sec. 682.207(b)(1)(ii) (B)

and (C) have been released from the restricted account maintained by

the school within 120 days after disbursement;

11. Section 682.407 is removed and reserved.

12. Section 682.604 is amended by revising paragraph (c)(3)

introductory text to read as follows.

Sec. 682.604 Processing the borrower's loan proceeds and counseling

borrowers

* * * * *

(c) * * *

(3) If the loan proceeds are disbursed by electronic funds transfer

to an account of the school in accordance with

Sec. 682.207(b)(1)(ii)(B), or by master check in accordance with

Sec. 682.207(b)(1)(ii)(C), the school must, unless authorization was

provided in the loan application, not more than 30 days prior to the

first day of classes of the period of enrollment for which the loan is

intended, obtain the student's, or in the case of a Federal PLUS loan,

the parent borrower's written authorization for the release of the

initial and any subsequent disbursement of each FFEL loan to be made,

and after the student has registered either--

* * * * *

(Authority: 20 U.S.C. 1078)

[FR Doc. 94-29263 Filed 11-29-94; 8:45 am]

BILLING CODE 4000-01-P