[Code of Federal Regulations] [Title 34, Volume 3] [Revised as of July 1, 2001] From the U.S. Government Printing Office via GPO Access [CITE: 34CFR682.206] [Page 662-663] TITLE 34--EDUCATION CHAPTER VI--OFFICE OF POSTSECONDARY EDUCATION, DEPARTMENT OF EDUCATION PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM--Table of Contents Subpart B--General Provisions Sec. 682.206 Due diligence in making a loan. (a) General. (1) Loan-making duties include determining the borrower's loan amount, approving the borrower for a loan, explaining to the borrower his or her rights and responsibilities under the loan, and completing and having the borrower sign the promissory note (except with respect to subsequent loans made under an MPN). (2) A lender that delegates substantial loan-making duties to a school on a loan thereby enters into a loan origination relationship with the school in regard to that loan. If that relationship exists, the lender may rely in good faith upon statements of the borrower made in the loan application process, but may not rely upon statements made by the school in that process. A non-school lender that does not have an origination relationship with a school with respect to a loan may rely in good faith upon statements of both [[Page 663]] the borrower and the school in the loan application process. Except as provided in 34 CFR part 668, subpart E, a school lender may rely in good faith upon statements made by the borrower in the loan application process. (b) Processing forms. Before disbursing a loan, a lender must determine that all required forms have been accurately completed by the borrower, the student, the school, and the lender. A lender may not ask the borrower to sign any form before the borrower has provided on the form all information requested from the borrower. (c) Approval of borrower and determination of loan amount. (1) A lender may make a loan only to an eligible borrower. To the extent authorized by paragraph (a)(2) of this section, the lender may rely on the information provided by the school, the borrower, and, if the borrower is a parent, the student on whose behalf the loan is sought, in determining the borrower's eligibility for a loan. (2) Except in the case of a Consolidation loan, in determining the amount of the loan to be made, in no case may the loan amount exceed the lesser of the amount the borrower requests, the amount certified by the school under Sec. 682.603, or the loan limits under Sec. 682.204. (d)(1) The lender must ensure that each loan is supported by an executed legally-enforceable promissory note as proof of the borrower's indebtedness. (e) Security, endorsement, and co-makers. (1) A FISL, SLS or Federal PLUS loan must be made without security or endorsement. (2) A Federal PLUS Program Loan may be made to an eligible borrower with an endorser who is secondarily liable for repayment of the loan. (3) A Federal Consolidation loan may be made to two eligible spouses provided both borrowers agree to be jointly and severally liable for repayment of the loan as co-makers. (f) Additional requirement for Consolidation loans. (1) Prior to disbursement of a Consolidation loan, the lender shall obtain from the holder of each loan to be consolidated a certification with respect to the loan held by the holder that-- (i) The loan is a legal, valid, and binding obligation of the borrower; (ii) The loan was made and serviced in compliance with applicable laws and regulations; and (iii) In the case of a FFEL loan, that the guarantee on the loan is in full force and effect. (2) The Consolidation loan lender may rely in good faith on the certification provided under paragraph (f)(1) of this section by the holder of a loan to be consolidated. (Approved by the Office of Management and Budget under control number 1840-0538) (Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079, 1080, 1082, 1083, 1085) [57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 FR 25746, May 17, 1994; 59 FR 33352, June 28, 1994; 64 FR 18976, Apr. 16, 1999; 64 FR 58957, Nov. 1, 1999; 66 FR 34763, June 29, 2001]