[Code of Federal Regulations]
[Title 42, Volume 1]
[Revised as of October 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 42CFR60.38]

[Page 330-331]
 
                         TITLE 42--PUBLIC HEALTH
 
    CHAPTER I--PUBLIC HEALTH SERVICE, DEPARTMENT OF HEALTH AND HUMAN 
                                SERVICES
 
PART 60--HEALTH EDUCATION ASSISTANCE LOAN PROGRAM--Table of Contents
 
                    Subpart D--The Lender and Holder
 
Sec. 60.38  Assignment of a HEAL loan.

    A HEAL note may not be assigned except to another HEAL lender, the 
Student Loan Marketing Association (popularly known as ``Sallie Mae''), 
or a public entity in the business of purchasing student loans, and 
except as provided in Sec. 60.40. 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;
    (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; and
    (3) The borrower's school, as shown on the application form 
supporting the loan purchased by the buyer, if the borrower is enrolled 
in school.
    (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. 60.41(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

[[Page 331]]

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 
0915-0034 and 0915-0108)

[48 FR 38988, Aug. 26, 1983, as amended at 52 FR 749, Jan. 8, 1987; 56 
FR 42701, Aug. 29, 1991; 57 FR 28797, June 29, 1992]