[Code of Federal Regulations]

[Title 34, Volume 3]

[Revised as of July 1, 2005]

From the U.S. Government Printing Office via GPO Access

[CITE: 34CFR674.46]



[Page 592-593]

 

                           TITLE 34--EDUCATION

 

 CHAPTER VI--OFFICE OF POSTSECONDARY EDUCATION, DEPARTMENT OF EDUCATION

 

PART 674_FEDERAL PERKINS LOAN PROGRAM--Table of Contents

 

                         Subpart C_Due Diligence

 

Sec. 674.46  Litigation procedures.



    (a)(1) If the collection efforts described in Sec. 674.45 do not 

result in the repayment of a loan, the institution shall determine at 

least once every two years whether--

    (i) The total amount owing on the borrower's account, including 

outstanding principal, accrued interest, collection costs and late 

charges on all of the borrower's Federal Perkins, NDSL and National 

Defense Student Loans held by that institution, is more than $500;

    (ii) The borrower can be located and served with process;

    (iii)(A) The borrower has sufficient assets attachable under State 

law to satisfy a major portion of the oustanding debt; or

    (B) The borrower has income from wages or salary which may be 

garnished under applicable State law sufficient to satisfy a major 

portion of the debt over a reasonable period of time;

    (iv) The borrower does not have a defense that will bar judgment for 

the institution; and

    (v) The expected cost of litigation, including attorney's fees, does 

not exceed the amount which can be recovered from the borrower.



[[Page 593]]



    (2) The institution shall sue the borrower if it determines that the 

conditions in paragraph (a)(1) of this section are met.

    (3) The institution may sue a borrower in default, even if the 

conditions in paragraph (a)(1) of this section are not met.

    (b) The institution shall assess against and attempt to recover from 

the borrower--

    (1) All litigation costs, including attorney's fees, court costs and 

other related costs, to the extent permitted under applicable law; and

    (2) All prior collection costs incurred and not yet paid by the 

borrower.

    (c)(1) An institution shall ensure that any funds collected as a 

result of litigation procedures are--

    (i) Deposited in interest-bearing bank accounts that are--

    (A) Insured by an agency of the Federal Government; or

    (B) Secured by collateral of reasonably equivalent value; or

    (ii) Invested in low-risk income-producing securities, such as 

obligations issued or guaranteed by the United States.

    (2) An institution shall exercise the level of care required of a 

fiduciary with regard to these deposits and investments.

    (d) If the institution is unable to collect the full amount owing on 

the loan after following the procedures set forth in Sec. Sec. 674.41 

through 674.46, the institution may--

    (1) Submit the account to the Secretary for assignment in accordance 

with the procedures in Sec. 674.50; or

    (2) With the Secretary's approval, refer the account to the 

Department for collection.



(Authority: 20 U.S.C. 424, 1087cc)



[52 FR 45555, Nov. 30, 1987, as amended at 59 FR 61412, 61415, Nov. 30, 

1994; 67 FR 67077, Nov. 1, 2002]