[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: 34CFR682.206]



[Page 653-654]

 

                           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 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 FFEL Program loan must be made without security or 

endorsement, except as provided in paragraph (e)(2) of this section.

    (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)



[[Page 654]]



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; 68 FR 

75428, Dec. 31, 2003]