[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: 34CFR682.402]



[Page 697-724]

 

                           TITLE 34--EDUCATION

 

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

 

PART 682_FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM--Table of Contents

 

 Subpart D_Administration of the Federal Family Education Loan Programs 

                          by a Guaranty Agency

 

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

unpaid refunds, and bankruptcy payments.



    (a) General. (1) Rules governing the payment of claims based on 

filing for relief in bankruptcy, and discharge of loans due to death, 

total and permanent disability, attendance at a school that closes, 

false certification by a school of a borrower's eligibility for a loan, 

and unpaid refunds by a school are set forth in this section.

    (2) If a Consolidation loan was obtained jointly by a married 

couple, the amount of the Consolidation loan that is discharged if one 

of the borrowers dies or becomes totally and permanently disabled is 

equal to the portion of the outstanding balance of the Consolidation 

loan, as of the date the borrower died or became totally and permanently 

disabled, attributable to any of that borrower's loans that would have 

been eligible for discharge.

    (3) If a PLUS loan was obtained by two parents as co-makers, and 

only one of the borrowers dies, becomes totally and permanently 

disabled, has collection of his or her loan obligation stayed by a 

bankruptcy filing, or has that obligation discharged in bankruptcy, the 

other borrower remains obligated to repay the loan unless that borrower 

would qualify for discharge of the loan under these regulations.

    (4) Except for a borrower's loan obligation discharged by the 

Secretary under the false certification discharge provision of 

paragraphs (e)(1)(ii) of this section, a loan qualifies for payment



[[Page 698]]



under this section and as provided in paragraph (h)(1)(iv) of this 

section, only to the extent that the loan is legally enforceable under 

applicable law by the holder of the loan.

    (5) For purposes of this section--

    (i) The legal enforceability of a loan is conclusively determined on 

the basis of a ruling by a court or administrative tribunal of competent 

jurisdiction with respect to that loan, or a ruling with respect to 

another loan in a judgment that collaterally estops the holder from 

contesting the enforceability of the loan;

    (ii) A loan is conclusively determined to be legally unenforceable 

to the extent that the guarantor determines, pursuant to an objection 

presented in a proceeding conducted in connection with credit bureau 

reporting, tax refund offset, wage garnishment, or in any other 

administrative proceeding, that the loan is not legally enforceable; and

    (iii) If an objection has been raised by the borrower or another 

party about the legal enforceability of the loan and no determination 

has been made under paragraph (a)(5) (i) or (ii) of this section, the 

Secretary may authorize the payment of a claim under this section under 

conditions the Secretary considers appropriate. If the Secretary 

determines in that or any other case that a claim was paid under this 

section with respect to a loan that was not a legally enforceable 

obligation of the borrower, the recipient of that payment must refund 

that amount of the payment to the Secretary.

    (b) Death. (1) If an individual borrower dies, or the student for 

whom a parent received a PLUS loan dies, the obligation of the borrower 

and any endorser to make any further payments on the loan is discharged.

    (2) A discharge of a loan based on the death of the borrower (or 

student in the case of a PLUS loan) must be based on an original or 

certified copy of the death certificate. Under exceptional circumstances 

and on a case-by-case basis, the chief executive officer of the guaranty 

agency may approve a discharge based upon other reliable documentation 

supporting the discharge request.

    (3) After receiving reliable information indicating that the 

borrower (or student) has died, the lender must suspend any collection 

activity against the borrower and any endorser for up to 60 days and 

promptly request the documentation described in paragraph (b)(2) of this 

section. If additional time is required to obtain the documentation, the 

period of suspension of collection activity may be extended up to an 

additional 60 days. If the lender is not able to obtain an original or 

certified copy of the death certificate or other documentation 

acceptable to the guaranty agency, under the provisions of paragraph 

(b)(2) of this section, during the period of suspension, the lender must 

resume collection activity from the point that it had been discontinued. 

The lender is deemed to have exercised forbearance as to repayment of 

the loan during the period when collection activity was suspended.

    (4) Once the lender has determined under paragraph (b)(2) of this 

section that the borrower (or student) has died, the lender may not 

attempt to collect on the loan from the borrower's estate or from any 

endorser.

    (5) The lender shall return to the sender any payments received from 

the estate or paid on behalf of the borrower after the date of the 

borrower's (or student's) death.

    (6) In the case of a Federal Consolidation Loan that includes a 

Federal PLUS or Direct PLUS loan borrowed for a dependent who has died, 

the obligation of the borrower or any endorser to make any further 

payments on the portion of the outstanding balance of the Consolidation 

Loan attributable to the Federal PLUS or Direct PLUS loan is discharged 

as of the date of the dependent's death.

    (c) Total and permanent disability. (1)(i) If the Secretary has made 

an initial determination that the borrower is totally and permanently 

disabled, as defined in Sec. 682.200(b), the loan is conditionally 

discharged for up to three years from the date that the borrower became 

totally and permanently disabled, as certified by a physician. The 

Secretary suspends collection activity on the loan from the date of the 

initial determination of total and permanent



[[Page 699]]



disability until the end of the conditional period. If the borrower 

satisfies the criteria for a total and permanent disability discharge 

during and at the end of the conditional discharge period, the balance 

of the loan is discharged at the end of the conditional discharge period 

and any payments received after the date the borrower became totally and 

permanently disabled as certified under Sec. 682.402(c)(2), are 

returned to the sender.

    (ii) A borrower satisfies the criteria for a discharge of a loan 

based on a total and permanent disability if, during and at the end of 

the three-year period described in paragraph (c)(1)(i) of this section--

    (A) The borrower's annual earnings from employment do not exceed 100 

percent of the poverty line for a family of two, as determined in 

accordance with the Community Service Block Grant Act; and

    (B) The borrower does not receive a new loan under the Perkins, 

FFEL, or Direct Loan programs, except for a FFEL or Direct Consolidation 

loan that does not include any loans that are in a conditional discharge 

status.

    (iii) Except as provided in paragraph (c)(1)(iv)(A) of this section, 

a borrower is not considered totally and permanently disabled based on a 

condition that existed at the time the loan was made unless the 

borrower's condition substantially deteriorated.

    (iv)(A) For a Consolidation Loan, a borrower is considered totally 

and permanently disabled if he or she would be considered totally and 

permanently disabled under paragraphs (c)(1) (i) through (iii) of this 

section for all of the loans that were included in the Consolidation 

Loan if those loans had not been consolidated.

    (B) For the purposes of discharging a loan under paragraph 

(c)(1)(iv)(A) of this section, provisions in paragraphs (c)(1) (i) 

through (iii) of this section apply to each loan included in the 

Consolidation Loan, even if the loan is not a FFEL Program loan.

    (C) If requested, a borrower seeking to discharge a loan obligation 

under paragraph (c)(1)(iv)(A) of this section must provide the lender 

with the disbursement dates of the underlying loans if the lender does 

not possess that information.

    (2) After being notified by the borrower or the borrower's 

representative that the borrower claims to be totally and permanently 

disabled, the lender promptly requests that the borrower or the 

borrower's representative submit, on a form approved by the Secretary, a 

certification by a physician, who is a doctor of medicine or osteopathy 

and legally authorized to practice in a State, that the borrower is 

totally and permanently disabled as defined in Sec. 682.200(b).

    (3) The lender must continue collection activities until it receives 

either the certification of total and permanent disability from a 

physician or a letter from a physician stating that the certification 

has been requested and that additional time is needed to determine if 

the borrower is totally and permanently disabled. Except as provided in 

paragraph (c)(5) or (c)(7) of this section, after receiving the 

physician's certification or letter the lender may not attempt to 

collect from the borrower or any endorser.

    (4) The lender must submit a disability claim to the guaranty agency 

if the borrower submits a certification by a physician and the lender 

makes a determination that the certification supports the conclusion 

that the borrower meets the criteria for a total and permanent 

disability discharge, as defined in Sec. 682.200(b).

    (5) If the lender determines that a borrower who claims to be 

totally and permanently disabled is not totally and permanently 

disabled, or if the lender does not receive the physician's 

certification of total and permanent disability within 60 days of the 

receipt of the physician's letter requesting additional time, as 

described in paragraph (c)(3) of this section, the lender must resume 

collection and is deemed to have exercised forbearance of payment of 

both principal and interest from the date collection activity was 

suspended. The lender may capitalize, in accordance with Sec. 

682.202(b), any interest accrued and not paid during that period.

    (6) The guaranty agency must pay a claim submitted by the lender if 

the guaranty agency has reviewed the application and determined that it 

is



[[Page 700]]



complete and that it supports the conclusion that the borrower meets the 

criteria for a total and permanent disability discharge, as defined in 

Sec. 682.200(b).

    (7) If the guaranty agency does not pay the disability claim, the 

guaranty agency must return the claim to the lender with an explanation 

of the basis for the agency's denial of the claim. Upon receipt of the 

returned claim, the lender must notify the borrower that the application 

for a disability discharge has been denied, provide the basis for the 

denial, and inform the borrower that the lender will resume collection 

on the loan. The lender is deemed to have exercised forbearance of both 

principal and interest from the date collection activity was suspended 

until the first payment due date. The lender may capitalize, in 

accordance with Sec. 682.202(b), any interest accrued and not paid 

during that period.

    (8) If the guaranty agency pays the disability claim, the lender 

must notify the borrower that the loan will be assigned to the Secretary 

for determination of eligibility for a total and permanent disability 

discharge.

    (9) After receiving a claim payment from the guaranty agency, the 

lender must forward to the guaranty agency any payments subsequently 

received from or on behalf of the borrower.

    (10) The Secretary reimburses the guaranty agency for a disability 

claim paid to the lender after the agency pays the claim to the lender.

    (11) The guaranty agency must assign the loan to the Secretary after 

the guaranty agency pays the disability claim.

    (12) If the Secretary determines that the certification and 

information provided by the borrower do not support the conclusion that 

the borrower meets the criteria for a total and permanent disability 

discharge, the Secretary notifies the borrower that the application for 

a disability discharge has been denied, and that the loan is due and 

payable under the terms of the promissorynote.

    (13) If the Secretary makes an initial determination that the 

borrower is totally and permanently disabled, the Secretary notifies the 

borrower that the loan is conditionally discharged and that the 

conditional discharge period will last for up to three years after the 

date the borrower became totally and permanently disabled as certified 

under Sec. 682.402(c)(2). The notification identifies the conditions of 

the conditional discharge period specified in paragraphs (c)(13) through 

(c)(16) of this section and specifies that all or part of the three-year 

period may predate the Secretary's initial determination.

    (14) During the conditional discharge period, the borrower--

    (i) Is not required to make any payments on the loan;

    (ii) Is not considered delinquent or in default on the loan, unless 

the borrower was delinquent or in default at the time the conditional 

discharge was granted;

    (iii) Must promptly notify the Secretary of any changes in address 

or phone number;

    (iv) Must promptly notify the Secretary if the borrower's annual 

earnings from employment exceed the amount specified in paragraph 

(c)(1)(ii)(A) of this section; and

    (v) Must provide the Secretary, upon request, with additional 

documentation or information related to the borrower's eligibility for 

discharge under this section.

    (15) If, during and at the end of the conditional discharge period, 

the borrower continues to satisfy the eligibility criteria for a total 

and permanent disability discharge, as described in Sec. 

682.402(c)(1)(ii), the balance of the loan is discharged.

    (16) If, at any time during the three-year conditional discharge 

period, the borrower does not continue to meet the eligibility 

requirements for a total and permanent disability discharge, the 

Secretary resumes collection activity on the loan. The Secretary does 

not require the borrower to pay any interest that accrued on the loan 

from the date of the initial determination described in paragraph 

(c)(13) of this section through the end of the conditional discharge 

period.

    (d) Closed school--(1) General. (i) The Secretary reimburses the 

holder of a loan received by a borrower on or after January 1, 1986, and 

discharges the borrower's obligation with respect to the



[[Page 701]]



loan in accordance with the provisions of paragraph (d) of this section, 

if the borrower (or the student for whom a parent received a PLUS loan) 

could not complete the program of study for which the loan was intended 

because the school at which the borrower (or student) was enrolled, 

closed, or the borrower (or student) withdrew from the school not more 

than 90 days prior to the date the school closed. This 90-day period may 

be extended if the Secretary determines that exceptional circumstances 

related to a school's closing would justify an extension.

    (ii) For purposes of the closed school discharge authorized by this 

section--

    (A) A school's closure date is the date that the school ceases to 

provide educational instruction in all programs, as determined by the 

Secretary;

    (B) The term ``borrower'' includes all endorsers on a loan; and

    (C) A ``school'' means a school's main campus or any location or 

branch of the main campus, regardless of whether the school or its 

location or branch is considered eligible.

    (2) Relief available pursuant to discharge. (i) Discharge under 

paragraph (d) of this section relieves the borrower of an existing or 

past obligation to repay the loan and any charges imposed or costs 

incurred by the holder with respect to the loan that the borrower is, or 

was otherwise obligated to pay.

    (ii) A discharge of a loan under paragraph (d) of this section 

qualifies the borrower for reimbursement of amounts paid voluntarily or 

through enforced collection on a loan obligation discharged under 

paragraph (d) of this section.

    (iii) A borrower who has defaulted on a loan discharged under 

paragraph (d) of this section is not regarded as in default on the loan 

after discharge, and is eligible to receive assistance under the Title 

IV, HEA programs.

    (iv) A discharge of a loan under paragraph (d) of this section must 

be reported by the loan holder to all credit reporting agencies to which 

the holder previously reported the status of the loan, so as to delete 

all adverse credit history assigned to the loan.

    (3) Borrower qualification for discharge. Except as provided in 

paragraph (d)(8) of this section, in order to qualify for a discharge of 

a loan under paragraph (d) of this section, a borrower must submit a 

written request and sworn statement to the holder of the loan. The 

statement need not be notarized, but must be made by the borrower under 

the penalty of perjury, and, in the statement, the borrower must state--

    (i) Whether the student has made a claim with respect to the 

school's closing with any third party, such as the holder of a 

performance bond or a tuition recovery program, and if so, the amount of 

any payment received by the borrower (or student) or credited to the 

borrower's loan obligation;

    (ii) That the borrower (or the student for whom a parent received a 

PLUS loan)--

    (A) Received, on or after January 1, 1986, the proceeds of any 

disbursement of a loan disbursed, in whole or in part, on or after 

January 1, 1986 to attend a school;

    (B) Did not complete the educational program at that school because 

the school closed while the student was enrolled or on an approved leave 

of absence in accordance with Sec. 682.605(c), or the student withdrew 

from the school not more than 90 days before the school closed; and

    (C) Did not complete the program of study through a teach-out at 

another school or by transferring academic credits or hours earned at 

the closed school to another school;

    (iii) That the borrower agrees to provide, upon request by the 

Secretary or the Secretary's designee, other documentation reasonably 

available to the borrower that demonstrates, to the satisfaction of the 

Secretary or the Secretary's designee, that the student meets the 

qualifications in paragraph (d) of this section; and

    (iv) That the borrower agrees to cooperate with the Secretary or the 

Secretary's designee in enforcement actions in accordance with paragraph 

(d)(4) of this section, and to transfer any right to recovery against a 

third party in accordance with paragraph (d)(5) of this section.

    (4) Cooperation by borrower in enforcement actions. (i) In any 

judicial or administrative proceeding brought by the Secretary or the 

Secretary's designee



[[Page 702]]



to recover for amounts discharged under paragraph (d) of this section or 

to take other enforcement action with respect to the conduct on which 

those claims were based, a borrower who requests or receives a discharge 

under paragraph (d) of this section must cooperate with the Secretary or 

the Secretary's designee. At the request of the Secretary or the 

Secretary's designee, and upon the Secretary's or the Secretary's 

designee's tendering to the borrower the fees and costs as are 

customarily provided in litigation to reimburse witnesses, the borrower 

shall--

    (A) Provide testimony regarding any representation made by the 

borrower to support a request for discharge; and

    (B) Produce any documentation reasonably available to the borrower 

with respect to those representations and any sworn statement required 

by the Secretary with respect to those representations and documents.

    (ii) The Secretary revokes the discharge, or denies the request for 

discharge, of a borrower who--

    (A) Fails to provide testimony, sworn statements, or documentation 

to support material representations made by the borrower to obtain the 

discharge; or

    (B) Provides testimony, a sworn statement, or documentation that 

does not support the material representations made by the borrower to 

obtain the discharge.

    (5) Transfer to the Secretary of borrower's right of recovery 

against third parties. (i) Upon discharge under paragraph (d) of this 

section, the borrower is deemed to have assigned to and relinquished in 

favor of the Secretary any right to a loan refund (up to the amount 

discharged) that the borrower (or student) may have by contract or 

applicable law with respect to the loan or the enrollment agreement for 

the program for which the loan was received, against the school, its 

principals, affiliates and their successors, its sureties, and any 

private fund, including the portion of a public fund that represents 

funds received from a private party.

    (ii) The provisions of paragraph (d) of this section apply 

notwithstanding any provision of State law that would otherwise restrict 

transfer of such rights by the borrower (or student), limit or prevent a 

transferee from exercising those rights, or establish procedures or a 

scheme of distribution that would prejudice the Secretary's ability to 

recover on those rights.

    (iii) Nothing in this section shall be construed as limiting or 

foreclosing the borrower's (or student's) right to pursue legal and 

equitable relief regarding disputes arising from matters otherwise 

unrelated to the loan discharged.

    (6) Guaranty agency responsibilities--(i) Procedures applicable if a 

school closed on or after January 1, 1986, but prior to June 13, 1994. 

(A) If a borrower received a loan for attendance at a school with a 

closure date on or after January 1, 1986, but prior to June 13, 1994, 

the loan may be discharged in accordance with the procedures specified 

in paragraph (d)(6)(i) of this section.

    (B) If a loan subject to paragraph (d) of this section was 

discharged in part in accordance with the Secretary's ``Closed School 

Policy'' as authorized by section IV of Bulletin 89-G-159, the guaranty 

agency shall initiate the discharge of the remaining balance of the loan 

not later than August 13, 1994.

    (C) A guaranty agency shall review its records and identify all 

schools that appear to have closed on or after January 1, 1986 and prior 

to June 13, 1994, and shall identify the loans made to any borrower (or 

student) who appears to have been enrolled at the school on the school 

closure date or who withdrew not more than 90 days prior to the closure 

date.

    (D) A guaranty agency shall notify the Secretary immediately if it 

determines that a school not previously known to have closed appears to 

have closed, and, within 30 days of making that determination, notify 

all lenders participating in its program to suspend collection efforts 

against individuals with respect to loans made for attendance at the 

closed school, if the student to whom (or on whose behalf) a loan was 

made, appears to have been enrolled at the school on the closing date, 

or withdrew not more than 90 days prior to the date the school appears 

to have closed. Within 30 days after receiving confirmation of the date 

of a school's closure from the Secretary, the agency shall--



[[Page 703]]



    (1) Notify all lenders participating in its program to mail a 

discharge application explaining the procedures and eligibility criteria 

for obtaining a discharge and an explanation of the information that 

must be included in the sworn statement (which may be combined) to all 

borrowers who may be eligible for a closed school discharge; and

    (2) Review the records of loans that it holds, identify the loans 

made to any borrower (or student) who appears to have been enrolled at 

the school on the school closure date or who withdrew not more than 90 

days prior to the closure date, and mail a discharge application and an 

explanation of the information that must be included in the sworn 

statement (which may be combined) to the borrower. The application shall 

inform the borrower of the procedures and eligibility criteria for 

obtaining a discharge.

    (E) If a loan identified under paragraph (d)(6)(i)(D)(2) of this 

section is held by the guaranty agency as a defaulted loan and the 

borrower's current address is known, the guaranty agency shall 

immediately suspend any efforts to collect from the borrower on any loan 

received for the program of study for which the loan was made (but may 

continue to receive borrower payments), and notify the borrower that the 

agency will provide additional information about the procedures for 

requesting a discharge after the agency has received confirmation from 

the Secretary that the school had closed.

    (F) If a loan identified under paragraph (d)(6)(i)(D)(2) of this 

section is held by the guaranty agency as a defaulted loan and the 

borrower's current address is unknown, the agency shall, by June 13, 

1995, further refine the list of borrowers whose loans are potentially 

subject to discharge under paragraph (d) of this section by consulting 

with representatives of the closed school, the school's licensing 

agency, accrediting agency, and other appropriate parties. Upon learning 

the new address of a borrower who would still be considered potentially 

eligible for a discharge, the guaranty agency shall, within 30 days 

after learning the borrower's new address, mail to the borrower a 

discharge application that meets the requirements of paragraph 

(d)(6)(i)(E) of this section.

    (G) If the guaranty agency determines that a borrower identified in 

paragraph (d)(6)(i)(E) or (F) of this section has satisfied all of the 

conditions required for a discharge, the agency shall notify the 

borrower in writing of that determination within 30 days after making 

that determination.

    (H) If the guaranty agency determines that a borrower identified in 

paragraph (d)(6)(i)(E) or (F) of this section does not qualify for a 

discharge, the agency shall notify the borrower in writing of that 

determination and the reasons for it within 30 days after the date the 

agency--

    (1) Made that determination based on information available to the 

guaranty agency;

    (2) Was notified by the Secretary that the school had not closed;

    (3) Was notified by the Secretary that the school had closed on a 

date that was more than 90 days after the borrower (or student) withdrew 

from the school;

    (4) Was notified by the Secretary that the borrower (or student) was 

ineligible for a closed school discharge for other reasons; or

    (5) Received the borrower's completed application and sworn 

statement.

    (I) If a borrower described in paragraph (d)(6)(i)(E) or (F) of this 

section fails to submit the written request and sworn statement 

described in paragraph (d)(3) of this section within 60 days of being 

notified of that option, the guaranty agency shall resume collection and 

shall be deemed to have exercised forbearance of payment of principal 

and interest from the date it suspended collection activity. The agency 

may capitalize, in accordance with Sec. 682.202(b), any interest 

accrued and not paid during that period.

    (J) A borrower's request for discharge may not be denied solely on 

the basis of failing to meet any time limits set by the lender, guaranty 

agency, or the Secretary.

    (ii) Procedures applicable if a school closed on or after June 13, 

1994. (A) A



[[Page 704]]



guaranty agency shall notify the Secretary immediately whenever it 

becomes aware of reliable information indicating a school may have 

closed. The designated guaranty agency in the state in which the school 

is located shall promptly investigate whether the school has closed and, 

within 30 days after receiving information indicating that the school 

may have closed, report the results of its investigation to the 

Secretary concerning the date of the school's closure and whether a 

teach-out of the closed school's program was made available to students.

    (B) If a guaranty agency determines that a school appears to have 

closed, it shall, within 30 days of making that determination, notify 

all lenders participating in its program to suspend collection efforts 

against individuals with respect to loans made for attendance at the 

closed school, if the student to whom (or on whose behalf) a loan was 

made, appears to have been enrolled at the school on the closing date, 

or withdrew not more than 90 days prior to the date the school appears 

to have closed. Within 30 days after receiving confirmation of the date 

of a school's closure from the Secretary, the agency shall--

    (1) Notify all lenders participating in its program to mail a 

discharge application explaining the procedures and eligibility criteria 

for obtaining a discharge and an explanation of the information that 

must be included in the sworn statement (which may be combined) to all 

borrowers who may be eligible for a closed school discharge; and

    (2) Review the records of loans that it holds, identify the loans 

made to any borrower (or student) who appears to have been enrolled at 

the school on the school closure date or who withdrew not more than 90 

days prior to the closure date, and mail a discharge application and an 

explanation of the information that must be included in the sworn 

statement (which may be combined) to the borrower. The application shall 

inform the borrower of the procedures and eligibility criteria for 

obtaining a discharge.

    (C) If a loan identified under paragraph (d)(6)(ii)(B)(2) of this 

section is held by the guaranty agency as a defaulted loan and the 

borrower's current address is known, the guaranty agency shall 

immediately suspend any efforts to collect from the borrower on any loan 

received for the program of study for which the loan was made (but may 

continue to receive borrower payments), and notify the borrower that the 

agency will provide additional information about the procedures for 

requesting a discharge after the agency has received confirmation from 

the Secretary that the school had closed.

    (D) If a loan identified under paragraph (d)(6)(ii)(B)(2) of this 

section is held by the guaranty agency as a defaulted loan and the 

borrower's current address is unknown, the agency shall, within one year 

after identifying the borrower, attempt to locate the borrower and 

further determine the borrower's potential eligibility for a discharge 

under paragraph (d) of this section by consulting with representatives 

of the closed school, the school's licensing agency, accrediting agency, 

and other appropriate parties. Upon learning the new address of a 

borrower who would still be considered potentially eligible for a 

discharge, the guaranty agency shall, within 30 days after learning the 

borrower's new address, mail to the borrower a discharge application 

that meets the requirements of paragraph (d)(6)(ii)(B) of this section.

    (E) If the guaranty agency determines that a borrower identified in 

paragraph (d)(6)(ii)(C) or (D) of this section has satisfied all of the 

conditions required for a discharge, the agency shall notify the 

borrower in writing of that determination within 30 days after making 

that determination.

    (F) If the guaranty agency determines that a borrower identified in 

paragraph (d)(6)(ii)(C) or (D) of this section does not qualify for a 

discharge, the agency shall notify the borrower in writing of that 

determination and the reasons for it within 30 days after the date the 

agency--

    (1) Made that determination based on information available to the 

guaranty agency;

    (2) Was notified by the Secretary that the school had not closed;

    (3) Was notified by the Secretary that the school had closed on a 

date that was more than 90 days after the



[[Page 705]]



borrower (or student) withdrew from the school;

    (4) Was notified by the Secretary that the borrower (or student) was 

ineligible for a closed school discharge for other reasons; or

    (5) Received the borrower's completed application and sworn 

statement.

    (G) Upon receipt of a closed school discharge claim filed by a 

lender, the agency shall review the borrower's request and supporting 

sworn statement in light of information available from the records of 

the agency and from other sources, including other guaranty agencies, 

state authorities, and cognizant accrediting associations, and shall 

take the following actions--

    (1) If the agency determines that the borrower satisfies the 

requirements for discharge under paragraph (d) of this section, it shall 

pay the claim in accordance with Sec. 682.402(h) not later than 90 days 

after the agency received the claim; or

    (2) If the agency determines that the borrower does not qualify for 

a discharge, the agency shall, not later than 90 days after the agency 

received the claim, return the claim to the lender with an explanation 

of the reasons for its determination.

    (H) If a borrower fails to submit the written request and sworn 

statement described in paragraph (d)(3) of this section within 60 days 

of being notified of that option, the lender or guaranty agency shall 

resume collection and shall be deemed to have exercised forbearance of 

payment of principal and interest from the date it suspended collection 

activity. The lender or guaranty agency may capitalize, in accordance 

with Sec. 682.202(b), any interest accrued and not paid during that 

period.

    (I) A borrower's request for discharge may not be denied solely on 

the basis of failing to meet any time limits set by the lender, guaranty 

agency, or the Secretary.

    (7) Lender responsibilities. (i) A lender shall comply with the 

requirements prescribed in paragraph (d) of this section. In the absence 

of specific instructions from a guaranty agency or the Secretary, if a 

lender receives information from a source it believes to be reliable 

indicating that an existing or former borrower may be eligible for a 

loan discharge under paragraph (d) of this section, the lender shall 

immediately notify the guaranty agency, and suspend any efforts to 

collect from the borrower on any loan received for the program of study 

for which the loan was made (but may continue to receive borrower 

payments).

    (ii) If the borrower fails to submit the written request and sworn 

statement described in paragraph (d)(3) of this section within 60 days 

after being notified of that option, the lender shall resume collection 

and shall be deemed to have exercised forbearance of payment of 

principal and interest from the date the lender suspended collection 

activity. The lender may capitalize, in accordance with Sec. 

682.202(b), any interest accrued and not paid during that period.

    (iii) The lender shall file a closed school claim with the guaranty 

agency in accordance with Sec. 682.402(g) no later than 60 days after 

the lender receives the borrower's written request and sworn statement 

described in paragraph (d)(3) of this section. If a lender receives a 

payment made by or on behalf of the borrower on the loan after the 

lender files a claim on the loan with the guaranty agency, the lender 

shall forward the payment to the guaranty agency within 30 days of its 

receipt. The lender shall assist the guaranty agency and the borrower in 

determining whether the borrower is eligible for discharge of the loan.

    (iv) Within 30 days after receiving reimbursement from the guaranty 

agency for a closed school claim, the lender shall notify the borrower 

that the loan obligation has been discharged, and request that all 

credit bureaus to which it previously reported the status of the loan 

delete all adverse credit history assigned to the loan.

    (v) Within 30 days after being notified by the guaranty agency that 

the borrower's request for a closed school discharge has been denied, 

the lender shall resume collection and notify the borrower of the 

reasons for the denial. The lender shall be deemed to have exercised 

forbearance of payment of principal and interest from the date the 

lender suspended collection activity, and may capitalize, in accordance 

with



[[Page 706]]



Sec. 682.202(b), any interest accrued and not paid during that period.

    (8) Discharge without an application. A borrower's obligation to 

repay an FFEL Program loan may be discharged without an application from 

the borrower if the--

    (i) Borrower received a discharge on a loan pursuant to 34 CFR 

674.33(g) under the Federal Perkins Loan Program, or 34 CFR 685.213 

under the William D. Ford Federal Direct Loan Program; or

    (ii) The Secretary or the guaranty agency, with the Secretary's 

permission, determines that the borrower qualifies for a discharge based 

on information in the Secretary or guaranty agency's possession.

    (e) False certification by a school of a student's eligibility to 

borrow and unauthorized disbursements--(1) General. (i) The Secretary 

reimburses the holder of a loan received by a borrower on or after 

January 1, 1986, and discharges a current or former borrower's 

obligation with respect to the loan in accordance with the provisions of 

paragraph (e) of this section, if the borrower's (or the student for 

whom a parent received a PLUS loan) eligibility to receive the loan was 

falsely certified by an eligible school. For purposes of a false 

certification discharge, the term ``borrower'' includes all endorsers on 

a loan. A student's eligibility to borrow shall be considered to have 

been falsely certified by the school if the school--

    (A) Certified the student's eligibility for a FFEL Program loan on 

the basis of ability to benefit from its training and the student did 

not meet the applicable requirements described in 34 CFR part 668 and 

section 484(d) of the Act, as applicable and as described in paragraph 

(e)(13) of this section; or

    (B) Signed the borrower's name without authorization by the borrower 

on the loan application or promissory note.

    (ii) The Secretary discharges the obligation of a borrower with 

respect to a loan disbursement for which the school, without the 

borrower's authorization, endorsed the borrower's loan check or 

authorization for electronic funds transfer, unless the student for whom 

the loan was made received the proceeds of the loan either by actual 

delivery of the loan funds or by a credit in the amount of the contested 

disbursement applied to charges owed to the school for that portion of 

the educational program completed by the student. However, the Secretary 

does not reimburse the lender with respect to any amount disbursed by 

means of a check bearing an unauthorized endorsement unless the school 

also executed the application or promissory note for that loan for the 

named borrower without that individual's consent.

    (2) Relief available pursuant to discharge. (i) Discharge under 

paragraph (e)(1)(i) of this section relieves the borrower of an existing 

or past obligation to repay the loan certified by the school, and any 

charges imposed or costs incurred by the holder with respect to the loan 

that the borrower is, or was, otherwise obligated to pay.

    (ii) A discharge of a loan under paragraph (e) of this section 

qualifies the borrower for reimbursement of amounts paid voluntarily or 

through enforced collection on a loan obligation discharged under 

paragraph (e) of this section.

    (iii) A borrower who has defaulted on a loan discharged under 

paragraph (e) of this section is not regarded as in default on the loan 

after discharge, and is eligible to receive assistance under the Title 

IV, HEA programs.

    (iv) A discharge of a loan under paragraph (e) of this section is 

reported by the loan holder to all credit reporting agencies to which 

the holder previously reported the status of the loan, so as to delete 

all adverse credit history assigned to the loan.

    (v) Discharge under paragraph (e)(1)(ii) of this section qualifies 

the borrower for relief only with respect to the amount of the 

disbursement discharged.

    (3) Borrower qualification for discharge. Except as provided in 

paragraph (e)(14) of this section, to qualify for a discharge of a loan 

under paragraph (e) of this section, the borrower must submit to the 

holder of the loan a written request and a sworn statement. The 

statement need not be notarized, but must be made by the borrower under 

penalty of perjury, and, in the statement, the borrower must--



[[Page 707]]



    (i) State whether the student has made a claim with respect to the 

school's false certification with any third party, such as the holder of 

a performance bond or a tuition recovery program, and if so, the amount 

of any payment received by the borrower (or student) or credited to the 

borrower's loan obligation;

    (ii) In the case of a borrower requesting a discharge based on 

defective testing of the student's ability to benefit, state that the 

borrower (or the student for whom a parent received a PLUS loan)--

    (A) Received, on or after January 1, 1986, the proceeds of any 

disbursement of a loan disbursed, in whole or in part, on or after 

January 1, 1986 to attend a school; and

    (B) Was admitted to that school on the basis of ability to benefit 

from its training and did not meet the applicable requirements for 

admission on the basis of ability to benefit as described in paragraph 

(e)(13) of this section;

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

school signed the borrower's name on the loan application or promissory 

note--

    (A) State that the signature on either of those documents was not 

the signature of the borrower; and

    (B) Provide five different specimens of his or her signature, two of 

which must be not earlier or later than one year before or after the 

date of the contested signature;

    (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;

    (B) Provide five different specimens of his or her signature, two of 

which must be not earlier or later than one year before or after the 

date of the contested signature; and

    (C) State that the proceeds of the contested disbursement were not 

received either through actual delivery of the loan funds or by a credit 

in the amount of the contested disbursement applied to charges owed to 

the school for that portion of the educational program completed by the 

student;

    (v) That the borrower agrees to provide upon request by the 

Secretary or the Secretary's designee, other documentation reasonably 

available to the borrower, that demonstrates, to the satisfaction of the 

Secretary or the Secretary's designee, that the student meets the 

qualifications in paragraph (e) of this section; and

    (vi) That the borrower agrees to cooperate with the Secretary or the 

Secretary's designee in enforcement actions in accordance with paragraph 

(e)(4) of this section, and to transfer any right to recovery against a 

third party in accordance with paragraph (e)(5) of this section.

    (4) Cooperation by borrower in enforcement actions. (i) In any 

judicial or administrative proceeding brought by the Secretary or the 

Secretary's designee to recover for amounts discharged under paragraph 

(e) of this section or to take other enforcement action with respect to 

the conduct on which those claims were based, a borrower who requests or 

receives a discharge under paragraph (e) of this section must cooperate 

with the Secretary or the Secretary's designee. At the request of the 

Secretary or the Secretary's designee, and upon the Secretary's or the 

Secretary's designee's tendering to the borrower the fees and costs as 

are customarily provided in litigation to reimburse witnesses, the 

borrower shall--

    (A) Provide testimony regarding any representation made by the 

borrower to support a request for discharge; and

    (B) Produce any documentation reasonably available to the borrower 

with respect to those representations and any sworn statement required 

by the Secretary with respect to those representations and documents.

    (ii) The Secretary revokes the discharge, or denies the request for 

discharge, of a borrower who--

    (A) Fails to provide testimony, sworn statements, or documentation 

to support material representations made by the borrower to obtain the 

discharge; or

    (B) Provides testimony, a sworn statement, or documentation that 

does



[[Page 708]]



not support the material representations made by the borrower to obtain 

the discharge.

    (5) Transfer to the Secretary of borrower's right of recovery 

against third parties. (i) Upon discharge under paragraph (e) of this 

section, the borrower is deemed to have assigned to and relinquished in 

favor of the Secretary any right to a loan refund (up to the amount 

discharged) that the borrower (or student) may have by contract or 

applicable law with respect to the loan or the enrollment agreement for 

the program for which the loan was received, against the school, its 

principals, affiliates and their successors, its sureties, and any 

private fund, including the portion of a public fund that represents 

funds received from a private party.

    (ii) The provisions of paragraph (e) of this section apply 

notwithstanding any provision of state law that would otherwise restrict 

transfer of such rights by the borrower (or student), limit or prevent a 

transferee from exercising those rights, or establish procedures or a 

scheme of distribution that would prejudice the Secretary's ability to 

recover on those rights.

    (iii) Nothing in this section shall be construed as limiting or 

foreclosing the borrower's (or student's) right to pursue legal and 

equitable relief regarding disputes arising from matters otherwise 

unrelated to the loan discharged.

    (6) Guaranty agency responsibilities--general. (i) A guaranty agency 

shall notify the Secretary immediately whenever it becomes aware of 

reliable information indicating that a school may have falsely certified 

a student's eligibility or caused an unauthorized disbursement of loan 

proceeds, as described in paragraph (e)(3) of this section. The 

designated guaranty agency in the state in which the school is located 

shall promptly investigate whether the school has falsely certified a 

student's eligibility and, within 30 days after receiving information 

indicating that the school may have done so, report the results of its 

preliminary investigation to the Secretary.

    (ii) If the guaranty agency receives information it believes to be 

reliable indicating that a borrower whose loan is held by the agency may 

be eligible for a discharge under paragraph (e) of this section, the 

agency shall immediately suspend any efforts to collect from the 

borrower on any loan received for the program of study for which the 

loan was made (but may continue to receive borrower payments), and 

inform the borrower of the procedures for requesting a discharge.

    (iii) If the borrower fails to submit the written request and sworn 

statement described in paragraph (e)(3) of this section within 60 days 

of being notified of that option, the guaranty agency shall resume 

collection and shall be deemed to have exercised forbearance of payment 

of principal and interest from the date it suspended collection 

activity. The agency may capitalize, in accordance with Sec. 

682.202(b), any interest accrued and not paid during that period.

    (iv) Upon receipt of a discharge claim filed by a lender or a 

request submitted by a borrower with respect to a loan held by the 

guaranty agency, the agency shall have up to 90 days to determine 

whether the discharge should be granted. The agency shall review the 

borrower's request and supporting sworn statement in light of 

information available from the records of the agency and from other 

sources, including other guaranty agencies, state authorities, and 

cognizant accrediting associations.

    (v) A borrower's request for discharge and sworn statement may not 

be denied solely on the basis of failing to meet any time limits set by 

the lender, the Secretary or the guaranty agency.

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

by a lender based on the borrower's assertion that he or she did not 

sign the loan application or the promissory note, or that the school 

failed to test, or improperly tested, the student's ability to benefit. 

(i) The agency shall evaluate the borrower's request and consider 

relevant information it possesses and information available from other 

sources, and follow the procedures described in paragraph (e)(7) of this 

section.

    (ii) If the agency determines that the borrower satisfies the 

requirements for discharge under paragraph (e) of this section, it 

shall, not later than 30 days



[[Page 709]]



after the agency makes that determination, pay the claim in accordance 

with Sec. 682.402(h) and--

    (A) Notify the borrower that his or her liability with respect to 

the amount of the loan has been discharged, and that the lender has been 

informed of the actions required under paragraph (e)(7)(ii)(C) of this 

section;

    (B) Refund to the borrower all amounts paid by the borrower to the 

lender or the agency with respect to the discharged loan amount, 

including any late fees or collection charges imposed by the lender or 

agency related to the discharged loan amount; and

    (C) Notify the lender that the borrower's liability with respect to 

the amount of the loan has been discharged, and that the lender must--

    (1) Immediately terminate any collection efforts against the 

borrower with respect to the discharged loan amount and any charges 

imposed or costs incurred by the lender related to the discharged loan 

amount that the borrower is, or was, otherwise obligated to pay; and

    (2) Within 30 days, report to all credit reporting agencies to which 

the lender previously reported the status of the loan, so as to delete 

all adverse credit history assigned to the loan.

    (iii) If the agency determines that the borrower does not qualify 

for a discharge, it shall, within 30 days after making that 

determination--

    (A) Notify the lender that the borrower's liability on the loan is 

not discharged and that, depending on the borrower's decision under 

paragraph (e)(7)(iii)(B) of this section, the loan shall either be 

returned to the lender or paid as a default claim; and

    (B) Notify the borrower that the borrower does not qualify for 

discharge, and state the reasons for that conclusion. The agency shall 

advise the borrower that he or she remains obligated to repay the loan 

and warn the borrower of the consequences of default, and explain that 

the borrower will be considered to be in default on the loan unless the 

borrower submits a written statement to the agency within 30 days 

stating that the borrower--

    (1) Acknowledges the debt and, if payments are due, will begin or 

resume making those payments to the lender; or

    (2) Requests the Secretary to review the agency's decision.

    (iv) Within 30 days after receiving the borrower's written statement 

described in paragraph (e)(7)(iii)(B)(1) of this section, the agency 

shall return the claim file to the lender and notify the lender to 

resume collection efforts if payments are due.

    (v) Within 30 days after receiving the borrower's request for review 

by the Secretary, the agency shall forward the claim file to the 

Secretary for his review and take the actions required under paragraph 

(e)(11) of this section.

    (vi) The agency shall pay a default claim to the lender within 30 

days after the borrower fails to return either of the written statements 

described in paragraph (e)(7)(iii)(B) of this section.

    (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. (i) The agency 

shall evaluate the borrower's request and consider relevant information 

it possesses and information available from other sources, and follow 

the procedures described in paragraph (e)(8) of this section.

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

she did not endorse the loan check satisfies the requirements for 

discharge under paragraph (e)(3)(iv) of this section, it shall, within 

30 days after making that determination--

    (A) Notify the borrower that his or her liability with respect to 

the amount of the contested disbursement of the loan has been 

discharged, and that the lender has been informed of the actions 

required under paragraph (e)(8)(ii)(B) of this section;

    (B) Notify the lender that the borrower's liability with respect to 

the amount of the contested disbursement of the loan has been 

discharged, and that the lender must--

    (1) Immediately terminate any collection efforts against the 

borrower with respect to the discharged loan amount and any charges 

imposed or costs incurred by the lender related to



[[Page 710]]



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

obligated to pay;

    (2) Within 30 days, report to all credit reporting agencies to which 

the lender previously reported the status of the loan, so as to delete 

all adverse credit history assigned to the loan;

    (3) Refund to the borrower, within 30 days, all amounts paid by the 

borrower with respect to the loan disbursement that was discharged, 

including any charges imposed or costs incurred by the lender related to 

the discharged loan amount; and

    (4) Refund to the Secretary, within 30 days, all interest benefits 

and special allowance payments received from the Secretary with respect 

to the loan disbursement that was discharged; and

    (C) Transfer to the lender the borrower's written assignment of any 

rights the borrower may have against third parties with respect to a 

loan disbursement that was discharged because the borrower did not sign 

the loan 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--

    (A) Notify the borrower that his or her liability with respect to 

the amount of the contested disbursement of the loan has been 

discharged, and that the lender has been informed of the actions 

required under paragraph (e)(8)(iii)(C) of this section;

    (B) Refund to the borrower all amounts paid by the borrower to the 

lender or the agency with respect to the discharged loan amount, 

including any late fees or collection charges imposed by the lender or 

agency related to the discharged loan amount; and

    (C) Notify the lender that the borrower's liability with respect to 

the contested disbursement of the loan has been discharged, and that the 

lender must--

    (1) Immediately terminate any collection efforts against the 

borrower with respect to the discharged loan amount and any charges 

imposed or costs incurred by the lender related to the discharged loan 

amount that the borrower is, or was, otherwise obligated to pay; and

    (2) Within 30 days, report to all credit reporting agencies to which 

the lender previously reported the status of the loan, so as to delete 

all adverse credit history assigned to the loan.

    (iv) If the agency determines that the borrower does not qualify for 

a discharge, it shall, within 30 days after making that determination--

    (A) Notify the lender that the borrower's liability on the loan is 

not discharged and that, depending on the borrower's decision under 

paragraph (e)(8)(iv)(B) of this section, the loan shall either be 

returned to the lender or paid as a default claim; and

    (B) Notify the borrower that the borrower does not qualify for 

discharge, and state the reasons for that conclusion. The agency shall 

advise the borrower that he or she remains obligated to repay the loan 

and warn the borrower of the consequences of default, and explain that 

the borrower will be considered to be in default on the loan unless the 

borrower submits a written statement to the agency within 30 days 

stating that the borrower--

    (1) Acknowledges the debt and, if payments are due, will begin or 

resume making those payments to the lender; or

    (2) Requests the Secretary to review the agency's decision.

    (v) Within 30 days after receiving the borrower's written statement 

described in paragraph (e)(8)(iv)(B)(1) of this section, the agency 

shall return the claim file to the lender and notify the lender to 

resume collection efforts if payments are due.

    (vi) Within 30 days after receiving the borrower's request for 

review by the Secretary, the agency shall forward the claim file to the 

Secretary for his review and take the actions required under paragraph 

(e)(11) of this section.

    (vii) The agency shall pay a default claim to the lender within 30 

days after the borrower fails to return either of the written statements 

described in paragraph (e)(8)(iv)(B) of this section.

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

the agency for which a discharge request is submitted by



[[Page 711]]



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

the loan application or the promissory note, or that the school failed 

to test, or improperly tested, the student's ability to benefit. (i) The 

agency shall evaluate the borrower's request and consider relevant 

information it possesses and information available from other sources, 

and follow the procedures described in paragraph (e)(9) of this section.

    (ii) If the agency determines that the borrower satisfies the 

requirements for discharge under paragraph (e)(3) of this section, 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, not later than 

30 days after the agency makes the determination that the borrower 

satisfies the requirements for discharge--

    (A) Notify the borrower that his or her liability with respect to 

the amount of the loan has been discharged;

    (B) Report to all credit reporting agencies to which the agency 

previously reported the status of the loan, so as to delete all adverse 

credit history assigned to the loan; and

    (C) Refund to the borrower all amounts paid by the borrower to the 

lender or the agency with respect to the discharged loan amount, 

including any late fees or collection charges imposed by the lender or 

agency related to the discharged loan amount.

    (iii) If the agency determines that the borrower does not qualify 

for a discharge, it shall, within 30 days after making that 

determination, notify the borrower that the borrower's liability with 

respect to the amount of the loan is not discharged, state the reasons 

for that conclusion, and if the borrower is not then making payments in 

accordance with a repayment arrangement with the agency on the loan, 

advise the borrower of the consequences of continued failure to reach 

such an arrangement, and that collection action will resume on the loan 

unless within 30 days the borrower--

    (A) Acknowledges the debt and, if payments are due, reaches a 

satisfactory arrangement to repay the loan or resumes making payments 

under such an arrangement to the agency; or

    (B) Requests the Secretary to review the agency's decision.

    (iv) Within 30 days after receiving the borrower's request for 

review by the Secretary, the agency shall forward the borrower's 

discharge request and all relevant documentation to the Secretary for 

his review and take the actions required under paragraph (e)(11) of this 

section.

    (v) The agency shall resume collection action if within 30 days of 

giving notice of its determination the borrower fails to seek review by 

the Secretary or agree to repay the loan.

    (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. (i) The agency shall evaluate 

the borrower's request and consider relevant information it possesses 

and information available from other sources, and follow the procedures 

described in paragraph (e)(10) of this section.

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

she did not endorse the loan check satisfies the requirements for 

discharge under paragraph (e)(3)(iv) of this section, it shall refund to 

the Secretary the amount of reinsurance payment received with respect to 

the amount discharged on that loan less any repayments made by the 

lender under paragraph (e)(10)(ii)(D)(2) of this section, and within 30 

days after making that determination--

    (A) Notify the borrower that his or her liability with respect to 

the amount of the contested disbursement of the loan has been 

discharged;

    (B) Report to all credit reporting agencies to which the agency 

previously reported the status of the loan, so as to delete all adverse 

credit history assigned to the loan;

    (C) Refund to the borrower all amounts paid by the borrower to the 

lender or the agency with respect to the discharged loan amount, 

including



[[Page 712]]



any late fees or collection charges imposed by the lender or agency 

related to the discharged loan amount;

    (D) Notify the lender to whom a claim payment was made that the 

lender must refund to the Secretary, within 30 days--

    (1) All interest benefits and special allowance payments received 

from the Secretary with respect to the loan disbursement that was 

discharged; and

    (2) The amount of the borrower's payments that were refunded to the 

borrower by the guaranty agency under paragraph (e)(10)(ii)(C) of this 

section that represent borrower payments previously paid to the lender 

with respect to the loan disbursement that was discharged;

    (E) Notify the lender to whom a claim payment was made that the 

lender must, within 30 days, reimburse the agency for the amount of the 

loan that was discharged, minus the amount of borrower payments made to 

the lender that were refunded to the borrower by the guaranty agency 

under paragraph (e)(10)(ii)(C) of this section; and

    (F) Transfer to the lender the borrower's written assignment of any 

rights the borrower may have against third parties with respect to the 

loan disbursement that was discharged.

    (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--

    (A) Notify the borrower that his or her liability with respect to 

the amount of the contested disbursement of the loan has been 

discharged;

    (B) Refund to the borrower all amounts paid by the borrower to the 

lender or the agency with respect to the discharged loan amount, 

including any late fees or collection charges imposed by the lender or 

agency related to the discharged loan amount; and

    (C) Report to all credit reporting agencies to which the lender 

previously reported the status of the loan, so as to delete all adverse 

credit history assigned to the loan.

    (iv) The agency shall take the actions required under paragraphs 

(e)(9) (iii) through (v) if the agency determines that the borrower does 

not qualify for a discharge.

    (11) Guaranty agency responsibilities if a borrower requests a 

review by the Secretary. (i) Within 30 days after receiving the 

borrower's request for review under paragraph (e)(7)(iii)(B)(2), 

(e)(8)(iv)(B)(2), (e)(9)(iii)(B), or (e)(10)(iv) of this section, the 

agency shall forward the borrower's discharge request and all relevant 

documentation to the Secretary for his review.

    (ii) The Secretary notifies the agency and the borrower of a 

determination on review. If the Secretary determines that the borrower 

is not eligible for a discharge under paragraph (e) of this section, 

within 30 days after being so informed, the agency shall take the 

actions described in paragraphs (e)(8) (iv) through (vii) or (e)(9)(iii) 

through (v) of this section, as applicable.

    (iii) If the Secretary determines that the borrower meets the 

requirements for a discharge under paragraph (e) of this section, the 

agency shall, within 30 days after being so informed, take the actions 

required under paragraph (e)(7)(ii), (e)(8)(ii), (e)(8)(iii), 

(e)(9)(ii), (e)(10)(ii), or (e)(10)(iii) of this section, as applicable.

    (12) Lender Responsibilities. (i) If the lender is notified by a 

guaranty agency or the Secretary, or receives information it believes to 

be reliable from another source indicating that a current or former 

borrower may be eligible for a discharge under paragraph (e) of this 

section, the lender shall immediately suspend any efforts to collect 

from the borrower on any loan received for the program of study for 

which the loan was made (but may continue to receive borrower payments) 

and, within 30 days of receiving the information or notification, inform 

the borrower of the procedures for requesting a discharge.

    (ii) If the borrower fails to submit the written request and sworn 

statement described in paragraph (e)(3) of



[[Page 713]]



this section within 60 days of being notified of that option, the lender 

shall resume collection and shall be deemed to have exercised 

forbearance of payment of principal and interest from the date the 

lender suspended collection activity. The lender may capitalize, in 

accordance with Sec. 682.202(b), any interest accrued and not paid 

during that period.

    (iii) The lender shall file a claim with the guaranty agency in 

accordance with Sec. 682.402(g) no later than 60 days after the lender 

receives the borrower's written request and sworn statement described in 

paragraph (e)(3) of this section. If a lender receives a payment made by 

or on behalf of the borrower on the loan after the lender files a claim 

on the loan with the guaranty agency, the lender shall forward the 

payment to the guaranty agency within 30 days of its receipt. The lender 

shall assist the guaranty agency and the borrower in determining whether 

the borrower is eligible for discharge of the loan.

    (iv) The lender shall comply with all instructions received from the 

Secretary or a guaranty agency with respect to loan discharges under 

paragraph (e) of this section.

    (v) The lender shall review a claim that the borrower did not 

endorse and did not receive the proceeds of a loan check. The lender 

shall take the actions required under paragraphs (e)(8)(ii)(A) and (B) 

of this section if it determines that the borrower did not endorse the 

loan check, unless the lender secures persuasive evidence that the 

proceeds of the loan were received by the borrower or the student for 

whom the loan was made, as provided in paragraph (e)(1)(ii). If the 

lender determines that the loan check was properly endorsed or the 

proceeds were received by the borrower or student, the lender may 

consider the borrower's objection to repayment as a statement of 

intention not to repay the loan, and may file a claim with the guaranty 

agency for reimbursement on that ground, but shall not report the loan 

to credit bureaus as in default until the guaranty agency, or, as 

applicable, the Secretary, reviews the claim for relief. By filing such 

a claim, the lender shall be deemed to have agreed to the following--

    (A) If the guarantor or the Secretary determines that the borrower 

endorsed the loan check or the proceeds of the loan were received by the 

borrower or the student, any failure to satisfy due diligence 

requirements by the lender prior to the filing of the claim that would 

have resulted in the loss of reinsurance on the loan in the event of 

default will be waived by the Secretary; and

    (B) If the guarantor or the Secretary determines that the borrower 

did not endorse the loan check and that the proceeds of the loan were 

not received by the borrower or the student, the lender will comply with 

the requirements specified in paragraph (e)(8)(ii)(B) of this section.

    (vi) Within 30 days after being notified by the guaranty agency that 

the borrower's request for a discharge has been denied, the lender shall 

notify the borrower of the reasons for the denial and, if payments are 

due, resume collection against the borrower. The lender shall be deemed 

to have exercised forbearance of payment of principal and interest from 

the date the lender suspended collection activity, and may capitalize, 

in accordance with Sec. 682.202(b), any interest accrued and not paid 

during that period.

    (13) Requirements for certifying a borrower's eligibility for a 

loan. (i) For periods of enrollment beginning between July 1, 1987 and 

June 30, 1991, a student who had a general education diploma or received 

one before the scheduled completion of the program of instruction is 

deemed to have the ability to benefit from the training offered by the 

school.

    (ii) A student not described in paragraph (e)(13)(i) of this section 

is considered to have the ability to benefit from training offered by 

the school if the student--

    (A) For periods of enrollment beginning prior to July 1, 1987, was 

determined to have the ability to benefit from the school's training in 

accordance with the requirements of 34 CFR 668.6, as in existence at the 

time the determination was made;

    (B) For periods of enrollment beginning between July 1, 1987 and 

June 30,



[[Page 714]]



1996, achieved a passing grade on a test--

    (1) Approved by the Secretary, for periods of enrollment beginning 

on or after July 1, 1991, or by the accrediting agency for other 

periods; and

    (2) Administered substantially in accordance with the requirements 

for use of the test;

    (C) Successfully completed a program of developmental or remedial 

education provided by the school; or

    (D) For periods of enrollment beginning on or after July 1, 1996 

through June 30, 2000--

    (1) Obtained, within 12 months before the date the student initially 

receives title IV, HEA program assistance, a passing score specified by 

the Secretary on an independently administered test in accordance with 

subpart J of 34 CFR part 668; or

    (2) Enrolled in an eligible institution that participates in a State 

process approved by the Secretary under subpart J of 34 CFR part 668.

    (E) For periods of enrollment beginning on or after July 1, 2000--

    (1) Met either of the conditions described in paragraph 

(e)(13)(ii)(D) of this section; or

    (2) Was home schooled and met the requirements of 34 CFR 

668.32(e)(4).

    (iii) Notwithstanding paragraphs (e)(13)(i) and (ii) of this 

section, a student did not have the ability to benefit from training 

offered by the school if--

    (A) The school certified the eligibility of the student for a FFEL 

Program loan; and

    (B) At the time of certification, the student would not meet the 

requirements for employment (in the student's State of residence) in the 

occupation for which the training program supported by the loan was 

intended because of a physical or mental condition, age, or criminal 

record or other reason accepted by the Secretary.

    (iv) Notwithstanding paragraphs (e)(13)(i) and (ii) of this section, 

a student has the ability to benefit from the training offered by the 

school if the student received a high school diploma or its recognized 

equivalent prior to enrollment at the school.

    (14) Discharge without an application. A borrower's obligation to 

repay all or a portion of an FFEL Program loan may be discharged without 

an application from the borrower if the Secretary, or the guaranty 

agency with the Secretary's permission, determines that the borrower 

qualifies for a discharge based on information in the Secretary or 

guaranty agency's possession.

    (f) Bankruptcy--(1) General. If a borrower files a petition for 

relief under the Bankruptcy Code, the Secretary reimburses the holder of 

the loan for unpaid principal and interest on the loan in accordance 

with paragraphs (h) through (k) of this section.

    (2) Suspension of collection activity. (i) If the lender is notified 

that a borrower has filed a petition for relief in bankruptcy, the 

lender must immediately suspend any collection efforts outside the 

bankruptcy proceeding against the borrower and--

    (A) Must suspend any collection efforts against any co-maker or 

endorser if the borrower has filed for relief under Chapters 12 or 13 of 

the Bankruptcy Code; or

    (B) May suspend any collection efforts against any co-maker or 

endorser if the borrower has filed for relief under Chapters 7 or 11 of 

the Bankruptcy Code.

    (ii) If the lender is notified that a co-maker or endorser has filed 

a petition for relief in bankruptcy, the lender must immediately suspend 

any collection efforts outside the bankruptcy proceeding against the co-

maker or endorser and--

    (A) Must suspend collection efforts against the borrower and any 

other parties to the note if the co-maker or endorser has filed for 

relief under Chapters 12 or 13 of the Bankruptcy Code; or

    (B) May suspend any collection efforts against the borrower and any 

other parties to the note if the co-maker or endorser has filed for 

relief under Chapters 7 or 11 of the Bankruptcy Code.

    (3) Determination of filing. The lender must determine that a 

borrower has filed a petition for relief in bankruptcy on the basis of 

receiving a notice of the first meeting of creditors or other proof of 

filing provided by the debtor's attorney or the bankruptcy court.



[[Page 715]]



    (4) Proof of claim. (i) Except as provided in paragraph (f)(4)(ii) 

of this section, the holder of the loan shall file a proof of claim with 

the bankruptcy court within--

    (A) 30 days after the holder receives a notice of first meeting of 

creditors unless, in the case of a proceeding under chapter 7, the 

notice states that the borrower has no assets; or

    (B) 30 days after the holder receives a notice from the court 

stating that a chapter 7 no-asset case has been converted to an asset 

case.

    (ii) A guaranty agency that is a state guaranty agency, and on that 

basis may assert immunity from suit in bankruptcy court, and that does 

not assign any loans affected by a bankruptcy filing to another guaranty 

agency--

    (A) Is not required to file a proof of claim on a loan already held 

by the guaranty agency; and

    (B) May direct lenders not to file proofs of claim on loans 

guaranteed by that agency.

    (5) Filing of bankruptcy claim with the guaranty agency. (i) The 

lender shall file a bankruptcy claim on the loan with the guaranty 

agency in accordance with paragraph (g) of this section, if--

    (A) The borrower has filed a petition for relief under chapters 12 

or 13 of the Bankruptcy Code; or

    (B) The borrower has filed a petition for relief under chapters 7 or 

11 of the Bankruptcy Code before October 8, 1998 and the loan has been 

in repayment for more than seven years (exclusive of any applicable 

suspension of the repayment period) from the due date of the first 

payment until the date of the filing of the petition for relief; or

    (C) The borrower has begun an action to have the loan obligation 

determined to be dischargeable on grounds of undue hardship.

    (ii) In cases not described in paragraph (f)(5)(i) of this section, 

the lender shall continue to hold the loan notwithstanding the 

bankruptcy proceeding. Once the bankruptcy proceeding is completed or 

dismissed, the lender shall treat the loan as if the lender had 

exercised forbearance as to repayment of principal and interest accrued 

from the date of the borrower's filing of the bankruptcy petition until 

the date the lender is notified that the bankruptcy proceeding is 

completed or dismissed.

    (g) Claim procedures for a loan held by a lender--(1) Documentation. 

A lender shall provide the guaranty agency with the following 

documentation when filing a death, disability, closed school, false 

certification, or bankruptcy claim:

    (i) The original or a true and exact copy of the promissory note.

    (ii) The loan application, if a separate loan application was 

provided to the lender.

    (iii) In the case of a death claim, an original or certified death 

certificate, or other documentation supporting the discharge request 

that formed the basis for the determination of death.

    (iv) In the case of a disability claim, a copy of the certification 

of disability described in paragraph (c)(2) of this section.

    (v) In the case of a bankruptcy claim--

    (A) Evidence that a bankruptcy petition has been filed, all 

pertinent documents sent to or received from the bankruptcy court by the 

lender, and an assignment to the guaranty agency of any proof of claim 

filed by the lender regarding the loan; and

    (B) A statement of any facts of which the lender is aware that may 

form the basis for an objection or exception to the discharge of the 

borrower's loan obligation in bankruptcy and all documents supporting 

those facts.

    (vi) In the case of a closed school claim, the documentation 

described in paragraph (d)(3) of this section, or any other 

documentation as the Secretary may require;

    (vii) In the case of a false certification claim, the documentation 

described in paragraph (e)(3) of this section.

    (2) Filing deadlines. A lender shall file a death, disability, 

closed school, false certification, or bankruptcy claim within the 

following periods:

    (i) Within 60 days of the date on which the lender determines that a 

borrower (or the student on whose behalf a parent obtained a PLUS loan) 

has died, or the lender determines that



[[Page 716]]



the borrower is totally and permanently disabled.

    (ii) In the case of a closed school claim, the lender shall file a 

claim with the guaranty agency no later than 60 days after the borrower 

submits to the lender the written request and sworn statement described 

in paragraph (d)(3) of this section or after the lender is notified by 

the Secretary or the Secretary's designee or by the guaranty agency to 

do so.

    (iii) In the case of a false certification claim, the lender shall 

file a claim with the guaranty agency no later than 60 days after the 

borrower submits to the lender the written request and sworn statement 

described in paragraph (e)(3) of this section or after the lender is 

notified by the Secretary or the Secretary's designee or by the guaranty 

agency to do so.

    (iv) A lender shall file a bankruptcy claim with the guaranty agency 

by the earlier of--

    (A) 30 days after the date on which the lender receives notice of 

the first meeting of creditors or other information described in 

paragraph (f)(3) of this section; or

    (B) 15 days after the lender is served with a complaint or motion to 

have the loan determined to be dischargeable on grounds of undue 

hardship, or, if the lender secures an extension of time within which an 

answer may be filed, 25 days before the expiration of that extended 

period, whichever is later.

    (h) Payment of death, disability, closed school, false 

certification, and bankruptcy claims by the guaranty agency--(1) 

General. (i) The guaranty agency shall review a death, disability, 

bankruptcy, closed school, or false certification claim promptly and 

shall pay the lender on an approved claim the amount of loss in 

accordance with paragraphs (h)(2) and (h)(3) of this section--

    (A) Not later than 45 days after the claim was filed by the lender 

for death and bankruptcy claims; and

    (B) Not later than 90 days after the claim was filed by the lender 

for disability, closed school, or false certification claims.

    (ii) In the case of a bankruptcy claim, the guaranty agency shall, 

upon receipt of the claim from the lender, immediately take those 

actions required under paragraph (i) of this section to oppose the 

discharge of the loan by the bankruptcy court.

    (iii) In the case of a closed school claim or a false certification 

claim based on the determination that the borrower did not sign the loan 

application, the promissory note, or the authorization for the 

electronic transfer of loan funds, or that the school failed to test, or 

improperly tested, the student's ability to benefit, the guaranty agency 

shall document its determination that the borrower is eligible for 

discharge under paragraphs (d) or (e) of this section and pay the 

borrower or the holder the amount determined under paragraph (h)(2) of 

this section.

    (iv) In reviewing a claim under this section, the issue of 

confirmation of subsequent loans under an MPN will not be reviewed and a 

claim will not be denied based on the absence of any evidence relating 

to confirmation in a particular loan file. However, if a court rules 

that a loan is unenforceable solely because of the lack of evidence of 

the confirmation process or processes, insurance benefits must be 

repaid.

    (2)(i) The amount of loss payable--

    (A) On a death or disability claim is equal to the sum of the 

remaining principal balance and interest accrued on the loan, collection 

costs incurred by the lender and applied to the borrower's account 

within 30 days of the date those costs were actually incurred, and 

unpaid interest up to the date the lender should have filed the claim.

    (B) On a bankruptcy claim is equal to the unpaid balance of 

principal and interest determined in accordance with paragraph (h)(3) of 

this section.

    (ii) The amount of loss payable to a lender on a closed school claim 

or on a false certification claim is equal to the sum of the remaining 

principal balance and interest accrued on the loan, collection costs 

incurred by the lender and applied to the borrower's account within 30 

days of the date those costs were actually incurred, and unpaid interest 

determined in accordance with paragraph (h)(3) of this section.

    (iii) In the case of a closed school or false certification claim 

filed by a lender on an outstanding loan owed by the borrower, on the 

same date that the



[[Page 717]]



agency pays a claim to the lender, the agency shall pay the borrower an 

amount equal to the amount paid on the loan by or on behalf of the 

borrower, less any school tuition refunds or payments received by the 

holder or the borrower from a tuition recovery fund, performance bond, 

or other third-party source.

    (iv) In the case of a claim filed by a lender based on a request 

received from a borrower whose loan had been repaid in full by, or on 

behalf of the borrower to the lender, on the same date that the agency 

notifies the lender that the borrower is eligible for a closed school or 

false certification discharge, the agency shall pay the borrower an 

amount equal to the amount paid on the loan by or on behalf of the 

borrower, less any school tuition refunds or payments received by the 

holder or the borrower from a tuition recovery fund, performance bond, 

or other third-party source.

    (v) In the case of a loan that has been included in a Consolidation 

Loan, the agency shall pay to the holder of the borrower's Consolidation 

Loan, an amount equal to--

    (A) The amount paid on the loan by or on behalf of the borrower at 

the time the loan was paid through consolidation;

    (B) The amount paid by the consolidating lender to the holder of the 

loan when it was repaid through consolidation; minus

    (C) Any school tuition refunds or payments received by the holder or 

the borrower from a tuition recovery fund, performance bond, or other 

third-party source if those refunds or payments were--

    (1) Received by the borrower or received by the holder and applied 

to the borrower's loan balance before the date the loan was repaid 

through consolidation; or

    (2) Received by the borrower or received by the Consolidation Loan 

holder on or after the date the consolidating lender made a payment to 

the former holder to discharge the borrower's obligation to that former 

holder.

    (3) Payment of interest. If the guarantee covers unpaid interest, 

the amount payable on an approved claim includes the unpaid interest 

that accrues during the following periods:

    (i) During the period before the claim is filed, not to exceed the 

period provided for in paragraph (g)(2) of this section for filing the 

claim.

    (ii) During a period not to exceed 30 days following the receipt 

date by the lender of a claim returned by the guaranty agency for 

additional documentation necessary for the claim to be approved by the 

guaranty agency.

    (iii) During the period required by the guaranty agency to approve 

the claim and to authorize payment or to return the claim to the lender 

for additional documentation not to exceed--

    (A) 45 days for death or bankruptcy claims; or

    (B) 90 days for disability, closed school, or false certification 

claims.

    (i) Guaranty agency participation in bankruptcy proceedings--(1) 

Undue hardship claims. (i) In response to a petition filed prior to 

October 8, 1998 with regard to any bankruptcy proceeding by the borrower 

for discharge under 11 U.S.C. 523(a)(8) on the grounds of undue 

hardship, the guaranty agency must, on the basis of reasonably available 

information, determine whether the first payment on the loan was due 

more than 7 years (exclusive of any applicable suspension of the 

repayment period) before the filing of that petition and, if so, process 

the claim.

    (ii) In all other cases, the guaranty agency must determine whether 

repayment under either the current repayment schedule or any adjusted 

schedule authorized under this part would impose an undue hardship on 

the borrower and his or her dependents.

    (iii) If the guaranty agency determines that repayment would not 

constitute an undue hardship, the guaranty agency must then determine 

whether the expected costs of opposing the discharge petition would 

exceed one-third of the total amount owed on the loan, including 

principal, interest, late charges, and collection costs. If the guaranty 

agency has determined that the expected costs of opposing the discharge 

petition will exceed one-third of the total amount of the loan, it may, 

but is not required to, engage in the activities described in paragraph 

(i)(1)(iv) of this section.



[[Page 718]]



    (iv) The guaranty agency must use diligence and may assert any 

defense consistent with its status under applicable law to avoid 

discharge of the loan. Unless discharge would be more effectively 

opposed by not taking the following actions, the agency must--

    (A) Oppose the borrower's petition for a determination of 

dischargeability; and

    (B) If the borrower is in default on the loan, seek a judgment for 

the amount owed on the loan.

    (v) In opposing a petition for a determination of dischargeability 

on the grounds of undue hardship, a guaranty agency may agree to 

discharge of a portion of the amount owed on a loan if it reasonably 

determines that the agreement is necessary in order to obtain a judgment 

on the remainder of the loan.

    (2) Response by a guaranty agency to plans proposed under Chapters 

11, 12, and 13. The guaranty agency shall take the following actions 

when a petition for relief in bankruptcy under Chapters 11, 12, or 13 is 

filed:

    (i) The agency is not required to respond to a proposed plan that--

    (A) Provides for repayment of the full outstanding balance of the 

loan;

    (B) Makes no provision with regard to the loan or to general 

unsecured claims.

    (ii) In any other case, the agency shall determine, based on a 

review of its own records and documents filed by the debtor in the 

bankruptcy proceeding--

    (A) What part of the loan obligation will be discharged under the 

plan as proposed;

    (B) Whether the plan itself or the classification of the loan under 

the plan meets the requirements of 11 U.S.C. 1129, 1225, or 1325, as 

applicable; and

    (C) Whether grounds exist under 11 U.S.C. 1112, 1208, or 1307, as 

applicable, to move for conversion or dismissal of the case.

    (iii) If the agency determines that grounds exist to challenge the 

proposed plan, the agency shall, as appropriate, object to the plan or 

move to dismiss the case, if--

    (A) The costs of litigation of these actions are not reasonably 

expected to exceed one-third of the amount of the loan to be discharged 

under the plan; and

    (B) With respect to an objection under 11 U.S.C. 1325, the 

additional amount that may be recovered under the plan if an objection 

is successful can reasonably be expected to equal or exceed the cost of 

litigating the objection.

    (iv) The agency shall monitor the debtor's performance under a 

confirmed plan. If the debtor fails to make payments required under the 

plan or seeks but does not demonstrate entitlement to discharge under 11 

U.S.C. 1328(b), the agency shall oppose any requested discharge or move 

to dismiss the case if the costs of litigation together with the costs 

incurred for objections to the plan are not reasonably expected to 

exceed one-third of the amount of the loan to be discharged under the 

plan.

    (j) Mandatory purchase by a lender of a loan subject to a bankruptcy 

claim. (1) The lender shall repurchase from the guaranty agency a loan 

held by the agency pursuant to a bankruptcy claim paid to that lender, 

unless the guaranty agency sells the loan to another lender, promptly 

after the earliest of the following events:

    (i) The entry of an order denying or revoking discharge or 

dismissing a proceeding under any chapter.

    (ii) A ruling in a proceeding under chapter 7 or 11 that the loan is 

not dischargeable under 11 U.S.C. 523(a)(8) or other applicable law.

    (iii) The entry of an order granting discharge under chapter 12 or 

13, or confirming a plan of arrangement under chapter 11, unless the 

court determined that the loan is dischargeable under 11 U.S.C. 

523(a)(8) on grounds of undue hardship.

    (2) The lender may capitalize all outstanding interest accrued on a 

loan purchased under paragraph (j) of this section to cover any periods 

of delinquency prior to the bankruptcy action through the date the 

lender purchases the loan and receives the supporting loan documentation 

from the guaranty agency.

    (k) Claims for reimbursement from the Secretary on loans held by 

guarantee



[[Page 719]]



agencies. (1)(i) The Secretary reimburses the guaranty agency for its 

losses on bankruptcy claims paid to lenders after--

    (A) A determination by the court that the loan is dischargeable 

under 11 U.S.C. 523(a)(8) with respect to a proceeding initiated under 

chapter 7 or chapter 11; or

    (B) With respect to any other loan, after the agency pays the claim 

to the lender.

    (ii) The guaranty agency shall refund to the Secretary the full 

amount of reimbursement received from the Secretary on a loan that a 

lender repurchases under this section.

    (2) The Secretary pays a death, disability, bankruptcy, closed 

school, or false certification claim in an amount determined under Sec. 

682.402(k)(5) on a loan held by a guaranty agency after the agency has 

paid a default claim to the lender thereon and received payment under 

its reinsurance agreement. The Secretary reimburses the guaranty agency 

only if--

    (i) The guaranty agency determines that the borrower (or the student 

for whom a parent obtained a PLUS loan or each of the co-makers of a 

PLUS loan) has died, or the borrower (or each of the co-makers of a PLUS 

loan) has become totally and permanently disabled since applying for the 

loan, or has filed for relief in bankruptcy, in accordance with the 

procedures in paragraphs (b), (c), or (f) of this section, or the 

student was unable to complete an educational program because the school 

closed, or the borrower's eligibility to borrow (or the student's 

eligibility in the case of a PLUS loan) was falsely certified by an 

eligible school. For purposes of this paragraph, references to the 

``lender'' and ``guaranty agency'' in paragraphs (b) through (f) of this 

section mean the guaranty agency and the Secretary respectively;

    (ii) In the case of a Stafford, SLS, or PLUS loan, the guaranty 

agency determines that the borrower (or the student for whom a parent 

obtained a PLUS loan, or each of the co-makers of a PLUS loan) has died, 

or the borrower (or each of the co-makers of a PLUS loan) has become 

totally and permanently disabled since applying for the loan, or has 

filed the petition for relief in bankruptcy within 10 years of the date 

the borrower entered repayment, exclusive of periods of deferment or 

periods of forbearance granted by the lender that extended the 10-year 

maximum repayment period, or the borrower (or the student for whom a 

parent received a PLUS loan) was unable to complete an educational 

program because the school closed, or the borrower's eligibility to 

borrow (or the student's eligibility in the case of a PLUS loan) was 

falsely certified by an eligible school;

    (iii) In the case of a Consolidation loan, the borrower (or one of 

the co-makers) has died, is determined to be totally and permanently 

disabled under Sec. 682.402(c), or has filed the petition for relief in 

bankruptcy within the maximum repayment period described in Sec. 

682.209(h)(2), exclusive of periods of deferment or periods of 

forbearance granted by the lender that extended the maximum repayment 

period;

    (iv) The guaranty agency has not written off the loan in accordance 

with the procedures established by the agency under Sec. 

682.410(b)(6)(x), except for closed school and false certification 

discharges; and

    (v) The guaranty agency has exercised due diligence in the 

collection of the loan in accordance with the procedures established by 

the agency under Sec. 682.410(b)(6)(x), until the borrower (or the 

student for whom a parent obtained a PLUS loan, or each of the co-makers 

of a PLUS loan) has died, or the borrower (or each of the co-makers of a 

PLUS loan) has become totally and permanently disabled or filed a 

Chapter 12 or Chapter 13 petition, or had the loan discharged in 

bankruptcy, or for closed school and false certification claims, the 

guaranty agency receives a request for discharge from the borrower or 

another party.

    (3) [Reserved]

    (4) Within 30 days of receiving reimbursement for a closed school or 

false certification claim, the guaranty agency shall pay--

    (i) The borrower an amount equal to the amount paid on the loan by 

or on behalf of the borrower, less any school tuition refunds or 

payments received by the holder, guaranty agency, or the borrower from a 

tuition recovery fund,



[[Page 720]]



performance bond, or other third-party source; or

    (ii) The amount determined under paragraph (h)(2)(iv) of this 

section to the holder of the borrower's Consolidation Loan.

    (5) The Secretary pays the guaranty agency a percentage of the 

outstanding principal and interest that is equal to the complement of 

the reinsurance percentage paid on the loan. This interest includes 

interest that accrues during--

    (i) For death or bankruptcy claims, the shorter of 60 days or the 

period from the date the guaranty agency determines that the borrower 

(or the student for whom a parent obtained a PLUS loan, or each of the 

co-makers of a PLUS loan) died, or filed a petition for relief in 

bankruptcy until the Secretary authorizes payment;

    (ii) For disability claims, the shorter of 60 days or the period 

from the date the guaranty agency makes a preliminary determination that 

the borrower became totally and permanently disabled until the Secretary 

authorizes payment; or

    (iii) For closed school or false certification claims, the period 

from the date on which the guaranty agency received payment from the 

Secretary on a default claim to the date on which the Secretary 

authorizes payment of the closed school or false certification claim.

    (l) Unpaid refund discharge. (1) Unpaid refunds in closed school 

situations. In the case of a school that has closed, the Secretary 

reimburses the guarantor of a loan and discharges a former or current 

borrower's (and any endorser's) obligation to repay that portion of an 

FFEL Program loan (disbursed, in whole or in part on or after January 1, 

1986) equal to the refund that should have been made by the school under 

applicable Federal law and regulations, including this section. Any 

accrued interest and other charges (late charges, collection costs, 

origination fees, and insurance premiums) associated with the unpaid 

refund are also discharged.

    (2) Unpaid refunds in open school situations. In the case of a 

school that is open, the guarantor discharges a former or current 

borrower's (and any endorser's) obligation to repay that portion of an 

FFEL loan (disbursed, in whole or in part, on or after January 1, 1986) 

equal to the amount of the refund that should have been made by the 

school under applicable Federal law and regulations, including this 

section, if--

    (i) The borrower (or the student on whose behalf a parent borrowed) 

is not attending the school that owes the refund; and

    (ii) The guarantor receives documentation regarding the refund and 

the borrower and guarantor have been unable to resolve the unpaid refund 

within 120 days from the date the guarantor receivesa complete 

application in accordance with paragraph (l)(4) of this section. Any 

accrued interest and other charges (late charges, collection costs, 

origination fees, and insurance premiums) associated with the amount of 

the unpaid refund amount are also discharged.

    (3) Relief to borrower (and any endorser) following discharge. (i) 

If a borrower receives a discharge of a portion of a loan under this 

section, the borrower is reimbursed for any amounts paid in excess of 

the remaining balance of the loan (including accrued interest, late 

charges, collection costs, origination fees, and insurance premiums) 

owed by the borrower at the time of discharge.

    (ii) The holder of the loan reports the discharge of a portion of a 

loan under this section to all credit reporting agencies to which the 

holder of the loan previously reported the status of the loan.

    (4) Borrower qualification for discharge. To receive a discharge of 

a portion of a loan under this section, a borrower must submit a written 

application to the holder or guaranty agency except as provided in 

paragraph (l)(5)(iv) of this section. The application requests the 

information required to calculate the amount of the discharge and 

requires the borrower to sign a statement swearing to the accuracy of 

the information in the application. The statement need not be notarized 

but must be made by the borrower under penalty of perjury. In the 

statement, the borrower must--

    (i) State that the borrower (or the student on whose behalf a parent 

borrowed)--



[[Page 721]]



    (A) Received the proceeds of a loan, in whole or in part, on or 

after January 1, 1986 to attend a school;

    (B) Did not attend, withdrew, or was terminated from the school 

within a timeframe that entitled the borrower to a refund; and

    (C) Did not receive the benefit of a refund to which the borrower 

was entitled either from the school or from a third party, such as a 

holder of a performance bond or a tuition recovery program.

    (ii) State whether the borrower has any other application for 

discharge pending for this loan; and

    (iii) State that the borrower--

    (A) Agrees to provide upon request by the Secretary or the 

Secretary's designee other documentation reasonably available to the 

borrower that demonstrates that the borrower meets the qualifications 

for an unpaid refund discharge under this section; and

    (B) Agrees to cooperate with the Secretary or the Secretary's 

designee in enforcement actions in accordance with paragraph (e) of this 

section and to transfer any right to recovery against a third party to 

the Secretary in accordance with paragraph (d) of this section.

    (5) Unpaid refund discharge procedures. (i) Except for the 

requirements of paragraph (l)(5)(iv) of this section related to an open 

school, if the holder or guaranty agency learns that a school did not 

pay a refund of loan proceeds owed under applicable law and regulations, 

the holder or the guaranty agency sends the borrower a discharge 

application and an explanation of the qualifications and procedures for 

obtaining a discharge. The holder of the loan also promptly suspends any 

efforts to collect from the borrower on any affected loan.

    (ii) If the borrower returns the application, specified in paragraph 

(l)(4) of this section, the holder or the guaranty agency must review 

the application to determine whether the application appears to be 

complete. In the case of a loan held by a lender, once the lender 

determines that the application appears complete, it must provide the 

application and all pertinent information to the guaranty agency 

including, if available, the borrower's last date of attendance. If the 

borrower returns the application within 60 days, the lender must extend 

the period during which efforts to collect on the affected loan are 

suspended to the date the lender receives either a denial of the request 

or the unpaid refund amount from the guaranty agency. At the conclusion 

of the period during which the collection activity was suspended, the 

lender may capitalize any interest accrued and not paid during that 

period in accordance with Sec. 682.202(b).

    (iii) If the borrower fails to return the application within 60 

days, the holder of the loan resumes collection efforts and grants 

forbearance of principal and interest for the period during which the 

collection activity was suspended. The holder may capitalize any 

interest accrued and not paid during that period in accordance with 

Sec. 682.202(b).

    (iv) The guaranty agency may, with the approval of the Secretary, 

discharge a portion of a loan under this section without an application 

if the guaranty agency determines, based on information in the guaranty 

agency's possession, that the borrower qualifies for a discharge.

    (v) If the holder of the loan or the guaranty agency determines that 

the information contained in its files conflicts with the information 

provided by the borrower, the guaranty agency must use the most reliable 

information available to it to determine eligibility for and the 

appropriate payment of the refund amount.

    (vi) If the holder of the loan is the guaranty agency and the agency 

determines that the borrower qualifies for a discharge of an unpaid 

refund, the guaranty agency must suspend any efforts to collect on the 

affected loan and, within 30 days of its determination, discharge the 

appropriate amount and inform the borrower of its determination. Absent 

documentation of the exact amount of refund due the borrower, the 

guaranty agency must calculate the amount of the unpaid refund using the 

unpaid refund calculation defined in paragraph (o) of this section.

    (vii) If the guaranty agency determines that a borrower does not 

qualify for an unpaid refund discharge, (or, if the holder is the lender 

and is informed



[[Page 722]]



by the guarantor that the borrower does not qualify for a discharge)--

    (A) Within 30 days of the guarantor's determination, the agency must 

notify the borrower in writing of the reason for the determination and 

of the borrower's right to request a review of the agency's 

determination. The guaranty agency must make a determination within 30 

days of the borrower's submission of additional documentation supporting 

the borrower's eligibility that was not considered in any prior 

determination. During the review period, collection activities must be 

suspended; and

    (B) The holder must resume collection if the determination remains 

unchanged and grant forbearance of principal and interest for any period 

during which collection activity was suspended under this section. The 

holder may capitalize any interest accrued and not paid during these 

periods in accordance with Sec. 682.202(b).

    (viii) If the guaranty agency determines that a current or former 

borrower at an open school may be eligible for a discharge under this 

section, the guaranty agency must notify the lender and the school of 

the unpaid refund allegation. The notice to the school must include all 

pertinent facts available to the guaranty agency regarding the alleged 

unpaid refund. The school must, no later than 60 days after receiving 

the notice, provide the guaranty agency with documentation 

demonstrating, to the satisfaction of the guarantor, that the alleged 

unpaid refund was either paid or not required to be paid.

    (ix) In the case of a school that does not make a refund or provide 

sufficient documentation demonstrating the refund was either paid or was 

not required, within 60 days of its receipt of the allegation notice 

from the guaranty agency, relief is provided to the borrower (and any 

endorser) if the guaranty agency determines the relief is appropriate. 

The agency must forward documentation of the school's failure to pay the 

unpaid refund to the Secretary.

    (m) Unpaid refund discharge procedures for a loan held by a lender. 

In the case of an unpaid refund discharge request, the lender must 

provide the guaranty agency with documentation related to the borrower's 

qualification for discharge as specified in paragraph (l)(4) of this 

section.

    (n) Payment of an unpaid refund discharge request by a guaranty 

agency. (1) General. The guaranty agency must review an unpaid refund 

discharge request promptly and must pay the lender the amount of loss as 

defined in paragraphs (l)(1) and (l)(2) of this section, related to the 

unpaid refund not later than 45 days after a properly filed request is 

made.

    (2) Determination of the unpaid refund discharge amount to the 

lender. The amount of loss payable to a lender on an unpaid refund 

includes that portion of an FFEL Program loan equal to the amount of the 

refund required under applicable Federal law and regulations, including 

this section, and including any accrued interest and other charges (late 

charges, collection costs, origination fees, and insurance premiums) 

associated with the unpaid refund.

    (o)(1) Determination of amount eligible for discharge. The guaranty 

agency determines the amount eligible for discharge based on information 

showing the refund amount or by applying the appropriate refund formula 

to information that the borrower provides or that is otherwise available 

to the guaranty agency. For purposes of this section, all unpaid refunds 

are considered to be attributed to loan proceeds.

    (2) If the information in paragraph (o)(1) of this section is not 

available, the guaranty agency uses the following formulas to determine 

the amount eligible for discharge:

    (i) In the case of a student who fails to attend or whose withdrawal 

or termination date is before October 7, 2000 and who completes less 

than 60 percent of the loan period, the guaranty agency discharges the 

lesser of the institutional charges unearned or the loan amount. The 

guaranty agency determines the amount of the institutional charges 

unearned by--

    (A) Calculating the ratio of the amount of time in the loan period 

after the student's last day of attendance to the actual length of the 

loan period; and



[[Page 723]]



    (B) Multiplying the resulting factor by the institutional charges 

assessed the student for the loan period.

    (ii) In the case of a student who fails to attend or whose 

withdrawal or termination date is on or after October 7, 2000 and who 

completes less than 60 percent of the loan period, the guaranty agency 

discharges the loan amount unearned. The guaranty agency determines the 

loan amount unearned by--

    (A) Calculating the ratio of the amount of time remaining in the 

loan period after the student's last day of attendance to the actual 

length of the loan period; and

    (B) Multiplying the resulting factor by the total amount of title IV 

grants and loans received by the student, or if unknown, the loan 

amount.

    (iii) In the case of a student who completes 60 percent or more of 

the loan period, the guaranty agency does not discharge any amount 

because a student who completes 60 percent or more of the loan period is 

not entitled to a refund.

    (p) Requests for reimbursement from the Secretary on loans held by 

guaranty agencies. The Secretary reimburses the guaranty agency for its 

losses on unpaid refund request payments to lenders or borrowers in an 

amount that is equal to the amount specified in paragraph (n)(2) of this 

section.

    (q) Payments received after the guaranty agency's payment of an 

unpaid refund request. (1) The holder must promptly return to the sender 

any payment on a fully discharged loan, received after the guaranty 

agency pays an unpaid refund request unless the sender is required to 

pay (as in the case of a tuition recovery fund) in which case, the 

payment amount must be forwarded to the Secretary. At the same time that 

the holder returns the payment, it must notify the borrower that there 

is no obligation to repay a loan fully discharged.

    (2) If the holder has returned a payment to the borrower, or the 

borrower's representative, with the notice described in paragraph (q)(1) 

of this section, and the borrower (or representative) continues to send 

payments to the holder, the holder must remit all of those payments to 

the Secretary.

    (3) If the loan has not been fully discharged, payments must be 

applied to the remaining debt.

    (r) Payments received after the Secretary's payment of a death, 

disability, closed school, false certification, or bankruptcy claim (1) 

If the guaranty agency receives any payments from or on behalf of the 

borrower on or attributable to a loan that has been discharged in 

bankruptcy on which the Secretary previously paid a bankruptcy claim, 

the guaranty agency must return 100 percent of these payments to the 

sender. The guaranty agency must promptly return, to the sender, any 

payment on a cancelled or discharged loan made by the sender and 

received after the Secretary pays a closed school or false certification 

claim. At the same time that the agency returns the payment, it must 

notify the borrower that there is no obligation to repay a loan 

discharged on the basis of death, bankruptcy, false certification, or 

closing of the school.

    (2) If the guaranty agency receives any payments from or on behalf 

of the borrower on or attributable to a loan that has been assigned to 

the Secretary for determination of eligibility for a total and permanent 

disability discharge, the guaranty agency must forward those payments to 

the Secretary for crediting to the borrower's account. At the same time 

that the agency forwards the payments, it must notify the borrower that 

there is no obligation to make payments on the loan while it is 

conditionally discharged prior to a final determination of eligibility 

for a total and permanent disability discharge, unless the Secretary 

directs the borrower otherwise.

    (3) When the Secretary makes a final determination to discharge the 

loan, the Secretary returns to the sender any payments received on the 

loan after the date the borrower became totally and permanently 

disabled.

    (4) The guaranty agency shall remit to the Secretary all payments 

received from a tuition recovery fund, performance bond, or other third 

party with respect to a loan on which the Secretary previously paid a 

closed school or false certification claim.



[[Page 724]]



    (5) If the guaranty agency has returned a payment to the borrower, 

or the borrower's representative, with the notice described in 

paragraphs (r)(1) or (r)(2) of this section, and the borrower (or 

representative) continues to send payments to the guaranty agency, the 

agency must remit all of those payments to the Secretary.

    (s) Applicable suspension of the repayment period. For purposes of 

this section and 11 U.S.C. 523(a)(8)(A) with respect to loans guaranteed 

under the FFEL Program, an applicable suspension of the repayment 

period--

    (1) Includes any period during which the lender does not require the 

borrower to make a payment on the loan.

    (2) Begins on the date on which the borrower qualifies for the 

requested deferment as provided in Sec. 682.210(a)(5) or the lender 

grants the requested forbearance;

    (3) Closes on the later of the date on which--

    (i) The condition for which the requested deferment or forbearance 

was received ends; or

    (ii) The lender receives notice of the end of the condition for 

which the requested deferment or forbearance was received, if the 

condition ended earlier than represented by the borrower at the time of 

the request and the borrower did not notify timely the lender of the 

date on which the condition actually ended;

    (4) Includes the period between the end of the borrower's grace 

period and the first payment due date established by the lender in the 

case of a borrower who entered repayment without the knowledge of the 

lender;

    (5) Includes the period between the filing of the petition for 

relief and the date on which the proceeding is completed or dismissed, 

unless payments have been made during that period in amounts sufficient 

to meet the amount owed under the repayment schedule in effect when the 

petition was filed.



(Approved by the Office of Management and Budget under control number 

1845-0020)



(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082, 1087)



[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59 

FR 22477, Apr. 29, 1994; 59 FR 29543, June 8, 1994; 59 FR 61216, Nov. 

29, 1994; 59 FR 61428, Nov. 30, 1994; 60 FR 61757, Dec. 1, 1995; 62 FR 

63434, Nov. 28, 1997; 64 FR 18979, Apr. 16, 1999; 64 FR 56828, Oct. 29, 

1999; 64 FR 58960, Nov. 1, 1999; 65 FR 65620, 65691, Nov. 1, 2000; 66 FR 

34763, June 29, 2001; 67 FR 67079, Nov. 1, 2002; 68 FR 75429, Dec. 31, 

2003]