[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: 34CFR682.409]



[Page 732-735]

 

                           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. 682.409  Mandatory assignment by guaranty agencies of defaulted 

loans to the Secretary.



    (a)(1) If the Secretary determines that action is necessary to 

protect the Federal fiscal interest, the Secretary directs a guaranty 

agency to promptly assign to the Secretary any loans held by the agency 

on which the agency has received payment under Sec. 682.402(f), 

682.402(k), or 682.404. The collection of unpaid loans owed by Federal 

employees by Federal salary offset is, among other things, deemed to be 

in the Federal fiscal interest. Unless the Secretary notifies an agency, 

in writing, that other loans must be assigned to the Secretary, an 

agency must assign any loan that meets all of the following criteria as 

of April 15 of each year:

    (i) The unpaid principal balance is at least $100.

    (ii) For each of the two fiscal years following the fiscal year in 

which these regulations are effective, the loan, and any other loans 

held by the agency for that borrower, have been held by the agency for 

at least four years; for any subsequent fiscal year such loan must have 

been held by the agency for at least five years.

    (iii) A payment has not been received on the loan in the last year.

    (iv) A judgment has not been entered on the loan against the 

borrower.

    (2) If the agency fails to meet a fiscal year recovery rate standard 

under paragraph (a)(2)(ii) of this section for a loan type, and the 

Secretary determines that additional assignments are necessary to 

protect the Federal fiscal interest, the Secretary may require the 

agency to assign in addition to those loans described in paragraph 

(a)(1) of this section, loans in amounts needed to satisfy the 

requirements of paragraph (a)(2)(iii) or (a)(3)(i) of this section.



[[Page 733]]



    (i) Calculation of fiscal year loan type recovery rate. A fiscal 

year loan type recovery rate for an agency is determined by dividing the 

amount collected on defaulted loans, including collections by Federal 

Income Tax Refund Offset, for each loan program (i.e., the Stafford, 

PLUS, SLS, and Consolidation loan programs) by the agency for loans of 

that program (including payments received by the agency on loans under 

Sec. 682.401(b)(4) and Sec. 682.409 and the amounts of any loans 

purchased from the guaranty agency by an eligible lender) during the 

most recent fiscal year for which data are available by the total of 

principal and interest owed to an agency on defaulted loans for each 

loan program at the beginning of the same fiscal year, less accounts 

permanently assigned to the Secretary through the most recent fiscal 

year.

    (ii) Fiscal year loan type recovery rates standards. (A) If, in each 

of the two fiscal years following the fiscal year in which these 

regulations are effective, the fiscal year loan type recovery rate for a 

loan program for an agency is below 80 percent of the average recovery 

rate of all active guaranty agencies in each of the same two fiscal 

years for that program type, and the Secretary determines that 

additional assignments are necessary to protect the Federal fiscal 

interest, the Secretary may require the agency to make additional 

assignments in accordance with paragraph (a)(2)(iii) of this section.

    (B) In any subsequent fiscal year the loan type recovery rate 

standard for a loan program must be 90 percent of the average recovery 

rate of all active guaranty agencies.

    (iii) Non-achievement of loan type recovery rate standards.

    (A) Unless the Secretary determines under paragraph (a)(2)(iv) of 

this section that protection of the Federal fiscal interest requires 

that a lesser amount be assigned, upon notice from the Secretary, an 

agency with a fiscal year loan type recovery rate described in paragraph 

(a)(2)(ii) of this section must promptly assign to the Secretary a 

sufficient amount of defaulted loans, in addition to loans to be 

assigned in accordance with paragraph (a)(1) of this section, to cause 

the fiscal year loan type recovery rate of the agency that fiscal year 

to equal or exceed the average rate of all agencies described in 

paragraph (a)(2)(ii) of this section when recalculated to exclude from 

the denominator of the agency's fiscal year loan type recovery rate the 

amount of these additional loans.

    (B) The Secretary, in consultation with the guaranty agency, may 

require the amount of loans to be assigned under paragraph (a)(2) of 

this section to include particular categories of loans that share 

characteristics that make the performance of the agency fall below the 

appropriate percentage of the loan type recovery rate as described in 

paragraph (a)(2)(ii) of this section.

    (iv) Calculation of loan type recovery rate standards. The 

Secretary, within 30 days after the date for submission of the second 

quarterly report from all agencies, makes available to all agencies a 

mid-year report, showing the recovery rate for each agency and the 

average recovery rate of all active guaranty agencies for each loan 

type. In addition, the Secretary, within 120 days after the beginning of 

each fiscal year, makes available a final report showing those rates and 

the average rate for each loan type for the preceding fiscal year.

    (3)(i) Determination that the protection of the Federal fiscal 

interest requires assignments. Upon petition by an agency submitted 

within 45 days of the notice required by paragraph (a)(2)(iii)(A) of 

this section, the Secretary may determine that protection of the Federal 

fiscal interest does not require assignment of all loans described in 

paragraph (a)(1) of this section or of loans in the full amount 

described in paragraph (a)(2)(iii) of this section only after review of 

the agency's petition. In making this determination, the Secretary 

considers all relevant information available to him (including any 

information and documentation obtained by the Secretary in reviews of 

the agency or submitted to the Secretary by the agency) as follows:

    (A) For each of the two fiscal years following the fiscal year in 

which these regulations are effective, the Secretary considers 

information presented by an agency with a fiscal year loan type recovery 

rate above the average rate of



[[Page 734]]



all active agencies to demonstrate that the protection of the Federal 

fiscal interest will be served if any amounts of loans of the loan type 

required to be assigned to the Secretary under paragraph (a)(1) of this 

section are retained by that agency. For any subsequent fiscal year, the 

Secretary considers information presented by an agency with a fiscal 

year recovery rate 10 percent above the average rate of all active 

agencies.

    (B) The Secretary considers information presented by an agency that 

is required to assign loans under paragraph (a)(2) of this section to 

demonstrate that the protection of the Federal fiscal interest will be 

served if the agency demonstrates that its compliance with Sec. 

682.401(b)(4) and Sec. 682.405 has reduced substantially its fiscal 

year loan type recovery rate or rates or if the agency is not required 

to assign amounts of loans that would otherwise have to be assigned.

    (C) The information provided by an agency pursuant to paragraphs 

(a)(3)(i)(A) and (B) of this section may include, but is not limited to 

the following:

    (1) The fiscal year loan type recovery rate within such school 

sectors as the Secretary may designate for the agency, and for all 

agencies.

    (2) The fiscal year loan type recovery rate for loans for the agency 

and for all agencies categorized by age of the loans as the Secretary 

may determine.

    (3) The performance of the agency, and all agencies, in default 

aversion.

    (4) The agency's performance on judgment enforcement.

    (5) The existence and use of any state or guaranty agency-specific 

collection tools.

    (6) The agency's level of compliance with Sec. Sec. 682.409 and 

682.410(b)(6).

    (7) Other factors that may affect loan repayment such as State or 

regional unemployment and natural disasters.

    (ii) Denial of an agency's petition. If the Secretary does not 

accept the agency's petition, the Secretary provides, in writing, to the 

agency the Secretary's reasons for concluding that the Federal fiscal 

interest is best protected by requiring the assignment.

    (b)(1) A guaranty agency that assigns a defaulted loan to the 

Secretary under this section thereby releases all rights and title to 

that loan. The Secretary does not pay the guaranty agency any 

compensation for a loan assigned under this section.

    (2) The guaranty agency does not share in any amounts received by 

the Secretary on a loan assigned under this section, regardless of the 

reinsurance percentage paid on the loan or the agency's previous 

collection costs.

    (c)(1) A guaranty agency must assign a loan to the Secretary under 

this section at the time, in the manner, and with the information and 

documentation that the Secretary requires. The agency must submit this 

information and documentation in the form (including magnetic media) and 

format specified by the Secretary.

    (2) The guaranty agency must execute an assignment to the United 

States of America of all right, title, and interest in the promissory 

note or judgment evidencing a loan assigned under this section. If more 

than one loan is made under an MPN, the assignment of the note only 

applies to the loan or loans being assigned to the Secretary.

    (3) If the agency does not provide the required information and 

documentation in the form and format required by the Secretary, the 

Secretary may, at his option--

    (i) Allow the agency to revise the agency's submission to include 

the required information and documentation in the specified form and 

format;

    (ii) In the case of an improperly formatted computer tape, reformat 

the tape and assess the cost of the activity against the agency;

    (iii) Reorganize the material submitted and assess the cost of that 

activity against the agency; or

    (iv) Obtain from other agency records and add to the agency's 

submission any information from the original submission, and assess the 

cost of that activity against the agency.

    (4) For each loan assigned, the agency shall submit to the Secretary 

the following documents associated for each loan, assembled in the order 

listed below:

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



[[Page 735]]



    (ii) Any documentation of a judgment entered on the loan.

    (iii) A written assignment of the loan or judgment, unless this 

assignment is affixed to the promissory note.

    (iv) The loan application, if a separate application was provided to 

the lender.

    (v) A payment history for the loan, as described in Sec. 

682.414(a)(1)(ii)(C).

    (vi) A collection history for the loan, as described in Sec. 

682.414(a)(1)(ii)(D).

    (5) The agency may submit copies of required documents in lieu of 

originals.

    (6) The Secretary may accept the assignment of a loan without all of 

the documents listed in paragraph (c)(4) of this section. If directed to 

do so, the agency must retain these documents for submission to the 

Secretary at some future date.

    (d)(1) If the Secretary determines that the agency has not submitted 

a document or record required by paragraph (c) of this section, and the 

Secretary decides to allow the agency an additional opportunity to 

submit the omitted document under paragraph (c)(3)(i) of this section, 

the Secretary notifies the agency and provides a reasonable period of 

time for the agency to submit the omitted record or document.

    (2) If the omitted document is not submitted within the time 

specified by the Secretary, the Secretary determines whether that 

omission impairs the Secretary's ability to collect the loan.

    (3) If the Secretary determines that the ability to collect the loan 

has been impaired under paragraph (d)(2) of this section, the Secretary 

assesses the agency the amount paid to the agency under the reinsurance 

agreement and accrued interest at the rate applicable to the borrower 

under Sec. 682.410(b)(3).

    (4) The Secretary reassigns to the agency that portion of the loan 

determined to be unenforceable by the Department.



(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)



[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59 

FR 33356, June 28, 1994; 60 FR 30788, June 12, 1995; 64 FR 18980, Apr. 

16, 1999; 64 FR 58630, Oct. 29, 1999; 64 FR 58963, Nov. 1, 1999]