[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: 34CFR685.211]



[Page 837-838]

 

                           TITLE 34--EDUCATION

 

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

 

PART 685_WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM--Table of Contents

 

                      Subpart B_Borrower Provisions

 

Sec. 685.211  Miscellaneous repayment provisions.



    (a) Payment application and prepayment. (1) The Secretary applies 

any payment first to any accrued charges and collection costs, then to 

any outstanding interest, and then to outstanding principal.

    (2) A borrower may prepay all or part of a loan at any time without 

penalty. If a borrower pays any amount in excess of the amount due, the 

excess amount is a prepayment.

    (3) If a prepayment equals or exceeds the monthly repayment amount 

under the borrower's repayment plan, the Secretary--

    (i) Applies the prepaid amount according to paragraph (a)(1) of this 

section;

    (ii) Advances the due date of the next payment unless the borrower 

requests otherwise; and

    (iii) Notifies the borrower of any revised due date for the next 

payment.

    (4) If a prepayment is less than the monthly repayment amount, the 

Secretary applies the prepayment according to paragraph (a)(1) of this 

section.

    (b) Repayment incentives. To encourage on-time repayment, the 

Secretary may reduce the interest rate for a borrower who repays a loan 

under a system or on a schedule that meets requirements specified by the 

Secretary.

    (c) Refunds and returns of title IV, HEA program funds from schools. 

The Secretary applies any refund or return



[[Page 838]]



of title IV, HEA program funds that the Secretary receives from a school 

under Sec. 668.22 against the borrower's outstanding principal and 

notifies the borrower of the refund or return.

    (d) Default. (1) Acceleration. If a borrower defaults on a Direct 

Loan, the entire unpaid balance and accrued interest are immediately due 

and payable.

    (2) Collection charges. If a borrower defaults on a Direct Loan, the 

Secretary assesses collection charges in accordance with Sec. 

685.202(e).

    (3) Collection of a defaulted loan. (i) The Secretary may take any 

action authorized by law to collect a defaulted Direct Loan including, 

but not limited to, filing a lawsuit against the borrower, reporting the 

default to national credit bureaus, requesting the Internal Revenue 

Service to offset the borrower's Federal income tax refund, and 

garnishing the borrower's wages.

    (ii) If a borrower defaults on a Direct Subsidized Loan, a Direct 

Unsubsidized Loan, a Direct Unsubsidized Consolidation Loan or a Direct 

Subsidized Consolidation Loan, the Secretary may designate the income 

contingent repayment plan for the borrower.

    (e) Ineligible borrowers. (1) The Secretary determines that a 

borrower is ineligible if, at the time the loan was made and without the 

school's or the Secretary's knowledge, the borrower (or the student on 

whose behalf a parent borrowed) provided false or erroneous information 

or took actions that caused the borrower or student--

    (i) To receive a loan for which the borrower is wholly or partially 

ineligible;

    (ii) To receive interest benefits for which the borrower was 

ineligible; or

    (iii) To receive loan proceeds for a period of enrollment for which 

the borrower was not eligible.

    (2) If the Secretary makes the determination described in paragraph 

(e)(1) of this section, the Secretary sends an ineligible borrower a 

demand letter that requires the borrower to repay some or all of a loan, 

as appropriate. The demand letter requires that within 30 days from the 

date the letter is mailed, the borrower repay any principal amount for 

which the borrower is ineligible and any accrued interest, including 

interest subsidized by the Secretary, through the previous quarter.

    (3) If a borrower fails to comply with the demand letter described 

in paragraph (e)(2) of this section, the borrower is in default on the 

entire loan.

    (4) A borrower may not consolidate a loan under Sec. 685.220 for 

which the borrower is wholly or partially ineligible.

    (f) Rehabilitation of defaulted loans. (1) A defaulted Direct Loan, 

except for a loan on which a judgment has been obtained, is 

rehabilitated if the borrower makes 12 consecutive, on-time, reasonable, 

and affordable monthly payments. The amount of such a payment is 

determined on the basis of the borrower's total financial circumstances. 

If a defaulted loan is rehabilitated, the Secretary instructs any credit 

bureau to which the default was reported to remove the default from the 

borrower's credit history.

    (2) A defaulted Direct Loan on which a judgment has been obtained 

may not be rehabilitated.



(Authority: 20 U.S.C. 1087a et seq.)



[59 FR 61690, Dec. 1, 1994, as amended at 64 FR 57961, Oct. 27, 1999; 64 

FR 59043, Nov. 1, 1999; 65 FR 65629, Nov. 1, 2000; 66 FR 34765, June 29, 

2001; 67 FR 67081, Nov. 1, 2002]