[Code of Federal Regulations]
[Title 34, Volume 3]
[Revised as of July 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 34CFR674.46]

[Page 599-600]
 
                           TITLE 34--EDUCATION
 
 CHAPTER VI--OFFICE OF POSTSECONDARY EDUCATION, DEPARTMENT OF EDUCATION
 
PART 674_FEDERAL PERKINS LOAN PROGRAM--Table of Contents
 
                         Subpart C_Due Diligence
 
Sec. 674.46  Litigation procedures.

    (a)(1) If the collection efforts described in Sec. 674.45 do not 
result in the repayment of a loan, the institution shall determine at 
least once every two years whether--
    (i) The total amount owing on the borrower's account, including 
outstanding principal, accrued interest, collection costs and late 
charges on all of the borrower's Federal Perkins, NDSL and National 
Defense Student Loans held by that institution, is more than $500;
    (ii) The borrower can be located and served with process;
    (iii)(A) The borrower has sufficient assets attachable under State 
law to satisfy a major portion of the oustanding debt; or
    (B) The borrower has income from wages or salary which may be 
garnished under applicable State law sufficient to satisfy a major 
portion of the debt over a reasonable period of time;

[[Page 600]]

    (iv) The borrower does not have a defense that will bar judgment for 
the institution; and
    (v) The expected cost of litigation, including attorney's fees, does 
not exceed the amount which can be recovered from the borrower.
    (2) The institution shall sue the borrower if it determines that the 
conditions in paragraph (a)(1) of this section are met.
    (3) The institution may sue a borrower in default, even if the 
conditions in paragraph (a)(1) of this section are not met.
    (b) The institution shall assess against and attempt to recover from 
the borrower--
    (1) All litigation costs, including attorney's fees, court costs and 
other related costs, to the extent permitted under applicable law; and
    (2) All prior collection costs incurred and not yet paid by the 
borrower.
    (c)(1) An institution shall ensure that any funds collected as a 
result of litigation procedures are--
    (i) Deposited in interest-bearing bank accounts that are--
    (A) Insured by an agency of the Federal Government; or
    (B) Secured by collateral of reasonably equivalent value; or
    (ii) Invested in low-risk income-producing securities, such as 
obligations issued or guaranteed by the United States.
    (2) An institution shall exercise the level of care required of a 
fiduciary with regard to these deposits and investments.
    (d) If the institution is unable to collect the full amount owing on 
the loan after following the procedures set forth in Sec. Sec. 674.41 
through 674.46, the institution may--
    (1) Submit the account to the Secretary for assignment in accordance 
with the procedures in Sec. 674.50; or
    (2) With the Secretary's approval, refer the account to the 
Department for collection.

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

[52 FR 45555, Nov. 30, 1987, as amended at 59 FR 61412, 61415, Nov. 30, 
1994; 67 FR 67077, Nov. 1, 2002]